Definition
As per section 8 of the Companies Act, 2013, such companies are defined as the companies whose objectives are to promote the fields of arts, commerce, science, research, education, sports, charity, social welfare, religion, environment protection or other related activities.
One more essential characteristic of these companies is that they do not provide any dividend to their members rather they apply all its income to the furtherance of its main objects.
Formerly these companies were defined in section 25 of the Companies Act, 1956, with more or less same provisions, however the new act has given some more objectives for which these companies can work.
We can look into the famous examples of section 8 companies as Federation of Indian Chambers of Commerce and Industry (FICCI) and Confederation of Indian Industries (CII). These companies work for facilitating the growth of trade and commerce in India.
Some of the characteristics of section 8 companies are mentioned below:
i. Charitable activities : A Section 8 Company can be formed only to carry on the charitable activities on non profit making basis. Further we have already discussed the activities which are charitable for this purpose.
ii. Minimum Share capital not required : As per the companies act, section 8 companies are not required to comply with the provisions of having minimum share capital.
iii. Limited Liability of members : Members of these companies in no case can have unlimited liability.
iv. License from Central Government : A section 8 company must get a license under this section from central government before starting its activities.
v. Additional Privileges : Keeping in mind the companies charitable activities, companies act has provided several benefits to section 8 companies.
vi. Non individual Members : A section 8 company can have individuals, association of persons as well as Firms as its members.
Who can make an application to register a section 8 company:
Any individual or association of persons who is interested in carrying on the charitable activities can make an application to the registrar of companies in prescribed form and with prescribed documents and fee for the registration of a company under section 8, the registrar if satisfied by the documents and information provided by the applicant may accept such application and register the company.
It has to be noted here that a section 8 company can be registered only in form a public limited company, moreover these companies are not required to place the word “limited” or “private limited” in their names like other companies.
As we have already discussed that these companies can work only on the basis of the license granted to them by the central government these companies can not even alter their memorandum without the permission of the central government.
Cancellation of the license
The central government have the power to cancel the license granted to a company under section 8 of the companies act on the following grounds:
i. If the provisions of section of the companies act has been violated by the company or its members.
ii. If the terms on which the license was granted has been violated
iii. If the company carries on any fraudulent activity of activities which in violation to its main objection or which are not according to the public policy.
The central government will give an opportunity of being heard to the company before the cancellation of license or initiating wound up procedure.
The government also has the power to pass an order for amalgamating that company with another similar company.