Section 8 Company Registration
Section 8 companies have a number of relaxations in terms of compliance and benefits under Income Tax law. Get your NGO registered with filecrat in 14 days.
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Section 8 Company Registration
Non-profit seeking companies or section 8 companies are created for the promotion of charitable objects of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment, etc. These companies intend to apply their profit in promoting its objects and intend to prohibit the payment of any dividend to its members.
The Central Government has delegated the power to grant license of a ngo section 8 company to the ROC. Such companies do not have “Limited” or “Private Limited” to their name. A section 8 company enjoys a number of privileges not available to a profit seeking company. For e.g. such section 8 ngo companies have a number of relaxations in terms of compliance and benefits under Income Tax law.
Advantages & Benefits
In order to create a Non-Government Organisation (NGO), an entity can register itself as a trust, a society or a section 8 company. It is highly beneficial to register the entity as a company as it will be governed by the Companies Act, 2013. In case the entity is registered as a trust or a society, several State acts will become applicable to them. Further, section 8 company can be formed by only 2 members whereas trust or society require more members.
The various advantages of section 8 company over any other company is as under:
- Most reliable form of a charitable organization since it is regulated by Companies Act.
- No such Criteria for requirement of Minimum Share Capital
- No requirement to have minimum number of directors
- Ownership is easily Transferable
- Under the Income Tax Act, section 8 company enjoys more tax benefits
- No requirement to pay stamp duty in some states
- Objectives are clear for easy donations and loans requirement
- Several exemptions and privileges under CompaniesAct 2013
- Relaxation in many compliances
- Exemptions in GST
- A registered partnership firm can become a member in a section 8 company
- Can call general meeting by giving 14 days’ notice instead of 21 days
- No need to constitute Nomination and Remuneration Committee and Shareholders Relationship Committee
Limitations in a section 8 company
- Profit is used only for the object of the company
- Declaration of dividend is not allowed
- A director who is also a member cannot be paid remuneration, only out of pocket expenses can be paid.
Revocation of license
The Central Government may revoke the license of a section 8 company where any condition/ requirement is contravened or where the affairs of the company are carried out fraudulently or in violation to the objects of the company. After revocation of the license of the company, the company has to use the words “Limited” or “Private Limited” after its name.
STEP 1: Filing of application for name approval and form for incorporation. The application shall be verified by the registrar and reserve the name. The application for PAN/ TAN, Registration for ESIC etc. can also be done in the same form.
STEP 2: The Memorandum of Association and Articles of Association are drafted keeping in mind the not-for-profit objective.
STEP 3: The Application for License of section 8 company is filed along with the requisite documents such as declaration from the subscribers and directors.
STEP 4: Receive Certificate for incorporation from ROC
- Drafting of Memorandum of Association and Articles of Association
- DIN and DSC of 2 directors
- Filing of Application of Reservation of Name
- Filing of Application for Incorporation of Company and grant of Section 8 license
- PAN Registration
- TAN Registration
- Issue of Certificate of Incorporation
- Issue of Section 8 Company License
- Details of all directors and all promoters
- 3-year Projected income and expenditure of the company, along with sources of income
- Proof of registered office address
- If rented premises: Rent agreement, rent receipts
- If owned by the company: Conveyance Deed, Property tax receipt
- If not owned by the company: NOC from the landlord
- Utility bills (should not be older than 2 months)
- Copy of PAN card of directors
- Passport of directors (mandatory if foreign national)
- Any other documents/ information as may be required
Every company registered under Indian Companies Act falls under purview of audit provisions. So, Section 8 Company shall also be audited.
A section 8 company can pay remuneration to an employee or a director, not being a member of the company. In case the director is also a member, he can only claim out of pocket expenditure, reasonable interest on loan given by him, or reasonable rent on premises let out by him. He shall not receive any remuneration.
A section 8 company is governed by Companies Act 2013 which is applicable to the whole of India. Trusts and Societies will be governed by a number of State Legislatures. Further, it is easier for a company to do all compliances as everything can be filed online through the MCA portal. Lastly, all activities of the company are more transparent as compared to a trust or a society.
An application shall be filed with the Commissioner of Income-tax along with the required documents as prescribed. The CIT on being satisfied with the application shall grant exemption to the company. It is important for availing exemption, shall comply with Section 11, section 12 and Section 13 so as to avoid revocation of this exemption.
Section 80G provides exemption to the donors under Income Tax Act. Under this section, the donor is eligible to claim deduction of 50% of the amount donated in a financial year. The company shall file an application with the Commissioner of Income-tax to be eligible for 80G qualified donations.
Section 8 company is not required to have minimum share capital requirement.
There is no such requirement of minimum number of directors on its board.
The Central Government may revoke the license of a section 8 company where any condition/ requirement is contravened or where the affairs of the company are carried out fraudulently or in violation to the objects of the company. Where the license of the company is revoked, the company has to use the words “Limited” or “Private Limited” after its name.
Section 8 Company cannot be converted into OPC
Stamp duty is charged on MOA or increase in share capital of a company. It is governed under Indian Stamps Act, 1899. The rates of stamp duty vary from state to state. A number of states charge NIL stamp duty in case of section 8 companies, while stamp duty is payable in some other states.