Section 8 of the Company Act 2013 provides for the formation of companies with non-profit objectives. Section 8 companies are started with the main objective of the welfare of the society. Companies Act 2013 introduces the concept of Section 8 companies which are formed with a charitable objective. Such companies promote commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any other object.
Examples of Section 8 companies are Reliance Foundation, Infosys Foundation, TATA Foundation, Confederation of Indian Industries (CII), Federation of Indian Chambers of Commerce and Industry (FICCI), etc.
What are the features of a Section 8 company?
- Such companies are incorporated with the primary objective of social welfare, social promotion, not to earn profits.
- They are licensed by the Central Government under section 8 Company Act 2013.
- These companies do not issue dividends to their stakeholders and the members of these companies are regarded as separate entities with limited liability.
- Section 8 company shall not be treated as a small company.
- It cannot be converted to a one-person company.
Mandatory compliances of a Section 8 Company
- Section 8 companies need to prepare their financial records annually. It contains a profit and loss account, trading account and balance sheet. These reports are produced to the registrar.
- Registers are maintained to check the activity of the company on a yearly basis. It contains details of members, charges, investments, and loans.
- The auditor is appointed within the first 30 days from the date of its incorporation. The auditor checks financial filings of the company.
- The company needs to file income tax on or before 30th September of the next financial year.
- Director’s report is prepared to explain to shareholders the financial position of the company and the scope of business. Director’s report is to be filled in form AOC-4 u/s 134 of company act, 2013.
- Hold board meetings of the board of directors of each company must be held twice a year in the case of small companies. The interval between the two meetings shall not be more than 90 days.
- Annual General Meeting is to be held every year on or before 30th September.
- All the members, directors, auditors must be informed by giving not less than 21 days’ notice.
- The report of the Annual General Meeting must be submitted within 30 days of the Annual General Meeting on Form MGT- 15.
- Annual returns to be filled in form MGT-7. It should be filled within sixty days from the day on which the annual general meeting has been held.
- Financial statement to be filled with the registrar. It should be filled within thirty days from the day on which the annual general meeting has been held.
- The last date of filling ITR i.e., ITR-6 by 30th September for section 8 company.
Section 8 companies use their profits to meet company objectives and are prohibited from the payment of dividends to their stakeholders. These companies can be registered without the use of suffixes like ‘Limited’ or ‘Private Limited’. Section 8 companies are similar to Trusts or Societies. The only difference is that Section 8 companies are regulated only by the Central Government. There are several other benefits of a Section 8 company as given below,
- Credibility :- Section 8 companies have more credibility as compared to any Trust or Societies. It has more stringent regulations as it is licensed by the Central Government. Better credibility attracts donors, government departments, and other stakeholders.
- Tax Exemption :- Donors of a Section 8 company can avail of numerous tax exemptions. Section 8 companies can get tax benefits if it is registered under section 80G and 12AA of the Income Tax Act.
- No Minimum Capital Required :- Unlike other companies such as public limited, Section 8 companies do not require minimum capital. Also, the capital can be altered later on for the growth of the company.
- Identify remains distinct :- Section 8 company is a legal entity established under the law. The members of such companies have limited liability for their debts. The company and its people are distinct entities in the eyes of the law.
- Less Stamp Duty :- The government gives privileges to Section 8 companies, hence charges less stamp duty at registration as compared to other private limited or private limited companies.
- Better Flexibility :- As compared to a public company, Section 8 companies are not required to perform many legal formalities. It enjoyed special exemptions and privileges under the law.
The Central Government offers many benefits to the incorporation of a Section 8 company as stated above. Failure to comply with the responsibilities stated by the Central Government can lead to the closing of the company. If the objective of the company is misused by the members, strict legal actions are taken