The concept of non-profit making company is quite old in India. In erstwhile Companies Act, 1956 it was regulated by Section 25 and that is why it was popular as Section 25 Company. However in Companies Act 2013 provisions related to non-profit making company are given in Section 8 read with Rule 19 and 20 of Companies (Incorporation) Rules, 2014.
Section 8 Company Registration is named Section 8 of the Companies Act, 2013, which pertains to a established 'for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object', provided the profits, if any, or other income is applied for promoting only the objects of the company and no dividend is paid to its members.
There may be 3-4 forms of a Charitable Organization in India and such organization can be formed/registered as trusts, societies, or as a non-profit company(NGO Company) incorporatedunder Section 8 of the Companies Act, 2013.
A Section 8 Company Incorporation is similar to a Trust or Society or Ngo Registration; but a Section 8 Company is registered under the Central Government's Ministry of Corporate Affairs. Whereas Trusts and Societies are registered under State Government regulations.
The Name of Section 8 Company Registrationcan end without the addition to its name of the word “Limited”, or as the case may be, the words “Private Limited”. ((Section 8(1) )
Section 8 company registration also has higher credibility amongst donors, Government departments and other stakeholders.
The Registration Procedure of Section 8 Company is that of Similar to Private /Public Company as the case may be except of additional requirement of taking License from CG after name approval.
has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
intends to apply its profits, if any, or other income in promoting its objects; and
intends to prohibit the payment of any dividend to its members.
Advantage ofSection 8 CompanyIncorporation:
EASE OF FORMATION- A Section 8 company can be formed by two persons only, by complying with the prescribed formalities of the Companies Act. Many privileges and exemptions under Company Law. Registered partnership firm can be a member in its own capacity.
LIMITED LIABILITY: The greatest benefit of Section 8 Company is limited liability. If any liability arises then its member is not personally affected; members are only liable for unpaid shares held by them and not more than that. Being the biggest advantage with this type of company, it means that the owners are not personally responsible for business debts and obligations of the incorporation.
SEPARATE LEGAL ENTITY: This is the most prominent quality of a Section 8 Company. It refers to the statement that company and its members are completely distinctive. The biggest advantage of a section 8 company is that its identity is distinct from that of its members. A company is a separate person having its own rights & Obligations
CONTINUITY OF EXISTENCE: Death, insolvency and insanity etc of any of the member does not affect the continuity of the company. Thus the life of the company does not depend upon the life of its members.In case of death of the owner or transfer of shares, your business won’t get affected. There will be no effect on firm’s continuance..
MINIMUM NUMBER OF SHAREHOLDERS : The Minimum Members need to start the business are only2.
GREATER FLEXIBILITY: A Section 8 company is required to perform lesser legal formalities as compared to a public company. It enjoys special exemptions and privileges under the company law..
TAX BENEFITS: A Section 8 company is not required to publish its accounts or file several documents. Therefore, it is in a better position than a public company to maintain business secrets.
OWNING PROPERTY: A company being a legal person, can acquire, own, enjoy and alienate, property in its own name. No shareholder/director can make any claim upon the property of the company so long as the company is a going concern.
CAPACITY TO SUE AND BE SUED: The company being legal person has full right like a natural person to institute legal proceedings against or to bring a suit in a court of law and also can be sued in its own name.