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A simple guide under the Companies Act, 2013
Not every company is built to make money for its owners. Some are created purely to do good — to help people, spread education, protect the environment, or support the arts. In India, such companies are set up under Section 8 of the Companies Act, 2013. These are commonly known as Section 8 Companies and they are among the most trusted ways to run a non-profit organisation in India. This blog explains Section 8 in plain language and shows how to set one up.
What is a Section 8 Company?
A Section 8 Company is a company formed with a charitable or social purpose instead of the goal of earning profit for its members. If the company earns any income, that money must be used to promote its own objectives — it cannot be shared among the members as dividend. In short, it works like a charity or NGO, but with the structure, credibility, and legal recognition of a proper company. This provision replaced the old Section 25 of the Companies Act, 1956, and carries forward the same idea.
Objects Allowed Under Section 8
To register under Section 8, the company must be formed to promote one or more of the following objects:
- Commerce, art, science, sports, and education
- Research, social welfare, and religion
- Charity and protection of the environment
- Any other similar object aimed at public benefit
Section 8 Explained in Simple Words
Section 8 has eleven sub-sections. Here is what each one means, without the legal jargon:
1. Grant of license (Section 8(1)):
If the Central Government is satisfied that a person or group wants to form a company for charitable objects, that it will use its profits only to promote those objects, and that it will not pay any dividend to members, it can grant a special licence. This licence allows the company to be registered without adding “Limited” or “Private Limited” to its name.
2. Same rights and duties (Section 8(2)):
A Section 8 Company enjoys all the privileges of a limited company and must also follow all the obligations that apply to limited companies.
3. A firm can be a member (Section 8(3)):
Even a partnership firm is allowed to become a member of a Section 8 Company.
4. Changes and conversion (Section 8(4)):
The company cannot change its Memorandum (MOA) or Articles (AOA) without the prior approval of the Central Government. It can also convert into another type of company only after meeting the prescribed conditions.
5. Existing companies can join too (Section 8(5)):
A company that is already registered as a limited company can also apply for a Section 8 licence, and then drop the word “Limited” from its name.
6. Licence can be cancelled (Section 8(6)):
The Central Government can revoke the licence if the company breaks the rules, works against public interest, or runs its affairs fraudulently. The company is always given a fair chance to be heard first.
7. Winding up or merger after cancellation (Section 8(7)):
If the licence is revoked, the Government may order the company to be wound up, or merged with another Section 8 Company, when this is in the public interest.
8. Amalgamation (Section 8(8)):
The Government can also direct the company to merge with another Section 8 Company that has similar objects, to form a single organisation.
9. What happens to leftover assets of section 8 companies (Section 8(9)):
When a Section 8 Company closes down, any assets left after paying all debts cannot go to the members. They must be transferred to another Section 8 Company with similar objects, or deposited into the Insolvency and Bankruptcy Fund.
10. Merging only with similar companies (Section 8(10)):
A Section 8 Company can merge only with another Section 8 Company that shares similar objects — not with an ordinary profit-making company.
11. Penalty for default (Section 8(11)):
If the company breaks any rule of this section, it can be fined between ₹10 lakh and ₹1 crore. The directors and officers responsible can be fined between ₹25,000 and ₹25 lakh. If the affairs were carried out fraudulently, the officers can also face action for fraud under Section 447.
Key Features and Conditions of Section 8 Company
- No dividend: Profits are reinvested in the cause, never shared with members.
- No minimum capital: There is no fixed minimum capital required to start.
- Special name: Names usually include words like Foundation, Association, Forum, Council, or Federation instead of “Limited.”
- Limited liability: Members enjoy protection just like in any other company.
- High credibility: The Central Government licence makes it more trusted by donors and authorities.
How to Set Up a Section 8 Company
Setting up a Section 8 Company is done online through the Ministry of Corporate Affairs (MCA) portal. Here are the main steps:
1.Get Digital Signatures (DSC):
Each proposed director must obtain a Digital Signature Certificate to sign the online forms.
2. Apply for name approval:
Reserve a suitable name through the SPICe+ (Part A) form. The name should reflect the charitable purpose of the company.
3.Draft the MOA and AOA:
Prepare the Memorandum in Form INC-13 and the Articles of Association, clearly stating the charitable objects.
4. Prepare declarations:
A practising Chartered Accountant, Company Secretary, Cost Accountant, or Advocate signs Form INC-14, and each applicant signs Form INC-15.
5. Add financial projections:
Attach an estimate of the company’s income and expenditure for the next three years.
6. File for the licence and incorporation:
Submit the SPICe+ (Part B) form along with all documents. Once satisfied, the MCA issues the Section 8 licence and the Certificate of Incorporation.
7. Complete post-incorporation steps:
Apply for PAN and TAN, open a bank account, appoint an auditor within 30 days, and register for 12A and 80G under the Income Tax Act to enjoy tax benefits.
For a private Section 8 Company you need a minimum of two directors and two members, and for a public one, three directors. The same person can be a director as well as a member.
Benefits of a Section 8 Company
- Tax exemptions: Eligible for benefits under Sections 12A and 80G of the Income Tax Act, and donors get deductions too.
- Trust and credibility: A licensed non-profit is viewed more favourably by donors, banks, and government bodies.
- No stamp duty: Section 8 Companies enjoy exemptions on stamp duty during incorporation.
- Separate legal identity: The company can own property, sign contracts, and continue regardless of changes in members.
Conclusion
Section 8 of the Companies Act, 2013 offers a well-structured, credible, and tax-friendly route for anyone who wants to work for a social cause. It combines the trust of a registered company with the heart of a charity. However, the registration process and ongoing compliances — board meetings, annual filings, audits, and income-tax returns — need careful handling to keep the licence safe.
At Mercurius, our team helps you incorporate and manage your Section 8 Company end to end — from name approval and licensing to tax registrations and annual compliance — so you can focus on the cause that matters. Get in touch with us to begin
