Objectives of the study:
- To understand the history and constitutional framework of non- profit organisations which comes under section 8 of companies act, 2013.
- To know the application, features and exceptions of section 8 companies.
- To study the Advantages, Disadvantages, Formation, Alteration, Revocation, Winding up and Punishment of Section 8 companies.
SECTION 8 COMPANIES: – COMPANIES WITH CHARITABLE OBJECTS
Section 8 of the companies Act deals with the formation of companies which are formed to promote charitable objects and intends to apply its profits in promoting its object.
HISTORY:-
The concept of Section 8 companies was introduced in Companies Act 1913 which permitted companies with charitable objects etc. to be registered without the words ‘Limited’ or ‘Private Limited’
BHABHA COMMITTEE: Based on the recommendation of this committee, Companies Act 1956 was passed. The Act came into force from 1st April, 1956 and was largely based on English Companies Act of 1948.
Section 25 of Companies Act, 1956 was introduced for such charitable companies based on English Companies Act 1948.
COMPANIES ACT, 2013
The Companies Act, 2013 continues with the provision for such companies and provides for a framework for the same under Section 8 of the Companies Act, 2013.
CONSTITUTIONAL FRAMEWORK OF NON-PROFIT ORGANISATIONS (NPOs)
Under schedule VII of Indian Constitution, the subject ‘Trust and Trustees’ finds mention at Entry NO. 10 in the Concurrent List and Charities and Charitable institutions, Charitable and religious endowments and religious institutions find place at entry no.28 of the Concurrent list. Therefore both the centre and the States are competent to legislate and regulate charitable organisations. However Section 8 companies are regulated through the companies Act, 2013, accordingly the registration and administration of these companies is regulated only by the central government.
Object :- Section 8 deals with the formation of companies which are formed to promote the charitable objects such as Arts, Commerce, Science, Sports, Education, Research, Social Welfare, Religion, Charity, Protection of Environment etc.
APPLICATION OF PROFIT:
The profits of company is used to fulfil the object of company [i.e., the purpose for which they established the company] and do not pay any dividend to their members.
EXAMPLES:
Some Examples of Section 8 companies are:
- Infosys foundation,
- Reliance foundation,
- Over-the-Counter Exchange of India (OTC),
- Confederation of Indian Industries,
- Federation of Indian Chamber of Commerce (FICCI).
FEATURES:
Section 8 companies comprises of following distinct features that most of the other kinds of companies do not have. They are
- CHARITABLE OBJECTIVE: Under this Section Companies do not aim to make profits and these types of companies are also known as Licensed Companies
- GOVERNMENT LICENSE: To form a company under section 8 a prior approval of central government is needed and if it is approved by central government then license will be issued by ROC [since the government has delegated the power to ROC] thereby it becomes a company
- NO MINIMUM SHARE CAPITAL: The minimum paid up capital for formation of private companies is 1lakh and for public companies is 5lkh.
But section 8 companies do not require minimum prescribed paid up capital.
- LIMITED LIABILITY: The NPOs have limited liability same as limited companies but shouldn’t use any ltd or pvt ltd before the name. Member’s liability cannot be limited in any case. Therefore all the requirements are applicable to section 8 companies also but an extra benefit i.e., license will be given.
- FIRMS AS a MEMBER: Firms such as Partnership Firms cannot form Separate Legal Entity and cannot purchase any shares of other company but it can become a member of Section 8 companies.
- For the companies under section 8 of the act, the name shall include the words Foundation, Forum, Association, Federation, Chambers, Confederation, Council, Electoral trust and the like etc.
Exceptions:
These exemptions are only applicable to companies under section 8 and not to any other public or private companies. They are:
| Private or Public Companies | Section 8 companies |
| Notice for general meeting should be given 21 days prior More than 15 directors can be allowed in a company but with passing of Special Resolution Section 149 and 150 talks about Independent directors and their selection provisions. Companies should follow the process Four board meetings in a calendar year | Notice for general meeting can be given 14 days prior More than 15 directors can be allowed but no need of passing any Special Resolution For section 8 companies Section 149 and 150 are not applicable. Two board meetings in a calendar year |
ADVANTAGES: the advantages that section 8 companies will avail are:
- No minimum capital requirement
- Several tax exemptions
- Stamp duty and high fees are not payable for registration
- They have separate legal status
DISADVANTAGES: Despite numerous merits the companies also have the following drawbacks. They are:
- Members of company cannot get any dividend
- Officers and directors do not get any benefits and allowances
- Can only use the profits for furthering charitable aims and objectives
- Amendment of memorandum and article of association requires central government permission
- License can be revocable on revocable grounds
- Company cannot be converted into one person company
FORMATION:
A person or association of persons can make an application to the registrar of companies using requisite form to form a company with charitable objective under section8 of companies act, 2013.
The central government if satisfied can accept such an application upon the terms and conditions under the license granted by it.
ALTERATION:
Companies under section 8 cannot alter the provisions of its memorandum of association or article of association except with the previous approval of Central Government
REVOCATION:
Section 8 company require a grant of a licence by the central government. All such licences are revocable on the following grounds:
- If the conditions of section 8 are contravened by companies
- If the affairs are concluded fraudulent or prejudicial to public interest
- If the terms of license are fraudulent
Then the registrar shall put ‘limited’ or ‘private limited’ against the company’s name in the registrar. But before such revocation central government should give a written notice of its intention to revoke the license and opportunity of being heard.
WINDING UP:
Section 8 companies can windup or dissolve themselves either voluntarily or under order given by central government. If on winding up or dissolution of a company registered under this section, there remains, after the satisfaction of its debts and liabilities, any assets, they may be transferred to another company registered under this section and having similar objects, subjects to such conditions as the tribunal may impose, or may be sold and proceeds hereof credited to the insolvency and bankruptcy fund formed under section 224 of the insolvency and bankruptcy code, 2016.
PUNISHMENT:
If a company makes any default in complying with any of the requirements laid down in this section, the company shall be punishable with fine varying from 10 lakh to 1 crore rupees and the directors and every officer of the company who is in default shall be punishable with fine varying from 25,000 rupees to 25lakh rupees.
And where it is proved that affairs of the company are conducted fraudulently ever officer in default shall be liable for action under section 447.