A non-profit making company (NPO/NGO) termed as section 8 company as per companies act 2013,can be formed for promotion of any useful object like sports, education, research activities etc. The term No Profit does not mean that the Company cannot generate profit or income, but it essentially means applying the income for further promotion of the object and not for distributing it to the promoters. It means that the Company can earn profits but the promoters cannot be benefited out of those profits.
According to section 8 of companies act 2013, section 8 company means a Non-profit making Company which Has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any other useful object, provided the profits, if any, or other income is applied for promoting only the objects of the company and no dividend is paid to its members.
In former Companies Act, 1956 it was regulated by Section 25 and that is why it was popular as Section 25 Company. However in Companies Act 2013 provisions related to non-profit making company are given in Section 8 that is why it is known as Section 8 Company.
SIGNIFICANT PROVISIONS RELATING TO SECTION- 8 COMPANIES:
Any person or an association of persons intending to be registered as a limited company for charitable purpose can apply for registration of section 8 company.
However, it shall prove to the satisfaction of the Central Government that:
(a) its objects includes promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
(b) the company on incorporation intends to apply its profits, if any, or other income in promoting such object; and
(c) the company intends to prohibit the payment of any dividend to its members. After perusal, the Central Government may issue license with such conditions as it deems fit and allow the registration of such person or association of persons as a limited company without the addition to its name of the word “Limited”, or as the case may be, the words “Private Limited”.
1. Obtaining DSC & DIN
Digital Signature Certificate (DSC) and Director Identification Number (DIN) are required for the proposed Directors of the Section 8 Company
2. Name Approval & License
Once DIN and DSC are available for at least two Directors, application for reservation of name for section 8 company can be made to MCA.
3. Make an application.
To incorporate a Section 8 company an application shall be made in Form no. INC-12 and application shall be accompanied with following documents:
Draft Memorandum of association (MOA) and Articles of association (AOA) of the
Company, in Form no. INC-13. Ensure to affix the photographs of the subscribers
in subscriber pages of MOA and AOA ;
(b) Declaration (in Form no. INC-14) by an Advocate, a Chartered Accountant, Cost Accountant or Company Secretary in practice, that the draft memorandum and articles of association have been drawn up in conformity with the provisions of section 8 and rules made there under and all the requirements under section 8 have been complied with. It shall be on appropriate stamp paper of the State and duly notarized.
(c) An estimate of the future annual income and expenditure of the company for next three years, specifying the sources of the income and the objects of the expenditure.
(d) A declaration (in Form no. INC-15)by each of the persons making the application. It shall be on appropriate stamp paper of the State and duly notarized; and
(e) Form no. INC-9 from each subscribers and first directors, on appropriate stamp paper of the State and duly notarized.
4. Approval of other authorities.
The Registrar of Companies may require the applicant to furnish the approval or concurrence of any appropriate authority, regulatory body, department or Ministry of the Central or State Government(s).
5. To decide on granting of license
under section 8.
The Registrar will wait for 30 days for objections, if any, of any person pursuant to notice published in newspapers. The Registrar may also consult necessary authorities and regulatory bodies.
Thereafter, the Registrar of Companies at its discretion may grant the license. And such license may contain conditions as deemed necessary by the Registrar.
The Registrar may direct the company to insert in its memorandum, or in its articles, or partly in one and partly in the other, such conditions of the license as may be specified by the Registrar in this behalf.
The Section 8 Company shall enjoy all the privileges and be subject to all the obligations of limited companies. A firm can be a member of a section 8 company. To alter the provisions of its memorandum or articles of association, section 8 company will have to obtain the previous approval from the Central Government.
Central Government may, by order, revoke such license granted under section 8,
a) the company contravenes section 8; or
b) the company contravenes the conditions subject to which license is issued; or
c) affairs of the company are conducted in a fraudulent manner or in violation of object of the company or prejudicial to the interest of the public.
Further, the Central Government may direct the company to change its status from section 8 company to either private or public limited company. And also direct it to change its name to include the word “Limited” or words “Private Limited”.
However, before making order, the Central Government shall give reasonable opportunity of hearing to the company.
Upon receiving such an order, where the license granted to a company registered under section 8 has been revoked, the company shall intimate to the Registrar and apply in Form no. 2.23 to convert its status and change of name accordingly.
On revocation of license the Central Government may, in public interest, order such company to be wound up or amalgamate with another company registered under this section having similar objects. However, before making order, the Central Government shall give reasonable opportunity of hearing to the company. Where the license is revoked and the Central Government is satisfied that in public interest, such company shall amalgamate with another company registered under section 8 and having similar objects, and then the Central Government may order details of amalgamation like forming a single company, transfer of assets and liabilities etc.
Upon winding up or dissolution of section 8 company and after satisfaction of its debts and liabilities, if there remains any asset then the same shall be transferred, as per direction of the National Company Law Tribunal either to another section 8 company with similar object or to the credit of the Rehabilitation and Insolvency Fund formed under section 269.
Section 8 company can amalgamate only with other section 8 company and having similar objects.