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How To Register A Non Profit Company?
A Section 8 company, also referred to as a not-for-profit organization, is a favored option for individuals and groups aiming to advance social welfare causes. These entities are established according to the Companies Act of 2013 and typically serve charitable, educational, religious, or scientific objectives. Registering a Section 8 company allows entrepreneurs to support social welfare initiatives while availing themselves of tax benefits and other advantages. This article will outline the steps involved in registering a Section 8 company in India and explore its benefits.
If you aim to engage in non-profit activities for social welfare or causes, a Section 8 NGO Company represents the ideal legal framework. This structure is commonly recognized as an NGO/NPO (non-governmental organization/non-profit organization) and is conducive to soliciting donations for social causes.
Starting NGOs in India involves obtaining registration under one of the following classifications:
- Societies – registered under the Societies Registration Act (Central Government)
- Trusts – registered under the Indian Trusts Act (State Government)
- Approval of company name.
- Section 8 Companies – registered under the Companies Act (Central Government)
A Section 8 company, recognized as a non-profit entity, offers several benefits over trusts or societies, including enhanced recognition and stronger legal status. Additionally, Section 8 companies enjoy greater credibility among donors, international entities, government bodies, and other stakeholders.
Purpose of NGO – Section 8 company
The primary goal of forming a Section 8 company is to advance non-profit or charitable endeavors spanning commerce, art, science, sports, education, research, social welfare, religion, charity, environmental protection, or similar pursuits. The company’s profits and earnings are directed towards furthering its objectives and are prohibited from being distributed as dividends to its shareholders.
The registration procedure for a Section 8 company mirrors that of a private limited company. Yet, there’s an extra step involving acquiring an NGO license from the Registrar of Companies (ROC) under Section 8 of the Companies Act, 2013.
A Section 8 Company Is Registered In 5 Easy Steps.
- Secure digital signatures for directors
- Acquire DIN numbers for subscribers/directors
- Approval of company name
- Obtain NGO license
- Receive incorporation certificate
Features Of Section 8 Company
- Name: Section 8 companies can adopt business names with suffixes such as association, foundation, society, council, club, charities, institute, academy, organization, federation, chamber of commerce, development, and others. For instance, “Akshaya Patra Foundation”
- Profits: In a Section 8 company, profits are exclusively allocated to the charitable or non-profit purposes outlined in the Memorandum of Association (MOA). All revenue and profits must be utilized to advance the company’s objectives, and distributing profits or assets to members is prohibited.
- Management: Unlike trusts, which are overseen by trustees according to a trust deed, Section 8 companies do not operate under the trustee concept. Instead, they are governed by a board of directors, in accordance with the drafted MOA and Articles of Association (AOA).
- Transferability: Ownership and control of a Section 8 company can be easily transferred between individuals.
- No Minimum Capital: Section 8 company registration does not necessitate a minimum paid-up capital requirement.
Tax Applicability
There’s a common misunderstanding that non-profit companies are exempt from taxes since they operate for public welfare or social causes. However, this is inaccurate. Similar to any other legal entity, a non-profit company is obligated to pay taxes.
To qualify for tax exemption, a non-profit company can obtain a 12A certificate from the Income Tax Department.
With the acquisition of a 12A certificate, a non-profit company is relieved from paying income tax on its surplus income throughout its existence.
The 80G certificate enables individuals or entities donating to a non-profit company certified under 80G to claim deductions. Donors can claim this deduction under section 80G of the Income Tax Act.
Minimum Requirement For Section 8 Company Registration
- Unique name: To register a Section 8 company, you need a distinctive name for the proposed company.
- Directors: The company must appoint at least 2 natural persons as directors, aged above 18 years. Additionally, at least 1 director must be a resident of India for at least 182 days in the previous financial year.
- Shareholders: There should be a minimum of 2 shareholders, who can be natural persons or entities (such as Pvt. Ltd., public limited, HUF, LLP, or Section 8 company). It’s common for directors to also be shareholders in new Section 8 company registrations. The percentage of shareholding must be specified.
- Company objects: To establish a Section 8 company, you must delineate the nature and scope of business activities the company will undertake.
- Authorized capital: During the incorporation of a Section 8 company, you must determine the authorized capital. This represents the maximum share capital for which shares can be issued by the company to its shareholders. Typically, the initial authorized capital is Rs. 1 lakh.
- Registered office: For registering a Section 8 company in India, your business must possess an official address to receive company-related communications. This address is reflected on the incorporation certificate and is publicly available on the Registrar of Companies (ROC) website. The office can be owned or rented, and it can be situated in commercial or residential premises. Your residential address can be used as your company’s registered office.
- Documents: The Section 8 company registration process is conducted online. You can simply scan or photograph the attested documents of subscribers/directors, shareholders, and the registered office using your mobile phone and submit them. The remaining procedures will be managed accordingly.
Documents Required For Section 8 Company Registration:
Shareholder/director’s documents for section 8 company registration:
- Passport-sized photograph
- PAN card copy
- Passport/driving license/voter ID card copy
- Residence proof (electricity, telephone, or mobile bill/bank statement)
Documents required for the registered office:
- Recent electricity, mobile, telephone bills, or bank statements (for business location)
- Copy of lease agreement (for rented property)
- Copy of property deeds (for owned property)
- Letter of No Objection from landlord (formatted as per company requirements)
All documents must be self-attested and submitted electronically.
Conclusion
Establishing a Section 8 Company in India is essential for formalizing your social, charitable, or educational initiatives. Whether you opt to register as a society, trust, or Section 8 Company, it’s important to grasp the requirements, documentation, and advantages. With a strategic approach, a Section 8 Company can significantly impact society and secure support from donors and funding agencies, ensuring lasting success and sustainability.
Have questions about Section 8 Company?
A non-profit company, also known as a Section 8 company in India, is an organization formed for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any other similar object, provided the profits, if any, are applied for promoting its objectives, and no dividend is paid to its members.
To register a non-profit company in India, you need at least two directors and two shareholders. Additionally, the proposed company must have a unique name that reflects its objectives, and the incorporation documents must meet the specified requirements outlined by the Ministry of Corporate Affairs (MCA).
The process involves obtaining Digital Signature Certificates (DSCs) and Director Identification Numbers (DINs) for the proposed directors, followed by the submission of the necessary incorporation documents to the Registrar of Companies (ROC). Once approved, the company receives the Certificate of Incorporation.
No, a non-profit company is prohibited from distributing its profits among its members. Any income or profits earned must be utilized solely for promoting the objectives of the company, and no dividends can be paid to its members.
Some advantages include eligibility for tax exemptions under Section 12A and 80G of the Income Tax Act, access to government grants and funding, enhanced credibility and trust among stakeholders, and the ability to attract donations and contributions for charitable purposes.
Yes, the remuneration paid to directors, officers, or employees of a non-profit company must be reasonable and commensurate with the services rendered. Excessive remuneration is not allowed and may attract penalties.
Yes, a non-profit company can engage in commercial activities as long as the profits generated are utilized for furthering its objectives and not distributed among its members.
Yes, after registration, a non-profit company must comply with various statutory requirements, including conducting annual general meetings, filing annual returns with the ROC, maintaining proper books of accounts, and adhering to the regulations specified by the MCA.
No, a non-profit company cannot be converted into a for-profit company. However, it can be dissolved or merged with another non-profit organization with similar objectives.
The time taken for registration depends on various factors, including the accuracy and completeness of the submitted documents, the workload of the ROC, and any additional requirements specific to the case. Generally, the registration process takes around 20-30 days from the date of submission of documents.