Forming a Sec.8 Co – Not so easy yet…

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How to set up a Sec 8 Company

A sec 8 company, is a Not for Profit Organisation. It enjoys a Corporate status, attracts professionals, better positioned to raise CSR funds and it’s audited financial statements are available in the public domain.

Notwithstanding, the many initiatives in recent years in the ease of doing business,  forming a Section 8 company is yet so easy.  This article details the issues and procedure in forming a Sec 8 company.

2 Types  of a Sec 8 Company – Limited by Share Capital or Limited By Guarantee

As a Founder, if you are considering setting up a Sec 8 Company, you have two options. Option # 1 is a Company with Share Capital or Option # 2 a Company limited by Guarantee. What are the considerations to influence your decision?  If you believe that your cause, network and your ability to raise resources as donations is the basis of starting and running your Non-Profit then Option 2 is a desirable one as there is no need to raise any capital to get your initiative off the ground, apart from setting up and registration costs. Therefore to choose a Sec 8 limited by guarantee, you need to be confident that you can run your NGO based on a financial strategy that relies on donations. While on the other hand, you wish to seed the organization and commence the activities with people and infrastructure, then a Share Capital as Option 1 may be preferred.

6 Pre-requisites for applying for Sec 8 Co

At least one promoter should have the following details/documents for filing the application for company registration with MCA

  1. A valid Digital Signature Certificate,
  2. Active Director Identification number
  3. Active PAN
  4. Email
  5. Mobile Phone No
  6. Identity & Address Proof Documents such as Driving License, Passport, Voter ID, Aadhar, etc.

13 Information/Documents required for Company Registration

The following information/documents required to submit the application with MCA. This information required for a minimum of 2 promoters

  1. List of proposed promoters & Directors with a recent color passport photographs
  2. PAN
  3. Date of Birth
  4. Father’s/Mother’s name,
  5. Telephone & Mobile numbers,
  6. Email ID,
  7. Identity proofs
  8. Address proofs
  9. DIN (if available)
  10. Passport (if available).
  11. Police station details
  12. Primary business activity, exact nature of work, a sub-category of work with details of HSN Codes for GST registration
  13. Proposed registered office details

It may be noted that supporting documents to be submitted should be consistent in the information, such as name spelling, address, date of birth, parent name, etc. For example, details in PAN card might not match with Passport/Driving License. Landlord details in Rent Agreement might not match with Utility Bills. Care should be taken to eliminate these issues beforehand as any mismatch in these details would result in rejection of the application.

10 Submissions to the Government

The following documents require to be submitted to MCA with the application.

  1. Draft MOA (in INC-13 format)
  2. Draft AOA (in Table H format as per Schedule I to the Companies Act, 2013)
  3. Projected financial statements with projected assets & liabilities, Projected Income & Expenditure for the next 5 years
  4. Details of work/activities proposed to be undertaken and grounds for application u/s.8, justifying how the activities can be termed as charitable activities for forming Section 8 company.
  5. Copies of No Objection Certificate from Landlord for the usage of the premises where the Registered Office is proposed, Utility Bills with Landlord name, Rent Agreement.
  6. Declarations in form INC-9, INC-14 & INC-15 about declaring their qualification to act as Promoter/Directors of the Company and following the compliance of Companies Rule in the formation of the Company.
  7. Proof of principal place of business
  8. Letter of Authorisation to apply for registration of the company on behalf of the Board
  9. Copy of Resolution passed by the Board / Managing Committee and Acceptance letter
  10. Specimen signatures of the applicant.

5 Process Steps & timelines

Typical process steps in the formation of Section 8 company are as follows

  • Step 1 – Obtain DSC at least for one proposed Director. If any Director already has a DSC, this step can be eliminated
    • To obtain DSC, PAN & Address proofs (Aadhar/DL/Passport/Bank Statements/Utility bills, etc) are required.
    • Typical timeline to complete this process after submission of the application would be 2 working days
  • Step 2 – Obtain DIN at least for one proposed Director. If any Director already has DIN this step can be eliminated
    • To obtain DIN, DSC & PAN is required. This process requires certification from Practicing Company Secretary.
    • DIN can be applied for other directors through filing SPICe form, provided they can produce PAN, valid address proofs such as DL, Aadhar, Voter ID, Passport Number, etc.
    • If any Director has a passport, this information required to be submitted mandatorily.
    • Typical timeline to complete this process after submission of the application would be 1 working day
  • Step 3 – Apply for Reservation of Unique Name of the company
    • In Sec 8 Companies name, the words either of Private or Limited is not used. While the ROC would like to see terms like  “Foundation”, “Forum” ” Association” or “Federation”, “Confederation”, “Council”, or “Chambers”  and such like terms that indicate a larger purpose in society. One may like to coin words either as Abbreviations’ or mix & match partial words which convey the brand /your activities mnemonically.
    • Also there some no-no names like India, Bharat, etc which have a government endorsement connotation or existing trademarks.
    • At this point of time, brief details of objects of the proposed company would require to be submitted.
    • Typical timeline to complete this activity after submitting the application would be 3 working days.
    • If any of the follow-up activities such as obtaining Sec.8 license or applying for company incorporation, etc gets delayed and the time limit for name reserve expires, the process may require to be repeated to reserve the name one more time. Typically a further 20 days more would be available complete the follow-up processes.
  • Step 4 – Apply for Sec.8 License from ROC by filing form INC-12 with MCA.
    • For applying for Sec.8 license, the approved name should be available.
    • This application requires to be submitted within 20 days of approval for name reservation is given
    • At this point in time, the following documents would require to be submitted.
      • Details of proposed directors
      • Draft MOA,
      • Draft AOA,
      • Project report with Balance Sheet, Income & Expenditure account for 5 years,
      • Details of work proposed to be undertaken with grounds for justifying the proposed activities are approved under Sec.8 of Companies Act,
      • Declarations in INC-9, INC-14 & INC-15.
    • Typical timeline to complete the activity after submitting the application could be anywhere between 3 to 4 weeks. This process might require a follow-up with the ROC office and hence could delay the timelines beyond expectations. If MCA calls for any clarification, the application would require to be resubmitted within 25 days of the notification of such requirement, which could further extend the timelines.
  • Step 5 – Apply for Company Registration – Fee for Form SPICe (INC-32), MOA, AOA, PAN & TAN.
    • Application for Company Registration in form INC-32 called “Simplified Proforma for Incorporating Company Electronically (SPICe)” would require to be submitted. Applications for allotment of PAN & TAN are included in this application form.
    • If the company would like to apply for GST, ESI, PF registrations at the time of company formation, an additional application called “Application for Goods and services tax Identification number, employees state Insurance corporation registration pLus Employees provident fund organization registration (AGILE)” would require to be submitted along with SPICe application form.
    • For filing this SPICe application form valid Sec.8 license and approved name should be available.
    • This application requires to be submitted within 20 days of approval for name reservation is given
    • At this point in time, the following information/documents would require to be submitted.
      • DIN application for Directors who do not have it beforehand. For this purpose, PAN is required. If any Director has a passport, this information required to be submitted mandatorily.
      • Registered office location, NOC from landlord required to be submitted.
    • Typical timelines to complete the activity after submitting the application could be anywhere between 2 to 4 weeks. If MCA calls for any clarification, the application would require to be resubmitted within 25 days of the notification of such requirement, which could further extend the timelines

Fee for Registration and other incidental expenses

Approximate filing & Registration costs: – Rs.11,000 to Rs.15,000 approx. This does not include the cost of your Lawyer or Chartered Accountant’s Fees. The indicative breakup of these charges are as follows:

  • For name reservation (using RUN platform of MCA) – Rs.1,000 per application. Only one name can be applied per application. Assuming 3 sets of application would be filed for final name approval, charges for name reservation shall be – Rs.1,000 to Rs.3,000
  • For applying for Sec.8 license in Form INC-12 – Rs.2,000 per application.
  • For applying Company Registration using SPICe INC-32 form –  Rs.5,720
  • For applying PAN & TAN using SPICe INC-32 form – Rs.131
  • Misc Expenses (Stamp papers for declarations in INC-9, INC-14 & INC-15 forms, Notary Public Charges, Rubber Stamps, other incidental expenses, etc) – Rs.2,150  to Rs.4,150

Sec 8 Company – Operational preparedness

The following registrations with various Government Departments would be required:

  1. Company registration with Ministry of Corporate Affairs as a Section 8 Company.
  2. PAN & TAN from the Income Tax Department.
  3. GST registration with GSTN, if there are a sale of Goods or Services
  4. ESI registration with ESIC if the number of employees is more than 10.
  5. Provident Fund registration with EPFO if a number of employees are more than 20.
  6. Profession Tax Registration with Profession Tax Department of the State where registered
  7. 12A Registration with Income Tax Department (more details available at https://www.goodkarmaforngo.com/blog/how-to-apply-for-tax-exempt-status-under-sec-12a-of-the-income-tax-act/)
  8. 80G Registration with Income Tax Department (more details available at https://www.goodkarmaforngo.com/blog/how-to-register-u-s-80g-of-income-tax-act/)

Of the above set of registrations, the Income Tax exemption ones under Sec 12A and 80G are the ones which have a lengthy process time. From the time of their application to approval could take about 6 months.

Conclusion

A Sec 8 Company is a more recent legal form in the Voluntary sector and forms a miniscule of the estimated 3.21 million NGO organizations in India. The current estimate of Sec 8 companies limited by Guarantee is about 6,890 out of an active Company universe of 11,56,374 companies as of Mar 31, 2019. Notwithstanding this almost non-existent status, this form may, in fact, will become the beacon of public disclosure, transparency, competencies and social impact. In our view, Sec 8 Companies are at a very nascent stage and will see many more being set up in times to come, especially with increased CSR spend.

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