The Company’s Act of 2013 is quite extensive and covers a variety of business types, including public companies, private companies, and one-person businesses, among others. Although running a business and making money are the primary motivations for starting a business, there are exceptions. Entrepreneurs most often get their start in philanthropy by starting organizations that help the less fortunate. They want to make a difference in the lives of the general public by starting such organizations.
Without regard for financial gain, these organizations only exist to aid society.Section 8 of the Companies Act of 2013 applies to such businesses, which are referred to as non-profit organizations (NPOs).Organizations that work toward the advancement of the arts, science, research, commerce, sports, religion, and the social welfare of the environment are also included in Section 8.
Since these businesses are non-profit organizations, their members do not receive any dividends or reimbursements. In addition, the company’s activities and the promotion of its main goals are the only things that can be done with the money or income it generates. The only difference between Section 8 businesses and Trusts or Societies is that Section 8 businesses are licensed by the State Governments, whereas Trusts or Societies are licensed by the Central Government through the Ministry of Corporate Affairs (MCA).
Benefits of Section 8 Businesses:
- Tax Benefits: Section 8 companies are exempt from paying income tax because they are not-for-profit organizations. By virtue of Section 80G of the Income Tax Act of 1961, the businesses also enjoy a number of additional tax advantages. Individuals and businesses can also claim tax exemptions for donations to Section 8 companies.
For the charity organizations covered by this section to be eligible for the exemptions and deductions, they must also register under Sections 12A and 80G of the Income Tax Act of 1961.According to Section 135 of the Companies Act of 2013, a variety of other private and public limited companies can also contribute to CSR by making donations to Section 8 companies.
- Payable Stamp Duty Is Zero: Unlike public and private limited companies, Section 8 businesses do not have to pay stamp duty when they register.
- Unrestricted Ownership Transfer: Unlike Limited Liability Partnerships, Section 8 businesses can transfer title to and ownership of both movable and immovable properties without restriction.
- There is no minimum required paid share capital: Unlike public limited companies, Section 8 companies are not required to have a minimum share capital because they were established for charitable purposes or research. However, the company’s needs can dictate how much capital is raised.
- Uniqueness in Law: A Section 8 company, like other companies registered under the Companies Act of 2013, is regarded as having a distinct legal identity and a distinct corporate structure.
- Possession of Real Property: A Section 8 company can own or sell tangible or intangible property on its own because it is a separate legal entity. The property could be a home or something else, like a school, research facility, training center, or gallery, for example. No shareholder or member of the company could claim ownership of the property.
- Continuous Succession: These companies, like private limited companies, have a perpetual existence until the company is legally dissolved. The business will continue to exist forever, regardless of members’ death or termination.
- Credibility: Section 8 businesses are more trustworthy than Trusts or Societies because they are licensed by the Central Government. Even though these businesses are not-for-profit organizations, they are subject to stringent restrictions, such as the inability to alter the Memorandum of Association (MoA) and Articles of Association (AoA) following registration. These businesses have a good reputation and a lot of trust because they take such stringent measures.
- Restrictive Liability: Because members of a Section 8 company have limited liability, any debts or discrepancies on behalf of the company do not threaten their personal assets. The company’s shareholders are not personally liable for compensating the creditors for the company’s debts.
- Members of the Organization: In addition to individuals, businesses and corporations can join the company as members.
- Doesn’t Need to Have Titles: According to the Companies Act, titles like “private limited company,” “public limited company,” and so on are required for businesses. However, there are no such restrictions for Section 8 businesses. Companies incorporated under Section 8 are not required to disclose their liability status to the general public.
Know about: Section 8 Company Registration Fees
Section 8 businesses are required to adhere to the following compliances:
Section 8 companies must still comply with the Companies Act of 2013 and the Income Tax Act of 1961, despite the fact that they are founded with a charitable purpose and do not operate for financial gain. The businesses could face fines of up to 100,000 per year for breaking the rules.
* Arrangement of Examiner: Within 30 days of its incorporation, a Section 8 company is required to appoint an auditor. Ideally, the auditor would file the annual financial statements and statements of the company.
* Board Meeting with the Board of Directors. The Board would then meet once every six months for the following calendar year.
* Annual General Meetings, or AGMs:Within nine months of the end of the fiscal year, a Section 8 company must hold its first AGM.
It is of the utmost importance to strictly adhere to the stated provisions in order for the Section 8 businesses to continue operating without interruption. For instance, the business might be able to get a clear picture of its financial stability if it filed its annual returns and statements in a timely manner. Additionally, the regular filing would increase the company’s chances of receiving financial assistance from the appropriate sources. The company’s credibility would rise as a result of this, as would its market value.
There are a few inherent drawbacks with these businesses, including extremely restricted objectives and operations. In addition, the members of the company receive no significant benefits from the company other than reimbursement for expenses incurred while running the business out of their own pockets. However, it cannot be denied that these businesses offer more benefits than drawbacks. Since these businesses were created solely for the public’s benefit, the disadvantages of Section 8 businesses don’t really matter more when you look at the bigger picture.