Section 8 Company (NGO) Registration

Income or any profit from the company is to be applied in the advancement of the object of the company, i.e. to promote commerce. Arts, science, sports, research and social welfare.

Section 8 companies are also called licensed companies, as these companies need to get special approval for a license from the central government. When a section 8 company is in an incorporation process, they need to provide special licence approval to ROC.

The companies incorporated under section 8 of companies act enjoy the status of private limited or any other limited company, but the company is restricted to use words 'PVT' 'LLP' Ltd' in its suffix. The companies can also not enjoy the status of any small company.

The companies under section 8 of the companies act are not formed with the objective of earning a profit. They are established with a basic objective of furthering causes like science, culture, research and religion.

Corporate social responsibility(CSR) is one of the main reason why section 8 companies are incorporated in India. The companies that come under the ambit of CSR have to spend 2% of their average net profit made during the last 3 years on certain activities prescribed in the act. Example of such companies is TAXAJ Foundation and Reliance Foundation.

A Section 8 company must adhere to the annual compliance levied by RoC and Income tax authorities as failure to meet the requirements can result in hefty penalties, i.e. up to 1 lakh a year. Let’s have a look at the immediate compliances that becomes applicable after registration of Section 8 company:  

 The annual compliances play a significant part in the swift functioning of Section 8 company. Here are the reasons that justify the importance of annual compliance:

👉 Lucidity in the company’s operations: By enumerating the filings of financial returns and annul returns, the company gets a clear picture of its financial condition, which helps in further operations of the company. 

👉 Better credibility: When companies file compliances on time, it improves their credit. Such companies can easily avail financial help and market credit from the concerned authority.

👉 Builds more trust: Everyone trusts that company who displays its financial situation in detail. Filing compliance not only strengthens their credibility among everybody but also improves the company’s market value. 

If a company don’t strictly follow the annual compliances of Section 8, then it might have to face some legal repercussions. Therefore, it’s advisable to fulfil the requirements of compliances on time to evade any legal complications in the future.

 A section 8 company yields an array of Advantages, unlike a Society or Trust. Following is the list of advantages for companies registered under Section 8:

• Tax Benefits: Since Section 8 companies are a non-profit organization, so they leverage the exemption from the provision of income tax. The companies also get various other tax benefits and deductions. They employ many perks under section 80G of the Income Tax Act. 
  
• Zero Stamp Duty: A Section 8 company do not have to pay stamp duty on the AoA and MoA of the private or public limited company which other companies surely pays.  
  
• The ease at transferring ownership/title: The limited liability companies don’t have the advantages to transfer their title or ownership, but the Income Tax Act, 1961 does not confide Section 8 companies to transfer their ownership or title thereby, enabling the transfer of both movable and immovable interest without any hurdles or restrictions. 
  
• Minimal share capital: Unlike the other limited companies like public, private, or one person, a Section 8 company do not need much share capital to set up the entity. The members can directly use the funds from their subscriptions or donations.  
  
• Exempted from any name: In opposes to other companies who are under obligation to use their company’s name as ‘limited company’, section 8  companies get exempted from the use of any title. Thus, they can perform their functions without updating the public about their limited liability status.
  
• Separate legal entity: Section 8 company has a distinct legal entity which means the company’s existence is different from its members. The company has a perpetual existence along with greater flexibility.
  

Following are the drawbacks that every company registered under Section 8 has to bear:

• No distribution of profits: The members of a Section 8 company cannot share the profits amongst them. The profits get used only for the welfare of the company’s objective, which revolves around the advancement of art, science, commerce, sports, environmental protection and fields of such sort.
  
• Amendment in MOA and AOA: Such an entity cannot amend or alter the Memorandum of Association or the Articles of Association without having the approval of the Central Government beforehand.
  
• Zero benefits: The members of a Section 8 company gets zero benefits or any perks out of the company. They can afford to reimburse for their pocket expenses that may have occurred during the course.
  
• Limited objective: The central objective of Section 8 companies is to use the income and profits of the company in promoting some particular fields only and not for any other purpose.
  
• Multiple rules and regulations: The Central Government imposes many compliances on Section 8 companies. All the rules and regulations must include in the Memorandum of Association and Articles of Association.
  

The following are the distinguishing points between a trust and a society

The Central Government imparts many exemptions to Section 8 Company vide Ministry of Corporate Affairs Notification No. G.S.R.466 (E) dated 5th June 2015, along with amendments to the notification vide Notification No. G.S.R. 584 (E) dated 13th June 2017. The biggest reason for why Section 8 Companies get exempted from specific tax is because it exclusively works for the welfare of the public. No personal gains are involved in the operations of a Section 8 Company; therefore, it deserves to receive some added benefits in return.

 Being a Non-Profit Organisation (N.P.O.), Section 8 Company is immune from some provisions of the income tax. Besides, they avail various other deductions and tax benefits under Section 80G of the Income Tax Act, 1961. Let’s look at the list of benefits that every Section 8 Company procures:

👉 Section 8 Company needs to pay less stamp duty as compared to other companies.

👉 Under the Income Tax Act, 1961, the donors of Section 8 Company may claim a 50% rebate against the donations they made. Under Section 80G, it shall be valid for a period of one to three years.

👉 The taxation over section 8 company is on par with other organisations. The profits got taxed by @30%.

👉 If Section 8 company got registered under section 12AA (tax exemption) of the Income Tax Act, then its profits shall be entirely exempted, and no tax will be levied on the company.

👉 Every year the Central Government issues some compliance to enable more favorable conditions to N.P.O.’s in terms of the tax exemption.

Besides the above perks, there is an array of benefits associated with Section 8 Company.

The incorporation process gets completed on obtaining the license and issue of incorporation certificate under section 8 of Companies Act 2013, (earlier section 25 of Companies act 1956). The whole process of company incorporation can be closed less than 15 days. The time taken also depends on relevant documents provided by the applicant and speed of approvals from government. To ensure speedy registration, please pick a unique name for the proposed Company and make sure you have all the required documents prior to starting the registration process.

Object: *It operates for common welfare of masses at large, for promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object. 

Profit Earning: *The objective is not to earn profit. If any profit is earned during course of its operation, the same is not to be shared among owners/members rather utilised for attaining the objects for which NGO was formed.

Utilisation of funds and earnings: *The profits, if any, or other income is used towards promoting of specific objects of NGO. Further there is restriction on declaration of profits as dividend to members.

» Minimum two shareholders;

» Minimum two Directors (Directors and shareholders can be same person);

» At least one Director shall be resident in India; No Minimum capital required;

» Income-tax PAN is a mandatory requirement in case of Indian nationals;

» Any one of the Identity Proof (Voter ID/Aadhar Card/Driving License/Passport);

» Passport is mandatory requirement for proof of identity in case of foreign nationals;

» Any one Proof of Residence (Electricity Bill/Telephone Bill/Mobile Bill/Bank Statement);

» Registered Office address proof (rent agreement along with latest rent receipt and copy of latest utility bill in the name of landlord and a no objection certificate from the owner of the premises, in case the premises are rented), In case the premises are owned by a Director and Promoters, any documents establishing the ownership such as Sale Deed/House Tax receipt etc along with the no objection certificate.

Multiple forms need to be filed to apply for license. The most important form is eForm INC 12 (for issuance of license under section 8 of the Companies Act, 2013). This application shall be accompanied by:

» Memorandum & Articles of Association of the proposed company;

» A declaration confirming the application by a Company Secretary        in Practice on the Non – Judicial stamp paper of prescribed value;

» List of names, descriptions, addresses & occupation of the                    promoters as well as Board Members of the proposed company;

» A statement showing details of assets and liabilities of the                    company as on date with the application;

» An estimate of future annual income and expenditure of the                  proposed company, specifying the source of income and object of      expenditure;

» A statement giving brief description of work, if any, already done by      the association;

» A statement specifying briefly the grounds on which the                        application is made;

» A declaration in prescribed form on non – judicial stamp paper by        each person making an application;

» A letter of authority;

» Payment of prescribed fee Looks like too much effort? The whole          process will be carried out online. You just need to upload the              required documents on our encrypted Document vault and our            experts will take care of all formalities for you.

• Will there be a need for any other special registration required?
  

1. In addition to registration, a non-profit engaged in certain activities might also require special license/permission. Some of these include (but are not limited to):

   • A place of work in a restricted area (like a tribal area or a border area requires a special permit – the Inner Line Permit – usually issues either by the Ministry of Home Affairs or by the relevant local authority (i.e., district magistrate).
   • To open an office and employ people, the NGO should be registered under the Shop and Establishment Act.
   • To employ foreign staff, an Indian non-profit needs to be registered as a trust/society/company, have FCRA registration and also obtain a No Objection Certificate. The intended employee also needs a work visa.
   • A foreign non-profit setting up an office in India and wanting staff from abroad needs to be registered as a trust/society/company, needs permission from the Reserve Bank of India and also a No Objection Certificate from the Ministry of External Affairs.
   • Under this plan ClearTax will help you register your NGO as a section 8 company. Our customer support will help you connect with an expert who shall advise you on applicability of other registration required. The additional registrations services(such as shop & establishment act registration etc) shall not form part of the plan and will be charged separately.

• What is the government fee applicable for Section 8 company (NGO) registration?

  Below are the charges applicable for DIN, DSC and other government forms:

  • DIN- Director Identification Number (2 No.): Rs. 1000
  • DSC-Digital Signature Certificate (2 Nos): Rs. 4000
  • RUN Form (Name Approval): Rs. 1000
  • INC 12 Form (Registration under section 8): Rs. 2000
  • AoA-Article of Association: Rs.1000 (up to Rs.10 lakh of authorized capital)
  • MoA-Memorandum of Association: Rs.5000
• I and my partner are both directors and shareholders in our company. We wish to bring in two additional shareholders as well. Is that covered in the package?

  In the current package, we cover upto 2 digital signatures for two directors. For two additional shareholders, you need to secure two additional digital signatures certificates. We offer digital signatures certificates

• Our company would like to bring in a foreign citizen as a director. Is this covered in your package?

  To bring in additional director, you need to secure digital signature (DSC ).

  • Click here to purchase digital signature
    

  Only passport of the foreign director is required. In some countries, residency certificate will be provided. These need to be submitted for the application. Any incidental charges here is not covered in the package.

• Our company would like to bring a non-resident Indian as a director in the company. Is this included in the package?

  To bring in additional director, you need to secure two digital signature (DSC)

  If the individual is residing outside India at the time of the application, then he or she needs to get the PAN, Aadhaar, current address (in the country of residence), permanent address attested by Indian embassy in that country. Any incidental charges here is not covered in the package.