Advantages And Disadvantages Of Section 8 Company

advantages and disadvantages of section 8 company

Section-8 company is the company which operates and perform its function only for the social welfare of the society without the motive of earning income. The main objective of company is development of the society, protection of human life, earth, environment or other living creatures, and also working in the field of art, commerce, economic, sports, literature, research and development etc. Section-8 company is registered under companies’ act, 2013 through Registrar of Companies (ROC), it can be registered as a private limited company or public limited company. If it is registered as a private limited company then minimum 2 persons are required and if it is registered as a public limited company then minimum 7 persons are required to start the registration process.

Advantages Of Section-8 Company

  • There is no minimum capital requirement to start the company registration process which means the company can be registered with Rs. 1000/- paid-up capital as well
  • The section-8 company gets the relaxation from using the word “Private Limited” or “Limited” at the end of the name of the company. Instead of private limited or limited the word “Foundation, Association, Organization, Society, etc” can be used.
  • Due to its objective, the company gains trust from the general public which helps in enhancing the brand name and goodwill of the company
  • Section-8 company has its own identity like any other company, it can hold, buy, sell etc property in its name. The company has a separate legal entity.
  • The liability of the director and members are limited.
  • Due to its non-profit objective, the company enjoy several exemptions under Income Tax Act, 1961.
  • There is no need to maintain minutes for the meeting unless the article of association confirms for maintaining the minutes of the meeting
  • There is no need to appoint an Independent Director in the company
  • The company does not need to constitute the Nomination and Remuneration Committee & Stakeholder Relationship Committee. 
  • There are many other exemptions that are granted to the section-8 company in companies act as well as income tax act.

Disadvantages Of Section-8 Company

  • The company cannot share its profit or income between its members or the company cannot declare a dividend to its members. The income shall be used only to achieve the objective of the company.
  • The company cannot run any other activity which is not mentioned in its memorandum of association
  • Before alteration of its memorandum of association or article of association the prior approval of the Central Government is required
  • There are certain exemptions granted to the company under Income Tax Act, 1961, there is a flat 25% of the tax rate applicable on the company which means the company has to pay 25% of its income to the government as an income tax
  • The central government shall revoke the license granted to the section-8 company if the company contravenes any provision applicable to the company or fails to follow the guidelines issued by the central government or perform any function fraudulently.
  • The company has to do annual compliance every year and has to file an Income Tax Return whether the company has any income or not.

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