Non-Governmental Organizations (NGOs) or Section 8 companies are dedicated to charitable objectives. A Section 8 NGO is governed by the Ministry of Corporate Affairs (MCA), whereas an NGO registered as a Society or Trust is overseen by the state registrar within the respective state.
The process for registering a Section 8 Company in India is governed by the Indian Companies Act of 2013 and Rules made thereunder. The Ministry of Corporate Affairs, Government of India, oversees Section 8 Companies through the offices of the state Registrar of Companies. The rules, requirements, processes, and procedures for incorporating the company vary based on the specific type of organization being established.
In the country, non-governmental or non-profit organizations can take three legal forms: Societies, Trusts, and Section 8 companies.
Regarding Indian Trusts, there are no specific rules. Conversely, societies exhibit diverse legal and institutional frameworks, varying from one state to another.
Section 8 companies or entities in India are governed by a singular, uniform law specified in the Companies Act. The Companies Act of 2013 regulates the establishment, responsibilities, and management of Section 8 companies, making it subject to more comprehensive control and scrutiny compared to Indian societies and trusts. Moreover, it holds international recognition.
A Section 8 company is established with the aim of promoting art, sports, research, religion, science, education, charity, environmental protection, and related fields. The distinctive feature of such a company is its commitment to utilizing its earnings or revenues to further its stated objectives.
A critical aspect of such a company is its non-profit nature, explicitly prohibiting the distribution of surplus funds. This implies that the profits or income of a Section 8 company should be dedicated to the purpose for which it was established.
What Are The Perks Of Registering a Section 8 Company in India?
Here are the advantages of registering a non-profit/Section 8 company:
- No Stamp Duty: A Section 8 company is exempt from stamp duty, eliminating the need to pay for stamp duty on the Memorandum of Association (MOA) or Articles of Association (AOA), as required for public/private limited companies.
- No Minimum Capital Requirement: Unlike other companies, a Section 8 company in India is not obligated to maintain a minimum capital. The capital structure of a Section 8 company can be adjusted as needed, allowing for flexibility in obtaining funds for business operations through donations and subscriptions from members and the public.
- Distinct Legal Identity: A Section 8 company acquires a separate legal identity through its members. Other entities, such as a listed partnership firm, can also become associates and hold management positions in a Section 8 company. The perpetual existence of a Section 8 company ensures that changes in membership do not impact its operations.
- Limited Liability: Members of a Section 8 company enjoy limited liability based on their subscribed stake. This means they are not personally liable for business losses.
- Credibility: A registered Section 8 company is deemed more trustworthy and credible than other companies or firms. The organization is subject to the provisions of the Act, which mandate annual checks and prevent alterations to the MOA that deviate from the non-profit purposes of the organization.
Documents Needed For Sec 8 Company Incorporation
- PAN card of first directors
- Aadhar card of first directors
- AOA (Article of Association)
- MOA (Memorandum of Association)
- An assessment of the future yearly income and expenses for the next three years.
- Latest Bank Statement with Address
- Digital Signatures of Directors
- Declaration in Form INC-15
- Declaration in Form INC-14
- Registered office proof
Rent Agreement/NOC/Property Documents
- Letter of Approval from CRC
- Electricity bills of the office for the last couple of months
Incorporation Requirement for Registering a Sec 8 Company in India
- Charitable Objectives
Organizations recognized as Section 8 companies are driven by non-profit intentions, as explicitly stated in their Articles of Association (AOA) and Memorandum of Association (MOA). The income generated by a Section 8 company is dedicated to sustaining its primary purposes. Such earnings are not distributed among the company’s members.
- Digital Signature Certificate (DSC) Requirement
For the registration of a Section 8 company, digital signatures of the proposed company directors are essential, as the registration forms are filed electronically and must be digitally signed. Reputable certifying entities, such as IDRBT, NIC, E-Mudhra, CDAC, Pantasign, Capricorn, Verasys, XtraTrust, IDSIGN, and others, offer Digital Signature Certificates online. Obtaining a DSC requires payment of a fee, which may vary depending on the certifying entity.
- Director Requirements
A Section 8 company to be incorporated as a private limited firm necessitates a minimum of two directors. Conversely, when incorporating a public limited firm, a minimum of three directors is mandatory.
- Compliance with Laws and Regulations
Section 8 companies are obliged to adhere to all laws and regulations under the Companies Act. They are required to maintain proper accounting books and file tax returns with the Ministry of Corporate Affairs (MCA). Any alterations to the provisions of the AOA and MOA require prior approval from the Central Government. Additionally, they must comply with the provisions of the Goods and Services Tax (GST) and the Income Tax Act.
- Management Structure
A Section 8 company is governed and overseen by the Board of Directors (BODs) in accordance with the company’s AOA and MOA. This distinguishes it from other companies that are typically managed by trustees.
All About Procedure For Registration Of Section 8 Company in India
Step 1: After obtaining the Digital Signature Certificate (DSC), the next task is to complete Form DIR-3 and submit it to the Registrar of Companies (ROC) to obtain a Director Identification Number (DIN). The DSC application requires the attachment of proof of address and identity.
Step 2: Upon approval of Form DIR-3, the ROC will issue a DIN to the prospective director.
Step 3: File Form INC-12 to apply for a license for the Section 8 company, along with the required supporting documents.
Step 4: Upon approval of Form INC-12, a license under Section 8 will be granted, and the relevant document (Form INC-16) will be issued.
Step 5: With the obtained license, proceed to file the SPICe+ Form along with the ROC for the incorporation of the Section 8 company. Ensure to include the necessary attachments as outlined earlier.
Conclusion
Enrolling a Section 8 company offers a myriad of advantages, making it a more reputable choice compared to societies or trusts. These entities are not liable for stamp duty and are not obligated to incorporate the “private limited” suffix in their company name. Establishing such companies is a straightforward process, and there is no mandatory share capital requirement. Funding necessary for organizational operations is sourced through subscriptions or donations from the general public and associates.
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