A Section 8 Company is a nonprofit organization that is registered under the Indian Companies Act, 2013, and operates to promote objectives like social welfare, education, charity, environmental protection, and other related causes. It is named after Section 8 of the Companies Act, 2013, which outlines the process of setting up such organizations.
These companies are formed with the intention of utilizing their profits for promoting these charitable purposes rather than for distributing them among shareholders. Section 8 Companies are also exempt from several regulatory and tax obligations, making them a popular choice for those looking to set up a nonprofit entity.
Section 8 Company
A Section 8 Company, under the Companies Act, 2013 in India, is a type of nonprofit organization established for promoting various charitable or social welfare objectives. These objectives typically include areas like education, arts, science, sports, environment conservation, social welfare, etc. Unlike other types of companies, a Section 8 Company does not distribute its profits to its members; instead, any income generated is utilized solely for the furtherance of its objectives.
Key features of a Section 8 Company include:
Key features of a Section 8 Company include:
Non-Profit Orientation: The primary aim is to promote charitable or social welfare activities, not to earn profits.
No Minimum Capital Requirement: Unlike other forms of companies, a Section 8 Company can be formed without any minimum capital requirement.
Limited Liability: Members’ liability is limited to the extent of their contributions to the company’s assets.
Tax Exemptions: Section 8 Companies may enjoy tax exemptions on their income if registered under applicable laws.
Stringent Regulations: These companies are subject to specific regulations to ensure transparency and accountability in their operations.
Section 8 Companies play a crucial role in societal development by leveraging resources and expertise towards addressing various community needs and challenges.
Benefits of forming Section 8 Company
Here are some key benefits of forming a Section 8 Company under the Companies Act, 2013 in India:
Legal Recognition: Section 8 Companies are recognized entities under Indian law, which enhances credibility and trust among stakeholders, including donors, beneficiaries, and government authorities.
Non-profit Objective: These companies are established for promoting charitable or social welfare activities, allowing individuals and organizations to contribute to meaningful causes without the primary motive of profit generation.
Tax Exemptions: Section 8 Companies may qualify for exemptions under the Income Tax Act, providing relief on income generated from their charitable activities. This encourages donations and reduces operational costs.
Limited Liability: Members of Section 8 Companies enjoy limited liability, meaning their personal assets are protected in case of any financial liabilities or legal disputes involving the company.
No Minimum Capital Requirement: Unlike other types of companies, Section 8 Companies can be formed without any minimum capital requirement, making them accessible for small-scale initiatives and startups.
Access to Grants and Funding: Being recognized nonprofit entities, Section 8 Companies are eligible to apply for grants and funding from various governmental and non-governmental organizations, further supporting their charitable objectives.
Promotion of Social Causes: By focusing on areas such as education, health, environment, or social welfare, Section 8 Companies contribute significantly to societal development and upliftment, addressing critical issues that benefit communities at large.
Corporate Social Responsibility (CSR): Many corporate entities in India fulfill their CSR obligations by supporting Section 8 Companies, thereby enhancing their impact on social causes and fostering partnerships for sustainable development.
Overall, Section 8 Companies offer a structured and regulated framework for individuals and entities committed to making a positive social impact while enjoying legal benefits and incentives that support their philanthropic endeavors.
How to Set Up a Section 8 Company?
Step 1: Obtain DSC and DIN
The first step in registering a Section 8 Company is to obtain a Digital Signature Certificate (DSC) and a Director Identification Number (DIN) for the proposed directors.
Step 2: Apply for Name Approval
You must apply for the name of your Section 8 Company through the MCA portal. The name should reflect the charitable nature of the company, and you can suggest up to six names for approval.
Step 3: Draft the Memorandum and Articles of Association
The next step is to draft the Memorandum of Association (MOA) and Articles of Association (AOA), which outline the company’s objectives and the internal rules for its operation.
Step 4: Submit Application to the MCA
After preparing all necessary documents, you need to submit your application for the incorporation of a Section 8 Company to the Ministry of Corporate Affairs (MCA).
Step 5: Obtain the Certificate of Incorporation
Once the Ministry of Corporate Affairs approves your application, you will receive the Certificate of Incorporation, which officially establishes your Section 8 Company.
Conclusion
Setting up a Section 8 Company in India is a great way to engage in activities that contribute to society. With numerous benefits such as tax exemptions, limited liability, and credibility, it provides a strong foundation for those who are passionate about making a difference. However, the process involves certain legal requirements, and it is essential to understand the nuances before starting your journey. Whether you are focused on education, healthcare, environment, or any other cause, a Section 8 Company could be the right path for you to fulfill your mission.