Section 8 Company under the Companies Act, 2013 refers to a corporation that aims to incentivize arts, sciences, sports, education, environment preservation, social welfare, charity, or other similar objectives. A Section 8 Company is the same as a Section 25 Company under the old Companies Act, 1956. As per the new Companies Act of 2013, Section 25 has now become Section 8.
The primary purpose of registering a company as a Section 8 Company is to promote non-profit objectives such as trade, commerce, arts, charity, education, religion, environment protection, social welfare, sports research, etc. Any profits earned by the company are utilized for the furtherance of its main objectives, i.e. charitable purposes, or reinvested in the company. It should be clear in terms that the profits shall not be distributed among any of its members. To register a Section 8 entity, at least two directors are required. Also, there is no compulsion of securing minimum paid-up capital to set up such a company. The company is managed by the Board of Directors as per the MOA and AOA of the company, unlike other trusts that are managed by the Trustees as per the Trust Deed.
Application for name availability in form RUN Application for name availability must be made in the “RUN” facility. The name of Section 8 Company shall include the words Foundation, Forum, Association, Federation, Chambers, Confederation, Council, Electoral Trust, and others like one. One can propose a maximum of 2 names at a time and 1 resubmission is allowed in the RUN facility. It is advisable to attach the object clause of the proposed company. The name once approved is valid for 20 days. Fees for RUN Application is Rs. 1000/-.
The next step is to get class 3 digital signatures of the first subscribers and directors which are required for filing incorporation forms with the ROC. MCA mandates that the Directors sign some of the application documents using their Digital Signature. Hence, a Digital Signature is required for all Directors of a proposed Section 8 Company. Such a signature must be affixed by the person who is authorized to do so. Applicants can directly approach Certifying Authorities (CAs) with original supporting documents, and self-attested copies in order to get their DSC issued.
DSC is the only and safest way that one can submit their documents electronically. The digital signature certificate is very important for company registration and should be acquired by only those agencies which are appointed by the controller of certification agencies (CCA). One should not use DSC given by any other agency which is not approved and it’s illegal to use another's DSC as yours or the false one.
If you already have a digital signature then you can use the same, no need to apply for another one for new company registration. But do check for your digital signature validity, agencies issue DSCs with one or two-year validity after expiry you have to renew it.
MOA is the charter of the company and defines the scope of its activities, whereas an AOA is a document that regulates the internal management of the company. The MOA and AOA must mention the non-profit objective or purpose for which it is established MOA of Section 8 Company must be in form INC-13 while there is no format prescribed for AOA for Section 8 Company. One can adopt table F provisions.
MOA & AOA of the company shall be signed by each subscriber who shall mention his name, address, description, and occupation in the presence of at least one witness who shall attest to the signature and shall likewise sign and add his name, address, description, and occupation.
Once the DSC and name approval are done, one may go ahead with filing form SPICe 32. Both the name and the license shall be valid at the time of filing the SPICe form. This is the final stage of incorporating the section 8 company where the documents relating to the registered office like the rental agreements and utility bills are filed along with the RD-1 license and the name approval certificate.
- Articles of Association & Memorandum of Association
- Declaration by the first director(s) as well as a subscriber(s) (Affidavit not required)
- Office Address Proof
- Copy of utility bills such as electricity bills, water bills, or gas bills
- Copy of certificate of incorporation (COI) of an overseas body corporate (if any)
- A resolution passed by the promoter company
- Consent of Nominee under INC–3
- Resident and identity proof of nominees & subscribers
- Applicant’s identity as well as residential proof
- Declaration of unregistered companies
- There is no minimum capital requirement for a Section 8 company incorporation and the capital structure of Section 8 can be altered at any time as per the growth and requirement of the company.
- A Section 8 company enjoys tax benefits under 12AA and 80G of the Income Tax Act, 1961.
- It provides greater stability and increases the potential to grow big and expand.
- A section 8 company has a separate independent legal entity that is separate from its directors or members.
- They have the freedom to choose the name that suits their liking during the registration process and is not bound to affix the term like "Section 8" after their name.
- A Section 8 Company is more credible in terms of compliances and legal standing.
- It has organized operations and greater flexibility.
A Section 8 company needs to follow the rules and regulations prescribed under the Companies Act, 2013, and needs to maintain books of account, file returns with the Registrar of Companies, and maintain all other necessary compliances. However, being a Non-profit Organization does not mean that the company cannot make a profit or income. It only signifies that the company can earn income but the profits cannot be distributed among the promoters.
Numerous Tax exemptions are also there for such companies u/s 8 of the Companies Act 2013. Even the donors contributing to these companies are eligible to claim the Tax Exemption against these donations.