What is the Eligibility of Section 8 Company?

A Section 8 company is a special type of non-profit organization recognized under the Companies Act, 2013 in India. These companies are established with the primary objective of promoting activities related to commerce, art, science, sports, education, research, social welfare, religion, charity, environmental protection, or any other charitable purpose. Unlike other companies, Section 8 companies do not distribute their profits to shareholders but instead reinvest them to fulfill their objectives. The Section 8 company registration process is well-structured, but meeting the eligibility criteria is a crucial first step. Here is a detailed overview of the eligibility requirements for forming a Section 8 company.

Key Eligibility Criteria for Section 8 Company

1. Objective of the Company

   The foremost eligibility requirement is that the primary aim of the company must be charitable or for promoting non-profit activities. The intended objectives must align with one or more of the following:

   • Promoting commerce, art, science, education, research, sports, social welfare, religion, charity, or environmental protection.

   • Encouraging or advancing activities that improve society.

   It is essential to provide a clear statement of these objectives during the Section 8 company registration process.

2. Profit Utilization

   Section 8 companies are restricted from distributing their profits or income to shareholders. Instead, all profits must be used exclusively to achieve the charitable or non-profit objectives outlined in the company’s Memorandum of Association (MoA).

3. Directors and Members

   • Minimum Number of Directors: For a private Section 8 company, at least two directors are required. For a public Section 8 company, a minimum of three directors must be appointed.

   • Members: The company must have at least two members for a private company and seven members for a public company.

   • All directors and members must meet the qualifications outlined in the Companies Act, 2013. They should not have been declared insolvent or convicted of any criminal offense.

4. No Minimum Capital Requirement

   There is no minimum capital requirement for forming a Section 8 company. The capital can be adjusted based on the requirements of the company and increased at any point during its lifecycle.

5. Residency of Directors

   At least one director of the Section 8 company must be a resident of India, as per the Companies Act, 2013.

6. Name of the Company

   The name of a Section 8 company should not imply a profit motive. Furthermore, the name must be unique and should not be similar to any existing company or trademark. During the Section 8 company registration process, approval for the proposed name is obtained from the Ministry of Corporate Affairs (MCA).

7. Licensing Requirement

   To register a Section 8 company, it is mandatory to obtain a license from the Registrar of Companies (RoC). This license certifies that the company is established for promoting non-profit objectives and meets all statutory requirements.

8. Documents for Registration

   The following documents are essential for the Section 8 company registration process:

   • Memorandum of Association (MoA) and Articles of Association (AoA).

   • Identity proof of directors and members (Aadhaar card, PAN card, etc.).

   • Address proof of the registered office (utility bill, rent agreement, or ownership document).

   • Passport-sized photographs of the directors.

   • Digital Signature Certificate (DSC) for all directors.

   • Director Identification Number (DIN) for all directors.

9. Compliance with the Companies Act, 2013

   The company must ensure compliance with the provisions of the Companies Act, 2013. This includes adhering to regulations related to annual filings, maintaining statutory registers, and conducting board meetings.

Steps for Section 8 Company Registration

Once the eligibility criteria are fulfilled, the process for Section 8 company registration can be initiated. Below are the key steps involved:

1. Apply for DSC and DIN The first step is obtaining a Digital Signature Certificate (DSC) and Director Identification Number (DIN) for the proposed directors.

2. Name Approval File an application for name reservation using the RUN (Reserve Unique Name) service on the MCA portal. The name must reflect the charitable nature of the organization.

3. Draft MoA and AoA Prepare the Memorandum of Association (MoA) and Articles of Association (AoA) outlining the company’s objectives and internal rules.

4. File Form INC-12 Submit Form INC-12 to the Registrar of Companies (RoC) along with the necessary documents and fees to obtain a license under Section 8.

5. Incorporation Filing Once the license is granted, file the SPICe+ (Simplified Proforma for Incorporating Company Electronically) form to incorporate the company. Attach all required documents, including the license obtained.

6. Issue of Certificate of Incorporation Upon successful verification, the RoC will issue a Certificate of Incorporation. This certifies the legal existence of the Section 8 company.

Conclusion

A Section 8 company is an ideal choice for individuals or groups aiming to work for social welfare and charitable purposes. However, understanding and meeting the eligibility criteria is critical for ensuring a smooth Section 8 company registration process. These companies enjoy several benefits, including tax exemptions and enhanced credibility, but they are also subject to strict compliance requirements. By adhering to the specified guidelines and maintaining a focus on non-profit objectives, a Section 8 company can significantly contribute to societal betterment while achieving its mission.