COMPANY WITH CHARITABLE OBJECTS

What is a Section 8 Company? 

Not all businesses are focused on making money through trade and commerce. Many businesses are primarily focused on philanthropic and non-profit goals. Because they are recognised under Section 8 of the Companies Act, 2013, such entities are referred to as Section 8 Companies. These businesses spend all of their earnings and profits to achieving their goals.

According to the Companies Act, 2013, a Section 8 company is one whose goals are to promote the arts, commerce, science, research, education, sports, charity, social welfare, religion, environmental protection, or other similar goals. These organisations similarly devote their profits to furthering their mission and do not pay dividends to their shareholders.

How to register a Section 8 company?

Where it is proved to the satisfaction of the Central Government that a person or an association of persons proposed to be registered under this Act as a limited company—

(a) has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;

(b) intends to apply its profits, if any, or other income in promoting its objects; and

(c) intends to prohibit the payment of any dividend to its members,

  • The CG (power delegated to ROC) may, by license issued in such manner as may be prescribed, and on such conditions as it deems fit,
    • allow that person or association of persons to be registered as a limited company under this section without the addition to its name of the word “Limited”, or as the case may be, the words “Private Limited”

Where it is proved to the satisfaction of the Central Government that a person or an association of persons proposed to be registered under this Act as a limited company—

(a) has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;

(b) intends to apply its profits, if any, or other income in promoting its objects; and

(c) intends to prohibit the payment of any dividend to its members,

  • The CG (power delegated to ROC) may, by license issued in such manner as may be prescribed, and on such conditions as it deems fit,
    • allow that person or association of persons to be registered as a limited company under this section without the addition to its name of the word “Limited”, or as the case may be, the words “Private Limited”

The procedure for incorporation of  a Section 8 Company is as follows:

  • Name availability request in form RUN: Name availability requests must be submitted using the “RUN” function. The phrases Foundation, Forum, Association, Federation, Chambers, Confederation, Council, Electoral Trust, and the like shall be included in the name of Section 8 Company. In the RUN facility, you can submit up to two names at a time and make one resubmission. It’s a good idea to include the prospective company’s object clause.
  • Important: The approved name has a 20-day validity period, therefore once it is granted, SPICE+ must be filled within 20 days of the date of name approval. However, after paying additional fees, an extension is possible.
  • Obtaining Class 3 Digital Signatures of First Directors: It is required to obtain class 3 digital signatures of first subscribers and directors, which are essential for submitting the Incorporation form to the ROC.
  • Preparation of the Memorandum and Articles of Association, as well as additional documents: The company’s charter, or MOA, outlines the scope of its operations. An AOA is a document that governs the company’s internal management. Each subscriber must sign the company’s MOA and AOA and include his or her name, address, description, and occupation in the presence of at least one witness who will attest the signature and sign and add his or her name, address, description, and occupation.
  • Filing of SPICe 32 Form: Once the proposed name has been approved, the SPICe 32 form can be filed. According to recent revisions to Incorporation procedures, pdf forms have been replaced with Web Forms, which are filled out online and only downloaded for the purpose of attaching a DSC.

SPICe 32 attachments:

The materials listed below must be submitted with the SPICe form for the formation of a Section 8 Company.

  • 1. Name approval letter received from CRC;

2. First Directors’ Consent and Declaration in Form DIR-2;

3. INC-13 Memorandum of Association;

4. Articles of Incorporation; (No specified format)

  • 5. Declaration in Form INC-14 by CS/CA/CWA in practise that the draft MOA & AOA have been drawn up in accordance with the provisions of Section 8 and rules made thereunder, and that all requirements of the Act and rules made thereunder relating to company registration under Section 8 and matters incidental or supplemental thereto have been met;
  • 6. A declaration on Form INC-15 by each of the applicants;
  • 7. An estimate of the company’s future annual income and expenditures for the following three years;
  • 8. First-time subscribers’ self-declaration on Form INC-9;
  • 9. First directors and subscribers’ PAN cards;
  • 10. First directors and subscribers’ Aadhar cards; 11. Proof of Registered Office, such as a Sale Deed, Lease Deed, or Rent Agreement;
  • 12. The most recent utility bill for the registered office, such as an electricity bill;
  • 13. If the registered office is rented or leased, the owner must sign a letter of authorization.
  • Important Note: Section 8 Company cannot employ SPICe 33 and 34, i.e. e-MOA and e-AOA. MOA and AOA must be sent as pdf attachments to SPICe-32 by Section 8 firms.

Rights and obligations

It’s crucial to keep in mind that such businesses can only be limited. In this circumstance, all limited company advantages and liabilities apply. Furthermore, unlike all other companies, these ones do not have to include the terms “Limited” or “Private Limited” in their names.

The company formed under this section will have all of the rights and liabilities of a limited liability company.

A firm could be a member.

A business registered under this provision may have a firm as a member.

(i) Except with the prior approval of the Central Government, a company registered under this section may not change the provisions of its memorandum or articles (power delegated to ROC)

  • (ii) A company registered under this section may only convert into another type of company after meeting any limitations that may be imposed (power delegated to RD in case of conversion)

License revocation

  • The Central Government must provide a licence to Section 8 enterprises. All such licences are also revocable for the following reasons:

the company contravenes provisions of Section 8;

• when the terms of the license are broken;

• when its actions are fraudulent or in violation of its own objectives and prejudicial to public interest.

Under some circumstances, the government can even force the company to be wound up or merged with another comparable company. Before issuing such instructions, the government must first hear from the company.

Section 8 companies are eligible for exemptions.

The provisions of section 2 clause (24) do not apply.

As a result, Section 8 company are not needed to hire a qualified CS professional to serve as their company secretary.

  • A section 8 firm is only required to disclose its stake in a contract or arrangement put into under section 184(2) if the transaction with reference to section 188 on the basis of the contract or arrangement exceeds one lakh rupees.
  • Only if the transaction with reference to section 188 on the basis of the terms and conditions of the contract or arrangement exceeds one lakh rupees will a register of contracts and arrangements in which the directors are interested be kept.
  • A Section 8 company is exempt from the requirement of having a minimum paid-up share capital.
  • A Section 8 Company can hold a General Meeting with fourteen days’ notice rather than twenty-one days’ notice.
  • According to Section 173(1) of the Act, the Board of Directors of such company must meet at least once every six calendar months.
  • Without passing a special resolution, a Section 8 Company can appoint more than fifteen Directors.
  • Section 8: Directorship Companies will not be included in the calculation of the maximum number of directorships as set forth in Section 165 of the Act.

A Section 8 Company’s Board meeting must have a quorum of either 8 members or 25% of the Board’s total strength, whichever is smaller. In any instance, the quorum must consist of at least two people.

The Act’s Section 149(1) does not apply to Section 8 Company. As a result, there is no requirement for a Section 8 Company to appoint an independent director. Furthermore, the Audit Committee of a Section 8 Company is not required to have Independent Directors as members of its Board for the reasons stated above.

The Act’s Section 178 does not apply to Section 8 Company. As a result, neither a Nomination and Remuneration Committee nor a Stakeholders Relationship Committee are necessary for Section 8 Companies.

Disadvantages

Despite their many advantages, these businesses have the following disadvantages:

  • Benefits and allowances are not provided to officers and directors.
  • amendments to the memorandum and articles require consent from the Central Government.
  •  The company’s members are not entitled to any dividends.
  • Profits can only be used to achieve charitable goals and objectives;

The licence can be revoked for a variety of reasons.

Punishment for Contravention Any Company that violates Section 8 is subject to a fine ranging from Rs. 10 lakh to Rs. 1 crore. In addition, defaulting directors and officers of the company would be subject to a fine ranging from Rs. 25 thousand to Rs. 25 lakh. If they conduct any business with fraudulent motives, such officers may be prosecuted under the strict terms of Section 447 (dealing with fraud).