The concept of Section 8 companies was introduced in Companies Act 2013 that permitted companies with charitable objects etc. to be registered without the words ‘Limited’ or ‘Private Limited’. The restriction was that the Companies were permitted to use the profits only for the purpose for which the company was promoted and there was a prohibition on distribution of dividend.

Under Schedule VII of the Indian Constitution, the subject ‘Trust and Trustees’ finds mention at Entry No.10 in the Concurrent List and ‘Charities & Charitable Institutions, Charitable and religious endowments and religious institutions’ find place at Entry No.28 of the Concurrent list. Therefore both the Centre and the States are competent to legislate and regulate charitable organisations. However Section 8 companies are regulated through the Companies Act, 2013, accordingly the registration and administration of these companies is regulated only by the Central Government.

In India, there are mainly the following types of non-profit organizations (NPO) i.e. Section 8 Companies (earlier Section 25):

• Trusts formed under Indian Trusts Act 1882.
• Societies registered under section 20 of the Societies Registration Act 1860.

In India, there are mainly the following types of non-profit organizations i.e., Section 8 Companies (earlier Section 25 of 1956 Act):

• Societies registered under section 20 of the Societies Registration Act 1860.
• Trusts formed under Indian Trusts Act 1882

Objects and Restrictions for Non-Profit Companies Under the Act:

Any person or an association of persons intending to register a limited liability company for objects specified below can opt to apply for registration of Section 8 Company. The following have to be proved to the satisfaction of the Central Government that:

(a) its objects include promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;

(b) the company after incorporation intends to apply its profits, if any, or other income in promoting such objects only; and

(c) the company intends to prohibit the payment of any dividend to its members.

Characteristics of Non-Profit Companies:

• A non-profit companies can be formed for promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object.
• The Companies Act, 2013 allows the application of profits and permits the same only for the purpose for which the company is promoted.
• Such companies can function only if they have the Central Government’s license. The Government can revoke this license as well.
• The Companies Act, 2013 prohibits declaration of dividend.
• Section 8 companies, unlike all other companies, do not require a prescribed minimum paid-up share capital.
• Registrars of Companies of respective jurisdictions are delegated with the powers of Central government to issue license to Section 8 Companies.
• Section 8 Company may be incorporated as a company limited by shares or by Guarantee (with or without share capital).
• A company with unlimited liabilities cannot be registered as a Section 8 Company.
• As per rule 8(7) of the Companies (Incorporation) Rules, 2014, for the Companies under Section 8 of the Act, the name shall include the words foundation, Forum, Association, Federation, Chambers, Confederation, council, Electoral trust and the like etc.
• Review of Form INC 13 clarifies that a memorandum of association of a Section 8 Company may inter-alia provide for the doing of all such other lawful things as considered necessary for the furtherance of the objects for which the company has been incorporated.
• Articles of Association of a Section 8 Company can have entrenchment clause in terms of provisions of section 5(3).
• Rule 3 of the Companies (Incorporation) Rules, 2014 prohibits a one person company to be incorporated as section 8 company or to convert into a Section 8 Company.
• Under the Companies Act, 2013, a Partnership firm or an LLP can become the member of Section 8 Company.
• Section 8 company can promote another company and be a holding company of another company.
• A Section 8 Company can be converted into any other company including OPC as prescribed under Section 8(4)(ii) read with Rules 21 and 22 of Companies (Incorporation) Rules, 2014. This is further subject to restrictions and compliances as per other applicable laws including Income tax Act, 1961.
• Since these companies possess charitable objectives, the Companies Act has accorded several benefits and exemptions to them.

Incorporation of Section 8 Company:

Registration of Section 8 Company:

Any person or an association of persons intending to register a limited liability company for objects specified below can opt to apply for registration of Section 8 Company. The following have to be proved to the satisfaction of the Central Government that:

• its objects includes promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
• the company after incorporation intends to apply its profits, if any, or other income in promoting such objects only; and
• the company intends to prohibit the payment of any dividend to its members.

Registrars of Companies (ROC) of respective jurisdictions are delegated with the powers of Central government to issue license to Section 8 Companies. As per rule 8(7) of the Companies (Incorporation) Rules, 2014, for the Companies under Section 8 of the Act, the name shall include the words foundation, Forum, Association, Federation, Chambers, Confederation, council, Electoral trust and the like etc.

As per proviso to section 2(85), section 2(85) does not apply to a Section 8 Company and accordingly, a Section 8 Company cannot be treated as a small company. Likewise, a small company on conversion to a Section 8 Company shall cease to be a small company.

Section 8 company can promote another company and be a holding company of another company.

Who can Become Member of Section 8 Company:

Section 11 of the Indian Contract Act, 1872 provides that every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is sound mind and is not disqualified from contracting by any law to which he is subject.

• Section 2(41) of the General Clauses Act, 1897 provides that “person” shall include any Company, or association or body of individuals, whether incorporated or not. Therefore such a person can be natural or a legal person.
• Only a limited company registered under this Act or under any previous company law shall make an application to the Registrar for issue of license. Therefore, a company with unlimited liabilities cannot be registered as a Section 8 Company. Section 8 Company may be incorporated as a company limited by shares or by Guarantee (with or without share capital).
• Rule 3 of the Companies (Incorporation) Rules, 2014 prohibits a one person company to be incorporated as section 8 company or to convert into a Section 8 Company. Rule 3(6) of the Companies (Incorporation) Rules, 2014 prohibits one person company to invest in securities of any body corporate.
• Under the Companies Act, 2013, a Partnership firm or an LLP can become the member of Section 8 Company. The provisions of respective Acts need to be complied with by the partnership firm or LLP as the case may be.
• There is no restriction in the provisions of the Companies Act, 2013 for a registered Trust to become a member of Section 8 Company. In case of unregistered trusts, provisions of section 89 would be applicable.
• A Co-operative society can be regarded as Person and thus capable of becoming subscriber of a company including Section 8 Company.

Special Requirements for Registration as Section 8 Company:

• Rule 19(2) of the Companies (Incorporation) Rules, 2014 provides that the memorandum of association of the Section 8 Company shall be in Form No.INC.13. Review of Form INC 13 clarifies that a memorandum of association of a Section 8 Company may inter-alia provide for the doing of all such other lawful things as considered necessary for the furtherance of the objects for which the company has been incorporated.
• An entrenchment clause, in the context of company law, is a provision within a company’s Articles of Association (AoA) that makes it more difficult to amend certain clauses than it would be under normal procedures. This can involve requiring a higher voting threshold, consent from specific parties, or other special conditions for any alteration. Essentially, it acts as a safeguard, protecting certain aspects of the company’s structure or governance from being easily changed. Articles of Association of a Section 8 Company can have entrenchment clause in terms of provisions of section 5(3).
• A Section 8 Company can alter the provisions of its Memorandum or articles by passing a special resolution, however such alteration requires the approval of the Registrar of Companies. Further, if alteration in Memorandum or Articles results in conversion of Section 8 Company to any other kind of company, prior approval of Central Government is required.

Procedure for Incorporation of a Section 8 Company:

To incorporate a Section 8 Company, an application shall be made to the Registrar of Companies in Form no. INC.12, which shall be accompanied, inter alia, by the following documents:

• Draft Memorandum of Association (MOA) and Articles of association (AOA) of the Company in prescribed format (Form no. INC – 13) where the photographs of subscribers are affixed.
• A Declaration is to be attached in Form no. INC-14 (on the stamp paper, duly notarized) by an Advocate, a Chartered Accountant, Cost Accountant or Company Secretary in practice, that the draft memorandum and articles of association have been drawn up in conformity with the provisions of section 8 and rules made there under and all the requirements under section 8 have been complied with.
• An estimate of the future annual income and expenditure of the company for next three years, specifying the sources of the income and the objects of the expenditure.
• A declaration (in Form no. INC-15) on stamp paper duly notarized by each of the persons making the application and
• Form no. INC-9 from each subscriber and first directors, on appropriate stamp paper of the State and duly notarized.

Privileges of Section 8 Companies:

Exceptions to Section 8 Companies:

• Section 8 companies need not appoint a qualified professional as its company secretary.
• Since the requirement of having a minimum paid-up share capital for incorporating a private or a public company has been done away with vide the Companies (Amendment) Act, 2015, a Section 8 company also need not comply with the same.
• Section 8 companies can appoint more than fifteen directors without passing a special resolution. Section 8 company need not appoint an independent director.
• Section 165(1) that provides for maximum number of directorship that a person can hold including alternate directorship to be twenty companies – shall not be applicable to a section 8 company.
• Section 8 companies need not have a nomination and remuneration committee nor a stakeholders’ relationship committee.

Application of Certain Provisions to Section 8 Company with Modifications:

• Pursuant to the proviso to section 96(2) of the Act, a Section 8 company can hold its annual general meeting on a National Holiday, beyond business hours and at a place other than a place which is in the same city, town or village where the registered office of the company is situated subject to any directions in this regard given by the company in a general meeting.
• Pursuant to Section 101(1) of the Act, a Section 8 company can call a general meeting by giving atleast fourteen days’ notice instead of twenty-one days’ notice.
• Section 118 of the Act dealing with the preparation and recording of minutes of proceedings of minutes of meeting of members and/or board of directors of a company shall not apply to a Section 8 company except that the minutes must be recorded within thirty days of the meeting where the articles of association of the company provides for confirmation of minutes by circulation.
• Section 160 of the Act dealing with right of persons other than retiring director to stand for directorship by serving a notice to the company along with deposit of one lakh rupees shall not be applicable to such Section 8 companies whose articles provide for election of directors by ballot.
• Section 173(1) of the Act relating to the number and frequency of the meeting of board of directors shall not apply to a Section 8 company to the extent that the board of directors of such company shall hold atleast one meeting within every six calendar months.
• Quorum for board meeting of a Section 8 company shall be either eight members or twenty five percent of its total strength of the board whichever is less. However the quorum shall not be less than two members.
• The delegable powers of the Board to be exercised at the meeting as per subsection (d), (e) and (f) of section 179(3) may, for a Section 8 company, be decided by the board by circulation instead of at the meeting. The resolutions for borrowing of monies, investing the funds of the company and granting loans or giving guarantees or providing security in respect of loans can be passed by circular instead of at the meeting.
• Disclosure of interest in a contract or arrangement as per section 184(2) shall be applicable to a section 8 company only if the transaction with reference to section 188 on the basis of terms and conditions of the contract or arrangement exceeds one lakh rupees.
• Registers of contract and arrangements in which the directors are interested shall be maintained only if the transaction with reference to section 188 on the basis of terms and conditions of the contract or arrangement exceeds one lakh rupees.

Advantages and Disadvantages of Section 8 Companies:

Advantages of Section 8 Companies:

• Limited Liability: Members of a Section 8 company are not personally liable for the company’s debts beyond their investment in shares. 
• Separate Legal Entity: The company is recognized as a distinct legal entity, separate from its members, allowing it to own property, enter contracts, and sue or be sued. 
• Tax Benefits: Since Section 8 companies are more of a charitable institution, they have access to the various exemptions available under the IT Act. Section 8 companies can avail themselves of tax exemptions and deductions under the Income Tax Act, and donations to them may qualify for tax deductions for donors under Section 80G. 
• Enhanced Credibility: The flexible and transparent constitutional framework of Section 8 companies allows them to garner better credibility than other types of NGOs such as Society and trust. Thus a registration as a Section 8 company increases the organization’s credibility with donors and stakeholders, as it signifies adherence to regulatory standards. 
• No Minimum Capital Requirement: Unlike other company types, Section 8 companies do not have a minimum capital requirement for registration. These companies are allowed to alter their capital structure in accordance with their requirement later on.
• Perpetual Succession: The Company continues to exist independently of changes in ownership or membership, ensuring continuity of operations. 
• Zero Stamp Duty: Section 8 companies are exempt from paying stamp duty on the Memorandum of Association and Articles of Association. 
• Easy Transfer of Ownership: The ownership of a Section 8 company can be easily transferred by transferring the shares. 
• Funding Opportunities: Section 8 companies are eligible to receive grants and donations from various sources, including government agencies and private organizations. Section 8 companies are eligible to receive overseas funds in donations provided they are registered under the Foreign Contribution Regulation Act, 2010. This helps them fuel their charitable campaigns that are in need of much-need findings.
• Professional Structure and Governance: Section 8 companies are subject to stricter corporate governance guidelines compared to trusts or societies, promoting transparency and accountability. 

Disadvantages of Section 8 Companies:

• Restrictions on Profit Distribution: Unlike private, public, and OPC, Section 8 companies do not have the leverage to undertake profit distribution and allocate fair share to the members. Hence a primary disadvantage is the inability to distribute profits to members or shareholders. Any income or profit generated must be used solely for the company’s stated charitable objectives. This can limit financial incentives for those involved in the organization. 
• Higher Compliance Costs: Section 8 companies face more stringent compliance requirements compared to trusts or societies. This includes regular audits, filings, and adherence to specific regulations outlined in the Companies Act. The costs associated with these compliance activities can be higher. 
• Limited Flexibility: Operating within the strict regulatory framework can restrict flexibility in decision-making and operational adjustments. Amendments to the Memorandum of Association (MOA) or Articles of Association (AOA) require Central Government approval, adding another layer of complexity and potential delay. 
• Greater Regulatory Scrutiny: Section 8 companies are subject to greater regulatory oversight and scrutiny compared to other business structures. The Central Government has the power to revoke the company’s license for non-compliance with regulations or for fraudulent activities. 
• Limited Revenue Streams: Section 8 companies may have fewer options for generating revenue compared to for-profit entities. 
• Potential for Penalties: Non-compliance with regulations can lead to significant penalties, including substantial fines. 
• Complex Formation Process: Setting up a Section 8 company can be more complex and time-consuming than forming other types of organizations. 

Conversion of Existing Company into Section 8 Company:

Any existing limited company registered under this Act or under any previous company law can apply for conversion subject to the following:

• The Memorandum and Articles of Association either have (or are amended such that they have) the objects specified in clause (a) of sub-section (1) of Section 8 and the restrictions and prohibitions as mentioned respectively in clauses (b) and (c) of that sub-section are incorporated in the Memorandum/ Articles, and the Company is desirous of being registered under Section 8, without the addition to its name of the word “Limited” or as the case may be, the words “Private Limited”.
• For conversion, the procedure prescribed under section 8(5) read with Rule 20 of the Companies (Incorporation) Rules, 2014 shall apply.
• Similarly, a Section 8 Company can be converted into any other company including OPC as prescribed under Section 8(4)(ii) read with Rules 21 and 22 of Companies (Incorporation) Rules, 2014. This is further subject to restrictions and compliances as per other applicable laws including Income tax Act, 1961.

Revocation of Licence of Section 8 Companies:

Consequences of Contravening Section 8 of Companies Act, 2013:

The Central Government may

• Revoke the licence issued and covert the status and change its name to add the words ‘Limited” or “Private Limited” as the case may be.
• Order for amalgamation of company with similar objects
• Order for winding up.
• Section 8 Company and the respective officer in default is liable for penalty prescribed.

Revocation of License of Non-Profit Companies:

According to Section 8(6) of the Companies Act, 2013, the Central Government may, by order, revoke the licence granted to a company registered under this section if the company contravenes any of the requirements of this section or any of the conditions subject to which a licence is issued or the affairs of the company are conducted fraudulently or in a manner violative of the objects of the company or prejudicial to public interest, and without prejudice to any other action against the company under this Act, direct the company to convert its status and change its name to add the word ―Limited or the words ―Private Limited, as the case may be, to its name and 29 thereupon the Registrar shall, without prejudice to any action that may be taken under sub-section (7), on application, in the prescribed form, register the company accordingly: Provided that no such order shall be made unless the company is given a reasonable opportunity of being heard: Provided further that a copy of every such order shall be given to the Registrar.

The Government can even order the company to be wound-up or amalgamated with another similar company under certain circumstances. The Government has to hear the company before passing such orders.

Amalgamation and Winding Up of Section 8 Company:

Section 8(10) provides that a company registered under section 8 shall amalgamate only with another company registered under section 8 company and having similar objects. In view of section 8(10), Section 8 Company cannot be amalgamated with a company which is not a Section 8 company.

Any asset that remains after satisfaction of its debts will be transferred to another company registered under section 8 and having similar objects, subject to such conditions as the National Company Law Tribunal may impose, or may be sold and proceeds thereof credited to the Rehabilitation and Insolvency Fund formed under Section 269 of Companies Act, 2013.

Conclusion:

In conclusion, Section 8 companies play a vital role in the socio-economic development of India by promoting charitable and non-profit objectives in areas such as education, healthcare, arts, science, social welfare, and environmental protection. Unlike traditional business entities that operate with the primary goal of earning profits, Section 8 companies are formed with the exclusive aim of promoting social causes and reinvesting any surplus towards the organization’s objectives.

These companies enjoy several benefits, including tax exemptions, credibility with donors and government bodies, limited liability for members, and exemption from using the term “Limited” or “Private Limited” in their names. Their legal structure allows for transparency and governance, making them ideal for NGOs and other philanthropic organizations seeking long-term sustainability and recognition.

However, registering and maintaining a Section 8 company also comes with specific regulatory compliances and responsibilities. Adherence to rules set by the Ministry of Corporate Affairs (MCA), along with timely filings, is essential to retain the company’s status and avoid penalties. Therefore, founders and stakeholders must have a clear understanding of both the legal requirements and the ethical responsibilities associated with managing a non-profit entity.

Given India’s growing need for structured and impactful charitable organizations, Section 8 companies serve as an excellent model for individuals and institutions looking to make a difference. Their formal recognition, governance standards, and operational transparency position them as reliable instruments for social change. With careful planning, dedicated leadership, and compliance with statutory regulations, Section 8 companies can significantly contribute to the public good while maintaining long-term sustainability.

Ultimately, the strength of a Section 8 company lies in its mission-driven approach—creating value for society without the motive of profit. As India continues to face complex social challenges, these organizations will remain central to shaping a more inclusive and equitable future.

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