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NOT FOR PROFIT – SECTION 8 COMPANIES

 
COMPETITION LAW
LAW RELATING TO START UPS
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Benefits of Incorporation
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Conversion of (Section 8) Company
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LITIGATION AND INDIAN COURTS
 

Introduction

 

The concept of not for profit companies is not new in India. The Companies Act provides for registration of Not for Profit companies in India. Any person or an association of persons intending to incorporate a company with a non-profit making object can register a company. Earlier, since the non-profit companies were governed by the provision of section 25 of Companies Act 1956, they were widely referred to as Section 25 company. After the recent repeal and replacement of the Companies Act, the provisions mentioned in Section 8 of Companies Act 2013 read with provisions of Companies’ Incorporation Rules, 2014 shall apply. Therefore, now the Not for Profit companies registered under section 8 of the Companies Act, 2013 are also referred to as Section 8 companies.

 

Objectives of Section 8 Company

 

As per the provisions of the Companies Act, 2013, a Section 8 company may be incorporated with an intent to carry on a business with a charitable objective. It is pertinent to note that the distribution of profits or dividends among its members is per se prohibited and all the profits so generated shall only be used in order to achieve the ultimate objective of the company. A section 8 company may be incorporated with an object to promote;

  • commerce

  • art

  • science

  • sports

  • education

  • research

  • social welfare

  • religion

  • charity

  • protection of environment

  • any other object

Essentials features of Not for Profit Companies

  • These companies enjoy all the privileges and are subject to all the obligations of limited companies.

  • A Partnership firm may become a member of Not for Profit companies.

  • MOA and AOA of such company once accepted cannot be altered except with the previous approval of the Central Government.

  • A Section 8 company may be converted into company of any other kind.

  • The Central Government if satisfied that it is essential in the public interest, may direct the company to be wound up or amalgamated with another company registered under section 8.

Procedure for obtaining License of Registration for Section 8 Company

 

A person or an association of persons desirous of incorporating a not for profit company shall make an application in Form INC 12 along with the prescribed fee to the Registrar of Companies. The application shall be accompanied with the following documents;

  • Memorandum of Association (MOA) and Article of Association (AOA) of the proposed company;

  • A declaration by A Chartered Accountant, Cost Accountant, Company Secretary in practice or an Advocate stating that the MOA and AOA have been drawn up in conformity with the provisions of Section 8 and rules thereof and that all the statutory requirements have been complied therewith;

  • An estimate of the future annual income and expenditure of the company for the next 3 years specifying the sources of income and the objects of the expenditure; and

  • Declaration by each of the person making the application in Form INC 15.

Penalty in case of Non-Compliance with the statutory laws

  • In case of contravention of any provisions of the Companies Act, Central Government may by order, after giving the company a reasonable opportunity of being heard, revoke the license granted to a company.

  • In case a company makes any default in complying with any of the requirements laid down in Section 8 of the Companies Act 2013, the company shall be punishable with fine which shall not be less than ten lakh rupees but which may extend to one crore rupees. The directors and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than twenty-five thousand rupees but which may extend to twenty-five lakh rupees, or with both.

 

For more information on Section 8 Company, please write to us at info@ssrana.com

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