Not For Profit Companies in India
The concept of not for profit companies is not new in India. The Companies Act provides for registration of Not for Profit companies in India. Any person or an association of persons intending to incorporate a company with a non-profit making object can register a company. Earlier, since the non-profit companies were governed by the provision of section 25 of Companies Act 1956, they were widely referred to as Section 25 company. After the recent repeal and replacement of the Companies Act, the provisions mentioned in Section 8 of Companies Act 2013 read with provisions of Companies’ Incorporation Rules, 2014 shall apply. Therefore, now the Not for Profit companies registered under section 8 of the Companies Act, 2013 are also referred to as Section 8 companies.
Objectives of Section 8 Company
As per the provisions of the Companies Act, 2013, a Section 8 company may be incorporated with an intent to carry on a business with a charitable objective. It is pertinent to note that the distribution of profits or dividends among its members is per se prohibited and all the profits so generated shall only be used in order to achieve the ultimate objective of the company. A section 8 company may be incorporated with an object to promote;
- social welfare
- protection of environment
- any other object
Essentials features of Not for Profit Companies
- These companies enjoy all the privileges and are subject to all the obligations of limited companies.
- A Partnership firm may become a member of Not for Profit companies.
- MOA and AOA of such company once accepted cannot be altered except with the previous approval of the Central Government.
- A Section 8 company may be converted into company of any other kind.
- The Central Government if satisfied that it is essential in the public interest, may direct the company to be wound up or amalgamated with another company registered under section 8.
Procedure for obtaining License of Registration for Section 8 Company
A person or an association of persons desirous of incorporating a not for profit company shall make an application in Form INC 12 along with the prescribed fee to the Registrar of Companies. The application shall be accompanied with the following documents;
- Memorandum of Association (MOA) and Article of Association (AOA) of the proposed company;
- A declaration by A Chartered Accountant, Cost Accountant, Company Secretary in practice or an Advocate stating that the MOA and AOA have been drawn up in conformity with the provisions of Section 8 and rules thereof and that all the statutory requirements have been complied therewith;
- An estimate of the future annual income and expenditure of the company for the next 3 years specifying the sources of income and the objects of the expenditure; and
- Declaration by each of the person making the application in Form INC 15.
Penalty in case of Non-Compliance with the statutory laws
- In case of contravention of any provisions of the Companies Act, Central Government may by order, after giving the company a reasonable opportunity of being heard, revoke the license granted to a company.
- In case a company makes any default in complying with any of the requirements laid down in Section 8 of the Companies Act 2013, the company shall be punishable with fine which shall not be less than ten lakh rupees but which may extend to one crore rupees. 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.
Procedure for Conversion Of A Company To A Not For Profit (Section 8) Company
Like other jurisdictions of the world, the Indian Companies Act 2013 read with its Companies (Incorporation) Rules, 2014 (hereinafter referred to as “Act”) contains provisions for conversion of a Limited Company (Private/Public) into a Not for Profit (Section 8) Company. To undertake the process of conversion of a Limited Company (Private/Public), following procedures shall entail –
Step 1 – Application to the Registrar
- A limited company registered in India which is desirous of being registered as Section 8 company shall make an application in the prescribed form to the Registrar.
- The application shall be accompanied by the following documents;
- The memorandum and articles of association of the company;
- Declaration by a Professional, that the memorandum and articles of association have been drawn up in conformity with the provisions of section 8 and rules made thereunder and that all the requirements of the Act and the rules made thereunder have been complied with;
- Financial Statement, the Boards’ Reports and Auditors’ Report for each of the last 2 financial years;
- A statement showing in detail the assets and the liabilities of the Company as on the date of application or within 30 days preceding that date;
- An estimate of the future annual income and expenditure of the company for next three years, specifying the sources of the income and the objects of the expenditure;
- Certified copy of the resolutions passed in general/ board meetings approving registration of the company as section 8 Company;
- Declaration by each person making the application in the prescribed form.
Step 2 – Compliance after filing the Application with the Registrar
- Within a week from the date of filing the application with the Registrar, Company shall in the prescribed form publish a Public Notice in;
- A vernacular newspaper in the principal vernacular language of the district in which the registered office of the proposed company is to be situated or is situated;
- English newspaper;
- On the websites, as may be notified by the Central Government.
The Registrar shall, after considering the objections, if any, received by it within thirty days from the date of publication of notice, and after consulting any authority, regulatory body, Department or Ministry of the Central Government or the State Government(s), as it may, in its discretion, decide whether the license should or should not be granted.
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