Section 8 Company Registration: Requirements and Steps

Section 8 company registration in India is a structured process designed for organizations aiming to promote charitable objectives such as education, social welfare, or environmental protection. This form of non-profit entity offers legal recognition and certain benefits, but it also requires adherence to specific legal and procedural steps. Understanding the requirements and following the correct steps is crucial for a smooth registration process. In the following sections, we will detail the necessary eligibility criteria, documentation, and procedural steps to help you navigate the registration of a Section 8 company effectively.

What is a Section 8 Company?

A Section 8 Company is a non-profit entity formed under Section 8 of the Companies Act, 2013, in India. Its primary purpose is to promote charitable objectives such as education, art, science, sports, social welfare, environmental protection, and other similar activities. Unlike traditional companies, a Section 8 Company does not distribute its profits to its members; instead, all income is reinvested to further its objectives. These companies enjoy certain privileges, including exemptions from minimum capital requirements and eligibility for tax benefits under Sections 12A and 80G of the Income Tax Act 1961.

Eligibility Criteria

To register a Section 8 Company in India, certain eligibility criteria must be met. Some of them are mentioned below.

• Purpose

The company should aim to promote objectives such as commerce, art, science, sports, education, research, social welfare, religion, charity, or environmental protection.

• Profit Application

Any profits or income generated must be utilized solely for advancing the company's objectives. Distributing profits as dividends to members is strictly prohibited.

• Member Requirements

A minimum of two directors and two shareholders are required. Additionally, at least one director must be a resident of India, having stayed in the country for a total period of not less than 182 days in the previous calendar year.

These criteria ensure that the Section 8 Company operates with a clear charitable purpose and adheres to the legal requirements set forth by the Companies Act, 2013.

Documents required for Section 8 Company Registration

To register a Section 8 Company in India, several essential documents are required:

• Digital Signature Certificate
• Director Identification Number
• Memorandum of Association (MOA) and Articles of Association (AOA
• Identity and Address Proof
• Registered Office Proof:
• Declaration by Professionals

Procedure of Section 8 Company Registration

Section 8 Company registration in India involves a series of steps to ensure compliance with the Companies Act, 2013. Below is a step-by-step overview of the process:

Step 1: Obtain Digital Signature Certificates for each director

All proposed directors must acquire a DSC to facilitate the electronic filing of documents with the Ministry of Corporate Affairs.

Step 2: Apply for a Director Identification Number

Using the obtained DSC, file Form DIR-3 to secure a DIN for each proposed director.

Step 3: Reserve Company Name

Submit Form INC-1 to the MCA to reserve a unique company name. Ensure the name aligns with the objectives of a Section 8 Company and adheres to naming guidelines.

Step 4: Draft Memorandum and Articles of Association

Prepare the MOA and AOA, outlining the company's objectives, rules, and regulations. These documents must reflect the non-profit nature of the organization.

Step 5: File for License under Section 8

Submit Form INC-12 to apply for a license under Section 8 of the Companies Act, 2013. Attach necessary documents, including:

• Draft MOA and AOA.
• Declarations in Forms INC-14 and INC-15.
• Estimated future annual income and expenditure.
• Details of proposed directors and promoters.

Step 6: Incorporation Application

After obtaining the license, file Form INC-32 (SPICe) for incorporation, attaching the license and other required documents.

Step 7: Obtain Certificate of Incorporation

Upon approval, the Registrar of Companies will issue a Certificate of Incorporation, officially recognizing the company as a Section 8 Company.

Post-Incorporation Compliance

After incorporating a Section 8 Company in India, adhering to specific post-incorporation compliances is essential to maintain legal status and avail tax benefits. Here is a clear and concise guide:

1. Obtain PAN and TAN

Apply for the company's Permanent Account Number and Tax Deduction and Collection Account Number from the Income Tax Department. These are crucial for tax-related transactions and compliance.

2. Open a Company Bank Account

Establish a bank account in the company's name. Required documents typically include the Certificate of Incorporation, Memorandum and Articles of Association, PAN, and a board resolution authorizing the account opening.

3. Maintain Proper Books of Accounts

As per Section 128 of the Companies Act, 2013, maintain accurate and up-to-date books of accounts using the double-entry system on an accrual basis. This ensures transparency and aids in financial assessments.

4. Conduct Regular Audits

Appoint a qualified Chartered Accountant as the statutory auditor within 30 days of incorporation. Conduct annual audits of financial statements, including the balance sheet, profit and loss account, and cash flow statements.

5. File Annual Returns and Financial Statements

After a Section 8 Company is incorporated, it must comply with certain annual filing requirements mandated by the Ministry of Corporate Affairs. One such requirement is filing Form AOC-4, which contains the company's audited financial statements. This form must be submitted within 30 days of the Annual General Meeting.

Additionally, the company must file Form MGT-7, detailing the annual return, within 60 days of the AGM. Timely submission of these forms is crucial to maintain compliance and avoid penalties. Delays can result in late fees of Rs.100 per day for each form, with no upper limit, and may also attract additional penalties for the company and its directors. Therefore, adhering to these deadlines ensures the company's legal standing and smooth operation.

6. Ensure Compliance with Income Tax Provisions

To avail tax exemptions and enhance credibility, non-profit organizations in India should obtain registrations under Sections 12A and 80G of the Income Tax Act. Section 12A registration grants tax exemption on income generated through charitable activities, ensuring that the organization's surplus funds are not subject to income tax. This registration is a one-time process and is essential for organizations aiming to receive grants and donations.

Section 80G registration, on the other hand, allows donors to claim tax deductions on their contributions to the organization. This not only incentivizes donations but also builds trust among potential supporters. Donors can claim a deduction of 50% of the donated amount, subject to certain conditions.

Tax Exemptions and Benefits

Section 12A and Section 80G of the Income Tax Act offer significant tax benefits to non-profit organizations and their donors in India. Registering under Section 12A allows charitable entities to claim tax exemptions on their income, ensuring that funds are utilized for their intended social purposes without the burden of taxation. This registration is a one-time process, but it requires revalidation every five years to maintain its validity.

Section 80G, on the other hand, provides tax deductions to donors contributing to eligible charitable organizations. These deductions can be 100% or 50% of the donated amount, depending on the institution's classification, and are subject to certain conditions and limits. To claim these deductions, donors must ensure that the organization is registered under Section 80G and obtain a valid receipt with the necessary details.

Fundraising and Donations

Section 8 Companies in India can raise funds through various channels, each governed by specific regulations to ensure compliance and transparency.

• Domestic Donations

These companies can accept donations from Indian sources without any restrictions. Such contributions are vital for supporting their charitable objectives and operational activities.

• Foreign Contributions

To receive donations from foreign sources, Section 8 Companies must obtain registration under the Foreign Contribution Regulation Act (FCRA). The registration process involves:

1. Access the FCRA online portal.
2. Create a login ID.
3. File out Form FC-3A for FCRA Registration.
4. Upload the required documents.
5. Pay the applicable fees.

This registration ensures that foreign contributions are received and utilized in accordance with Indian laws and regulations.

• Equity Funding

While Section 8 Companies are non-profit entities, they can raise funds through equity, provided they comply with relevant regulations. This includes issuing new equity shares at a premium price. It is essential to ensure that such fundraising activities align with the company's non-profit objectives and adhere to the guidelines set by regulatory authorities.

Common Challenges and Solutions

Section 8 Companies in India often encounter several challenges during the registration and operational phases. Here is a clear overview of common issues and practical solutions:

• Name Approval Delays

The Ministry of Corporate Affairs may reject proposed company names that are too generic, closely resemble existing names, or conflict with the company's objectives. To avoid delays, ensure the chosen name is unique, aligns with the company's purpose, and adheres to MCA guidelines.

• Document Discrepancies

Incomplete or inaccurate documentation can lead to processing delays or rejections. It is crucial to double-check all documents for accuracy and completeness before submission. Engaging professionals can help ensure that all paperwork meets the necessary standards.

• Compliance Management

Ongoing compliance with regulatory requirements can be complex and time-consuming. To manage this effectively, consider hiring professionals or consultants who specialize in compliance. They can assist in maintaining proper records, filing necessary returns, and staying updated with regulatory changes.

Conclusion

Section 8 Company registration in India is a structured process designed for organizations aiming to promote charitable objectives such as education, social welfare, or environmental protection. This form of non-profit entity offers legal recognition and certain benefits, but it also requires adherence to specific legal and procedural steps. Understanding the requirements and following the correct steps is crucial for a smooth registration process.

At Online Legal India, we specialize in assisting with company registration, GST filing, and other legal services. Our team of expert CA/CS is committed to providing efficient and reliable services to help you establish and maintain your business operations smoothly. Visit Online Legal India today.