In India, non-profit organizations play an essential role in driving social, educational, charitable, and cultural initiatives. Among the different legal structures available for non-profit entities, the Section 8 company stands out due to its credibility, formal structure, and legal benefits. Governed by the Companies Act, 2013, Section 8 companies are ideal for individuals or groups looking to create a lasting impact while ensuring transparency and compliance with legal frameworks.
This guide will walk you through the Section 8 company registration process, highlight its key features, and explain the relationship between Section 8 companies and GST registration, including scenarios where GST cancellation might be necessary. We’ll also touch on the differences between Section 8 companies and other structures like the One Person Company (OPC) and how they fit into the broader business environment.
What is a Section 8 Company?
A Section 8 company is a non-profit organization established under Section 8 of the Companies Act, 2013. Its primary objective is to promote:
•Charitable activities
• Education
• Art and culture
• Science and research
• Environmental protection
• Social welfare
Unlike for-profit businesses, Section 8 companies are prohibited from distributing profits to their members. Instead, any income generated is reinvested into achieving the organization’s objectives.
Key Features of a Section 8 Company
1. Non-Profit Objective: The core purpose is to promote charitable, educational, or social activities, not to generate profit.
2. Tax Benefits: Section 8 companies are eligible for tax exemptions under the Income Tax Act, such as Section 12A and 80G certifications.
3. Legal Status: These companies are recognized as separate legal entities, allowing them to enter contracts, own property, and sue or be sued in their own name.
4. Limited Liability: Members' liabilities are limited to their share in the company, protecting personal assets.
5. No Minimum Capital Requirement: Unlike other business structures, Section 8 companies do not have a minimum capital requirement.
If you’re an individual entrepreneur, one person company registration might be suitable. However, for charitable purposes, a Section 8 company registration is the ideal route.
Section 8 Company Registration Process
Registering a Section 8 company involves multiple steps and approvals. Here’s a detailed breakdown of the Section 8 company registration process:
Step 1: Obtain Digital Signature Certificate (DSC)
All proposed directors must have a Digital Signature Certificate (DSC) for signing electronic documents.
• Documents Needed:
o PAN Card
o Aadhaar Card
o Passport-sized photo
o Email ID and mobile number
Step 2: Apply for Director Identification Number (DIN)
A Director Identification Number (DIN) is mandatory for all directors. You can apply for DIN while filing the Spice+ form (discussed later).
Step 3: Name Reservation (RUN Form)
Propose a unique name that reflects the company’s objectives. Use the Reserve Unique Name (RUN) form on the Ministry of Corporate Affairs (MCA) portal.
• Naming Guidelines:
o The name should reflect the company’s charitable nature.
o Words like Foundation, Society, Association, or Council are commonly used.
Step 4: Draft Memorandum and Articles of Association (MOA & AOA)
• MOA (Memorandum of Association): Outlines the company’s objectives.
• AOA (Articles of Association): Defines internal management rules.
Ensure that the MOA clearly states the non-profit objectives to comply with Section 8 requirements.
Step 5: Apply for Section 8 License (Form INC-12)
File Form INC-12 to apply for the Section 8 license. This is a critical step that differentiates Section 8 companies from regular companies.
• Documents Required:
o Draft MOA and AOA
o Declaration by directors
o Financial projections for the next three years
o Proof of registered office address
Step 6: Filing Spice+ Form for Incorporation
After obtaining the Section 8 license, file the Spice+ form to complete the incorporation process. This form includes:
• DIN allotment
• PAN and TAN application
• Option for GST registration online
Step 7: Issuance of Certificate of Incorporation
Once approved by the Registrar of Companies (ROC), you’ll receive the Certificate of Incorporation and a unique Company Identification Number (CIN).
GST Registration for Section 8 Companies
While Section 8 companies are non-profit organizations, they may still need to register for GST under certain circumstances:
1.Turnover Exceeds Threshold: If the company’s turnover exceeds ₹20 lakhs (or ₹10 lakhs in special category states), GST registration becomes mandatory.
2. Providing Taxable Services: If the company offers taxable goods or services, such as training programs, workshops, or consultancy, it must undergo online GST registration.
3. Interstate Supply of Goods/Services: Companies engaged in interstate transactions are required to register, irrespective of turnover.
Online GST Registration Process for Section 8 Companies
Here’s how Section 8 companies can complete GST registration online:
1,Visit the GST Portal: Go to www.gst.gov.in.
2.Generate Temporary Reference Number (TRN): Enter your PAN, email, and mobile number to generate a TRN.
3. Complete Part B of the Application: Use the TRN to access the application and submit details like business address, bank account information, and authorized signatory details.
4. Upload Required Documents: Include the Certificate of Incorporation, PAN card, and proof of address.
5. Verification and ARN Generation: Verify using Digital Signature Certificate (DSC) and receive an Application Reference Number (ARN) to track your GST registration status.
6. Receive GSTIN: Once approved, the company receives a Goods and Services Tax Identification Number (GSTIN).
Cancellation of GST Registration for Section 8 Companies
In certain cases, Section 8 companies may no longer require GST registration. This could be due to a reduction in turnover or a shift in activities that are no longer taxable. Understanding how to cancel GST registration is critical for maintaining compliance.
How to Cancel GST Registration: Step-by-Step Process
1. Log in to the GST Portal: Use your credentials to log in to www.gst.gov.in.
2. Direct to ‘Services’ > ‘Registration’ > ‘Application for Cancellation’: Select the ‘Application for Cancellation of Registration’ option.
3. Provide Cancellation Reason: Choose from reasons like turnover below threshold, cessation of taxable activities, or restructuring of the organization.
4. Upload Supporting Documents: Include necessary documents such as board resolutions or proof of business closure.
5. Submit Application: Verify the application using DSC and submit.
6. Track Application Status: Use the ARN to track the cancellation of GST registration.
Compliance Requirements for Section 8 Companies
Even after registration, Section 8 companies must comply with various legal obligations:
1. Annual Filing with MCA: File Form AOC-4 (financial statements) and MGT-7 (annual returns).
2. Income Tax Returns: File annual tax returns, even if exempt under Section 12A.
3. GST Returns: If registered under GST, submit regular returns like GSTR-1 and GSTR-3B.
4. Audits: Mandatory annual audits by a Chartered Accountant.
Conclusion
A Section 8 company is an excellent choice for individuals or organizations aiming to create a social or charitable impact. The Section 8 company registration process may be more complex than other structures like one person company registration or OPC registration, but the legal benefits and credibility it offers are unmatched. Additionally, understanding the nuances of GST registration online and knowing how to cancel GST registration, when necessary, ensures your organization remains compliant and efficient.
Whether you're starting a non-profit, transitioning from a sole proprietorship to an OPC, or looking to streamline your tax obligations, this guide serves as a thorough resource for crossing the process smoothly.
Frequently Asked Questions (FAQs)
1.What is the minimum number of directors required for Section 8 company registration?
A minimum of two directors is required.
2.Do Section 8 companies need GST registration?
Yes, if they exceed the turnover threshold or engage in taxable activities.
3.How can I cancel GST registration for a Section 8 company?
Log into the GST portal, fill out the Application for Cancellation, and submit the necessary documents.
4.What are the tax benefits for Section 8 companies?
They can apply for exemptions under Section 12A and 80G of the Income Tax Act.
5.How long does the Section 8 company registration process take?
It typically takes 30-45 days, depending on documentation and approvals.
