Section 8 Company
Section 8 Company
Section 8 Company is incorporated with an object to promote commerce, art, science, sports, research, education, religion, protection of environment, charity or any other object, who intends to apply their income and profits in promoting their objects and prohibits the payment of dividend to its members. Section-8 Company can be incorporated as a Private or Public Company.
- Approval of RBI is not required.
- There is no requirement of minimum capital of Rs. 5 Crores.
- Minimum Compliances as compared to NBFCs.
- Such companies can give unsecured loans to small businesses of Rs.50,000.
- Such companies can give loans for dwelling residence up to Rs.1.25 lakh.
- Section-8 companies are required to follow the RBI guidelines on interest rate and processing charges.
- It is a legal finance business as laid in the master circular of RBI and you can sue the defaulter in case of non-payment of loan amount.
Documents Required for Incorporation
- PAN Card of the Member and Directors of the proposed Company Passport in case of Foreign Nationals
- Identity Proof of the Member and Directors of the proposed Company (Aadhar / Voter ID / Driving License / Passport)
- Address Proof the Member and Directors (Utility Bill / Telephone Bill / Mobile Bill / Bank Statement not older than two months)
- Latest passport size photograph of Member and Directors
- Business Address Proof
- Owned Property : (Copy of Registry and Latest Govt. Electricity Bill or Water Bill)
- Address Proof the Member and Directors (Utility Bill / Telephone Bill / Mobile Bill / Bank Statement not older than two months)
- Business Address Proof
- Rented/leased: (Rent Agreement, NOC from the Owner, Latest Govt. Electricity Bill or Water Bill)
Interest rates on Loans by Micro Finance Companies
There are three types of charges that are levied by the Micro Finance Company (MFI) while giving loans.
Interest Charge:
The average interest rate cannot not exceed 26%
Processing charge
Should not be more than 1% of the gross loan amount.
Insurance premium
Actual cost of insurance for group, life, health etc can be charged.
Calculation of Interest Rate for Micro Finance
The rates of interest charged by Micro Finance Companies must be less of the following:
The average base rate is 8.67% to be charged from the borrowers from 1st April, 2020.
Easy Access to Public Funds
Nidhi Company can take deposits from its members through various accounts like Saving Account, FD A/c, Rd A/c which is less complex than taking finance from banks and other Financial Institutions.
Benefits of Section 8 NGO Company Registration
Section 8 Company or a Non-Profit organization (NPO) is a Company established for promoting commerce, art, science, religion, sports, education, research activities, charity, or any other useful social object. The profits and donations are applied for promoting only the objects of the company and no dividend can be paid to its members or owners.
The term No Profit does not mean that the Company cannot generate profit or income, but what it means is that the Section 8 Company has to apply the income for promotion of the object and not for distributing it to the promoters. It means that the Company can earn profits but the promoters cannot benefit from those profits.
Many privileges and exemptions are available to section 8 company under Company Law
Exemption from requirement of Minimum Paid-up capital
Exemption of Stamp duty for registration
Non-application of Companies Auditor's Report Order (CARO)
Registered partnership firm can be a member in its own capacity
Tax deductions to the donors of the Company u/s. 80G of the Income Tax
Why Register a Sec 8 Company? and Section 8 of Companies Act 2013
The primary purpose of registering a company as a Section 8 Company is to promote non-profit objectives such as trade, commerce, arts, charity, education, religion, environment protection, social welfare, sports research, etc.
To incorporate a Section 8 Company, a minimum of two directors are required. Also, there is no requirement of minimum paid-up capital in the case of Section 8 Company.
In India, a non-profit organization can be registered under the Registrar of societies or as a Non-profit company under Section 8 of Companies Act 2013.
The profits of this company, if there are any, are applied towards promoting the objectives of the company and not distributed as dividends to its shareholders.
A Section 8 Company is the same as the Section 25 Company under the old Companies Act, 1956. As per the new Companies Act of 2013, Section 25 has now become Section 8.
Section 8 Company Registration Eligibility Criteria
An Individual or HUF or limited Company is eligible to start a Section- 8 company registration in India.
Two or more person who will act as a shareholder or Director of the company should fulfill all the requirements and compliances of the Section 8 Company registration.
At least one of the directors shall be a resident of India. However, a firm may be a member of the company registered under this section.
At least one of the directors shall be a resident of India. However, a firm may be a member of the company registered under this section.
Founders, members, and directors of the company cannot draw any remuneration in any form of cash or kind.
Two or more person who will act as a shareholder or Director of the company should fulfill all the requirements and compliances of the Section 8 Company registration.
The surplus generated must be used for meeting the principal objective of the section 8 company only.
Benefits Of A Non-Government Organisation
Non-governmental organisations, or NGOs, are usually funded by donations and have a variety of missions. It can include human rights, environmental, animal welfare, and more.
They often work to increase awareness about a certain cause and how individuals can help combat it.
Some examples of NGOs include Amnesty International, UNICEF, and Doctors Without Borders.
NGOs may also provide necessary services such as disaster relief or humanitarian aid that governments cannot reach due to war or natural disasters.
These non-profits are typically overseen by an independent governing body with rules to ensure funds are being used appropriately.
Free Consultation
Seven Main Differences Between a Non-government Organisation and a Section 8 Company
| Basis For Difference | Non-Government Organisation | Section 8 Company |
|---|---|---|
| Definition | A Non-Government Organisation, or NGO, is a non-profit organisation that provides social services without financial assistance from the government. | A Section 8 company is a for-profit organisation that provides low-income people housing and receives government funding. |
| Types | NGOs are categorised as either public benefit organisations or private foundations. | There are different types of Section 8 companies, such as landlords with HUD contracts, congregate housing projects, and transitional housing agencies. |
| Other Organisations Similar to Non-Government Organisations and Section 8 Companies | Some organisations similar to Non-Government organisations are credit unions, food banks and religious organisations. | Some other organisations similar to a Section 8 company are shelter providers and domestic violence shelters. |
| Differences in Funding | Non-government organisations usually rely on donations. | Section 8 companies can receive money from various sources, including state and local governments. |
| Governance | Non-governmental organisations typically have volunteers on their boards of directors. | Section 8 companies may have a combination of paid staff and volunteers. |
| Timing of Service | Non-governmental organisations usually provide their services to reach long-term goals. | Section 8 companies provide short-term benefits. |
Checklist for Section 8 Annual Compliances in India
Filing ADT-1 .i.e. Appointment of Auditor
To take care of the Company's financial filings on an annual basis, the Section 8 Company needs to appoint an auditor mandatorily. According to section 139 of the Companies Act, 2013, every Company must inform the MCA about the auditor's appointment in the form ADT-1. The book of accounts & annual returns of the Company shall be audited by the statutory auditor who will be appointed for a period of 5 years.
Maintenance of Books of Accounts
Every Section 8 Company is obligated to maintain the books of accounts of the Company. The books of accounts keep the records of the filing of the annual returns, etc
Maintenance of Statutory Registers
All the Section 8 Companies must maintain the statutory records in the registers. The register contains the details of members, loans and investments, and charges, etc. Further, it provides an overview of how actively the Company works every year.
Convening Meetings
Annual general body meeting is to be conducted once a year within six months of the end of Financial Year & other board meetings have to be conducted.
Director’s Report
Director's report is the document that consists of the info regarding the Company and its compliance along with a set of financial, accounting, and corporate social responsibilities. The Board of Directors is responsible for producing this report. As per the provisions of the Companies Act, 2013, producing a director's report is compulsory compliance for every Section 8 Company in India.
Preparation of Financial Statements
The Company's financial statement consists of the balance sheet, cash flow statement, profit & loss of the Company and more. Hence, every Company is supposed to prepare the financial statements of the preceding financial year mandatorily.
Income Tax Returns Filing
Every Section 8 Company must file income tax returns before or by 30th September of the next financial year. It is necessary to file income tax returns because it gives an overview of the Company's total income.
Filing of Financial Statements (AOC-4)
Every Section 8 Company needs to file a copy of the financial statements in the prescribed format, i.e. in the e-form AOC-4. The financial statement must be filed within thirty days from the date of the last annual general meeting held.
MGT-7, Filing of Annual Returns with ROC
Since Section 8 Companies are registered as limited companies, they also need to file Form MGT-7 with the ROC for filing the Company's annual returns. MGT-7 must be filed within sixty days from the date of the last annual general meeting.
Due Dates for Filing Section 8 Company Compliances
- COMPLIANCE
- AGM (Annual General Meeting)
- AOC-4
- Income Tax Returns (Form ITR-6)
Penalties for Non-Compliance
The Ministry of Corporate Affairs has the power to impose certain penalties in case it encounters any non-compliance with the procedures. Penalties to be charged are as follows:
- The Central Government may disavow the permit allowed to the Organisation on the off-chance that it finds that the Organisation is working incorrectly or in a way violate the Organisation's object;
- The chiefs & each official of the Organisation who is in default will be liable for imprisonment for a term and a fine which may be extended to Rs. 25 lakhs or with both;
- In the event that it is discovered that the issues of the Organisation were directed falsely, every official in default will be at risk for activity under area 447;
- The Organisation will be guilty with fine, which is not less than Rs. 10 lakhs and can be extended to Rs. 1 crore.
