“Section 8 of the Companies Act, 2013”, which encompasses non-profit organizations focused on arts, science, religion, research, education, and more, offers a range of advantages that set them apart from other companies. These organizations, commonly known as non-profit organizations (NPOs), operate with the primary objective of serving the public and making a positive impact on society. Covered under Section 8, these companies enjoy several benefits that contribute to their success and ability to fulfil their philanthropic goals.
One of the key features of Section 8 companies is that their members do not receive dividends or personal paybacks from the organization. Instead, any income or funds generated by the company are utilized to carry out its activities and promote its core objectives. While Section 8 companies share similarities with trusts or societies, the key distinction lies in their licensing process. Section 8 companies are licensed by the Central Government through the Ministry of Corporate Affairs (MCA), whereas trusts and societies are licensed by respective State Governments.
Advantages of Section 8 Company
Let’s explore the advantages of Section 8 companies:
Section 8 companies enjoy exemptions from income tax due to their non-profit status. Additionally, they can benefit from other tax advantages and claim deductions under Section 80G of the Income Tax Act, 1961. Individuals and corporations making donations to Section 8 companies can also avail tax exemptions.
Zero Stamp Duty Payable:
Unlike public and private limited companies, Section 8 companies are exempted from paying stamp duty during registration, reducing the financial burden.
Unrestrained Transfer of Ownership:
Section 8 companies have the freedom to transfer ownership of both movable and immovable properties without any restrictions, offering greater flexibility compared to Limited Liability Partnership companies.
No Minimum Paid Share Capital Required:
Section 8 companies do not have a minimum share capital requirement. Instead, they can raise capital as needed to support their charitable or research activities.
Unique Legal Identity:
Similar to other companies under the Companies Act, 2013, Section 8 companies have a distinct legal identity, which enhances their credibility and recognition.
Capacity to Own Property:
As a separate legal entity, a Section 8 company can own and alienate tangible or intangible property. This includes residential and non-residential properties such as training centres, research institutes, schools, galleries, and more. The ownership of these properties belongs solely to the company, and no member or shareholder can make individual claims.
Section 8 companies, like private limited companies, have perpetual existence until legally dissolved. Regardless of the death or termination of its members, the company continues to operate indefinitely.
Section 8 companies enjoy higher credibility compared to trusts or societies because they are licensed by the Central Government. The stringent measures imposed on these companies, such as the inability to alter the Memorandum of Association (MoA) and Articles of Association (AoA) after registration, contribute to their trustworthy and reliable image.
Members of Section 8 companies benefit from limited liability, meaning their personal assets are protected in case of any debts or discrepancies incurred by the company. Shareholders do not bear personal liability to indemnify creditors for the company’s debts.
In addition to individuals, firms and corporates can also become members of Section 8 companies, expanding the potential for collaboration and support.
No Obligation for Titles:
Section 8 companies are not required to include titles such as “private limited company” or “public limited company” in their names. This allows them to focus on their philanthropic mission without the need to communicate their liability status to the public.
However, despite their benevolent motives, Section 8 companies must comply with mandatory regulations outlined in the Companies Act, 2013, and the Income Tax Act, 1961. Non-compliance can lead to penalties of up to ₹100,000 per year. Compliance requirements include appointing an auditor, conducting board meetings, and holding annual general meetings (AGMs) within specific timelines.
Adhering to these compliance guidelines is essential for the smooth operation of Section 8 companies. It ensures financial stability, provides a clear overview of the company’s performance, and enhances credibility, increasing the likelihood of obtaining financial support from relevant sources.
Although Section 8 companies have some inherent limitations, such as limited objectives and scope of operation, these disadvantages are outweighed by the significant advantages they offer. These companies exist solely to benefit the public, and when considering their broader societal impact, the drawbacks become negligible.
For entrepreneurs with a philanthropic vision, establishing a Section 8 company can provide a unique platform to make a substantial difference in society, while benefiting from the various privileges and exemptions provided by the Companies Act, 2013.
To learn more about Section 8 company registration and the process involved, visit Section 8 Company – Start-Up Kro (startupkro.com). Our experts can guide you through the intricacies and help you establish a non-profit organization that aligns with your philanthropic goals.