Section 8 Company or Non-Profit Organization is a legal establishment that is brought into being with the motive of encouraging education, religion, science, art, health, social welfare, environment protection and well being of the community at large. Section 8 company is registered under Section 8 of the Company Act, 2013.
To understand what Section 8 Company means, you have to be aware of the types of company structures. There are three types of structures- Private limited (Pvt. Ltd.), LLP (Limited Liability Partnership) and Public Limited Company. It is relevant to note that all these companies are subject to different legal implications. Nonetheless, any of these companies such as Pvt Ltd or LLP can be a Section 8 company as well. This clearly infers that any private company manoeuvring for the social welfare and having to no intent to derive profits or dividend can operate as a Nonprofit Organization or Section 8 Company.
There is one exception to this; One Person Company is not authorized to function as a Section 8 company.
Procedure to form a Non-Profit Organization:
To establish a Non-Profit Organization, you can pick one of the following ways i.e. Societies, Section 8 Company or Trust. Companies like this cannot pay any dividend to their partners, members or promoters. The responsibility of the members is to spend the earned profit for the endorsement of the company’s products.
The nomenclature of Section 8 companies is slightly different. Rather than utilizing public limited or private limited, suffix like trust, society, association, confederation, and foundation is used.
Advantages of Section 8 Company:
- Tax Exemptions:
As Section 8 companies are Non-Profit Organizations, they are furnished with certain tax exemptions along with numerous benefits and deductions. The donors contributing to Non-profits are also provided with tax benefits against the donations given to Section 8 Companies under 80G of the Income Tax Act, 1961.
- Free Stamp Duty
A Section 8 Company is exempted from paying the Stamp duty for registration of the company. Stamp duty is applicable for Private Limited, Public Limited Company, and other business structures.
- Minimum Capital is not required
As per Companies Act, 2013 Section 8 Companies do not require any minimum capital to establish or register, unlike Private, Public or One Person Company. Non Profit can initiate the business without any capital; the monetary requirements can be brought in the forms of donations from Public or the members of the company. The business structure can be altered later in time.
- Distinct Legal Entity
A Section 8 Company is a separate legal entity without any relationship to the members of the company. Section 8 Company has a timeless or ever-lasting existence.
- Transfer of Ownership
In Private limited Company, members are forbidden to transfer their shares but in Section 8 Company, you can easily transfer ownership, movable or immovable assets to different people.
Section 8 Companies are much credible as compared to Trust or societies as they are registered with Central Government whereas Non Profits are registered with the specific state where the organization is established. Central Government has strict regulations for not changing MOA and AOA at any instant in Section 8 Company.
- No title required
As it is mandatory to use Private Limited or Public Limited as a suffix in the company names, Section 8 companies are not required to add a mandatory suffix or prefix with its title