Not all businesses are solely focused on making profits. Some companies have a mission in mind aiming to serve the community, promote education, support arts and culture and contribute to welfare. These types of organizations are referred to as Section 8 Companies. They play a role in facilitating charitable and nonprofit activities. In this article we will explore the intricacies of registering your company as a Section 8 entity and outline the steps involved in this registration process.
What is Section 8 Company Registration?
Section 8 Company registration refers to a type of registration, in India governed by the Companies Act, 2013. It enables the establishment of profit companies commonly known as Section 8 Companies. These organizations are formed with the purpose of promoting welfare, education, art, science, religion, charity or similar objectives.
Section 8 Companies operate without profit as their focus is to engage in activities that contribute to the betterment of society. They enjoy exemptions from paying income tax on any income they generate. Furthermore these companies can receive tax donations from individuals and corporations under Section 80G of the Income Tax Act, 1961. Additionally they are eligible, for government grants and subsidies to support their endeavors.
Benefits of Section 8 Company Registration
Here’s a closer look at the compelling benefits that await those who choose the path of Section 8 Company registration:
1. Tax Exemption:
One of the standout advantages of Section 8 Company registration is the eligibility for a 100% tax exemption. Section 8 Companies registered under section 12AA of the Income Tax Act enjoy utilizing their profits for charitable purposes without incurring taxation. This exemption, which applies when you register your company as a Section 8 entity, extends a significant financial advantage, allowing these organizations to allocate their resources entirely towards their noble causes.
2. No Minimum Capital Requirement:
In contrast to the requirements placed upon traditional public limited companies, Section 8 entities, including those that register your company as a Section 8, enjoy greater flexibility in their capital structure. There is no mandatory minimum capital requirement for Section 8 Companies, enabling them to align their financial setup with their mission and growth trajectory, especially when you opt to register your company as a Section 8 entity. This adaptability fosters an environment where resources are allocated efficiently to achieve the intended goals.
3. No Need for Paying Stamp Duty:
Another notable financial benefit accompanying Section 8 Company registration, including when you opt to register your company as a Section 8 entity, is the exemption from paying stamp duty during the registration process. This exemption significantly reduces the financial burden typically associated with setting up a company, thereby freeing up valuable resources that can be effectively directed toward the company’s philanthropic initiatives.
4. Separate Legal Identity:
Section 8 Companies, including those that register your company as a Section 8, share a key characteristic with traditional registered companies: they possess a separate legal identity. This distinct legal status significantly enhances the company’s credibility and reputation, making it an appealing entity for partnerships, collaborations, and alliances. Moreover, the separate legal identity ensures that the company’s assets and liabilities remain entirely distinct from those of its members, further solidifying its legal and financial independence.
5. Increased Credibility:
The stringent legal compliance framework that Section 8 Companies, including those that register your company as a Section 8, adhere to plays a pivotal role in enhancing their credibility. In contrast to informal charitable organizations, Section 8 entities are bound by a comprehensive set of post-registration legal compliances. This unwavering commitment to compliance is a solid testament to the company’s transparency and dedication to its stated goals, thereby instilling a higher level of trustworthiness in the minds of stakeholders, donors, and partners.
Eligibility Criteria when You Register Your Company as a Section 8 Entity
Establishing a Section 8 Company requires meeting specific eligibility criteria:
- Indian National or HUF: Only Indian nationals or Hindu Undivided Families (HUFs) can initiate Section 8 Company formation.
- Minimum One Director: At least one director must lead the company’s social welfare activities.
- Social Welfare Objectives:The main goals of the company should revolve around promoting well being, supporting education, fostering art, advancing science, encouraging sports, aiding causes supporting religious endeavors and preserving the environment.
- Non-Distribution of Profits: It is important that profits are not distributed among members but reinvested to further the companys mission.
- Utilization of Profits: Surplus funds must exclusively serve the company’s charitable or social objectives.
- Legal Compliance: Adherence to Companies Act, 2013 regulations is mandatory.
- No Fraudulent Intent: Directors and individuals involved must not have a history of economic offenses or fraudulent activities.
- Declaration of Non-Profit Intent: An explicit declaration of non-profit intentions throughout the incorporation process is essential.
Legal Requirements to Register Your Company as a Section 8 Company
Registering a Section 8 Company involves specific legal requisites:
- Directors: Minimum two directors for private, three for public limited.
- Members: Capped at 200 for private limited; no cap for public little.
- Capital: No minimum paid-up capital requirement.
- Name: Flexibility in naming; no need for “private limited” or “limited.”
- Company Objects: Non-profit objectives in MOA and AOA; profits used for charitable purposes.
Documents Required for Section 8 Company Incorporation
Essential documents for Section 8 Company incorporation:
- Articles of Association (AOA) and Memorandum of Association (MOA): Define company structure and objectives.
- Declarations: Statements by first directors and subscribers.
- Proof of Office Address: Copies of utility bills as address proof.
- Certificate of Incorporation (Overseas Corporate Body): If applicable, for overseas entities.
- Promoter Company Resolution: Formal resolution from the promoter company.
- Consent of Nominee (INC-3): Nominee’s agreement for the role.
- Residential and Identity Proof: For nominees and subscribers.
- Applicant’s Identity and Residential Proof: Identification of applicants.
- Digital Signature Certificate (DSC): Required for online filing.
- Declaration of Unregistered Companies: Statement regarding unregistered entities.
Incorporation Process to Register Your Company as a Section 8
Registering a Section 8 Company involves several strategic steps to ensure a successful outcome. Here’s a comprehensive breakdown of the procedure:
Step 1: Obtain a Digital Signature Certificate (DSC)
The process commences by obtaining a Digital Signature Certificate (DSC) for the proposed directors. This certificate is pivotal for online document filing with the Ministry of Corporate Affairs (MCA). Form DIR-3 is utilized to secure the Director Identification Number (DIN) and is submitted alongside the DSC of the intended directors.
Step 2: Obtain Director Identification Number (DIN)
Following the acquisition of the DSC, the next step is applying for a Director Identification Number (DIN) for the directors. DIN is a distinctive identification number the MCA bestows on individuals aspiring to assume directorial roles within Indian companies.
Step 3: Reserve the Company Name
Reserving a unique company name is imperative to distinguish your Section 8 Company from others. The name reservation is achieved by submitting Form INC-1 to the MCA.
Step 4: File the Application for Incorporation
Once the company name is approved, the application for incorporation is filed using Form INC-32, accompanied by the Memorandum of Association (MOA) and Articles of Association (AOA). These documents outline the company’s objectives and operational framework.
Step 5: Obtain a License for Section 8 Company
The subsequent step involves obtaining a license for the Section 8 Company using Form INC-12. This form is submitted along with the requisite documents.
Step 6: Obtain a Certificate of Incorporation
Upon completing the steps above, the MCA issues a Certificate of Incorporation in Form INC-16. This document officially affirms the company’s incorporation as a Section 8 entity.
Donations and Funding of Section 8 Company
Section 8 Companies, including those registering your company as a Section 8 entity, cannot raise capital through deposits. Nevertheless, they can accept donations from the public, whether domestically or internationally. When the company obtains FCRA registration, it becomes eligible for foreign contributions. In cases where immediate foreign contributions are necessary, seeking prior permission from the commissioner is an option.
Additionally, Section 8 Companies can raise funds through equity funding. By issuing new equity shares at a premium price, these companies can attract investors while supporting their charitable initiatives. Domestic donations also remain viable, provided robust anti-money laundering measures are implemented.
Conclusion
The process of registering your company as a Section 8 entity, including when you choose to register your company as a Section 8, is marked by its unique blend of legal intricacies and noble intentions. By navigating through the eligibility criteria, legal requirements, and necessary documentation, you can significantly impact society. Section 8 Companies provide benefits such as tax exemptions and financial flexibility and establish their reputation as credible and transparent entities, especially when you opt for Section 8 registration. Their commitment to promoting charitable objectives showcases a dedication to the greater good, demonstrating that business can force positive change.
