1. Definition of "Company" Under the Companies Act, 2013
As per Section 2(20) of the Companies Act, 2013, a "company" refers to an entity incorporated and registered under this Act or any prior company law. The word "company" originates from the Latin com (together) and panis (bread), symbolising a collective of individuals united by a shared purpose. Legally, a company is a distinct corporate entity that can own property, enter into contracts, and conduct business in its own name.
1.1 Section 8 Companies
Unlike traditional companies that operate for profit, Section 8 Company registration under the Companies Act, 2013 allows for the incorporation of entities with not-for-profit or charitable objectives. These may include the promotion of commerce, art, science, education, research, sports, social welfare, religion, charity, environmental protection, or similar causes.
Key features of a Non-profit company under Companies Act 2013 include:
- Applying income and profits solely for advancing its stated objectives
- Prohibiting the distribution of dividends to members
- Operating under a Central Government license allowing it to omit "Limited" or "Private Limited" from its name
Section 8(8) permits the merger of one Section 8 Company with another having aligned objectives, subject to Central Government approval. Upon dissolution, any remaining assets must be transferred to a similar charitable organisation.
Section 8 Companies may also benefit from Income tax exemptions for NGOs in India, particularly under Sections 12A and 80G of the Income Tax Act, 1961.
1.2 Section 8 Company vs Private Limited Company
| Feature | Private Limited Company | Section 8 Company |
|---|---|---|
| Primary Purpose | Profit-making for shareholders | Promotion of charitable/social objectives |
| Profit Distribution | Allowed (via dividends) | Not permitted; reinvestment required |
| Minimum Capital | Mandatory | Not required |
| Fundraising | Through equity/shareholders | No public share issuance; relies on donations and grants |
| Tax Benefits | Limited | Extensive (subject to compliance) |
| Control & Ownership | Held by shareholders | No financial ownership by members |
| Governance | Governed by Companies Act | Additional compliance with charitable laws |
Though structured like a private company, a Section 8 Company is legally bound to function within its not-for-profit mandate.
1.3 Section 8 Company incorporation procedure
If you're wondering how to start a Section 8 Company in India, the formation process follows a structured legal framework to ensure transparency and legitimacy. Here's a step-by-step guide to register a Section 8 Company:
Step 1: Application via Form INC-12
An application must be submitted with supporting documents and a prescribed government fee to obtain a Section 8 license.
Step 2: Documents required for Section 8 Company registration
- MoA and AoA in Form INC-13
Includes objectives, governance structure, and reinvestment of surplus. - Form INC-14 Declaration A practicing professional certifies compliance with Section 8 requirements.
- Three-Year Financial Projections Detailing income sources and planned expenditure.
- Form INC-15 Declarations by Promoters Confirms intent to operate as a charitable organisation.
- Form INC-9 Declarations by Subscribers/First Directors Ensures no disqualifications or legal conflicts exist.
Once approved, the company can be registered without the "Limited" or "Private Limited" suffix.
1.4 Tax benefits for non-profit organizations in India
(a) Key Exemptions
- Income from Charitable Sources: Sections 11 & 12 allow exemptions if income is used for stated objectives.
- Capital Gains Exemption: Section 11(1A) provides relief if proceeds are reinvested in capital assets.
- Business Income: Sections 11(4) & 11(4A) allow exemptions for incidental business income with separate books.
(b) Additional Benefits
- Voluntary Contributions: Exempt under Sections 11 & 12 when applied for charitable purposes.
- Scientific Research Donations: Deductible under Section 35.
- Other Exempt Incomes: Section 10 excludes grants from taxable income.
- 12A Registration: How to get 12A and 80G certification in India involves filing Form 10A and meeting eligibility under Section 2(15).
Without 12A registration, no exemptions can be availed.
1.5 Statutory Exemptions for Section 8 Companies
These reduce the Section 8 Company compliance requirements and include:
- Flexibility in appointing a company secretary
- Member-based AGM scheduling
- Shorter notice periods for general meetings
- Exemption from detailed minute-keeping
- Relaxed financial statement circulation
- No mandatory independent directors
- No cap on number of directorships
- One board meeting every six months
- Lower quorum requirements
- Board matters like loans and investments allowed by circular resolution
- Exemption from disclosing related party transactions below ₹1 lakh
These provisions ensure administrative ease while maintaining accountability.
1.6 Penalties for Section 8 Company non-compliance
Non-compliance with legal provisions can lead to:
Revocation of License
By the Central Government for fraud, deviation from objectives, or public harm.
Monetary Penalties
Fines between ₹10 lakh and ₹1 crore, depending on severity.
Liability of Officers
Officers may face up to 3 years' imprisonment, fines up to ₹25 lakh, or both.
Fraud Prosecution
Section 447 allows for 6–10 years' imprisonment and fines up to 3 times the fraudulent amount.
Conclusion
Section 8 Companies are the best legal entity for starting an NGO in India, with wide application across healthcare, education, sustainability, and skill development. Notable Section 8 Company examples in India include:
- ViswaSanthi Foundation
- WaterAid India
- NSDC
- Rajiv Gandhi Foundation
- Infosys Foundation
For those looking to start a charity legally in India, the charitable company registration process India offers strong legal standing, credibility, and access to generous< strong>tax benefits for non-profit organizations in India.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
