Non-Profit Organizations Under Section 8 of the Companies Act: A Complete Guide

[neha neha]

In India, non-profit organizations dedicated to promoting social welfare, education, charity, and other altruistic objectives can register as Section 8 companies under the Companies Act, 2013. This legal structure offers numerous benefits, including limited liability, tax exemptions, and a distinct legal identity, making it a preferred choice for many non-profits.

Identifying Section 8 Companies

Section 8 of the Companies Act, 2013, pertains to the formation of companies with charitable objectives. These companies aim to promote fields such as commerce, art, science, sports, education, research, social welfare, religion, charity, and environmental protection. Unlike other companies, a Section 8 company applies its profits or income solely towards promoting its objectives and is prohibited from distributing dividends to its members.

Key Features of Section 8 Companies

• Charitable Objectives: The primary aim is to promote non-profit activities in various fields, including education, social welfare, and environmental protection.
• No Minimum Capital Requirement: There is no prescribed minimum capital for Section 8 companies. The capital structure can be altered as needed to support the organization's growth.
• Limited Liability: Members' liabilities are limited to their shareholdings, protecting personal assets from the company's debts.
• Separate Legal Entity: Section 8 companies possess a distinct legal identity, allowing them to own property, incur debts, and enter into contracts independently of their members.
• Exemptions and Privileges: These companies enjoy various exemptions under company law, including reduced fees and stamp duties.

Eligibility Criteria for Section 8 Company Registration

To register as a Section 8 company, the following conditions must be met:

• Number of Members: A minimum of two members is required for a private limited company structure, while a public limited structure requires at least seven members.
• Directors: There should be a minimum of two directors for a private company and three for a public company. At least one director must be a resident of India.
• Charitable Purpose: The company must be established for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, environmental protection, or similar objectives.
• Profit Application: Any profits or income should be utilized solely for promoting the company's objectives, with no distribution of dividends to members.

Section 8 Company Registration Process

Registering a Section 8 company involves several steps:

1. Obtain Digital Signature Certificates (DSC): All proposed directors must obtain DSCs to sign electronic documents during the registration process.

2. Apply for Director Identification Numbers (DIN): File Form DIR-3 with the Registrar of Companies (ROC) to obtain DINs for the proposed directors.

3. Name Reservation: Submit Form INC-1 to the ROC to reserve a unique name for the company. The name should reflect the company's objectives and comply with naming guidelines.

4. Draft Memorandum and Articles of Association (MOA and AOA): Prepare the MOA and AOA outlining the company's objectives, rules, and regulations.

5. File Form INC-12: Apply for a license under Section 8 by submitting Form INC-12, along with the draft MOA and AOA, declarations, and other required documents.

6. Obtain License: Upon approval, the ROC will issue a license in Form INC-16, granting permission to operate as a Section 8 company.

7. Incorporation Filing: File the Spice+ Form (INC-32) along with the approved MOA, AOA, and other necessary documents to incorporate the company.

8. Certificate of Incorporation: After verification, the ROC will issue a Certificate of Incorporation, officially recognizing the entity as a Section 8 company.

Documents Required for Section 8 Company Registration

• Digital Signature Certificates of directors.
• Director Identification Numbers.
• Memorandum and Articles of Association.
• Declarations in Forms INC-14 and INC-15.
• Proof of registered office address.
• identity and address proofs of directors and members.
• Passport-sized photographs of directors and members.
• Estimated income and expenditure statements for the next three years.

Benefits of Registering as a Section 8 Company

• Tax Exemptions: Section 8 companies can avail tax benefits under sections 12A and 80G of the Income Tax Act, 1961, subject to compliance with specified conditions.
• Credibility: Being registered under the Companies Act enhances the organization's credibility, making it more attractive to donors and stakeholders.
• Perpetual Succession: The company continues to exist beyond the lives of its members, ensuring uninterrupted operations.

GST Registration for Section 8 Companies

Goods and Services Tax (GST) registration is mandatory for non-profit organizations if their annual turnover exceeds the specified threshold or if they engage in interstate supply of goods and services. GST registration can be completed online through the GST portal.

Online GST Registration Process

1. Access the GST Portal: Visit the official GST portal at gst.gov.in.

2. New Registration: Direct to Services > Registration > New Registration.

3. Part A - Registration Form: Fill in basic details such as legal name, PAN, email address, and mobile number.

4. Verification: Enter the OTPs sent to your email and mobile number for verification.

5. Part B - Documentation Upload: Submit required documents, including business proof, identity proof, and bank details.

6. Submission and ARN Generation: Upon submission, an Application Reference Number (ARN) is generated for tracking purposes.

7. Approval and GSTIN Allocation: Once approved, a GST Identification Number (GSTIN) is issued.

Cancellation of GST Registration

A Section 8 company may need to cancel its GST registration in case of business closure, turnover reduction, or regulatory changes. The steps for cancellation include:

1. Log in to the GST Portal.

2. Direct to Services > Registration > Application for Cancellation.

3. Fill in cancellation details and reasons.

4. Submit application with required documents.

5. Await approval and confirmation of cancellation.

Conclusion

A Section 8 company is an ideal legal structure for non-profits, offering credibility, tax exemptions, and a clear regulatory framework. Registering under Section 8 ensures legal recognition and compliance with the Companies Act, while obtaining GST registration allows organizations to operate efficiently within the taxation framework. Identification the processes of registration and GST compliance helps non-profits manage their operations effectively and focus on their charitable objectives.