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 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.
Advantages of Section 8 Company
- Tax benefits: Section 8 Company is a non-profit organization that is why they are exempted from some provisions of the income tax. They are also given numerous other deductions and other tax benefits. They avail benefits under section 80G of the Income Tax Act, 1961. They also are required to pay less stamp duty as compared to other organizations.
- Minimized Share Capital: Unlike the other limited companies like private, public, or one person, the companies registered under section 8 doesn’t require much share capital. They can be directly funded from subscriptions or donations made to them.
- Use of title: Unlike the other companies, who have to use the title as ‘limited company’, section 8 of the IT Act exempts them for the use of any suffix or title, they can still exercise their functions without informing the public of their limited liability status.
- Ease at Transfer of title/ownership: Unlike the limited liability companies who are not allowed to transfer the title or ownership, but as per section 8 of the Income Tax Act, 1961 allows the transfer of title or ownership of both movable and immovable interest with no hurdles or restrictions of any sort.
There are various advantages of Section 8 Company like exemptions from income tax act, ease of fixing the date, time and place for annual general meeting, conduction of general meetings under a short period of notice i.e., within 14 days instead of 21 days for limited companies etc.
Disadvantages of Section 8 Company
- Use of Profits: The profits of the companies could only be used in limited fields such as art, commerce, science, sports, environmental protection and fields of such sort and not on anything else.
- No profit distribution: There could be no distribution of the profits among shareholders or partners.
- Remuneration Officer: In section 8 company any member can be appointed as a remunerating officer.
- Zero Benefits: The members of the company will get zero benefits or any advantages out of the company. They could only be reimbursed for their pocket expenses that might have occurred in the course.
- Objectives: The main objective of such companies under section 8 is to use its profits in promoting the particular fields only and not for any other purpose.
- Alteration in MOA and AOA: Such a company cannot alter or amend the Memorandum of Association or the articles of association (MOA or AOA) without the prior approval of the central Government.
- Rules and Regulations: The central government has imposed various conditions which have to be complied with and such regulations and the impositions have to be necessarily included in their Memorandum of Association and Articles of Association or as directed by the central government.