SECTION 8 COMPANY [Company with Charitable Objects]

Basics:

Section 8 companies are those companies which are formed for the sole purpose of promoting commerce, art, science, religion, charity, sports, education, research, social welfare, protection of environment or any other useful object and have been granted a license by the central government recognizing them as such. Such companies should intend to apply its profits, if any, or other income only in promoting its objects and must also prohibits payment of dividend to its members. Thus there are three 3 criteria for determining whether a particular company is section 8 company or not:

1. It’s objects should be only to promote commerce, art, science, religion, charity, sports, education, research, social welfare, protection of environment or any other useful object;
2. It should intend to apply its profits or other incomes only in promoting its objects; and
3. It must prohibit payment of dividend to its Members.

Obligations:

1. A Section 8 Company has to ensure that its profits and all other incomes are utilized only for the purpose of promoting its objects and not for any other purpose.
2. It should also ensure that its profits are not distributed as dividend among its members.
3. Section 8 Company cannot alter its objects clause in its Memorandum without seeking the written approval of Central Government.
4. If the Central Government has imposed some conditions and regulations upon the Company for granting a license under Section 8, then such a Company is bound by the said conditions and has to ensure adequate compliance with them.

Basic Requirements for registration of a Section 8 Company:

1. Minimum two shareholders and maximum 200 shareholders;
2. Minimum two directors, out of which one should be a resident Indian Director;
3. No minimum capital required, however suggested is Rs.1,00,000/-.
4. Registration of Company’s own bye laws.

Privileges under Companies Act:

1. The date, time and place of Annual General Meeting can be predetermined by the Board of directors
2. General Meetings of a Section 8 Company can be conducted with notice of 14 clear days instead of 21 days.
3. Section 8 Company may adopt suitable method of maintenance and recording of minutes
4. A company registered section 8 may have any number of Directors and the requirement of passing of special resolution for having more than fifteen directors will not be required.
5. Number and frequency of holding board meetings as board may decides
6. Quorum for Board Meetings of Section 8 Companies has been changed as 8 directors or 1/4th of total strength whichever is lower subject to minimum of 2 directors.

Privileges under Tax Laws:

1. Registration under Section 12A/12AA of Income Tax Act for non-applicability of Section 11 & 12 of the said act.
2. Section 80G – Deduction in respect of donations to certain funds, charitable institutions, etc. – The Company is required to be recognized by Income Tax department under Section 80G in order to qualify for deduction.
3. Section 10(23) & 10(23C) – Any income of Section 8 Company shall not be included in total income and exemptions from capital gain tax, subject to compliances of the said sections.

Corporate Social Responsibility [CSR] Fund:

1. As per section 135(5), the Board of every company required to spend on CSR activities shall ensure that the company spends, in every financial year, at least 2% of the ‘average net profits’ of the company made during immediately preceding three financials years.
2. Rule 7 of Companies (Corporate Social Responsibility Policy) Rules, 2014, CSR Expenditure shall include contribution to Corpus for various Projects / Programs relating to CSR activities.

Registration Process:

1. The Ministry of Corporate Affairs has simplified the process of incorporation of Section 8 Company through SPICE +. There is no separate application required for issue of license. The license and the certificate of incorporation will get processed in a single window clearance.