Amended and updated notes on section 8 of Companies Act 2013. Detail discussion on provisions and rules related to formation of companies with charitable objects, etc.
Chapter II (Sections 3–22) of the Companies Act, 2013 (CA 2013) deals with the provisions related to incorporation of company and matters incidental thereto. Section 8 of CA 2013 provides for formation of companies with charitable objects, etc.
Recently, we have discussed in detail section 7 (Incorporation of company) of CA 2013. Today, we learn the provisions of section 8 of Companies Act 2013 read with the Companies (Incorporation) Rules, 2014.
Section 8 of the Companies Act, 2013 has been notified by the Ministry of Corporate Affairs (MCA) vide Notification No. S.O. 902(E) issued dated 27.03.2014. This notification was come into force from 1st April, 2014 i.e. the commencement date of section 8 is 1-4-2014.
Submit application in Form INC-32 (SPICe) to get license of a new company under section 8(1) and in Form No. INC-12 for Grant of License u/s 8(5) for existing companies with charitable objects etc. Notes on Section 8 of the Companies Act, 2013 has been amended by the Companies (Incorporation) Sixth Amendment Rules, 2019 dated 7th June, 2019.
A firm may be a member of the company registered for charitable objects. Section 8 licensed company shall change or alter MOA or AOA only after previous approval of CG. A section 8 company can call its general meeting by giving a clear at least 14 days notice. SPICe full form is Simplified Proforma for Incorporating Company Electronically.
One Person Company cannot be incorporated or converted into Section 8 company and vice versa. A member of a company registered under section 8 shall not be entitled to appoint any other person as his proxy unless such other person is also a member of such company. The Board of a company may decide to undertake its CSR activities approved by the CSR Committee, through a company established under section 8.
| Name of Act | The Companies Act 2013 |
|---|---|
| Enacted by | Parliament of India |
| Administered by | Ministry of Corporate Affairs (MCA) |
| Number of Chapters | 29 |
| Number of Sections | 484 (470-43+57) |
| Number of Schedules | 7 |
| You are reading: | |
| Chapter No. | II |
| Chapter Name | Incorporation of Company and matters incidental thereto |
| Section No. | 8 |
| Section Name | Formation of companies with charitable objects, etc. |
| Monthly Updated Edition | Company Law PDF |
Updated Notes on Section 8 Company
Application for Grant of license:
A person or AOP shall make an application in Form INC-32 (SPICe) to the Registrar for a license under sub-section (1) of section 8. An existing company shall make an application in Form INC-12 to the Registrar for a license under sub-section (5) of section 8.
Objects and Conditions:
The proposed or existing company must fulfil the following criteria to be eligible for incorporation without the addition to its name of the word “Limited”, or “Private Limited”: –
- Objects of Company: The proposed/ existing company shall have the objects to promote:
- Commerce;
- Art;
- Science;
- Sports;
- Education;
- Research;
- Social welfare;
- Religion;
- Charity;
- Protection of environment.
- Promote Objects: The proposed/ existing company shall apply its profits or other income in promoting its objects; and
- Dividend: The proposed/ existing company intends to prohibit the payment of any dividend to its members.
The proposed name of a section 8 company does not include the words Foundation, Forum, Association, Federation, Chambers, Confederation, Council, Electoral Trust and the like, etc.
An organisation may be recognised as a registered valuers organisation for valuation of a specific asset class or asset classes if it has been registered under section 8 of the Companies Act, 2013 with the sole object of dealing with matters relating to regulation of valuers of an asset class or asset classes.
Application by New Company:
Provisions of section 8(1) read with Rule 19 of the Companies (Incorporation) Rules, 2014. Application in Form INC-32 (SPICe) shall be made along with fee (₹2,000) and accompanied by the following documents: –
- Form INC-13: The Memorandum (MOA) in Form No. INC-13 and Articles of Association (AOA) of the proposed company in Form No. INC-31;
- Form INC-14: The declaration in Form No. INC-14 by an Advocate, a Chartered Accountant, Cost Accountant or Company Secretary in practice;
- Form INC-15: The declaration in Form No. INC-15 by each of the persons making the application.
- Future Income: An estimate of the future annual income (including its source) and expenditure (including its objects) of the company for next 3 years;
The application for allotment of Director Identification Number (DIN) upto 3 Directors, reservation of a name, incorporation of company and appointment of Directors shall be filed in FORM No. INC-32 (SPICe), with the Registrar, within whose jurisdiction the registered office of the company is proposed to be situated along with the fee of ₹500 in addition to the registration fee as specified in the Companies (Registration of Offices and Fees) Rules, 2014.
Application by Existing Company:
Provisions of section 8(5) read with Rule 20 of the Companies (Incorporation) Rules, 2014. Application in Form INC-12 shall be made along with fee (₹2,000) and accompanied by the following documents: –
- Form INC-13: The Memorandum (MOA) in Form No. INC-13 and Articles of Association (AOA) of the proposed company in Form No. INC-31;
- Form INC-14: The declaration in Form No. INC-14 by an Advocate, a Chartered Accountant, Cost Accountant or Company Secretary in practice;
- Form INC-15: The declaration in Form No. INC-15 by each of the persons making the application;
- Future Income: An estimate of the future annual income (including its source) and expenditure (including its objects) of the company for next 3 years;
- Assets & Liabilities: A statement showing assets and liabilities as on the date of the application or within thirty days preceding that date;
- Financial Statement, Audit and Board Report: For each of the 2 FY immediately preceding the date of the application, or when the company has functioned only for one financial year, for such year:
- the financial statements,
- the Board’s reports, and
- the audit reports;
- Resolution: The certified copy of the resolutions passed in general/ board meetings approving registration of the company under section 8.
After making application in Form INC-12, the company shall:
- Publish a notice at his own expense; and
- A copy of such notice shall be sent to the Registrar in Form No. INC-26; and
- Notice shall be published-
- at least once in a vernacular newspaper in the principal vernacular language of the district in which the registered office of the proposed company is to be situated or is situated, and circulating in that district, and at least once in English language in an English newspaper circulating in that district; and
- on the websites as may be notified by the Central Government.
Issue of License:
Registrar shall issue licence in either Form No. INC-16 [Section 8(1)] or Form No. INC-17 [Section 8(5)]. Note that Registrar can include any other conditions in the licence and may direct the company to insert the same in its memorandum or articles.
License Cancellation:
The license of Section 8 company shall be revoked by an order of CG if the company:
- Contravenes any of the requirements of section 8: or
- Contravenes any of the conditions subject to which a licence is issued: or
- The affairs of the company are conducted
- fraudulently; or
- in a manner violative of the objects of the company; or
- prejudicial to public interest.
Thereafter, CG direct the company to convert its status and change its name to add the word “Limited” or the words “Private Limited”. Then, the company shall make an application in Form No. INC-20 to the Registrar to convert its status and change of name accordingly.
Winding Up and Amalgamation:
After license cancellation, the CG may make an order in the public interest to direct that the company be wound up or amalgamated with another company registered under section 8 and having similar objects. However, the CG shall give a reasonable opportunity of being heard before making such order.
- In case of amalgamation with another company: The CG will provide for such amalgamation to form a single company with such constitution, properties, powers, rights, interest, authorities and privileges and with such liabilities, duties and obligations as may be specified in the order.
- In case of winding up: After the satisfaction of debts and liabilities, the remaining assets may be:
- Transferred to another company registered under section 8 and having similar objects, subject to such conditions as the Tribunal (NCLT) may impose; or
- Sold and proceeds thereof credited to Insolvency and Bankruptcy Fund (IBF) formed under section 224 of the Insolvency and Bankruptcy Code (IBC), 2016.
Fine and Jail:
If a company makes any default in complying with any of the requirements laid down in section 8:
- the company shall be punishable with Minimum fine of ₹10 Lakhs and Maximum fine of ₹1 Crore; and
- the directors and every officer who is in default shall be punishable with
- Imprisonment up to 3 years; or
- Minimum fine of ₹25,000 and maximum fine of ₹25 Lakhs; or
- Both.
However, if it is proved that the affairs of the company were conducted fraudulently, every officer in default shall be liable for action under section 447 (Punishment for fraud) of the Companies Act, 2013.
According to the provisions of section 447, any person who is found to be guilty of fraud involving an amount of at least ₹10 lakh or 1% of the turnover of the company, whichever is lower, shall be punishable with imprisonment 6 Months to 10 Years; and fine is amount involved in the fraud to 3 times the amount involved in the fraud.
For more info you may refer Rules 19, 20, 21, 22 and 23 of the Companies (Incorporation) Rules, 2014.
Conditions for conversion of Section 8 Company into a company of any other kind
As per Rule 21 of the Companies (Incorporation) Rules, 2014, the following are the specified conditions for conversions of a company registered under section 8 to any other kind of company:
- Special Resolution: Pass a Special Resolution at a general meeting for approving such conversion.
- Explanatory Statement: The explanatory statement annexed to the notice convening the GM shall set out in detail the reasons for opting for such conversion including the following, namely: –
- Incorporation Date: The date of incorporation of the company;
- Principal Object: The principal objects of the company;
- Reasons for Conversion: The reasons as to why the activities for achieving the objects of the company cannot be carried on as a section 8 company;
- Altered Objects: The altered objects (if any) and the reasons for the alteration;
- Privileges or Concessions: What are the privileges or concessions currently enjoyed by the company, such as:
- Tax exemptions,
- Approvals for receiving donations or contributions including foreign contributions,
- Land and other immovable properties, if any, that were acquired by the company at concessional rates or prices or gratuitously and, if so, the market prices prevalent at the time of acquisition and the price that was paid by the company,
- Details of any donations or bequests received by the company with conditions attached to their utilization etc.
- Impact of Conversion: Details of impact of the proposed conversion on the members of the company.
- Form MGT-14 to Registrar: A certified true copy of the special resolution along with a copy of the Notice convening the meeting including the explanatory statement shall be filed with the Registrar in Form No. MGT-14 along with the fee.
- Form INC-18 to Regional Director: The company shall file an application in Form No. INC-18 with the Regional Director with the fee along with a certified true copy of the SR in GM and a copy of the Notice convening the meeting including the explanatory statement for approval for converting itself into a company of any other kind and the company shall also attach the proof of serving of the notice served to all the authorities mentioned in sub-rule (2) of rule 22.
- A copy of the application with annexures as filed with the Regional Director shall also be filed with the Registrar.
Other conditions for Section 8 Companies seeking conversion into any other kind
As per Rule 22 of the Companies (Incorporation) Rules, 2014, the following are the specified conditions for conversions of a company registered under section 8 to any other kind of company:
- Notice Publication: Within a week of submitting the application to the Regional Director in Form INC-18, the company shall:
- Publish a notice at his own expense; and
- A copy of such notice shall be sent to the Regional Director in Form No. INC-19; and
- Notice shall be published-
- at least once in a vernacular newspaper of the district in which the registered office of the company is situated, and a wide circulation in that district, and at least once in an English newspaper having a wide circulation in that district; and
- on the website of the company, if any, and as may be notified by the Central Government.
- Notice Circulation: The company shall send a copy of the notice, simultaneously with its publication, together with a copy of the application and all attachments by registered post or hand delivery,
- to the Chief Commissioner of Income Tax having jurisdiction over the company,
- Income Tax Officer who has jurisdiction over the company,
- the Charity Commissioner,
- the Chief Secretary of the State in which the registered office of the company is situated,
- any organisation or Department of the Central Government or State Government or other authority under whose jurisdiction the company has been operating.
If any of these authorities wish to make any representation to Regional Director, it shall do so within 60 days of the receipt of the notice, after giving an opportunity to the Company. The copy of proof of serving such notice shall be attached to the application.
- Declaration by Directors: The BOD give a declaration that no portion of the income or property of the company paid or transferred directly or indirectly by way of dividend or bonus or otherwise to persons who are or have been members of the company or to any one or more of them or to any persons claiming through any one or more of them.
- Special Status: Where the company has obtained any special status, privilege, exemption, benefit or grant(s) from any authority such as:
- Income Tax Department,
- Charity Commissioner or any organisation or Department of
- Central Government,
- State Government,
- Municipal Body or any recognized authority,
a “No Objection Certificate” must be obtained, if required under the terms of the said special status, privilege, exemption, benefit or grant(s) from the concerned authority and filed with the Regional Director, along with the application.
- Filing of Documents: The company should have filed all its financial statements and Annual Returns upto the financial year preceding the submission of the application to the Regional Director and all other returns required to be filed under the Act up to the date of submitting the application to the Regional Director and in the event the application is made after the expiry of three months from the date of preceding financial year to which the financial statement has been filed, a statement of the financial position duly certified by chartered accountant made up to a date not preceding thirty days of filing the application shall be attached.
- Certificate from CA/CS/CMA: The company shall attach with the application a certificate from practicing Chartered Accountant or Company Secretary in practice or Cost Accountant in practice certifying that the conditions laid down in the Act and these rules relating to conversion of a company registered under section 8 into any other kind of company, have been complied with.
- Furnish Approval: The Regional Director may require the applicant to furnish the approval or concurrence of any particular authority for grant of his approval for the conversion and he may also obtain the report from the Registrar
- Other Conditions: On receipt of the application, and on being satisfied, the Regional Director shall issue an order approving the conversion of the company into a company of any other kind subject to such terms and conditions as may be imposed in the facts and circumstances of each case including the following conditions, namely; –
- the company shall give up and shall not claim, with effect from the date its conversion takes effect, any special status, exemptions or privileges that it enjoyed by virtue of having been registered under the provisions of section 8;
- if the company had acquired any immovable property free of cost or at a concessional cost from any government or authority, it may be required to pay the difference between the cost at which it acquired such property and the market price of such property at the time of conversion either to the government or to the authority that provided the immovable property;
- any accumulated profit or unutilised income of the company brought forward from previous years shall be first utilized to settle all outstanding statutory dues, amounts due to lenders claims of creditors, suppliers, service providers and others including employees and lastly any loans advanced by the promoters or members or any other amounts due to them and the balance, if any, shall be transferred to the Investor Education and Protection Fund within thirty days of receiving the approval for conversion;
- Opportunity of being heard: Before imposing the conditions or rejecting the application, the company shall be given a reasonable opportunity of being heard by the Regional Director
- After Approval: On receipt of the approval of the Regional Director,
- the company shall convene a general meeting of its members to pass a special resolution for amending its memorandum of association and articles of association as required under the Act consequent to the conversion of the section 8 company into a company of any other kind;
- the Company shall thereafter file with the Registrar. –
- a certified copy of the approval of the Regional Director within thirty days from the date of receipt of the order in Form No. INC-20 along with the fee;
- amended memorandum of association and articles of association of the company.
- a declaration by the directors that the conditions, if any imposed by the Regional Director have been fully complied with.
- Fresh Certificate of Incorporation: On receipt of the documents referred to in sub rule (10) above, the Registrar shall register the documents and issue the fresh Certificate of Incorporation.
Section 8 of Companies Act 2013: Formation of companies with charitable objects, etc.
Section 8 shall come into force on 1st April, 2014 vide Notification No. S.O. 902(E) issued dated 27.03.2014 except sub-section (9) which shall come into force on 15th December, 2016 vide Notification No. S.O. 3677(E) dated 07-12-2016.
(1) Where it is proved to the satisfaction of the Central Government that a person or an association of persons proposed to be registered under this Act as a limited company—
- (a) has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
- (b) intends to apply its profits, if any, or other income in promoting its objects; and
- (c) intends to prohibit the payment of any dividend to its members,
the Central Government may, by licence issued in such manner as may be prescribed, and on such conditions as it deems fit, allow that person or association of persons to be registered as a limited company under this section without the addition to its name of the word “Limited”, or as the case may be, the words “Private Limited” , and thereupon the Registrar shall, on application, in the prescribed form, register such person or association of persons as a company under this section.
Read Rule 19 of the Companies (Incorporation) Rules, 2014 for License u/s 8 for new companies with charitable objects.
(2) The company registered under this section shall enjoy all the privileges and be subject to all the obligations of limited companies.
(3) A firm may be a member of the company registered under this section.
(4) (i) A company registered under this section shall not alter the provisions of its memorandum or articles except with the previous approval of the Central Government.
(ii) A company registered under this section may convert itself into company of any other kind only after complying with such conditions as may be prescribed.
(5) Where it is proved to the satisfaction of the Central Government that a limited company registered under this Act or under any previous company law has been formed with any of the objects specified in clause (a) of sub-section (1) and with the restrictions and prohibitions as mentioned respectively in clauses (b) and (c) of that sub-section, it may, by licence, allow the company to be registered under this section subject to such conditions as the Central Government deems fit and to change its name by omitting the word “Limited”, or as the case may be, the words “Private Limited” from its name and thereupon the Registrar shall, on application, in the prescribed form, register such company under this section and all the provisions of this section shall apply to that company.
(6) The Central Government may, by order, revoke the licence granted to a company registered under this section if the company contravenes any of the requirements of this section or any of the conditions subject to which a licence is issued or the affairs of the company are conducted fraudulently or in a manner violative of the objects of the company or prejudicial to public interest, and without prejudice to any other action against the company under this Act, direct the company to convert its status and change its name to add the word “Limited” or the words “Private Limited”, as the case may be, to its name and thereupon the Registrar shall, without prejudice to any action that may be taken under sub-section (7), on application, in the prescribed form, register the company accordingly:
Provided that no such order shall be made unless the company is given a reasonable opportunity of being heard:
Provided further that a copy of every such order shall be given to the Registrar.
(7) Where a licence is revoked under sub-section (6), the Central Government may, by order, if it is satisfied that it is essential in the public interest, direct that the company be wound up under this Act or amalgamated with another company registered under this section:
Provided that no such order shall be made unless the company is given a reasonable opportunity of being heard.
(8) Where a licence is revoked under sub-section (6) and where the Central Government is satisfied that it is essential in the public interest that the company registered under this section should be amalgamated with another company registered under this section and having similar objects, then, notwithstanding anything to the contrary contained in this Act, the Central Government may, by order, provide for such amalgamation to form a single company with such constitution, properties, powers, rights, interest, authorities and privileges and with such liabilities, duties and obligations as may be specified in the order.
(9) If on the winding up or dissolution of a company registered under this section, there remains, after the satisfaction of its debts and liabilities, any asset, they may be transferred to another company registered under this section and having similar objects, subject to such conditions as the Tribunal may impose, or may be sold and proceeds thereof credited to Insolvency and Bankruptcy Fund formed under section 224 of the Insolvency and Bankruptcy Code, 2016.
(10) A company registered under this section shall amalgamate only with another company registered under this section and having similar objects.
(11) If a company makes any default in complying with any of the requirements laid down in this section, the company shall, without prejudice to any other action under the provisions of this section, be punishable with fine which shall not be less than ten lakh rupees but which may extend to one crore rupees and the directors and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than twenty-five thousand rupees but which may extend to twenty-five lakh rupees, or with both:
Provided that when it is proved that the affairs of the company were conducted fraudulently, every officer in default shall be liable for action under section 447.