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Recent update in section 8 company act

The most recent update on the incorporation of Section 8 Companies, according to the Companies Act 2013 - Sixth Amendment 2019, has been made by the Ministry of Corporate Affairs (MCA).

The new rules, effective from August 15, 2019, have simplified the process of obtaining a permit and registering Section 8 Companies. Applicants can now apply for registration by filling out a single application form called SPICe. The MCA website provides clear instructions to address any confusion or uncertainty.

For companies whose pending Form INC-12 SRNs are awaiting approval from specific RoCs, these forms will be considered "Rejected" on August 15, 2019. However, these applicants can now legitimately file the SPICe form to obtain a License Number and proceed with forming their Section 8 Companies.

Shareholders who already have a permit number and are waiting to file the SPICe form for incorporating Section 8 Companies should be aware that the forms will be processed once the specified delay time is taken into account and the workflow changes are implemented. Shareholders who have completed filing the SPICe forms but are waiting for CRC should also wait for the forms to be processed once the workflow change is in effect.

In order to apply for Section 8 Company Registration, the following eligibility criteria must be met:

1. The applicant can be an individual, a Hindu Undivided Family (HUF), or a restricted company that wishes to establish a Section 8 company in India.

2. The company must have at least two individuals who will serve as shareholders or directors. These individuals must fulfill all the requirements for Section 8 Company registration.

3. None of the individuals involved in the company can receive any form of monetary or non-monetary compensation.

4. At least one director of the company must be a resident of India.

5. No profits should be distributed among the members or directors of the association, whether directly or indirectly.

6. The primary objective of the company should be the advancement of sports, social welfare, the promotion of science and art, education, and financial assistance to lower-income communities.

7. The company must have a clear vision and a strategic plan for the next three years.

8. Any surplus funds generated by the company should be utilized solely for achieving the primary objectives of the formation of the Section 8 company.

9. Annual submission of the Association's records, reports, and profits to the ROC is a mandatory compliance requirement.

10. Regarding property management, the Company bears the responsibility, and any sale must adhere to the principles outlined in the Companies Act, such as obtaining the Board of Directors' consent as a prerequisite.

What is the procedure need to follow for section 8 company registration?

The procedure for registering a Section 8 company has been enhanced with the implementation of The Corporations (Incorporation) Sixth Amendment Rules, 2019 on June 7, 2019. These rules establish that the requirement of prior filing of INC-12 must be fulfilled.

Application for Name Reservation in the SPICe+ Form

Please use the SPICe+ platform to apply for name reservation. When choosing a name for Section 8 companies, it is important to include words such as Electoral Trust, Federation, Council, Association, Chambers, Foundation, Forum, and Confederation.

Candidates are allowed to provide two name options and can make only one resubmission using the SPICe+ form.

Importance of MOA and AOA

The readiness of Memorandum of Association (MOA) and Articles of Association (AOA) is essential for the organization. Updating the affiliation functions as a sanction of the organization and removes the organization's control over the domain. The article about the organization's relationship focuses on its internal administration.

To document the MOA of a Section 8 Company, use Form INC-13. However, there is no specific format mentioned for the AOA of a Section 8 Company.

Every member of the association must sign the notice and article. They should provide their name, address, picture, and occupation, if applicable. This should be done in the presence of a single witness who will also sign the document, verify the signature, and provide their name, address, picture, and occupation.

Brief Description of Board Meetings and Quorum:

According to the exemption warning along with section 173(1) and 174(1), a Section 8 company must hold at least one meeting within six calendar months. The quorum for its board meetings is either eight directors or 1/4th of its total strength, whichever is less, consecutively. However, the attendance should have a minimum of two members.

Issuance of 80G Certificate

The Income Tax Department grants an 80G Certificate to non-profit organizations, non-governmental organizations (NGOs), charitable trusts, or Section 8 Companies. This certificate provides a significant benefit to donors, as they can claim a tax deduction of 50% of their donation from their Gross Total Income. The purpose of the 80G certificate is to encourage more individuals to contribute to these charitable organizations.

Issuance of 12A Registration

By obtaining 12A NGO registration, trusts, NGOs, and other Section 8 non-profit companies become exempt from paying personal taxes. NGOs are primarily established for charitable and non-profit purposes. However, if they are not registered under Section 12A of the Income Tax Act, they would be liable to pay taxes at the standard rates on their incomes.

Benefits of Registering as a Section 8 company

·         Registering as a non-profit organization does not mean that the company cannot generate profit or commission. There are various tax exemptions available for such organizations. Donors who contribute under Section 8 of the Companies Act of 2013 can also enjoy tax exemptions on their contributions. It simply means that the company may generate money, but the benefits are not to be shared for advertising purposes.

·         Unique Legal Identity

Section 8 Company registration creates a new legal entity that has a distinct legal character.

·         No Minimum Capital Requirement

When registering as a Section 8 Company in India, there is no need for any minimum capital. Additionally, no stamp duty is required for the incorporation of a Section 8 Company.

·         Increased Credibility

Section 8 Company registration provides more credibility compared to other charitable organizations.

·         Tax Exemptions for Donors

If a Section 8 company is registered under Section 80G, donors can enjoy exemptions under this provision.

·         Tax Benefits

There is several tax benefits associated with Section 8 Company registration in India.