Section 8 Company

A Section 8 Company is a type of company registered under the Companies Act, 2013 that is formed for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, or protection of the environment. It must apply its profits (if any) toward its objectives and cannot distribute dividends to its members.

What Is a Section 8 Company?

Section 8 of the Companies Act, 2013 (which replaced Section 25 of the Companies Act, 1956) allows non-profit organisations to be registered as companies. Despite being a company, a Section 8 company cannot pay dividends and must use all surplus for its stated charitable or social objectives.

Key characteristics:
– Can be a private or public company
– Profits and income must be applied solely toward the stated objectives
– Members cannot receive dividends
– MCA can revoke the Section 8 licence if objectives are not met

Section 8 vs Trust vs Society

| Feature | Section 8 Company | Trust | Society |
|———|——————|——-|———|
| Governing law | Companies Act, 2013 | Indian Trusts Act / State Trust Acts | Societies Registration Act, 1860 |
| Regulatory body | MCA | State charity commissioner | State registrar of societies |
| Compliance | Higher | Moderate | Moderate |
| Foreign funding | FCRA required | FCRA required | FCRA required |
| Credibility | High | Moderate | Moderate |

Tax Benefits

Section 8 companies can apply for exemptions under the Income Tax Act:
– Section 12A: registration for exemption from income tax
– Section 80G: donations made by individuals to the company are deductible (if the company obtains 80G certificate)

Practical Example

An educational NGO decides to register as a Section 8 Company for better credibility and governance. It obtains MCA registration and Section 12A and 80G approvals. Now donors can contribute to the NGO with tax benefits, and the NGO files annual returns with MCA, building institutional trust.

Key Takeaways

– Section 8 Companies are non-profit entities registered under Companies Act, 2013 for charitable or social purposes
– Cannot distribute profits as dividends; all surplus must be applied toward stated objectives
– More regulated than trusts or societies but carry higher institutional credibility
– Section 12A and 80G registrations enable tax exemption and donor deductions
– Commonly used by large NGOs, educational institutions, and foundations seeking corporate governance