Section 8 Company and DARPAN Registration under NITI Aayog

Section 8 company Registration, originally introduced in the Companies Act of 1913, allowed for registration without the words 'Limited' or 'Private Limited', but with the condition that profits could only be used for charitable purposes and no dividends could be distributed. The Companies Act of 1956, based on the Bhabha Committee's recommendations, formalized these provisions, and Section 25 was specifically introduced for such companies.

The Companies Act of 2013 continued the framework under Section 8, maintaining restrictions on profit utilization and the prohibition of dividends. It also allowed partnership firms to be members of Section 8 companies.

Section 8 companies are categorized under non-profit organizations (NPOs) in India, alongside societies registered under the Societies Registration Act 1860 and trusts formed under the Indian Trusts Act 1882.

Regarding the constitutional framework, both the Center and the States have legislative authority over charitable organizations under the Concurrent List of the Indian Constitution. However, Section 8 companies are exclusively regulated by the Central Government through the Companies Act, 2013.

The Companies Act, 2013 (hereinafter referred to as ‘Act’) is the law which regulates the registration, financial and administrational working of companies registered under it. A company is defined under sub section (20) of Section 2 of the said Act as follows:

Section 2(20): “company” means a company incorporated under this Act or under any previous company law.

Through this article, we would give you insights regarding a company, as defined earlier, which is registered under Section 8 of the Act. Section 8 talks about formulation of companies with charitable objects, which are more commonly known as Non- profit organisations (NPO). These companies are similar to Private companies, but don’t add the phrase ‘Limited’ or ‘Private Limited’ to their name. The most prominent examples of a Section 8 Company Registration are Infosys Foundation and Reliance Foundation.

A company can get registered as an NPO under Section 8(1) upon satisfaction of the following pointers:

1.     When the Central Government believes that such person or association of persons:

a)     has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object

b)    intends to apply its profits, if any, or other income in promoting its objects

c)     intends to prohibit the payment of any dividend to its members

2.     Other requirements are as follows:

a)     There must be a minimum of 2 Directors for a Private Limited Company and 3 Directors for a Public Limited Company.

b)    According to Section 149 (3), at least 1 director must have been a resident of India.

c)     The amount of initial capital must get invested in the company within a period of 2 months.

Procedure for Section 8 Company Registration

The following procedure must be adhered to:

1.     Registration on website: Get yourself registered on the MCA website. However, it is recommended that you consult a Professional Firm who can look after Section 8 Incorporation for you. At Compliance Calendar LLP, we provide these services.

2.     SPICE+ forms: After logging in with your registered email ID, you will be required to fill the SPICE A and B forms respectively. The name of company mentioned under this application must contain any of the following words: Foundation Forum, Association, Federation, Chambers, Confederation, Council, Electoral Trust etc.

3.     Digital Signatures: Now, you will be required to get Class 3 digital certificates of first Directors/ Subscribers. These have to be attached with the application for Incorporation of Company.

4.     Preparation of documents: Now, you need to get the desired documents which must be attached with your application. The relevant documents and/ or forms which must be attached have been given later in this article.

5.     Documentation: After getting an approval regarding your choice of name for the company, you will be required to furnish the documents which have been mentioned below.

What are the Documents Requirements for Section 8 ?

The following documents and/ or forms are required in order to incorporate a company under section 8:

1.     SPICE A: Application for Incorporation of Company

While filling this form, you will be required to declare one name for the company. This name will get approved if it is not being used by any existing company. You can check your preferred name from the free name search facility of existing companies from the MCA portal. This document is required in the second step which is involved in the registration of a Section 8 company.

2.     SPICE B: Application for License

This form must be attached with a copy of the INC 13 which is the Memorandum of Association (MOA) and Articles of Association (AOA). Along with it, you are obliged to attach INC 15 which is a declaration from each person who makes such an application.

3.     INC 14: Declaration from a practising CA/ CS/ CMA

4.     INC 16: License to incorporate as Section 8 company

5.     DIR 2: Consent of Directors

6.     Miscellaneous documents: Other documents which are required are as follows:

a)    PAN Card

b)    Residential proof

c)     All directors must possess valid DIN and DSC

Benefits for Registration of NGO as Section 8 Company

You will be entitled to the following benefits if you get your company registered under section 8 of the Act:

1.     No minimum capital requirement

There is no minimum requirement in terms of paid up capital for a Section 8 company.

2.     No requirement of stamp duty

While registering a Section 8 company you will not be required to pay any stamp duty.

3.     Credibility

A Section 8 company holds comparatively more credibility than a trust or society since it is formed after receiving due licensing from the Central Government.

4.     Limited liability

The members enjoy the privilege of limited liability. Thus, there is no risk of attachment of personal assets.

5.     Tax benefits

A Section 8 company enjoys tax exemptions and other benefits under section 80G of the Income Tax Act.

6.     Transferable ownership/ title

A Section 8 company can easily transfer its ownership and/ or title, unlike a Limited Liability Company.

7.     Separate legal entity

A Section 8 company has a distinct legal entity. This means that the company will continue to exist even after the death of any of its members.

FAQ’s on Section 8 Company Registration

1.     Is there a provision for payment of dividend or distribution of profits by a Section 8 company?

No. A Section cannot distribute profits in any manner since it is incorporated only for charitable purposes.

2.     What is the minimum paid up capital requirement for setting up a Section 8 company?

There is no minimum paid up capital which is required to set up a Section 8 company. We should recommend to start with 1 lac for smooth operation and for banking purposes.

3.     What is the extent of liability for a member of Section 8 Company?

Members of Section 8 Company hold limited liability.

4.     Can one person company (OPC) be incorporated as or be converted to a Section 8 company?

Rule 3 of Companies (Incorporation) Rules, 2014 prohibits the same.

5. Is DEMAT of Shares provisions are mandatory for Section 8 Company ?

Yes, being other than small company, its mandatory to convert its share into DEMAT and File PAS-6 half yearly return with MCA.

6. Is it mandatory for the name of a Section 8 Company to include specific words?

Yes, according to Rule 8(7) of the Companies (Incorporation) Rules, 2014, names of companies under Section 8 must include terms like foundation, forum, association, federation, chamber, confederation, council, electoral trust, or similar.

7. Is there any relaxation in stamp duty payment for share certificates issued by a Section 8 Company?

No, stamp duty on share certificates is governed by the Indian Stamp Act, 1899, adapted by respective states. There is no special rate or relaxation for stamp duty payable by Section 8 Companies.

8. Can a foreign Company be registered as a Section 8 Company in India?

A foreign company, as defined by Section 2(42) of the Companies Act, 2013, cannot be registered as a Section 8 Company unless it establishes a place of business and conducts business activities in India. However, not-for-profit foreign entities can establish branch/liaison offices in India, subject to compliance with FEMA regulations.

9. Can Section 8 Companies receive contributions from overseas or non-residents?

Before receiving contributions or donations from overseas/non-residents, Section 8 Companies must comply with the provisions of the Foreign Contribution and Regulation Act, 2010, in addition to the regulations outlined in the Companies Act.

10. Can a Section 8 Company take a loan from its members and pay interest?

Yes, a Section 8 Company can take a loan from its members and pay interest, provided it complies with Chapter V of the Companies Act and related rules.

11. How many board meetings are required for Section 8 companies in a year?

Section 8 companies are required to hold at least one board meeting within every six calendar months, as per exemption notification and Section 173(1) of the Companies Act.

12. Are Secretarial Standards applicable to Section 8 Companies?

No, Section 8 Companies are exempted from Section 118 as per the Ministry of Corporate Affairs (MCA) notification dated June 5, 2015. However, adherence to Secretarial Standards can enhance governance standards and stakeholder confidence.

13. Is Secretarial Audit applicable to Section 8 Companies?

Yes, Secretarial Audit is applicable to Section 8 Companies if they meet the criteria specified in Section 204 of the Companies Act, 2013. This includes being a listed company or a public company with a paid-up share capital of Rs. 50 crores or more, or a public company with a turnover of Rs. 250 crores or more.

14. Is the Companies (Auditors Report) Order, 2016 applicable to Section 8 Companies?

No, Section 8 Companies are exempted from the provisions of the Companies (Auditors Report) Order, 2016, as stated in para 2(iii) of the order.

15. Is 80G & 12A registration are mandatory for Section 8 Company ?

No, 80G and 12A registrations are not mandatory for Section 8 Companies. However, obtaining these registrations shall provide certain benefits to Section 8 Companies and their donors like-

1. 80G Registration, allows donors to claim tax deductions on donations made to the Section 8 Company. It incentivizes individuals and businesses to contribute financially to the organization's charitable activities.

2. 12A Registration, exempts the Section 8 Company from paying income tax on its income if the income is applied towards charitable purposes. It ensures that the funds raised by the organization are utilized entirely for its social welfare objectives.

While these registrations are not mandatory, they can enhance the credibility of the Section 8 Company, attract more donors, and facilitate its philanthropic activities by providing tax benefits to both the organization and its donors.

16. Is CSR-1 Registration are Mandatory with MCA ?

The Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 mandate all eligible entities under Rule 4(1) of the Companies (Corporate Social Responsibility Policy) Rules, 2014 to register themselves with the Central Government via Form CSR-1 from April 1, 2021, includes registered societies, trusts, Section 8 companies, and other entities engaged in CSR activities.

To register for CSR funding, NGOs must file Form CSR-1 on the MCA portal, submitting required documents. Once approved, the MCA issues a unique registration number, aiding companies in verifying NGOs' eligibility for CSR funding. However, registration doesn't guarantee funding, as it's at the company's discretion.

The purpose of Form CSR-1 is to enhance transparency and accountability in CSR activities, aligning with the government's promotion of responsible business practices. Eligible entities include registered societies, trusts, Section 8 companies, and certain government-funded entities, provided their annual income exceeds Rs. 50 lakh.

Entities engaged in CSR activities and meeting spending obligations under Section 135 of the Companies Act, 2013, must file Form CSR-1 if their CSR expenditure in the preceding fiscal year was Rs. 1 crore or more.

How can Compliance Calendar help you?

Compliance Calendar can assist you in solving your queries regarding the registration of a Section 8 company. We can also assist you in handling the documentation and complex legal procedure which is involved in registration of Section 8 company.

Why DARPAN Registration ?

The NGO Darpan (NGO-PS) or Niti Ayog Registration serves as a vital intermediary platform connecting Voluntary Organizations (VOs) or Non-Governmental Organizations (NGOs) with key Ministries, Departments, and Government Bodies. Initially targeting essential entities such as M/o Culture, M/o Health & Family Welfare, and others, it aims to eventually encompass all Central Ministries, Departments, and Government Bodies.

Registration under Section 8 of the Companies Act are most easiest and simple way to start an NGO including registration under Darpan (NGO-PS), ensures legal compliance and credibility in its pursuit of fostering partnerships between the government and the voluntary sector. Section 8 Company legal structure signifies the organization's commitment to operate for charitable or philanthropic purposes, aligning with its mission to promote transparency, efficiency, and accountability.

Facilitated by NITI Aayog in collaboration with the National Informatics Centre, Darpan (NGO-PS) provides this interface free of charge, emphasizing its dedication to promoting social welfare and fostering collaboration for the greater good.

Benefit of NGO-PS platform

1. Access to Information: It provides access to comprehensive details about existing VOs/NGOs across India, enabling organizations to explore potential partnerships, collaborations, or resource-sharing opportunities.

2. Scheme Information: VOs/NGOs can obtain information about various schemes offered by participating Ministries/Departments/Government Bodies, as mentioned on the homepage, includes details about grants, funding opportunities, eligibility criteria, and application procedures.

3. Online Grant Application: The platform facilitates online application processes for NGO grants. Through a user-friendly interface, organizations can submit their grant applications conveniently and efficiently, streamlining the process for both applicants and administrators.

4. Application Tracking: VOs/NGOs can track the status of their grant applications in real-time. This feature enables organizations to stay updated on the progress of their applications, including any updates, approvals, or rejections, thereby enhancing transparency and accountability in the grant allocation process.

NGO-PS platform serves as a valuable resource for VOs/NGOs, empowering them with access to essential information, streamlined application processes, and effective tools for monitoring their grant applications.

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