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1 BACKGROUNDERFAQsonSection 8 Companies(The Companies Act, 2013 Series)AUGUST 2016 PRICE : Rs. 200/- THE INSTITUTE OF COMPANY SECRETARIES OF INDIAAll rights reserved. No part of this publication may be translated orcopied in any form or by any means without the prior written permissionof The Institute of Company Secretaries of due care and diligence have been taken in the publicationof this book, the Institute shall not be responsible for any loss ordamage, resulting from any action taken on the basis of thecontents of this book. Any one wishing to act on the basis of thematerial contained herein should do so after cross checking withthe original by :THE INSTITUTE OF COMPANY SECRETARIES OF INDIAICSI House, 22, Institutional Area, Lodi Road, New Delhi - 110 003 Phones : 4534 1000, 4150 4444; Fax : 24626727 Website : ; E-mail : : 978-9382207498 Printed at : Chandu Press/500/August 2016(ii)PREFACEThe concept of such companies was introduced in Companies Act 1913that permitted companies with charitable objects etc.

2 To be registeredwithout the words Limited or Private Limited . Section 25 of CompaniesAct, 1956 was then introduced for such companies based on EnglishCompanies Act 1948. The Companies Act, 2013 continues with theprovision for such companies and provides for a framework for the sameunder Section 8 of the Companies Act, 2013. Considering the fact thatsection 8 companies are distinct when compared to other commercialentities and certain aspects need clarification from time to time. TheCentral government has also brought out certain exemptions to Section8 Companies under Section 462 of Companies Act 2013 vide notificationdated June 05, 2015. Still there are doubts in the minds of corporate andpractitioners with respect to aspects including eligibility, boardcomposition, board committees, board process, e-voting requirements,CSR provisions, General Meeting provisions and so booklet titled Frequently Asked Questions on Section 8 Companies attempts to clarify certain questions with respect to the Complianceroutine of section 8 commend the dedicated efforts put in by CS Lakshmi Arun, Joint Directorand CS Deepa Khatri, Deputy Director in writing the manuscript of thispublication under the guidance of CS Alka Kapoor, Joint Secretary,Directorate of Corporate Laws and Governance, appreciate and acknowledge the efforts of CS Vineet Chaudhary, CentralCouncil Member and Chairman, Corporate Laws and GovernanceCommittee, ICSI and CS Amit Gupta, Regional Council Member.

3 NIRC ofICSI and Practising Company Secretary, Mr V Sreedharan, Practisingcompany Secretary and Past Council Member for their inputs and guidancein the preparation of manuscripts and in reviewing the am confident that the publication will prove to be of immense benefit tocompanies and any publication, there is always scope for further improvement. I wouldpersonally be grateful to users and readers for offering their suggestions/comments for further : New Delhi(CS Mamta Binani)Date :05 August, 2016 President(iii)C O N T E N T Page and Licensing to Section 8 Companies of Social and Winding and Benefits under the Companies Actand Other of Section 8 of Companies Act, (Incorporation) Rules, 2014 -Relevant available to Section 8 wise Stamp duy rates66 faqs on Section 8 Companies1 History of Company with Charitable purposeThe concept of Section 8 companies was introduced in CompaniesAct 1913 that permitted companies with charitable objects etc.

4 Tobe registered without the words Limited or Private Limited .The restriction was that the Companies were permitted to use theprofits only for the purpose for which the company was promotedand there was a prohibition on distribution of by Bhabha CommitteeBased on the recommendation of the Bhabha Committee,Companies Act of 1956 was passed. The Companies Act of 1956came into force from 1st April, 1956 and was largely based on theEnglish Companies Act of 25 of Companies Act, 1956 was introduced for suchcompanies based on English Companies Act 1948. Bhaba committeealso recommended to permit partnership firms (though not a legalentity) to be members of section 25 companies and provided forcession of membership of a partnership firm in a section 25companies on the dissolution of the Act, 2013 The Companies Act, 2013 continues with the provision for suchcompanies and provides for a framework for the same under Section8 of the Companies Act, 8 continues to provide for restriction on application of profitsand permits the same only for the purpose for which the companyis promoted, prohibits declaration of dividend, continues to permitpartnership firms to be a member of section 8 companies etc.

5 20131 IntroductionFAQs on Section 8 Companies2 Act elaborates on the objects for such companies and specifiesobjects like sports, education, research, social welfare and protectionof environment for which the Companies can be formed under of NPOsIn India, there are mainly the following types of non-profitorganizations Section 8 Companies (earlier Section 25): Societies registered under section 20 of the SocietiesRegistration Act 1860. Trusts formed under Indian Trusts Act 1882 Constitutional Framework of NPOsUnder Schedule VII of the Indian Constitution, the subject Trustand Trustees finds mention at Entry in the Concurrent Listand Charities & Charitable Institutions, Charitable and religiousendowments and religious institutions find place at Entry ofthe Concurrent list. Therefore both the Centre and the States arecompetent to legislate and regulate charitable Section 8 companies are regulated through the CompaniesAct, 2013, accordingly the registration and administration of thesecompanies is regulated only by the Central this BookThis booklet focuses on faqs with respect to Section 8 companiesconsidering that section 8 companies are distinct when comparedto other commercial entities and certain aspects need clarificationfrom time to time.

6 These faqs are only views of the Institute on thedate of issue of these faqs and are only to assist the companiesand personnel. These faqs do not in any manner substitute theapplicable statutory requirements which must always prevail andmust be understood and fully complied with by the Companies andrespective personnel. These views are neither legally binding norhave statutory force, faqs are prepared under the following broad heads (only forease of reference). and Licensing to Section 8 Companies and vice versaFAQs on Section 8 of Social and winding and Benefits under the Companies Act and Other ** faqs on Section 8 can apply for registration of a Section 8 Company?Any person or an association of persons intending to registera limited liability company for objects specified below canopt to apply for registration of Section 8 following have to be proved to the satisfaction of theCentral Government that:(a)its objects includes promotion of commerce, art, science,sports, education, research, social welfare, religion,charity, protection of environment or any such otherobject;(b)the company after incorporation intends to apply itsprofits, if any, or other income in promoting such objectsonly; and(c)the company intends to prohibit the payment of anydividend to its is authorized to issue license to Section 8 Companies?

7 Registrars of Companies of respective jurisdictions aredelegated with the powers of Central government to issuelicense to Section 8 Companies. [vide MCA notification dated21st May, 2014 Annexure D]. is the meaning of persons or association of personsas mentioned in Section 8?The term person is not defined under the Companies Act, 2(41) of the General Clauses Act, 1897 provides that person shall include any Company, or association or body1 Eligibility and Licensing Provisions4 faqs on Section 8 Companies5of individuals, whether incorporated or not. Therefore sucha person can be natural or a legal is also relevant to note that by virtue of provisions ofsection 8(3), even a partnership firm can be a member ofSection 8 is the procedure for incorporation of a Section 8 Company?To incorporate a Section 8 Company, an application shall bemade to the Registrar of Companies in Form no.

8 ,which shall be accompanied, inter alia, by the Memorandum of Association (MOA) and Articles ofassociation (AOA) of the Company in prescribed format(Form no. INC 13) where the photographs of subscribersare Declaration is to be attached in Form no. INC-14 (onthe stamp paper, duly notarized) by an Advocate, aChartered Accountant, Cost Accountant or CompanySecretary in practice, that the draft memorandum andarticles of association have been drawn up in conformitywith the provisions of section 8 and rules made thereunder and all the requirements under section 8 have beencomplied estimate of the future annual income and expenditureof the company for next three years, specifying thesources of the income and the objects of the declaration (in Form no. INC-15) on stamp paper dulynotarized by each of the persons making the no. INC-9 from each subscribers and first directors,on appropriate stamp paper of the State and a Company with unlimited liabilities be registered asa Section 8 Company?

9 No. Rule 20(1) of the Companies (Incorporation) Rules, 2014 faqs on Section 8 Companies6provides that only a limited company registered under thisAct or under any previous company law shall make anapplication to the Registrar for issue of license. Therefore, acompany with unlimited liabilities cannot be registered as aSection 8 it necessary that Section 8 Companies are to beincorporated as a limited company with share capital?Section 8 Company may be incorporated as a companylimited by shares or by Guarantee (with or without sharecapital). it mandatory that the name of section 8 Company shallinclude the words like Foundation, forum, association,federation, chamber, confederation, Council, electoral As per rule 8(7) of the Companies (Incorporation) Rules,2014, for the Companies under Section 8 of the Act, the nameshall include the words foundation, Forum, Association,Federation, Chambers, Confederation, council, Electoral trustand the like a Section 8 Company can have objects incidentaland ancillary to the attainment of the main objects?

10 Rule 19(2) of the Companies (Incorporation) Rules, 2014provides that the memorandum of association of the Section8 Company shall be in Form Review of Form INC13 clarifies that a memorandum of association of a Section 8 Company may inter-alia provide for the doing of all such otherlawful things as considered necessary for the furtherance ofthe objects for which the company has been an Articles of Association of a Section 8 Companycan have entrenchment clause?Yes, an Articles of Association of a Section 8 Company can haveentrenchment clause in terms of provisions of section 5(3). there any relaxation in stamp dut y payment inincorporation of a Section 8 Company?Stamp duty on memorandum & articles of association of aFAQs on Section 8 Companies7 Company or on any increase in share capital is governed byIndian Stamp Act, 1899 as adopted by respective state orstamp act of respective state, as the case may be.