Section 8 Company

Section 8 Company Registration in India

A company is referred to as Section 8 Company when it registered as a Non-Profit Organization (NPO) i.e. when it has motive of promoting arts, commerce, education, charity, protection of environment, sports, science, research, social welfare, religion and intends to use its profits (if any) or other income for promoting these objectives.

The income of NPO cannot be used for paying out dividends to the company’s members and has to be for the promotion of charitable objectives. Such companies obtain an incorporation certificate from the Central Government and are liable to adhere to the rules specified by the government.

Its manner of carrying out the operation is similar to any other limited company and even the right & duties of a limited company and NPO are alike. However, the title of “Section 8” and “Limited” cannot be interchanged.

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 as compared to Trust or Society and also has better credibility among donors, departments of government, and other stakeholders. Further, the key feature of this type of Company is that it is possible to incorporate the company name without using the word “Limited” or “Private Limited” as the case may be. In case of incorporation of Section 8 Company as a public limited company there should be minimum three directors and two directors in case of incorporation as a Private Limited Company. The maximum number of members in case of a private limited company can be 200. Further for a public limited company, there is no such limit.

According to the rules, failure to comply with the responsibilities stated by the Central Government may lead to the winding up of the company on the orders of government. Besides, strict legal action will be taken against all the members of the company, if the objectives which are laid down by the company, proves to be bogus.

Any company that contravenes provisions of Section 8 is punishable with a fine ranging from ₹10 lakhs to ₹1 crore. Further, directors and officers of the company are liable to punishment with imprisonment up to 3 years and a fine between ₹25,000 to ₹25 lakhs. Such officers can also face prosecution under stringent provisions of Section 447 (dealing with fraud) if they conduct any affairs with fraudulent motives.