This article is written by Intern at Legal Nittii, Ms.Sonal Devare, a 2nd year student of LLB  G.J. Advani Law College, Mumbai under the guidance of Advocate Tinna Patel, Founder Legal Nittii (Advocates & consultants). The article discusses the advantage of section 8 companies over other forms of companies and gives comparison between Trust, Society & Section 8 company registration. 

Abstract

This paper delves into the Section 8 companies under the Companies Act, 2013, focusing on their unique privileges and social development roles. Unlike Other Companies, Section 8 Companies operate for charitable purposes without profit motives, enjoying benefits like tax exemptions, easier compliance, and access to grants. Despite their importance, limited research exists on how these privileges enhance their social impact.

This study examines why non-profit organisations prefer this structure/form of organisation and how its advantages help them to contribute more effectively towards society. By analysing legal provisions and case studies, the paper highlights the Social Edge that Section 8 companies hold over other non-profit forms like Trusts and Societies. The findings aim to provide clarity on their benefits and encourage better utilisation of this organisation for significant change.

Introduction

Background:

The concept of Charitable organisations can be traced back to the Companies Act of 1913, which permitted charitable organisations to register without including “Limited” or “Private Limited” but did not have specific provisions for charitable organisations. This concept was built upon, and a framework was introduced under Section 25 of the Companies Act of 1956, which was based on Section 19 of the English Companies Act of 1948, which mentions provisions regarding charitable organisations.[1] Further, the Companies Act of 2013 (hereinafter referred to as ‘the Act’) preserved these provisions in Section 8, creating a specific framework for charitable and nonprofit organisations promoting commerce, art, science, sports, education, or social welfare.

These Companies are distinct from profit-making entities, as they are prohibited from distributing their profits and must reinvest any surplus back into their charitable objectives. Acknowledging the special characteristics, the Central Government introduce additional exemptions to ease the regulatory compliance through notifications from time to time. 

In the Indian Constitution, Schedule VII states two entries in the Concurrent List

– Entry 10: Trust and Trustee

– Entry 28: Charities and charitable institutions, charitable and religious endowments and religious institutions.

Parliament and State Legislature both are competent to make laws on such charitable organisations, However, Section 8 Companies are regulated and governed by the Companies Act, 2013. The Central Government alone has the jurisdiction to register and oversee them, as defined by the provisions of the Act and as prescribed in the Act, the Central Government has the exclusive right of registration and administration of such companies.[2]

In India, there are mainly the following types of Charitable organisations

– Section 8 Companies under the Companies Act 2013.

– Societies registered under section 20 of the Societies Registration Act 1860.

– Trusts formed under the Indian Trusts Act 1882.

Some examples of Section 8 companies are Azim Premji Foundation, Reliance Foundation, Reliance Research Institute, Coca Cola India Foundation and Amazon Academic Foundation.

Objective:

This research paper aims to:

• Examine the key privileges and exemptions available to Section 8 companies.
• Provide a comparative perspective with other non-profit structures (trusts, societies) and for-profit entities/companies.
• Highlight how these advantages enhance their operational efficiency and social impact.

Literature Review

Various studies have explored the role of Section 8 companies in promoting social welfare and public good. Academic research highlights how these companies have evolved under different legislative frameworks and how tax incentives encourage corporate participation in charitable activities. Several government circulars and notifications provide insights into regulatory guidelines, governance structures, and tax exemptions available to Section 8 companies.

The Companies Act, 2013, and the Income Tax Act, 1961, extensively address the financial privileges and compliance relaxations granted to Section 8 entities. Reports from the Ministry of Corporate Affairs (MCA) also shed light on Corporate Social Responsibility (CSR) funding eligibility, which significantly impacts how these companies attract donors and corporate investments.

Research Methodology

This research follows a qualitative analytical approach using:

Primary sources: Government acts, official circulars, notifications from the Ministry of Corporate Affairs (MCA), and judicial rulings.

Secondary sources: Research papers, academic articles, reports from NGOs, and case studies of successful Section 8 companies.

Comparative analysis: Evaluating Section 8 companies alongside other non-profit structures to highlight key differences in privileges, taxation, and operational constraints.

Analysis

Understanding Section 8 Companies

Definition and Purpose

Section 8 companies are not explicitly defined but are explained by the provisions of Section 8(1) of the Companies Act, 2013, which states that a person or an association of persons proposed to be registered under the Act as a limited company –

(a) Has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment or any such other object;

(b) Intends to apply its profits, if any, or other income in promoting its objects; and

(c) Intends to prohibit the payment of any dividend to its members

If the Central Government is satisfied, it grants a license permitting a person or association to get incorporated as a limited company without “Limited” or “Private Limited” in its name, as per the prescribed conditions. The Registrar shall, upon application in the prescribed form register the Company under this Section.[3]

As per the Notifications Vide no. S.O. 1352 (E) and S.O. 1353 (E) of the Government of India, Ministry of Corporate Affairs, dated 21st May 2014, Central Government in the exercise of the powers conferred by Section 458 of the Companies Act, 2013 and in supersession of the notification of the Government of India, Ministry of Corporate Affairs, dated the 10th July, 2012, vide no. S.O. 1539(E) delegates its power regarding Section 8 Company :

1. To Registrars of Companies:
2. Power to process applications for Section 8 company incorporation [Section 8(1)]
3. Authority to approve changes to the memorandum (except conversions to other company types) [Section 8(4)(i)]
4. Oversight of Section 8 company operations [Section 8(5)]
5. Approval of name changes [Section 13(2)]

1. To Regional Directors:
2. Authority over the conversion of Section 8 companies to other forms [Section 8(4)(i)]
3. Power to revoke Section 8 licenses [Section 8(6)]

The Central Government retains the right to revoke these delegations or exercise these powers directly when deemed necessary in the public interest.[4]

The Regional Director (powers delegated to RD at Mumbai, Kolkata, Chennai, New Delhi, Ahmedabad, Hyderabad and Shillong, vide MCA notification dated 19th December, 2016), may, by order, revoke the license granted to a company registered under this section if the company contravenes any of the requirements of this section or any of the conditions subject to which a license is issued or the affairs of the company are conducted fraudulently or in a manner violative of the objects of the company or prejudicial to public interest, and without prejudice to any other action against the company under this Act, direct the company to convert its status and change its name to add the word “Limited” or the words “Private Limited”, as the case may be, to its name.

Rule 8 (7) of Companies (Incorporation) Rules, 2014 states that for the Companies under section 8 of the Act, the name shall include the words foundation, Forum, Association, Federation, Chambers, Confederation, council, Electoral trust and the like etc.[5]

Charitable purpose has been defined under Section 2 (15) of the Income Tax Act 1961 as “charitable purpose” includes relief of the poor, education, yoga, medical relief, preserva­tion of the environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of gener­al public utility:

Provided that the advancement of any other object of a general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless –

• such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and
• the aggregate receipts from such activity or activities during the previous year do not exceed twenty per cent of the total receipts of the trust or institution undertaking such activity or activities, of that previous year.[6]

In this landmark case, Additional Commissioner of Income Tax v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC), the Supreme Court addressed whether the Surat Art Silk Cloth Manufacturers Association qualified as a charitable institution under Section 2(15) of the Income Tax Act, 1961. The central issue was whether an institution engaged in the advancement of an object of general public utility loses its charitable status if its activities involve profit. The Court held that the institution remains charitable as long as the dominant objective is charitable and not profit-making, even if incidental profits arise. The association’s purpose of promoting trade and commerce in art silk was deemed an object of general public utility, and since profits were incidental and not the main motive, it was eligible for tax exemption under Section 11.

Similarly, in the case of Assistant Commissioner of Income Tax (Exemptions) v. Ahmedabad Urban Development Authority 2022 INSC 1112, the Supreme Court has passed a similar Judgement stating that the Ahmedabad Urban Development Authority (AUDA) could claim income tax exemptions.

Key Features

1. Perpetual Existence: Section 8 Companies have perpetual existence, which means they can continue to exist even if the original members or founders of the company are no longer associated with it. This ensures the sustainability and continuity of the charitable activities undertaken by the company.
2. Non-Profit Nature: It is solely dedicated to charitable purposes, such as the promotion of science, arts, sport, religion, or social welfare, without a profit motive;
3. No Paid-Up Share Capital: They have not imposed any such requirement to have any minimum paid-up share capital like other companies do.
4. Limited Liability: Members enjoy limited liability, safeguarding personal assets from company obligations.
5. Government License: The Central Government issues a license for Section 8 companies, which can be revoked based on non-compliance.
6. Special Privileges: Gets special exemptions and benefits under the Act due to its charitable objective.
7. Flexible Membership: Permits individuals or firms/associations to be members.

Formation

1. Application made by new companies (Rule 19 of Companies (Incorporation) Rules, 2014)
2. Application to obtain a Digital Signature Certificate (DSC) for the proposed directors of the proposed Section 8 Company
3. Application in Form DIR-3 to obtain a Director Identification Number (DIN) for the proposed directors of the proposed Section 8 Company
4. Consent of directors in Form DIR-2 by individuals to declare their willingness and eligibility to become a director of a proposed Section 8 Company
5. Application in Form RUN to reserve the name of the proposed Company with the MCA
6. Application in Form INC-32 (SPICe+) to be made with the Registrar of Companies along with the fees as provided in the Companies (Registration Offices and Fees) Rules, 2014, and the following documents to be attached

– Memorandum of Association as per Form INC-13.

– Articles of Association.

– A declaration as per Form INC-9 that subscribers to the memorandum and the first directors of a company have not been convicted of any offences or found guilty of any fraud, misfeasance, or breach of duty
  related to company formation or management

– A declaration as per Form INC-14 (on a Stamp paper duly notarised) by a professional (Advocate, Chartered Accountant, Cost Accountant or Company Secretary in practice) stating that the draft of the MOA and
  AOA has been drawn up in conformity with the provisions of Section 8 and rules thereof, and that all the requirements of the Act and Rules thereof have been complied therewith.

– Declaration as per the Form INC-15 by the Subscribers.

– List of Details of Promoters, Directors, Key managerial personnel.

– 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.

– A statement specifying briefly the grounds on which the application is made.

– Approval/concurrence/NOC of the concerned authority/ sectoral regulator, department or Ministry of the Central or State Government(s).

If, Approved License is issued in Form INC-16 by the Registrar of Companies.

1. Application made by existing companies (Rule 20 Companies (Incorporation) Rules, 2014)

The Same procedure mentioned above for new companies with the following additional requirements:

– A declaration by each of the persons making the application in Form No.INC.15.

– Financial Statement, the Board’s Reports and the Auditor’s Report for each of the last 2 financial years.

– A statement showing the details of the assets (with the values) and the liabilities of the Company as on the date of application or within 30 days preceding that date.

– Certified true copy of resolutions passed at the Board Meeting/General Meeting approving registration of the Company under Section 8 of the Act.

– Publish a Notice in Form INC-26 within a week from the date of making the application to the Registrar in a vernacular newspaper and in an English newspaper circulating in the district in which the Registered

   The office of the proposed Company is to be situated or is situated.

If, Approved License is issued in Form INC-17 by the Registrar of Companies.

Registrar of Companies, after registering the Section 8 Company in its Register of Companies, will issue a Certificate of Incorporation in Form INC-11.

Privileges and Exemptions of Section 8 Companies

Exemptions given by the Central Government

In exercise of the power given by Section 462, sub-section 1, clauses (a) and (b) and in pursuance of sub-section 2, of Companies Act 2013 and in supersession of notification issued under section 25 of Companies Act, 1956, the Central Government introduced additional exemptions for Section 8 companies through a notification Vide no. G.S.R. 466 (E), dated 5^th June, 2015, along with the amendments made through the notification Vide no. G.S.R. 584 (E), dated 13^th June, 2017, published in the Official Gazette of India, of the Government of India, Ministry of Corporate Affairs, following are the Exemption/ Modification and Adaptation.

The exceptions, modifications and adaptations as specified in column (3) of the aforesaid Table, shall be applicable to the companies covered under Section 8 of the Companies Act 2013, which has not committed a default in filing its financial statements under section 137 or annual return under section 92 of the Act with the Registrar and while complying with such exceptions, modifications and adaptations, the companies shall ensure that the interests of their shareholders are protected.[7]

 1. Compliance Cost Reduction

Section 8 companies don’t have to follow many of the strict compliance requirements that apply to other companies. This indeed saves a lot of cost for such companies. This enables them to allocate more resources toward their social or charitable objectives instead of spending on legal and procedural formalities.

How it helps:

• They don’t need to appoint a qualified Company Secretary (CS) who is a member of ICSI – they can hire any competent person instead. (Sec 2(24))
• Fewer mandatory board meetings (only 2 per year instead of 4). This means less spending on meeting arrangements and documentation. (Sec 173)
• No requirement to form expensive committees like Audit, Nomination or Remuneration Committees. (Sec 177, 178)
• No need to maintain complex registers or detailed minutes unless the transaction is above ₹1 lakh. (Sec 118, 189)

• Operational Flexibility

Section 8 companies enjoy a flexible regulatory framework, making day-to-day functioning smoother. With simplified rules for holding meetings and appointing directors, these companies can adapt quickly to their internal needs without being overburdened by rigid corporate structures. This flexibility is especially useful for non-profits that often function with limited staff and need efficient internal coordination.

How it helps:

• AGMs can be held at any time and place, not strictly between 9 a.m. to 6 p.m. or only at the registered office. (Sec 96)
• Directors can pass important decisions via circulation without conducting meeting physically. (Sec 179)
• They don’t need to worry about appointing independent directors or managing the restrictions that come with them. (Sec 149-152)
• Quorum is easier to meet, just 2 minimum members instead of more complex rules. (Sec 174)

 3. Reduced risk of penalties

As the legal requirements are simplified, there is a lower chance of unintentional non-compliance. This minimises the risk of attracting penalties for technical defaults like delay in filing documents, not maintaining minutes, or not adhering to timelines. As a result, Section 8 companies can maintain a clean legal record and avoid unnecessary legal and financial complications that might arise from the strict enforcement of corporate law.

How it helps:

• No penalties for missing independent director appointments or committee formations. (Sec 149, 150, 178)
• Simplified notice periods (only 14 days) mean there’s less chance of late notifications and resulting fines. (Sec 101, 136)
• Disclosure rules for interested directors only apply to big transactions (above ₹1 lakh), reducing accidental non-compliance. (Sec 184, 189)
• Since Secretarial Standards don’t apply, companies won’t be penalised for not following them strictly. (Sec 118)

4. Faster Decision-Making

Due to reduced approval requirements and simplified formalities, Section 8 companies can initiate new projects and make funding decisions more swiftly, without being delayed by the extensive corporate compliance applicable to other companies.

How it helps:

• Normally, companies must give at least 21 days’ clear notice before holding a general meeting (like an AGM or EGM). Section 8 companies are allowed to give shorter notice periods (14 days) for meetings, making it easier to call and conduct meetings when needed. (Sec 101, 136)
• Section 8 companies are allowed to pass Board Resolutions by circulation, directors can simply sign and approve resolutions without waiting for a formal meeting. This saves time for core social activities and ensures faster approvals for donations, investments, and new projects. (Sec 179)

5. Startup-Friendliness

Easy and Online Formation Process: Earlier, setting up a company involved heavy paperwork, manual filings, and physical visits to government offices. Now, the entire process from name approval to license application and incorporation is completely done online through the MCA (Ministry of Corporate Affairs) portal.

How it helps:

• Quick Setup for Founders: They can register their Section 8 company from anywhere in India without visiting any office. It lowers cost and simplifies the process, ie. Step-by-step guidance is available on the MCA website, making it accessible even to first-time entrepreneurs.
• Can get Faster Approvals as Online filing and digital signatures (DSCs) speed up the approval of licenses and registration certificates. Which makes it easier to raise funds, open bank accounts, and gain public trust.
• Easy compliance structure encourages more social entrepreneurs and NGOs to incorporate legally and receive funding or grants
• No need for minimum paid-up capital (earlier ₹1 lakh for private, ₹5 lakh for public companies). (Sec 2(68), 2(71))
• Flexibility in the appointment of directors and secretaries makes the setup faster and cheaper. (Sec 2(24), 152)

Tax Benefits and Compliance under the Income Tax Act, 1961

Section 8 companies enjoy significant tax advantages under the Income Tax Act, 1961, benefiting both the organisation and its donors:

1. Donor Benefits:

Donors can claim a 50% tax deduction on contributions made to Section 8 companies if the Section 8 companies are registered under Section 80G of the Income Tax Act 1961.

1. Tax Exemption for the Company:

If the Section 8 company is registered under Section 12AA of the Income Tax Act 1961, the company’s entire income (including profits) becomes tax-exempt, provided funds are used for charitable purposes.[8]

1. Government Support:

The Central Government periodically introduces compliance relaxations and incentives to encourage non-profit activities, ensuring favourable tax conditions under the Income Tax Act, 1961, which enable Section 8 companies to claim tax-exempt status and provide donors with eligible tax deductions. Section 8 companies are also eligible for Corporate Social Responsibility (CSR) funding, as per the mandatory requirements under Section 135 of the Companies Act, 2013, and are eligible for Government grants.

Section 8 companies are generally preferred over Trusts and Societies for CSR funding and Government grants, as they are perceived as more credible and structured, given their status as licensed companies. Additionally, the penalties for non-compliance are comparatively reduced for Section 8 companies, as provided under the Companies (Amendment) Act, 2020.

1. Annual Compliance:

Annual compliance for Section 8 companies is necessary to maintain their tax-exempt status and ensure smooth operations. Key compliance requirements include

• Holding at least two board meetings per year and conducting an Annual General Meeting (AGM) within six months of the financial year’s end, and a report of the Annual General Meeting must be furnished to the ROC in the form MGT-15 within 30 days from the date of the meeting.
• Required to hold and maintain a statutory register of its members, loans obtained, charges created, directors, and so on, and to be revised annually to check the status of the company.
• Appointment of Auditor as per Section 139 of the Act mandates to appointment of an auditor to handle its yearly financial reports and intimate to the ROC in Form ADT-1 within 15 days from the date of appointment of the auditor. The auditor holds office from the first AGM to the end of the sixth AGM, which is 5 years.
• The Board of Directors shall file its board’s report, which shall include all Financial Statements and other annexures, and it must be submitted to the ROC in Form AOC-4 within 30 days of the date of the annual general meeting.
• The annual return must be filed with the ROC in Form MGT-7, within 60 days after the annual general meeting
• Income Tax Returns must be filed with the ROC in Form ITR-7 by the 30th of September at the end of each assessment year, even if the company’s income is exempt from tax. To continue benefiting from tax exemptions under Section 12AA /12AB,
• Section 8 companies must renew their registration every five years. Maintaining these filings and complying with the Companies Act, 2013 and Income Tax Act, 1961 ensures that the company remains compliant and can continue benefiting from its non-profit status.
  
  

Comparative Analysis: Section 8 Companies vs. Other Structures

Section 8 Companies vs. For-Profit Companies

1. Legal Framework & Registration

• Compliance & Governance

• Taxation & Financial Aspects

Section 8 Companies vs. Other Non-Profit Structures

Section 8 Companies vs. Trusts

a) Formation & Structure

b) Compliances

c) Liability & Risk

c) Tax

d) Funding  

Section 8 Companies vs. Societies

a) Registration & Governance

b) Compliance & Transparency

Key Differences: Legal, Financial, and Operational

A Section 8 Company under the Companies Act, 2013 (specifically Section 8) is incorporated for promoting charitable objectives such as education, science, arts, environment, or social welfare, without distributing profits to its members. The formation is entirely online through the Ministry of Corporate Affairs (MCA) portal, involving the filing of SPICe+ forms, Memorandum (MOA), Articles (AOA), and obtaining a license under Section 8 from the Registrar of Companies (RoC). In contrast, a Public Trust under the Maharashtra Public Trusts Act, 1950, is created by executing a Trust Deed and registering it with the Charity Commissioner. A Society under the Societies Registration Act, 1860, is formed when at least seven individuals come together with a common charitable purpose and register it before the Registrar of Societies at the state level.

In terms of structure and governance, Section 8 Companies must appoint a Board of Directors and adhere to corporate governance practices such as holding Board Meetings, maintaining statutory registers, and filing annual reports. Trusts are managed by trustees with relatively flexible internal management, while Societies are governed by a Governing Body or Managing Committee as per their registered Memorandum and Rules. Section 8 Companies offer higher levels of transparency and accountability compared to Trusts and Societies.

Annual compliance for a Section 8 Company is more structured and is filed online through the MCA portal. Financial Statements must be filed using Form AOC-4, and Annual Returns must be filed using Form MGT-7 before the ROC every year. Additionally, Income Tax Return (Form ITR-7) must be filed with the Income Tax Department. Practically, companies often engage a Chartered Accountant or a Company Secretary to manage these filings, and filings must be completed within 30–60 days after the Annual General Meeting (AGM). Public Trusts must submit audited accounts, budgets, and a change report (if applicable) annually to the Charity Commissioner as per Sections 32 to 36 of the Maharashtra Public Trusts Act 1950. Societies must file a list of members, annual financial statements, and any amendments with the Registrar of Societies annually under Section 4 of the Societies Registration Act 1890.

Penalties for non-compliance vary across the three structures. For Section 8 Companies, under the Companies (Amendment) Act, 2020, the penalties have been decriminalised and made monetary. If a Section 8 Company fails to comply with conditions of the license, be punishable with fine which shall not be less than ten lakh rupees but which may extend to one crore rupees and the Director and every officer of the company who is in default shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to twenty-five lakh rupees (Section 8(11) of the Companies Act, 2013). Trusts that fail to submit annual accounts or other mandatory filings may face inquiries, penalties, and even removal of trustees under the Maharashtra Public Trusts Act. Societies face cancellation of registration, penalties, and forfeiture of grants or benefits if annual filings are not properly made.

Tax benefits are available for all three forms under the Income Tax Act, 1961. They can register under Section 12AA/12AB for tax exemption and Section 80G to provide deductions to donors. However, practically speaking, Income Tax Authorities often scrutinise Trusts and Societies more strictly because of flexible governance structures, while Section 8 Companies, due to their corporate transparency, are favoured for quicker approvals.

Funding and grants also highlight practical differences. Section 8 Companies are strongly preferred for Corporate Social Responsibility (CSR) funding under Section 135 of the Companies Act, 2013, government grants, and foreign contributions under the Foreign Contribution (Regulation) Act, 2010 (FCRA). Trusts and Societies are eligible for CSR funding only if registered under 12A/80G and with additional certifications, but donors prefer Section 8 Companies for their transparent operations, standard auditing, and structured management.

Thus, while all three, ie. Section 8 Companies, Trusts, and Societies can be used for charitable purpose, a Section 8 Company provides stronger legal standing, better credibility, access to larger funds, easier corporate governance, and more structured compliance, making it a preferred form especially when dealing with larger projects, national or international donors, and government collaborations.

Challenges and Limitations of Section 8 Companies

While Section 8 Companies under the Act offer several benefits for promoting charitable and non-profit objectives, they are also subject to certain challenges and limitations that impact their operations. These challenges stem from regulatory, procedural, and practical aspects, despite efforts by the government (such as through the Companies (Amendment) Act, 2020) to ease compliance.

1. Strict Regulatory Framework

Section 8 Companies must comply with almost all the provisions applicable to private or public limited companies under the Companies Act, 2013, unless specifically exempted (such as through notifications and Amendment Rules for relaxations.
Key compliances include

– Holding a minimum of two board meetings every year.

– Filing Form AOC-4 (Financial Statements) and MGT-7 (Annual Returns) with the ROC.

– Maintenance of statutory registers under Section 88.

– Mandatory appointment of an auditor under Section 139.

Failure to comply can result in penalties under Section 8(11) of the Companies Act. for instance, a fine which shall not be less than ten lakh rupees but which may extend to one crore rupees and the Director and every officer of the company who is in default shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to twenty-five lakh rupees, even though criminal penalties have been largely decriminalized by the Companies (Amendment) Act, 2020.
Practical challenge: Many social entrepreneurs, small NGOs, and charitable groups find it difficult to maintain this level of compliance, compared to the easier systems for Trusts and Societies.

2. License Requirement and its Revocation Risk

Section 8 Companies must obtain a special license from the Central Government (delegated to Regional Directors) under Section 8(1) and (2) of the Companies Act, 2013. The license can be revoked if the company violates its objectives, engages in profit-making activities, or fails to comply with government directions (Section 8(6) and 8(7)).
Once revoked, the company may be wound up or converted into a regular company. This makes long-term sustainability highly dependent on maintaining strict adherence to its non-profit objectives.

3. Limited Flexibility in Changing Objectives

Section 8 Companies are heavily restricted in altering their main objectives. Under Section 8(4)(c), any alteration of the Memorandum or Articles requires:

– Approval from the Central Government (delegated to Regional Directors).

– Filing with the ROC and public notice if required.

In contrast, Trusts and Societies have comparatively easier procedures for modifying their objectives or activities through amendments to their Trust Deed or Rules.

4. Funding Challenges

Although Section 8 Companies are eligible for CSR funding (under Section 135 of the Companies Act), FCRA registration (under the Foreign Contribution Regulation Act, 2010) for receiving foreign contributions, and various government grants, practically:

FCRA registration has become stricter after the FCRA Amendment Act, 2020, requiring a minimum existence of 3 years and meeting stringent criteria such as spending a minimum amount on its core activities. Certain CSR contributors prefer funding well-established NGOs or hybrid models (e.g., Trust + Company) rather than new Section 8 Companies. Moreover, CSR rules (amended via the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021) require CSR funding entities to have an active 3-year track record for some grants.

5. No Ownership Rights for Promoters

Promoters and members of a Section 8 Company do not have ownership rights. They cannot claim profits, dividends, or assets even if the company is dissolved (Section 8(9)). Upon dissolution, the assets must be transferred to another company with similar objectives or to the government as per directions of the Tribunal under Section 8(10).
Practical challenge: This discourages certain entrepreneurs who want some level of retained control over the entity’s long-term outcomes.

6. Limited Awareness

In many rural or small-town settings, there is limited knowledge about Section 8 Companies among grassroots organisations. As a result, many prefer simpler structures like Public Trusts (registered under the Maharashtra Public Trusts Act, 1950) or Societies (under the Societies Registration Act, 1860), which require less procedural knowledge, lower costs, and fewer regulatory compliance.

7. Higher Cost of Maintenance

Hiring qualified professionals such as Chartered Accountants (CA), legal advisors, and using professional software for MCA filings involves higher costs, which may be a burden for small Section 8 Companies operating on tight budgets. In comparison, Trusts and Societies often operate informally with minimal administrative expenses.

Case Studies

1. Dr. Dipen Kailash Chandra Agarawal & Others v. Nag Vidarbha Chamber of Commerce & Others (C.A. 654/2022, NCLT Mumbai)

This case involved a Section 8 company (Nag Vidarbha Chamber of Commerce) accused of oppression and mismanagement by its members. The petitioners, representing a minority of members, sought a waiver of the threshold requirement under Section 244(1)(b) of the Companies Act, 2013, which mandates that at least one-fifth of members must support such a petition for companies without share capital. The petitioners alleged that the respondent (the company’s president) engaged in fraudulent activities, including manipulating membership rolls and misusing company assets. The NCLT initially appointed an administrator, whose report supported the petitioners’ claims.

Decision Highlight:
“The NCLT granted the waiver under Section 244(1)(b), allowing the minority petitioners to proceed with their oppression and mismanagement claim, citing ‘exceptional circumstances’ due to the company’s public-interest role as a Section 8 entity. However, it recalled the administrator’s appointment, ruling that the interim order was premature since the waiver application was still pending when the administrator was appointed. The tribunal directed the Registrar of Companies and the Economic Offences Wing to investigate the alleged mismanagement.”

This case underscores the NCLT’s discretionary power to relax procedural requirements for Section 8 companies when public interest is at stake, while also emphasizing the need for strict jurisdictional adherence in interim orders. For researchers, it highlights the tension between minority rights and corporate governance in non-profit structures, offering insights into judicial balancing acts in such disputes.

• Union of India v. Delhi Gymkhana Club Limited (C.P. No. 71 of 2020, NCLT New Delhi)

Facts of the Case:

The case involved a petition filed by the Union of India against Delhi Gymkhana Club, a Section 8 (non-profit) company operating on 27 acres of prime government-leased land in Delhi, which involved allegations of mismanagement and oppression under Sections 241-242 of the Companies Act, 2013

Club members filed various complaints with the Ministry of Corporate Affairs (MCA) regarding mismanagement of club affairs. MCA initiated actions under the Companies Act after noticing irregularities in the Club’s operations, subsequent inspections revealed numerous violations of company law provisions

The Club was accused of:

• Maintaining exclusionary membership policies favouring children of permanent members
  • Mismanaging funds by treating membership fees of new applicants for membership as revenue rather than refundable deposits
  • Violating multiple provisions of the Companies Act regarding governance and accounting
  • Misusing its land primarily for recreational activities rather than sports promotion
  • Creating artificial membership categories to bypass waitlisted applicants

Key Arguments:
The Union of India presented inspection reports showing:

• The general committee acted ultra vires to the articles of association
• Extreme violations of the Companies Act provisions
• Autocratic functioning benefits select members through hereditary privileges
• Detrimental impact on public interest

The Club defended its autonomy under Article 19’s right to form associations, arguing its policies were internal matters and not prejudicial to public interest.

Tribunal’s Decision:
The NCLT ruled decisively in favour of the Union of India, holding that:

1. The Club’s hereditary membership system and financial practices were prejudicial to public interest under Section 241(2)
2. As a Section 8 company enjoying government land, it had higher obligations to serve the public rather than private interests
3. The right to form associations cannot justify the monopolisation of public resources
4. The Club’s minimal spending on sports (3%) versus recreation (60%) violated its foundational objectives

This bench further directs that:

1. Appointment of two government nominees to the General Committee
2. Constitution of a five-member Special Committee to investigate all irregularities
3. Strict restrictions on the General Committee:
   1. No new constructions or further construction on site
   1. No policy decisions
   1. No changes to MOA/AOA
   1. No dealing with funds received for member admissions
   1. No balloting until further orders
4. The General Committee was permitted to continue only day-to-day functions using funds other than membership fees

The judgment established that entities benefiting from state resources must maintain transparency and equitable access, setting an important precedent for governance of privileged institutions under company law. The decision balanced corporate autonomy with constitutional principles of equality and distributive justice, while specifically addressing the autocratic and hereditary practices that had developed in the Club’s management.

Conclusion

• The findings of this research highlight the significant role played by the Section 8 companies in advancing India’s social development agenda, facilitated by their distinctive legal status under the Companies Act, 2013. These not-for-profit entities enjoy significant regulatory advantages, including exemptions from certain compliance requirements while simultaneously qualifying for critical tax benefits under Sections 12A and 80G of the Income Tax Act, 1961. This dual advantage of simplified governance structures and financial incentives enables them to operate more efficiently in pursuing their social missions. The framework allows these organisations to access corporate social responsibility (CSR) funding streams, creating sustainable financing channels that complement traditional philanthropic donations. Compared to alternative structures like trusts or societies, Section 8 companies demonstrate superior organisational credibility, enhanced capacity for scaling operations, and more robust accountability mechanisms, which make them particularly attractive to impact-focused donors and institutional funders. However, this model also presents certain operational complexities, particularly in maintaining compliance with the stringent reporting requirements and restrictions on profit distribution that define their legal status. Practical case studies reveal how successful Section 8 companies have navigated these challenges, strategically utilising their privileged position to maximise social outcomes while adhering to regulatory expectations
• For stakeholders, the implications of these findings are multifaceted. Policymakers may consider ways to streamline compliance requirements to support the growth of such entities, while ensuring adequate safeguards against misuse. Social entrepreneurs and NGOs could benefit from the credibility and funding opportunities associated with the Section 8 structure, provided they maintain transparency and accountability. For corporates and investors, these companies present a viable avenue for aligning CSR and impact investments with measurable social outcomes.
• Looking ahead, there is potential for further research to explore how regulatory changes might influence the functioning of Section 8 companies, as well as comparative studies with similar models globally. Investigating sustainable funding mechanisms and sector-specific applications could also provide deeper insights into optimising their impact. Ultimately, Section 8 companies represent a vital component of India’s social development landscape, and their continued evolution will depend on collaborative efforts to address existing challenges while harnessing emerging opportunities.

References

• Government of the United Kingdom. (1948). Companies Act 1948 (11 & 12 Geo. 6 c. 38). Legislation.gov.uk. https://www.legislation.gov.uk/ukpga/Geo6/11-12/38/enacted
• Ministry of Corporate Affairs, Government of India. (2013). Companies Act, 2013. https://www.mca.gov.in/content/dam/mca/pdf/CompaniesAct2013.pdf
• Income Tax Department, Government of India. (2025). Income Tax Act, 1961 (as amended by Finance Act, 2025).  https://incometaxindia.gov.in/Documents/income-tax-act-1961-as-amended-by-finance-act-2025.pdf
• Ministry of Corporate Affairs, Government of India. (n.d.). FAQs on Section 8 Companies. Institute of Company Secretaries of India. https://www.icsi.edu/media/webmodules/publications/FAQs_on_Section_8_Companies.pdf
• Ministry of Corporate Affairs, Government of India. (2014). Notification Document S.O. 1353 (E).  www.mca.gov.in/bin/ebook/dms/getdocument?doc=MTM0MjE=&docCategory=Notifications&type=open
• Ministry of Corporate Affairs, Government of India. (2014). Notification Document S.O. 1352(E). www.mca.gov.in/bin/ebook/dms/getdocument?doc=MTM0Mjg=&docCategory=Notifications&type=open
• Ministry of Corporate Affairs, Government of India. (2014). Notification Document G.S.R. 250(E).www.mca.gov.in/bin/ebook/dms/getdocument?doc=MTQyODk=&docCategory=Notifications&type=open
• Ministry of Corporate Affairs, Government of India. (2015). Notification Document G.S.R. 466(E).https://www.mca.gov.in/bin/ebook/dms/getdocument?doc=NzY1MQ==&docCategory=Notifications&type=open
• Ministry of Corporate Affairs, Government of India. (2017). Notification Document G.S.R. 584(E).  https://www.mca.gov.in/bin/ebook/dms/getdocument?doc=NzY0Nw==&docCategory=NotificationsAndCirculars&type=open
• Income Tax Department, Government of India. (n.d.). Trusts and taxation. https://incometaxindia.gov.in/pages/i-am/trust.aspx

[1] https://www.legislation.gov.uk/ukpga/Geo6/11-12/38/enacted

[2] https://www.icsi.edu/media/webmodules/publications/FAQs_on_Section_8_Companies.pdf

[3] https://www.mca.gov.in/content/dam/mca/pdf/CompaniesAct2013.pdf

[4]www.mca.gov.in/bin/ebook/dms/getdocument?doc=MTM0MjE=&docCategory=Notifications&type=open www.mca.gov.in/bin/ebook/dms/getdocument?doc=MTM0Mjg=&docCategory=Notifications&type=open

[5]www.mca.gov.in/bin/ebook/dms/getdocument?doc=MTQyODk=&docCategory=Notifications&type=open

[6] https://incometaxindia.gov.in/pages/i-am/trust.aspx

[7]https://www.mca.gov.in/bin/ebook/dms/getdocument?doc=NzY1MQ==&docCategory=Notifications&type=open

https://www.mca.gov.in/bin/ebook/dms/getdocument?doc=NzY0Nw==&docCategory=NotificationsAndCirculars&type=open

[8] https://incometaxindia.gov.in/Documents/income-tax-act-1961-as-amended-by-finance-act-2025.pdf