Companies Act 2013 Section 8

A company is a legal entity formed by a group of people with the same objective coming together and working towards it. The Companies Act 2013 is an act passed by the Parliament of India which works towards controlling the inclusion, functioning, and formulation of the companies in India. The act makes inclusive provisions for the governing of all listed and unlisted companies. 

Not all companies have the objective of making a profit by providing goods and services. Some companies only have non-profitable and charitable objectives. Such legal entities are known as Section 8 companies because Section 8 of the Companies Act, 2013 recognised them. 

Features of a Section 8 company

To be considered a section 8 company, a company needs to have the following features:

1. Non-profitable and charitable objectives: A section 8 company’s primary objective is charitable and non-profitable. They do not work towards making a profit. They aim to promote causes like art, religion, science, research, sports, etc. 
2. Share capital: A section 8 company does not require an authorised minimum paid share capital, unlike other companies.
3. Limited liability: Companies under this category can not have unlimited liability since they do not earn from other sources. 
4. Necessary government licence: The only way these companies can function is to have a licence from the Central Government. But at any given time, if the company does not follow the rules and regulations, the government can revoke its licence. 
5. Benefits: Since these companies work for charitable purposes, they receive many benefits and dispensations. 
6. Members: Other than people and associations being members of the company, this act allows firms to be members. 

Formation of a Section 8 company 

To form a company with non-profitable objectives under section 8, a person or an association can fill out a requisite form and apply to the Registrar of Companies. After reviewing the form, if the government is satisfied, it will accept the application under the terms and conditions imposed under the licence. Once accepted, the company will be registered under the act by the Registrar of Companies after the applicants pay the fees. 

Since these companies work because of the licence granted to them by the Central Government, they can not alter or make any changes to their memorandum or articles of association without the government’s permission. These companies have to follow every set of rules and regulations in the licence and can not do anything that the licence does not allow them to do. 

Cancellation of the licence

For the companies to work under this act, they require a permit licence from the Central Government which at any given point can be revoked on the following grounds:

1. If the company violates provisions of the act.
2. A breach of the terms of the act.
3. If the company’s objectives are fraudulent or break its policies. 

Dissolving of the company 

A company under the act can be dissolved either voluntarily or by the orders given by the Central Government. Suppose there are assets left behind after the payment of debts and liabilities. In that case, the assets can be ordered back and given to another similar company by the National Company Law Tribunal. Another scenario can be that the National Company Law Tribunal asks for the assets to be sold and the proceedings to be deposited to the Insolvency and Bankruptcy Fund.  

Punishment for Violation

Any company that violates the act’s provisions are subject to punishments such as a fine ranging from Rs. 10 lakhs to Rs. 1 crore. The directors and every officer of the company who is in default shall be subjected to a fine of Rs. 25 thousand to Rs. 25 lakhs. 

Advantages/Benefits

People or associations generally prefer forming a charitable company under the act rather than forming a regular NGO or association. This is because these companies have limited liability, so they will not have to use their assets to pay their debt. Here is a list of advantages enjoyed by these companies:

1. All the members have limited liability. 
2. They enjoy several exemptions, like some tax exemptions.
3. There is no requirement for minimum capital.
4. They do not have to pay stamp duties and high fees to register.
5. They have more credibility than other regular NGOs, trusts, and associations because companies under this act are recognised by the licence provided by the Central Government. 

Disadvantages

Even though these companies have a lot of benefits that they enjoy, there are also several setbacks they face:

1. None of the members gets any dividends.
2. The directors and the officers do not enjoy any of the benefits.
3. The licence could be revoked on many grounds.
4. The profits can only go towards charitable activities and objectives.
5. The company can make no alterations in the memorandum without the permission of the Central Government.

Conclusion

The Companies Act, 2013 covers both listed and unlisted companies and works towards their inclusion, formation and functioning. Section 8 of the Companies Act, 2013 includes companies whose primary objective is non-profitable, and they work towards encouraging science, arts, sports, etc. To be registered as a company under Section 8, a person or an association must fill out requisite forms and apply to the Registrar of Companies. Upon review, if the Government is satisfied, the company will be registered as a Section 8 company. Even though a Section 8 company enjoys benefits like tax exemptions, limited liabilities etc., it also faces a lot of setbacks, such as the government revoking its licence on several grounds.