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School Management

Benefits of a Section 8 Company (2022)

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If charity and social service is what you want to do, your company must fall under Section 8 of the Companies Act 2013. These companies are primarily established for charitable purposes with no minimum share capital. Here are some more details about this to help you arrive at a decision easily.

What is Section 8 Company?

A Section 8 company is established with the aim to promote education, art, commerce and entertainment. It is a non-profit organisation that contributes to the development of humans in different walks of life.

What are the features of a Section 8 Company? 

  1. Established for social welfare: These companies are solely for the purpose of social welfare. It is developed to look into the needs of the people of a community.
  2. No minimal capital: They don’t require minimal capital as others do. It can be decided by its shareholders. There are no limitations on capital.
  3. Authorised by the government: They have the sanction of the government for all their processes and transactions. 
  4. Donations: Their primary source of income is donations received from the public and different organisations.
  5. Profit is used for the cause: Unlike in other companies, the amount acquired is not distributed among the members of the organisation but is used solely for its cause.
  6. Suffixes are optional: They can choose to use or omit suffixes like ‘pvt ltd’.
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Here are some of the advantages and disadvantages of a Section 8 company for a better understanding.

Advantages

  1. Tax exemption: They have a 30% tax exemption because of being non-profit organisations.
  2. No stamp duty: They don’t have to pay any stamp duty on the Memorandum of Association.
  3. Easy ownership transfer: The process of transferring ownership is simple.
  4. Less share capital: When compared to public and private entities, they need less share capital.
  5. Separate entity status: They will be independent of their members.

Disadvantages

  1. No share in profit: The profit isn’t shared among the members. It is used for the organisation.
  2. Government approval: Amendments in the Memorandum of Association require prior government approval.
  3. Zero independence: Rules set by the Central government have to be followed.
  4. Restricted usage of funds: Funds can be used only for the specified purpose of the organisation.
  5. Licence can be revoked: The Central government has the power to revoke a company’s licence at any time. 

Now you know everything you need to know about a Section 8 company. If charity is on your mind, then it is the thing for you, but if you are looking for more options, check out our blog on trusts and societies.

Kruti Beesam

Kruti enjoys blogging and listening to music. She actively tries to sensitise people toward disabilities and create awareness about the need for wheelchair-friendly infrastructure. As a foodie, Kruti looks forward to meeting new people and sharing a good meal.

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