How to Incorporate a Section 8 Company- a Step-by-Step guide.

Introduction

Companies Act, 2013 in Section 8 provide for formulation of companies with charitable objects, etc. It can be established only after the Central Government is satisfied that a person or an association of persons proposed to be registered under this Act as a limited company has its object for the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object and that it intends to apply its profits or other income in promoting its objects. Further, it prohibits to pay dividends to its members.

• Such companies can be formed only upon receiving license from the Central Government to be established as a limited company under the Act without the addition to its name of the word ‘Limited’ or ‘Private Limited’.
• Companies registered under this section shall enjoy all the privileges and be subject to all the obligations of limited companies
• A firm can also be a member of the company registered under this section.
• Such companies cannot alter the provisions to its MOA/AOA (Memorandum of Association/ Articles of Association) except with the prior approval of the Central Government.
• Such companies can convert itself to another type of company only after complying with certain conditions as may be prescribed.
• Central Government may revoke the license granted to such company if it violates an of the requirements of Section 8 or affairs of the company are conducted fraudulently or in a manner violative of the objects of the company or prejudicial to public interest. It can direct the company to change its status and add the words ‘limited’ or the words ‘private limited’ to its name but only after giving a reasonable opportunity of being heard.
• In public interest the Central Government can also direct a Section 8 company to amalgamate with another company registered under this section and having similar objects.

Pre-Requirements and Important Provisions Related to Section-8 Company

• It is essential that the proposed company has 7 or more persons in case of a public company and 2 or more persons in case of a private company as subscribers.
• The proposed company shall have a BOD (Board of Directors) consisting of individuals as directors. Minimum 3 directors in a public company and 2 in case of private company with a maximum of 15 directors.
• The company is required to have a registered office of the company within 30 days of its incorporation as per Section 12(1).
• If the company has share-capital, then it has to decide authorised and paid-up capital of the proposed company.
• The Applicant is required to have a DSC (Digital Signature Certificate).
• Further per Section 7(1)(b) a declaration is required from professional (Advocate, Chartered Accountant, Cost Accountant, or a Company Secretary in practice) that all the requirements of the Acts and the rules in respect of registration and matters precedent or incidental are complied with.
• As per Section 8(3), a firm maybe a member of Section 8 company.

Procedure

Step 1- Application and documents filing

Reserving the name: As per Section 4(4) read with rules 8 and 9 of the Companies (Incorporation) Rules, 2014, make application for reservation of name of the company with the Registrar, CRC (Central Registration Centre) through www.mca.gov.in by using RUN (Reserve Unique Name) along with requisite documents and fee of Rs.1000. RUN web service allows two names and one re-submission. Currently name reserve and registration facility is available on the MCA website through SPICE+.

Upon receiving the application, the CRC as per Section 4(5)(i) read with rule 9 of the Companies (Incorporation) Rules, 2014, may either approve or reject. Once the name is approved by the CRC, it remains valid for 20 days from the date of approval.

Step 2- Arrangement of declaration, MOA, AOA, etc. before filing application to the Central Government-

As per Section 3(1), 4(6), 5(6) and 7(1)(a) read with rules 11,13,19(2) and 38 (Proviso) of the Companies (Incorporation) Rules, 2014, the proposed company should prepare a draft of MOA/AOA (Memorandum of association/ articles of association) in forms INC-13 and INC-31 and get it signed by each subscriber in presence of at least one witness.

Further, prepare an estimate of the future annual income and expenditure of the company for next 3 years and specify the sources of income and the object of expenditure. Further, a declaration is required from all the subscribers and the first director making the application to the Central Government in Form INC 15 stating that the draft MOA/AOA are in conformity with the provisions of the Act. Also, a declaration is required in Form INC-14 from the Advocate or the Company Secretary or Cost Accountant or a Chartered Accountant in practice that the draft MOA/AOA are in conformity with the provisions of the Act.

Step 3- Application to seek grant of license under Section 8 from the Central Government

An application is filed in Form INC-12 to the Central Government (power is delegated to the ROC)  for obtaining license under S.8 along with the necessary documents and fee of Rs 2,000/-. When the ROC is satisfied, it shall give the license in Form INC- 16. (Note: if ROC takes more than 20 days to issue license under Section 8 then the applicant has to again file an application through the RUN portal.

Step 4 – Arrangement of declaration, affidavit, etc. before filing applications for incorporation

1. The next step is to obtain the proof of identity and residential proof of every subscriber to the MOA.
2. Then, take declaration in form INC-9, from every subscriber to the MOA and persons named as first directors in AOA that-
3. They have not been convicted of any offence in connection with the promotion, formation or management of the company; or
4. Not found guilty of any fraud or misfeasance or of any breach of duty to any company under Companies Act, 2013; and
5. That all the documents filed with CRC for registration of the company contain information that is true and best of his knowledge and belief.
6. Also, obtain declaration-cum-affidavit from subscribers/ first directors that they shall not accept deposits unless in compliance with the provisions of RBI Act, 1934 and SEBI Act, 1992 and rules/directions thereunder.
7. Application for allotment of DIN (Director identification number) for directors will be made through Form INC-32 (SPICe).
8. In the application for registration of company, temporary address for correspondence or the established registered office address can be given.
9. In Form DIR-2 the consent of persons mentioned in AOA as the first directors is taken to act as directors of the company.

Step 5- Application for Incorporating a Section 8 Company

An application is filed with the CRC in Form INC-32 (SPICe) along with necessary documents and fees to register a company. CRC may call upon for further information if necessary and in case of defects he should given intimation to the applicant to remove the defects and re-submit the e-form in 15 days. In case, subsequent to re-submission also, defects persist then then CRC shall give one more opportunity of 15 days to fix the issue.

Step 6- Certification of Incorporation

After CRC is satisfied, it shall issue the Certificate of Incorporation in Form INC-11, allot DIN (if applied for) and TAN and PAN of the company.

In case, at the time of incorporation of the company, address of the registered office has not been finalized then file notice of situation of registered office and verification of the same with ROC within 30 days of incorporation in Form INC-22.

Further, as per Section 10A read with Rule 23A of the Companies (Incorporation) Rules, 2014, if a company has share capital, it has to file a declaration within 180 days of incorporation in Form INC-20A that-

• Every subscriber to MOA has paid the value of shares agreed to be subscribed by him.
• That the company has filed with ROC a verification of its registered office.
• Note: content of Form INC-20A shall be verified by a company secretary/ chartered accountant/ cost accountant, in practice.

Estimated Timeline

The whole process can take somewhere between 19 days to 93 days.

• Application for reserving a name through RUN will take a minimum of 1 day to maximum of 3 days
• Further, application for license under Section 8 of CA, 2013 and incorporation of company would take 15 days to 40 days.
• Issuance of certificate of Incorporation by ROC, PAN and TAN will take a minimum of 2 days and maximum 20 days.
• Further, notice of situation of registered office has to be given in minimum 1 day to maximum 30 days.   

Conclusion

A charitable company incorporated under Section 8 of Companies Act, 2013 after receiving license from the Central Government. Such companies can be later converted into other types of companies after fulfilling certain criteria. These companies are incorporated for general public welfare and are extended large-scale benefits by the government. Such benefits can be withdrawn in case the company objectives start defeating public interest. These companies are sought after type of incorporation in India which takes around 19 to 93 days.