A company is referred a to as Section 8 Company when registered as a Non-Profit Organization (NPO) i.e. when it the has motive of promoting arts, commerce, education, charity, protectithe on of environment, sports, science, research, social welfare, religion and intends to use its profits (if any) or other income for promoting these objectives.The income of NPO can not be used for paying out dividends to the company’s members and has to be for the promotion of charitable objectives. Such companies obtain an incorporation certificate from the central government and are liable to adhere to the rules specified by the government.
Procedures for conversion of an existing company into Section 8 company
Any existing limited Company, i.e., private or public Company, whatsoever registered under this Act or under any previous company law can apply for conversion into Section 8 Companies subject to the following conditions:
- The Memorandum and Articles of Association of the existing Company has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object.
- The Company is desirous of being registered as a Section 8, without the addition to its name of the word “Limited” or, the words “Private Limited”.
- The Company upon conversion intends to apply its profits, if any, or any other income in promoting its objects only.
- It intends to prohibit the payment of any dividend to its members.
The procedure for Conversion of Private Company into Section 8 Company is as follows:
1.Apply For Name
The members should apply for the name in the (Reserve Unique Name) RUN Form. The Run form is submitted electronically on the official website of the Ministry of Corporate Affairs (MCA). The Form should be submitted with the fees as prescribed by the MCA.
2.Make Application Under Form RD-1
An application in Form RD-1 will be made to the Registrar of the Companies with the prescribed fees for the incorporation of Section 8 Company. The following documents should be attached with RD-1 Form:
- Form INC-12 should be attached with the application.
- Draft of MoA for proposed Section 8 Company.
- Draft of AoA for proposed Section 8 Company.
- Declaration by Advocate, Chartered Accountant, or Company Secretary in practice as per INC-14.
- Statement showing the details of the Assets Liabilities of the Company as on the date of application
- The Audit Report of the existing Private Company
- The Board Report of the existing Private Company
- Statement of estimation of future expenditure and annual income of the proposed Company for the next 3 years.
- The sources of income and the objects of expenditure should be mentioned.
- A true certified copy of the resolution passed by the Board in the meeting approving the Company Registration under Section 8 Company
- Declaration of each person making an application for the Conversion of Private Company into Section 8 Company as per INC-15.
3.Notice In Newspaper
A notice should be published in the newspaper (one in the vernacular language newspaper and one in English newspaper) by the Private Company of the application made for Conversion of Private Company into Section 8 Company. The Private Company should bear the expenses of the publication of notice in the newspaper. The notice should be published within a week from the date on which the application is made to the Registrar for the Conversion of Private Company into Section 8 Company. The Registrar should be given the copy of these publications as per Form INC-26 immediately after their publication in the newspaper.
4.Grant Of License
The Registrar should consider the objections raised against the Conversion of Private Company into Section 8 Company after the publication of notice is made in the newspaper. The Objections should be raised within 30 days from the date of publication of notice in the newspaper. After considering the objections Registrar of Companies (RoC), after consulting with the other authority or regulatory body, or Department of Central Government (CG) or State Government (SG), in his/her discretion, should decide whether the license for Conversion of Private Company into Section 8 Company should be granted or not. The Registrar should grant the license in Form INC-16 or INC-17 as prescribed by the MCA.
After granting the license, the Registrar can direct the Company to insert certain conditions in the Memorandum of Association (MoA) or in the Articles of Association (AoA).
1.What are the benefits of a Section 8 company?
Access To Tax Benefits
Zero Stamp Duty
Minimal Share Capital
Exempted From Any Name
Separate Legal Entity
Eligible For Foreign Contribution
2.How do Section 8 companies get money?
Section 8 companies are not allowed to raise funds by way of deposits but they can accept donations from the general public. Following are the ways by which it can raise funding:
- Foreign Donations: Foreign donations are allowed only when FCRA registration has been taken. FCRA license can only be applied after three years from the date of registration. However, if it is really urgent to receive foreign donations, then you may apply for prior permission from the commissioner.
- Equity Funding: Section 8 company can also raise funding by issuing new equity shares at a higher value.
- Domestic donations: There is no restriction on the domestic donations, however a proper check must be kept in order to avoid the money laundering cases.
3.For which purposes can the section 8 company be registered?
Section 8 company can be registered for many social factors like;
- Blood bank
- Environment protection
- Other objects for general public utility.
4.What is the minimum capital requirement for a section 8 company?
There is no minimum capital requirement for Section 8 Company in India. If you are planning to register a section 8 Company, then you don’t need to worry about the capital required.
5.Is there any requirement for minimum number of members for section 8 Company?
No, there is no concept of minimum number of members for section 8 Company. Anyone who can register the section 8 company need not worry regarding the membership.
- What are the disadvantages (cons/demerits) for Section 8 Company?
- Section 8 company is difficult to start because it requires Central Government Approval.
- Section 8 compliance cost is high as compared to any other NGO/NPO form.
- Penalty provisions are a little harsh under section 8 companies.
Section 8 Company is formed with a primary objective of charity. These Companies enjoy all the privileges and exemptions as provided in the Companies Act, 2013. To avail such privileges and exemptions, the Private Company goes for Conversion. The Conversion of Private Company into Section 8 Company is a lengthy and long-lasting task