Section 8 of the Companies Act
The concept of Section 8 companies was introduced in Companies Act that permitted companies with charitable objects etc. to be registered without the words ‘Limited’ or ‘Private Limited’. The restriction was that the Companies were permitted to use the profits only for the purpose for which the company was promoted and there was a prohibition on distribution of dividend. In other words, Section 8 company shall be such company which is registered as a Non-Profit Organization (NPO).
Under Schedule VII of the Indian Constitution, the subject ‘Trust and Trustees’ finds mention at Entry No.10 in the Concurrent List and ‘Charities & Charitable Institutions, Charitable and religious endowments and religious institutions’ find place at Entry No.28 of the Concurrent list. Therefore, both the Centre and the States are competent to legislate and regulate charitable organizations. However, Section 8 companies are regulated through the Companies Act, 2013, accordingly the registration and administration of these companies is regulated only by the Central Government.
WHO CAN FORM SECTION 8 COMPANY:
1. Any person or association of persons.
2. Any Existing Company.
However, Section 8 company can only be registered as a limited company.
ELIGIBILITY CRITERIA FOR SEC 8 COMPANY:
Any person proposing to be registered as Section 8 company shall:
1. Have in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object,
2. Intends to apply its profits, if any, or other income in promoting its objects,
3. Intends to prohibit the payment of any dividend to its members.
INCORPORATION OF SECTION 8 COMPANIES:
DOCUMENTS REQUIRED FOR INCORPORATION THROUGH SPICE+ FORM:
1. Memorandum of Association as per Form No. INC-13.
2. Article of Association.
3. The declaration in Form No. INC.14by an Advocate, a Chartered Accountant, Cost Accountant or Company Secretary in practice, that the memorandum and articles of association have been as per provisions of section 8 and rules made thereunder and that all the requirements of the Act and the rules made thereunder relating to registration of the company under section 8 and matters incidental or supplemental thereto have been complied with.
4. An estimate of the future annual income and expenditure of the company for next three years, specifying the sources of the income and the objects of the expenditure.
5. The declaration by each of the persons making the application in Form No. INC.15.
FAQs:
1. Is it mandatory that the name of section 8 Company shall include the words like – Foundation, forum, association, federation, chamber, confederation, Council, electoral trust etc.?
Yes. As per rule 8 of the Companies (Incorporation) Rules, 2014, for the Companies under Section 8 of the Act, the name shall include the words foundation, Forum, Association, Federation, Chambers, Confederation, council, Electoral trust and the like etc.
2. Can a partnership Firm be a member of Section 8 company?
Yes. As per provisions of section 8(3), even a partnership firm can be a member of Section 8 Company.
3. Can a One Person Company (OPC) be incorporated as or convert into a Section 8 Company?
No. Rule 3 of the Companies (Incorporation) Rules, 2014 prohibits a one-person company to be incorporated as section 8 company or to convert into a Section 8 Company.
4. Whether Section 8 Company can carry out micro finance activities?
Yes, subject to compliance of applicable RBI Act, Guidelines and directions, Section 8 Companies can carry out micro finance activities. The micro finance activities should be for the promotion of activities as stated in section 8(1)(a) of the Companies Act, 2013.