Section 8 of the Indian Company Registration Act

Section 8 of the Indian Company Registration Act is about promoting charitable goals.

Introduction to Section 8 Company

A Section 8 Company, also called a Section 8 Corporation or a Non-Profit Company, is a unique legal structure in India that is set up to promote charitable, educational, scientific, religious, artistic, social, or environmental goals. It is governed by the Companies Act of 2013 and aims to make a positive impact on society by pursuing non-profit objectives.

How to Understand the Idea Behind Section 8 Company:

The main goal of a Section 8 Company isn’t to make money, but to help achieve certain charitable or social goals. This legal framework makes it possible for organizations to use their resources and work to improve society without the intention of making a profit. To accomplish their stated objectives, these organizations can receive financial support and gifts from individuals, businesses, and government agencies.

Important things about a Section 8 company:

1. Reasons for not making money: A Section 8 Company is not for profit. Any income generated is reinvested into the company to further its goals and cannot be distributed to members or shareholders.
2. Limited Liability: Members of a Section 8 Company have limited personal liability, safeguarding their assets in case the company faces financial difficulties.
3. “Name Clause”: The name of a Section 8 Company must end with specific terms like “Foundation,” “Association,” “Society,” and others as defined by the Central Government.
4. No capital stock: Unlike regular businesses, a Section 8 Company does not issue shares or distribute profits. Funding typically comes from donations, grants, subscriptions, and other forms of payments.
5. Approval from the government: Obtaining a license from the Central Government is mandatory for registering as a Section 8 Company. This ensures the company’s objectives align with legal requirements.
6. Composition for the Board: A Section 8 Company must have at least two members, and the Companies Act, 2013 specifies the composition of the board to ensure alignment with charitable goals.

Process of signing up:

1. Approval of the name: Choose a unique and appropriate name for the company and obtain approval from the Registrar of Companies (RoC).
2. How to get a license: After name approval, apply to the Central Government for a license. The application should detail the company’s goals, intended activities, and other necessary information.
3. Memorandum and Articles: Draft the Memorandum of Association and Articles of Association to meet the requirements for Section 8 Companies.
4. “Incorporate”: Upon receiving the license, proceed with the incorporation process by submitting the Memorandum and Articles of Association, the license, and requisite forms to the RoC.
5. How to get a PAN and TAN: Once established, the company needs to obtain a Permanent Account Number (PAN) and a Tax Deduction and Collection Account Number (TAN) from the appropriate authorities.

What a Section 8 company can do for you:

1. Legal Recognition: A Section 8 Company holds legal entity status, enhancing the credibility of its operations and actions.
2. Tax advantages: These companies are eligible for tax breaks under the Income Tax Act, making them attractive to donors and contributors.
3. “Limited Liability”: Company members are shielded from personal liability in legal matters involving the company, preserving their personal assets.
4. “Perpetual Succession”: The company remains operational even as members change, ensuring the continuity of its goals.
5. Funding Opportunities: As not-for-profit entities, Section 8 companies can secure grants, gifts, and other forms of funding from various sources.

The challenges:

Despite the benefits, establishing a Section 8 Company can be challenging due to strict regulations and the requirement for transparent operations. Deviations from the stated goals can lead to legal complications.

A Section 8 Company is a potent instrument for individuals and groups seeking to make a positive impact on the world. By supporting charitable goals and channeling resources towards the greater good, these companies significantly contribute to India’s social and economic progress while upholding principles of transparency and responsibility.

Section 8 Company Registration Estimates

Estimate of Costs:

1. Fees to the government: The government charges for setting up a Section 8 Company can vary. As of September 2021, fees could range from INR 4,000 to INR 15,000, based on authorized capital and other factors.
2. Fees for lawyers and other professionals: To ensure correct and swift filing, it’s advisable to hire legal and professional assistance. Lawyer costs can range from INR 10,000 to INR 30,000 or more, depending on case complexity and required services.
3. Postage: Stamp tax is applicable to the Memorandum of Association and Articles of Association. The tax amount depends on authorized capital and the state of company establishment.
4. Costs for “other things”: Additional expenses might include paperwork, notarization, travel, and related items.

Overall, forming a Section 8 Company could cost anywhere from INR 20,000 to INR 75,000 or more, covering government fees, legal expenses, and miscellaneous costs. These estimates are subject to change based on various factors.

For accurate and current cost details, it’s recommended to consult experts or official government sources.

Estimate of Time:

The duration to register a Section 8 company depends on the efficiency of the registration process, document submission speed, and government workload.

As of September 2021, the registration process could take around 2 to 4 months on average. The process involves several steps:

1. Approval of the name: Typically takes 1 to 2 weeks, considering name availability and Registrar of Companies (RoC) workload.
2. Getting a license: Obtaining a Central Government license may take 4 to 6 weeks due to processing and review.
3. Drafting Documents: Creating the Memorandum and Articles of Association and other necessary documents can take 1 to 2 weeks based on complexity.
4. Submission and Approval: Submitting and gaining RoC approval may take 4 to 8 weeks, accounting for RoC workload and potential queries.

The overall process of establishing a Section 8 Company could span 2 to 4 months, but this is an approximate estimate and can vary based on individual circumstances.

Note that these timeframes are based on information available as of September 2021. Changes or updates may have occurred since then. For the latest registration duration details, consulting professionals or official government sources is recommended.

Section 8 Company Yearly Compliance

In India, a Section 8 Company must adhere to various yearly compliance requirements to maintain legality and business operations. These regulations are designed to ensure transparency, responsibility, and adherence to non-profit objectives. Below is an overview of the annual tasks typically required for a Section 8 company:

1. Annual General Meeting (AGM):
   • Hold an AGM within six months of the financial year’s end.
   • The meeting should be accessible to all members.
   • During the AGM, present the Balance Sheet and Income Statement to members for approval.
2. Financial statements and the audit:
   • Create financial records for the year, including the Balance Sheet, Income Statement, and Cash Flow Statement.
   • Engage a qualified Chartered Accountant to review the financial records.
   • Include the auditor’s report along with the financial records.
3. Filing Annual Returns: File the Annual Return with the Registrar of Companies (RoC) within 60 days of the AGM.
   • The Annual Return contains information about the company’s financial performance, share ownership, directors, and more.
4. File the company’s Income Tax Return:
   • Use Form ITR-7 and submit by the due date, typically September 30 of the assessment year.
   • Include audited financial statements, the auditor’s report, and any required documents with the Income Tax Return.
5. Form DIR-3 KYC: Each director should file Form DIR-3 KYC annually to ensure accurate names and addresses of leaders.
6. Form MGT-7: Submit the Annual Return, Form MGT-7, to the RoC. This form provides information about share ownership, leadership, and other essential details.
7. Form AOC-4: Send Form AOC-4 to the RoC along with financial records and the auditor’s report. This form reports the company’s financial status.
8. Follow other laws:
   • If the company receives donations from other countries, it must adhere to additional laws, such as the Foreign Contribution (Regulation) Act, 2010.
   • Abide by any regulations related to the company’s charitable or social objectives.

It’s crucial to note that failure to meet these annual requirements could result in penalties, fines, or removal of the company’s name from the Registrar of Companies.

Due to the complexity of these regulations, seeking assistance from legal and financial experts familiar with company law and taxes is recommended. These experts can ensure your Section 8 Company meets all legal obligations while contributing positively to society.