Section 8 Company: Formation, Benefits and Other Requirements

Section 8 companies, also known as Non-Profit Organizations (NPOs), are a type of company registered under Section 8 of the Companies Act, 2013. These companies are formed for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any other similar objectives. The primary objective of these companies is not to make profits, but rather to contribute to social welfare.

Section 8 Company is one the form of incorporating a charitable and/or religious purpose organization in India. Persons desirous of creating / incorporating a charitable and/or religious purpose organization has following options:

Creating a Trust registered under the Trust regulations of the State where registered office is situated or registered under the Registration Act, 1908 if no specific Trust regulation is enacted by the State (under the overall framework of the Indian Trusts Act, 1882)
Creating a Society under the Society regulations of the State where registered office is situated (under the overall framework of the Societies Registration Act, 1860)
Creating a Section 8 Company under the Companies Act, 2013 (Act) as a limited liability company – either as a Private Limited or Public Limited Company. Section 8 Company may also be incorporated as a Company limited by guarantee with or without share capital

Section 8 Company is incorporated under following CLASS either as a:

Private Limited Company; or
Public Limited Company; or

Further, the CATEGORY of the Section 8 Company may be

Company limited by shares
Company limited by guarantee - with or without share capital

Benefits-

Tax exemptions: These companies are qualified to access multiple tax benefits since they are more of a charitable institution and have more access to exemptions under the IT Act like tax benefits under section 80G.
Minimum capital requirement: Formation of Section 8 Company does not require huge amount of capital investments, unlike other form of Company, in other words, these entities are not required to maintain a minimum paid-up capital.
Financial flexibility: The company can raise funds through donations and subscriptions from members and public at large leading to greater financial flexibility.
Limited Liability: The liability of the members of a Section 8 company is limited to the amount of their contribution to the company.

Annual Compliances of Section 8 Company-

Once Section 8 Company is incorporated, it has an obligation to comply with the following as a part of its Annual compliance(s):

Conducting minimum two Board meeting(s) in a year.
Maintenance of Books of Accounts
Preparation of Financial statements
Maintenance of audit report
Filing of financial statements in form AOC 4 and annual return in form MGT 7
Income tax filing.

Restrictions on Section 8 Companies-

Distribution of Profits: The profits or income of a Section 8 company can only be used for promoting its objectives, and no dividend shall be paid to the members of the company. The entire profit of the company which is generated must be used towards the furtherance of their cause and meeting the objectives
No Conversion to a Profit-Making Company: A Section 8 company cannot be converted into a profit-making company.
Prohibition on Alteration of Objectives: The objectives of a Section 8 company cannot be altered without the prior approval of the Central Government

MCA vide direction letter no. No. 05/33/20 dated 10-02-2020 has prohibited the inclusion of micro finance activities in the object clause of Section-8 Company unless the Net Owned Fund (NOF) and other requirement as laid down by RBI are complied with. Now, ROCs are immediately directed to prevent such companies from carrying out micro finance activities.

Section 8 companies play a significant role in promoting social welfare and contributing to the development of the country. These companies have several benefits, such as tax exemptions, limited liability, and perpetual succession

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Section 8 Company: Formation, Benefits and Other Requirements

Section 8 Company is one the form of incorporating a charitable and/or religious purpose organization in India. Persons desirous of creating / incorporating a charitable and/or religious purpose organization has following options:

Creating a Trust registered under the Trust regulations of the State where registered office is situated or registered under the Registration Act, 1908 if no specific Trust regulation is enacted by the State (under the overall framework of the Indian Trusts Act, 1882)

Creating a Society under the Society regulations of the State where registered office is situated (under the overall framework of the Societies Registration Act, 1860)

Creating a Section 8 Company under the Companies Act, 2013 (Act) as a limited liability company – either as a Private Limited or Public Limited Company. Section 8 Company may also be incorporated as a Company limited by guarantee with or without share capital

Section 8 Company is incorporated under following CLASS either as a:

Private Limited Company; or

Public Limited Company; or

Further, the CATEGORY of the Section 8 Company may be

Company limited by shares

Company limited by guarantee - with or without share capital

Tax exemptions: These companies are qualified to access multiple tax benefits since they are more of a charitable institution and have more access to exemptions under the IT Act like tax benefits under section 80G.

Minimum capital requirement: Formation of Section 8 Company does not require huge amount of capital investments, unlike other form of Company, in other words, these entities are not required to maintain a minimum paid-up capital.

Financial flexibility: The company can raise funds through donations and subscriptions from members and public at large leading to greater financial flexibility.

Limited Liability: The liability of the members of a Section 8 company is limited to the amount of their contribution to the company.

Once Section 8 Company is incorporated, it has an obligation to comply with the following as a part of its Annual compliance(s):

Conducting minimum two Board meeting(s) in a year.

Maintenance of Books of Accounts

Preparation of Financial statements

Maintenance of audit report

Filing of financial statements in form AOC 4 and annual return in form MGT 7

Income tax filing.

No Conversion to a Profit-Making Company: A Section 8 company cannot be converted into a profit-making company.

Prohibition on Alteration of Objectives: The objectives of a Section 8 company cannot be altered without the prior approval of the Central Government

Section 8 companies play a significant role in promoting social welfare and contributing to the development of the country. These companies have several benefits, such as tax exemptions, limited liability, and perpetual succession

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