Section 8 Company

Many organizations operate primarily for social purposes rather than profit generation. These non-profitable organizations are categorized as section 8 companies. By establishing this category, the government aimed to facilitate the formation of entities that focus on promoting arts, commerce, education, charity, social welfare, and environmental protection. These companies are formed with the primary objective of advancing societal interests and are prohibited from distributing profits to their members, ensuring that any earnings are reinvested to further their nonprofit objectives.

Section-8 Company

A Section 8 Company is a special type of nonprofit organization registered under the Companies Act, 2013 in India. These companies are formed with the primary objective of promoting arts, commerce, education, charity, social welfare, religion, environment protection, or any other similar objectives. The key feature of a Section 8 Company is that it is prohibited from distributing profits to its members. Instead, any profits made must be reinvested in the organization to further its objectives.

Key-Features of Section 8 company

Non-Profit Orientation: The primary objective of a Section 8 Company is to promote social welfare, education, art, charity, or similar activities. Any profits generated must be reinvested in the company's objectives rather than distributed among its members.

Limited Liability: Members of a Section 8 Company enjoy limited liability protection, meaning their personal assets are safeguarded against the company's debts and liabilities.

No Minimum Capital Requirement: Unlike other types of companies, a Section 8 Company does not have a minimum capital requirement for registration, making it easier to establish.

Credibility and Trust: Being registered as a Section 8 Company enhances the organization's credibility, helping attract more donors, sponsors, and volunteers who are interested in supporting nonprofit causes.

Flexibility in Governance: A Section 8 Company has the flexibility to structure its governance as per its needs, allowing for a diverse board of directors and management team dedicated to the organization’s objectives.

Tax Benefits: These companies can avail various tax exemptions under the Income Tax Act, and donations made to them may be eligible for deductions under Section 80G, incentivizing charitable contributions.

Ability to Raise Funds: Section 8 Companies can raise funds through various means, including donations, grants, and fundraising activities, to support their missions and activities.

Objectives for Which a Section 8 Company Can Operate

The objectives of a Section 8 Company in India revolve around promoting activities for the benefit of society without the intent to earn profit. Some common objectives include:

1. 1. Promotion of Social Welfare: Engaging in activities aimed at improving the well-being of communities, particularly marginalized or underprivileged groups.

2. 2. Education: Establishing educational institutions or programs that provide learning opportunities, especially for those with limited access to quality education.

3. 3. Charitable Work: Supporting charitable activities such as helping the poor, offering medical relief, or running shelters for the homeless and needy.

4. 4. Promotion of Arts, Science, and Culture: Encouraging and supporting initiatives in the fields of art, science, literature, culture, or other intellectual pursuits for the public good.

5. 5. Environmental Protection: Promoting activities focused on sustainability, conservation of nature, and environmental protection.

6. 6. Sports and Recreation: Organizing and supporting sports events, recreational activities, and facilities to promote health and wellness.

7. 7. Healthcare: Running hospitals, health clinics, or mobile medical services to provide medical aid, particularly to underserved communities.

Who is eligible to Register a Section 8 Company?

Individuals: Any two or more individuals who share a common objective of promoting social welfare, education, art, charity, or similar activities can come together to form a Section 8 Company.

Corporate Entities: Companies registered under the Companies Act, 2013 or any previous company law can also be members of a Section 8 Company. This includes private and public companies, as long as their objectives align with the nonprofit nature of a Section 8 Company.

Trusts and Societies: Registered trusts and societies that aim to promote similar objectives can participate as members or co-founders of a Section 8 Company.

NGOs: Non-Governmental Organizations (NGOs) that wish to formalize their operations and take advantage of the legal structure and benefits of a Section 8 Company can register under this category.

Associations: Various associations or groups focused on social causes can also register as a Section 8 Company.

Preconditions for Registering a Section 8 Company

1. Purpose Alignment: The primary purpose of the company must be to promote social welfare, education, art, charity, or similar activities. The activities should focus on advancing societal interests rather than profit generation.

2. Directors Requirement: A minimum of two directors is necessary for the company. These directors can be individuals or representatives from corporate members.

3. Legal Compliance: The founders must ensure compliance with the provisions of the Companies Act, 2013, and any other applicable laws governing nonprofit organizations in India.

4. Commitment to Reinvest Profits: There should be a clear understanding and commitment that any profits generated by the company will be reinvested into the organization's objectives rather than distributed among its members.

Process for Registering a Section 8 Company

Step1. Obtain Digital Signature Certificate (DSC)

The DSC authenticates the identity of the directors when submitting electronic documents, making it an essential requirement for the registration process.

1. Forms: Although no specific form is required to obtain a DSC, it is crucial for filing Form DIR-3 later in the process when applying for the Director Identification Number (DIN).

Step2. Obtain Director Identification Number (DIN)

Once the DSC is secured, the next step is to apply for a Director Identification Number (DIN) for each proposed director. It ensures that each director has a distinct identity in the corporate registry.

1. Forms: The application for obtaining a DIN is submitted using Form DIR-3.

Step3. Reserve the Company Name

After obtaining the DIN, the next step is to reserve the name of the proposed Section 8 Company with the MCA. Reserving the company name is critical to ensure that it is unique and not similar to any existing company names, thereby avoiding potential legal issues.

1. Forms: This is done using Form INC-1, which is an application for name reservation.

Step4. File the Application for Incorporation

Once the name is approved, you can proceed to file the application for incorporation. It includes the Memorandum of Association (MoA) and Articles of Association (AoA), which outline the company's objectives and operational guidelines.

1. Form INC-32: This form is specifically used for the application for incorporation.

2. MoA: The Memorandum of Association must clearly state the objectives for which the Section 8 Company is being established.

3. AoA: The Articles of Association outline the rules and regulations governing the company.

Step5. Obtain a License for Section 8 Company

After the incorporation application is submitted and approved, the next step is to obtain a license to operate as a Section 8 Company. This license allows the company to function under the provisions applicable to Section 8 Companies, which focus on promoting social welfare, education, or charitable activities.

1. Forms: The application for obtaining this license is filed using Form INC-12.

Step6. Obtain a Certificate of Incorporation

This certificate serves as proof that the Section 8 Company has been officially registered and can commence operations. It confirms the establishment of the company under the Companies Act, 2013.

1. Forms: The Certificate of Incorporation is issued in Form INC-16.

Compliance Requirements for Section 8 Companies

Section 8 Companies must adhere to specific compliance requirements to maintain their legal status:

1. Annual Compliance: They are required to hold annual general meetings, file annual returns, and submit financial statements to the Registrar of Companies.

2. Audit Requirements: Section 8 Companies must get their accounts audited annually by a qualified Chartered Accountant.

3. Tax Filings: These companies must file income tax returns using ITR-7 form and maintain proper accounts as per the Income Tax Act.

How can JKstartup360 help?

At JKStartup360, we specialize in simplifying the complex process of registering a Section 8 company. With a thorough understanding of compliance requirements, we ensure that your registration process is seamless, fast, and hassle-free. Whether you need assistance with name reservation, documentation, or post-registration compliance, JKStartup360 is here to support you at every stage.