In India, entities that promote arts, commerce, science, research, education, sports, charity, social welfare, religion, or any other similar objectives can be registered as Section 8 companies. This special designation, governed by the Companies Act of 2013, allows these organizations to operate as non-profit entities with certain privileges and restrictions. Section 8 Company Registration provides a comprehensive overview of the registration process and operational guidelines for Section 8 companies.
Understanding Section 8 Companies
Section 8 Company Registration is akin to a trust or society; however, it is registered under the Ministry of Corporate Affairs (MCA) with the aim of promoting non-profit objectives. The key distinction of a Section 8 company is that it is bound to apply its profits (if any) or other income towards the promotion of its objectives and is prohibited from paying any dividends to its members.
Advantages of Section 8 Company Registration
Legal Recognition
Section 8 Company Registration ensures that these entities are recognized as legal entities, giving them the right to own property, incur debts, file lawsuits, or be sued in their own names.
Limited Liability
Through Section 8 Company Registration, members and directors have limited liability, which means their personal assets are protected in the event of the company’s financial failure, limited only to the amount they contribute.
Tax Benefits
Entities that undergo Section 8 Company Registration enjoy several tax benefits, including exemptions under the Income Tax Act, 1961, subject to applicable conditions.
Credibility
Section 8 Company Registration enhances the credibility among donors and other stakeholders, facilitating better fundraising and sponsorship opportunities.
Section 8 Registration Process
The registration process for a Section 8 company involves several systematic steps outlined below:
1. Digital Signature Certificate (DSC)
The first step in Section 8 Company Registration is acquiring Digital Signature Certificates for the proposed directors of the company, necessary for filing the forms electronically.
2. Director Identification Number (DIN)
Each proposed director must have a Director Identification Number, which can be applied for online through the MCA portal as part of the Section 8 Company Registration process.
3. Name Approval
The name of the company must be unique and indicative of its non-profit nature. The proposed name can be submitted for approval using the RUN (Reserve Unique Name) service on the MCA website, a crucial step in Section 8 Company Registration.
4. Memorandum of Association (MOA) and Articles of Association (AOA)
Drafting the MOA and AOA is a critical step in Section 8 Company Registration, which lays down the constitution and rules governing the management of the company. The MOA states the main and ancillary objects of the proposed company, while the AOA contains the rules and procedures for the daily activities and governance of the company.
5. Application for License
The application for a license under Section 8 must be filed in Form INC-12, along with the MOA and AOA, and the estimated statement of income and expenditure for the next three years, as part of the Section 8 Company Registration process.
6. Filing Incorporation Forms
Upon approval of the license, the next step in Section 8 Company Registration involves filing the incorporation forms on the MCA portal along with necessary documents such as affidavits, declarations, proof of office address, and details of members and directors.
7. Commencement of Business
After the company is incorporated, it needs to obtain a Certificate of Commencement of Business by filing Form INC-20A, indicating that all compliances have been met through Section 8 Company Registration.
Post-Registration Compliances
Annual Filings
Section 8 Company Registration requires that these companies file their annual returns and financial statements with the MCA, which includes filing Form AOC-4 and MGT-7 annually.
Tax Compliance
It must apply for a tax exemption under sections 12A and 80G of the Income Tax Act, which allows the company to receive tax-deductible donations, a benefit of Section 8 Company Registration.
Regular Monitoring
The company must ensure that its activities align with its stated objectives and comply with regulatory requirements, as part of ongoing compliance after Section 8 Company Registration.
Conclusion
Section 8 Company Registration offers a robust platform for conducting non-profit activities in India. With its ability to leverage corporate features like limited liability and continuity combined with tax benefits, it is an attractive proposition for anyone looking to contribute to the social good. However, the process involves careful planning and compliance with various legal and procedural requirements. Therefore, potential registrants should consider obtaining professional advice to navigate this process effectively.
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