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June 28, 2021

FAQ’s on Section 8 Companies Eligibility and Licensing Provisions

by CA Shivam Jaiswal in Corporate Law

FAQ’s on Section 8 Companies Eligibility and Licensing Provisions

1. Who can apply for registration of a Section 8 Company?

Answer: Any person or an association of persons intending to register a limited liability company for objects specified below can opt to apply for registration of Section 8 Company.

The following have to be proved to the satisfaction of the Central Government that:

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

2. Who is authorized to issue license to Section 8 Companies?

Answer: Registrars of Companies of respective jurisdictions are delegated with the powers of Central government to issue license to Section 8 Companies. [vide MCA notification dated 21st May, 2014 – Annexure D].

3. What is the meaning of persons or association of persons as mentioned in Section 8?

Answer: The term “person” is not defined under the Companies Act, 2013. Section 2(41) of the General Clauses Act, 1897 provides that “person” shall include any Company, or association or body of individuals, whether incorporated or not. Therefore such a person can be natural or a legal person.

It is also relevant to note that by virtue of provisions of section 8(3), even a partnership firm can be a member of Section 8 Company.

4. What is the procedure for incorporation of a Section 8 Company?

Answer: To incorporate a Section 8 Company, an application shall be made to the Registrar of Companies in Form no. INC.12, which shall be accompanied, inter alia, by the following documents:

  1. Draft Memorandum of Association (MOA) and Articles of association (AOA) of the Company in prescribed format (Form no. INC – 13) where the photographs of subscribers are affixed.
  2. A Declaration is to be attached in Form no. INC-14 (on the stamp paper, duly notarized) by an Advocate, a Chartered Accountant, Cost Accountant or Company Secretary in practice, that the draft memorandum and articles of association have been drawn up in conformity with the provisions of section 8 and rules made there under and all the requirements under section 8 have been complied with.
  3. An estimate of the future annual income and expenditure of the company for next three years, specifying the sources of the income and the objects of the expenditure.
  4. A declaration (in Form no. INC-15) on stamp paper duly notarized by each of the persons making the application and
  5. Form no. INC-9 from each subscribers and first directors, on appropriate stamp paper of the State and duly notarized.

5. Can a Company with unlimited liabilities be registered as a Section 8 Company?

Answer: No. Rule 20(1) of the Companies (Incorporation) Rules, 2014 provides that only a limited company registered under this Act or under any previous company law shall make an application to the Registrar for issue of license. Therefore, a company with unlimited liabilities cannot be registered as a Section 8 Company.

6. Is it necessary that Section 8 Companies are to be incorporated as a limited company with share capital?

Answer: Section 8 Company may be incorporated as a company limited by shares or by Guarantee (with or without share capital).

7. Is it mandatory that the name of section 8 Company shall include the words like – Foundation, forum, association, federation, chamber, confederation, Council, electoral trust etc.?

Answer: Yes. As per rule 8(7) of the Companies (Incorporation) Rules, 2014, for the Companies under Section 8 of the Act, the name shall include the words foundation, Forum, Association, Federation, Chambers, Confederation, council, Electoral trust and the like etc.

8. Whether a Section 8 Company can have objects incidental and ancillary to the attainment of the main objects?

Answer: Rule 19(2) of the Companies (Incorporation) Rules, 2014 provides that the memorandum of association of the Section 8 Company shall be in Form No.INC.13. Review of Form INC 13 clarifies that a memorandum of association of a Section 8 Company may inter-alia provide for the doing of all such other lawful things as considered necessary for the furtherance of the objects for which the company has been incorporated.

9. Whether an Articles of Association of a Section 8 Company can have entrenchment clause?

Answer: Yes, an Articles of Association of a Section 8 Company can have entrenchment clause in terms of provisions of section 5(3).

10. Is there any relaxation in stamp duty payment in incorporation of a Section 8 Company?

Answer: Stamp duty on memorandum & articles of association of a Company or on any increase in share capital is governed by Indian Stamp Act, 1899 as adopted by respective state or stamp act of respective state, as the case may be. Some of the states provide privileged rates for stamp duty on MOA/ AOA of Section 8 Companies or on increase in authorized share capital. Summary of rate of stamp duty in various states is placed at Annexure – E.

11. Is there is any relaxation in Stamp duty payment on issuance of share certificate by a Section 8 Company?

Answer: Stamp duty on issue of share certificates is governed by Indian Stamp Act, 1899 as adapted by respective state or stamp act of respective state, as the case may be. No relaxation of special rate of stamp duty has been provided by any of the state in respect of stamp duty payable on issue of share certificates by Section 8 Company.

12. Is there is any relaxation in stamp duty payment on transfer of shares of Section 8 Company?

Answer: Stamp duty on issue of share certificates is governed by Indian Stamp Act, 1899 and no relaxation of special rate of stamp duty has been provided stamp duty payment on transfer of shares. However, as in case of other Companies, no stamp duty is payable on transfer of shares of section 8 company also, if made in demat mode.

13. Whether a foreign Company can be registered as a Section 8 Company in India?

Answer: Section 2(42) of the Companies Act, 2013 defines the term “Foreign Company” and means any company or body corporate incorporated outside India which–

  • has a place of business in India whether by itself or through an agent, physically or through electronic mode; and
  • conducts any business activity in India in any other manner.

Now since a Company or a body corporate incorporated outside India for doing not for profit activities, which has opened a branch/liason office in India, cannot fall in definition of a foreign company as business activity is missing. Therefore, such company cannot be termed as foreign company. However, subject to compliance of FEMA regulations, it can open branch/liason offices.

Such not for profit companies or bodies corporate incorporated outside India can promote and register a Section 8 Company in India as a distinct entity.

14. Can a One Person Company (OPC) be incorporated as or convert into a Section 8 Company?

Answer: No. Rule 3 of the Companies (Incorporation) Rules, 2014 prohibits a one person company to be incorporated as section 8 company or to convert into a Section 8 Company.

15. Can a one person company become a member of Section 8 Company?

Answer: No, Rule 3(6) of the Companies (Incorporation) Rules, 2014 prohibits one person company to invest in securities of any body corporate.

16. Can a partnership firm or an Limited Liability Partnership become a member of Section 8 Company?

Answer: Yes, under the Companies Act, 2013, a Partnership firm or an LLP can become the member of Section 8 Company. The provisions of respective Acts need to be complied with by the partnership firm or LLP as the case may be.

17. If a Trust can become member of a Section 8 Company?

Answer: There is no restriction in the provisions of the Companies Act, 2013 for a registered Trust to become a member of Section 8 Company. In case of unregistered trusts, provisions of section 89 would be applicable.

18. Whether a Co-operative society can become subscriber/ member of a Section 8 Company?

Answer: In terms of section 8, any person or an association of persons intending to register a limited liability company for objects specified in section 8(1)(a), subject to the restrictions provided in section 8(1)(b) and (c), can opt to apply for registration of Section 8 Company.

The term “person” has not been defined in the Companies Act, 2013. Section 2(41) of the General Clauses Act, 1897 provides that “person” shall include any Company or association or body of individuals, whether incorporated or not.

Section 11 of the Indian Contract Act, 1872 provides that every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is sound mind and is not disqualified from contracting by any law to which he is subject.

Therefore a Co-operative society can be regarded as Person and thus capable of becoming subscriber of a company including Section 8 Company.

19. Can a company be treated as Section 8 Company as well as a small company provided that the company has not exceeded the thresholds prescribed for small companies under section 2(85)?

Answer: No. As per proviso to section 2(85), section 2(85) does not apply to a Section 8 Company and accordingly, a Section 8 Company cannot be treated as a small company.

Likewise, a small company on conversion to a Section 8 Company shall cease to be a small company.

20. Can Section 8 Companies receive contributions from overseas or non-residents?

Answer: There are special requirements to be complied with under the Foreign Contribution and Regulation Act, 2010 before a Section 8 Company can receive any contributions or donations from overseas/outside India from non-residents. The provisions of the said Act are in addition to the provisions under the Companies Act.

21. Can a Section 8 Company alter its Memorandum of Association or Articles of Association by only passing a special resolution?

Answer: A Section 8 Company can alter the provisions of its Memorandum or articles by passing a special resolution, however such alteration requires the approval of the Registrar of Companies [vide MCA notification dated 21st May, 2014].

Further, if alteration in Memorandum or Articles results in conversion of Section 8 Company to any other kind of company, prior approval of Central Government is required. Such power is delegated to Regional Director [vide MCA notification dated 21st May, 2014].

22. Section 8 Companies are exempted to suffix Limited/ Private Limited with the name of the company. What is the significance of this exemption? Does it affect their limited liability?

Answer: No, the Section 8 Companies enjoy limited liability even without adding the words “Limited” or “Private Limited”. No, it does not affect their limited liability.

23. Can section 8 companies be a holding company of another company?

Answer: Yes, section 8 company can promote another company and be a holding company of another company.

24. Whether existing section 25 companies registered under the Companies Act, 1956 are required to obtain license under section 8 of the Companies Act, 2013?

Answer: No, the existing section 25 companies are not required to obtain license under Companies Act, 2013.The existing registrations and licenses issued under the 1956 Act, (upon repeal) shall be protected under section 465 of the Companies Act, 2013.

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