Formation of Companies with Charitable Objects (Section 8 Company)
Detailed information regarding companies formed with charitable purposes under Section 8 of the Companies Act, 2013.
Charitable Companies Defined
A charitable company means a company formed with any of the following objects:
The promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
The company must have an intention to apply its profits, if any, or other income in promoting its objects; and it should not pay any dividend including Interim Dividend to its members.
The company registered as Section 8 company shall enjoy all the privileges and the obligations of limited companies.
A firm may be a member of the company registered under this section.
The company once registered its Memorandum and articles of the company can’t be altered. In any unfortunate circumstances the company want to alter the Memorandum and articles of Association of the company the prior permission from the Central Government is to be obtained.
If a company registered as a non-profit company, it is to be amalgamate only with another company registered under this section and having similar objects.
Conditions for Conversion of a Company Registered Under Section 8 into a Company of Any Other Kind
A company incorporated as Section 8 company may convert to any other kind after satisfying the following conditions:
- (a) the date of incorporation of the company;
- (b) the principal objects of the company as set out in the memorandum of association;
- (c) the reasons as to why the activities for achieving the objects of the company cannot be carried on in the current structure i.e. as a Section 8 company;
- (d) if the principal or main objects of the company are proposed to be altered, what would be the altered objects and the reasons for the alteration;
- (e) what are the privileges or concessions currently enjoyed by the company, such as tax exemptions, approvals for receiving donations or contributions including foreign contributions, land and other immovable properties, if any, that were acquired by the company at concessional rates or prices or gratuitously and, if so, the market prices prevalent at the time of acquisition and the price that was paid by the company, details of any donations or bequests received by the company with conditions attached to their utilization etc.
- (f) details of impact of the proposed conversion on the members of the company including details of any benefits that may accrue to the members as a result of the conversion.
Penalty for Non-Compliance (Section 8)
If a company makes any default in complying with any of the requirements laid down in Section 8 of the Companies Act 2013, the company shall, without prejudice to any other action under the provisions of this section, be punishable with fine which shall not be less than ten lakh rupees but which may extend to one crore rupees and the Directors and every officer of the company who is in default shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to twenty-five lakh rupees.
If the affairs of the company were conducted fraudulently, every officer in default shall be liable for action under Section 447.
Section 447 - Punishment for Fraud
Fraud amount involving an amount of at least **ten lakh rupees or one per cent. of the turnover of the company, whichever is lower** – 6 Months Imprisonment may extend to 10 years and fine not less than amount involved may extend to 3 times of amount involved.
If the fraud in question involves public interest, the term of imprisonment shall not be less than three years.
If the fraud involving **an amount less than ten lakh rupees or one per cent. of the turnover of the company whichever is lower**, and does not involve public interest - imprisonment for a term which may extend to five years or with fine which may extend to fifty lakh rupees or with both.
Checklist for Incorporation of Section 8 Company
Procedure and Required Documents for Incorporation of Section 8 Company:
- • Objects of the company should be the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment.
- • Name will not contain the word Limited or Private Limited.
Upon Satisfaction by CRC (MCA) will reserve the name for 20 days within such time application should be made for incorporation of Section 8 company.
The following documents are required while incorporating Section 8 Company (For SPICE+ form – Application for Incorporation Certificate):
If not having DSC, then requirement of DSC:
- i. PAN - Self Attested
- ii. Aadhar - Self Attested
- iii. Mobile number and mail ID
- • Proof of ID - Passport, Voter ID and Driving License
- • Address Proof - Bank Statement and Mobile Bill - latest
- • Rental Agreement for registered office if taken on lease.
- • If owned Director - Title Deed
- • NOC from the owner to use the premises as the registered office of the company.
- • Electricity bill of the premises, not older than last 2 months.
Upon Satisfaction by CRC (MCA) will issue the license under Section 8 of the Companies Act, 2013.