Companies Act 2013 – Section 8 Company

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A company that is registered as a Non-Profit Organization (NPO) is called Section 8 Company. In our country, it is regulated by the Indian Companies Act 2013. It is further administered by the Ministry of Corporate Affairs and Offices of Registrar of Companies. Section 8 of companies act 2013 has several rules, processes, requirements and procedures. These may vary depending on the type of company that has to be incorporated. 

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Definition of Sec 8 Company

As per Section 8 company registration process, the company must have the motivation and will to promote different types of arts, education, commerce, protection of the environment, charity, science, research, sports, religion and social welfare. It must have the intention to use the profits or other form of income to promote these aspects. 

As per Section 8 of companies act, the income cannot be shown using for the payment of dividends to the members of the company. These types of companies, in turn, get an incorporation certificate from the central government. Section 8 company means that it is liable to adhere to the specified rules mentioned by the government.

Features of the Company under Section 8

Under Sec 8 of companies act, the company must be a non-profit source that is dedicated to promoting welfare in the country. Some of the notable features are:

  • No dividend

  • Any type of income or profit can be utilized for the promotion

  • A requirement of special license from Central Government

  • Section 8 company registration provides all types of privileges that are subject to the obligations.

Formation of Section 8 Company

The registration process of Section 8 company and Private Limited Company is a lot similar to each. It requires having a minimum of two directors to start a Sec 8 company. It is pivotal for one of the directors to be an Indian Resident and Indian Citizen. The other person/s can be Foreign or Indian National. Section 8 company registration requires a registered office address in India.

Cancellation of License under Section 8 of Companies Act 2013

As per Section 8 of companies act, a company must abide by the norms and standards specified by the Central Government. However, licenses are prone to revoke a company:

  • Violates the terms and condition

  • Contravenes provisions of Section 8 company registrationConduct fraudulent operations or violates public policies

Based on the violation's terms and circumstances, the government can even order the company to unite with similar companies to form an NPO structure.

Winding up a Section 8 company requires abiding several rules which are based on an array of compliance laws and procedures. To prevent legal compliances, it is important to stay aware of the legal formalities right from the inception of the company. When a Sec 8 company winds up, the liabilities and assets are disposed of by the liquidator in order to bring it to an end. It is an act through the government that makes sure that no business or action is conducted under Section 8 of companies act 2013, and it is done under legal parameters.

Punishment for Contravention

Due to any contravention of the provisions under Section 8 company examples, if it is discovered that a company is running fraudulent actions or affirms in a violating way which is not accepted for a public interest, then the Central Government has the right (delegated by the Regional Director) to revoke the license of the company to form punishing examples for Section 8 companies. The company may be ordered later by the Central Government to convert it into a private or public limited company.

Advantages and Disadvantages

  • Minimum capital is not required

  • The company is exempted from registration of Stamp duty

  • It has more flexibility

  • Income tax rates are the same as other companies

  • Possibility of license cancellation has a greater chance 

Looking at the advantages and disadvantages, it's not always that an NPO cannot secure commission or profits. Companies can certainly earn profits but cannot get benefits from them. Directors, before stepping into the industry, must take a clear look at the norms mentioned by the government to stay away from consequences.

FAQ (Frequently Asked Questions)

Q1. Define the process of Section 8 Company Registration.

Ans. The process of registration for Sec 8 companies act is:

  1. Obtaining DSC of the Directors

  2. Filing the form DIR – 3 with a ROC for DIN

  3. After approval of DIR - 3, ROC will provide a DIN

  4. Drafting AOA and MOA

  5. Filing the form for the availability of company's name

  6. Filing for the application of Section 8 company

  7. After the approval, the license will be issued by the Central Government

  8. After obtaining Section 8 company license, filing the form SPICE is required for incorporation

Q2. What is the Incorporate Certificate for Section 8 of Companies Act?

Ans. After getting approval and obtaining the availability of a name for the company, it is important to prepare the files of AOA and MOA. This is an incorporation application required for Section 8 Company. All the directors need to sign the document before they are received and verified. It is then that the incorporation application will be filed with the MCA. When the incorporation application gets approved, the government will issue the certificate with the TAN and PAN of Section 8 Company. After the completion of this process, the company can open a current account in any bank. 

Q3. What is the definition of Section 8 Company?

Ans. Section 8 Company is the perfect example and choice for non-profit organizations which are responsible for carrying non-profit objectives. It can be any public or private limited company filing for the license. A minimum of two promoters are required for private limited companies, and if it is a public limited, the company requires a minimum of 7 directors to run the establishment. Section 8 Company has several exemptions when it comes to provisions of law and concessional rate of fees. The incorporation process is similar to other company registration in India.