Section 8 Company: The Premier Structure for Non-Profit Organizations
A Section 8 Company, named after Section 8 of the Companies Act 2013, represents the most credible and structured form of non-profit organization in India. Unlike traditional trusts or societies, Section 8 Companies operate under the Ministry of Corporate Affairs (MCA) with stringent corporate governance standards, making them the preferred choice for NGOs seeking corporate partnerships, government grants, and international funding.
These companies are formed specifically for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment, or any such other useful object. The defining characteristic is that all income and profits must be applied solely toward promoting these objectives, with no dividend distribution to members. This comprehensive guide covers everything from registration to ongoing compliance for Section 8 Companies.
Legal Framework and Key Characteristics
Governing Legislation
- Companies Act 2013: Section 8 governs formation
- MCA Regulation: ROC compliance required
- Income Tax Act: 12A and 80G benefits
- FCRA 2010: Foreign funding regulations
Key Restrictions
- ✗ Cannot use "Limited" or "Private Limited"
- ✗ No profit distribution to members
- ✗ Cannot alter MOA without CG approval
- ✗ Assets cannot be transferred for private gain
Section 8 Company vs Trust vs Society
| Feature | Section 8 Company | Trust | Society |
|---|---|---|---|
| Governing Law | Companies Act 2013 | Trust Act / State laws | Societies Registration Act |
| Registration Authority | ROC (MCA) | Sub-Registrar | Registrar of Societies |
| Compliance Level | High (Annual returns, audits) | Low | Medium |
| Foreign Funding | Easier with FCRA | Moderate difficulty | Moderate difficulty |
| Credibility | Highest | Medium | Medium |
| Time to Register | 45-90 days | 15-30 days | 30-45 days |
Benefits of Section 8 Company Registration
Tax Benefits
- • Income tax exemption under Section 12A
- • Donors get 50% or 100% deduction under 80G
- • GST exemptions for charitable activities
- • Stamp duty concessions in most states
Operational Advantages
- • Separate legal entity status
- • Perpetual succession
- • Can own property in company name
- • Can sue and be sued
Funding & Grants
- • Eligible for CSR funding
- • Government grant access
- • Foreign funding through FCRA
- • Higher donor confidence
Governance
- • Professional management structure
- • Transparent reporting via ROC
- • Board accountability
- • Better internal controls
Eligibility and Requirements
Who Can Form a Section 8 Company?
- ✓ Individuals (Indian citizens and residents)
- ✓ Hindu Undivided Families (HUFs)
- ✓ Companies (domestic or foreign)
- ✓ Partnership firms
- ✓ Limited Liability Partnerships (LLPs)
- ✗ NRIs and foreigners can be directors (need resident Indian director)
Minimum Requirements
- • Minimum 2 directors
- • Minimum 2 shareholders
- • At least 1 resident Indian director
- • No minimum capital requirement
- • Valid objectives for registration
- • Registered office address in India
- • DSC for all directors
- • DIN for all directors
Step-by-Step Registration Process
Obtain Digital Signature Certificate (DSC)
All proposed directors must obtain Class 3 DSC from certifying authorities. This is mandatory for electronic filing with MCA. Processing time: 2-3 days. Cost: ₹1,000-2,000 per director.
Apply for Director Identification Number (DIN)
File Form DIR-3 on MCA portal for DIN application. Attach PAN, Aadhaar, and photograph. Processing time: 1-2 days. DIN is a lifetime number required for all directors.
Name Reservation (RUN or SPICe+)
File RUN (Reserve Unique Name) or Part A of SPICe+ form. Propose 2 unique names reflecting charitable objectives. Avoid names suggesting government affiliation. Processing: 5-7 days.
Prepare MOA and AOA
Draft Memorandum of Association detailing objectives, scope, and proposed activities. Articles of Association defines internal rules. Both must clearly state non-profit intent and asset lock-in provisions.
File Form INC-12 for Central Government License
This is the crucial step. INC-12 requires detailed project report, 3-year income-expenditure projections, declarations (INC-14, INC-15), and proof of charitable objectives. CG approval takes 30-60 days.
Company Incorporation (SPICe+)
After receiving license, file SPICe+ Part B for incorporation. Attach license, MOA, AOA, and address proof. Upon approval, receive Certificate of Incorporation with CIN and PAN/TAN.
Apply for 12A and 80G Registration
After incorporation, apply for 12A (income tax exemption) and 80G (donor deduction benefits) with the Income Tax Department. Processing takes 3-6 months but provides significant tax advantages.
Understanding 12A and 80G Registration
Section 12A Registration
Provides income tax exemption to the NGO itself on its charitable income. Without 12A, the organization pays tax at regular rates.
- • One-time registration (unless revoked)
- • Valid for lifetime
- • Form 10A filing required
- • Income Tax Department approval
Section 80G Registration
Allows donors to claim tax deduction on donations. Can be 50% or 100% deduction depending on the nature of activities.
- • 50% or 100% deduction for donors
- • Must be renewed periodically
- • Form 10G filing required
- • Critical for fundraising
Annual Compliance Requirements
| Form | Purpose | Due Date | Penalty |
|---|---|---|---|
| MGT-7 | Annual Return | Within 60 days of AGM | ₹100/day |
| AOC-4 | Financial Statements | Within 30 days of AGM | ₹1,000/day |
| ADT-1 | Auditor Appointment | Within 15 days of AGM | ₹1,000/month |
| DIR-3 KYC | Director KYC | Before September 30 | ₹5,000 |
| Income Tax Return | IT Filing | September 30 | Interest on tax |
Important Considerations
- ⚠️ Asset Lock-in: All assets of Section 8 Company are permanently dedicated to charitable objects and cannot be transferred for private benefit
- ⚠️ Change of Objects: Altering MOA requires Central Government approval through Form INC-24
- ⚠️ Winding Up: Upon dissolution, assets must be transferred to another Section 8 Company or similar entity with similar objects
- ⚠️ FCRA Compliance: Foreign contributions require separate FCRA registration after 3 years of existence
Key Takeaways
Why Choose Section 8?
- ✓ Highest credibility among NGO structures
- ✓ Easier access to corporate and foreign funding
- ✓ Significant tax benefits for organization and donors
- ✓ Professional governance framework
Plan Ahead
- ✓ Budget 45-90 days for complete registration
- ✓ Prepare detailed 3-year projections for INC-12
- ✓ Engage professional help for compliance
- ✓ Apply for 12A/80G immediately after incorporation