A Section 8 company under the Companies Act, 2013 or a Section 25 Company as per the Companies Act,1956 is an organization registered with an objective of promoting the fine arts, science, literature, or knowledge sharing for a purposeful matter or for charity. These are the limited companies established under the Companies Act. The Government grants these companies an exclusive license under Section 8 Companies Act. There are three main conditions for granting the license is. The company should form for the charitable purpose. Income and profits should be used towards these objects. The company should not pay any dividend to its members.
Organised structure, flexible operations.
It has organised operations and greater flexibility.
Avoids meticulous registration process and no physical presence required.
No requirement of a minimum paid-up capital.
Seamless procurement of tax benefits under section 12AA and 80G of the Income Tax Act.
Any partnership firm can be a member in its individual capacity and obtain Directorship.
Application, approval, submission of documents, registration.
There are three major steps in incorporating a Section 8 company apart from the document collection, preparation and drafting. They are
STEP 1: Run Approval:
Reserve Unique Name (RUN) is a form filed for reserving a name for a new company or for changing its existing name. This is the first step of incorporating a section 8 company.
A section 8 company shall usually have words like Foundation, Federation, Society, Council, Club, Charities, Institute, Academy, Organisation, Federation, Chamber of Commerce, Development, Association, etc.
The name so approved shall be valid for 20 days
STEP 2: RD 1 License:
This step is the most crucial in the process of incorporation.
The name approval shall be valid at the time of applying for the RD 1 License.
RD 1 license is a license granted under section 8 of companies act as they work on a specific objective which is for the upliftment of arts, science, commerce, environment, etc., and the profit they earn shall also be used towards their objectives. All crucial documents like the MoA, AoA, financial statements and other declarations are filed at this stage.
The license so approved shall be valid for 30 days.
STEP 3: Spice Form:
Both the name and the license shall be valid at the time of filing the SPICe form.
This is the final stage of incorporating the section 8 company where the documents relating to the registered office like the rental agreements and utility bills are filed along with the RD-1 license and the name approval certificate.
Paper formalities for the formal entity.
The name of the Company for approval.
DSC and DIN of the Directors.
Objectives and proposed work of the company.
Financial statements like assets and liabilities, the projection for five years etc.
Directors personal documents.
Registered office address documents viz. rental agreement or sale deed in the name of the company, utility bills not older than two months.
Note: Once the payment for the registration is done, it takes about 8 to 10 days for drafting the MoA and AoA of the Society. Thereafter it takes about 2 months for the entire Company registration to be completed.
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