Section 8 Company Registration- NGO Registration

Company is not only formed for earning profits, but some are also incorporated to do charity. Such kind of companies is called as section 8 companies. There are some trusts and foundations that do charity for society but this company is different. It is a type of company whose aim is to do social welfare. 
In this context, we are going to see the meaning of section 8 company Registration, features, advantages, disadvantages, incorporation process, how it is different from trusts, compliance, and dissolution of section 8 company Registration and its procedure.

What is Section 8 Company NGO

The companies that come under section 8 are Non-profitable organizations. The objective of these companies is to promote sports, art, science, social welfare, and charity. These are incorporated by the central government of the ministry of corporate affairs ( MCA) and regulated as per the Companies Act 2013.
Any profits earned cannot be distributed to its members and should be used for charitable purposes. This company is similar to trust or Foundation except section 8 company is registered under MCA of central government whereas trust and society are registered under the state government.

Features of section 8 company Registration

  • The main aim of the company is to promote social service, promote art, science, research, protection of religion, environment, and work for society and not to earn profits.
  • There is no prescribed minimum paid-up capital to start the company compared to other companies' structures.
  • These companies receive funds from the public and are licensed by the central government.
  • The liability of its members is limited.
  • There is no distribution of profits among members as it is against law, the profits earned should be used for the company.
  • The company cannot use privately limited or limited at the end of its name.
  • The amendment of any article of the company cannot be made by the central government.
  • The members can easily transfer their shares or other interests to others.
  • The company must contain,
  1. Minimum two shareholders.
  2.  Minimum two directors and
  3. A single person can act as both shareholder and director.
  •  The company enjoys a separate legal entity.
  •  It is more flexible compared to other companies' structure clans come with the benefits of certain exemptions and privileges.

Advantages Section 8 Company Registration or NGO Registration

  • The company and the donor enjoy tax benefits. The donor can claim tax exemption for donating to a section 8 company Registration.
  • The company can be formed without minimum paid-up capital compared to public or private companies.
  • The company is exempted from paying stamp duty charges in the process of application.
  • The company is identified as separate from its members and it also enjoys continuous existence.
  • These companies are more reliable as they are licensed by the central government which gives more credit compared to trust and society.
  • It is not compulsory to add suffixes to the company name such as ‘ private limited' or 'Limited'.
  •  The members of the company enjoy the main advantage and that is limited liability.

Disadvantages of section 8 company Registration

  • The profits of the company must be utilized only for social welfare and for others.
  • The profits earned cannot be shared as dividends to its members, unlike other companies.
  • The authority of amending MOA and AOA is only in the hands of the central government.
  • The central government indicates some terms and conditions and they should be mandatorily added in MOA and AOA
  • Even though these companies enjoy certain tax exemptions that don’t mean they are fully liable not to pay, the profits earned by these companies are taxed.

So these are the advantages and disadvantages of section 8 company.

Difference between Trust and NGO's

  • The main aim of these companies is to provide charities and the welfare of society. But they are different from each other, let’s see
  • The trust is regulated by Trust act 1882 and section 8 is regulated by the Companies Act 2013.
  • The deed of trust should be made on mon judicial stamp paper but there is no need for a stamp for section 8 company Registration.
  • The trust can be terminated buy section 8 company can be dissolved anytime.
  • There is no need to file an annual return but it is mandatory for a company to file an annual return.
  • The incentives granted for trust are low compared to section 8 company.
  • The duration for the formation of trust is 10-15 days, but for section 8 company it requires 60-75 days of the time period 

These were the 6 differences between Trust and section 8 company.

Who are eligible for starting a section 8 company?

Eligibility criteria for section 8 company:-

  1. Any individual or group of individuals are eligible for the formation of the company.
  2. Encouraging social welfare, science, art, commerce, religion, protection of the environment must be their objectives
  3. When they intend to invest their profits for social welfare.
  4. When they intend not to distribute the profits to their members. 

3 steps to incorporate section 8 company in India

The process of incorporation of section 8 company can be explained in 3 simple steps:- 

  • Step 1:- Documentation.
  • Step 2:- Application.
  • Step 3:- Registration.

Step 1:- Documentation

In order to start a section 8 company, the first step is to collect all the necessary documents such as,

  1. Director Identification Number (DIN)
  2. Digital Signature Certificate.
  3. Memorandum of Association.
  4. Articles of Association.
  5. Passport size Photographs.
  6. Members Id Proof such as Aadhar Card, Passport, Voter ID.
  7. Details of Director.
  8. Address Proof.

Step 2:- Application

The process of application is explained below

  • First, you should apply for name availability in the form RUN. A person can suggest only 2 names and 1 name resubmission is allowed. It is better to attach the object clause to the form. The should contain foundation, forum, association, federation, council, etc. The fee for RUN is ?1000 and the approved name is valid for 20 days.
  • You should obtain the class 3 digital signatures of subscribers and directors which are required for filing the ROC applications.
  • MOA and AOA must be formed. MOA should be formed as per INC-13 and no restriction for AOA. Every member must sign these documents and one will attest as a witness to it.
  • The next step is to fill up SPICE 32 while filling certain documents must be attached such as,
  1. MOA in INC-13 format
  2. AOA
  3. Declaration form by any CA or CS or CWA that the above documents are drafted as required. The declaration form should be INC-14.
  4. Another declaration must be made by members in the form INC-14.
  5. An estimated list of incomes and expenses for 3 years.
  6. Name approval letter from CRC.
  7. Consent and declaration by first directors in Form DIR-2.
  8.  Self-declaration by first subscribers in form INC-9.
  9. Other documents are given in step-1.

Step 3:- Incorporation of Section 8 Company

After submitting all the forms including documents to ROC and being satisfied with it, they will provide you a certificate of incorporation along with a unique Company Identification Number (CIN).
So these were the simple steps to be followed in order to incorporate your section 8 company.

Section 8 Company Frequently Ask Question (FAQ's)

Benefits of incorporating section 8 company.

  1. Tax benefits.
  2.  No stamp duty.
  3. Credibility.
  4. Perpetual succession.
  5. Limited liability.

Legal compliance for section 8 company

  • The company should conduct a minimum of 2 board meetings in a year.
  • It should maintain books of accounts.
  • The company should prepare an audit report.
  • The company must prepare financial statements every year through form AOC 4
  • It should file income tax returns through MGT 7 e-form.

What is the Penalty for non-compliance for section 8 company?

If the company does not conduct its transaction according to the objectives prescribed in the Companies Act or conducts any fraudulent acts against the provision, the central government will cancel its license. 

Dissolution of section 8 company

Section 8 company can close its company by surrendering a license to the government and it can operate as normal company after surrendering but it cannot be converted as a one-person company 

How dissolution process is done in section 8 Company?

The company can pass a special resolution for converting the company into any other company in a general meeting.

  • A statement should contain complete detail about the company and reasons for conversion.
  • A certified copy of the special resolution passed along with a copy of the general meeting and the statement should be filed in form no MGT-14 in the registrar including fees.
  • An application form INC 18 must be formed along with the above-mentioned documents to,
  1. Chief commissioner of income tax.
  2. Income tax officer
  3. Charity commissioner
  4. Chief secretary of the state where it is incorporated.
  5. Any organization or department in the state or central government whose jurisdiction company has been operating.
  • After the documents are filed, the company at its own cost publishes a notice in the regional language of the state company situated and in English at least once and even on its website.
  • After obtaining permission from the regional director it should file a certified copy of approval within 30dyas in form INC-20.
  • Pass special resolution to amend MOA and AOA.

Once the company is converted into any other company it can dissolve as per the Companies Act 2013 or as per insolvency and bankruptcy code 2016.

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