Companies registered under Section 8 of the Companies Act, 2013 (the Act) are unique to the extent that they are specifically formed with an object to promote commerce, arts, science, sports, education, research, social welfare, protection of environment or for any such similar object. Even an existing public or private company or trust can be converted into a Section 8 company. Recognition as a Section 8 Company requires a license from the Central Government. Alteration of objects of a Section 8 company requires prior approval of the Central Government. There is a misconception that a Section 8 company is formed ‘not for profit’. However, the fact is that there is no restriction for a Section 8 company to earn profit in carrying on its objects. Still, it cannot distribute to its shareholders the profits earned, and the profits have to be re-deployed in furthering its objectives.
And intends to apply its profits, if any, or other income in promoting its objects. It intends to prohibit the payment of any dividend to its members. It is called section 8 companies under the companies act 2013. The license may be issued by central government such manner as may be prescribed, and on such conditions as it deems fit, approve that association of persons or person to be registered as a company under this section without the addition to its name of the word “Private Limited”, or as the case may be, the words “Limited”, and On application, in the prescribed form, Registrar may register such person or association of persons as a company under this section. Section 8 Company is also a registered company for charitable or non-profit purposes.
However, this Company is similar
to a Trust or Society; an exception is that a Section 8 Company is registered
under the “Ministry of Corporate Affairs (MCA)” of the Central Government while
the Societies and Trusts are registered under the regulations of the State
Government. However, this has numerous advantages compared to Trust or
Society and has better credibility among donors, departments of
government, and other stakeholders. Further, the key feature of this Company is
that it is possible to incorporate the company name without using the word
“Limited” or “Private Limited” as the case may be.
This type of company is incorporated for charity, social welfare, social promotion; their main aim is to promote social welfare and work for society, not to earn profits. Their main objects depict the reasons for their incorporation: sports, Promoting commerce, art, science, education, research, social welfare, religion, charity, protection of the environment, or any other object.
The central government licenses these types of companies under section 8 of the companies act 2013. These companies work for society and receive a donation from the general public for welfare work.
Section 8 company also forms a private limited or public limited company with limited liability. Members of this company have limited liability as per their share subscribed.
This form of company’s doesn’t
issue a dividend to its members because it is restricted from the law. They
cannot distribute their earned profit as dividends to its member; they can promote their business objectives.
Created & Posted by Pooja
Income Tax Expert at TAXAJ
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