Section 8 Company -Features & Exemptions

What is Section 8 Company?

It is a company registered under Section 8 of the Companies Act, 2013 for the purpose of promoting art, commerce, science, education, research, sports, social welfare, charity, protection of environment, religion or any such other object, provided the profits, if any, or other income is applied for promoting only the objects of the company.

Such a company is a non-profit body and is akin to an NGO. In some respects, they are similar to a Trust or Society, except that such companies are incorporated under the Companies Act, whereas a Trust or Society is registered under the regulations of the respective State Government where it is located.

What are the features of a Section 8 Company?

Certain features of a Section 8 company can be summarized as under:

1. It is formed for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
2. The profits, if any, are applied in promoting its objects;
3. It prohibits the payment of dividends to its members.
4. The name of the Company can be incorporated without using the word “Limited” or “Private Limited” as the case may be.
5. There is no requirement of any minimum paid-up capital.
6. It is exempted from stamp duty registration.
7. Many privileges and exemptions are available to such a company. Section 8 companies have been granted total/partial exemptions from various sections of the Companies Act, 2013 vide Notification No. F. No. 1/2/2014-CL. I dated June 5, 2015.
8. A One Person Company cannot function as a Section 8 Company.
9. Section 8 company has its independent corporate legal entity, similar to a private company, public company or a Limited Liability Partnership and hence enjoys credibility in the eyes of the public.

What are the exemptions available to Section 8 Company?

By Notification No. F. No. 1/2/2014-CL.I dated June 5, 2015, the Central Government has granted various exemptions, either in full or in part from the provisions of the Companies Act, 2013. The key exemptions are summarized below:

(a) Company Secretaries no longer mandatory

Section 8 companies are no longer required to appoint a company secretary to ensure compliance with the provisions of the Companies Act 2013. This exemption will result in a cost reduction for section 8 companies.

(b) No need for minimum share capital

In line with the relaxation announced for private limited companies, section 8 companies also are no longer required to maintain a minimum share capital.

(c) The shorter notice period for AGMs

By an amendment to section 101, it is proposed that only 14 days’ notice shall be required to convene an annual general meeting of a section 8 company. This is in contrast to the earlier limit of 21 days. Provisions that pertain to the sharing of financials and other associated documents before the meetings have also been amended to reflect such new timelines.

(d) No necessity to record minutes of meetings, unless required, etc.

Section 118 which requires recording of minutes of proceedings of general meetings, board meetings and other resolutions including those passed by way of postal ballot, shall now no longer apply to non-profit enterprises. However, the minutes of meetings may be recorded within 30 days of the conclusion of the meeting in cases where the company’s articles provide for confirmation by way of circulation of minutes.

(e) Despatch of financial statements and other documents {Section 136(1)}

Instead of twenty-one days prescribed under the section, Section 8 companies are allowed to despatch the said documents not less than fourteen days before the date of the meeting.

(f) Only two directors required

Section 149(1) shall no longer apply to section 8 companies; implying that such companies shall not be required to have a minimum number of directors on its board. However, the quorum for board meetings has been fixed at 2.

(g) Independent Directors not required

Clauses requiring and governing the appointment of independent directors have been waived and section 8 company is not required to appoint independent directors.

(h) exemption regarding the first meeting and board meetings

Further, section 8 companies shall no longer be required to hold the first meeting of the board within 30 days of incorporation of the company. A meeting of the directors shall however still be required once every six months.

(i) Right of persons other than retiring directors to stand for directorship (Section 160)

This right shall no longer be enforceable in section 8 companies, similar to an exemption provided to private limited companies. However, this exemption shall not apply to companies whose articles provide for the election of directors by ballot.

(j) Directorship in more than 20 companies

The bar on taking up the directorship in more than twenty companies (section 165) has been relaxed in the case of section 8 companies. Therefore an individual, if he is eligible, can be a director in more than 20 section 8 companies.

(k) Meetings of the Board (section 173)

The Board of Directors of a section 8 company may hold at least one meeting within six calendar months.

(l) Relaxation in the formation of certain Committees referred to in Section 178 of the Act

Section 8 companies shall not be required to form the Nomination and Remuneration Committee and the Stakeholders Relationship Committee as provided in Section 178 of the Act, as the section has been exempted from compliance for such companies.

(m) Certain decisions by circulation instead of at a meeting

By modification to Section 179, the board has been empowered to take decisions pertaining to borrowing, investments and granting of loans and advances by way of circulation as compared to taking such decisions by calling a meeting of the board.

(n) Disclosure of interest in related party transactions in some cases only {section 184(2) and section 189}

A director shall be required to disclose his interest in any firm with which the company is making a transactions, and the company shall be required to maintain a register of all such transactions in which its director are interested only and only if with reference to section 188 ( related party transactions), the contract or arrangement exceeds one lakh rupees in value.

Bibliography

SBEC, ICSI.