When a business is registered as a Non-Profit Organization (NPO), or when it has the intention of using its profits (if any) or other income for the promotion of the arts, commerce, education, charity, environmental protection, sports, science, research, social welfare, or religion, it is referred to as a Section 8 Company.

The income of NPO must be used to further philanthropic goals rather than for the payment of dividends to the organization's shareholders. These businesses have to follow the government's standards and receive an incorporation certificate from the national government.

In accordance with the regulations, the corporation may be shut down on the Central Government's orders if the obligations stipulated therein are not met. In addition, stern legal action will be taken against all of the firm's members if the goals set forth by the company turn out to be false.

It operates in a similar way to any other limited company, and even the rights and obligations of a limited company and an NPO are the same.

The terms "Section 8" and "Limited," however, cannot be used interchangeably.

Eligibility to Apply for Section 8 Company

If an individual has any of the following aims or goals, they are entitled to register as a Section 8 Company. The Central Government must be satisfied that the objectives have been accomplished.

• When a firm wants to advance commerce, science, education, art, sports, research, religion, charity, social welfare, environmental protection, or similar goals;
• When the business intends to use all profits (if any) or other income it receives after incorporation exclusively for the promotion of such objects;
• When the incorporation has no intention of paying its shareholders any dividends.

Incorporation of a Section 8 Company

The process of incorporating a Section 8 company is covered by the Companies Act of 2013, and in accordance with this section, an application in Form No. The INC.12 form must be submitted to the Registrar of Companies with the following supporting documentation.

Form no. INC – 13 – Drafts of the company's articles of association (AOA) and memorandum of association (MOA), both in Form No. INC-13 (as required by the Act), and photos of the subscribers.

Form no. INC-14 – The draught MOA and AOA must be declared in Form No. INC-14 to be in compliance with Section 8's provisions and standards, and that Section 8's requirements have been properly met.

Form no. INC-15 – A statement in Form No. INC-15 on stamp paper that has been notarized by each applicant company member.

Form no. INC-9 – First directors and each subscriber must complete Form No. INC-9, which must be properly notarized and bear the appropriate State's stamp.

An estimate of the company's projected yearly income and expenses for the following three years, along with information on the sources of income and the intended use of funds.

Easy Process of Registering of Section 8 Companies

The requirement to file Form No. INC 12 was eliminated by the Companies (Incorporation) Sixth Amendment Rules, 2019 dated 7th June 2019 to simplify the incorporation process.

The incorporation process for Section 8 corporations is now just as straightforward and easy as it is for other companies thanks to this reform.

Section 8 Companies can be incorporated by reserving names in Spice+ Part A, followed by Spice+ Part B, or by filing Spice+ directly. During incorporation, Section 8 Company shall be issued License No.

When the Company Already Have the License Number

Stakeholders who previously have License Numbers prior to filling the SPICe form may do so as conveniently as possible. It should be remembered, nevertheless, that form processing needs time in order for workflow modifications to take effect.

Documents Required for the Incorporation of Section 8 Company

• Digital Signature Certificate
• Memorandum of Association
• Articles of Association
• Passport Size Photographs
• Members’ Id Proof such as Aadhar Card, Passport, Voter Id
• Details of Director (When the Members Are Other Companies/LLPs)
• Address Evidence
• Director Identification Number

Benefits for the Registration of Section 8 Companies

• Because the creation of the section-8 corporation was authorised by the Union government, the company's aim or goal was to carry out any activity and acquire integrity and commitment.
• Because of its tight regulations, the operation presents a reliable image to both internal and external users of the information with regard to the communities.
• The section 8 company's dependability has a lot more to do with the local communities and other philanthropic organisations.
• Grants and subsidies through the government and institutions were acknowledged by the section-8 company through the community of trust.

Section 8 Company Total Exemptions and The Companies Act 2013:

• The directorship held by a company under Section 8 shall not be included in the calculation of the ceiling for the largest number of directorships specified under Section 165 of the Act.
• A general meeting has been held by providing notice of not fewer than 14 precise days and not more than 21 exact days.
• Instead of holding four meetings over the course of a year, a section 8 firm would hold a minimum of one meeting every six months.
• Minutes of board meetings, general meetings, and other resolutions may be recorded without affecting a section 8 company. But in circumstances where the company bylaws provide for the confirmation by the process of circulating minutes, the minutes of meetings may be recorded 30 days after the meeting's conclusion.
• A business would belong to a section 8 company.
• The Act's Section 149(1) will not apply to Section 8 companies because they are exempt from the requirement to appoint an independent director. Due to the aforementioned considerations, it is not necessary for the audit committee of a section 8 corporation to consist of independent directors who are also members of the board.
• Firms operating under Section 8 are not required to employ a qualified CS professional to serve as their company secretary.
• Nomination and Remuneration Committee and Stakeholders Relationship Committee appointments are not required of Section 8 firms.

Number of Directors required in a Section 8 Company

• Section 149(1) of The Companies Act 2013 (as amended)– Maximum of 15 directors with a minimum of 3 & 2 directors for public limited & private limited companies, respectively. However, there is no prescribed minimum or maximum for a section 8 corporation.
• The second proviso to section 149(1) – Specifies a female director for a particular class of businesses.
• Section 149(3) of the Companies Act 2013 – Requires resident directors in each business.
• Section 165 of the Companies Act, 2013 – According to the Act, the number of directorships in Section 8 companies will not be added up when the total number of directorships is determined, i.e., it will not be conforming to the maximum limit of twenty directorships.
• Section 149(1) of the Companies Act, 2013- According to an exemption announcement dated June 5, 2016, Section 8 Companies are not required to select an independent director and are exempt from all related consequential provisions.
• Under Section 149(3) –  A Section 8 corporation must have at least one Resident Director or a director who has spent at least 182 days (one hundred and eighty-two days) living in India over the course of the previous calendar year.

A number of Board Meetings and its Quorum to be held :

According to the exemption notification read with sections 173(1) and 174(1), Section 8 companies are required to hold a minimum one meeting every six months, and the quorum for board meetings is eight directors or one-fourth of their total number of shareholders, whichever is lower. However, the quorum must consist of a minimum of two people.

Some Misleading Facts About Registration of Section 8 Company

• A director's affidavit on form INC 15 is necessary.

The issue involving self-declaration form INC 15 should be approved and correctly completed.

• Application of Section 8 to Companies for INC 33 and 34

The MOA and AOA must be properly signed by the witnesses and members (professionals), and an attachment must also include an expense statement and a projection of income for the next three years.

• Memorandum and Articles of Association Notarized

Memorandum and Articles of Association notarization is optional

• The cost of government services is quite expensive.

When compared to the stamp duties of MOA and AOA, the stamp duty of Section 8 Company is neutral.

Annually, Quarterly and Monthly Compliance for Section 8 Company

Listed below are the monthly, quarterly, and yearly compliance requirements for section 8 companies under the MCA (Ministry of Corporate Affairs)

Annual Compliance Under Section 8 Company

Appointment of an auditor: Appointing an auditor within 30 days of the start date is required by section 139 of the Companies Act of 2013. The statutory auditor, who will be employed for a period of five years, will audit the company's manual returns and book of accounts.

Maintenance of Statutory Registers: Section 8 of the 2013 Companies Act mandates that the firm keep a statutory register of its members, loans received, costs incurred, directors, and others.

Calling board meet: At least one meeting will be held every six calendar months for Section 8 companies.

Statutory Audit: Every entity that enrols under the Companies Act is required to have a CA examine their books of accounts each year.

GM notice: A section 8 company may call an ordinary or special meeting with at least 14 days' notice.

Calling AGM: Once a year, six months after the end of the fiscal year, there would be an annual general body meeting. However, the firm could have the first AGM less than nine months after the end of the first fiscal year in the case of the first annual general meeting. You must understand that there shouldn't be more than 15 months between two annual general meetings.

Board Reports: The board report, which includes all the financial statements and an additional annexure, shall be provided in a certain manner by the company's board of directors. It would be necessary to provide the board report on Form AOC-4.

Making of monetary Statement of the Company: The company would have its balance sheet, profit and loss statement, cash flow statement, and other financial accounts audited by a statutory auditor, or be given a ROC.

Tax returns: When an assessment year comes to an end, income tax returns must be provided before October 31st.

Tax audit: A charity or religious trust or organisation that is enrolled under Section 12A or who has submitted an application for incorporation by filing up Form no. 10A would file the tax audit report in Form 10B. A CA must submit a Form 10B, which is an audit report, after being requested by the taxpayer.

Filing Financial Statements: Within 30 days of the annual general meeting, the financial statement would be provided in the appropriate format (E-FORM AOC-4) (Discussed in point 7 above).

Annual Return Filing: Within 60 days of the annual general meeting, Form MGT-7, which contains all the information such as managing data and shareholder information, is filed with the Registrar of Companies (ROC).

DIN KYC Every person who will receive a DIN with a date of 31 March of the fiscal year must submit his KYC by September 30 of the next fiscal year, at the latest.

GST Annual Return: The enrolled assessee was required to submit GSTR-9, or the annual return, under GST. The last date following the relevant fiscal year is December 31st of the year.

Monthly or Quarterly Last Date

GSTR-1 (return to be filed towards the reporting details of all outward supplies of goods and services incurred)

The business must have an annual aggregate turnover of more than Rs 5 crore by the eleventh of every month in order to participate in the QRMP programme.

If the business has chosen the QRMP scheme, quarterly, by the 13th of the month following each quarter.

GSTR- 3B for filing summarised information regarding all outward supplies done, input tax credit claimed, tax filed ascertained, and taxes liability.

Every month on the 20th, if the assessee was still eligible to opt out of the QRMP programme but had a combined turnover in the prior fiscal year that exceeded Rs 5 cr.

To the assessee who is eligible for and continues to be elected into the QRMP programme and has an aggregate turnover of at least Rs 5 crore but less than 10 crore, on the 24th of the month following the quarter.

Additional Compliance

A section 8 corporation may additionally need to perform the compliance tasks not already mentioned above, depending on the circumstances.

When a business chooses donations or funding from donors, the incomes are eligible for tax breaks. The corporation has to comply with the requirements outlined in Section 11 and enlist under Sections 80G and 12A in order to claim the same exemptions.

Form DIR 2, the director's approval form, must be submitted in order to occupy the office within 30 days of the director's appointment.

Within 60 days following the appointment of a managing director, manager, or other significant managerial position, submit a form (Form MR-1).

Employees must be members of the (EPFO) Employees' Provident Fund Organization if the company has 20 or more employees, and the organisation must register under the EPF Act of 1952.

All organisations obtaining PF registration must submit provident fund returns each month. PF returns are due every month on the 25th. Additionally, a final PF return for the year that ended on March 31 would be required on April 25.

The Employee's State Insurance (ESI) Act of 1948 requires employers to enrol employees when they have 10 or more employees and a monthly salary of no more than Rs 21,000 per month.

Employers should be required to file ESI returns on a monthly basis, and the deadline would be set: The deadline for ESI return filing would be the 15th of the following month.

Conclusion: There are many advantages to registering a sec 8 corporation, and such a company is more reliable than society or trust. They are exempt from paying stamp duty and their company name does not necessarily end in "private limited." These businesses are simple to start, and no share capital is necessary. Subscriptions and donations from regular people and associates provide the organisation with the necessary cash to operate.

Get in touch with Online Legal India to quickly register your NGO under Section 8. Consider our free consultation if you want to learn more.