NGOs (Non-Government Organizations)
NGOs (Non-Government Organizations) are entities established for non-profit or charitable purposes.

NGOs (Non-Government Organizations) are entities established for non-profit or charitable purposes. An NGO set up as a Section 8 company under the Companies Act, 2013 (‘Act’) is regulated by the Ministry of Corporate Affairs (‘MCA’), whereas an NGO registered as a trust or society falls under the governance of the registrar of the respective state.

Registering as a Section 8 company provides more advantages compared to being a trust or society. This type of company generally holds more credibility among government bodies, donors, and other stakeholders. This article outlines the procedure for registering an NGO as a Section 8 Company under the Companies Act, 2013.

Applicable Laws in India for NGOs

In India, NGOs can be registered under the following legal frameworks:

Understanding the Purpose of a Section 8 Company

The primary goal of forming a Section 8 company is to promote non-profit objectives, including but not limited to:

  • Commerce
  • Art
  • Science
  • Sports
  • Education
  • Research
  • Social welfare
  • Religion
  • Charity
  • Environmental protection
  • Other related objectives

Upon determining that an individual or collective intends to establish a limited company with these aims, the Central Government will issue a license for registration as a Section 8 company under the relevant Act.

Any profits or income generated by a Section 8 company are meant for advancing the company’s goals and are not distributed as dividends to shareholders.

Advantages of a Section 8 Company Registration

Registering an NGO under Section 8 of the Companies Act, 2013 offers numerous benefits, including:

No Minimum Capital: There is no statutory minimum capital requirement for a Section 8 company, and its capital structure can be modified to align with the company’s growth needs. Fundraising can occur later through donations and member subscriptions.

Tax Benefits: Section 8 companies are exempt from the Company Auditor’s Report Order (CARO) and qualify for tax incentives under Section 80G of the Income Tax Act, 1961.

No Stamp Duty: Section 8 company registration incurs no stamp duty fees in India, including those for the Memorandum of Association (MOA) or Articles of Association (AOA).

Separate Legal Identity: A Section 8 company is legally distinct from its members, allowing registered partnership firms to participate as individual members and take directorship positions. It boasts perpetual existence, meaning membership changes do not affect operational continuity.

Limited Liability: Members of a Section 8 company face limited liability corresponding to their shareholding. They are not personally liable for corporate losses.

Increased Credibility: Section 8 companies often command greater trust than other charitable organizations due to their regulatory framework, mandatory annual audits, and immutable MOA concerning non-profit objectives.

Donor Exemption: Donations received by Section 8 companies are eligible for tax deductions under Sections 12A and 80G of the Income Tax Act, 1961.

Eligibility for Section 8 Company Registration

  • Individuals or Hindu Undivided Families (HUFs) can initiate a Section 8 company in India.
  • At least two persons must act as directors or shareholders and comply with all incorporation requirements.
  • At least one director must be a resident of India.
  • The objectives must align with one or more of the following: promotion of sports, social welfare, advancements in science and art, education, and financial support for low-income groups.
  • Founders, directors, and members cannot receive any form of remuneration.
  • No profits should be shared among members or directors, directly or indirectly.

Requirements for Incorporating a Section 8 Company

Directors

A minimum of two directors is necessary if the Section 8 company operates as a private entity, while a public entity requires at least three directors. Private companies are capped at 200 members, whereas public companies can have an unlimited membership.

Capital Requirement and Name

No minimum paid-up capital is required for a Section 8 company. Notably, these companies do not need to include the terms ‘Limited’ or ‘Private Limited’ in their name.

Charitable Objectives

Section 8 companies may only be formed for non-profit purposes. The MOA and AOA must explicitly state the non-profit goals, with any profits being reinvested or utilized for further charitable endeavors.

Management

A Section 8 company is governed by its Board of Directors according to its MOA and AOA, contrasting with trusts managed by trustees.

Compliance with Various Acts

A Section 8 company must adhere to the Companies Act, 2013, maintain proper accounting records, and submit returns to the Registrar of Companies. Alterations to the MOA and AOA provisions require Central Government approval, and the company must comply with the Income Tax Act and GST Law.

Obtaining a Digital Signature Certificate (DSC)

Digital signatures from the proposed company directors are essential, as registration forms must be filed online with digital signatures. Accredited government certifying agencies issue DSCs, and you need to obtain a Class 3 category DSC.

Application for Director Identification Number (DIN)

A DIN must be applied for the proposed company directors, using Form DIR-3 or alongside the SPICe+ registration form. Necessary documents, such as a self-attested PAN and identity and address proofs, should be scanned and submitted through the MCA Portal. The application should be certified by a practicing professional, such as a chartered accountant or company secretary.

Forms Required for Section 8 Company Registration

Name of the formPurpose of the Form
SPICE+ Application for Incorporation of Company
INC 12Application for License
INC 13Memorandum of Association
INC 14Declaration from a practising Chartered Accountant
INC 15Declaration from each person making the application
INC 16License to incorporate as Section 8 company
INC 22Situation of Registered Office
DIR 2Consent of Directors
DIR 3Application to ROC to get DIN
DIR 12Appointment of Directors

Purpose of the Section 8 Company Forms

Form INC-12 

Form INC-12 is filed for the grant of the license to operate as a Section 8 company. Along with this form, applicants are required to attach a draft copy of the Memorandum of Association (MOA) and Articles of Association (AOA).

There is a prescribed format for Memorandum of Association of a Section 8 company in Form INC 13. The subscription pages of the MOA and AOA shall be signed by each subscriber along with their name, address, description, and occupation, in the presence of at least one witness. 
 

Form INC 12 is to be submitted along with the following attachments : 

The following forms are required to be filed after the issuance of the license to the company 

Form SPICe+  

The SPICe+ form is the application for the incorporation of the company. The company can be reserved in the first part of the SPICe+ plus form. However, only one name can be declared for approval in this form. Thus, it is recommended that applicants access the free name search facility of existing companies available on the MCA portal before choosing the name. The system will provide a list of closely resembling names of the existing companies based on the search criteria. This will help you avoid choosing a name similar to that of an existing company. 

The following documents must be attached along with SPICe+ Form: 

  • Memorandum and articles of the company duly signed by all the subscribers
  • Declaration from each of the subscribers and first directors that they are not guilty of any offence or misfeasance
  • Declaration in Form INC 14 and Form INC 15 from a Chartered Accountant and each person making the application respectively
  • Address of correspondence till the registered office is official
  • Address and Identity proofs of all the subscribers to MOA and first directors of the company
  • Passport size photograph of all the directors and shareholders
     
  • Copy of the rental agreement, in case the company registered office, is on a rented property 

Form INC 22 

Form INC 22 is filed for providing notice of the address of the company’s registered office. It needs to be filed within 30 days of the incorporation of the company. 

Form DIR 12 

Form DIR 12 is filed for the appointment of the directors of the company. It must be filed within 30 days from the date of the appointment of the directors.

Procedure for incorporation of a Section 8 company

Step 1 –  Obtain a DSC of the proposed Directors of the Section 8 Company. Once a DSC is received, file Form DIR-3 with the ROC for getting a DIN. The Proof of Identity and Address Proof needs to be attached for obtaining DSC. 

Step 2 – Once the DIR-3 is approved, the ROC will allot a DIN to the proposed directors. 

Step 3 –  File Form INC-12 with the ROC to apply for a licence for the Section 8 company along with the attachment of the required documents as mentioned above. 

Step 4 – Once the form is approved, a license under section 8 will be issued in Form INC-16.

Step 5 – After obtaining the license, file the SPICe+ Form with the ROC for incorporation along with the required attachments as mentioned above. 

If the ROC is satisfied with the forms submitted, he issues a Certificate of Incorporation along with a unique Company Identification Number (CIN).  

Penalty for Non-Compliance under Companies Act

The Central Government will revoke the Section 8 company license if it fails to comply with the legal provisions of the Act. If the objectives of the company are conducted fraudulently or in violation of the objectives for which it is established, the license can be revoked.

If a company defaults in complying with the provisions of the Act, the company will be punishable with a fine not less than Rs.10 lakh and may extend to Rs.1 crore. The Directors and the officers of the company in default of the provisions of the Act will be punishable with a fine not less than Rs.25,000 which may extend to Rs.25 lakh or both.

Annual Compliances of Section 8 Company

The annual compliances of section 8 company are just like the other companies.