What is Section 8 Company?
Section 8 Company is a limited liability company which
a. has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
b. intends to apply its profits (if any) or other income in promoting its objects; and
c. Intends to prohibit payment of any dividend to its members.
Can OPC be converted into Section 8 Company?
No. Companies (Incorporation) Rules prohibit the OPC to be incorporated or converted into a company under section 8.
Can a small company converted into OPC?
No. small company cannot be incorporated or converted into a section 8 company.
Can a partnership firm may be a member of Section 8 Company?
Yes. A firm may be a member of the company registered under section 8.
Do we need to add words ‘Limited’ or ‘Private Limited’ in the name of section 8 companies?
No. Despite, members liability is limited, the words ‘Limited’ or ‘Private Limited’ shall not be added to its name. But on registration, the company shall enjoy same Privileges and obligations as of a limited company.
Who issues license for incorporation of section 8 company?
Central Government (ROC) issues license for incorporation of Section 8 Company on such conditions as it deems fit.
How to make application for formation of Section 8 Company?
A person or an association of persons desirous of incorporating a company with Limited liability under section 8, shall make an application to registrar in Form SPICe+ (Simplified Pro-forma for Incorporating company electronically Plus: INC32) along with the fee as provided in the Companies (Registration offices and fees) Rules, 2014.
What are the documents required along with the application form for incorporation of Section 8 Company?
Supporting document along with Application is as follows:
a. The memorandum and articles of association of the proposed company;
b. the declaration by an Advocate, a Chartered Accountant, Cost Accountant or Company Secretary in practice, that the memorandum and articles of association have been drawn up in conformity with the provisions of section 8 and rules made there under and that all the requirements of the Act and the rules made there under relating to registration of the company under section 8 and matters incidental or supplemental thereto have been complied with;
c. An estimate of the future annual income and expenditure of the company for next three years, specifying the sources of the income and the objects of the expenditure;
d. The declaration by each of the persons making the application.
Can Section 8 companies converted into other kind of companies?
Yes. A company registered under this section may convert itself into company of any
Other kind only after complying with such conditions as described below:
a) A company shall pass a special resolution at a general meeting for approving such conversion
b) An explanatory statement to notice of such general meeting must set-out the details on reason of such conversion.
c) The company shall file an application in Form No. INC-18 with the Regional Director with the fee along with a certified true copy of the special resolution and a copy of the Notice convening the meeting including the explanatory statement for approval for conversion.
d) Also attach the proof of serving of the notice served by registered post or hand delivery, to:
1. the Chief Commissioner of Income Tax having jurisdiction over the company,
2. Income Tax Officer who has jurisdiction over the company,
3. the Charity Commissioner,
4. the Chief Secretary of the State in which the registered office of the company is situated,
5. Any organization or Department of the Central Government or State Government or other authority under whose jurisdiction the company has been operating.
e) The company shall, within a week from the date of submitting the application to the Regional Director, publish a notice at its own expense, and a copy of the notice, as published, shall be sent forthwith to the Regional Director and the said notice shall be in Form No. INC-19 and shall be published at least once in a vernacular newspaper in the principal vernacular language of the district in which the registered office of the company is situated, and having a wide circulation in that district, and at least once in English language in an English newspaper having a wide circulation in that district; and on the website of the company, if any, and as may be notified or directed by the Central Government.
f) The company should have filed all its financial statements and Annual Returns up to the financial year preceding the submission of the application to the Regional Director and all other returns required to be filed under the Act up to the date of submitting the application to the Regional Director.
Note: In the event the application is made after the expiry of three months from the date of preceding financial year to which the financial statement has been filed, a statement of the financial position duly certified by chartered accountant made up to a date not preceding thirty days of filing the application shall be attached.
g) On receipt of the application, and on being satisfied, the Regional Director shall issue an order approving the conversion of the company into a company of any other kind subject to such terms and conditions as may be imposed in the facts and circumstances of each case.
h) Before imposing the conditions or rejecting the application, the company shall be given a reasonable opportunity of being heard by the Regional Director
i) On receipt of the approval of the Regional Director, the company shall convene a general meeting of its members to pass a special resolution for amending its memorandum of association and articles of association and the Company shall thereafter file these with the Registrar (with declaration to adhere conditions if any, imposed by Regional Director)
j) On receipt of the documents referred above, the Registrar shall register the documents and issue the fresh Certificate of Incorporation.
Can central Government revoke license of Section 8 Company?
Yes, Central Government has the power to revoke the license of section 8 company in case any of the conditions applicable to section 8 company is violated.
What are the relaxations available to section 8 companies?
Relaxations available to a Section 8 Company includes:
· Can call its general meeting by giving a clear 14 days’ notice instead of 21 days.
· Requirement of minimum number of directors, independent directors etc. does not apply.
· Need not constitute Nomination and Remuneration Committee and Shareholders Relationship Committee
What are the benefits of Section 8 Company?
There are many advantages of registering under Section 8 of the Companies Act, 2013
No minimum capital: There is no minimum capital requirement for Section 8 company incorporation and the capital structure of Section 8 can be altered at any time as per the growth requirement of the company. Thus, the funds required for carrying the business operations can be brought in later, through donations and subscriptions from members and the general public.
Tax Benefits: The Company Auditor’s Report Order (CARO) does not apply to the Section 8 company. A Section 8 company enjoys tax benefits under 80G of the Income Tax Act, 1961.
No Stamp Duty: there is any stamp duty imposed for Section 8 company incorporation in India. The Section 8 company need not pay the stamp duty imposed on the Memorandum of Association (MOA) or Articles of Association (AOA) of a private or public limited company.
Separate Legal Identity: Section 8 Company registration acquires a distinct legal identity from its members. A registered partnership firm can also become a member in its individual capacity and obtain Directorship of Section 8 company. It has perpetual existence and thus, the entry or exit of any member will not affect the operation of the Section 8 company.
Limited liability: The members of the Section 8 company have limited liability as per their share subscribed. They are not personally liable for the losses of the company.
Credibility: Section 8 companies are more credible and reliable than any other form of a charitable organization. It is regulated under the provisions of the Act, thus they need to have mandatory audits every year and the Memorandum of Association cannot be altered relating to the non-profits objectives of the company.
Exemption to the donors: The tax exemption is granted to the donations received by the section 8 companies under Section 12A and 80G of the Income Tax Act, 1961.
What is the eligibility for registration of Section 8 Company?
Eligibility for registration of Section 8 company is as follows:
· An Individual, HUF is eligible to start a Section 8 company in India.
· Two or more persons who will act as Directors or shareholders should fulfill all the compliances and requirements of the Section 8 company incorporation under the Act.
· There must be at least one director who should be a resident of India in the Section 8 company.
· The objective must be one or more of the following – promotion of sports, social welfare, the advancement of science and art, education and financial assistance to lower-income groups.
· Founders, directors, member’s directors of the company cannot draw any remuneration in any form of cash or kind.
· No profit should be distributed among the members and directors of the company directly or indirectly.
What are the Forms applicable to Section 8 Company?
Form INC-12
Form INC-12 is filed for the grant of the license to operate as a Section 8 company. Along with this form, applicants are required to attach a draft copy of the Memorandum of Association (MOA) and Articles of Association (AOA).
There is a prescribed format for Memorandum of Association of a Section 8 company in Form INC 13. The subscription pages of the MOA and AOA shall be signed by each subscriber along with their name, address, description, and occupation, in the presence of at least one witness.
Form INC 12 is to be submitted along with the following attachments:
· INC-13 – Memorandum of Association
· Draft Articles of Association
· INC-15 for the declaration by each subscriber to MOA that the draft memorandum and articles of association have been drawn up in conformity with the provisions of Section 8
· Estimated statement of Income & Expenditure for the next three years
· List of proposed Promoters and Directors of the Company
The following forms are required to be filed after the issuance of the license to the company
Form SPICe+
The SPICe+ form is the application for the incorporation of the company. The company can be reserved in the first part of the SPICe+ plus form. However, only one name can be declared for approval in this form. Thus, it is recommended that applicants access the free name search facility of existing companies available on the MCA portal before choosing the name. The system will provide a list of closely resembling names of the existing companies based on the search criteria. This will help you avoid choosing a name similar to that of an existing company.
The following documents must be attached along with SPICe+ Form:
· Memorandum and articles of the company duly signed by all the subscribers
· Declaration from each of the subscribers and first directors that they are not guilty of any offence or misfeasance
· Declaration in Form INC 14 and Form INC 15 from a Chartered Accountant and each person making the application respectively
· Address of correspondence till the registered office is official
· Address and Identity proofs of all the subscribers to MOA and first directors of the company
· Passport size photograph of all the directors and shareholders
Copy of the rental agreement, in case the company registered office, is on a rented property
Form INC 22
Form INC 22 is filed for providing notice of the address of the company’s registered office. It needs to be filed within 30 days of the incorporation of the company.
Form DIR 12
Form DIR 12 is filed for the appointment of the directors of the company. It must be filed within 30 days from the date of the appointment of the directors.
What is the procedure for incorporation of Section 8 Company?
Procedure for incorporation of a Section 8 company:
Step 1 – Obtain a DSC of the proposed Directors of the Section 8 Company. Once a DSC is received, file Form DIR-3 with the ROC for getting a DIN. The Proof of Identity and Address Proof needs to be attached for obtaining DSC.
Step 2 – Once the DIR-3 is approved, the ROC will allot a DIN to the proposed directors.
Step 3 – File Form INC-12 with the ROC to apply for a license for the Section 8 company along with the attachment of the required documents as mentioned above.
Step 4 – Once the form is approved, a license under section 8 will be issued in Form INC-16.
Step 5 – After obtaining the license, file the SPICe+ Form with the ROC for incorporation along with the required attachments as mentioned above.
If the ROC is satisfied with the forms submitted, he issues a Certificate of Incorporation along with a unique Company Identification Number (CIN).
What is the Penalty for Non-Compliance under Companies Act for Section 8 Company?
Penalty for Non-Compliance under Companies Act
The Central Government will revoke the Section 8 company license if it fails to comply with the legal provisions of the Act. If the objectives of the company are conducted fraudulently or in violation of the objectives for which it is established, the license can be revoked.
If a company defaults in complying with the provisions of the Act, the company will be punishable with a fine not less than Rs.10 laky and may extend to Rs.1 core. The Directors and the officers of the company in default of the provisions of the Act will be punishable with a fine not less than Rs.25,000 which may extend to Rs.25 laky or both.
What is the Annual Compliances of Section 8 Company?
The annual compliances of section 8 company are just like the other companies.
· Conduct a minimum of two board meetings in a year
· Maintenance of Books of Accounts
· Preparation of financial statements
· Mandatory audit report
· Income tax return filing
· Filing of financial statements in form AOC 4
· An annual return is to be filed every year with other e- filing forms like MGT 7
· Additional compliances to fulfill the registration like 12AA, 80G, etc