“Companies are formed with profit motive.” This statement does not hold good every time. There is one exception under which companies are incorporated to serve to the society and does not run on generally profit-making concept. Such Companies are called as non-profit organisations or popularly known as “Section 8” companies under provisions of Companies Act,2013.
Meaning under Companies Act,2013
Section 8 of the Act specifies that if any person or an association of person wants to incorporate a company with below given intentions:
- Objects to carry is promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
- apply its profits, if any, or other income in promoting its objects;
- intends to prohibit the payment of any dividend to its members.
Then Central Government may upon satisfaction can issue a licence to such association of persons to carry the objects as Section 8 Company.
Power of Central Government
Ministry of Corporate Affairs vide its notification dated May 21, 2014 specified that Central Government delegates the power and functions vested under section 8 of Companies Act, 2013 to the Registrar of Companies.
Further the Central Government may revoke such delegation of powers or may itself exercise the powers and functions under the said section, if in its opinion, such a course of action is necessary in the public interest.
Section 8 Companies can be public or private?
Anyone can incorporate section 8 Company either as Private Company or Public Company. However, Central Government has exempted these companies from using word “Limited” or “Private Limited” at the end of their name.
Section 8 companies are mandated to use word like Foundation, Forum, Association, Federation, Chambers, Confederation, Council, Electoral Trust and the like, etc at end of their name instead of using word “public limited” or “private limited”
Licence for Section 8 Companies
As per rule 19 Companies (Incorporation Rules) 2014to get licence from government to operate as a non-profit organisation, applicant has to make application in Spice+ form with:
- Memorandum of Association in Form No INC 13.
- Declaration from an Advocate, a Chartered Accountant, Cost Accountant or Company Secretary in practice, that the memorandum and articles of association have been drawn up in conformity with the provisions of section 8 in Form No. INC-14
- Declaration by each of the persons making the application in Form No. INC.15.
- 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.
Government after satisfying will issue licence in Form INC-16.
Can Partnership Firm become member of Section 8 Company?
Yes, as per section 8(3) a firm may be a member of the company registered under this section.
Can an existing company convert itself into Section 8 Company?
Yes, as per section 8(5) read with rule 20 of Companies (Incorporation) Rules, 2014, existing companies if willing to get registered under this section, may make an application after satisfying certain conditions:
Such companies must be continuing business of charitable objects as mentioned earlier and apply its profit for objects of the Company.
Companies can make an application to central government in Form INC-12 for such conversion with following documents:
- memorandum and articles of association of the company;
- declaration from an Advocate, a Chartered Accountant, Cost Accountant or Company Secretary in practice, that the memorandum and articles of association have been drawn up in conformity with the provisions of section 8 in Form No. INC-14
- the financial statements, the Board’s reports, and the audit reports, relating to existing companies
- a statement showing in detail the assets and the liabilities of the company, as on the date of the application or within thirty days preceding that date
- 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
- certified copy of the resolutions passed in general/ board meetings approving registration of the company under section 8
- a declaration by each of the persons making the application in Form No.INC.15.
The company shall, within a week from the date of making the application to the Registrar, publish a notice and a copy of the notice, as published, shall be sent forthwith to the Registrar and the said notice shall be in Form No. INC.26.
Government upon being satisfied will issue licence in Form INC-17.
Revocation of licence by Government
If any company which is incorporated to carry object of non-profit organisation is fraudulently violating the provisions of laws then Central Government has power to :
- Revoke licence of such companies and order them to covert into normal company by filing form INC-29
- Order company to amalgamate with any other company having same non profit objects
- Order for wind up and dissolution of company
- All such steps can be taken only after giving reasonable opportunity of being heard to the Company
Penalty for Companies
Deceiving general public by incorporating an NGO is a serious offence under Companies Act,2013. Section 8(11) states if any company violates such law then Company will be:
- punishable with fine which shall not be less than Rs. 10 Lakh but which may extend to Rs. 1crore.
- directors and every officer of the company who is in default shall be punishable with fine which shall not be less than Rs. 25,000 but which may extend to Rs. 25 lakhs.
- every officer in default shall be liable for action under section 447 of the Companies Act, 2013.
Companies incorporating Non profit organisations must run the same in good faith and pious intentions, non-compliance may lead to heavy penalty on Company as well as on persons managing the Company.