Our Services: Section 8 Companies.

Appointment to register a Sec 8 Company.

Kindly contact us:
M/s Anbalagan & Muthukumarasamy
Chartered Accountants
Phone : +91 86085 50000 / +91 93614 41414 [Call between 10.30 am and 5.30 pm]
email: audit@auditorsindia.me

We provide the following services:

  1. Advising Statutory obligations and pre-requisites for Sec 8 Companies.
  2. Drafting the MOA and AOA
  3. Registering the Company U/S 8.
  4. Getting PAN and TAN Allotment
  5. Bank A/c Opening Support
  6. FCR Registration
  7. Guidance for the maintenance of vouchers and books of accounts.
  8. Guidance for maintenance of minute books.
  9. 12AA/ 80-GRegistration under the Income tax Act.
  10. Statutory Audit
  11. Filing Income Tax returns

What is a Sec. 8 Company?

Not for Profit Institutions are registered as a company in Section 8 of the Companies Act, 2013.

A Section 8 company is almost identical to a Society or a Trust. It is registered with the Central Ministry of Corporate Affairs but Society and Trust are registered with the State Government.

As per Section 8 read with Rule 19 and 20 of Companies (Incorporation) Rules, 2014.

As per Section 8 (1): A Non-profit making Company is a 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 the payment of any dividend to its members.

IMPORTANT PROVISIONS:

IMPORTANT PROVISIONS RELATING TO SECTION- 8 COMPANIES:

• These companies are incorporated only for promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object.

• Non- Small Company: As per Section 2 (85) Proviso(B) – Section-8 Company will not be treated as Small Company.

• Status of Limited Company: As per Section 8(2) – Section 8 Company shall enjoy all the privileges and will be subject to all the obligations of Limited Company.

• It is duty of Company to prove to the Central Government that the company is being incorporatd only for the purposes laid out in Sec 8 of the Comanies Act 2013.

The Central Government may permit license with such conditions as it deems fit and allow the registration of such person or association of persons as a limited company without the addition to its name of the word “Limited”, or as the case may be, the words “Private Limited”.

Power of ROC: The power of the Central government is delegated to the Registrar of Companies (‘ROC’) having Jurisdiction over the area where the Registered office of the company is proposed to be situated.

How to select a name for the Company?

The name of a section 8 company will not include Private Limited or Limited at the end of its name and must end with any of the below words like Foundation, Forum, Association, Federation, Chambers, Confederation Council, Trust and the like etc.

What is the minimum number of directors required?

In case the section 8 company is incorporated as private limited the minimum requirements of directors on the board is 2.

What documents are required as identity proof and address proof of the promoters?

Passport, Driving License, Voter ID Card are accepted as ID proof.

Bank Statement or Passbook with the transaction entry, Electricity Bill in the name of the promoter, Telephone bill, or any other Mobile Bill, Utility bill in the name of promoters like Gas Bill,etc. The document in support of address proof should not be older than two months.

What documents are required as address proof for the registered office of the company?

Electricity Bill, Gas Bill, Telephone Bill, Mobile Bill, NOC from the owner of the premises. The premises proof should not be older than two months. Before a company occupies any premises as its registered address, a no objection certificate must be obtained from the owner of the premises. Similarly, at the time of filing for company registration, we need a NOC from the current owner of the premises along with proof of ownership as explained above.

Advantages of Registering Section 8 Companies:

Section 8 companies are the legal entities that are started with an object of promoting social welfare, education, charity, art, science , religion and other activities essential to benefit the society at large. However, apart from these legal entities a One person company cannot function as a Section 8 Company.

These section 8 companies are synonymous to Non-profit organizations (NPO).

The section 8 companies are essentially incorporated to perform the main object of welfare of the society in any of the field as mentioned in the Sec 8.

Advantages of Section 8 Companies:

1) Tax Exemption
Tax exemptions are provided to Section 8 Companies, specifically to the donors who are contributing to Section 8 Companies, they can claim the Tax exemption against the donation they made to a Section 8 company u/a 80G of the Income Tax Act.

2) No minimum capital requirement:
There is no prescribed limit over section 8 companies for the minimum capital requirement unlike other entities such as public limited, but the capital structure can be altered at any stage as the required for the growth of the company.

3) Separate Legal entity
A Section 8 Company also holds its own identity like other companies structures, and has its own separate legal standing from its member. A Section 8 Company also has a perpetual existence.

4) No title affix required:
Unlike the names requirements of the private limited or a public limited company, a section 8 company does not require to use a suffix next to its name.

5) Without Share Capital: These companies can be formed with or without share capital, in case they are formed without capital, the necessary funds for carrying the business are brought in form of donations , subscriptions from members and general public.

Limitations of Sec. 8 Companies:

There are many statutory obligations that Sec 8 companies shall comply with like:

1) The profits of the companies could only be used for its object fields only i.e., art, commerce, science, sports, environmental protection and fields of such sort and not on anything else.

2) There could be no distribution of its profits to its shareholders or partners unlike in other limited companies where all the persons having its share in the company can enjoy such rights.

3) Unlike in the other limited companies, no member related to such companies could be appointed as a remunerating officer.

4) The members could only be reimbursed for their pocket expenses that might have occurred in the course and other than this they are not entitled for profit, commission, bonus etc.,

5) The main objective of such companies under section 8 is to use its profits in promoting the particular fields only and not for any other purpose.

6) Such a company cannot alter or amend the Memorandum of Association or the articles of association without the prior approval of the central Government.

7) The central government has imposed various conditions which have to be complied with and such regulations and the impositions have to be necessarily included in their Memorandum of Association and Articles of Association or as directed by the central government.

8) Since they come under the definition of a company under section 8 of the Company’s act, the income derived from the company would be liable to pay tax. though there are exemptions but that doesn’t mean that they would completely be exempted from being subject to pay tax.

9 No Change in AOA and MOA: A company registered under this section shall not alter the provisions of its memorandum or articles except with the previous approval of the Central Government.

10) Condition by Central Government: If the Central Government has imposed some conditions and regulations upon the company for granting a license under section 8 then such a company is bound by such conditions and has to ensure adequate compliance with them. Where such conditions and regulations have been imposed then such conditions and regulations are required to be included in the Articles or/and memorandum of the company as may be directed by the government.

Process of Registration:

  1. DIN:-

Director Identification Number is a number which is issued by the registrar of companies. It is a unique number assigned to the designated director of the company for identification. According to the Companies Act, 2013 unless you have a DIN issued, you are not authorized to hold the office of the Director.

To get DIN allotted, you have to send an application to Registrar Of Companies (ROC) along with a photo, Address proof and ID which is attested by CS, CMA or CA.

  1. DSC:–

Digital Signature of Director is analogous to a physical certificate in digital format. The application of Section 8 company registration is submitted and filled online with Director’s Digital signature; therefore, it is important to get the Digital Signature of all the promoters issued.

To get the DSC issued, identity, Address proof along with a photo has to be attached to the signed forms.

  1. Name Approval:-

Name of each company has to be unique and should not be similar to any other registered company.

To register the name, you have to fill an application in form number INC1 with ROC of Ministry of Corporate Affairs for the approval of name. You can write six names in the order of your preference. The name of the company must include the following suffixes- Forum, Federation, Confederation, Electoral Trust, Foundation, Association, Chambers, and Council.

  1. AOA and MOA:-

MOA (memorandum of association) and AOA (Article of Association) are drafted after name approval and along with other documents included in INC-12 (issuance of license), filed with the ROC. The subscriber would have to sign and mention his name, description, address and occupation in the subscription pages of AOA and MOA. The presence of one witness is mandatory who will attest the signature.

  1. INC-12 (License application):–

For license issuance, file INC-12 along with the list of attachments given below-

  1. MOA (INC-13)
  2. AOA(INC-15)
  3. INC-15 and declaration of each subscriber to MOA on a stamp paper of Rs.100/-
    . The estimated budget of the company for the next three years including the income and the expenditure which is duly signed by the promoters.
  4. List of the directors and promoters.
  5. Handwritten MOA and AOA by the witness and the subscriber

The following forms are to be filed after acquiring the license for the company.

  1. Form INC-7 (incorporation of the company application) is to be filed along with the list of following attachments:-
  2. MOA and AOA
  3. Declaration in INC-8
  4. An affidavit from each director and subscriber in INC-9 which certifies that they are not guilty of misfeasance
  5. Address and IDs of directors and subscribers to MOA
  6. Correspondence address until the registered office is decided upon.
  7. Form INC 22 (situation of registered office) along with the following list of attachments:-
  8. Proof of ownership (rent agreement/ lease deed)
  9. Electricity bill which should not be older than 2 months
  10. NOC from the landlord or the owner
  11. DIR-12 (appointment of Directors)
  12. Consent to be directors i.e., DIR-2
  13. An affidavit from the Directors for not accepting deposits
  14. INC-9 which is the declaration of each subscriber to MOA.

Taxation:

Section 11 of the Income Tax Act, exempts the income of Charitable Societies / Trusts from the charge of tax on the fulfilment of certain conditions.

Apart from this, sections 12, 12A, 12AA and 13 and certain clauses of Section 10 of Income Tax Act also govern the issue of taxation of such organisations. However NGOs need to apply to the income tax authorities to get this exemption.

For availing exemption under Section 11, the Society / Trust is required to fulfil the following conditions:

a. Registration: For registration under Section 12AA with the Commissioner of Income Tax, the Society or Trust or institutions should apply within one year from the date of creation of Society or establishment of institution, in Form No 10A (in duplicate) along with the memorandum of association or bye-laws of the society in original or the document evidencing creation of the Trust, together with a copy thereof and two copies of the accounts of the society relating to three previous years (or for the year during which the Society or Trust was in existence, in case of a new Society). The Commissioner shall call for documents or information and hold enquiries regarding the genuineness of the Society/ institution. After being satisfied about the charitable or religious nature of its objects and genuineness of its activities, he will pass an order granting registration, and if he is not satisfied, he will pass an order refusing registration, subject to the condition that an opportunity of being heard shall be provided to the applicant before an order of refusal to grant registration is passed and the reasons for refusal of registration shall be mentioned in such order. The order granting or refusing registration has to be passed within six months from the end of the month in which the application for registration is received and a copy of such order shall be sent to the applicant society/institution. If the Commissioner of Income Tax is satisfied that the activities of any institution are not genuine or are not being carried out in accordance with the objects of the institutions, he shall, after giving reasonable opportunity of being heard to the concerned institution, pass an order in writing cancelling the registration granted under Section 12AA.

b. Maintenance of Accounts: The Society / Trust should maintain regular books of account, supported by receipts and vouchers. The accounts shall be made on a cash basis. The Society / Trust should prepare an ‘Income and Expense Account’. Any voluntary contribution received by the Society / Trust shall be deemed to be income derived from the property held under trust. Where contribution have been made with a specific direction that they shall form part of the corpus it should be so specified on the receipt issued as the same shall be exempt under section 11 (1)(d).

c. Compulsory Audit: Where the total income of the Society / Trust /institution exceeds Rs 2,50,000 in any previous year, the accounts of such Society / Trust are required to be audited and the audit report which shall be in Form No 10B is required to be furnished along with the return.

d. Income not to be spent for the benefit of certain persons: No part of the income or property of a Charitable Society / Trust claiming exemption under Section 11 should be used or applied for benefit of any person specified under Section 13/3, subject to certain exceptions.

In the event of refusal to tax exemption, Sec 8 companies need to pay tax on their income, as per the terms laid down in the Income Tax act.

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