Meaning

Indian Trusts have no central law; Indian Societies have different legal and institutional frameworks from state to state while Section 8 companies have one uniform law across the country – Companies Act, 2013. It is this robust Act that regulates the formation, management and accountability of a Section 8 Company, thus making it more closely regulated and monitored than trusts and societies, and recognized all over the world.

A Non-profit Company or Section 8 Company is a Company which:

• Has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
• Intends to apply its profits, if any, or other income in promoting its objects; and
• Intends to prohibit the payment of any dividend to its members.

It means that the Company cannot make a profit or income. It only signifies that the Company can earn income but the promoters are not to benefit from those profits. The profits cannot be distributed among the promoters. All incomes must be applied to promoting the object.

Still, certain exemptions and benefits have been provided for NGO or NPO u/s 8 of Companies Act 2013. Numerous Tax exemptions are also there for such companies. Even the donors contributing towards Section 8 Company are eligible to claim the Tax Exemption against these donations.

Features

• Distinct Legal Identity: Section 8 Company has a separate legal entity. Different from its members. Its legal standing is different from its members. The Company has a perpetual existence. Along with having organized operations and greater flexibility.
• Zero Stamp Duty: A Section 8 Company is exempt from the requirement of paying stamp duty on the MoA and AoA of the private or public limited company. Which is applicable for registration of other kinds of company structures.
• No Minimum Capital Requirement: No minimum capital limit has been mentioned for a Section 8 Company in India. And the capital structure may be altered at any stage as per the growth requirements of the company. This implies that it can be formed without any share capital. The funds necessary for carrying the business operations can be brought, later, in the form of donations and/or subscriptions from members and the general public.
• Name: Section 8 Company does not need to suffix Limited or Private Limited, next to its legal name. It can be registered with names that have words like Association, Society, Council, Club, Charities, Foundation, Academy, Institute, Organisation, and Federation.
• CARO: Requirements of Companies Auditor’s Report Order or CARO do not apply to this type of company.
• Tax Benefits: For Section 8 Companies in India, many tax benefits are granted.
• Credibility: Section 8 Companies are more reliable than all other forms of charitable organizations. They are governed by the Companies Act and are regulated strictly. Such as the requirement of a mandatory annual audit, or the MOA and AOA cannot be altered at any stage or situation. The rules on managing the profits and losses of the company make these companies trustworthy.
• Exemption to the donors: Those donating to a Section 8 Company are eligible for tax exemptions u/s 12A and 80G of the Income Tax Act.
• Membership: A registered partnership firm can become a member in its individual capacity and obtain Directorship.

For any kind of assistance, contact Mr.Manohar B V, FCA, MCom @ manohar@mbvca.in / 9916870055