Section 8 companies in India stand as a distinctive form of non-profit organisation or non-governmental organisation, characterised by its registration with the primary objective of fostering progress across diverse domains including art, culture, technology, science, education, and charitable endeavours. Unlike conventional corporations, the unique feature of these entities lies in their commitment to utilising generated profits for the betterment of society, with a noteworthy stipulation that such profits remain inaccessible for distribution among the company’s members.
In essence, Section 8 companies in India exemplify the fusion of business expertise and social responsibility, showing a unique approach to business that contributes significantly to the progress of society.
Which Companies are Called Section 8 Companies in India?
In India, Section 8 company registration designates organisations that operate with a commitment to the betterment of society and are driven by non-profit motives. These companies operate across a wide spectrum of fields, encompassing areas such as art, culture, science, technology, education, and commerce. What sets them apart is their distinct purpose: to channel any profits they generate exclusively towards initiatives that uplift and improve the condition of society.
Examples of Section 8 Companies in India
Here is a list of the top Section 8 companies in India:
Infosys Foundation:
It is a non-profit organisation that supports programs for primary education, rural development and more, aimed at the underprivileged sections of society.
Reliance Foundation:
It focuses on providing sustainable growth in India regarding rural development, education, health, arts, culture, etc.
TATA Foundation:
It is dedicated to making a social impact by working in areas like nutrition, healthcare, livelihood, education and more.
Reliance Research Institute:
It focuses on higher education in basic and applied life sciences and related technologies.
Chamber Of Commerce for International and Indian Trade:
It aims to increase trade, commerce and investment flows in India as well as internationally.
Pratham Education Foundation, Mumbai:
It is an innovative learning organisation that improves the quality of education for underprivileged children in India.
Health And Education Foundation, Mumbai:
It is a private company focused on the betterment of the health and education conditions of India.
India International Trade Centre, Mumbai:
It promotes international trade, inward and outward investments, bilateral investments and more, with a focus on supporting medium and large enterprises, financial institutions and business alliances.
Characteristics of Section 8 Companies in India
Section 8 companies in India possess unique attributes that set them apart, including:
Charitable Goals:
Section 8 companies stand distinct by their commitment to philanthropic or charitable objectives, prioritising social impact over profit generation.
Exemption from Minimum Paid-up Capital Requirement:
In contrast to other business entities, Section 8 companies enjoy a waiver from the mandatory minimum paid-up share capital prerequisite.
Limited Liability:
Members of Section 8 companies benefit from limited liability, ensuring that their financial responsibility is constrained in cases of the company’s financial losses.
Government Licence:
Operating under the governance of a licence granted by the central government, Section 8 companies operate subject to regulatory oversight, which can also lead to licence revocation in specific circumstances.
Benefits and Exemptions:
Due to their altruistic objectives, Section 8 companies are eligible for an array of advantages and exceptions under the Companies Act that are not accessible to other corporate forms.
Membership:
Section 8 companies have the flexibility to include various entities as members, encompassing individuals, associations of persons, and diverse business types.
Advantages of Section 8 Companies in India
Section 8 companies provide numerous advantages to their members, including:
Limited Liability:
Members of Section 8 companies are subject to limited liability. They are accountable for the company’s losses only up to the extent of their invested share capital.
Tax Exemptions:
Section 8 companies enjoy a range of tax exemptions, notably income tax exemption. This facilitates substantial savings that can be directed towards charitable endeavours.
Separate Legal Entity:
Distinct from its members, a Section 8 company possesses a separate legal entity. This empowers it to engage in contracts, own assets, and participate in legal actions under its own identity.
Immunity from Compliance Checks:
Section 8 companies benefit from immunity concerning specific compliance checks and obligations that other business models are obligated to fulfil on an annual basis.
Enhanced Credibility:
Compared to NGOs, societies, or trusts, Section 8 companies hold greater credibility. This elevated status aids in establishing trust among potential donors and supporters.
No Minimum Capital Requirement:
The incorporation of a Section 8 company is not subject to any minimum capital prerequisite. This streamlined process enhances affordability and accessibility for establishment.
Disadvantages of Section 8 Companies
Section 8 companies also come with certain limitations and drawbacks:
No Profit Sharing:
Members of Section 8 companies are prohibited from sharing in the company’s profits, resulting in an inability to derive financial gain from their involvement.
Absence of Dividends:
Directors and members of a Section 8 company do not receive dividends, rendering them unable to earn income from the company’s profits.
Restricted Use of Profits:
Profits generated by a Section 8 company are strictly allocated to advance its charitable objectives, barring any distribution to members or shareholders.
Revocable Licence:
The central government retains the authority to revoke a Section 8 company’s licence under specific circumstances. This introduces potential operational risks and jeopardises the company’s sustainability.
Final Note
Section 8 companies in India stand as remarkable agents of social change as these organisations, fueled by non-profit motives, symbolise a commitment to societal betterment across diverse domains such as art, education, technology, and more. Their unique distinction lies in their dedication to utilising generated profits solely for the upliftment of society, preventing any personal gain for members. As vehicles of social impact, Section 8 companies wield tax exemptions, limited liability, and enhanced credibility to channel their efforts effectively.
While the advantages of limited liability, tax exemptions, and enhanced credibility empower these companies to drive positive change, they are not without their constraints. The prohibition of profit sharing and dividends restricts financial benefits for members, focusing instead on the communal good. Moreover, the revocable nature of their licence introduces potential operational vulnerabilities.
For more details on Section 8 companies in India, connect with our experts at StartupFino.
