All about section 8 Company

Section 8 Company is named Section 8 of the Companies Act, 2013, which pertains to a established ‘for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object’, provided the profits, if any, or other income is applied for promoting only the objects of the company and no dividend is paid to its members. Therefore, Section 8 Company or Section 25 Company is a company registered under the Companies Act, 2013 for charitable or not-for-profit purposes.

A Section 8 Company is similar to a Trust or Society; expect, a section 8 Company is registered under the Central Government’s Ministry of Corporate Affairs. Trusts and Societies are registered under State Government regulations. A section 8 company has various advantages when compared to Trust or Society like improved recognition and better legal standing. Section 8 company also has higher credibility amongst donors, Government departments and other stakeholders.

A Non-profit Organization is a Company which

  • Has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
  • Intends to apply its profits, if any, or other income in promoting its objects; and
  • Intends to prohibit the payment of any dividend to its members

Revocation of the licence

Rule 8(6) provides for the revocation of licence. The said section provides that the Central Government may, by order, revoke the licence granted to a company if the company contravenes any of the requirements of this section or any of the conditions subject to which a licence was granted or the affairs of the company are conducted fraudulently or in a manner violative of  the objects of the company or prejudicial to public interest.

Without prejudice to any other action against the company, the Central Government may direct the company to convert its status and change its name to add the word ‘Limited’ or ‘Private Limited’ to its name and there upon the Registrar shall, without prejudice to any action that may be taken, on application, in the prescribed form, register the company accordingly.

Such order shall not be passed unless the company is given reasonable opportunity of being heard.  A copy of such order is to be given to the Registrar.

The Central Government may direct the company, the licence of which has been cancelled, if it is satisfied that it is essential in the public interest,   to be wound up or amalgamated with another company registered under this section. Such order shall be passed only after giving reasonable opportunity to the company of being heard.

In case of amalgamation the Central Government may provide for such amalgamation to form a single company with such constitution, properties, powers, rights, interest, authorities and privileges and such liabilities, duties and obligations as may be specified in the order.

In case of winding up or dissolution of a company, the debts and liabilities, any asset of the said company may be transferred to another company registered under this Section and having similar objects, subject to such conditions as the Tribunal may impose or may be sold and proceeds thereof credited to the Rehabilitation and Insolvency Fund formed under Section 269.

Penalty

Section 8(11) provides that if a company makes any default in complying with any of the requirements laid down in this section, the Company shall, without prejudice to any other action under the provisions of this section, be punishable with fine and which shall not be less than ₹ 10 lakh which may extend to ₹ 1 crore and the directors and every officer of the company, who is in default shall be punishable with imprisonment for a term which may extend to 3 years or with fine which shall not be less than ₹ 25,000/- but which may extend  to ₹ 25 lakhs or with both.

When it is proved that the affairs of the company were conducted fraudulently, every officer in default shall be liable for action under Section 447 which provides punishment for fraud.   The punishment may be imprisonment for a term which shall not be less than 6 months but which may extend to 10 years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to 3 times the amount involved in the fraud.    Where the fraud in question involves public interest, the term of imprisonment shall not be less than 3 years.

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