In India, Section 8 Companies are non-profit organizations that are formed with a social, charitable, religious, or educational objective. These companies play a pivotal role in addressing social issues by reinvesting any surplus towards achieving their mission. They are known for promoting activities such as welfare, arts, science, research, sports, and more. Unlike other companies, Section 8 Companies do not distribute dividends to their members and have unique legal benefits that allow them to function efficiently within the regulatory framework. This article will cover the benefits of a Section 8 Company, the process of forming one, the documents required, and how to register under 12A and 80G after setting up a Section 8 Company.
Benefits of a Section 8 Company
A Section 8 Company offers various advantages over traditional forms of organizations like societies and trusts. Here are some of the key benefits:
1. Legal Recognition and Credibility
Section 8 Companies are governed by the Companies Act, 2013, and require approval from the Registrar of Companies (RoC). This gives them more legal recognition and credibility as compared to other non-profit entities like trusts and societies.
2. Exemption from Taxes
One of the most significant advantages is the tax exemptions available under the Income Tax Act. By registering for 12A and 80G, Section 8 Companies can enjoy benefits such as exemption from income tax, and donors can also claim tax deductions on donations made to such companies.
3. Limited Liability
The liability of the members is limited to the extent of their shares, ensuring that personal assets are not at risk if the company faces financial difficulties.
4. No Minimum Capital Requirement
Unlike other types of companies, a Section 8 Company does not have a mandatory minimum capital requirement, making it easier for smaller organizations to get started without a large financial outlay.
5. Perpetual Succession
Section 8 Companies enjoy perpetual succession, which means that they continue to exist even if their members change. This ensures the organization’s longevity and stability over time.
6. Trustworthiness
Since Section 8 Companies are regulated more strictly than trusts and societies, they tend to be perceived as more reliable by government authorities, stakeholders, and donors.
Process of Forming a Section 8 Company
The process of registering a Section 8 Company involves several steps, and it’s essential to follow each one to ensure legal compliance.
1. Obtain Digital Signature Certificate (DSC)
The first step is to obtain a Digital Signature Certificate (DSC) for the proposed directors. The DSC is essential for submitting online applications and signing digital documents during the registration process.
2. Apply for Director Identification Number (DIN)
After obtaining the DSC, the next step is to apply for a Director Identification Number (DIN). This is a unique identification number required for all directors of the company.
3. Name Approval
You need to apply for the name approval of your Section 8 Company. The name should reflect the objectives of the company and must be unique. You can submit up to two proposed names in the application through the RUN (Reserve Unique Name) service on the Ministry of Corporate Affairs (MCA) portal.
4. Drafting the Memorandum and Articles of Association (MoA and AoA)
After receiving name approval, you need to draft the Memorandum of Association (MoA) and Articles of Association (AoA). These documents outline the objectives of the company and the rules and regulations governing its internal management.
5. Submit INC-12
Once the MoA and AoA are ready, you must file Form INC-12 with the RoC, along with the prescribed fees. The form includes details of the directors, subscribers, and other relevant information about the company.
6. Approval from RoC
After verifying the documents and information, the RoC will issue a license under Section 8 of the Companies Act, 2013. Once the license is granted, you can proceed with the incorporation process.
7. Incorporation
File the SPICe+ Form for the incorporation of the Section 8 Company. Upon successful submission, the RoC will issue a Certificate of Incorporation, and the Section 8 Company will be officially formed.
Documents Required for Section 8 Company Registration
To complete the registration process, the following documents are required:
- Digital Signature Certificate (DSC) for the proposed directors.
- Director Identification Number (DIN) of the proposed directors.
- MoA and AoA of the company.
- PAN Card and Aadhaar Card of the directors.
- Address Proof of the directors (bank statement, utility bills, etc.).
- Address Proof of the Registered Office (Rent agreement, No Objection Certificate (NOC) from the owner, or any utility bill).
- A declaration by professionals such as Chartered Accountants (CA), Cost Accountants, or Company Secretaries.
- Financial statements or statements of assets and liabilities (if applicable).
- A projected income and expenditure statement for three years.
How to Register for 12A and 80G After Section 8 Company Registration
After the successful formation of a Section 8 Company, it is essential to apply for 12A and 80G registration to avail of tax benefits and attract more donors.
1. 12A Registration Process
Section 12A of the Income Tax Act allows non-profit organizations to be exempted from paying income tax on their surplus income. To apply for 12A registration, follow these steps:
- Step 1: Submit Form 10A to the Income Tax Department through the online portal.
- Step 2: Attach necessary documents such as incorporation certificate, MoA and AoA, PAN card, and audited financial statements.
- Step 3: The Income Tax Commissioner will verify your application and, if approved, grant you 12A registration. Once registered under 12A, your company will enjoy tax exemption on its income.
2. 80G Registration Process
Section 80G of the Income Tax Act allows donors to claim tax deductions on donations made to your Section 8 Company. The process for 80G registration is as follows:
- Step 1: Submit Form 10G through the Income Tax Department’s online portal.
- Step 2: Attach documents such as the PAN card of the organization, 12A registration certificate, audited financial statements, and details of donations received.
- Step 3: The Commissioner will assess the company’s compliance with the guidelines. Upon approval, your Section 8 Company will be registered under 80G, allowing donors to claim tax deductions on their contributions.
Conclusion
A Section 8 Company provides a robust legal framework for individuals and groups to engage in charitable, social, and non-profit activities. The tax benefits available through 12A and 80G registration further incentivize donations and enhance the company’s ability to fulfill its mission. By following the process outlined above, you can successfully register and benefit from a Section 8 Company while contributing to social and community development.
In conclusion, if you are looking to start a non-profit organization in India, opting for a Section 8 Company can be the ideal choice, offering both credibility and operational flexibility.
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