Section 8 Company As Non-Profit Organization

A non-profit organization (NPO), also known as a non-business entity, is a legal entity organized and operated for social public benefits. Key aspects of a non-profit organization are accountability, trustworthiness, honesty, and openness to all who invest time, money, and trust in the aforesaid organization. Infosys Foundation, Reliance Foundation, Tata Foundation, Reliance Research Institute, etc. are some examples of Section 8 Companies Registered under the Act. 

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An NPO can take the form of a:

• Trust
• Society
• Section 8 Company

Whereas, a NPO can be registered in India under any of the following laws: 

• Trust under Indian Trust Act, 1882
• Society under Society Registration Act, 1860
• Section 8 Company Under Companies Act, 2013

Now let us discuss in detail one of the NPO i.e. Section 8 Company 

Furthermore, if one of these ingredients of NPOs i.e. the Sec.8 Company, registered under the Companies Act, 2013 is segregated and discussed in detail we find that section 8 Companies are caught up primarily into: 

• Trade and Commerce
• Commerce
• Arts
• Charity
• Education
• Religion
• Environment protection
• Social welfare
• Sports research etc.

The Section 8 Company should end with words like

• Foundation
• Forum
• Association
• Federation
• Chambers
• Council
• Electoral, etc.

Eligibility criteria for incorporation of Section 8 Company

• An Individual /HUF can start Section 8 Company.
• Minimum 2 directors in case of Private Company and 3 in case of the Public Company.
• Maximum 200 members in case Private Company and no as such limit in case Public Company.
• At least one director should be resident of India.
• The object must be - Trade, Commerce, Arts, Charity, Education, Religion, Environment protection, Social welfare, Sports research, etc.
• Directors and members can not draw remuneration in any form either cash or kind.
• No profit shall be distributed among the members and directors.

Procedure to incorporation

• Obtain DSC for proposed directors
• Obtain DIN
• Name Approval
• File –INC-12 for Obtain License
• The license in form no. INC-16 will be issue
• After obtaining the license, file spice+ form to ROC for incorporation of Company
• If the Registrar of Company is satisfied with the submitted form then, Certificate of Incorporation (COI) along with Company Identification Number (CIN) will issue

The form required to be filed:

Benefits of Section 8 Company Registration:

No Minimum Capital Requirement: Minimum capital requirement is not a limitation for incorporation of  Section 8 Company, whereas, the capital structure of the said Company can be changed with its growth requirements. Thus, the funds required to conduct the business can be brought in later, through donations and subscriptions from members and the general public.

Tax Benefits: Company Auditor's Report Order (CARO) does not apply to Section 8 Company and Section 8 Company enjoys tax benefits under 80G of Income Tax Act 1961.

No Stamp Duty: Incorporation of Section 8 Company are exempted from stamp duty, thus there is no stamp duty levied on Article of Association (AOA) and Memorandum of Association (MOA) of a Section 8 Company in India.

Separate Legal Identity: Section 8 Company acquires a distinct legal identity from its members and it has perpetual existence therefore entry and exit of any member will not affect the operation of Section 8 Company.

Credibility: Section 8 Companies are more credible and reliable than other forms of charitable organization. It is regulated under the provision of the Companies Act, thus need mandatory audit every year and the memorandum of association cannot be altered relating to non-profit objectives of the Company.

Exemption to donors: the tax exemption is granted to the donation received by the Section 8 Companies under Section 12AA and 80G of Income Tax Act, 1961.

Impotent licenses for claiming tax exemption in Section 8 Company

The following registrations are needed for tax exemption:

Section 12AA registration for exemption of income of Company - In order to claim any exemption under the Income Tax Act, it is necessary to register under Section 12AA Registration.

Section 80G Registrations give exemption to donors- If you are registered under Section 80G and any person who donates to your organization can claim the exemption in his IT Return.

FCRA Registration- If you want to receive donations from abroad, you have to register under the FCRA Act. The Company must be at least 3 years old or you must apply for prior approval to receive foreign contributions or donations.

Annual Compliances of Section 8 Company

Appointment of an Auditor: As per Section 139 of the Companies Act, 2013, the Company must appoint an Auditor.

Maintenance of Statutory Registers: the Company is required to maintain statutory a register consisting of members, loans obtained, charges created, its directors, etc.

Convening meeting: Annual General Meeting is to be conducted once a year within 6 months of the end of the financial year and other board meetings have to conduct.

Preparation of Financial Statement of The Company: the Company will get a balance sheet/ profit and loss account, cash flow statement, and other financial statements audited by a statutory auditor which are to be filed with the Registrar of the Companies (ROC).

Tax Return: the ITR requires to be filed at the end of every assessment year, before 30 September

Filling Return to Registrar of the Companies (ROC). The Company is required to file AOC-4 Financial Statement within 30 days from the date of the Annual General meeting and MGT-7 Annual Return within 60 days of the Annual General Meeting with the Registrar of the Companies

Penalty under Section 8 Company  

If the terms and regulations of Section 8 are not followed by the Company, then the Company will be charged for fraudulent action with

• A file of Rs. 10 lakh that can exceed to maximum Rs. 1 Crore.
• Every director of the organization will be punished. They would meet imprisonment for three years with a minimum fine of Rs. 25000 though, this may extend up to Rs. 25 lakh.

Author: Ajay Kacher – a Legal Associate at IP & Legal Filings, in case of any queries please contact/write back to us at support@ipandlegalfilings.com.