According to Section 8 of the Companies Act of 2013, an NGO (non-profit organization) can be registered as a company, as well as a trust or a society. The most common form of NGO in India is a Section 8 Company. A Section 8 Company is easier to register, maintain, and handle than a Society or Trust.
A Section 8 Company, as defined by the Companies Act of 2013, incentivizes sports, art, education, social welfare, sciences, charity, environmental preservation, or any other similar goals.
A Section 8 Company is formed to promote non-profit purposes such as trade, business, arts, sports research, environmental protection, charity, social welfare, etc. Section 8 organizations require a minimum of two directors. Furthermore, establishing such a corporation does not require a minimum paid-up capital.
Section 8 companies must meet minimal prerequisites and eligibility requirements described in this post. To learn more, keep reading.
Section 8 Company: Key Points
- Section 8 of the Company Act of 2013 allows an NGO to register with the Registrar of Societies or as a Non-Profit organization.
- Profits made by Section 8 Companies can only be used for charitable purposes. Stockholders cannot receive such profits.
- In the Company Act of 1956, Section 8 companies were analogous to Section 25 companies. Under the current Company Act, Section 15 companies are now classified as Section 8.
- Regulations under the 2013 Companies Act must be followed by a Section 8 organization. In this way, these organizations are required to keep accounts and file returns with the Registrar of Companies.
- Unless the government gives its consent, these firms cannot change their charter papers. The IT Act and GST laws must also be followed.
The advantages of setting up a Section 8 company in India
Section 8 companies in India offer the following advantages:
Exemption from Tax
Incorporating a Section 8 Company under Section 12AA of the IT Act is tax exempt and 100 percent tax free. Since these businesses are used for charitable purposes, their profits are not taxed.
No minimum capital is required
Section 8 organisations do not have minimum capital requirements as compared to other organizations like public companies. Nevertheless, these companies are able to adjust their capital structure as their business grows.
There Is No Need to Pay Stamp Duty
Section 8 companies are not required to pay a stamp when registering, unlike private limited companies or public limited companies.
Separate Legal Entity (Discrete)
Like any other registered company, a Section 8 Company has its own legal identity and is independent of its members legally. Eternal existence is consistent with these beings.
It is more trustworthy to do business with a Section 8 Company due to its legal standing and compliance. Authorities often devise strict legal structures for such entities. Following registration, these entities are subject to severe compliance requirements compared to non-profit organizations and trusts.
No title is required
During the registration process, Section 8 companies can select a name of their choice. In contrast to other registered frameworks, they aren’t required to use terms such as “Section 8”.
Eligibility for Section 8 incorporation
Section 8 companies must meet the following criteria:
- Two stockholders are required
- A minimum of two directors is required (stockholders and directors may be the same person).
- A minimum of one director must be an Indian
- Minimum capital requirements do not exist
- Income Tax PANs are required for Indian citizens
- The Aadhar Card, Passport, Voter Card, and Driving License are all acceptable forms of identification. Foreign nationals are required to possess a passport as proof of identification
- Proof of residency can be provided by any of the following: a bank statement, an electricity bill, a mobile bill, or a telephone bill
- It is generally necessary to obtain a NOC from the owner of the premises if the premises are rented. The rent agreement must be accompanied by a current rent receipt and a copy of a current utility bill in the landlord’s name.
- In the event that the premises belong to the Promoters or Directors, any documentation proving ownership, such as a House Tax/Sale Deed receipt, must be submitted along with the NOC.
Section 8 Company in India: Legal Requirements for Forming
To incorporate a Section 8 company, you must meet the following requirements:
- Suppose the Section 8 Company wishes to operate as a private company. Ltd. Companies require at least two directors. For a Section 8 organisation to become a public limited company, at least three directors are required.
- Members: If the business wishes to operate as a corporation. Ltd. Company, the MCA has limited the total number of members that may be a part of a Section 8 Company to 200. The restriction does not apply to Section 8 organisations with a business framework, such as public limited companies.
- According to the 2013 Company Act, Section 8 enterprises are not required to maintain a minimum paid-up capital. Organizations operating under Section 8 are not required to use terms like “private”.
- Objects of the company: Section 8 Companies may only be established for non-profit purposes. Goals should be included in the AOA and MOA. Profits made by the Section 8 Company are used to further its underlying objectives, such as charitable giving, or they are reinvested. Profits from such entities are not available or accessible to their members.
Section 8 Company Incorporation Procedure: Documents Required
Listed below are the documents required for Section 8 Company Incorporation:
- The Memorandum of Association (MOA) and the Articles of Association (AOA)
- Proof of office address
- First subscriber (s) and director declaration (no affidavit required)
- Electricity, gas, or water bills
- Promoter firm’s resolution
- Proof of residency and identification is required for nominees and subscribers
- Identification and residence verification of the applicant
- Unregistered company declaration
- Evidence related to the principal place of business
- GSTIN appointment evidence from Authorised Signatory
- Resolution or letter of authorisation from the BOD
- A letter of acceptance and a report from the management committee
- Account opening authorisation for a specific bank
- Signature of Authorised Signatory for EPFO
In India, Section 8 Companies are governed by the 2013 Companies Act (and its amendments) and the rules and regulations enacted thereunder, and they are controlled by the Ministry of Corporate Affairs. Each state’s Registrar of Companies handles this matter. Business incorporation regulations, requirements, methods, and processes vary depending on the type of company.
With Vakilsearch, you can register a Section 8 Company in just 30 days at competitive rates. Contact us to take this alliance forward.