What is Section 8 company?
As defined under section 8 of the Companies Act 2013,
- The section 8 companies are not for profit-making companies opened up for
- The purpose of promotion of the field of arts, commerce, science, education, sports, research, religion, environment protection, commerce, social welfare and so on.
Applicability of the profits of the Company
As per the Companies Act, 2013 such companies are mandated to apply their profits to the furtherance of their cause keeping the main objects of the company in mind thereby restricting them to pay any dividends to their members.
How is it different from other companies and its benefits?
Advantages of section 8 companies are:
- Members have limited liability due to being a company
- Unlike other companies, companies under section 8 have no requirement of such minimum paid up capital
- Tax exemptions are offered more here
- Such companies have separate legal status
- They have perpetual existence
- Such companies are more trustable due to being recognized by the Government by granting a license.
Cons of section 8 company
- Since it is not profit making, members are restricted from receipt of dividends
- The profits can only be used for the further development of cause
- Strict compliances can cause your license to get revoked
- The directors do not get any benefits or allowances
Punishment for Violation of Provisions
- A company that contravenes the provisions mentioned therein will be liable to an exorbitant fine ranging from INR 10 lakhs to 1 crore.
- The directors and the officers responsible for contravention can suffer imprisonment of up to 3 years and a fine ranging from 25000 to 25 lakhs.
- If the company is found to have formed up for fraudulent motives, the provisions of section 447 will apply which gets applicable in case of criminal and civil liability.
FAQs
When can the license get revoked?
The cancellation or revoke of license is a direct result of the contravention of the provisions of the Act. In the following cases, the license can be revoked
- Contravention of provisions of section 8
- License terms violated
- Formation of company for fraudulent motives
- If not cancellation, the government can order amalgamation of this company with another company.
- However before passing any orders, the company will be given right to be heard and justify its actions.
Can Firms be members of the Trusts under section 8?
Not only individuals but also the association of persons and partners of firms can become members of the company registered under section 8 of the Companies Act 2013.
How can you form a not for profit company under section 8 of the Act?
Suppose you want to establish an old age home that will give ideal space and care for the old people.
- At first you will have to file an application under section 8 of the companies Act 2013 under prescribed forms and pay the fees as required.
- Next you will have to draft a memorandum and articles of association where
- The memorandum will specifically highlight that the creation of this company is not under any intention to earn profits but to carry out the good work for the old people.
- After submitting the memorandum and the articles to the Registrar along with the application,
- The Central Government will review the documents and on satisfaction will grant you a license.
- After obtaining the license and submitting a copy of it to the Registrar, the ROC will register the company and include it in the register of companies.
Can such companies issue dividends?
No, they cannot distribute dividends.
Do Directors get any benefit from such companies?
No they are offered nil benefit.
What is an example of a section 8 company?
Examples of such companies include Confederation of Indian Industries (CII), Federation of Indian Chambers of Commerce and Industry (FICCI) etc where these companies are formed to facilitate growth of trade and commerce in the Indian industry.
How many minimum members required?
A minimum of 2 shareholders required
Can you use suffix ‘Pvt. Ltd’?
You cannot make use of the suffix ‘Pvt. Ltd’ or ‘Ltd’ with its name.