OVERVIEW
Non-Governmental Organisations (NGOs) are non-profit organizations that operate independently of the government and are often formed to provide social, economic, and environmental services to the community. They play a crucial role in the development of a country by working towards the betterment of the underprivileged, marginalized, and weaker sections of society. NGOs in India can be registered under various legal forms, including as a Trust, Society, or Section 8 Company. A Section 8 Company, also known as a Not-for-Profit Company, is a legal form of NGO registration in India under the Companies Act, 2013. This type of company is formed with the objective of promoting charitable activities and the Company does not have the profit motive as its primary objective, and any profits or income generated by the company must be used for promoting its charitable activities.
WHAT IS A SECTION 8 COMPANY?
A Section 8 Company, as per the Companies Act 2013, is a company registered for charitable purposes, and its profits, if any, are utilized for promoting its objectives. Section 8 companies can be established for promoting arts, science, education, religion, social welfare, sports, and environmental protection or any other charitable purpose.
FEATURES OF A SECTION 8 COMPANY
Perpetual Existence: Section 8 Companies have perpetual existence, which means they can continue to exist even if the original members or founders of the company are no longer associated with it. This ensures the sustainability and continuity of the charitable activities undertaken by the company.
Limited Liability: The liability of the members of a Section 8 Company is limited to the extent of their contribution towards the company's charitable activities. In case of any legal or financial liabilities, the personal assets of the members are not at risk.
Credibility: Registration as a Section 8 Company provides credibility to the NGO, as it is subject to the scrutiny of the Registrar of Companies and must adhere to the regulations under the Companies Act, 2013. This also helps in attracting donors, volunteers, and partnerships with other organizations.
Fundraising: Section 8 Companies can raise funds through donations, grants, and other means to support their charitable activities. They can also apply for FCRA registration to receive foreign contributions for specific purposes. There is no minimum capital requirement to register a Section 8 Company.
Tax Exemption: Section 8 Companies enjoy various tax exemptions, including exemption from dividend distribution tax, minimum alternate tax, and capital gains tax.
No Dividend Distribution: Section 8 Companies are prohibited from distributing dividends to their members. Any profits earned must be reinvested towards the company's objectives.
Separate Legal Entity: Section 8 Companies are considered separate legal entities, which means that they can own property, sue or be sued, and enter into contracts in their own name.
Ease of Management: Section 8 Companies have a structured management system, with a board of directors, memorandum and articles of association, and a clear set of rules and regulations. This helps in the efficient management of the company's operations and ensures transparency in its functioni
REGISTRATION PROCESS
The registration process for a Section 8 Company is similar to that of a regular company. The following steps must be followed:
Obtain Digital Signature Certificate (DSC) and Director Identification Number (DIN) for all proposed directors.
File the application for name approval with the Registrar of Companies (ROC). The name of the company must end with the words 'Foundation,' 'Association,' 'Society,' 'Council,' 'Charity,' 'Institute,' 'Organisation,' 'Federation,' 'Trust,' or 'Academy'.
After the name is approved, file the incorporation documents, including the Memorandum of Association (MOA) and Articles of Association (AOA), with the ROC.
Obtain the Certificate of Incorporation from the ROC.
Apply for the company's Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN).
ESSENTIAL COMPLIANCES FOR SECTION 8 COMPANIES
Maintenance of Books of Accounts: Section 8 Companies are required to maintain proper books of accounts as per the Companies Act, 2013. In the case of Reckitt Benckiser (India) Pvt. Ltd. v. DCIT (ITA No. 625/Kol/2018), the Income Tax Appellate Tribunal held that Section 8 Companies must maintain their books of accounts in accordance with the provisions of the Companies Act, 2013, and failure to do so can lead to disallowance of expenses claimed in the Income Tax Return.
Annual General Meeting (AGM): They are required to hold an Annual General Meeting (AGM) every year. In the case of Vodafone India Foundation v. Union of India (W.P. (C) No. 10678 of 2018), the Delhi High Court held that the requirement to hold an AGM is mandatory, and any failure to do so can lead to penalties imposed by the Registrar of Companies.
Filing of Annual Returns: Section 8 Companies are required to file their annual returns with the Registrar of Companies. In the case of Shri Jai Mata Glass Ltd. v. Registrar of Companies (W.P. (C) No. 7014 of 2019), the Calcutta High Court held that the failure to file annual returns can lead to the imposition of penalties and fines on the company and its directors. The court also held that the Registrar of Companies has the power to strike off the name of the company from the Register of Companies if it fails to file annual returns for two consecutive years.
Appointment of Auditor: Every Section 8 Company is required to appoint an auditor within 30 days of its incorporation. The auditor must be a Chartered Accountant and must hold a certificate of practice. The appointment of the auditor must be intimated to the Registrar of Companies (ROC) within 15 days of appointment. The auditor must hold office until the conclusion of the first Annual General Meeting (AGM).
Compliances under Income Tax Act: Section 8 Companies must comply with the income tax provisions laid down under the Income Tax Act, 1961. This includes obtaining a Permanent Account Number (PAN) and filing income tax returns every year. In addition, if the company receives any foreign contribution, it must comply with the provisions of the Foreign Contribution (Regulation) Act, 2010.
Compliance under Goods and Services Tax (GST): If the Section 8 Company is engaged in any business activity, it must comply with the provisions of the Goods and Services Tax (GST) Act, 2017. The company must register for GST and file GST returns every month or quarter, depending on the turnover of the company.
RELEVANT CASE LAWS
Companies Act, 2013, mandates the annual general meeting of a Section 8 company to be held within six months from the end of the financial year. In the case of Bar Council of Delhi v. RCSPL, the Delhi High Court held that non-compliance with the provisions of Section 8 of the Companies Act, 2013, relating to holding annual general meetings would render the resolutions passed in such meetings as void.
In the case of National Association for the Blind v. Union of India, the Delhi High Court held that a Section 8 company cannot indulge in commercial activities, and any income generated from such activities must be utilized for the furtherance of its objectives. The Court also emphasized the importance of maintaining proper books of accounts to avoid any suspicion of misappropriation.
In the case of Citizen Consumer and Civic Action Group v. Union of India, the Madras High Court held that a Section 8 company is required to disclose the details of its funding sources and the manner in which such funds are utilized, in its annual retu
CONCLUSION
In conclusion, Section 8 companies are vital entities in India that are established to promote social welfare and charity. They are governed by the Companies Act of India, which imposes strict regulations to ensure transparency and accountability. Section 8 companies offer various benefits, including tax exemptions and government grants, making them an attractive option for those interested in social welfare activities.
Furthermore, Section 8 companies provide a platform for like-minded individuals and groups to come together and work towards a common goal. They facilitate the transfer of knowledge, resources, and expertise, leading to more impactful initiatives and outcomes. It is essential for the government to continue supporting the growth and development of Section 8 companies in India to enhance their role in the country's socio-economic development. Overall, Section 8 companies are essential for promoting social welfare and charitable activities, and their contributions are invaluable to the country's progress.
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