Section 8 Company

Overview of NGO Formation in India

In India, setting up a Non-Governmental Organization (NGO) requires careful consideration of the legal structure. A popular choice for those envisioning nationwide growth and access to grants is registering under Section 8 of the Companies Act. Section 8 companies offer various benefits, including government support and enhanced credibility, making them ideal for NGOs with large-scale ambitions.

Types of NGOs in India

1. Society
   A Society is a non-profit organization formed by a group of individuals sharing a common goal, usually related to social, cultural, educational, or religious causes. It operates under a constitution and is managed by a governing body. Funding typically comes from memberships, donations, and grants. Societies can be formed at the state or national level, and a national-level society requires at least seven members from different states.
2. Trust
   A Trust is formed to manage assets for a specific charitable purpose. Governed by a deed, the trustees are responsible for managing the assets in alignment with the trust’s objectives. Trusts are commonly used for purposes like scholarships or environmental conservation.
3. Section 8 Company
   A Section 8 Company is similar to a private limited company but is established for promoting charitable activities. These companies operate under the Ministry of Corporate Affairs (MCA) and must use their income solely for charitable purposes without distributing profits among members.

Understanding Section 8 Company

A Section 8 Company, governed by the Companies Act, 2013, is designed for charitable organizations aiming to contribute to social welfare. Previously known as Section 25 Companies under the Companies Act, 1956, they are granted licenses under Section 8 based on the following conditions:

1. Charitable Purpose: The organization must focus solely on charitable work.
2. Income Allocation: Profits are reinvested into the organization’s charitable activities.
3. Dividend Restriction: Members cannot receive profits or dividends.

Benefits of Registering as a Section 8 Company

1. Tax Savings: Section 8 companies qualify for tax exemptions with 12A and 80G Registration, offering significant savings.
2. No Minimum Capital: There is no requirement for minimum paid-up capital.
3. Reduced Registration Fees: Section 8 companies are exempt from stamp duty during registration.
4. Separate Legal Entity: These companies have a distinct legal status, enhancing their credibility.
5. Naming Flexibility: There is greater freedom in choosing a name that reflects the organization’s mission.

Eligibility Criteria for Section 8 Company

To register as a Section 8 Company, the following conditions must be met:

1. Promotion of Social Good: The company must focus on charitable areas such as education, art, sports, religion, and more.
2. Profit Reinvestment: All profits must be reinvested in the company to promote its social objectives.
3. Non-Profit Motive: Profit distribution to members is prohibited.

Key Legal Requirements for Section 8 Companies

• Directors and Members: The MCA sets no specific limit on the number of directors.
• Capital Requirements: There is no minimum capital requirement.
• Naming Conventions: Section 8 companies must include words like “Foundation,” “Forum,” “Association,” or “Council” in their name.

Step-by-Step Registration Process for Section 8 Company

1. Initial Consultation: Speak to experts for eligibility checks and document preparation.
2. Document Submission: Receive your DSC (Digital Signature Certificate), DIN (Director Identification Number), and reserve a unique name.
3. Filing the Application: Your application is submitted by professionals.
4. Incorporation: Upon MCA approval, you will receive a Certificate of Incorporation.

Tax Exemptions and Relief for Section 8 Companies

Section 8 companies can offer tax exemptions to donors after obtaining 12A and 80G Registration. Donors can claim deductions under Section 80G of the Income Tax Act, further enhancing trust and support for the organization.

Compliance Requirements for Section 8 Companies

1. Audit & Accounting:
   • Auditor Appointment: Within 30 days of incorporation.
   • Board Meetings: At least one meeting every six months.
   • Annual Audit: Conducted by a Chartered Accountant.
2. Meetings & Reports:
   • AGM: Must be held within six months of the fiscal year-end.
   • Board Report: To be filed with audited financial statements.
3. Tax Filings:
   • Income Tax Return: Due by October 31st.
   • Tax Audit (Form 10B): Due by September 30th for charitable organizations.

Summary of Key Compliance Deadlines