What is a Section 8 Company?
A Section 8 Company is a specific type of entity formed with the aim of promoting various activities such as commerce, science, education, research, sports, social welfare, environment protection, charity, and other similar objectives. The members of a Section 8 company do not receive any income or dividends. It can be either a private limited or a public limited company, and is suitable for non-profit objectives. If it is a private limited company, it requires a minimum of two promoters, while a public limited Section 8 company requires a minimum of seven promoters. Such companies are eligible for certain exemptions and a lower rate of fees. To incorporate a Section 8 company, one needs to follow the same process as for any other company registration in India, with an additional requirement of obtaining a prior license from the central government under section 8 of the Companies Act, 2013.
Features of Section 8 Company
1. No Profit Motive: The companies registered under section 8 of the companies act, cannot distribute profits or assets to its members.
2. No minimum Capital: There is no minimum level of capital prescribed, hence a section 8 company can be incorporated with the capital as required by it.
3. Voting Rights: The voting rights to the members of section 8 company are based on the number of shares, similar to that of any other company.
4. One Resident Director: One director of the company must be resident in India. A person is said to be a resident when he stays in India for at least 182 days in the FY.
Advantages of Section 8 Company
1. No Minimum Capital Requirement
2. Income Tax Exemption
3. Best form to start your NGO/NPO
4. Can accept Donations
ERA Legal Services Section 8 Company Package
The Services which are included in our package are as Follows:
✅ Digital Signatures of Directors
✅ DIN of Directors
✅Filing of Spice form
✅Issue of Incorporation Certificate along with PAN and TAN
✅Memorandum of Association
✅Articles of Association
✅Provisional PF ESI Registration
✅GST Registration
✅MSME Registration
Documents Required for Incorporating Section 8 Company
- PAN card of all directors and subscribers
- Proof of identity, such as Voter ID card, driving license, Aadhaar card, or passport, of all directors and subscribers
- Proof of address, such as bank statement, mobile bill, or telephone bill, of all directors and subscribers
- Passport size photographs of all directors and subscribers
- Proof of registered office address, such as current electric bill or utility bill
- Rent agreement, if applicable.
Section 8 Company Incorporation Procedure
Step -1 Arrange all Required Documents:
The first step is to arrange all the documents and send the same over the email / WhatsApp to us. Once all the Documents are Received, we will Start the Further Process.
Step -2 DSC and Name Availability:
The Next Step is to Start the Further Process of Digital Signature and Checking the Name availability.
Step-3 Preparation of Documents:
The Next Step is Preparation of Documents to be Submitted at Department.
Step-4 Filing of Spice Form:
The Next Step is Submission of Spice 32 Form at Department.
Income Tax Exemptions to Section 8 Companies
Only registering a section 8 company does not result into income tax exemption and further exemption to the donators. Rather section 8 company is the first step to claim the income tax exemption. There are basically two types of income Tax exemptions which are as follows:
1. Exemption to Section 8 Company from Income Tax: This exemption is claimed under Section 12AA of the Income tax Act, 1961. As per section 12AA, an application is filed to the Income tax commissioner along with the necessary supporting documents. If Income tax commissioner is satisfied, then he shall grant the tax exemption to the company.
2. – Exemption to donators under Income tax: This exemption is claimed by donators under section 80G. However,the donators is only eligible to take tax exemption if the section 8 company is registered under section 80G. This exemption can be filed along with section 12 exemption or anytime after that.
Donations / Funding of NGO / NPO or Section 8 Company
Section 8 companies are not permitted to raise funds through deposits, but they are allowed to receive donations from the general public. Here are some ways in which a section 8 company can raise funds:
- Foreign Donations: Section 8 companies can receive foreign donations only after obtaining FCRA registration. FCRA license can be applied for after three years from the date of registration. In case of urgent need, the company can apply for prior permission from the commissioner to receive foreign donations.
- Equity Funding: Section 8 companies can raise funds by issuing new equity shares at a higher value.
- Domestic Donations: There is no restriction on domestic donations, but proper checks must be kept to prevent money laundering cases.
Do’s and Don’ts of of Section 8 Company
| SR.No | A Section 8 Company Can | A Section 8 Company Cannot |
|---|---|---|
| 1. | Can do any activity which is done without any profit motive. | Cannot take profit from the company directly, but can take in the form of salary, official expenses etc. |
| 2. | Can open branches as there is no specific restriction, however advised to open in limited numbers. | Run with profit motive otherwise all the existing tax exemption shall be withdrawn. |
| 3. | Give salaries to members/director for their services. | Cannot take deposits from general public. |
FAQ on Section 8 Company
Q1. For which purposes the section 8 company can be registered?
Section 8 company can be registered for many social factors like:
• Education
• Poverty
• Disease
• Blood bank
• Environment protection
• Other objects for general public utility.
Q2. Can a Section 8 Company be Converted into Private Limited Company?
Yes. A Section 8 company can be converted into a private limited company after taking approval from ROC.
Q3. How to appoint auditor under section 8 Company?
Auditor under section 8 company is being appointed within 30 days by the board of Directors and no Central Government approval is required.
Q4. Can Section 8 Company Raise Funding?
Yes. FDI (Foreign Direct Investment is allowed, subject to the compliance of FEMA Regulations. However, the same is considered as a Foreign Contribution under FCRA, it can be infused only with prior permission/registration from the central government.
Q5. Can the Promoters of Section 8 Company be Employees as well?
No. A promoter of NPOs cannot be employed as a paid employee of the Company.