Section 8 Company - An Overview

A Section 8 company under the Companies Act, 2013 or a Section 25 Company as per the Companies Act,1956 is an organization registered with the objective of promoting the fine arts, science, literature, or knowledge sharing for a purposeful matter or for charity. These are the limited companies established under the Companies Act. The Government grants these companies an exclusive license under Section 8 Companies Act. There are three main conditions for granting the license.

- The company should form for a charitable purpose.  
- Income and profits should be used towards these objects.  
- The company should not pay any dividends to its members.  
 

Benefits of Section 8 Company Incorporation
 

The following are the advantages of Section 8 company incorporation over other modes of registering an NGO:

- It has organised operations and greater flexibility.  
- Avoids a meticulous registration process and no physical presence is required.  
- No requirement for a minimum paid-up capital.  
- Seamless procurement of tax benefits under sections 12AA and 80G of the income tax return online act.  
- Any partnership firm can be a member in its individual capacity and obtain a Directorship.  
 

Requirements for Sec 8 companies
 

To have a Section 8 company incorporation, the following criteria must be fulfilled:

- Governed by: Companies Act, 2013.  
- Members: Minimum of 2 Directors/Shareholders.  
- Important Documents: MoA, AoA and financial statements.  
- Board: Directors.  
- Property management: All the properties belonging to a company are vested in the name of the company. - These can be sold in conformity with the provisions mentioned in the Companies Act, 2013. The Act says the sale can be done with the prior consent of the Company's Board of Directors when they pass a resolution regarding the same.  
- Closure or winding up: The property and funds of the society, upon its dissolution ( as per the society by-laws) and settlement of all liabilities & debts, may not be equally distributed among the company members. Rather, the same can be transferred or given to some other company, preferably with similar objects.  
- Annual compliance: The company must ensure its annual compliance by filing its annual returns and annual accounts with the RoC.

Documents Required
 

- DSC and DIN of the Directors.  
- Objectives and proposed work of the company.  
- Financial statements like assets and liabilities, the projection for five years etc.  
- Director's personal documents.  
- Registered office address documents viz. rental agreement or sale deed in the name of the company, utility bills not older than two months.  
 

Online Section 8 Company Registration Process
 

There are three major steps in incorporating a Section 8 company apart from the document collection, preparation and drafting. They are

STEP 1: Run Approval:  
 

- Reserve Unique Name (RUN) is a form filed for reserving a name for a new company or for changing its existing name. This is the first step of the section 8 company incorporation procedure.  
- A section 8 company shall usually have words like Foundation, Federation, Society, Council, Club, Charities, Institute, Academy, Organisation, Federation, Chamber of Commerce, Development, Association, etc.  
- The name so approved shall be valid for 20 days  
 

STEP 2: RD 1 License:  

- This step is the most crucial in the process of incorporation.  
- The name approval shall be valid at the time of applying for the RD 1 License.  
- RD 1 license is a license granted under section 8 of companies act as they work on a specific objective which is for the upliftment of arts, science, commerce, environment, etc., and the profit they earn shall also be used towards their objectives. All crucial documents like the MoA, AoA, financial statements and other declarations are filed at this stage.  
- The license so approved shall be valid for 30 days.  
 

STEP 3: Spice Form:  

- Both the name and the license shall be valid at the time of filing the SPICe form.  
- This is the final stage of section 8 company incorporation where the documents relating to the registered office like the rental agreements and utility bills are filed along with the RD-1 license and the name approval certificate.  
 

Section 8 Compliances 
 

- A company registered under section 8 has to comply with the annual compliances like other companies.  
- In case of non-compliance, the company will be treated as a dormant company and it can be struck off from the register.  
- A registration of section 8 company is also required to do the CSR compliances and the CSR must be done.  
 

Applicability of tax exemption 
 

There is a general notion that a Section 8 company need not pay tax as they work towards the welfare of the public at large. But this is not true. A Section 8 company, like any other legal entity, is liable to pay tax. In order to be exempted from Tax, registration of a section 8 company is required to obtain certification for the said exemptions such as Section 12 A, 80G etc. from the Income Tax Authorities.