Section 8 Company: Not all businesses aim to maximise revenues through trade and commerce. Many businesses focus largely on charity and nonprofit goals. Due to their recognition under Section 8 of the 2013 Companies Act, these entities are known as "Section 8 Companies." These businesses invest all of their earnings and profits in achieving their goals.
Definition of Section 8 under The Companies Act 2013:-
A company licenced under Section 8 of the 2013 Companies Act is referred to as a Section 8 company. It is a non-profit corporation (NPO) that was established with the goal of advancing business, the arts, science, sports, education, research, etc. Such businesses pay no dividends to any of their members and instead use their profits to advance their mission.
These businesses have social welfare, charitable, and organisational goals that benefit society as a whole registrations. The central government obtains the incorporation certificates of these businesses, and they are obligated to follow its regulations.
According to the regulations, if NPO doesn’t fulfil the duties assigned by the Central Government, the firm may be closed down by the Central Government’s order. Moreover, all of the company’s members will face severe legal repercussions.
Objectives of Section 8:-
The NPO/Section 8 Company’s Mission Working for society’s benefit in the areas of science, art, sports, education, research, environmental preservation, etc. is a section 8 company’s main goal.
Section 8 company Characteristics:-
Include incorporation for social welfare The primary goal of this sort of organisation, which was established for charitable purposes, social welfare, and social promotion, is to advance social welfare and advance society, not to make money. its primary goals reflect the motivations behind its incorporation; examples of such goals include sports, promoting business, the arts, science, education, research, social welfare, religion, charity, and environmental protection.
Comparatively speaking, section 8 corporations are exempt from the requirement for a minimum paid-up share capital.
Licenced by the government: These companies fall under the definition of “licenced by the central government” in section 8 of the Companies Act of 2013, and they provide services to the community in exchange for donations from the general public.
Limited liability: Section 8 companies can also be formed as private limited or public limited companies. Members of this company are only liable for the amount of shares they have subscribed for.
Benefits of Section 8 Companies
A Section 8 business, in contrast to a Trust or a Society, is a body corporate with a separate existence from its legally recognised directors and stockholders.
It is able to take on debt and possess property in its own name. However, subject to the conditions outlined in the Act, a Section 8 company’s artificial juridical status offers many benefits in advancing its objectives.
More importantly, ownership in the company can be transferred through the transfer of shares, and corporate restructuring schemes can be implemented for merger, demerger, acquisition, etc.
Since the company and its members are regarded by the law as different entities and the company is acknowledged as an artificial juridical entity, the limited liability status of such a corporation means that its members are not responsible for the company’s debts. In the best case scenario, the members’ liability is limited to whatever unpaid share value that they have acquired. A Section 8 corporation can accept a partnership as a member.
If the necessary requirements are met, Section 8 companies may register under Sections 80G and 12A of the Income Tax Act of 1961. A Section 8 corporation can therefore use donations in a manner similar to a Trust in order to achieve its objectives.
Stamp duty exemptions for the formation and registration of property by a Section 8 corporation are also available in some States.
Institutionalisation of Education
Schools and colleges may be established by Section 8 corporations. The Medical Council of India approved the establishment of medical colleges in 2016 by enterprises, including Section 8 companies.
Negatives of Section 8 Companies
The following are some typical drawbacks of section 8 companies.
Distribution of Profits Is Not Allowed
Contrary to private, public, and OPC firms, Section 8 companies lack the power to distribute profits and provide members their fair share. These businesses are only permitted to utilise their profits for philanthropic purposes.
Profit cannot be the main goal.
Section 8 businesses are never allowed to pursue profit-based goals. However, they are free to make money through donations or legal means. It goes without saying that such benefits may only be applied to further charitable goals.
Strict adherence to regulations and standards
To continue operating within the bounds of the law, section 8 enterprises must adhere to a number of onerous compliances and standards.
The company’s charter documents, such as the MOA and AOA, should include all of these principles. Members of Section 8 entities are eligible for a number of advantages. These members are similarly subject to some inevitable flaws.
The appointment of a member as a paid officer is not permitted.
A member cannot be appointed as a paid officer by a section 8 company. The controlling legislation has made this condition clear.
Punishment for Violations
Any business that violates Section 8’s rules faces a fine of between Rs. 10 lakh and Rs. 1 crore. Additionally, directors and officers of the company are punishable by up to three years in prison and fines ranging from Rs. 25,000 to Rs. 25 lakhs.
If these officers engage in any activities with fraudulent intentions, they may also be prosecuted under the strict guidelines of Section 447 (which deals with fraud).
Documents needed to register a Section 8 company include:-
2. Identification documents for each firm member
3. A list of the promoters and directors
4. A list of all directors and promoters’ addresses
5. Rent Agreement (if the space is rented)
6. Landlord’s No Objection Certificate (NOC)
7. If the property is self-owned, an electricity or water bill with the property paperwork
The article discusses a few section 8 corporation rules and regulations. A section 8 corporation is a non-profit entity established for the benefit of society’s social welfare and charitable endeavours.
It was founded with the sole intention of helping the society’s poorest members. Therefore, the section 8 company’s income from its business operations are not divided among the directors. It can only be used to fulfil the section 8 company’s goal.