A Section 8 Company is a non-profit organization established under the Companies Act, 2013 in India. Unlike other companies, its main goal is to promote charitable objectives like art, science, education, sports, or social welfare. Any profits earned must be used to further these objectives and cannot be distributed to its members.

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The key reasons to choose a Section 8 company

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1. Enhanced Credibility and Transparency

 

• Corporate Governance: A Section 8 company is governed by the stringent provisions of the Companies Act, 2013, and is regulated by the Ministry of Corporate Affairs (MCA). This legal framework mandates a professional structure with a Board of Directors, regular audits, and public filings of financial statements.

• Public Trust: The formal corporate structure and compliance requirements make a Section 8 company highly credible in the eyes of donors, corporate partners, and government agencies. This is particularly beneficial for organizations looking to secure large-scale funding, including Corporate Social Responsibility (CSR) funds, or international donations.

 

2. Tax Benefits for the Company and Donors

 

• Income Tax Exemption: A Section 8 company can apply for registration under Section 12A of the Income Tax Act, 1961. This registration exempts the company's income from taxation, provided that the income is used solely to further its charitable objectives.

• Donation Tax Benefits: By obtaining Section 80G registration, a Section 8 company can offer a significant benefit to its donors. Donations made to the company become eligible for tax deductions, which encourages more people and corporations to contribute.

 

3. Legal and Operational Advantages

 

• Limited Liability: The company's directors and members are protected by the principle of limited liability. This means their personal assets are not at risk for any debts or financial obligations incurred by the company.

• Perpetual Succession: Like any other company, a Section 8 company has perpetual succession. Its existence is not affected by the death, resignation, or departure of its members or directors, ensuring the continuity of its operations.

• No Minimum Capital Requirement: Unlike other company types, a Section 8 company has no minimum share capital requirement, making it easier and more affordable to establish.

• Flexibility and Reach: A Section 8 company has the authority to operate across India without the need for additional state-level registrations. This is a major advantage for organizations with a nationwide or multi-state focus.

 

4. Accessibility to Funding and Resources

 

• CSR Funding: The professional and transparent nature of a Section 8 company makes it a preferred choice for companies looking to fulfill their CSR obligations under the Companies Act, 2013.

• Foreign Contributions: A Section 8 company is generally considered more eligible for Foreign Contribution Regulation Act (FCRA) registration, which is essential for legally receiving foreign donations.

• Government Grants: The robust and well-regulated structure of a Section 8 company makes it a more attractive candidate for government grants and funding.

 

Eligibility and Key Characteristics

 

To be eligible for Section 8 registration, a company must

• Have Charitable Objectives: Its purpose must be to promote art, science, sports, education, research, social welfare, religion, charity, environmental protection, or similar causes.

• Prohibit Dividend Distribution: It cannot pay any dividends to its members. All income must be used for the company's stated objectives.

• Minimum Directors: A private Section 8 company needs at least two directors, while a public one needs at least three. At least one director must be an Indian resident.

Some key benefits of a Section 8 company include:

• Credibility: The company structure, governed by the Ministry of Corporate Affairs (MCA), gives it more credibility and transparency compared to a trust or society.

• Tax Benefits: It is eligible for tax exemptions under sections 12A and 80G of the Income Tax Act, 1961, making it more attractive for donors.

• No Minimum Capital: There is no minimum share capital requirement, making it easier to set up.

• Name Flexibility: It doesn't have to use the words "Limited" or "Private Limited" in its name.

 

Documents Required

You'll need a comprehensive set of documents for the registration process.

For Directors and Shareholders

 

• PAN Card: Mandatory for all Indian nationals.

• Proof of Identity: A self-attested copy of a Voter ID, Aadhaar card, passport, or driving license.

• Proof of Address: A bank statement or a recent utility bill (not older than two months).

• Photographs: Recent passport-size photographs of all directors.

 

For the Registered Office

 

• Proof of Address: A recent utility bill (electricity, gas, or telephone) of the registered office, not older than two months.

• No Objection Certificate (NOC): An NOC from the property owner for using the premises as the registered office.

• Rental/Lease Agreement: If the office is on rent, a copy of the rental agreement.

 

Legal Documents

 

• Memorandum of Association (MoA) and Articles of Association (AoA): These documents define the company's purpose and internal rules.

• Form INC-14: A declaration from a practicing professional (like a CA or CS) confirming compliance with all legal requirements.

• Form INC-15: A declaration from all applicants, confirming their commitment to the company's non-profit objectives.

• Estimated Income and Expenditure: A statement of the company's estimated income and expenses for the next three years.

 

Step-by-Step Registration Process

 

The entire process is done online through the MCA portal.

1. Obtain a Digital Signature Certificate (DSC): Since all forms are filed electronically, all directors must get a Class-III DSC.

2. Apply for a Director Identification Number (DIN): Each director needs a unique DIN, which can be applied for through the SPICe+ form.

3. Name Approval: Apply for a unique name for the company using the RUN (Reserve Unique Name) service on the MCA portal. The name should reflect the company's objectives.

4. Draft MoA and AoA: Prepare the MoA and AoA, ensuring they align with Section 8 regulations.

5. File Incorporation Forms: Submit the comprehensive SPICe+ form, which combines applications for incorporation, PAN, and TAN.

6. Receive Certificate of Incorporation: After the ROC scrutinizes and approves the application, the company receives its Certificate of Incorporation and a unique Corporate Identification Number (CIN), officially registering it.