Introduction
In India, if you’re looking to start a non-governmental organization (NGO) with a focus on promoting arts, commerce, science, education, sports, charity, protection of the environment, or any other form of social welfare, you may want to consider registering as a Section 8 company. These are companies licensed under Section 8 of the Companies Act, 2013, that operate with charitable objectives and do not distribute profits to shareholders.
What is a Section 8 Company?
A Section 8 company is a legal entity registered under the Companies Act, 2013, specifically formed with objectives to promote fields such as Arts, Science, Commerce, Education, Environment protection, social welfare, Charity, Research or any other similar objects.
Unlike private or public limited companies, Section 8 companies do not aim to earn profits for distribution to their shareholders. Instead, any profits or income are utilized towards achieving the organization’s goals.
Key Features of a Section 8 Company
1. Non-profit motive: It’s formed for promoting charitable, social, or artistic objectives.
2. No minimum capital requirement: There's no fixed capital requirement for Section 8 companies, giving more flexibility.
3. Tax benefits: Section 8 companies may receive tax exemptions under Section 12A and 80G of the Income Tax Act.
4. Limited liability: The liability of members is limited to the extent of their shareholding or contribution to the capital.
5. Legal status: A Section 8 company enjoys the status of a legal entity, separate from its members.
Why Choose a Section 8 Company?
When comparing charitable entities like trusts and societies, Section 8 companies have several advantages:
1. Enhanced credibility: Since Section 8 companies are governed by the Ministry of Corporate Affairs (MCA) and registered under the Companies Act, they tend to have better transparency and governance structures.
2. Better funding opportunities: Many government and international donors prefer working with Section 8 companies over societies and trusts due to stricter compliance measures.
3. Compliance and regulatory framework: Section 8 companies have a clear framework of compliance, making them accountable and trustworthy in the eyes of donors, partners, and beneficiaries.
Steps to Register a Section 8 Company
1.Digital Signature Certificate (DSC)
The first step in registering a Section 8 company is obtaining a Digital Signature Certificate (DSC). This is mandatory for at least one of the proposed directors. DSC can be obtained through government-authorized certifying agencies like e-Mudra, NSDL, or other private certifying authorities. The signatures are required for the subscription of Memorandum and Articles of Association.
2. Director Identification Number (DIN)
Once you have a DSC, the next step is to apply for a Director Identification Number (DIN) for the proposed directors of the company. You can apply for DIN through the SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) form while submitting incorporation documents.
3. Name Reservation
The name of your Section 8 company must be unique and in compliance with MCA (ministry of corporate affairs naming guidelines. The name should align with the charitable objective of the company. You can check the availability of names through the RUN (Reserve Unique Name) service available on the MCA portal.
4. Drafting Memorandum and Articles of Association (MOA & AOA)
The Memorandum of Association (MOA) and Articles of Association (AOA) are crucial documents for any company. For Section 8 companies, these documents must clearly specify the charitable objectives and outline the rules for internal management.
MOA - outlines the objectives and scope of the company’s activities.
AOA- contains the regulations for the management of the company.
5. Application for License
A Section 8 company requires a license from the MCA to operate as a non-profit entity. The application for the license is submitted through Form INC-12, along with the necessary documents such as:
· MOA and AOA
· Declaration by the directors (Form INC-15)
· Estimated income and expenditure for the next three years
· Identity proof and residential address of the directors
· Proof of office address
· Once the license is approved, you can proceed with incorporation.
6. Filing for Incorporation through SPICe+ Form
After receiving the Section 8 company license, you must file for incorporation using the SPICe+ form. This form also allows for the allotment of DIN and PAN (Permanent Account Number) in a single step, making the process efficient. You will need to upload the required documents, including:
· MOA and AOA
· Proof of registered office (rent agreement, sale deed, water bill, electricity bill)
· Identity and address proof of directors
· DSC of directors
7. Certificate of Incorporation
Once all the documents are approved, the MCA issues a Certificate of Incorporation (COI) along with a Company Identification Number (CIN). This marks the successful incorporation of your Section 8 company.
Conclusion
Incorporating a Section 8 company in India is a strategic choice for individuals and organizations with charitable objectives. It offers a legal structure that enhances credibility, opens avenues for funding, and provides a robust regulatory framework. With clear steps from obtaining a Digital Signature Certificate to receiving the Certificate of Incorporation, the process may seem extensive but is worthwhile for those committed to impactful social causes. A Section 8 company not only establishes a credible legal entity but also offers the flexibility and support to fulfil its purpose-driven mission.