Section 8 Company

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Section 8 Company

According to the Companies Act 2013, Section 8 company is the one whose main objectives is to promote fields of arts, commerce, science, research, education, sports, charity, social welfare, religion, environment protection, or other similar objectives. These companies also apply their profits towards their cause and do not pay any dividend and profit to the members.

They cannot use the suffix ‘Pvt. Ltd’ or ‘Ltd’ with name of their company.

It was earlier defined under Section 25 of Companies Act, 1956. The new Act has, prescribed more objectives under Section 8 the companies can have.

Some of the Section 8 companies are : Federation of Indian Chambers of Commerce and Industry (FICCI) and Confederation of Indian Industries (CII).

Features

These companies do not aim to make profits. Their only focus remains at charity.
Section 8 companies does not require to mention minimum paid-up share capital.
Members of the section 8 company can only have limited liability.
For existence of Section 8 company license of Central Government is necessary.
Companies act, 2013 provides some benefits to companies formed under Section 8.
Section 8 companies also allows firms to be member of their team.

Formation:

Any person or group of person, collectively known as association which can make an application before Registrar to form a Section 8 company under Companies Act which aims at charitable purpose only. If the Central Government, is satisfied, can accept an application with terms and conditions. if accepted, the Registrar of Companies will register the company after the applicants pay all required fees.

Such companies can only be limited companies. Further, these companies need not to include words “Limited” or “Private Limited” to the name.

They cannot alter their memorandum or articles of association without the prior permission of the Central Government’s.

License Cancellation :

Section 8 companies require a license by the Central Government.

Any act of company done in contravention of provisions of Section 8;
Terms and conditions of the license is been violated;
Fraudulent conduct, and violation of the objectives and the public policy.
The Government can even order the wound-up or amalgamation with another company with certain circumstances.

License Cancellation :

Section 8 companies require a license by the Central Government.

Any act of company done in contravention of provisions of Section 8;
Terms and conditions of the license is been violated;
Fraudulent conduct, and violation of the objectives and the public policy.
The Government can even order the wound-up or amalgamation with another company with certain circumstances.

Winding Up:

Section 8 company can wind-up either voluntarily or by the orders of the Central Government.

Punishment:

Company which is in contravention with provisions of Section 8 will be punishable with fine from Rs. 10 lakhs to Rs. 1 crore. Further, directors and officers are liable to imprisonment up to 3 years and fine between Rs. 25,000 to Rs. 25 lakhs. Such officers will also face prosecution under Section 447 which is fraud, if the conduct is fraudulent in the nature

Advantages:

Generally charitable activities are done by companies which belongs under Section 8 rather than of regular NGOs and associations because:

Presence of the limited liability.
Minimum capital is not required
Have tax exemptions.
There is no need to pay stamp duties and high fees for the registration.
Have separate legal status.
They are more credible than the NGOs, and trusts

Disadvantages:

Section 8 companies also have some disadvantages :

NO dividend is provided
NO benefits and other allowances provided
Profit can be used only for charitable aims and objectives.
Amendment under memorandum and articles cannot be done without permission Central Government.
License can be revoked on several grounds.

Registration:

Step 1 : get digital signature of the directors of Section 8 Company, after this file an application under Form DIR -3 with ROC for obtaining Director Identification Number

Step 2 : after the approval of DIR-3, Director Identification Number will be granted to the directors of the Company.

Step 3 : file an application under Form INC-1 along with ROC for getting name of the Company. It must be according the provisions of Act.

Step 4 : after the approval of name, file Form-12 again with ROC for getting a Section 8 Company license. Some documents are required to be attached with this form as prescribed.

Step 5 : issuance of license of section 8 Company after the approval of form.

Step 6 : after getting license file SPICE Form 32 along with ROC for company incorporation. Some documents are needs to be attached with this form.

Step 7 : if ROC gets satisfied from all the submission, Certification of Incorporation is issues to company along with a Company Identification Number.