What is a Section 8 company?
Whenever someone intends to carry out social work, one of the modes in which they can do social service is via the Section 8 form. Basically Section 8 is a form of company which will be registered with the object of using the profit for charitable purposes. They are thus known as Section 8 companies and generally direct the entirety of their incomes to the furtherance of their goals. These may include arts, sciences, education, sports, charity, social welfare, etc.
Why does one have to register a Section 8 company?
In India, charitable activity can be conducted through registered societies, trusts, or Section 8 companies. Section 8 carries various advantages over and above societies or trusts. Let us analyze the features of Section 8.
It is a form of company with the object of non-profit. It provides a corporate touch to social service.
Rules and regulations applicable to Section 8 are well defined. There is no ambiguity.
No minimum share capital : They do not require a prescribed minimum paid-up capital to commence operations.
Limited Liability : Members liabilities are always limited.
Privileges : Due to the nature of their objectives, the government provides them with many privileges to facilitate their operations.
Members : Section 8 companies can have a up-to 200 members if it is registered as Section 8 Private Limited.
CSR Funds : Section 8 companies can receive CSR funds, many corporates prefer a Section 8 company to give a CSR funds.
Formation of a Section 8 company
Any person or group can make an application with the appropriate forms to the Registrar of Companies under Section 8 of the Companies Act, 2013. The authorities will review the application and accept it if it is satisfied. It may impose certain terms and conditions upon granting the license.
Eligibility to take CSR funds by Section 8:
If a Section 8 company is 3 years old and has a track record of carrying out social work, it is eligible for CSR funds. In addition to this Section 8 companies should obtain a 80G and 12A registration from Income Tax Department.
80G and 12A Registration to Section 8:
Section 8 companies cannot take any donations or any receipts from donors unless they have registered with the Income Tax Department. If a company receives such funds without having registered with the Income Tax Authorities, such received amount will be taxable in the hands of the company.
If a Section 8 company has an 80G registration, then donors will be eligible to claim a tax exemption. By having 80G registration it will help the Section 8 company to raise the funds.
Section 8 can raise funds from foreign nationals or NRIs. They can also receive this as a grant. To do this, Section 8 should apply for prior permission for each transaction or can obtain a one time registration from FCRA Authorities. (https://fcraonline.nic.in/home/index.aspx).
Basic Requirements for registering the Section 8 Company:
1. There should be minimum two directors and two Shareholders to register a Section 8 company.
2. There should be registered office address.
3. Objects of the company should be for non profit and should be well drafted.
4. Profile of the promoters.
5. MOA and AOA should have certain clauses prescribed under Income Tax Act.
6. Minimum Share capital of Rs. 2/-.
7. Name for the proposed company. Name should end with words like Foundation, Organization etc. Name availability for the company can be checked from the below link:
Takeover of Existing Section 8 companies:
There is a legal provision available to takeover or purchase the Section 8 company. In the Corporate world it is common that promoters of the Section 8 willing to transfer the entity to another person who has more capacity to takeover the services. However any change in management or any alteration to the memorandum or any corporate charter needs approval from the Income Tax commissioner and Central Govt.
Can a Foreigner or NRI set up a Section 8 company?:
Yes, NRIs or foreigners can set up a Section 8 company. However before they transfer the share capital or make any further investment, prior approval from FCRA authorities should be obtained. https://fcraonline.nic.in/home/index.aspx
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