BENEFITS OF SECTION 8 COMPANY

NGOs: THE BUILDING BLOCKS OF SOCIETAL DEVELOPMENT

NGOs play a major role in in the development of the nation by supplementing the efforts of the Government. One of the most sought NGO Registration in the recent time is but of course; Section 8 Company Registration due to its varied benefits that it has got to offer which are not present in the other two types of NGO; be it a Trust or Society.

Recently, the GOI has launched various programs to safeguard the money received as part of CSR Provision. In one of the recent developments, they came up with CSR-1 and CSR-2 Forms. CSR-1 has been mandatory for all the NGO Entities who wish to undertake CSR Funds. CSR-1 Form is an MCA Form to be filed at www.mca.gov.in. Since Section 8 Company is registered under MCA only within the regime of the Ministry of Corporate Affairs, Section 8 Companies are the first choice for the companies who have CSR Money. Since Companies on whom CSR are applicable are also companies registered under the Companies Act, 2013 or any previous company law, they feel at ease whiling giving CSR money to section 8 companies as their financials data are available on the official website of the MCA.

Types Of NGO registrations In India

There can be three types of NGOs registered in India i.e., Trusts governed by Indian Trust Act, 1882, Societies governed by Societies Registration Act, 1860, and companies Registered under Section 8 of Companies, Act 2013. Each of these types has its own features, advantages, and disadvantages. Depending upon the needs any one of them can be chosen.

This article is all about NGOs registered as Section 8 company under Companies Act, 2013; its meaning, features, advantages, and disadvantages.

BENEFITS OF SECTION 8 COMPANY

In addition to other advantages Section 8 company enjoy number of privileges under various Acts including Companies Act, 2013 some of them are highlighted below:

• No Stamp Duty: As Section 8 companies are registered in India for the sake of charity or other social cause. Therefore, they are exempt from payment of Stamp Duty on their Authorised Share Capital.
• Limited Liability: Section 8 companies are registered as Limited Liability Companies; therefore, they provide protection to the personal assets of the Members in case funds become insufficient to repay debts of the company.
• No need to Add Limited/ Private Limited to its name: Section 8 companies are granted License by Central Government on an application filed during the time of its incorporation and are not required to end their names with word Limited or private limited even if they are registered as Private Limited Company or Public Limited Company.

Instead, section 8 companies are allowed to use words such as foundation, council, institute, forum, federation etc after its name to clearly being identified as charitable organisations.

• Eligible to work as CSR implementation agency: Section 8 Company which is having a track record of at least 3 years in its field or Section 8 Company registered under section 12A or 80G of Income Tax, can register itself as Implementation Agency for the purpose of CSR obligation by filing form CSR-1 and can get funds for charitable purposes.

Partnership firm can be its Member: In the entire company Law, a Partnership Firm is not allowed to become Member of any company since it is not a body corporate and do not possess identity distinct from its partners. However, Partnership Firm is allowed to become the Member of a Section 8 Company.

Various Tax Exemptions: Being an organisation formed for social cause it is entitled to get various tax exemption under Income Tax, Act. Its members can claim tax deduction on the amount of their contribution in that company. Also, Section 8 Company is completely tax free if it obtains registration under section 80G (once every 3 years) and 12A of Income Tax Act.

Credibility: Being licensed by Central Government it has more credibility than any other form of charitable organisation, therefore it has excess to funds more easily than any other form.

• Exemptions under Companies Act, 2013: vide GSR 466(E) dated 05th June 2015 and the Notification No.GSR 584(E) dated 13th June 2017 issued by the Ministry of Corporate Affairs, following expetions are granted to section 8 company:

1. After incorporation first Board meeting is to be held within 6 months (instead of 30 days in case of other companies)
2. Any person can be appointed as secretary of the company he need not to be a member of ICSI.
3. Requirement of having minimum paid up share capital is not applicable.
4. Requirement of holding 1 board meeting every 6 months instead of 4 Board Meetings in a year.
5. 14 clear days’ notice is required to convene AGM (instead of 21 clear days).
6. Section 8 company is not required to appoint independent director even if it is a public company.
7. Section 8 company is exempt from constituting committees such as Audit Committee, Nomination and Remuneration Committee.
8. For counting limit of directorship [ 20companies] Section 8 companies are not counted.
9. A Director of a Section 8 company is required to disclose his interest in a transaction, arrangement or contract and abstain from participating in resolution relating to such transaction only if value of such transaction exceeds Rs. 1 Lakh.

CONCLUSION

• Section 8 Companies are typically formed to carry forward the philanthropic activities and has become a trend considering the latest amendments in CSR provisions under section 135, also they offer multiple benefits under Income Tax Act and in general. Therefore, they can be considered as a good option when it comes to NGOs incorporation.

To promote the NGOs in our country, the Government has taken various steps; one among them is “NGO Darpan” portal, through which various facilities including updates on Government initiatives and Government grants are provided to registered NGOs. It was initiated in 2015, however, after the introduction of NITI AYOG in our government in year 2019, the registration of NGOs on NGO Darpan boost up. Data reveals that as on date 1, 45,870 NGOs are enrolled on NGO Darpan portal.

Thank you for giving your valuable time, if you have any queries or need consultation regarding Company Registration, then please contact our dedicated team at Compliance Calendar LLP at info@ccoffice.in or 9988424211 and we will be happy to assist you.