Section 8 Company Registration and Dematerialization of Shares (ISIN)

The Ministry of Corporate Affairs (MCA) has introduced significant amendments aimed at enhancing transparency and investor protection under the Companies Act, 2013. One of the important key aspects of these amendments pertains to Section 8 companies and the compulsory dematerialization of shares having the Status of Other Than Small company as per Companies Act 2013.?

What is Small Company ?

Definition of "small companies" under the Companies Act, 2013 has been revised by Notification to increase thresholds:

• The paid-up capital threshold has been raised from "not exceeding Rs. 2 crore" to "not exceeding Rs. 4 crore".
• The turnover threshold has been increased from "not exceeding Rs. 20 crore" to "not exceeding Rs. 40 crore"

According to the Companies Act, 2013, the provisions mentioned do not apply to: Means they are not a Small Company in any manners:-

• Holding Company or Subsidiary Company: This exemption covers companies that control other companies (holding companies) or are controlled by another company (subsidiary companies).
• Company Registered under Section 8: This exemption applies to Section 8 companies, which are formed for charitable or not-for-profit purposes. It allows them to focus on their charitable objectives without certain regulatory obligations.
• Company or Body Corporate Governed by Special Act: This exemption covers companies or body corporates governed by specific legislation tailored to their particular activities or sectors.

Let's delve into the key provisions and compliance requirements for Section 8 companies regarding both registration and dematerialization for Shares Limited by Share Company.

Section 8 companies , previously known as Section 25 companies under the Companies Act, 1956, are incorporated for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any such other object. These companies are formed not for profit but for promoting specified objectives, with all income applied towards promoting the objectives.

Registration Process of Section 8 Company online

Learn more on Section 8 Company Registration

1. Object Clause and Memorandum of Association (MOA): INC-13 The MOA (INC-13) of a Section 8 company registration must clearly state its charitable or not-for-profit objectives. The object clause should specify the intended activities aligned with the promotion of the specified objectives.
2. Incorporation Procedure: Spice+ PART-A & B Directors and promoters must obtain Digital Signature Certificates (DSC) and Director Identification Numbers (DIN) directly from the incorporation forms. Apply for name approval through the Spice+ Part-A (Reserve Unique Name) service or directly through SPICe+ Part A & B forms together with company registration. Submit necessary documents including MOA, AOA (INC-34 for existing companies), declarations, and address proofs for incorporation.
3. Regulatory Compliance: Naming Convention: Section 8 companies are exempt from using the suffix "Limited" or "Private Limited" in their names. Annual Filing Requirements: Unlike other companies, Section 8 companies must comply with ROC annual filing requirements such as Annual Returns (Form MGT-7) and Financial Statements (Form AOC-4) with the Registrar of Companies (RoC).
4. Other Compliances: Section 8 companies are also required to comply with Auditor Appointment, Director Identification Number (DIN) Annual KYC , and DPT-3 Compliances as per the Companies Act, 2013.?

Dematerialization of Shares Requirements in 2024 for all Other Thna Small Private Companies in India

The MCA, through amendments to the Companies Act, 2013, has mandated the dematerialization of shares for non-small private limited companies effective from 30th September 2024, requirement has significant implications for Section 8 companies as well having Share Capital.

1.???? Applicability and Timeline:

o?? Initially applicable only to public companies from 2nd October 2018, the dematerialization rule now extends to non-small private companies from 30th September 2024.

o?? Small companies, government companies, and certain subsidiary companies are exempt from this requirement.

2.???? Compliance Requirements for Other Than Small Companies?

o?? Rule 9B of Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023:

§? Requires non-small private companies to issue and transfer securities only in dematerialized form.

§? Existing securities must be dematerialized by obtaining an International Security Identification Number (ISIN) from a depository participant.

3.???? Process of Compliance under CDSL/NSDL/RTA/DP

o?? Obtain ISIN for each type of security held by the company and inform existing security holders about the dematerialization process.

o?? Facilitate shareholders' conversion of physical shares into dematerialized form before the compliance deadline.

o?? Submit Form PAS-6 to RoC/CPC every half-yearly, detailing the reconciliation of share capital between physical and dematerialized form.

4.???? Consequences of Non-compliance:

o?? Section 450 of the Companies Act, 2013, imposes fines on companies and officers for contravention of dematerialization rules.

o?? Companies failing to comply risk restrictions on issuing new securities, buy-backs, and dividends until compliance is achieved.

The MCA amendments regarding dematerialization of shares for all other than small Private companies underline the MCA's commitment to enhancing corporate governance and investor protection. For Section 8 companies, these regulations ensure alignment with modern corporate practices while preserving their core mission of societal benefit. Complying to these guidelines not only ensures regulatory compliance but also strengthens transparency and credibility in the eyes of stakeholders.

By implementing these changes proactively, Section 8 companies can continue to serve their altruistic objectives while meeting stringent regulatory standards set forth by the MCA.

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