Registration of a Company with Charitable Objects and its Benefits By CS Annu Sharma


Dear Readers,

Non-profit organizations are always been seen as a special purpose vehicle (SPV) which act as instruments and are considered to be the driving force in helping out the government in doing the things which they always want to do, for the betterment of society, but could not do so due to of various factors. NPOs are the direct link between the society and their well-being and it provides a platform where one can join hands to work for the society and the community, and ultimately in order to make this world a better place. India being a diversified country lacks behind in many of the areas like employment generation, food, and safety, education, healthcare, etc. The fact that most of these issues are not addressed by the government policy due to many factors has created a demand and space for the organizations ‘that aim to address those’ and thus the idea of the non-profit organization came into a picture.

A Section 8 Company is similar to a Trust or Society; expect a section 8 Company is registered under the Central Government's Ministry of Corporate Affairs. Trusts and Societies are registered under State Government regulations. A section 8 company has various advantages when compared to Trust or Society like improved recognition and better legal standing. Section 8 company also has higher credibility amongst donors, Government departments and other stakeholders.

Ten Benefits of Section 8 Company Registration 

1. Transferability: The management of a Section 8 Company can be easily transferred from one person to another by altering the changing the composition of the Board of Directors. Section 8 Company can also be controlled by shareholders.
 
2. Tax Exemption: Numerous Tax exemptions are provided to Section 8 Companies, specifically to the donors who are contributing to Section 8 Companies, they can claim the Tax exemption against the donation they made to a Section 8 company.
 
3. Management: Trusts are managed by Trustees as per a Trust Deed. Section 8 Company does not have the concept of Trustees. Hence, Section 8 Companies are managed by the Board of Directors based on the MOA and AOA of the Section 8 Company.

4. No minimum capital requirement: There is no prescribed limit over section 8 companies for the minimum capital requirement unlike other entities such as public limited, but the capital structure can be altered at any stage as the required for the growth of the company.
 
5. No stamp duty payable: A section 8 Company is exempted for the payment of stamp duty applicable for registration as applicable in case of other structures such as private limited or a public limited company.

6. Profits: Like a private limited company, a Section 8 Company will also have revenue, expenses, profits, and losses. However, in a Section 8 Company, the profits can be used only for the charitable or not-for-profit purposes mentioned in the MOA.
 
7. Separate Legal Entity: Company legal entity is separate than its shareholders/promoters.
 
8. Perpetual Existence: Company existence will go forever and its existence will not be affected by the death of shareholders, directors or transfer of shares to others.
 
9. Credibility: A Section 8 Company has more credibility as compared to any other Non-profit organization structure be it a Trust or Society. As it is a licensed by the central government. It has more stringent regulations such as no change in MOA and AOA can be done at any stage or situation in a Section 8 Company. A section 8 company due to its strict compliances as regard to functioning has a more reliable image in comparison to other legal structures.
 
10. No title required: Unlike the names requirements of the private limited or a public limited company, a section 8 company does not require to use a suffix next to its name either limited or Private limited
 
What Are Eligibility For Section 8 Company Registration?

Minimum Two People: Two persons are required to become the shareholder/director of the company. However, the number of shareholders can’t exceed 200

No Minimum Capital: No minimum capital is prescribed; it must be based on the business requirements. The registration fee is based on the amount of capital.

One Resident Director: Among director, one person must be resident Indian.

Unique Name: The name of the section 8 company should be unique and should not be similar to any existing company name or trademark.

Social or Welfare Object: The object of the section 8 Company shall be to promote Commerce, Art, Science, Sports, Education, Research, Social Welfare, Religion, Charity & Protection of Environment.  It Intends to apply all its profit in promoting the objectives.

No Profit Distribution: Profits of section 8 company to be applied only for the promotion of object of the company for which it is formed and there is a prohibition on payment of dividend to its members.

Document Required for Section 8 Company Registration

  1. Identity proof of Directors and Shareholders
  2. PAN Card for Indian Nationals (Mandatory)
  3. Passport for Foreign Nationals (Mandatory)
  4. Proof of nationality for Foreign Nationals
  5. Proof of Identity (Voter ID/Passport/Driving License) (anyone)
  6. 2 Passport size photos.
  7. Address proof of Directors and Shareholders: Bank statement/Electricity/Telephone/Mobile bill) (not older than two months) (anyone)
  8. Proof of Registered office: Conveyance/ Lease deed/Rent Agreement etc. along with rent receipts (anyone), Copy of the utility bills (Telephone/Gas/Electricity bill) (not older than two months) (anyone), NOC from Landlord
Note: All the Documents in case of Foreign Director should additionally comply as follows:

  • Notarized (if residing in Commonwealth countries)
  • Notarized & Apostiled (if residing in a country which is a signatory to Hague convention)
  • Notarized & Consularised (If not covered in the above categories)
Procedure for Section 8 Company Registration

Name approval of the company:

The first step in incorporation is to reserve/approve the name of the company. The proposed name selected should do not contain any word which is prohibited under Companies Act, 2013. An approved name is valid for a period of 20 days from the date of approval, for a new company. It is permitted to apply for two proposed names and one Resubmission (RSUB) while Reserving Unique Names for companies through the RUN web service.

Digital Signature Certificate (DSC) of Director:

The application for section 8 company is filed online and it is mandatorily required to be signed by the director and shareholder of the company. So DSC is required to be taken by those directors and shareholder of the company, who is required to sign the e-form for registration of the company. Photo, ID and Address proof is required to along with DSC application form for issuance of DSC.

Director Identification Number:

It is a unique identification number to the director issued by Registrar of the companies (ROC) for becoming a director in India. An application is filed along with ID and address proof duly attested by CS/CMA/CA.

Approval of other authorities:

The Registrar of Companies may require the applicant to furnish the approval or concurrence of any department, regulatory body, appropriate authority, or Ministry of the Central or State Government(s) in relation to the work to be done.

Obtaining Section 8 Company License:

After the company’s name is approved, one needs to apply for a Section 8 Company license from the MCA. The Registrar of Companies may, at its discretion, grant the license with or without certain conditions. The Registrar may direct the company to insert in its memorandum, or in its articles, or partly in one and partly in the other, such licensing conditions as may be specified by the Registrar in this behalf.

Document submission:

Application for registration/license of section 8 company is made to Registrar of Companies (ROC) along Memorandum and Article of Associations, declaration, affidavits etc.. Minimum two persons are required for Incorporation of section 8 company.

Registration Certificate:

ROC then scrutinizes the incorporation form and documents, if ROC finds the documents are in order, issues Certificate of Incorporation of section 8 company. Certificate of Incorporation are conclusive evidence of registration of the company. After receiving the certificate of Incorporation the section 8 company is set to start its function.

PAN & TAN:

Permanent Account Number (PAN) & Tax Deduction Account Number (TAN) is allotted by the Income-tax Department to the company. These identification numbers are essential for smooth operation of the company. These are applied along with company incorporation documents. These are mentioned on Certificate of Incorporation.

The opening of Bank Account:

On submission of Certificate of Incorporation & other essential documents, a bank opens a current account in name of the company, required for smooth running of the company.

The term charitable objects/Non Profit does not mean that the Company cannot generate profit or income, but what it means is applying the income for the promotion of the object and not for distributing it to the promoters. It means that the Company can earn profits but the promoters cannot be benefited out of those profits.

Click here to read the disclaimer


Write a Comment