Accounting
LLP vs Pvt Ltd – Which Business Structure is Right for You?
Introduction Choosing the right business structure is crucial for long-term success. Two of the most popular structures in India are the Limited Liability Partnership (LLP)
A Section 8 company, also known as a charitable company, is established to promote activities in areas such as arts, commerce, science, education, sports, environmental protection, religion, charity, and more. While it can generate profits, these cannot be distributed among members; instead, all income must be reinvested to further the company’s charitable objectives.
Governed by Section 8 of the Companies Act, 2013, these companies enjoy a special status due to their charitable purpose. Compared to other types of companies, Section 8 companies benefit from several exemptions and regulatory relaxations.
A Section 8 company, registered under the Companies Act, enjoys a special status distinct from other business entities. It benefits from tax exemptions, and donors can claim tax deductions for contributions made under Income Tax laws. In addition, the company is exempt from many compliance requirements, making it an ideal structure for charitable organizations.
A Section 8 company has a distinct legal identity separate from its members. This enables the company to own assets, incur liabilities, and exercise rights and obligations in its own name, independently of its members. Changes in the composition of members or directors do not affect its existence, assets, liabilities, or legal rights.
A Section 8 company offers limited liability to its members, restricting their responsibility to the unpaid portion of their subscribed capital. The company’s losses or obligations do not impact the personal assets of its members or directors. This structure enables promoters to manage the non-profit organization without exposing themselves to personal financial risk.
Although a Section 8 company enjoys the benefits of a corporate entity, it is not required to include the usual “Private Limited” or “Limited” suffix in its name. This exemption allows the company to emphasize its charitable objectives rather than being perceived as a profit-driven organization.
A Rent Agreement for the registered office must be provided, if applicable.
An estimated Statement of Income & Expenditure for the next three years.
The name is not required to include suffixes like “Private Limited” or “Limited.”
To register a Section 8 company, the promoters must ensure the following requirements:
The company’s main objective must be focused on charitable activities, as prescribed by law.
A minimum of 2 members who will subscribe to the capital during incorporation.
At least 2 directors, with one being an Indian citizen and a resident of India.
The company must have a registered office located within India.
There is no minimum capital requirement for a charitable company. The promoters can introduce an amount that is sufficient to commence and operate the business.
The company name must comply with the prescribed naming guidelines. To reserve a name, the application is made through the “RUN” web-form, where up to 2 unique names can be submitted. If the suggested names do not meet the requirements, the registrar may request the promoters to provide alternative names.
The promoters must submit an application in e-form INC-12 to seek approval from the Central Government. Along with the form, the promoters must provide the MoA, AoA of the company, declarations, and an estimated statement of income and expenditure for the next three years. If the application is approved, the approval letter will be issued in form INC-16.
No, the entire registration process is conducted online, so the physical presence of the promoters is not necessary. All documents and information can be submitted via email or uploaded directly to our portal.
Yes, an NRI or foreign national can be a director in a Section 8 company, provided they obtain a Director Identification Number (DIN). However, at least one director on the board must be an Indian citizen and a resident of India.
A Section 8 company is commonly referred to as an NGO. However, NGOs can also be registered under other structures such as trusts, societies, or foundations, depending on the nature and objectives of the organization.
A Section 8 or Charitable Company is prohibited from paying dividends to its members. Instead, any surplus income must be reinvested to further the company’s objectives and promote its charitable purposes.
Once incorporated, the company remains active and in existence as long as it fulfills its annual compliance requirements or until it is voluntarily dissolved.
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