All about Section 8 Companies

Object of formation of Section 8 companies

Section 8 of the Companies Act, 2013 deals with the formation of companies which are formed to promote the charitable objects of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment etc. Such company intends to apply its profit in promoting its objects and prohibiting the payment of any dividend to its members.

Power of Central Government to issue the license

This section allows the Central Government to register such person or association of persons as a company with limited liability without the addition of words 'Limited' or 'Private limited' to its name, by issuing license on such conditions as it deems fit. The registrar shall on application register such person or association of persons as a company under this section. Where it is proved to the satisfaction of the Central Government that a limited company registered under this Act or under any previous company law has been formed with any of the objects and with the restrictions and prohibitions it may, by license, allow the company to be registered under section 8 subject to such conditions as the Central Government deems fit and to change its name by omitting the word ―'Limited', or as the case may be, the words ―'Private Limited' from its name and thereupon the Registrar shall, on application, in the prescribed form, register such company under this section and all the provisions of this section shall apply to that company.

Privileges of limited Company

• On registration, the company shall enjoy same privileges and obligations as of a limited company.
• A firm may be a member of the company registered under section 8.

Alteration of Memorandum and Articles

A company registered under this section shall not alter the provisions of its memorandum or articles except with the previous approval of the Central Government.

Conversion into any other kind of Company:

A company registered under this section may convert itself into company of any other kind only after complying with such conditions as may be prescribed. A company registered under section 8 which intends to convert itself into a company of any other kind shall pass a special resolution at a general meeting for approving such conversion.

Revocation of license

Central Government may by order revoke the license of the company where the company contravenes any of the requirements or the conditions of this section subject to which a license is issued or where the affairs of the company are conducted fraudulently, or in violation of the objects of the company or prejudicial to public interest, and on revocation, the Registrar shall put 'Limited' or 'Private Limited' against the company's name in the register. But before such revocation, the Central Government must give it a written notice of its intention to revoke the license and opportunity to be heard in the matter.

(ii) Where a license is revoked, the Central Government may, by order, if it is satisfied that it is essential in the public interest, direct that the company be wound up under this Act or amalgamated with another company registered under this section. However, no such order shall be made unless the company is given a reasonable opportunity of being heard.

(iii) Where a license is revoked and where the Central Government is satisfied that it is essential in the public interest that the company registered under this section should be amalgamated with another company registered under this section and having similar objects, then, notwithstanding anything to the contrary contained in this Act, the Central Government may, by order, provide for such amalgamation to form a single company with such constitution, properties, powers, rights, interest, authorities and privileges and with such liabilities, duties and obligations as may be specified in the order.

(iv) If on the winding up or dissolution of a company registered under this section, there remains, after the satisfaction of its debts and liabilities, any asset, they 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 Insolvency and Bankruptcy Fund formed under section 224 of the Insolvency and Bankruptcy Code, 2016.

(v) A company registered under this section shall amalgamate only with another company registered under this section and having similar objects.

Penalty/ punishment in contravention

If a company makes any default in complying with any of the requirements laid down in this section, the company shall, be punishable with fine varying from ten lakh rupees to one crore rupees and the directors and every officer of the company who is in default shall be punishable with fine varying from twenty-five thousand rupees to twenty-five lakh rupees10. And where it is proved that the affairs of the company were conducted fraudulently, every officer in default shall be liable for action under section 447.

Exceptions

(i) Can call its general meeting by giving a clear 14 days notice instead of 21 days.

(ii) Requirement of minimum number of directors, independent directors etc. does not apply.

(iii) Need not constitute Nomination and Remuneration Committee and Shareholders Relationship Committee.