SECTION 8 COMPANY (NGO) REGISTRATION IN INDIA

SECTION 8 COMPANY (NGO) REGISTRATION IN INDIA

Section 8 companies are known as Non-Governmental Organization or Non- profit Organization. It is formed for social welfare.

BRIEF BACKGROUND

Section 8 companies (NGOs) can also be referred to as Non-Governmental Organization or Non- profit Organization. These organizations /companies are formed for social welfare. In Companies Act, 2013 a Section 8 company can be referred to as any company having the following objectives:

Promotion in the field of arts, commerce , science , research , education, Sports, charity, social welfare, religion, environment protection and other similar objectives that leads to social welfare of society;

There are mainly three types of non- profit organizations:
  • Section 8 company ( registered under Section 8 of the Companies Act, 2013 ); 
  • Societies (registered under Section 20 of the Societies Registration Act, 1860); 
  • Trusts (formed under The Indian Trusts Act, 1882). 

ELIGIBILITY

As per the Companies Act, 2013 for registration of a Section 8 company there is no capital criteria mentioned in the Act. However the following points are applicable and mandatory before proceeding for a NGO Registration:

  • Company should be engaged only in the activities related to the social welfare and benefit to the society.
  • Main motive of the company should be carrying out activities and projects only for non-profit .
  • Companies should not draw any personal benefit from these companies, basic expenses like rent, salaries, asset purchase, etc. can be done from the income received. 

Hence, one should satisfy the criteria and discuss with a learned professional, before applying for registration, for a swift process.

DOCUMENTS REQUIRED

For proceeding with the registration of Section 8 company following documents would be required: 

  • ID Proof of the Proposed Directors : PAN Card/ Voter ID / Passport/ Aadhar Card/ Driving License  is used as an legible identity proof in this case; 
  • Address proof of the Proposed Directors: Passport, Bank statement (not older than 2 months), any utility bill or driving license is legible proof as per the options listed in the Form for incorporation:
  • All the documents should be self  attested by the directors alongwith date;
  • Registered office address : Address of the registered office address of the company and proof for the same
  • In case the registered office is owned by any of the director in that case the electricity bill ( not older than 2 months) with a NOC ( No- objection Certificate ) signed would be required as proof of address;
  • In case the registered office is on lease or rent in that case electricity bill ( not older than 2 months ) and rent agreement duly notarized and stamped would be required as proof of address;
  • Project Report : Project report stating the projections for the 3 years of the work and activities that would be achieved by the organization . Report should be duly signed by a Certified by a practicing professional;

INFORMATION REQUIRED

For Section 8 company incorporation ,  following information shall be required from the proposed company: 

  • DIN of the proposed directors ( If available , if not available DIN needs to be applied for the directors);
  • Directors details such as Father’s Name, Latest passport size photograph which should be only in JPEG Format, Nationality, Occupation & Area of Occupation , Mobile Number & Email id , Place of birth;
  • Proposed Names for the company;
  • Object that company would be carrying out;
  • Amount of the Authorized Capital and Paid Up Capital;
  • Shareholding ratio of the Directors/Subscribers (if different from Directors);

PROCESS OF INCORPORATION

The incorporation of Section 8 company   involves the following process:

DIN of directors:   In case directors are already acquiring DIN it has been to be checked that whether   DIN of the director is not deactivated /disqualified.

In case directors do not acquire any DIN, in that case DIN has to be applied for the respective directors   .

SPICE+ :  After all the above are ready, we shall proceed with the applying for the incorporation of the company through the SPICE+ facility available for the incorporation of the company. Once the application has been submitted for the incorporation and the same has been approved the CRC , licence under Section 8 and certificate of incorporation shall  be issued by the Department 

Certificate of Commencement: After the certificate of incorporation has been issued by department to the company, company has to apply for the certificate of commencement for carrying on the activities within 180 days from the date of incorporation of the company .

This certificate has become mandatory after the Companies (Amendment) Act ,  2019. Application for certificate of commencement has to be made in Form INC-20A, i.e. for all companies incorporated w.e.f. 2nd November,2018.

ADVANTAGES/DISADVANTAGES OF SECTION 8 COMPANY

Various advantages  of registering a section 8 company are:

Advantages of  Section 8 company
  • The requirement of minimum paid up share capital is not applicable in case of Section 8 company; 
  • In case of Section 8 company fourteen days  notice is to be given before conducting of general meeting 
  • In case of Section 8 company it can have any number of directors and passing of special resolution for having not more than 15 directors is not required .
  • Provisions relating to appointment of independent director is not applicable in case of section 8 company 
  • A person holding office as director in more than 20 companies can still be appointed as director in section 8 company 
  • Company can claim tax benefits under section 12AA & pass on the benefits under section 80G of the  Income Tax Act,1961 to its donors;
  • Section 8 Companies/NGO are first preference for CSR Funds granted by the Corporates, which is mandatory spent under Companies Act,2013;
  • Section 8 are easy to register on Niti Aayog Portal of the Government;
  • Foreign funds in the form of donation can also be taken by registering it under FCRA, Ministry of Home Affairs;
  • Central Board of Secondary Education (CBSE), also recognized Section 8 Companies, under which application for affiliation of schools can be applied;
  • Section 8 Companies are treated more credible then any other forms of NGO, like Societies & Trusts.

Besides the above advantages, the registration of a Section 8 Company, itself gives a transparent view of the organization in the market, that the policies and procedures are being followed in an accountable manner, being every information is available on Ministry of Corporate Affairs portal.

TIME INVOLVED

Time involved in incorporating a Section 8 company is about 10-12 days , depending upon the approval by the respective authorities. 

FREQUENTLY ASKED QUESTIONS (FAQs)

Who can be a director of Section 8 company?

Any person willing to act as an Director of a Section 8 Company, shall hold a valid Director Identification Number (DIN) and shall have fulfilled the criteria laid down for obtaining a DIN.

How Many persons are  required to incorporate a Section 8 company?

The minimum requirement to incorporate a Section 8 Company is two persons, who can be Directors as well as Shareholders. In case of an entity, proposing to be shareholder of Section 8, then a person can be nominated by such entity can act as a authorized signatory for all incorporation purposes.

What is the validity of license granted under Section 12AA & 80G of Income Tax Act,1961 to Section 8 Companies?

80G License granted to the companies before 1st April 2020 have a lifetime validity. However any companies applying for 80G license on or after 1st April, 2020 shall be valid only for a period of 5 years, subject to renewal after a period of 5 years. 

Can a Section 8 company receive contributions from overseas?

Section 8 company can receive contributions from overseas subject Compliance with the provisions mentioned under the Foreign Contribution and Regulation Act, 2010.

Is it necessary to have a charitable object to register a Section 8 company?

Yes, it is necessary to have a charitable object to be registered as Section 8 company . The purpose shall enable the development of the society, be it in any manner. For e.g. Education, Yoga, upliftment of differently abled person, woman empowerment, cleaning of rivers, etc. 

What is the span of the company?

The life span of the company is not dependent on the directors of the company . Even if all the directors of the company exit the company, Company can still continue by merging with the other organisations or Institutions. The validity of the company is perpetual.

How much capital is required?

There is no such minimum capital criteria for incorporation of a Section 8 Company. However the capital can be increased at anytime in near future . 

Is it mandatory that the name of the Section 8 company shall include words like Foundation, Forum, Association?

Yes, as per Rule 8(7) of the Companies (Incorporation) Rules, 2014 under the Companies Act,2013, the Companies registered as Section 8 companies shall include the words like Forum, foundation Etc.

Can a company with unlimited liability be registered as Section 8 company?

No. Rule 20(1) of the Companies (Incorporation) Rules, 2014  provides that only a limited company can be  registered under this Act . Therefore, a company with unlimited liabilities can’t be registered as a Section 8 Company.

Is there is any relaxation in Stamp duty payment on issuance of share certificate by a Section 8 Company?

No, there is no specific relaxation on issuance of share certificates, being Stamp Act, as a matter of state and every state has its specific rates of stamp duty. Therefore, stamp duty on issuance of share certificates is applicable to Section 8 Company.

Conclusion

Hence, it is suggested to go for registration of Section 8 company due to  comparatively higher overall benefits then other forms of NGOs.