There are three ways of registering a Non Profit Organizations or Non Governmental Organizations- Society, Trust and Section 8 Company. Trusts and Societies do not have central laws as its laws are restricted within that state only where it is established.
Section 8 Company (earlier known as Section 25 Company) is a legal form of Non Profit Organizations or Non Governmental Organizations registered under Section 8 of the Companies Act, 2013 and has its objective of promotion of arts, science, commerce, education, sports, research, religion, social welfare, charity or any other similar object. Income earned by the Company is applied only for promoting the objects of the Company and it cannot be distributed to promoters. It shall enjoy all the privileges of limited Company subject to the obligations.
Main requirements and privileges for incorporating a section 8 company are as follows:
- There should be minimum two Shareholders;
- There should be minimum two Directors;
- Atleast one of the Director should be resident in India;
- No requirement of Minimum capital is there, it can be formed with or without share capital;
- It shall obtained license from Central Government for registration of persons as a Limited Company. Further, power of Central Government is delegated to the Registrar of Companies having jurisdiction over the place where the registered office of the Company is proposed to be situated.
- These Companies are not required to add Limited or Private Limited as the case may be at the end of their names. Instead, it shall use the words Foundation, Forum, Association, Federation, Chambers, Confederation, council, Electoral trust etc.
- It takes 30-40 days to incorporate a Section 8 Company. The time can be reduced if license is issued and other forms are approved earlier by respected Registrar of Companies.
Section 8 Company is identical to trust or society but it has certain advantages over trust or society like legal recognition, better standing and higher credibility. Other advantages of Section 8 Company are as follows:
- Limited Liability
- Separate legal entity
- Perpetual Succession
- Lesser Compliances as compared to other entities
- Easy to transfer shares
- Various tax benefits
PROCEDURE FOR INCORPORATING SECTION 8 COMPANY IS AS FOLLOWS:
- Obtain the below mentioned documents and information:
- Name of the Proposed Company along with its business activity in brief.
- PAN, Identity Proof and Address Proof of all the Directors and Shareholder of the proposed Company.
- Photo, Email Id and Mobile Number of all the Directors of the proposed Company.
- Complete address of Registered Office including Latest Electricity Bill for the same and rent agreement if premises are rented.
(Note: Voter ID/Aadhaar Card/Passport/Driving Licence could be considered as Identity Proof and Latest Bank Statement/Electricity bill/Mobile Bill/Telephone Bill could be considered as Address Proof)
- Initiate the process of obtaining Digital Signature Certificate of proposed Directors;
- An application has to be filed to respected ROC under RUN for name approval;
- Reserved name shall be valid for 20 days. After obtaining name approval, an application in E-Form INC-12 has to be filed to respected ROC for license approval of Section 8 Company i.e. to run a charitable organization;
- After obtaining license, an application has to be filed in Spice forms (INC-32, INC-33 and INC-34) for final approval of ROC for incorporating the Company stating the Details of Directors, Shareholding Pattern, Objects of the Company along with necessary attachments including PAN, ID and Address Proof of all the Directors and shareholders.
- Once the ROC gets satisfied about all the above formalities, a Certificate of Incorporation will be issued to the Company.
Hence, from the above it is concluded that Section 8 Company is the most reliable source of establishing a Non-Profit Organization because of Central recognition and better laws as mentioned.