A Section 8 company, also known as a Non-profit company or a Not-for-Profit company, is a type of company that is registered under Section 8 of the Companies Act, 2013 in India. Section 8 companies are formed for promoting charitable or non-profit objectives like social welfare, education, sports, arts, and more. In this blog, we will discuss the benefits of Section 8 companies in India.
Tax benefits:
One of the significant benefits of Section 8 companies is the tax exemptions available to them. Such companies enjoy various tax benefits under the Income Tax Act, 1961. These benefits include exemption from paying tax on the income generated from their charitable activities. Moreover, the donors contributing to Section 8 companies are also eligible for tax benefits under Section 80G of the Income Tax Act.
Perpetual succession:
A Section 8 company enjoys the advantage of perpetual succession, which means that the company continues to exist even if its members or directors change. Unlike other forms of organizations, Section 8 companies do not depend on the lives of its members and directors for their continuation. Therefore, the members can join and leave the company without affecting its continuity.
No minimum capital requirement:
There is no minimum capital requirement for forming a Section 8 company in India. This provision enables individuals or organizations to establish a Section 8 company with a minimal amount of capital, making it easier for them to initiate their charitable activities.
Limited liability:
The liability of the members of a Section 8 company is limited to the extent of their shareholdings in the company. In case of any default or debt incurred by the company, the members’ personal assets remain unaffected. This feature of limited liability encourages individuals to contribute to charitable activities without worrying about their personal assets’ safety.
Credibility:
A Section 8 company enjoys more credibility and trust in society than other forms of organizations. The reason behind this is that the registration of a Section 8 company requires the approval of the Central Government, which ensures that the company is genuinely working for the betterment of society.
Separate legal entity:
A Section 8 company has a separate legal entity from its members. This means that the company can sue or be sued in its name. Also, the company can acquire and hold assets, enter into contracts, and conduct its activities independently, without relying on the members’ individual capacities.
Greater access to funding:
Section 8 companies can attract more funding than other forms of organizations because of their credibility and tax-exempt status. This makes it easier for them to raise funds from donors, corporate entities, and government organizations.
Easy transfer of ownership:
The ownership of a Section 8 company can be easily transferred by selling or transferring shares, making it easier for investors to exit the company if needed. This feature also enables the company to attract more investors, as the investment is transferable.
Ease of compliance:
Section 8 companies have simplified compliance procedures compared to other forms of organizations. These companies are exempted from certain provisions of the Companies Act, which reduces the compliance burden and helps in efficient management of the organization.
Flexibility in operations:
Section 8 companies have more flexibility in their operations as they are not bound by the profit motive. They can undertake any charitable activity that aligns with their objectives, and the profits generated from such activities can be used for promoting the company’s objectives.
Conclusion:
Section 8 companies have many benefits that make them an attractive option for individuals and organizations looking to undertake charitable activities. These companies enjoy tax exemptions, perpetual succession, limited liability, separate legal entity, credibility, easy transfer of ownership, greater access to funding, ease of compliance, and flexibility in operations. Therefore, if you have a charitable objective in mind, a Section 8 company may be the right choice for you.
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Frequently Asked Questions (FAQs)
What is a Section 8 company?
A Section 8 company is a type of not-for-profit company registered under Section 8 of the Companies Act, 2013 in India. These companies are formed for promoting charitable or non-profit objectives.
What is the difference between a Section 8 company and a trust?
A trust is a legal arrangement where a trustee holds and manages property for the benefit of another person or entity. In contrast, a Section 8 company is a separate legal entity that can undertake activities in its own name and has perpetual succession.
How to register a Section 8 company?
To register a Section 8 company, one must file an application with the Registrar of Companies (ROC) and obtain approval from the Central Government. The process involves obtaining a digital signature certificate, acquiring the Director Identification Number (DIN), and submitting the Memorandum and Articles of Association.
What is the minimum number of members required to form a Section 8 company?
A Section 8 company must have at least two directors and two shareholders. There is no maximum limit on the number of members.
Can a Section 8 company distribute profits to its members?
No, a Section 8 company cannot distribute profits to its members. Any surplus generated from its activities must be utilized for promoting its objectives.
Can a Section 8 company convert to a for-profit company?
Yes, a Section 8 company can convert to a for-profit company. However, it must comply with the provisions of the Companies Act, 2013 and obtain the necessary approvals.
What are the tax benefits available to Section 8 companies?
Section 8 companies enjoy various tax exemptions, including exemption from paying tax on the income generated from their charitable activities. Moreover, the donors contributing to Section 8 companies are also eligible for tax benefits under Section 80G of the Income Tax Act.
Can a Section 8 company operate outside India?
Yes, a Section 8 company can operate outside India, subject to compliance with the relevant laws of the foreign country.
Can a Section 8 company accept foreign donations?
Yes, a Section 8 company can accept foreign donations, subject to compliance with the Foreign Contribution Regulation Act, 2010.
Can a Section 8 company be dissolved?
Yes, a Section 8 company can be dissolved by following the process prescribed in the Companies Act, 2013. The surplus generated must be distributed to another Section 8 company with similar objectives or transferred to a charitable trust or society.
