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NGO (Non-Government Organisation) is an organization that works for non-profit/ charitable purposes. An NGO established as Section 8 company under the Companies Act, 2013 (‘Act’) is governed by the Ministry of Corporate Affairs (‘MCA’) whereas the NGO registered as a trust or society is governed by the registrar of state under the State Government.
Section 8 company incorporation has more benefits in comparison to trust and society. This type of company has more credibility among government departments, donors, and other stakeholders. In this article, we will explain how to register as an NGO in the form of Section 8 Company, under the Companies Act, 2013.
NGOs can be registered in India under any of the following laws:
The main purpose of establishing a company as a Section 8 company is to promote non-profit objectives such as the following:
When the Central Government is satisfied that a person or association of persons propose to establish a limited company having the above-mentioned objectives, it shall grant a license to register as a Section 8 company under the Companies Act, 2013 (‘Act’).
The profits/incomes of the Section 8 company, if any, are applied towards promoting the objectives of the company and are not distributed as dividends to its shareholders.
There are many advantages of registering an NGO under Section 8 of the Companies Act, 2013, which are as follows:
No minimum capital: There is no minimum capital requirement for a Section 8 company incorporation and the capital structure of Section 8 can be altered at any time as per the growth requirement of the company. Thus, the funds required for carrying the business operations can be brought in later, through donations and subscriptions from members and the general public.
Tax Benefits: The Company Auditor’s Report Order (CARO) does not apply to the Section 8 company. A Section 8 company enjoys tax benefits under 80G of the Income Tax Act, 1961.
No Stamp Duty: There is no stamp duty imposed for Section 8 company incorporation in India. The Section 8 company need not pay the stamp duty imposed on the Memorandum of Association (MOA) or Articles of Association (AOA) of a private or public limited company.
Separate Legal Identity: Section 8 Company registration acquires a distinct legal identity from its members. A registered partnership firm can also become a member in its individual capacity and obtain Directorship of Section 8 company. It has perpetual existence and thus, the entry or exit of any member will not affect the operation of the Section 8 company.
Limited liability: The members of the Section 8 company have limited liability as per their share subscribed. They are not personally liable for the losses of the company.
Credibility: Section 8 companies are more credible and reliable than any other form of a charitable organisation. It is regulated under the provisions of the Act, thus they need to have mandatory audits every year and the Memorandum of Association cannot be altered relating to the non-profits objectives of the company.
Exemption to the donors: The tax exemption is granted to the donations received by the section 8 company under Section 12A and 80G of the Income Tax Act, 1961.
A minimum of two directors is required if the Section 8 company is to be incorporated as a private limited company, and a minimum of three directors in case of incorporation as a public limited company. The maximum number of members is 200 in the case of a private limited company, whereas for a public limited company, there is no such limit.
There is no requirement of minimum paid-up capital in the case of a Section 8 company incorporation. NGOs established as a Section 8 company need not use the words ‘Limited’ or ‘Private Limited’ in their name.
Section 8 companies are incorporated with non-profit objectives. The MOA and AOA must mention the non-profit objective or purpose for which it is established. Any profits earned by the section 8 company is utilised for the furtherance of its main objectives, i.e. charitable purposes or reinvested in the company. The profits will not be distributed among its members.
Section 8 company is managed by the Board of Directors as per the MOA and AOA of the company, unlike other trusts that are managed by the Trustees as per the Trust Deed.
A Section 8 company needs to follow the rules and regulations prescribed under the Companies Act, 2013. It needs to maintain books of account, and file returns with the Registrar of Companies. Section 8 company cannot make any changes to the provisions of MoA and AoA without the prior approval of the Central Government. It also needs to follow the provisions of the Income Tax Act and GST Law.
Digital signatures of the proposed directors of the company are required as the forms for the registration process are filed online and should be digitally signed. Digital signature certificates (DSC) are issued by a government recognized certifying agencies. The list of such certified agencies can be accessed here. The cost of obtaining a DSC varies depending upon the certifying agency. You must obtain a Class 3 category DSC.
You have to apply for a DIN for the proposed directors of the company. The application for allotment of DIN has to be made in Form DIR-3 or along with the SPICe+ form for registration. You have to attach the scanned copy of the necessary documents such as a self-attested copy of PAN, Identity and Address proof of directors along with the form and submit it online on the MCA Portal. The form must be attested by a practising professional who can be a chartered accountant, a company secretary, or a cost accountant.
|Name of the form||Purpose of the Form|
|SPICE+||Application for Incorporation of Company|
|INC 12||Application for License|
|INC 13||Memorandum of Association|
|INC 14||Declaration from a practising Chartered Accountant|
|INC 15||Declaration from each person making the application|
|INC 16||License to incorporate as Section 8 company|
|INC 22||Situation of Registered Office|
|DIR 2||Consent of Directors|
|DIR 3||Application to ROC to get DIN|
|DIR 12||Appointment of Directors|
Form INC-12 is filed for the grant of the license to operate as a Section 8 company. Along with this form, applicants are required to attach a draft copy of the Memorandum of Association (MOA) and Articles of Association (AOA).
There is a prescribed format for Memorandum of Association of a Section 8 company in Form INC 13. The subscription pages of the MOA and AOA shall be signed by each subscriber along with their name, address, description, and occupation, in the presence of at least one witness.
Form INC 12 is to be submitted along with the following attachments :
The following forms are required to be filed after the issuance of the license to the company
The SPICe+ form is the application for the incorporation of the company. The company can be reserved in the first part of the SPICe+ plus form. However, only one name can be declared for approval in this form. Thus, it is recommended that applicants access the free name search facility of existing companies available on the MCA portal before choosing the name. The system will provide a list of closely resembling names of the existing companies based on the search criteria. This will help you avoid choosing a name similar to that of an existing company.
The following documents must be attached along with SPICe+ Form:
Form INC 22 is filed for providing notice of the address of the company’s registered office. It needs to be filed within 30 days of the incorporation of the company.
Form DIR 12 is filed for the appointment of the directors of the company. It must be filed within 30 days from the date of the appointment of the directors.
Step 1 – Obtain a DSC of the proposed Directors of the Section 8 Company. Once a DSC is received, file Form DIR-3 with the ROC for getting a DIN. The Proof of Identity and Address Proof needs to be attached for obtaining DSC.
Step 2 – Once the DIR-3 is approved, the ROC will allot a DIN to the proposed directors.
Step 3 – File Form INC-12 with the ROC to apply for a licence for the Section 8 company along with the attachment of the required documents as mentioned above.
Step 4 – Once the form is approved, a license under section 8 will be issued in Form INC-16.
Step 5 – After obtaining the license, file the SPICe+ Form with the ROC for incorporation along with the required attachments as mentioned above.
If the ROC is satisfied with the forms submitted, he issues a Certificate of Incorporation along with a unique Company Identification Number (CIN).
The Central Government will revoke the Section 8 company license if it fails to comply with the legal provisions of the Act. If the objectives of the company are conducted fraudulently or in violation of the objectives for which it is established, the license can be revoked.
If a company defaults in complying with the provisions of the Act, the company will be punishable with a fine not less than Rs.10 lakh and may extend to Rs.1 crore. The Directors and the officers of the company in default of the provisions of the Act will be punishable with a fine not less than Rs.25,000 which may extend to Rs.25 lakh or both.
The annual compliances of section 8 company are just like the other companies.
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