BackSection 8 Company/ Non-Profit Organization
A Section 8 Company is a type of company which is registered under the Companies Act, 2013. The company registered under this section shall enjoy all the privileges and be subject to all the obligations of limited companies.
WHAT IS SECTION 8 COMPANY?
A Section 8 Company is a company established for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, or any other useful object, with the intention of applying its profits, if any, or other income in promoting its objects and intends to prohibit the payment of any dividend to its members,
CHARACTERISTICS:
- Not-for-Profit: Section 8 Companies are non- profit organizations.
- No Minimum Capital: There is no minimum paid-up capital requirement.
- Limited Liability: Members have limited liability.
- No Dividend Distribution: Profits cannot be distributed as dividends.
- Central Government License: Requires a license from the Central Government.
REGISTRATION PROCESS:
- Name Approval: Apply for a unique name through the MCA portal.
- Digital Signature Certificate (DSC): Obtain a DSC for directors and shareholders.
- Director Identification Number (DIN): Obtain a DIN for directors.
- Incorporation Documents: File Form SPICe+ and supporting documents with the ROC.
- Central Government License: Apply for a license from the Central Government.
COMPLIANCE REQUIREMENTS:
- Annual Filing: File annual returns with the ROC.
- Income Tax Filing: File income tax returns with the Income Tax Department.
- GST Registration: Register for Goods and Services Tax (GST) if applicable.
ADVANTAGES OF SECTION 8 COMPANY:
- Tax Exemptions: Eligible for tax exemptions under Section 80G and 12A.
- Enhanced Credibility: Attracts donors, grants, and collaborations.
- Limited Liability: Protects members' personal assets.
DISADVANTAGES OF SECTION 8 COMPANY:
- Restrictions on Profit Distribution: Profits cannot be distributed as dividends.
- Compliance Burden: Must comply with various regulations and filings.
- Central Government License: Requires a license from the Central Government.
Frequently Asked Questions (FAQ’s):
1. What is a Section 8 Company?
A Section 8 Company is a not-for-profit company established for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, or any other useful object.
2. What are the main characteristics of a Section 8 Company?
Key characteristics include no minimum capital requirement, limited liability, no dividend distribution, and a Central Government license.
3. What is the purpose of a Section 8 Company?
The purpose is to promote a specific object, apply profits towards that object, and not distribute dividends.
4. How do I register a Section 8 Company?
Registration involves name approval, DSC, DIN, incorporation documents, and a Central Government license.
5. What are the compliance requirements for a Section 8 Company?
Compliance includes annual filing, income tax filing, GST registration, and audits.
6. Can a Section 8 Company distribute profits?
No, profits cannot be distributed as dividends.
7. Can a Section 8 Company be converted into another type of company?
Yes, it can be converted into a Private Limited Company or Public Limited Company with necessary procedures and approvals.
8. Can a foreign national be a director in a Section 8 Company?
Yes, but they need to obtain a DIN and meet other requirements.
9. How many members are required to form a Section 8 Company?
A minimum of 2 members are required.
10. Can a Section 8 Company have a paid-up capital?
Yes, but there is no minimum requirement.
11. Can a Section 8 Company issue shares?
Yes, but only to its members and not to the general public.
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Frequently Asked Questions
Chartered Accountants (CAs), Tax Return Preparers, Tax Consultants and Certified Tax Professionals are the experts in India who can guide and file returns.
Private Limited Company set-up process typically takes around 10-12 working days. However, it can vary depending on several factors, such as the speed of document submission, verification, and approval from the authorities.
Selection of suitable entity structure for a startup involves considering several factors such as:
1. Business Goals: Define your startup's mission, vision, and objectives.
2. Ownership: Determine the number of owners (sole proprietorship, partnership, or multiple owners).
3. Liability: Consider the level of personal liability protection needed.
4. Taxation: Think about tax implications.
5. Funding: Will you need to raise capital from investors or lenders?
6. Growth Plans: Consider future expansion, mergers, or acquisitions.
7. Compliance: Evaluate the regulatory requirements and compliance burden.
8. Flexibility: Assess the need for flexibility in decision-making and management.
Common business structures for startups:
1. Sole Proprietorship: Simple, low-cost, but offers no liability protection.
2. Partnership: Shared ownership, but partners have personal liability.
3. Limited Liability Partnership (LLP): Combines partnership benefits with liability protection.
4. Private Limited Company: Offers liability protection, tax benefits, and credibility.
5. Limited Liability Company (LLC): Flexible with liability protection.
1. Business Goals: Define your startup's mission, vision, and objectives.
2. Ownership: Determine the number of owners (sole proprietorship, partnership, or multiple owners).
3. Liability: Consider the level of personal liability protection needed.
4. Taxation: Think about tax implications.
5. Funding: Will you need to raise capital from investors or lenders?
6. Growth Plans: Consider future expansion, mergers, or acquisitions.
7. Compliance: Evaluate the regulatory requirements and compliance burden.
8. Flexibility: Assess the need for flexibility in decision-making and management.
Common business structures for startups:
1. Sole Proprietorship: Simple, low-cost, but offers no liability protection.
2. Partnership: Shared ownership, but partners have personal liability.
3. Limited Liability Partnership (LLP): Combines partnership benefits with liability protection.
4. Private Limited Company: Offers liability protection, tax benefits, and credibility.
5. Limited Liability Company (LLC): Flexible with liability protection.
The Presumptive Taxation Scheme (PTS) offers several benefits to small businesses and professionals:
1. Simplified Accounting: No need to maintain detailed accounts and records.
2. Estimated Income: Tax is calculated on an estimated income, rather than actual profits.
3. Reduced Compliance: No requirement to get accounts audited.
4. Lower Tax Liability: Tax is calculated at a prescribed rate.
5. Exemption from Tax Audit: No requirement to get tax audit done.
6. Easy Calculation: Profit is calculated on a fixed percentage of gross receipts.
1. Simplified Accounting: No need to maintain detailed accounts and records.
2. Estimated Income: Tax is calculated on an estimated income, rather than actual profits.
3. Reduced Compliance: No requirement to get accounts audited.
4. Lower Tax Liability: Tax is calculated at a prescribed rate.
5. Exemption from Tax Audit: No requirement to get tax audit done.
6. Easy Calculation: Profit is calculated on a fixed percentage of gross receipts.
No, you cannot obtain two Director Identification Numbers (DIN) for two companies. DIN is a unique identifier assigned to an individual who is a director or proposed to be a director of a company. If you want to be a director in two companies then you can use the same DIN for both companies.
Yes, it is mandatory to maintain records of all financial transactions for your business. The Companies Act, 2013 and the Income Tax Act, 1961, require businesses to maintain accurate and complete financial records and it should be accurate; up-to-date; easily accessible for inspection by authorities and must be retained for a minimum of 8 years.
Maintaining financial records helps:
1. Track business performance: Accurate records can help you track your business performance, identify opportunities and problems and compare your business to others.
2. Prepare financial statements: Accurate records are needed to prepare financial statements, such as income statements and balance sheets. These statements can help you manage your business and deal with creditors and banks.
3. File tax returns: Accurate records can help you comply with tax laws and avoid penalties.
4. Detect and prevent fraud: Accurate records can help prevent and detect fraud and theft.
Failure to maintain proper financial records can result in penalties, fines, and legal issues.
Maintaining financial records helps:
1. Track business performance: Accurate records can help you track your business performance, identify opportunities and problems and compare your business to others.
2. Prepare financial statements: Accurate records are needed to prepare financial statements, such as income statements and balance sheets. These statements can help you manage your business and deal with creditors and banks.
3. File tax returns: Accurate records can help you comply with tax laws and avoid penalties.
4. Detect and prevent fraud: Accurate records can help prevent and detect fraud and theft.
Failure to maintain proper financial records can result in penalties, fines, and legal issues.
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