Section 8 Company Registration - Start with PSR Compliance

Section 8 Company Registration

Section 8 Company, under the Companies Act, 2013, is an ideal legal structure for NGOs in India. This non-profit entity aims to promote charitable, scientific, educational, or social causes. Key benefits include limited liability for members, regulatory credibility, and potential tax exemptions. Section 8 Companies are separate legal entities with transparent governance, making them appealing for donors and grant seekers. The registration process involves obtaining licenses, drafting necessary documents, and adhering to compliance requirements. This structure enables NGOs to focus on their altruistic goals while enjoying legal and financial advantages for their philanthropic endeavors.

What is a Section 8 Company?

A Section 8 Company is named after Section 8 of the Companies Act, 2013, which pertains to the establishment of 'Companies with Charitable Objects'. Unlike the typical profit-driven businesses, a Section 8 Company is formed for promoting art, science, commerce, charity, religion, or any other useful purpose. Profits (if any) or other income is used towards promoting the objectives of the company, and no dividend is paid to its members.

Why Section 8 Company is better than Trust and Society?

Choosing between a Section 8 Company, a Trust, and a Society depends on your specific goals, structure, and needs. Each legal entity has its advantages and disadvantages. Here's why a Section 8 Company may be preferred over a Trust or a Society in certain situations:

1-Separate Legal Entity: A Section 8 Company is a distinct legal entity separate from its members. This offers limited liability protection to the members, meaning their personal assets are not at risk in case of legal disputes. Trusts and Societies may not provide this level of separation. Better Regulation: Section 8 Companies are governed by the Companies Act, 2013, which is a well-defined and comprehensive legal framework. This legal structure ensures transparency, accountability, and standardization in governance.

2-Credibility: Section 8 Companies often enjoy more credibility due to their structured legal framework and government oversight. This can be advantageous when seeking donations, grants, or collaborations with government agencies.

3-Ease of Compliance: Compliance requirements for Section 8 Companies are relatively straightforward and consistent, making it easier for founders to manage their organization's legal and financial aspects.

4-Transfer of Ownership: Section 8 Companies have a more straightforward mechanism for transferring ownership, making it easier to bring in new members or directors compared to Trusts and Societies.

5-Name and Branding: Section 8 Companies are not bound to specific words in their name (like "Trust" or "Society"), providing more flexibility in choosing a name that reflects their mission and vision.

6-Scale and Expansion: Section 8 Companies can operate across India and have a more straightforward process for opening branches or changing their registered office location.

7-Ease of Fundraising: Section 8 Companies can raise funds through various means, including equity, debt, and grants. This flexibility in fundraising options may be advantageous in certain situations.

Benefits of Section 8 Company Registration

♦ No Minimum Capital Requirement: Unlike many other company structures, a Section 8 Company does not require a minimum capital amount to get started.

♦ Tax Advantages: Companies registered under Section 8 can avail certain tax exemptions, making them appealing for charitable and non-profit operations.

♦ Credibility: With the backing of the Companies Act, Section 8 Companies often enjoy more credibility among donors, government bodies, and the public.

♦ No Title Requirement: Section 8 Companies are not mandated to use words like "Limited" or "Private Limited" at the end of their names.

Steps to Register a Section 8 Company

1-Name Approval: The first step is to ensure the chosen name is unique and relevant to the company's objectives. Apply for name approval through the RUN (Reserve Unique Name) facility on the MCA portal.

2-Digital Signature Certificate (DSC): The directors need to obtain a DSC, which is crucial for the electronic filing of the company's documents.

3-Director Identification Number (DIN): All proposed directors should obtain a DIN by filling out the necessary form.

4-Application for License: Apply for a license by submitting Form INC-12 to the Registrar of Companies (ROC). This form should be accompanied by the necessary attachments.

5-Filing of MOA and AOA: Draft and file the Memorandum of Association (MOA) and Articles of Association (AOA). These are essential documents that outline the company's constitution and internal rules.

6-Application of PAN & TAN: Apply for a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN).

7-Issuance of Certificate: Once all the documents have been submitted and verified, the ROC will issue a Certificate of Incorporation, signaling the successful registration of the Section 8 Company.

Donation/Funding -

Donations and funding play a crucial role in sustaining the activities and initiatives of a Section 8 Company in India, which is established for charitable, educational, scientific, or social purposes. Here's an overview of how Section 8 Companies can receive donations and funding:

Donations from Individuals: Individuals who support the cause of the Section 8 Company can make voluntary donations. These donations are often tax-deductible under Section 80G of the Income Tax Act, which can incentivise donors.

Corporate Donations: Companies and businesses may contribute funds to Section 8 Companies as part of their corporate social responsibility (CSR) initiatives.

Grants: Section 8 Companies can apply for grants from government agencies, both at the central and state levels, as well as from international organisations, foundations, and trusts.

Foreign Contributions: Section 8 Companies can receive foreign contributions, subject to compliance with the Foreign Contribution (Regulation) Act, 2010 (FCRA) requirements.

Membership Fees: Section 8 Companies can collect membership fees from their members or supporters, which can provide a steady source of income.

Crowdfunding: Section 8 Companies can engage in online crowdfunding campaigns to raise funds for specific projects or causes. Platforms like crowdfunding websites or social media can be utilized.

Fundraising Events: Organising fundraising events, such as charity galas, marathons, or auctions, can be an effective way to generate funds and raise awareness.

Income from Activities: Some Section 8 Companies generate revenue through social enterprises or fee-based educational programs. This income can be reinvested in their charitable activities.

Endowments: Building endowments or trust funds can provide long-term financial stability for the organisation. These funds are invested, and the returns are used to support the organisation's mission.

Conclusion

Registering a Section 8 Company is a commendable step for those wishing to make a significant impact on society without the driving motive of profit. While the process may seem tedious, the benefits both tangible and intangible

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