Key highlights of section 8 Company registration
Sections (8) of companies act, 2013 is associated with formation of those companies which are formed with the objective of charity (promotion of art, science, commerce, sports, education, research, welfare) without adding the words “limited” or “private limited” to the name of the newly registered business entity. Some of the important points that support formation of Section 8 Company in India are mentioned below:
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1.) The satisfaction of central government is mandatory, that an entity which is proposed to be registered under section 8 of Companies act.
- Includes the context for promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment.
- The profits or income of newly formed entity will be used for promoting charitable objectives of the Company.
- The Central Government may issue license on such condition as it deems fit; allow it to be registered as a limited Company.
2.) Section 8 Company registration shall enjoy the privileges and are also subject to all the obligations of limited companies.
- Once the new Company registered under this act then they are not liable to alter the memorandum or articles of association without taking prior permission from the central government.
- Conversion into some other form of Company incorporation is only possible after complying with such conditions as prescribed from time to time.
3.) Revocation of licence: Central government may revoke the licence if the Company contradicts with any of the requirements mentioned under this section or in a manner violative of objectives of the Company or prejudicial to public interest, direct the new Company registered to convert its status & change its name.
Subsequently, When the licence is revoked and the Central Government is satisfied that it is essential in the public interest that the new Company registered should be amalgamated/wound up with another Company incorporation under this, then the Central Government may provide for such amalgamation to form a single Company with such features as prescribed by the government in the order.
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4.) Winding up/Dissolution of a Company registered under section (8) companies act, can be transferred to another Company registered under this section subject to certain conditions as the Tribunal may impose, or may be sold and proceeds will be credited to the Rehabilitation and Insolvency Fund formed under section 269.
5.) Amalgamation between companies could be done only if both are registered under the same section of the act, having similar objects.
6.) Compliance default: Any default in complying with the requirements specified under this section, be punishable with a fine which shall not be less than 10 lakh rupees extending upto 1 crore rupees and the directors/officers of the Company who found guilty shall be punishable with imprisonment for a term which may extend to 3 years or fine not be less than INR 25,000 extending to INR 25 lakh or both.
FREQUENTLY ASKED QUESTIONS (FAQ’s)
Q.) Can remuneration be paid to director of Section 8 Company?
There is no restriction on any form of payment of remuneration to the director of Section 8 Company. Unlike any other form of company, director of section 8 Company is eligible to receive remuneration at a defined rate.
Note: In case the director is also a member, no remuneration should be paid to him except the out of pocked expenditures done by him during the course.
Q.) How do I convert my Company to Section 8?
After fulfilling certain set of conditions any existing company registered under the present company act, 2013 or under any previous companies law in force can look for this conversion subject to certain set of conditions:
- MOA & AOA should be amended in pursuance with those clauses mentioned in section 8 Company
- Without adding the words “limited” or “private limited” to the name of the newly registered entity.
Q.) Is Section 8 Company a small Company?
Registration of section 8 Company has nothing to do with its size rather the cause for it is established viz. charitable objective. This could be a small or a big Company which depends on its operations and funding.
Q.) Is GST applicable to Section 8 Company?
Goods & services tax (GST) clearly specifies a “taxable person under GST” which includes trust, society, association, company, group of associations but as long as they are no engaged in any form of trade, they cannot be treated as taxable person under GST. Therefore the taxability of Section 8 Company depends on whether it is involved in trade or commerce.