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Section 8 Company Registration - An Overview

Below are the main advantages of sole proprietorship registration in India:

A Section 8 company registration under the Companies Act, 2013 or a Section 25 Company as per the Companies Act,1956 is an organisation registered with an objective of promoting the fine arts, science, literature, or knowledge sharing for a purposeful matter or for charity. Section 8 companies are regulated through the Companies Act, 2013. These are the limited companies established under the Companies Act. The Government grants these companies an exclusive license under Section 8 Companies Act. There are three main conditions for granting the license.

  • The company should be registered for charitable purposes
  • Income and profits should be used towards these objects
  • The company should not pay any dividend to its members.
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Benefits of Section 8 Company Registration

Section 8 Company Registration

  • Tax Exemption: Section 8 companies enjoy 100% tax exemption as their profits are utilised for charitable purposes, providing a significant tax advantage.
  • No Minimum Capital Requirement: Section 8 entities have the flexibility to adjust their capital structure according to their growth, eliminating the need for a minimum capital requirement.
  • No Stamp Duty: Section 8 companies are exempt from paying stamp duty during the registration process, reducing the cost of establishment.
  • Separate Legal Entity: Section 8 companies have a separate legal identity and perpetual existence, enhancing credibility and providing autonomy.
  • Increased Credibility: Strict legal compliance frameworks ensure that Section 8 companies have a higher level of credibility and trustworthiness compared to NGOs and trusts.
  • No Title Required: Section 8 companies have the freedom to choose a name without the requirement to add the term 'Section 8' to their name, allowing for greater naming flexibility.
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Requirements for Sec 8 Companies Registration Online

For Section 8 Company Registration procedure, the following criteria must be fulfilled:

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  • Governed By: Companies Act, 2013
  • Members: Minimum of 2 Directors/Shareholders
  • Important Documents: MoA, AoA and financial statements
  • Board: Directors
  • Property Management: All the properties belonging to a company are vested in the name of the company. These can be sold in conformity to the provisions mentioned in the Companies Act, 2013. The Act says the sale can be done with prior consent of the Company Board of Directors, when they pass a resolution regarding the same.
  • Closure or Winding up of a company : The property and funds of the society, upon its dissolution ( as per the society by-laws) and settlement of all liabilities & debts, may not be equally distributed among the company members. Rather, the same can be transferred or given to some other company, preferably with similar objects.
  • Annual Compliance: The company must ensure its annual compliance by filing its annual returns and annual accounts with the RoC.

Section 8 Company Registration Process

The following documents required for Sole Proprietorship Registration:

Step 1: Obtaining a Digital Signature Certificate (DSC)

  • All proposed directors must acquire a Class 2 or Class 3 DSC for digital signing of incorporation documents.
  • DSCs can be obtained from authorized certifying agencies.

Step 2: Applying for Name Approval

  • Use the RUN (Reserve Unique Name) form on the MCA (Ministry of Corporate Affairs) portal to check and reserve a unique, available name.
  • Names should generally include words like Foundation, Association, or Institution to indicate non-profit status.

Step 3: Applying for License under Section 8

  • File Form INC-12 with the Registrar of Companies (ROC), along with:
  • Draft MOA (Memorandum of Association)
  • Draft AOA (Articles of Association)
  • Declaration by subscribers and directors
  • Proof of address
  • Other relevant documents
  • Upon approval, the ROC issues a license under Section 8 in Form INC-16.

Step 4: Filing SPICe+ Form for Incorporation

  • Complete and submit the SPICe+ form (INC-32) on the MCA portal, attaching:
  • Licensed INC-16
  • Approved MOA and AOA
  • Director Identification Numbers (DINs) of directors
  • PAN card, Aadhaar card, and photographs of directors and subscribers
  • Proof of registered office address
  • Other required documents

Step 5: Incorporation Certificate

Upon successful verification, the Certificate of Incorporation is issued by the ROC, marking the company’s legal existence.

Key Points about Section 8 Company

After the registration of a sole proprietorship, the proprietor should make sure to follow the compliance requirements from time-to-time.
Here is a set of post-registration compliances for sole proprietorships in India:

  • NGOs in India can be registered under the Registrar of Societies or as a non-profit entity under Section 8 Company of the Companies Act, 2013
  • Section 8 Companies cannot utilise profits for purposes other than charitable objectives and cannot distribute them among shareholders
  • Section 8 Companies are similar to the former Section 25 Companies under the Company Act 1956. They are now recognised as such under the prevailing legislation
  • Compliance with the Companies Act 2013 is mandatory for Section 8 Companies, including maintaining books of accounts, filing returns with the Registrar of Companies (ROCs), and complying with GST and IT Act regulations
  • Any changes to the charter documents, such as the Articles of Association (AoA) and Memorandum of Association (MoA), require government consent.
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FAQs on Section 8 Company Registration

Does a Section 8 company pay tax?

No, Section 8 companies are generally exempt from paying income tax on their income derived from activities aligned with their objectives, such as social welfare, education, or research. This exemption is granted underSection 12AA of the Income Tax Act, 1961.
However, there are few exceptions:

  • Income from commercial activities: If a Section 8 company generates income from activities unrelated to its charitable objectives, such as running a commercial restaurant, that income will be subject to regular income tax.
  • Excess income not applied for objectivesAny income earned beyond what’s reasonably needed for achieving the company’s objectives is also subject to tax.
What is the minimum requirement for a Section 8 company?

There are no minimum requirements in terms of capital or shareholding for starting a Section 8 company. However, it must have:

  • At least two promoters/subscribers: These individuals will initiate the incorporation process and become the initial directors.
  • A well-defined objective:The objective should be explicitly mentioned in the company’s Memorandum of Association (MoA) and aligned with Section 8 purposes like education, environment, or promoting art and culture.
  • Limited liability protection:Shareholders and directors have limited liability, meaning their personal assets are not at risk for the company’s debts.
Do Section 8 companies need GST registration?

Whether a Section 8 company needs GST registration depends on its annual turnover and activities. If the company’s turnover exceeds the prescribed threshold (currently 40 lakhs in most states), it needs to register for GST. Additionally, even if the turnover is below the threshold, registration might be necessary if the company:

  • Makes interstate supplies of goods or services.
  • Imports goods or services.
  • Acts as a supplier of goods or services to a GST-registered business.
How do I convert my company to a Section 8 Company?

Converting an existing company into a Section 8 Company involves the alteration of the company’s Memorandum and Articles of Association and obtaining approval from the Registrar of Companies (RoC). You will need to meet the eligibility criteria, prepare the necessary documents, and follow the prescribed procedure as per the Companies Act, 2013.

Is a Section 8 Company a public or a private company?

A Section 8 Company can be either a private or a public company, depending on its structure and the number of members. It follows the same classification criteria as other companies under the Companies Act, 2013.

How can I check if a Section 8 Company is registered or not?

You can check the registration status of a Section 8 Company by searching the Ministry of Corporate Affairs (MCA) portal in India. The MCA provides online access to information about registered companies, including Section 8 Companies.

Is there any maximum limit for the number of members in a Section 8 company?

There is no maximum limit for the number of members in a Section 8 Company. The company can have any number of members as required for achieving its objectives.