EnglishIn India, a non-profit organisation can be registered as Trust by executing a Trust deed or as a Society under the Registrar of Societies, or as a private limited non-profit company under Section 8 Company under the Companies Act, 2013. A Section 8 Company is the same as the popular Section 25 company under the old Companies Act, of 1956, which was one of the most popular forms of Non- Profit Organisations in India. But, as per the new Companies Act 2013, Section 25 (as per the old act) has now become Section 8.
As per Section 8(1a, 1b, 1c) of the new Companies Act, 2013, a person can establish a Section 8 company for the “promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object”, provided it “intends to apply its profits, if any, or other income in promoting its objects” and “intends to prohibit the payment of any dividend to its members.”.
Following are the common disadvantages of section 8 Company
- Profit distribution is not permissible
Unlike private, public, and OPC, Section 8 companies do not have the leverage to undertake profit distribution and allocate fair share to the members. The profit earned by these companies can only be used to serve charitable objectives.
- Profit cannot be a prime objective
Under no circumstances section 8 companies cannot serve profit-based objectives. However, they are free to generate income from legitimate sources or via donations. It is needless to mention that such gains can only be used to promote charitable objectives.
- Presence of stringent compliances and norms
Section 8 companies are bound to abide by various tedious compliances and norms to remain operational within the legal landscape. All such standards should be enclosed in the company’s charter documents such as MOA and AOA. The members of Section 8 entities have access to various benefits. Similarly, these members are also exposed to some unavoidable shortcomings.
- Prohibition on appointing a member as a remunerated officer
Section 8 companies are not allowed to appoint a member as a remunerated officer. This condition has been clarified under the governing legislation.
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