Definition and Characteristics of Section 8 Companies

Definition and Characteristics of Section 8 Companies

Definition and Characteristics of Section 8 Companies

What is Section-8 Companies?

In this post, we are going to discuss the Definition and Characteristics of Section 8 Companies. Section 8 Company 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. Therefore, Section 8 Company or Section 25 Company is a company registered under the Companies Act, 2013 for charitable or not-for-profit purposes.

A Section 8 Company is similar to a Trust or Society; expect, a section 8 Company is registered under the Central Government’s Ministry of Corporate Affairs. Trusts and Societies are registered under State Government regulations. A section 8 company has various advantages when compared to Trust or Society like improved recognition and better legal standing. Section 8 company also has higher credibility amongst donors, Government departments and other stakeholders. You can also read Advantages and disadvantages of Section-8 Companies

Characteristics and Relevance of Section 8 Companies:

Salient features of Section 8 Companies:

1. Profits of section 8 companies are utilized only for its objectives.

2. Members don’t receive any dividend.

3. You can not incorporate section 8 companies through filing form INC-29.

4. Unlike formation of other companies, there is an additional requirement to obtain a license from the Central Government.

5. Pvt Ltd word can not be used in the name of section 8 company.

Relevance of Section 8 companies in current era:

Since the inception of Corporate Social Responsibility (CSR) provisions, specified companies which are come under the ambit of CSR provisions are required to spend at least 2 of their average net profit made during the last three years on certain activities which are further prescribed under the Schedule VII, so now the companies have started incorporating the section 8 companies to do CSR activities through Section 8 companies because if you compare the activities of section 8 companies and CSR spending areas are almost same.

Having said that section 8 company’ incorporation is not an easy process. Besides the normal process of registration, there is one extra requirement to obtain the license from the central government, which is no longer an easy task to obtain. Therefore, registration of section 8 companies takes longer times than other companies’ formation such as public limited companies, private limited companies, one person companies etc

Apart from these essential points, there are certain privileges which are only available to section 8 companies, which are as follows:

1. Minimum paid capital requirement is not applicable to section companies in India.

2. Section 8 companies may call annual general meeting by serving shorter notice of 14 days.

3. The provisions related to minimum & maximum number of directors on the Board along with requirement of passing a special resolution to hike the limit of maximum number of directors shall not apply.

4. Section 8 companies are not required to appoint Independent director.

5. Holding directorship in the Section 8 companies shall not be counted while calculating maximum number of directorship in the companies.

6. Section 8 Companies are required to hold only 2 board meetings in a calendar year instead of 4 board meeting.

So, if your purpose resembles section 8 company activities then you must go for incorporating section 8 companies for the society upliftment.

Definition and Characteristics of Section 8 Companies

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