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August 3, 2020

How to Register Section 8 Company in 5 easy steps?

by Rubina Dsouza in Compliance Law

How to Register Section 8 Company in 5 easy steps?

What do you mean by Section 8 Companies:-

Not all companies have objectives of making profits by carrying out trade and commerce. Many companies primarily have charitable and non-profit objectives. The main purpose of establishing a company under Section 8 of the Companies Act is to promote non-profit objectives. The profits/incomes of the company if any, are applied towards promoting the objectives of the company and are not distributed as dividends to its shareholders.

According to Section 8(1) of Companies Act, 2013, where it is proved to the satisfaction of the Central Government that a person or an association of persons proposed to be registered under this Act as a limited company:-

  1. has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object
  2. intends to apply its profits, if any, or other income in promoting its objects and
  3. intends to prohibit the payment of any dividend to its members,

the Central Government may, by license issued in such manner as may be prescribed.

What are the features of a company registered under Section 8?

A Section 8 company comprises of the following distinct features that most other kinds of companies do not have:

  1. Section 8 companies do not aim to make profits. Their objectives are purely charitable in nature.
  2. Section 8 companies do not require a prescribed minimum paid-up share capital.
  3. Members of these companies can only have limited liability.
  4. Section 8 companies can function only if they have the Central Government’s license. The Government can revoke this license as well.
  5. Any type of profit or income of the company is utilized mainly for the promotion of the company.
  6. Since these companies possess charitable objectives, the Companies Act has accorded several benefits and exemptions to them.
  7. The members of the company do not receive any dividend.
  8. Shares and other interests of the members are easily transferable as provided by the Articles.

Can the license granted under Section 8 be revoked?

  1. The Central Government may, by order, revoke the license granted to a company registered under section 8, if the company contravenes any of the requirements of this section or any of the conditions subject to which a license is issued or the affairs of the company are conducted fraudulently or in a manner violative of the objects of the company or prejudicial to public interest, and without prejudice to any other action against the company under this Act.
  2. No such order shall be made unless the company is given a reasonable opportunity of being heard.
  3. A copy of every such order shall be given to the Registrar.

When can a company formed under Section 8 be wound up?

1.Where a license is revoked, the Central Government may, by order, if it is satisfied that it is essential in the public interest, direct that the company to be wound up or amalgamated with another company registered under this section.

2. No such order shall be made unless the company is given a reasonable opportunity of being heard.

3. If on the winding up or dissolution of a company registered under section 8, there remains, after the satisfaction of its debts and liabilities, any asset:-

i. such asset may be transferred to another company registered under this section, having similar objects, subject to such conditions as the Tribunal may impose, or

ii. such asset may be sold and proceeds thereof credited to the Rehabilitation and Insolvency Fund formed under section 269

4. A company registered under section 8 shall amalgamate only with another company registered under section 8 having similar objects.

Does Section 8 impose any penalty?

  1. If a company makes any default in complying with any of the requirements laid down in this section, the company shall, be punishable with fine which shall not be less than Rs 10,00,000 but which may extend to Rs 1 crore
  2. Directors and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 3 years or with fine which shall not be less than Rs 25,000 but which may extend to Rs 25,00,000, or with both
  3. Provided that when it is proved that the affairs of the company were conducted fraudulently, every officer in default shall be liable for action under section 447.

How to incorporate a Section 8 Company?

A section 8 company can be incorporated with the below mentioned 5 steps.

Step 1: Obtain Digital Signature Certificate (DSC)

The first and foremost step to register a company is to acquire the DSC of the Directors and Subscribers to MOA. Any e-form is filed with the Ministry after affixing the DSC of the Authorised Signatory for Company Incorporation. It is also required for the application of DIN of the directors.

Step 2: Obtain Director Identification Number (DIN) for Directors

DIN is an identification number for a director. It has to be obtained by anyone who wants to be a director in a company. To obtain digital signature and DIN, the proposed Directors must submit a copy of their:

  1. PAN Card or Aadhar Card
  2. Drivers License/Passport/Election ID/Other Government Issued ID

Step 3 – Name Approval Process

  1. In parallel to the digital signature application processing, the name approval application can be initiated for the Section 8 Company to the MCA.
  2. The name of a Section 8 Company must end with the words prescribed for this purpose like foundation, forum, association, federation, chambers, confederation, council, electoral trust, etc.
  3. File Form INC-1 with the ROC for applying for a company name.

Step 4 – Application of License

After approval, file Form INC-12 with the ROC to apply for a license for the Section 8 company. Documents to attach with INC-12 are:

  1. Draft Memorandum of Association (MOA) as per Form INC-13
  2. Draft Articles of Association (AOA)
  3. Declaration as per Form INC-14 (Declaration from Practicing Chartered Accountant)
  4. Declaration as per Form INC-15 (Declaration from each person making application )
  5. Estimated Income & Expenditure for next 3 years.
  6. Proof of Office Address – Utility Bills not older than 2 months.
  7. No Objection Certificate (NOC) if the premise is owned by any other person.
  8. If any promoter is a Company or Company incorporated outside India, then attach Certificate of Incorporation of such Company and Resolution passed for becoming promoter.
  9. If any promoter is a Company, then resolution passed to become promoter shall be attached.
  10. Consent to act as director from all directors in for DIR-2, which should be signed by respective directors.
  11. Specimen signature of all directors for ESIC and EPF.
  12. List of all proposed directors and promoters, signed by all respective persons.
  13. Statement of estimated income and expense for next 3 years, signed by all respective proposed directors.
  14. Statement of work proposed, signed by all respective proposed directors.
  15. Statement of grounds on which application is made signed by all respective proposed directors.
  16. Proof of identity and residential address as mentioned above for promoters and directors not having DIN.

Once the Form is approved by Central Government, a license under section 8 will be issued in Form INC-16. The Registrar shall have power to include in the license such other conditions as may be deemed necessary by him

Step 5 – Certificate of Incorporation

After obtaining the license, file SPICE Form 32 with the ROC for incorporation along with the following attachments:-

  1. Affidavit from all directors and subscribers in form INC 9
  2. KYC of all directors
  3. Consent letter of all directors
  4. Form DIR 2 with its attachments
  5. Declaration of Deposits
  6. Interest in other entities of Directors
  7. Utility Bill (proof of office residence)
  8. Draft MOA and AOA
  9. NOC is the premises are leased/rented

If ROC is satisfied with the forms submitted, then they will issue Certificate of Incorporation along with Company Identification Number (CIN), PAN & TAN details over it.

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