SETTING UP OF BUSINESS ENTITIES

Unit-II

Meaning of section 8 company:

● A Section 8 Company is a non-profit organization that aims to promote charitable

activities, art, science, education, and sports. The profits of such companies are utilized
for promoting these objectives and are not distributed among the Company's members.
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Definition of Section 8 company:

According to the Companies Act 2013, a Section 8 company is defined as an organization

whose objectives are to promote arts, commerce, science, research, education, sports, charity,
social welfare, religion, environmental protection, or other similar activities goals. These entities
utilize their profits to achieve their mission and do not distribute dividends to their shareholders.

Key Points about Section 8 Company

● In India, Non-Governmental Organizations (NGOs) can be registered under the Registrar
of Societies or as a non-profit entity under Section 8 Company of the Companies Act,
2013.
● Profit generated by Section 8 Companies cannot be used for purposes other than
charitable objectives and cannot be distributed among shareholders.
● Section 8 Companies are similar to the erstwhile Section 25 Company under the
Company Act 1956. As per the prevailing Company Act, these are now recognized as
Section 8 Companies.
● Section 8 Companies are required to comply with the provisions of the Companies Act
2013. They are mandated to maintain books of accounts, file returns with the Registrar
of Companies (ROCs), and comply with GST and IT Act.
● Any changes to the charter documents like the Articles of Association (AoA) and
Memorandum of Association (MoA) require the government's consent.

Benefits :
Tax Exemption:
Section 8 companies registered under section 12AA of the Income Tax Act are eligible for a 100% tax
exemption, as they utilize their profits for charitable purposes. This is a significant benefit as the profits
generated by such entities are non-taxable.
No Minimum CapitalRequirement:
Unlike public limited companies, Section 8 entities do not have a minimum capital requirement. They can
adjust their capital structure according to their growth, giving them more flexibility.
Separate Legal Entity:
Section 8 companies have a separate legal identity and perpetual existence, just like other registered
companies. This increases their credibility and provides them with more autonomy and legal standing.
Increased Credibility:
Section 8 companies are subject to strict legal compliance frameworks, enhancing their credibility
regarding legal standing. Unlike NGOs and trusts, Section 8 entities follow stringent compliances
post-registration, making them more trustworthy.
No Title Required:
Section 8 companies are free to choose a name that suits their liking during the registration process.
Unlike other registered structures, they are not required to affix the term "Section 8" after their name.

A Section 8 company in India offers numerous benefits, including tax exemption, no minimum capital
requirement, no need to pay stamp duty, separate legal identity, increased credibility, and no title required.
These advantages make Section 8 companies attractive for entrepreneurs looking to start a business with
a charitable or social cause.

Mandatory legal requirements for Section 8 Company:

Before applying for the incorporation process of a Section 8 company in India, specific legal
requisites must be fulfilled. These requirements are as follows:

Number of Directors:
A minimum of two directors is required if the Section 8 entity intends to operate as a private
limited company. However, a minimum of three directors are required if the entity aims to
operate as a public limited company.

Number of Members:
If the Section 8 Company aims to function as a private limited company, the number of members
is capped at 200 by the Ministry of Corporate Affairs (MCA). However, there is no such limit for
Section 8 entities with a business structure like a public limited company.

Capital Requirement and Name:

According to the Companies Act 2013, Section 8 entities are not required to maintain a
minimum paid-up capital. Moreover, NGOs operating as Section 8 entities are not obligated to
affix terms like private limited or limited in their name.

Company Objects:
Only entities with non-profit objectives are eligible for Section 8 registration. The Memorandum
of Association and Articles of Association must clearly state such goals for which the Company
is established. Any profits the Section 8 entity generates must be utilized for charitable purposes
or reinvested in the entity. The profit of Section 8 entities is not available to its members in any
form. These legal requisites ensure that Section 8 companies operate with transparency and the
intended purpose of promoting social welfare.

Documents Required for Section 8 Company Incorporation:

The following documents are required to complete the incorporation process for a Section 8
company in India:

1. Articles of Association (AOA) and Memorandum of Association (MOA)

2. Declaration by the first director(s) and subscriber(s) (an affidavit is not required)
3. Proof of office address, such as a copy of utility bills like electricity, water, or gas bill
4. Copy of the certificate of incorporation (COI) of an overseas corporate body (if any)
5. A resolution passed by the promoter company
6. Consent of Nominee (INC-3)
7. Residential and identity proof of nominees and subscribers
8. Applicant's identity and residential proof
9. Digital Signature Certificate (DSC)
10. Declaration of unregistered companies.
11. By providing these documents, you can ensure smooth and efficient Section 8 company
incorporation processes.

Section 8 Company Incorporation Process:

The process of incorporating Section 8 companies in India involves the following steps:

Step 1: Obtain Digital Signature Certificate (DSC)

The first step is to obtain a Digital Signature Certificate (DSC) for the proposed directors of the
Section 8 Company. This certificate is required for the online filing of documents with the
Ministry of Corporate Affairs (MCA). Form DIR-3 is used for obtaining the DIN and should be
filed along with the DSC of the proposed directors.
Forms to be used: DIR-3, DSC

Step 2: Obtain Director Identification Number (DIN)

After obtaining the DSC, the next step is to apply for a Director Identification Number (DIN) for
the proposed directors. The DIN number is a unique identification number issued by the MCA to
individuals who wish to be directors of a company in India.
Forms to be used: DIR-3

Step 3: Reserve the Company Name

The next step is to reserve the name of the proposed Company with the MCA. The Section 8
company name should be unique and not be similar to any existing company name. Form INC-1
is used for reserving the company name.
Forms to be used: INC-1

Step 4: File the Application for Incorporation

After the company name is approved, the next step is to apply for Section 8 Company
incorporation. The application for incorporation is filed in Form INC-32 along with the Company's
Memorandum of Association (MOA) and Articles of Association (AOA).
Forms to be used: INC-32, MOA, and AOA
Step 5: Obtain a License for Section 8 Company
Once the application for incorporation is approved, the next step is to obtain a license for the
Section 8 Company. Form INC-12 is used for obtaining the license. It should be filed along with
the necessary documents.
Forms to be used: INC-12