Section 8 Company Registration and process in India

Section 8 Companies offer a unique legal structure for organizations aiming to address social and charitable needs. Established as Non-Profit Organizations (NPOs), these companies prioritize social good by reinvesting any profits or income back into their causes. This article explores the details of Section 8 Company registration, making it easier for aspiring organizations to navigate the process.

We'll delve into eligibility criteria, the streamlined incorporation process, and the benefits and exemptions associated with Section 8 Companies. Additionally, we'll cover compliance requirements and other important aspects.

Section 8 Companies are specifically designed to support charitable and social causes, while also providing legal and financial advantages to founders, members, and donors. These advantages make them an ideal choice for organizations dedicated to making a positive impact on society.

What is Section 8 Company ?

Section 8 Companies are a form of non-profit organization (NPO) established in India. They are designed to promote a variety of social causes, including arts, commerce, education, charity, environmental protection, sports, and scientific research. In contrast to for-profit companies and trust/society registrations, Section 8 Companies are prohibited from distributing profits to their members. Instead, all income generated by the organization must be reinvested in achieving their charitable objectives.

To become legal entities, Section 8 Companies need to get an incorporation certificate from the central government. Once established, they must comply with specific government regulations.

Eligibility for Section 8 Company Registration

To qualify for registration as a Section 8 Company, an organization must have objectives that meet the criteria established by the Central Government. These objectives typically involve furthering social welfare, education, cultural endeavors, or charitable causes. Additionally, Section 8 Companies are prohibited from distributing profits to their members.

Registration Process for a Section 8 Company in India

The Companies Act, 2013, governs the registration process for Section 8 Companies. This process involves submitting the following documents to the Registrar of Companies (ROC):

Foundational Documents:

• Memorandum of Association (MoA) and Articles of Association (AoA): Drafted using Form INC-32 and INC-33 respectively, these documents outline the company's objectives, governing rules, and internal regulations. They are submitted electronically with the subscribers' Digital Signature Certificates (DSCs).
• Declaration of Compliance (Form INC-14): A certified declaration by an Advocate, Chartered Accountant, Cost Accountant, or Company Secretary, confirming that the MoA and AoA comply with Section 8 provisions and all necessary requirements are met.

Additional Forms:

• Form INC-15: Declaration by each member, signed individually.
• Form INC-9: Consent form from the first directors and subscribers on relevant state stamp paper.

Financial Projections:

• An estimate of the company's future annual income and expenditure for the next three years.

Declarations:

• Declaration by the First Directors and Subscribers: This affirms the accuracy and completeness of submitted information and documents.
• Resolution by Promoter Company (if applicable): If the Section 8 company is established by another company, a resolution demonstrating their consent and involvement.

Identity and Address Verification:

• Proof of registered office address (e.g., utility bills).
• Residential and identity proofs for nominees, subscribers, and applicants.

Digital Signature Certificate (DSC):

• Essential for online submissions and digitally signing forms during the incorporation process.

Important Notes:

• Documents no longer require stamp paper or notarization. Signed copies suffice.
• Accurate and complete document submission is crucial for a smooth and compliant incorporation.
• This streamlined process eliminates unnecessary steps and reduces costs.

Following these steps ensures a legally compliant establishment for the Section 8 Company, allowing it to operate with a strong foundation.

Streamlined Incorporation Process for Section 8 Companies

Effective June 2019, the Companies (Incorporation) Sixth Amendment Rules implemented significant enhancements to the Section 8 Company incorporation process. These amendments streamlined the procedure by eliminating the requirement to file Form INC-12, which previously served to obtain a license with the Registrar of Companies (ROC). As a result, incorporating a Section 8 Company has become as efficient as incorporating other company types.

Presently, there are two primary methods for incorporating a Section 8 Company:

1. SPICE+ Part A and Part B: This approach involves reserving a desired company name through SPICE+ Part A, followed by finalizing the incorporation process via SPICE+ Part B. This two-step method offers a streamlined and user-friendly experience.
2. Direct Filing with SPICE+: Alternatively, organizations can directly file for incorporation using SPICE+. This method allows for the simultaneous acquisition of the Section 8 license number and the Certificate of Incorporation (COI) within a single filing.

These advancements have considerably reduced the administrative burden associated with establishing a Section 8 Company. The revised process fosters a more convenient environment for organizations pursuing social and charitable objectives, aligning the incorporation experience for Section 8 Companies with the streamlined approach enjoyed by other company structures in India.

Advantages of a Section 8 Company

Enhanced Credibility and Governance:

• Government Recognition: Registration with the Ministry of Corporate Affairs (MCA) provides official recognition, including the potential for Niti Aayog registration, strengthening the company's legitimacy.
• Strict Regulations: Adherence to stringent regulations fosters trust and transparency with stakeholders.
• Limited Liability Protection: A separate legal identity safeguards members' personal assets from company liabilities, further enhancing trust.
• Annual Audit and Restricted MoA/AoA Amendments: Mandatory annual audits and limitations on changing the Memorandum and Articles of Association (MoA/AoA) ensure financial accountability and transparency.

Financial Advantages:

• Tax Exemptions: Qualification for various tax benefits and exemptions under the Income Tax Act makes Section 8 Companies financially attractive for donors and organizations (subject to filing ITR for NGOs).
• Donor Tax Benefits: Contributions to Section 8 Companies qualify for tax deductions for donors under Sections 12A and 80G of the Income Tax Act (subject to registration), encouraging greater financial support.
• Zero Stamp Duty: Exemption from stamp duty on MoA and AoA reduces initial establishment costs compared to other company structures.

Operational Flexibility:

• No Minimum Capital Requirement: The absence of a minimum capital requirement allows for a flexible capital structure, enabling operation without share capital and reliance on donations and subscriptions.
• Naming Flexibility: Freedom to choose a name reflecting charitable or social objectives, without mandatory inclusion of "Limited" or "Private Limited," fosters better alignment with the company's mission.
• Membership and Leadership: Registered partnership firms can be members, and individuals can hold directorships in their personal capacity, facilitating collaboration and resource mobilization.

Reduced Compliance Burden:

• Exemptions under the Companies Act 2013: Notification by the MCA grants exemptions in areas like directorship limits, meeting notice duration, board meeting frequency, statutory registers, independent director requirements, company secretary appointment, secretarial standards, committee formations, and audit reports, streamlining compliance processes.

Importance of Maintaining Regulatory Compliance

Section 8 Companies in India are subject to specific legal and regulatory requirements. These encompass, but are not limited to, accounting and bookkeeping standards, Goods and Services Tax (GST) compliance, filing of GST returns, statutory audits, annual company filings, and tax return submissions. Timely fulfillment of these obligations is essential for ensuring the company's legal and financial standing.