Section 8 Company Registration – All You Need To Know About

Many individuals who want to work for social welfare and charitable causes in an active manner decide to go for Section 8 Company registration. Basically, it is the process of registering a non-profit organization under the Companies Act, 2013 for promoting objectives like education, charity, environment and social welfare.  

Successful registration of such a company allows better access to funding and grants when compared to other non-government organizations. In this blog post, we shall discuss all you need to know about Section 8 Company registration, including some of its most prominent features, the entire registration process and all the major benefits. 

Section 8 Company Registration 

Section 8 Company Registration refers to the act of registering a non-government organization u/s 8 of the Companies Act, 2013, with the Registrar of Companies, Ministry of Corporate Affairs. The purpose of registering such a company is to serve a noble purpose by promoting social welfare, charity, education and other philanthropic activities. Any person or an association of persons intending to incorporate a company with a non-profit making object can register such a company.  

It is often the case that non-profit organizations, trusts and societies that seek a commercial structure and legal recognition opt for Section 8 Company registration. Any profit or other income generated by such a company must be applied solely towards promoting its objectives and no dividends are to be paid to its members. Section 8 Company Registration provides a legal framework for non-profit establishments to operate effectively, transparently and sustainably.  

Must Read: Types of Company Registration 

Essential Features Of Section 8 Company Registration 

The features outlined in the next section ensure that these non-profit organizations maintain their focus on social welfare and charitable activities while enjoying certain privileges and legal protections provided by the regulatory framework of the Government. 

• The primary objective of the Section 8 company must be promoting any of the following purposes: 

○ Commerce, 

○ Art, 

○ Science, 

○ Sports, 

○ Education, 

○ Research, 

○ Social 

○ Religion 

○ Charity 

○ Protection of the environment,  

○ Any other beneficial public purpose. 

• The sec 8 company is prohibited from distributing any profits or dividends to its members. Its income and profits must be applied towards promoting the company’s objectives. 

• Section 8 ensures that the personal assets of the stakeholders are protected from liability, and that they are not personally accountable for the company’s debts or obligations beyond their contribution to the company’s assets. 

• The organization must be merged and deemed as a company u/s 8 of the Companies Act, 2013. This involves the submission of requisite documents and obtaining the necessary approval of the Registrar of Companies. 

• The Company needs to apply for a license and obtain its sanction from the Central Government as it is mandatory before establishing the company. It must possess a minimum of two members and two directors for a private company and seven members for a public company with three directors. There is provision for a Director to act as a member as well. 

• The sec 8 companies eed not have a minimum capital pre-requisite. They can be registered without capital deemed sufficient by the promoters and cannot disburse dividends or profits to their members. The said income is to be utilized only for the purpose of either promoting or meeting the objectives of the company. 

• The said non-profit organisations are to abide by all the mandatory financial obligations such as maintaining correct books of accounts, conducting periodic audits, and filing annual returns with the RoC. 

• In order to encourage and make it feasible for the company to carry out its charitable activities, they are eligible for tax exemptions under the Income Tax Act. 

• No changes are to be made in either the memorandum or structure of the organization without prior approval of the Central Government. 

• In case of dissolution, all assets after settling the company’s liabilities must be transferred to another Section 8 Company or a charitable organization with similar objectives, subject to approval from the Central Government. This is known as asset lock principle u/s 8(9) of the Companies Act. 

Steps Involved in Section 8 Company Registration Process 

The following are the essential steps involved registration of a Section 8 Company: 

Step 1: Prior to initiating the registration process with MCA, promoters are to convene a meeting to discuss and decide on the guidelines, objectives and other relevant financial implications etc., for the formation of the Sec 8 Company. 

Step 2: The selected name for the non-government organization must be decided after checking its feasibility through the Ministry of Corporate Affairs (MCA) portal. The selected name should reflect the company’s objectives and comply with other naming guidelines to avoid duplication. 

Step 3: Drafting a Memorandum and Articles of Association is the next step to ensure that they align with the objectives specified in Section 8 of the Companies Act and obey the prevalent rules and regulations. 

Step 4: Preparation and submission of registration application along with enclosures such as MOA, AOA and Declaration issued by a certified Chartered Accountant on the financial status of the company is the next logical step wherein the organization provides details such as the proposed name, registered office address, objectives and details of promoters, directors and key managerial personnel. 

Step 5: Declaration by professionals, verifying compliance with the requirements of the Act and rules and obtaining a board resolution approving the application for the license under Section 8 is the next essential step. This resolution should be passed at a board meeting of the promoters/directors. 

Step 6: The RoC examines the application and may seek clarification or additional information if required. If satisfied, the registrar  will forward the application to the Central Government for final approval. 

Benefits Of Section 8 Company Registration 

Some of the major benefits of Section 8 Company are stated below: 

• Section 8 Company registration provides legal recognition, lending credibility to the non-profit organization. It establishes a distinct corporate identity, enhancing trust among stakeholders. 

• Income tax and several other tax exemptions are extended to Section 8 companies. Due to this the organization can function with ease in realizing its core objectives as they get better leverage due to the availability of more finances. 

• Section 8’s guidelines protect members’ personal properties in case of liabilities or legal complications that might arise in an NPO where they are rendering service. This infuses confidence in their well-wishers to perform with renewed vigour and energy and contribute much better. 

• Unlike traditional nonprofit organizations, Section 8 companies can function with a corporate set-up and its functioning. 

• Due to the tax exemptions extended for the Section 8 companies, many upcoming and start-up functionaries with a greater social impact thrive to apply and get approval u/s 8. 

• Due to the concessions extended by Section 8 towards autonomy in functioning and functioning in line with a corporate industry, many Non-Governmental Organizations (NGOs) and trusts are looking for this recognition to have better fundraising opportunities and enhanced administrative mechanisms. 

• Institutions that promote educational research, science and development function better through Section 8 registration as it provides similar legal support that matches with government bodies and other entities that function on similar lines. 

Conclusion 

In conclusion, Section 8 Company Registration in India has strong legal support and helps non-profit organizations work for society through welfare, education and charity. Benefits like tax exemptions and protection of members’ personal assets certainly make this registration a good choice. Today, more and more organizations are choosing Section 8 registration to bring social change with a professional structure.  

In areas like education, research, and philanthropy, these companies play a quintessential role. This structure also supports smooth functioning, teamwork, innovation and development in the long run. Need assistance in Sec 8 company registration? Get in touch with Registrationkraft. 

Frequently Asked Questions (FAQs) 

Q1. Which Act governs Section 8 companies in India? 

The Companies Act, 2013 governs Section 8 companies in India. 

Q2. Can I set up a Section 8 company for profit making? 

No, you cannot start a Section 8 company to earn profit. Such a company is set up to help society. Therefore, any profit earned by such a company must be used purely for its social purpose. 

Q3. Do Section 8 companies need to pay tax? 

If the section 8 company registers u/s 12A/12AA and uses its income only for charity, it may not have to pay tax. Otherwise, it has to pay tax. 

Q4. Can a Section 8 company receive foreign funding? 

Yes, it can receive foreign funding but it must first get FCRA registration as well as follow the prevailing rules.