Trusts, Societies, and Section 8 Companies are the three legal forms of companies in India for Non-Profit Organisations.

Indian Trusts have no central law; Indian Societies have varying legal and institutional frameworks from state to state, whereas Section 8 companies have a single uniform law across the country – the Companies Act, 2013.

This strong act governs the formation, management, and accountability of a Section 8 Company, making it more strictly regulated and supervised than trusts and societies and recognised globally.

Eligibility for incorporation of Section 8 Company

In addition to the three bullet points mentioned in the definition section above, for a Section 8 Company to be registered, the following criteria must also be met:

Registration under which act: Companies Act, 2013

Licence: To be applied to MCA

Directors: There must be a minimum of 2 Directors for a Private Limited Company and 3 Directors for a Public Limited Company.

Indian resident: At least one director must be an Indian resident, having spent at least 182 days in India in the previous calendar year [(Section 149(3)].

MoA subscribers: If the Company is to be incorporated as a private or public company, the MoA must have at least two or three subscribers.

MoA & AoA: Determine the name to be applied for, the objects to be carried out by the Company, the planned registered office address, the number of Directors and promoters, the authorised capital, and the number of shares to be subscribed for by each promoter.

They must mention the strategy put in place to meet your social objectives. The ROC (Registrar of Companies) has the authority to inquire about it.

Initial capital: The proposed initial capital for the incorporation of the company, must be invested within two months.

Property management: The property is owned by the company and can only be sold as per the rules outlined in the Companies Act (for example, with the Board of Directors’ approval in the form of a resolution).

Dissolution: The Section 8 Company may be wound up only as per the society’s bye-laws. The funds and property of the society are not to be distributed among the members of the company upon dissolution and after payment of all debts and liabilities. Instead, the remaining funds and property would be given to or transferred to another Section 8 Company with a similar goal.

Annual compliance: To adhere to the set compliances, the company must file annual accounts, statements, and returns with the ROC.

Documents: Each Director must have a current DIN (Director’s Identification Number) and DSC (Digital Signature Certificate).

Incorporation of Section 8 Company: documents required

You need the following documents for incorporating a Section 8 company:

Forms required for Section 8 Company Registration

You will need to fill out the forms mentioned in the table below for registering as a Section 8 Company:

Annual compliances for Section 8 Company

A Section 8 Company must meet the same annual compliances as other normal companies registered under the Companies Act.

• Organising a minimum of two board meetings per year.
• Required audit of the books of accounts.
• Annual returns, as well as other e-filing forms such as MGT-7, AOC-4, and so on.
• Personal income tax returns
• Additional compliances to fulfil registration requirements under sections 12AA, 80G of the Income Tax Act, applicable to donations, and so on.

Benefits of Section 8 Company Registration

Being an NPO or Non-Profit Organisation does not preclude the company from making a profit or earning an income. It simply means that the company can make money, but the promoters will not benefit from it.

Profits cannot be shared among the promoters. All profits must be used to promote the object. Nonetheless, certain exemptions and benefits are provided for both “NGO and NPO” under Section 8 of the Companies Act 2013.

However, numerous benefits are extended to Section 8 Companies:

1. A separate legal identity

Section 8 Company is a distinct legal entity from its members. The company exists in perpetuity in addition to having more organised operations and greater flexibility.

2. No stamp duty

A Section 8 Company is exempt from paying stamp duty on the Memorandum of Association (MoA) and Articles of Association (AoA) of a private or public limited company, which is required for the registration of other types of company structures.

3. No minimum capital requirement

There is no minimum capital requirement for a Section 8 company in India. Also, the capital structure can be changed at any time to meet the company’s growing needs.

This means that it can be formed without the need for any share capital. The funds required to run the business can later be raised through charitable contributions and/or subscriptions from both members and the general public.

4. Name

Suffixes such as “Public Limited or Private Limited” are not required next to a Section 8 company’s legal name.

These companies can be registered with names such as “Society, Association, Council, Charities, Club, Foundation, Institute, Academy,  Federation, and Organisation”.

5. Need for CARO

Requirements of Companies Auditor’s Report Order (CARO) do not apply to Section 8 Companies.

6. Tax benefits

Many tax benefits are available to Section 8 Companies in India.

7. Credibility

Section 8 Companies are more trustworthy than any other type of charitable organisation. They are bound by the Companies Act and are strictly regulated. Such as the necessity of a mandatory annual audit, which cannot be changed at any stage or situation.

The rules for managing the company’s profits and losses make these companies credible.

8. Exemption to donors

Donors who contribute to a Section 8 company are qualified for tax exemptions under sections 12A and 80G of the Income Tax Act.

9. Membership

A registered partnership firm can join as an individual member and gain directorship.

Section 8 Company registration process

You need to follow these steps to register as a Section 8 Company:

Step #1: Obtain a DSC from the proposed Section 8 Company Directors. To obtain a DIN, submit Form DIR-3 to the ROC post receiving a DSC. To obtain a DSC, you must provide proof of identity and address.

Step #2: The ROC will assign a DIN to the proposed directors once the DIR-3 is approved.

Step #3: To apply for a licence for the Section 8 company, submit Form INC-12 to the ROC, along with the documents mentioned in one of the previous sections.

Step #4: Form INC-16 will be issued with a licence under Section 8 once the form is approved.

Step #5: After obtaining the licence, file the SPICe+ Form with the ROC for incorporation, along with the documents mentioned in one of the previous sections.

If the ROC approves the forms, he will issue a Certificate of Incorporation accompanied by a distinct Company Identification Number (CIN).

Section 8 Company registration fees

The fees involved in the registration of a Section 8 Company are listed below:

• Company name reservation: Rs. 1,000/-
• DSC & DIN: Rs. 3,000/-
• Notary and stamps: Rs. 2,000/-
• MoA & AoA & government fees & incorporation fees: Rs. 6,000/- to Rs. 8,000/-
• Professional fees: Rs. 8,000/- to Rs. 10,000/-

Frequently asked questions regarding Section 8 company registration

Is it necessary to obtain permission from the central government?

Yes, we must obtain permission or approval from the central government for section 8 company registration in India. Before section 8 company registration, CG approval is required.

How long is the Company’s registration valid?

Once incorporated, a company will be active and in existence as long as the annual compliances are met regularly. If annual compliances are not met, the company will become dormant and may be struck off the register after a while. A struck-off company can be resurrected for up to 20 years.

What exactly is the Director Identification Number?

A Director Identification Number is a unique identifier assigned to all current and proposed Directors of a Company. A Director Identification Number is required for all current and proposed Directors. A Director Identification Number has no expiration date and a person can only have one Director Identification Number.

Can NRIs/Foreign Nationals serve as directors of Section 8 companies?

Yes, after obtaining a Director Identification Number, an NRI or Foreign National can be a Director in a Section 8 Company. At least one Director on the Board of Directors, however, must be an Indian resident.

Is a digital signature required to complete registration procedures?

The only secure and authentic way to submit a document electronically is with a digital signature. All e-form filings on the MCA Portal must include the digital signatures of the person authorised to sign the documents.

On a concluding note

The process of forming a section 8 company is similar to that of forming any other company in India. The only major difference is the requirement of a licence from the central government issued under Section 8 of the Companies Act, 2013.