Section 8 Company- Registration as a Non- Profit Organization
The Section 8 of the Companies Act, 2013 was introduced with the primary objective of motivating and monitoring the companies which are formed due to the primarily for ‘charitable purposes’.[1] The clause (1) of the impugned provision defines the ground on the basis of which a company may be registered as a non-profit organization.[2] The grounds so laid down can be enunciated as follows:
- Such company is established for the following purposes: promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object.
- Such company also endeavors to use its profits for only the purpose of promotion of objects of the organization.
- Such a company also intends to prohibit the payment of any dividend to its members.
The aforementioned provisions make it amply clear that the companies which are registered under the Section 8 are established only for the purpose of benefitting a specific objective and if they step out of their domain then the Central Government might have the authority to revoke their license.
The licenses are granted to the companies to be certified as the company of Section 8 only if the Central Government is satisfied with the same. It should be duly noted that any person or association of persons[3] which come together to be registered as a limited liability company but for a specific defined object or charitable purpose then such an entity would be liable to be registered as a Section 8 company. By virtue of clause (3), a firm can also be made a part of the Section 8 Company (non-profit organization).
Specifically, the licenses to the companies to be registered as a Section 8 company are granted by the Central Government, which has further delegated its power to the Registrars of Companies of respective jurisdictions.
The Section 8 companies enjoy all the privilege of a ‘private company’ or a ‘limited company’ without actually adding the suffix into their name.
Incorporation of a Section 8 Company- India
The Section 8 Company shall be incorporated only by filing an application to the Registrar of Companies only through the form which is laid down under the Form no. INC.12. It should be accompanied by the following documents:
- Draft Memorandum of Association (MOA) and Articles of Association (AOA). It should be submitted as per Form no. INC. 13.
- Declaration as per Form no. INC. 14 by an Advocate, a Chartered Accountant, Cost Accountant or Company Secretary in practice. It is to ascertain that the draft MOU and AOA are laid down as per the provisions of the act, especially Section 8.
- Statement elucidating the future income and expenditures of the company for the next three years, so as to ascertain the sources of income and expenditure as well as their use in the goal for which the organization is established.
- Declaration as per Form no. INC-15, to be notarized to ascertain every person making an application.
- Declaration as per Form no. INC-9, ascertaining each director and subscriber at the time of making of the application.
Conversion to a Section 8 Company
The Rule 20(1) of the Companies (Incorporation) Rules, 2014 specifically provides that only the limited company registered under the 2013 Act or the 1956 Act are entitled to be registered as a Section 8 Company and for the same they are to make an application to the Registrar for the issuance of license. It should also be duly noted that an unlimited company is not to be registered as a Section 8 Company in any scenario.
It also instills an obligation upon the company to get a notice published within one week of making the application in any vernacular newspaper at its own expense. It should be made as per Form No. INC-26.
If there are any objections then they should be resolved within thirty days and for the same, the Registrar may take assistance of the any regulatory body or Department or Ministry of Central or State government. The companies also have to duty to incorporate into their MOU, any kind of provision which is so recommended by the Registrar.
One of the pertaining situations that needed to be taken care of is as per Rule 8(7) of the Companies (Incorporation) Rules, 2014. According to this rule, the words like Foundation, forum, association, federation, chamber, confederation, Council, electoral trust etc. should be included in a company’s name.
Conversion of Section 8 Company to a Company of any other form
The Section 8 Company can be converted to any other company by the virtue of Section 8(4) (ii) read with Rules 21, 22 and 23 of Companies (Incorporation) Rules, 2014. Generally, it can be done primarily with the amendment in the Memorandum of Understanding and Articles of Association. There should be a notification of the same to the Central Government through the Registrar of Companies.
For the conversion, the company has to pass a special resolution and notice for conversion in the General Meeting. The company also has to work upon obtaining the “No Objection Certificate”, from authorities such as IT Department, Charity Commissioner, Central or State government department, Municipal body or any other recognized authority, (in case it has obtained special status, privilege, benefit, exemption or grant from any of them). There should also be a declaration by the company that the income of the company has been suitably used and it is not distributed in the form of any dividend or bonus to the members of the company.
the company is under the obligation to publish such conversion in a vernacular newspaper. It is to be made as per Form INC 19 within seven days of application.
It should be duly noted that it can be converted to any kind of company except the one-person company by virtue of Rule 7(1) of the Companies (Incorporation) Rules, 2014.
The aforementioned deliberations make the efficacy of the Section 8 Companies abundantly clear. The provision is a welcome step which was also embraced in the Companies Act, 1956. The specific provision is imperative in a country like India due to the lacunas which are faced at several arenas. There is a dire need for development in the educational, healthcare, research, art, science, social welfare, religion, charity and environmental sector in India, therefore, the central government provides aid to the companies which are registered under the Section 8 of the Companies Act, 1956. This enables the companies to be established which work on the charitable purposes and gain profits which can again be used for the specific purpose or object of which the company is so established. The standards are ensured by the government through the way of the power of revocation granted to them as per clause (6) of the Section 8. The genuineness of the Section 8 Company is ensured even after it’s winding up as by virtue of clause (9), the profits so achieved by the Section 8 Companies are to be forwarded to the Rehabilitation and Insolvency Fund.
[1] Prior to the Companies Act, 2013 it was enunciated in the Section 25 of The Companies Act, 1956.
[2] Sanjay Kumar Labroo v. Registrar of Companies, Crl.M.C. 23/2005.
[3] Section 2(41) of the General Clauses Act, 1897.