Section 8 companies are special entities under the Companies Act, 2013. These entities are specifically formed to promote some special objectives. Unlike the other corporate entities, purpose to register section 8 companies is altogether different.
Section 8 companies are similar to the concept of non-profit organisation with only difference is that section 8 is treated as company form which is registered under the companies act. Therefore, it is called special entity.
Main activities or we can say purpose to register section 8 companies are to promote science, culture, sports, art, education, research, social welfare, religion, and many more and objectives of all these activities are not profits.
Salient features of Section 8 Companies
- Profits of section 8 companies are utilised only for its objectives
- Members don't receive any dividend
- You can not incorporate section 8 companies through filing form INC-29.
- Unlike formation of other companies, there is an additional requirement to obtain a license from the Central Government.
- Pvt Ltd word can not be used in the name of section 8 company.
Relevance of Section 8 companies in current era
Since the inception of Corporate Social Responsibility (CSR) provisions, specified companies which are come under the ambit of CSR provisions are required to spend at least 2 of their average net profit made during the last three years on certain activities which are further prescribed under the Schedule VII, so now the companies have started incorporating the section 8 companies to do CSR activities through Section 8 companies because if you compare the activities of section 8 companies and CSR spending areas are almost same.
Having said that section 8 company incorporation is not an easy process. Besides the normal process of registration, there is one extra requirement to obtain the license from the central government, which is no longer an easy task to obtain. Therefore, registration of section 8 companies takes longer times than other companies formation such as public limited companies, private limited companies, one person companies etc
Apart from these essential points, there are certain privileges which are only available to section 8 companies, which are as follows:
- Minimum paid capital requirement is not applicable to section companies in India.
- Section 8 companies may call annual general meeting by serving shorter notice of 14 days.
- The provisions related to minimum & maximum number of directors on the Board along with requirement of passing a special resolution to hike the limit of maximum number of directors shall not apply.
- Section 8 companies are not required to appoint Independent director.
- Holding directorship in the Section 8 companies shall not be counted while calculating maximum number of directorship in the companies.
- Section 8 Companies are required to hold only 2 board meetings in a calendar year instead of 4 board meeting.
So, if your purpose resembles section 8 company activities then you must go for incorporating section 8 companies for the society upliftment.