Maximizing Opportunities: Guide Section-8 Company Exemptions

Introduction:

Section 8 Companies, also known as not-for-profit companies, play a crucial role in promoting charitable and non-profit activities in India. The activities of a section 8 Company include charitable objects to promote commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment, etc., without adding to its name the words ‘Limited’, ‘Private Limited’. These companies are registered under Section 8 of the Companies Act, 2013, and are granted several exemptions and benefits due to their philanthropic nature. In this article, we will explore the key exemptions granted to Section 8 companies in India.

1. Name Approval Exemption:

Unlike other companies, Section 8 companies can choose their names without the requirement to include words like “Foundation,” “Association,” or “Society” as mandated by the Companies Act.

Minimum Capital Requirement:

Section 8 companies are exempt from the minimum capital requirement that applies to other types of companies. This allows them to be registered with nominal or no share capital.

2. No Need for Stamp Duty:

In some states, Section 8 companies are exempt from paying stamp duty on the memorandum and articles of association, making the registration process cost-effective.

3. Tax Exemptions:

Section 8 companies enjoy tax exemptions under Section 12AA and 80G of the Income Tax Act, 1961.

Donors to Section 8 companies can avail tax benefits under Section 80G for their contributions.

Section 8 companies are exempt from paying income tax on their surplus income, provided it is utilized for charitable purposes.

4. No Need for Commencement of Business Certificate:

Section 8 companies do not need to obtain a commencement of business certificate before starting their operations, as required for other types of companies.

5. Exemption from Mandatory Rotation of Auditors:

Section 8 companies are exempt from the requirement of rotating auditors, which is mandatory for other types of companies after a certain period.

6. Relaxed Disclosure Requirements:

Section 8 companies have relaxed disclosure requirements compared to other companies. They are not required to disclose the remuneration of directors or key managerial personnel in their annual reports.

7. Exemption from Proxy Voting:

Section 8 companies are not bound by the proxy voting provisions applicable to other companies, making their decision-making processes more flexible.

8. Exemption from recording of Minutes:

The Section 8 companies are not required to record minutes of General Meeting or Board Meeting except that minutes may be recorded within thirty days of the conclusion of every meeting in case of companies where the articles of association of the Company provide for confirmation of minutes by circulation.

9. Shorter period for Notice of EGM:

The notice of Extra-Ordinary General Meeting or general meeting is required to be sent 21 days in advance. However, Section 8 Companies are provided with relief to send 14 days clear notice instead of 21 days’ notice.

10. Sending Audited Financial Statements to Members

The Section 8 companies are required to send copy of Audited Financial Statements to its members at least 14 days before holding Annual General Meeting (AGM) as compared to other companies which are required to send the audited financials to members at least 21 days before AGM.

11. Number of Directorships

The provision of Section 165 (1) pertaining to maximum number of Directorships is not applicable to Section 8 company. In other words, while counting the maximum number of Directorships in Companies, the Directorship in Section 8 Company will not be counted.

12. Minimum number of Board Meetings in a year:

Every Company other than Section Company is required to hold at least 4 Board Meetings in a Financial Year. The section 8 company may hold only 1 Board Meeting in each half year.

13. Quorum of Board Meetings:

Unlike other Companies, the quorum in section 8 companies is 1/4^th of total Board members or 8 members whichever is less subject to the condition that minimum 2 Directors must be present.

14. Nomination & Remuneration Committee:

The requirement to have Nomination & Remuneration Committee and Stakeholders Relationship Committee is not applicable to Section 8 Companies.

15. Faster Incorporation Process:

Section 8 companies often enjoy a faster incorporation process due to their charitable nature. The Registrar of Companies (RoC) may expedite the registration process.

Conclusion:

Section 8 companies play a vital role in addressing various social and charitable causes in India. The exemptions granted to them under the Companies Act and the Income Tax Act encourage philanthropy and simplify the administrative burden, allowing them to focus more on their mission-driven activities. These exemptions make Section 8 companies an attractive option for those seeking to make a positive impact on society through non-profit initiatives.

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