Application for Grant of License Under Section 8 (Form INC-12)

Introduction:

In India, the notion of a non-profit organization is extremely old. It was formerly governed under Section 25 of the Companies Act of 1956, which is why it was known as a Section 25 Company. Non-profit making companies are covered by Section 8 of the Companies Act 2013, as well as Rules 19 and 20 of the Companies (Incorporation) Rules, 2014.

Section 8 companies are non-profit organizations that strive to meet charitable and societal needs. The money or earnings are utilized to promote the goals of such licensed businesses. Contributions/donations are frequently made through foreign entities, which is referred to as foreign funding. The Companies Act, 2013, governs companies in India. Section 8 of the Companies Act of 2013 addresses the creation of section 8 companies.[1]

In order to become a section 8 company, it must satisfy the government that the company proposed to be registered as a limited liability has objected to promoting commerce, arts, science, sports, education, environment protection, social welfare, and so on and that it intends to apply any profits or income earned to promote its objects and does not pay any dividends to its members.[2] The company must apply for a DIN and obtain a Class 3 category digital signature certificate.[3]

The Section 8 Company is identical to a Trust or Society, with the distinction that a Section 8 Company is registered with the Central Government’s “Ministry of Corporate Affairs (MCA),” whereas Societies and Trusts are registered with the State Government’s laws. However, as compared to Trust or Society, this offers a number of advantages, including more credibility with funders, government agencies, and other stakeholders.[4] Furthermore, a major characteristic of this Business is that the company name can be incorporated without the words “Limited” or “Private Limited,” as the case may be.

Advantages of S. 8 Companies

Some of the advantages of Section 8 companies are as follows:[5]

Distinct Identity 

An entity is a thing with a separate existence; it’s a thing having a distinct existence. A corporation is a legal body that has been created under the law. As a result, a corporation is a legal entity with extensive legal authority that may own property and incur obligations in its name. Because the business and its members are both different individuals in the eyes of the law, the members have no culpability for the company’s obligations. As a result, a corporation is an artificial person with a separate legal personality.

Limited Liability 

Limited Liability refers to the position of being legally accountable for just a portion of a company’s debts. A limited liability corporation, like proprietorships and partnerships, limits the Member’s liability for the business’s debts. In other words, a company’s members’ liability is limited to the total face value of the shares they acquire.

There is no requirement for Minimum Capital Investment

There is no minimum capital requirement for forming a private limited company from the standpoint of incorporation. According to the 2013 company legislation, a private limited company can be formed with no paid-up capital.

Less Stamp duty

There is minimum stamp duty payable when forming section 8 corporations. Section 8 is given special treatment by the government when a business is formed, and as a result, stamp duty is reduced.

There is no Suffix

Section 8 businesses are not required to use suffixes such as a private limited company or limited company; nevertheless, they may do so if they choose.

Tax Advantage

Section 8 companies are eligible for tax benefits if they register under sections 80G and 12AA of the Internal Revenue Code.

Rule 20 of Companies (Incorporation) Rules, 2014

Rule 20 states that any limited liability company formed under this Act or any prior company law, with objectives as specified above and wishes to register under section 8 without the addition to its name of the words “Limited” or “Private Limited,” shall submit an application in Form No.INC.12 to the Registrar for a license under sub-section (5) of section 8, along with the fee prescribed in the Companies (Registration offices and fees) Rules, 2014.[6]

Procedure to incorporate a Section 8 Company

Procedure to incorporate Section 8 companies involves the following steps:

• Obtain a DSC from the proposed Section 8 Company Directors. After receiving a DSC, submit Form DIR-3 to the ROC to get a DIN. To get a DSC, you must attach proof of identity and proof of address.
• The ROC will assign a DIN to the prospective directors after the DIR-3 is authorized.
• To apply for a license for the Section 8 company, submit Form INC-12 to the ROC, together with the above-mentioned papers.
• Once the Form has been accepted, a license in accordance with Section 8 will be granted in Form INC-16.
• After acquiring the license, submit the SPICe+ Form to the ROC for incorporation, together with the above-mentioned attachments.
• If the ROC is pleased with the paperwork, he will issue a Certificate of Incorporation as well as a unique Company Identification Number (CIN).[7]

As you can see there are a number of forms required to get the company incorporated. However, in this article, we extensively cover the application for grant of license under section 8 i.e. Form INC-12.

An existing company may file the application in order to change to a non-profit corporation. Following approval, the Registrar will issue a license under Section 8. It must issue a notice in a newspaper within one week after submitting its application. The notice must be published in a vernacular daily and in the primary language of the district in which the company’s registered office is located. The Registrar may decide to award a license to such a company after examining any objections received within 30 days of the date of publication. It should be noted that in the case of the existing company applying for the license, must not be One Person Company or an existing Section 8 Company.[8] The fee for the application is Rs. 2,000 (Two Thousand Rupees only).[9] It can be filed online and otherwise as per the convenience of the applicant. Please note that the following information needs to be provided with the application:

• Corporate Identity Number
• Details of the company
• Company is, Category, Subcategory, Whether the company is having a share capital
• Authorized Capital of the Company
• Number of Members
• The main division of industrial activity of the company
• Brief description of the work, if any already done or proposed to be done in pursuance of section 8 and the grounds on which the application has been made
• Number, designation of Directors with approved DIN
• Number, name, designation, and PAN/DIN of the key managerial personnel[10]

Documents Required

The following documents must be attached with the application:

• Memorandum of Association in accordance with INC-13 form
• Articles of Incorporation
• Declaration in accordance with Form No. INC-14
• Declaration in accordance with Form No. INC-15
• Income and spending projections over the next three years
• a certified accurate copy of the resolution passed at the general and board meetings
• Financial statement(s) for the previous one or two years, board report(s), and audit report(s).
• Assets and liabilities statements with their values as per relevant rules[11]

If the company is governed by such an entity, the approval/ concurrence/ NOC of such body must be attached. In the event that the articles are entrenched, the attachment of the entrenched articles of association is required. Moreover, if the number of directors exceeds the minimal number of directors based on the kind of company, a list of directors must be included. It should be noted that if the number of important managerial employees exceeds four, a list of those individuals must be provided. Any further information can be included as an optional attachment.

When the e-Form INC-12 is successfully submitted, an SRN is generated and displayed to the user, which will be used for future interaction with MCA. Moreover, a Challan is created with the information of the fees paid to the Ministry by the user. It is a notification to the user that the eForm has been submitted.[12]

Rejection of the Application

Form INC-12 is processed by the Registrar of Companies and can be rejected on the following grounds, which are assigned into different codes:

1. Objects mentioned are not as per the requirement of the Act for the issue of license.
2. Brief out clearly the description of work already done in pursuance of section 8.
3. Specify clearly the grounds on which the application is made.
4. Amend the MoA and AoA as per the requirement of section 8.
5. MoA and AoA are not attached/scanned in legible form.
6. Furnish declaration on non-judicial stamp paper.
7. Furnish declaration by the persons making the application in the form INC-14/ by an Advocate, a Chartered Accountant, Cost Accountant, or Company Secretary in practice in Form INC-15.
8. Provide valid SRN of Form MGT-14 wherein special resolution approving registration under section 8 is filed.
9. Furnish certified true copy of special resolution/board resolution approving registration of the company under section 8.
10. Furnish last two years’ one/two years’ financial statement(s), board’s report(s), and Audit report(s).
11. Furnish future annual income and expenditure of the company for the next three years, specifying the sources of the income and the objects of the expenditure.
12. Furnish copy of the notice published in the newspaper.
13. Publication of the notice in the newspaper is not within a week from the date of application.
14. Notice is not published on the websites notified by CG.
15. The publication is not in two languages i.e. one in English and in the vernacular language of the district in which the office is / to be situated.
16. Furnish estimated income and expenditure details.
17. Furnish approval/concurrence/NOC of the concerned authority/sectoral regulator, department, or Ministry of the Central or State Government(s).
18. Furnish Assets and liabilities statements with their values as per applicable rule.
19. Furnish proof that the notice published has been sent to RoC.
20. Furnish amended copy of MOA/AOA after inserting the conditions directed
21. Clarify the objections raised by authority/regulatory body/department/Ministry of Central or State Government.
22. The company had applied its profits or income by way of dividends to its members.
23. Furnish certified copy of minutes of Board/General meeting.
24. Memorandum/Articles do not contain a prohibition of distribution of profits among its members.
25. In this case, the description is entered by the Back Office User.[13]

Conclusion

The license is granted if all the above-mentioned criteria are fulfilled. However, in my opinion, one should not be deterred from participating in the operation of the country since they, through such entities, fill the gaps left unbridged by the government and section 8 companies are one way of accomplishing it.

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References:

[1] Avtar Singh, Company Law, Seventeenth Edition, EBC.

[2] Ibid.

[3] How to register NGO-Section 8 Companies in India, ClearTax.

[4] Mrityunjay Madhup, May 2020, Section 8 Companies under Companies Act, 2013, TaxGuru.

[5] Supra Note 1.

[6] Rule 20 Companies (Incorporation) Rule, 2014.

[7] Supra Note 3.

[8] Instruction Kit for Form INC 12.

[9] Rule 12, Companies (Registration of Offices and Fees) Rules, 2014.

[10] Supra Note 5.

[11] Supra Note 5.

[12] Supra Note 5.

[13] Supra Note 5.