CHARITABLE/SECTION 8 COMPANIES

CHARITABLE/SECTION 8 COMPANIES

Section 8, Formation of companies with charitable objects, etc.

As per this section, a license is required to be obtained from the Central Government if  a person or an association of persons proposed to be registered under this Act as a limited company:

  • 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,

The Central Government may, by licence issued in such manner as may be prescribed, and on such conditions as it deems fit, allow that person or association of persons to be registered as a limited company under this section without the addition to its name of the word “Limited”, or as the case may be, the words “Private Limited” , and thereupon the Registrar shall, on application, in the prescribed for, register such person or association of persons as a company under this section.

Benefits to the companies registered under his section

  • The company registered under this section shall enjoy all the privileges and be subject to all the obligations of limited companies.
  • A firm may be a member of the company registered under this section.
  • 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.

Point to be Noted….

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

What if the Limited Company wants to obtain the license under this section?

In that case, first of all the company should fulfill the conditions that the company:

  • 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,

Unless the above conditions are satisfied, a company cannot obtain the section 8 license.

If the above mentioned conditions are satisfied, then the central government after obtaining complete satisfaction  may issue the license to the company under this action with an effect of removing the word “Limited” or “Private Limited” from their names.

Remember, the process of obtaining the license is the initial step in this regard, the central government after issuing the llicense alter the name of he company by removing the words Limited or Private Limited and after that 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.

The registration of the company is completed only after the name of the company is entered in the Register of Companies by the Registrar.

Violation of the Condition

  • If in the case, the company violates the above mentioned conditions or the company has been engaged in any fraudulent activities, the central government after giving reasonable opportunity to the company to explain their point may revoke the license granted to the company under this act and will add the words “Limited” or “Private Limited” as the case may be and the same will be mentioned in the records of the Registrar.

 

  • After the license being revoked, If the central government is satisfied that it s in public interest then it may pass an order the company to wind up or may direct the company to amalgamate with other company registered under this section only.

 

  • Further in the case of amalgamation, 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.

 

  • If the company has been liquidated or dissolved and after the payment of all the debts any asset  is left then the same may be transferred to another company registered under this section or that asset may be sold and the proceeds from the sale has to be deposited in Insolvency and Bankruptcy Fund formed under section 224 of the Insolvency and Bankruptcy Code, 2016.

Penalties

On company : 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 which shall not be less than ten lakh rupees but which may extend to one crore rupees.

On Directors: The directors and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than twenty-five thousand rupees but which may extend to twenty-five lakh rupees, or with both.

 

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