Section 8 Company- Non Profit Making Company

First of all we have to understand what is non profit making Company:

A Non Profit making Company is a Company which:

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

An association desirous of being incorporated as a Company with limited liability without addition to the name of the word “LIMITED “ or the words “PRIVATE LIMITED” and shall take following steps for securing a license under section 8 of companies Act 2013.

Procedure for a newly Incorporated Companies. Refer Rule 19 of Companies (Incorporation) Rules 2014

• Obtain DSC– First of all it is mandatory for Companies to obtain DSC from DSC issuing Company for at least one director for signing E- forms relating to incorporation of Companies.
• Obtain DIN– Every person intending to become the Director of the Company shall apply for DIN in form DIR-3 to Central government in form and manner as may be prescribed.
• Apply for availability of name– application for availability of name shall be made in form no INC.1 along with prescribed fees of Rupees 1000/-
• Application for obtaining License under section 8 of Companies Act 2013– A Person or an association of persons desirous of incorporating a Company with limited Liability under section 8(1) without addition to its name of the word “Limited or “Private Limited” shall make an application in Form No. INC.12, along with prescribed fees to Registrar.

Main Attachments of Form INC 12 are as follows:

• Draft MOA & AOA as per form INC 13 of the proposed Company
• Declaration shall be in form INC 14 by an advocate, a Chartered Accountant, Cost Accountant or a Company Secretary in practice.
• An estimate of future income & expenditure of the Company for next 3 years, specifying the sources of the income and the objects of the expenditure.
• Declaration of each of person making application in Form INC.15
• The license shall be in form INC 16 or INC 17, as the case may be and Registrar shall have the power to include in the license such other conditions of the license as may be specified by the Registrar in its behalf.

Basic exemptions or relaxation given to section 8 Company:

• Section 2(24) shall not apply to a section 8 Company.

Explanation: section 2 (24) of Companies Act 2013 defines Company Secretary. It means section 8 Company need not to appoint CS.

• Section 101 (1) – States that a general meeting may be called by giving 21 days’ notice either in writing or through electronic mode or any other mode as may be prescribed

But for section 8 Company, a general meeting may be called by giving 14 days’ notice. The word 14 days shall be substituted

• Section 118 shall not apply to a Section 8 Company relating to the minutes of proceedings of general meeting, board meetings etc. except in case AOA of the Company contains a provision that minutes of the meeting have to be confirmed by circulation then in that case minutes have to be recorded within 30 days.

Important Note: The question whether Secretarial Standards are applicable to section 8 Company or not ?

Section 118(10)- states that Every Company shall observe Secretarial standards with respect to general meeting and Board meetings specified by Institute of Company Secretaries of India constituted under Section 3 of Company Secretaries ACT, 1980 AS APPROVED BY Central government.

But w.e.f Notification dated 5^th June 2015, which provide relaxation that entire section 118 shall not apply to section 8 Company.

So in Short Secretarial Standards are not applicable to Section 8 Company.

• Section 173 states that every Company shall hold at least 4 Board meeting in a year but for Section 8 Company, it is sufficient to hold one board meeting in every six calendar months. i.e. 2 Board meetings in a year.
• Section 174 (1) states the quorum of the Board Meeting which is 1/3^rd of the Total strength or two director whichever is higher ,

But for section 8 Company quorum is 8 Director or 1/4^th of total strength whichever is lower subject to minimum 2 Directors

Important Note: quorum shall not be less than 2 members.

For example: Total strength of Board of Director= 12

1/4^th of 12 is 3, so 8 Director or 1/4^th of Total strength whichever is lower

In above example it should be 3 Directors.

• Section 189 of Companies Act 2013 deals with the provisions relating to making of entry in register of related party transactions

But for section 8 Company, such a provision shall be available only if transaction with reference to section 188, i.e. Related part transaction on basis of terms and conditions of Contract or arrangement exceeds one Lakh rupees.

• Section 149(1) shall not apply to section 8 Company which states the criteria of Minimum and Maximum no Directors,

Proviso to section 149(1) states that Company can appoint maximum 15 Directors, Such a limit shall also not apply to section 8 Company.

• Section 165 states that after the Commencement of act, No person shall hold the office as a Director in more than 20 Companies at the same time including alternate directorship.

But the above provision shall not applicable on section 8 Company

Interpretation: It means person holding office as Director in more than 20 Companies can still be appointed as Director in Section 8 Company.