Introduction
Setting up a business entity requires careful consideration of various legal and operational aspects. One such entity gaining popularity is a Company Registered under Section 8. In this detailed guide, we’ll walk you through every aspect of Section 8 companies, providing valuable insights and information.
What is a Company Registered under Section 8?
A Company Registered under Section 8, often referred to as a not-for-profit or non-governmental organization, is a distinct legal entity formed under the Companies Act, 2013, in India. The primary objective of such a company is to promote activities for social welfare, charity, education, or any other nonprofit purpose.
Key Features of a Section 8 Company
- Nonprofit Objective: The core purpose of a Section 8 company is to serve the community or promote a social cause without any intention of making profits.
- Limited Liability: Members of the company have limited liability, protecting their personal assets from business liabilities.
- No Minimum Capital Requirement: Unlike some other business entities, there is no minimum capital requirement for a Section 8 company.
- Tax Benefits: Section 8 companies can enjoy tax exemptions on income generated for charitable purposes.
Benefits of Registering under Section 8
Creating a Company Registered under Section 8 offers several advantages:
1. Legal Recognition
A Section 8 company enjoys legal recognition, allowing it to enter into contracts, own property, and sue or be sued in its name.
2. Tax Exemptions
Section 8 companies can receive tax exemptions under Section 12AA of the Income Tax Act, 1961, which can help channel more resources towards their charitable activities.
3. Limited Liability
Members’ personal assets are separate from the company’s liabilities, providing protection in case of financial troubles.
4. Perpetual Existence
A Section 8 company has a continuous existence, unaffected by changes in its members or management.
5. Credibility
Being registered as a Section 8 company enhances credibility and trust among donors, stakeholders, and beneficiaries.
How to Register a Company under Section 8
Setting up a Section 8 company involves several steps:
1. Obtain Digital Signatures
All proposed directors must obtain digital signatures, as many registration processes are online.
2. Apply for Director Identification Number (DIN)
Directors need to apply for DIN online, a unique identification number required for company registration.
3. Reserve a Unique Name
Choose a unique name for your Section 8 company and reserve it through the Ministry of Corporate Affairs (MCA).
4. Draft Memorandum and Articles of Association
Prepare the Memorandum and Articles of Association according to the guidelines provided in the Companies Act, 2013.
5. File for Incorporation
Submit the application for incorporation along with the necessary documents to the Registrar of Companies (RoC).
6. Approval and Certificate of Incorporation
Once the RoC is satisfied with the documents, they will issue a Certificate of Incorporation, making your Section 8 company officially registered.
7. Apply for Tax Exemptions
After incorporation, apply for tax exemptions under Section 12AA of the Income Tax Act, 1961.
FAQs
- Can a Section 8 company distribute profits among its members?
No, Section 8 companies are strictly prohibited from distributing profits among their members. All income generated must be utilized for the company’s charitable purposes.
- Is it mandatory to have a minimum number of members in a Section 8 company?
Yes, a Section 8 company must have at least two members for a private company and seven members for a public company.
- Can foreign nationals be directors of a Section 8 company?
Yes, foreign nationals can be directors of a Section 8 company, provided they obtain the necessary approvals and fulfill legal requirements.
- How can I change the registered office address of a Section 8 company?
To change the registered office address, you need to follow the prescribed procedure and file the necessary documents with the Registrar of Companies.
- Are Section 8 companies exempt from GST?
Section 8 companies engaged in charitable activities may be eligible for GST exemptions on specific services.
- What is the penalty for non-compliance with Section 8 regulations?
Non-compliance with Section 8 regulations can result in penalties, fines, or even the cancellation of the company’s registration.
Conclusion
Registering a Company under Section 8 is a noble endeavor that allows individuals and organizations to contribute to the betterment of society. This legal entity offers numerous benefits, including tax exemptions, limited liability, and credibility. By following the registration process diligently and adhering to the regulations, you can establish a Section 8 company that makes a positive impact on your chosen cause.
