Section 8: Companies Act- Incorporating companies and compliances in India
Updated: Feb 25
Section 8 of the Companies Act, 2013 deals with the formation of companies with charitable objects. The section allows for the incorporation of companies with the purpose of promoting commerce, art, science, religion, charity, or any other useful object, provided that the profits or any other income generated by the company is applied towards promoting the objects of the company, and not distributed as dividend to its members.
Some of the key provisions and relevant caselaws and rules related to Section 8 are as follows:
Memorandum and Articles of Association: The memorandum and articles of association of the company must state that the company is formed with charitable objects, and the profits or any other income generated by the company shall be applied towards promoting the objects of the company.
Restrictions on distribution of profits: A Section 8 company cannot declare dividends to its members, and any surplus generated from its activities can only be used for promoting its charitable objects.
Tax exemptions: Section 8 companies are eligible for certain tax exemptions and benefits, subject to certain conditions and approvals from the concerned authorities.
Registration: Section 8 companies must be registered with the Registrar of Companies (ROC) and must comply with various provisions of the Companies Act, 2013, and rules made thereunder.
Some of the relevant caselaws related to Section 8 companies are:
In the case of Mohd. Faruk v. Union of India, the Supreme Court held that the main purpose of Section 8 companies is to promote charitable activities, and any income generated by the company must be utilized for the promotion of its objects.
In the case of State of Maharashtra v. Apollo Tyres Ltd., the Bombay High Court held that the registration of a Section 8 company cannot be cancelled merely on the ground that it has entered into certain commercial activities, as long as the primary object of the company is charitable.
In the case of Sahara India Real Estate Corpn. Ltd. v. SEBI, the Securities Appellate Tribunal held that Section 8 companies are eligible for public issue of securities, subject to compliance with the relevant provisions of the Companies Act, 2013 and the Securities and Exchange Board of India (SEBI) regulations.
Some of the relevant rules related to Section 8 companies are:
Companies (Incorporation) Rules, 2014: These rules provide for the procedure for incorporation of Section 8 companies, the documents required for registration, and the fees payable to the ROC.
Companies (Accounts) Rules, 2014: These rules prescribe the format for preparation and presentation of financial statements by Section 8 companies, including the statement of surplus or deficit.
Companies (Meetings of Board and its Powers) Rules, 2014: These rules specify the powers of the board of directors of Section 8 companies, including the power to apply surplus funds towards charitable objects, and the procedure for holding board meetings.
Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014: These rules prescribe the conditions and procedure for appointment, remuneration, and termination of managerial personnel of Section 8 companies, including the managing director, whole-time director, and manager.
Companies (Registration Offices and Fees) Rules, 2014: These rules specify the fees payable for various services and filings by Section 8 companies with the ROC, and the procedure for change of registered office.
Companies (Incorporation) Amendment Rules, 2019: These rules amend the Companies (Incorporation) Rules, 2014, and prescribe the procedure for name reservation and incorporation of Section 8 companies with the Simplified Proforma for Incorporating Company Electronically (SPICe) form.
Overall, Section 8 of the Companies Act, 2013 provides a legal framework for the incorporation and functioning of companies with charitable objects, and promotes the spirit of social responsibility and philanthropy among the business community. The section has been instrumental in the formation of several non-profit organizations, trusts, and foundations in India, which are engaged in a wide range of charitable activities, including education, healthcare, environment, and human rights.
By Siddharth Dalmia
The StartUp Sherpa
+91-9971799250
dalmiasiddharth1994@gmail.com
