Section 8 of the Companies Act 2013: Incorporation Of Section 8 Company

Philanthropic and social welfare activities are becoming increasingly important in today’s world. With changes in the economy, society, and traditional family support systems, there is a growing need for organizations that can promote social responsibility and benefit communities. In India, such non-profit organizations can be registered under Section 8 of the Companies Act, 2013, as:

• Trust
• Society
• Section 8

Section 8 of the Companies Act, 2013 (previously Section 25 under the Companies Act, 1956) allows individuals or associations to form companies with charitable or social objectives. A Section 8 company, as per the Companies Act, 2013, must focus on promoting activities like commerce, education, art, science, sports, research, social welfare, charity, or environmental protection. Importantly, any profits earned by the company must be used to further these objectives, and no dividends can be paid to its members.

Once these conditions are met, the Central Government can register the organization as a company under Section 8 of the Companies Act, 2013 without using the words “Limited” or “Private Limited” in its name. The main goal of a Section 8 company is the welfare of society.

Famous examples of such companies include FICCI, CII, Tata Trusts, and Reliance Foundation, all of which work to improve social and economic development in India.

Advantages of Section 8 Companies

Let’s understand the benefits of establishing a Section 8 Company in India:

1. Limited Liability

This means that the members of the company and the company itself are considered separate entities according to the law. The liability of the members for the company’s debts only extends up to a limited sum, depending on the sum of the face value of the shares they hold.

2. Distinct Legal Identity

A section 8 company, unlike a society or a trust a distinct legal entity separable from its members and shareholders; it can thus own properties, transfer and incur debts under its independent name. This advantage helps in not only promoting its objective but also transferring ownership and initiating corporate restructuring schemes such as mergers, acquisitions, etc, whatever the case may be.

3. Tax Benefits

To receive these benefits, a company must register under Sections 80G and 12AA of the Income Tax Act, 1961. This allows it to receive donations to support its objectives. It also gets concessions on property registration in some states, including reduced stamp duty during the incorporation of a Section 8 company.

Formation of Company Under Section 8 as per the Companies Act

For this, a person or association of persons can apply to the registrar of companies through the required forms. The application would be accepted by the central government at its discretion, subject to any terms and conditions that it may impose under the license granted by it. Before this, the company will be registered upon payment of the requisite fee to the registrar.

Due to the fact that the company has been formed on the basis of the license granted by the central government, changes to the memorandum of association can be made only with the consent of the central government.

Incorporation of Section 8 Companies

Here’s how to form a Section 8 Company as per Section 8 of the Companies Act:

1. Application for the Company’s name

An application to reserve the company’s name must be made through Part A of the SPICe+ form. First, you select the type of business activity and submit two proposed names. If the CRC rejects these names, you must file two additional proposed names within the specified time limit.

2. Application for a Digital Signature Certificate

A Digital Signature Certificate is required due to the online mode of company incorporation. This would be used to electronically sign any forms proposed by members or directors of the company. Further, a digital signature certificate needs to be applied for each member and director of the company.

3. Application for Incorporation through SPICe+ form

The name gets reserved for a time limit of 20 days from the date of approval, during which one has to fill up the application for the incorporation along with all the required documents and upload it online.

Through this application, the company at once applies for name reservation, DIN TAN application, PAN application, EPFO, ESIC, and GSTIN registration. This is then followed by the filing of part B of SPICEe+, containing details such as the number of directors, shareholders, company address details, etc.

Members and witnesses have signed a physical copy of the current MOA. Members and witnesses must sign the hard copy of the AOA. A practicing professional must then sign the INC-14 declaration form.

4. Certificate for the Commencement of Business

Once the ROC approves the company’s application, it issues the certificate of incorporation. The company must then apply for business approval within 180 days of incorporation.

Documents required for incorporation are as follows-

i. PAN card, Aadhar card, and a Photograph of the proposed director.

ii. ID proof of proposed directors and members.

iii. Address proof of proposed members and directors.

iv. Address proof for the principal place of business of the proposed company.

Cancellation of License

Sub clause (6) of Section 8 of the Companies Act deals with the cancellation of the license of a limited company. In the circumstance that the company-

i. Violates any of the conditions of Section 8

ii. Conducts its affairs fraudulently

iii. Conducts its affairs in such a manner as is violative of the objectives of the company or harmful to the public interest

The Central Government may direct a Section 8 company to change its status and add “Limited” or “Private Limited” to its name. After this, the Registrar will register the company on application, without affecting any action under sub-section (7).

Winding up or Amalgamation

Under Section 8 of the Companies Act, 2013, the Central Government has the authority to order the winding up of a company if it is satisfied that such action is necessary in the public interest. This is provided under sub-section 7 of Section 8, ensuring that the government can intervene in cases where it serves a greater social or charitable purpose.

In the case of amalgamation, a Section 8 company can be merged with another registered under the Companies Act, 2013 that shares similar objectives. The resulting entity will continue as a single Section 8 company, inheriting all rights, obligations, properties, authorities, privileges, liabilities, and duties of the merging companies, as specified in the government order.

It is important to note that no such order can be issued without providing the company a reasonable opportunity of being heard. This ensures transparency and fairness in the process, safeguarding the interests of members, stakeholders, and the public.

Punishment for Violation under Sub-Section 11

In the case that the company fails to comply with or violates any of the requirements laid down in section 8 of the Company Act, 2013, it will attract a fine not less than ten lakh rupees and extendable to one crore rupees. The directors and officers of the company, if in default of the same, shall also be punishable with a fine not less than twenty-five thousand rupees and extendable to twenty-five lakh rupees.

If someone proves that the company’s affairs were conducted fraudulently, every defaulting officer will be liable for action under Section 447.

CSR & Section 8 Company

Corporate Social Responsibility (CSR) refers to a company’s commitment to contribute positively to society and the environment. Rather than focusing solely on profit, CSR encourages companies to balance economic growth with social and environmental well-being. Common CSR initiatives include:

• Reducing waste and pollution
• Supporting education
• Promoting health and sanitation
• Implementing philanthropic programs.

Companies formed with charitable or not-for-profit objectives play a vital role in advancing CSR initiatives across India. A company must comply with the provisions of Section 135 of the Companies Act, 2013, and the Companies (Corporate Social Responsibility Policy) Rules, 2014, to carry out CSR activities effectively. These legal provisions ensure that companies use CSR funds transparently for genuine social causes aligned with national development goals.

A Section 8 company can effectively execute CSR programs because it incorporates objectives that promote:

• Commerce
• Art
• Science
• Sports
• Education
• Research
• Social welfare
• Religion
• Charity, and
• Environmental protection

Instead, the company reinvests all profits to achieve its charitable objectives, making it an ideal CSR implementation partner for large corporations.

For instance, collaborations between corporations and Section 8 companies can magnify social impact. A classic example is the partnership between Grameen Microfinance Bank, founded by Muhammad Yunus, and Groupe Danone. It’s a French food company that produces nutritious yogurt for malnourished children in Bangladesh. They structured this partnership so that, after repaying the initial investment, the company would reinvest all subsequent profits back into the social enterprise.

When drafting the AOA for a Section 8 company, it is essential to define clear objectives related to social or environmental development. Doing so not only ensures compliance but also enhances credibility when collaborating with corporate CSR programs.

In essence, CSR and Section 8 companies complement each other—while CSR provides the funding and corporate drive for social betterment, Section 8 companies offer the legal and operational structure to execute these initiatives sustainably.

Final Touch

In conclusion, forming a company under Section 8 of the Companies Act, 2013, is one of the most effective ways to create a structured and transparent framework for carrying out charitable, social, and philanthropic activities in India.

Unlike other non-profit entities, a Section 8 company enjoys higher credibility, better legal standing, and improved access to grants and CSR partnerships due to its regulatory oversight by the Ministry of Corporate Affairs.

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Frequently Asked Questions (FAQs)

1. What is Section 8 of the Companies Act, 2013?

Section 8 of the Companies Act, 2013 allows the formation of companies established for promoting charitable objectives such as education, art, science, sports, social welfare, or environmental protection. These companies apply their profits solely toward promoting their objectives and do not distribute dividends to their members.

2. What is a Section 8 company as per the Companies Act, 2013?

As per the Companies Act, 2013 Section 8 company is a non-profit organization formed to advance social or charitable causes. It functions like a limited company but operates without the motive of earning profits for distribution among its members.

3. How to form a company under Section 8 of the Companies Act, 2013?

To form a company under Section 8 of the Companies Act, 2013, you need to apply for name approval through the SPICe+ form on the MCA portal, draft the Memorandum and Articles of Association (MOA and AOA), obtain a license from the Registrar of Companies, and complete the incorporation process as per MCA guidelines.

4. What documents are required for Section 8 company registration?

Documents required include:

• Digital Signature Certificates (DSC) and Director Identification Numbers (DIN) of proposed directors
• Memorandum and Articles of Association (MOA & AOA) for a Section 8 company
• Declaration in Form INC-14 and INC-15
• Proof of registered office address
• Financial and projected income details

5. Which benefits does a company registered under Section 8 of the Companies Act, 2013 offer?

A company registered under Section 8 of the Companies Act, 2013, enjoys several advantages, including tax exemptions under the Income Tax Act, eligibility for CSR funding, credibility with donors, limited liability protection, and perpetual succession.

6. What is the AOA for a Section 8 company as per the Companies Act, 2013?

The AOA (Articles of Association) for a Section 8 company outlines the company’s internal management rules and objectives, emphasizing non-profit operations and restrictions on profit distribution. It must align with Section 8 requirements under the Companies Act, 2013.

7. Can a Section 8 company receive CSR funds from other companies?

Yes. A Section 8 company can receive CSR funds from eligible corporations, provided it meets the requirements under Section 135 of the Companies Act, 2013 and the Companies (Corporate Social Responsibility Policy) Rules, 2014.

8. Where can I find the list of Section 8 companies under the Companies Act, 2013?

You can find the official list of Section 8 companies under the Companies Act, 2013, on the Ministry of Corporate Affairs (MCA) portal. Try searching the company name or CIN under the “MCA Services → View Company/LLP Master Data” section.

9. Can a Section 8 company make a profit?

A Section 8 company generates surplus revenue through its activities, but it must use these profits exclusively to promote its charitable objectives and cannot distribute them as dividends to members.

10. Is registration under Section 8 of the Companies Act, 2013, mandatory for NGOs?

No, it is not mandatory. NGOs in India can register as a Trust, Society, or Section 8 Company. However, Section 8 company registration offers higher legal recognition, transparency, and credibility compared to other forms.