SECTION 8 COMPANY

Section 8 company is defined as a company that is licensed under Section 8 of the Companies Act, 2013. It is a legal form of a Non-Profit Organization (NPO) or Non-Governmental Organization (NGO), established to promote sports, education, arts, science, commerce, research, etc.

These companies are registered for charity, social welfare, and meeting the organizational goal that benefits society as a whole. A section 8 Company is authorized to work anywhere in the country.

Such companies pay no dividends to any of their members and instead use their profits to further their cause.

A Section 8 Company is the same as Section 25 of the former Companies Act of 1956. Section 25 has now become Section 8 in the 2013 Companies Act. However, the new Act has expanded the set of available objectives for Section 8 companies.

The Federation of Indian Chambers of Commerce and Industry (FICCI) and the Confederation of Indian Industries (CII) are well-known examples of Section 8 Companies in India. These organizations work to encourage the expansion of trade and commerce in India.

A non-profit organization in India can be constituted under Section 8 of the Companies Act, 2013, as a non-profit company, or under the Registrar of Societies.

FEATURES OF A SECTION 8 COMPANY:

The following distinctive characteristics of a Section 8 company are lacking from the majority of other kinds of companies:

Sr. No.	Feature	Explanation
1	Charitable objectives	Section 8 companies do not aim at making profits. These companies are registered for charity, social welfare, and meeting the organizational goal that benefits society as a whole
2	No minimum share capital is needed.	Section 8 companies do not need a minimum amount of paid-up share capital.
3	Limited Liability	Members of Section 8 Company can only have limited liability.
4	Government license needed.	Such companies can operate only if they have a valid license approved by the Central government.
5	Benefits and exemptions	Because of their philanthropic objectives, many benefits and exemptions have been accorded to such companies by the Companies Act.
6	Firms as members	Section 8 also allows firms to become members of such companies.

FORMATION OF SECTION 8 COMPANY:

• Under Section 8 of the Companies Act, a person or an association of persons may submit an application to the Registrar of Companies using the required documents to establish a company with charitable objectives.
• The applicant needs to make an application in SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus: INC-32)] Form together with the fees for application as mentioned in the Companies (Registration offices and fees) Rules, 2014 to the Registrar, who shall, if found fit, issue the license after obtaining the necessary documents.
• These are registered as Limited companies under the Companies Act , 2013 and will continue to be considered as such even though their names do not contain the word "Limited. They might've been registered either as "Private Limited or Public Limited Companies.
• Additionally, unlike all other companies, these companies are exempt from the need to include the words "Limited" or "Private Limited" at the end of their names.
• These companies are not permitted to alter their Articles Of Association (AOA) or Memorandum Of Association (MOA) without the consent of the Central Government because their very survival depends on the license issued to them. Additionally, they are not permitted to engage in any activities that the license forbids.

CANCELLATION OF LICENSE:

Section 8 companies need to obtain a valid license from the Central Government for their functioning. Additionally, all such licenses are revocable for the reasons listed below:

• If the terms of the license are breached or not followed upon,
• The company violates the provisions of Section 8 of the Companies Act, 2013,
• When its actions are fraudulent or when they contravene their own goals and the public policy.

Under certain conditions, the government may even order the company to be dissolved or merged with another business of a similar nature. The government has to hear the company’s stance before passing such orders.

WINDING UP:

• Companies under Section 8 may choose to wind up or dissolve themselves voluntarily or pursuant to Central Government directives.
• The National Company Law Tribunal (NCLT) may order the transfer of any assets that are left over after debts and liabilities have been satisfied following such winding up to another company that operates similarly.
• Additionally, NCLT ( National Company Law Tribunal) has the authority to mandate the sales of assets of the company, with the sale's revenues being added to the Insolvency and Bankruptcy Fund.

PUNISHMENT FOR CONTRAVENTION:

• Any company that operates in contravention with regard to the provisions mentioned in Section 8 of the Companies Act is punishable with a fine ranging from Rs. 10 lakhs to Rs. 1 crore.
• Additionally, directors and officers of the firm are liable to be punished, which includes a fine ranging from Rs. 25,000 to Rs. 25 lakhs and a term of jail up to 3 years.
• If these officers engage in any activities with fraudulent intentions, they may also be prosecuted in accordance with the strict guidelines of Section 447 (which deals with fraud).

PRIVILEGES OF SECTION 8 COMPANIES:

Within a period of one year from its incorporation, every Nidhi needs to ensure that it has:

• According to Section 8 of the 2013 Companies Act, Non-Profit Organizations are eligible for a number of exemptions and privileges. Such companies are also eligible for a number of tax benefits. Even the donors who make contributions to the Section 8 Companies may claim tax exemptions for their contributions.
• Additionally, instead of traditional NGOs and associations, people typically prefer to create Section 8 companies to carry out charity work.
• Moreover, generally people prefer to create Section 8 Companies because of their limited liability, which prevents the use of their personal assets to settle business debts.
• These are some benefits that Section 8 companies get to enjoy:
  • Separate legal Entity: Section 8 Company, unlike its members, is a distinct legal entity. It has perpetual existence. It also has more flexibility and well-organized operations.
  • Limited Liability: Limited liability prevents the use of the owner’s personal assets to settle business debts.
  • Perpetual existence: Until they are formally disbanded, these companies exhibit perpetual existence. The company remains in existence, irrespective of the demise or dismissal of its members.
  • Donors can claim tax exemptions: Individuals who donate to Section 8 Companies are eligible for tax exemptions under Sections 12A and 80G of the 1961 Income Tax Act.
  • Higher credibility: Since they are licensed by the Central Government, they have more credibility as compared to NGOs, societies, and trusts.