Overview
Overview
Section 8 Companies are incorporated with the objective of promoting charitable activities without the intent of earning profits. They enjoy various tax benefits and exemptions and are strictly regulated to ensure that their income and profits are utilized solely for the promotion of their objectives. Unlike other companies, a Section 8 Company cannot distribute dividends to its members.
Types
Types
- Non-Profit Companies: Companies registered under Section 8, solely focused on charitable and social causes.
- NGOs: Non-Governmental Organizations working towards various societal, cultural, and environmental objectives.
- Charitable Trusts and Societies: Registered as Section 8 Companies for operational benefits.
Eligibility
Eligibility
- Purpose: Must be established for promoting commerce, art, science, education, research, social welfare, religion, charity, environmental protection, or similar objectives.
- Profit Distribution: Profits or income cannot be distributed among members; must be reinvested in the organization.
- Membership: Can have individuals or corporates as members without any maximum limit.
- Directors: Minimum of two directors for private and three for public Section 8 companies.
- Subscribers: Minimum of two subscribers to the Memorandum of Association (MOA).
Process
Process
- Name Reservation: Reserve the company name through the RUN (Reserve Unique Name) service on the MCA portal.
- Obtain Digital Signatures: Acquire Digital Signature Certificates (DSC) for proposed directors.
- Director Identification Number (DIN): Apply for DIN for the directors.
- Drafting MOA and AOA: Prepare the Memorandum of Association (MOA) and Articles of Association (AOA) outlining the objectives and operational guidelines.
- Incorporation Documents: Submit the incorporation documents, MOA, and AOA to the Registrar of Companies (ROC).
- License under Section 8: Apply for a license under Section 8 from the ROC.
- Certificate of Incorporation: Receive the Certificate of Incorporation from the ROC upon approval.
- PAN and TAN Application: Apply for the company’s Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN).
Required Document
Required Documents
- DIN and DSC of Directors
- Identity Proof and Address Proof of Directors and Subscribers
- MOA and AOA
- Registered Office Address Proof
- NOC from the Owner of Premises (if applicable)
- Income and Expenditure Statement
- Financial Statements and Audited Reports
- Certificate of Incorporation (post-approval)
- PAN and TAN
Benifit
Benefits
- Tax Exemptions: Enjoys various tax benefits and exemptions under the Income Tax Act.
- Credibility: Higher credibility and trust among donors, sponsors, and government agencies.
- Limited Liability: Members have limited liability protection.
- Separate Legal Entity: Independent legal status from its members.
- Perpetual Succession: Continues to exist irrespective of changes in membership.
- Grants and Funding: Eligibility to receive grants and funding from various sources, including the government and international organizations.
Compliances
Compliances
- Annual General Meeting (AGM): Must hold an AGM every year.
- Annual Return: File annual return with the ROC.
- Financial Statements: Submit audited financial statements to the ROC.
- Statutory Audit: Conduct statutory audits by a certified auditor.
- Board Meetings: Hold at least four board meetings annually.
- Tax Filings: File annual income tax returns and claim exemptions.
- CSR Reporting: Comply with Corporate Social Responsibility (CSR) regulations if applicable
Penalties
Penalties
- Non-filing of Returns: Penalties for late or non-filing of annual returns and financial statements.
- Misutilization of Funds: Penalties for misutilizing funds for purposes other than those stated in the MOA.
- Non-compliance with License Conditions: Penalties for non-compliance with conditions of the Section 8 license.
- Statutory Non-compliance: Penalties for not adhering to statutory compliance requirements.
- Fines and Legal Action: Potential fines and legal action against the company and its directors for non-compliance.
Common Mistake
Common Mistakes
- Non-compliance: Failing to comply with regulatory requirements.
- Improper Documentation: Incomplete or incorrect filing of incorporation documents.
- Fund Mismanagement: Mismanagement or improper utilization of funds.
- Ignoring Governance: Overlooking corporate governance norms.
- Delaying Meetings: Not conducting board meetings and AGMs as required.
- Poor Record Keeping: Inadequate maintenance of financial and operational records.
FAQ
FAQ
Q: What is a Section 8 Company?
A: A Section 8 Company is a type of non-profit organization established under the Companies Act, 2013, for promoting charitable objectives without the intent of earning profits.
Q: How is a Section 8 Company different from other non-profits?
A: Unlike other non-profits, Section 8 Companies are registered under the Companies Act, 2013, and enjoy certain tax benefits and regulatory advantages.
Q: What are the benefits of forming a Section 8 Company?
A: Benefits include tax exemptions, limited liability, higher credibility, eligibility for grants and funding, and a separate legal entity status.
Q: What documents are required to form a Section 8 Company?
A: Required documents include DIN and DSC for directors, identity and address proof for directors and subscribers, MOA and AOA, registered office address proof, income and expenditure statement, financial statements, and NOC from the premises owner.
Q: What are the common mistakes to avoid when forming a Section 8 Company?
A: Common mistakes include non-compliance with regulatory requirements, improper documentation, fund mismanagement, ignoring governance norms, delaying mandatory meetings, and poor record keeping.
Q: What are the penalties for non-compliance with Section 8 regulations?
A: Penalties include fines for non-filing of returns, misutilization of funds, non-compliance with license conditions, and potential legal action against the company and its directors.
