What is Section 8 Company Registration
Section 8 Company Registration pertains to details and guidelines on how to foster Non-Profit Initiatives in India either as a Society, a Trust, or a company by making a Trust deed, under the Registrar of Societies. This holds a distinctive position, 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 nonprofit-making object can register a company. Section 8 Company registration is applicable to a society that aims to promote charitable activities such as social welfare, education, science, sports, research, religion, and other similar activities. Generally, 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 the 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. The features outlined below 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.
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Essential Features Of Section 8 Company Registration
- The primary objective of the Section 8 company must be promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any other beneficial public purpose.
- The company is prohibited from distributing any profits or dividends to its members. All 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 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 under Section 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 for a private company and seven members for a public company with two Directors, out of them one must be an Indian resident. There is provision for a Director to act as a member as well
- Companies need 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, of 1961.
- 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 of a trust, 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.
Steps Involved In Obtaining A License For The Registration Of A Section 8 Company
The following are the essential steps involved in obtaining a license for the registration of a Section 8 Company from the Central Government:
- Prior to initiating the process, 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 Section 8 Company.
- The selected name for the trust or association 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.
- 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.
- Preparation and submission of application along with enclosures such as MOA, AOA, Declaration issued by a certified Chartered Accountant on the financial status of the company is the next logical step wherein the organization provide details such as the proposed name, registered office address, objectives, and details of promoters, directors, and key managerial personnel.
- 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 or directors.
- The RoC examines the application and may seek clarification or additional information if required. If satisfied, the RoC will forward the application to the Central Government for final approval.
Benefits Of Section 8 Company Registration To The Organization
Some of the benefits of Section 8 Company registration to the Organization are mentioned 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.
Implementation By Companies
- Due to the exemptions extended for the Section 8 companies, many upcoming and start-up functionaries with a greater social impact thrive to apply and get approval under Section 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, With a robust backup in terms of the legal framework, Section 8 Company Registration in India supports all non-profit organizations and contributes much better to the development and well-being of society through welfare, education and charitable activities. Their special features of tax exemptions and freedom for members from the attachment of their personal properties make Section 8 companies act in a unique manner. It further enhances their commitment and confidence.
As a result, more and more companies are interested in bringing social change and are opting to register under Section 8 registration as it empowers them to function in a corporate structure and bring professionalism to the work culture. In the fields of education, research, philanthropy etc., the Importance of involving non-profit organizations in addressing social issues becomes even more pronounced and of paramount importance as India progresses economically and is set to reach the third richest country in the world. Section 8 Company structure not only facilitates the seamless operation of these organizations but also encourages collaboration, innovation, and sustainable development.