How to Run a Section-8 Company?

As one of the largest markets in the world, India has a vast trade and commercial domain. However making profits through trade and commerce is not the only factor which is prominent in the Indian market. India as a huge country lacks behind in sectors like education, employment, healthcare, food, and safety, etc.  Our government is under a lot of pressure to alleviate the poverty of the people within the bounds of legislation. However, due to many factors, central government cannot address each and every issue simultaneously and this creates a space for specific organizations which assist the government working for the well-being of society. Such organizations are known as nonprofit organizations or on- government organizations.

Widely known as Section 8 company, these organizations are registered under the Section-8 of Companies Act 2013. These companies intend to promote art, commerce, sports, safety, science, research, health care, social welfare, religion, protection of environment, etc. The main object of these companies ensure the promotion of above-mentioned fields, provided the profit is used for promoting only objects of the company (Sec 8(1)(b)). Sec 8 (1) (c) states the prohibition of payment of any dividend to its members.  Ministry of Corporate Affairs (MCA), administers and maintains the rules and regulations through ROC in all of the states of India. The procedure for a Section 8 Company formation is as follows:

Digital Signature Certificate (DSC) and Director Identification Number (DIN): Digital Signature is a requisite when it comes to sign the documents while filing e-forms on MCA portal by the authorised person. It is also said that Digital Signature is the secure and authentic way of submission of a document electronically. It is obtained by making an application to certifying authority with a self attested proof of address and identity.

DIN is obtained by filing an application in Form NO. DIR-3 on MCA portal, along with self-attested copy of PAN, Identity and Address proof, one recent passport sized color photograph of the Applicant. The approval and procession of DIN application are regulated through the office of Regional Director, MCA. The above mentioned required document must be attested by a practicing professional (Company Secretary, Cost, and Management Accountant, or Chartered Accountant).

Name Approval: This has to be obtained from ROC through an application submission in Form No.-INC 1.  At most six names can be proposed in order of their preferences. Once approved by the authority, the name is valid for a span of sixty days. Usually, name approval takes 1-2 business days. The promoter or subscriber of the Memorandum of Articles and Association applies for the approval of name.

Memorandum of Association (MOA) and Articles of Association (AOA): Also known as Constitutional Documents of the proposed Company, they are filed as a draft with ROC with necessary documents in Form INC 12 which issues the company its license under Section-8.  MOA and AOA of the company are drafted and filed with following necessary documents:

1. Subscription pages of MOA and AOA- Each subscriber to the memorandum signs the MOA and AOA by mentioning his name, address, description, and occupation, in the presence of a witness (if any). A foreign subscriber should have all of the required documents attested by the Consulate of the Indian embassy in the respective country or foreign public notary. Other documents include Affidavits, Consent Letters, and Certificate of Compliance from a practicing professional in Form No. INC-8, etc.
2. Forms for Issuance of License for Section 8 Company: Required documents are to be filed with ROC;
3. E-Form INC 12 is accompanied by MOA and AOA. It’s a declaration confirming the application by a Company Secretary on the Non- Judicial stamp paper of prescribed Value.
4. Names, descriptions, addresses and occupation of promoters and board members of the company.
5. Statement of details of assets and liabilities of the company on the date of application.
6. Estimate of future annual income and expenditure of statement of a brief description of work.
7. A brief statement on the grounds on which the application is made.
8. A letter of authority
9. Payment of prescribed fee
10. Incorporation forms on MCA portals: These are to be filed with ROC after issuance of company’s license:
11. Form No. INC-7
12. Form No. INC-22
13. Form No. DIR-12
14. A power of attorney to be executed by directors and subscribers of the proposed company.

There are certain clarifications and additional information which the company has to provide to ROC after the Incorporation papers are filed and reviewed is issued by ROC with a unique Company Identification Number (CIN). Incorporation Certificate enables a company to apply for PAN, Bank Account, Tan, etc.

Bank Account Opening and Remittance of Subscription Money: This is done so as the company can raise capital for its smooth running in the business.

Minimum Requirements for Section-8 Company:

1. At least two shareholders
2. Minimum two directors

Shareholders and Directors could be same.

3. At least one Director should be Indian resident
4. There is no minimum capital required.
5. Income tax PAN (mandatory)
6. Identity Proof (Voter ID/ Aadhar Card, etc)
7. Passport (mandatory)
8. Proof of residence ( Electricity/ Telephone/ Mobile Bill or Bank Statement)
9. Registered Office Address Proof (Rent agreement if the premises is not owned by the company)
10. Documents claiming the ownership such as Sale Deed or House Tax receipt along with an NOC.