Section 8 Company Registration Procedure and Benefits in India

The procedure for registration of Section 8 company is:

1. Name approval: The very first step it to get the name approved by the MCA through CRC. A Spice+ Part A is filed to reserve the name of the company one time only two names can be applied. Any one of the names can be approved or can be rejected because the name approval depends on the CRC, but once the name is approved it is valid for 20 days only.

Now as per Rule 9A of companies (Incorporation) third amendment rules, 2020 the extension can be applied for name reservation after the payment of additional fees.

1. Approval of DSC: A company cannot be incorporated without the Digital Signature; all the directors must have the digital signature certificate at the time of registration so an application shall be made for the DSC and the director will get OTP for mobile verification and two links for email verification and video verification in which they have to record their video along with their original Id proof and Address proof.

2. Drafting of Documents: After the name approval, the documents will be prepared like MOA, AOA, DIR-2, NOC etc. for the physical signature of the directors or shareholders.

3. Application for License: Earlier an application for the license was made separately under form INC-12 but now there is no need to file any separate application for a license as it is applied with the incorporation form

4. Application for Incorporation: The last step of the registration is filing the final form i.e., Spice+ Part B for getting the certificate of incorporation. The application for the license is also filed in the same form. Once all the documents are verified by the ROC a certificate of incorporation shall be granted in the name of the Section 8 company

Benefits of a Section 8 company:

• Exemption in the name

A Section 8 company gets the exemption in the use of the word “Private Limited” or “Limited” at the end of the name of the company

• No Profit Sharing

The company cannot distribute the amount of profit as a dividend among the members of the company

• Type of Company

Only either private limited or public limited can be incorporated as a Section 8 company. One person company cannot register itself as a Section 8 company

• Separate Legal Entity

A Section 8 company is having the status of a separate legal entity as its identity is different from its shareholder and directors.

• Limited Liability

The director and shareholders of the company having limited liability as in case if any liabilities arise in the company then no shareholders are personally liable for any liability, they are only liable to pay the unpaid amount of the shares held by them

• Right to transfer

The shares of the company are a moveable property, it can be transferred from one person to another easily. The shareholders of the company can transfer their shares without any restriction as per the provision provided under the AOA of the company. Therefore, the ownership is transferable in the Section 8 company this the main benefit enjoys by the company as a comparison to other NGOs or Trust

• Conversion into the Section 8 company

A private limited and public limited both can be converted into a Section 8 company but a One-person company cannot convert itself into a Section 8 company until it gets first converted into either a private limited company or public limited company

• Share Capital

As per the new companies act, there is no minimum requirement for share capital of the company, it can be opened with any amount of capital whether it is Rs. 1 Lakh or Rs. 100/-

• Members of the Company

Anyone can be a member of the company whether the person is a natural person or artificial, an artificial person includes a company registered under the companies act, 2013 or any other previous law, partnership firm, Local authorities, govt bodies etc. If a partnership firm is dissolved then the membership of that partnership firm will get ceases but the partners of the firm can be the members of the company in their capacity after the dissolution of their firm.

• Exemption under Law

A Section 8 company enjoys several benefits under different laws as under companies act there are many exemptions granted to Section 8 companies like:

1. A Section 8 company is exempt to appoint Company Secretary at any time during the tenure of the company

2. No need to form any committee of the directors in the company like any other company need to form

3. No need to appoint an independent director in the company as this provision is waived off for the Section 8 company

4. Normally a person can be a director in a maximum of 20 companies but a person can appoint as a director in more than 20 Section 8 companies.

5. In case of calling the general meeting, the length of the notice of the meeting shall be 21 clear days means the gap between the notice and the meeting shall not be less than 21 days but in the case of Section 8 companies a meeting can be called with 14 days’ notice as well.

6. No minimum capital requirement under Section 8 companies

Exemption under the Income Tax Act

The Section 8 company can apply for the tax exemption after filing an application to the income tax department under section-12AA along with all the required documents and fees as applicable. The Section 8 company may grant the exemptions from the income tax only after the satisfaction of the income tax commissioner.

After getting registered under Section 80G of the income tax act the donator also gets the exemption under the income tax in respect of that donation. This registration can be applied with the Section-12AA or separately as well.

Revocation of the license grant by the CG

The license is issued by the Central Government through MCA to the Section 8 company and the same can be revoked by the central government only if the company breach any provision of the law or fraudulently conduct any activity or violate any section of the companies act or conduct any activities which are not mentioned in the MOA of the company which is against the public interest and national interest or company is using the income of the company for the benefits of the members and not for the objective of the company. The Central Government any time revoke the license of the company after passing the order.

The company can itself surrender the license to the Central Government when it wants to convert itself from Section 8 company to either private limited or public limited company. Once the license is surrendered the company has to insert the word “Private Limited” or “Limited” at the end of the name of the company. The revocation of the license can be made only after giving a reasonable opportunity to be heard.

Penalty

In case any violation is made by the Section 8 company or it has done any activity which is against the companies act or the rules or regulation farmed for Section 8 companies or doing any business activity which is against the MOA of the company or in the fraudulent manner the penalty will be:

1. On Company: not less than 10 lakh rupees which can be extended up to 1 crore

2. On Director or officer in default: Imprisonment can be for three years and Fine shall not be less than Rs. 25000/- which can be extended to Rs. 25 Lakh; or both