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WHAT IS THE MINIMUM MEMBER REQUIRED TO FORM A SECTION 8 COMPANY?

WHAT IS THE MINIMUM MEMBER REQUIRED TO FORM A SECTION 8 COMPANY?

Introduction

YOU NEED TO KNOW WHAT IS THE MINIMUM MEMBER REQUIRED TO FORM A SECTION 8 COMPANY?

To form a Section 8 Company in India, there are certain legal requirements regarding the minimum number of members, directors, and subscribers. The Companies Act, 2013, and related regulations provide the framework for the formation and operation of Section 8 Companies. In this essay, we will explore the minimum member requirements, the roles of members, and the key steps involved in establishing a Section 8 CompanyVisitofficialwebsite

UNDERSTANDING SECTION 8 COMPANY

A Section 8 Company, as defined under Section 8 of the Companies Act, 2013, is a unique legal entity in India. It is specifically designed for organizations with non-profit and charitable objectives. The core mission of Section 8 Companies is to promote activities related to education, science, sports, social welfare, religion, charity, and the protection of the environment. These organizations are established with the primary purpose of serving the public good and are not for profit or dividend distribution.

MINIMUM MEMBER REQUIREMENT

The minimum member requirement for a Section 8 Company is as follows:

  1. Minimum Number of Members: A Section 8 Company must have a minimum of eight members. These members can be individuals or legal entities, including companies and LLPs (Limited Liability Partnerships).

  2. Minimum Number of Directors: A Section 8 Company must have a minimum of two directors. One of these directors can also be a member of the company. Directors are responsible for managing the company’s affairs, and they may be individuals or legal entities.

  3. Minimum Number of Subscribers: To initially register a Section 8 Company, you need at least seven subscribers who are individuals. Subscribers are those who express their intention to become members of the company and subscribe to its memorandum and articles of association. One of the subscribers can also be a director.

It’s important to note that while the minimum requirement is for eight members, two of whom should be directors, in practice, a Section 8 Company can have more members and directors as needed. The members and directors play distinct roles within the organization.

ROLE OF MEMBER AND DIRECTOR IN A SECTION 8 COMPANY

  1. Members:

    • Members are individuals or legal entities that hold a membership interest in the Section 8 Company. Membership interest typically represents a stake in the company and the right to participate in the company’s activities.

    • Members have the right to attend and vote at general meetings, which can include the annual general meeting and extraordinary general meetings. Their voting rights are typically proportional to their membership interest.

    • Members may also participate in the decision-making process of the company by voting on matters such as changes to the memorandum and articles of association, the appointment and removal of directors, and approval of financial statements.

    • While Section 8 Companies are non-profit in nature, members play an important role in shaping the organization’s mission, objectives, and governance through their participation in general meetings.

  2. Directors:

    • Directors are responsible for managing the company’s day-to-day affairs, including administrative, financial, and operational matters.

    • Directors have fiduciary duties to act in the best interests of the Section 8 Company and to ensure that its charitable objectives are fulfilled.

    • Directors are typically appointed or elected by the members, and their roles may include serving as the managing director, executive director, or non-executive director, depending on the company’s specific structure.

    • Directors also play a key role in ensuring compliance with legal and regulatory requirements, including the Companies Act, and in maintaining the company’s transparency and accountability.

    • While the minimum requirement for directors is two, Section 8 Companies can have additional directors as needed to effectively manage their operations and achieve their charitable objectives.

What is the quorum for Section 8 company

As per the exemption notification read with sections 173(1) and 174(1), Section 8 companies must have at least one meeting within a period of 6 calendar months and the quorum for its board meetings is 8 directors or 1/4th of its total strength, whichever is less, respectively.

KEY STEPS TO ESTABLISH A SECTION 8 COMPANY

  1. Name Reservation: The first step in forming a Section 8 Company is to reserve a suitable name for the company. The name should align with the company’s charitable objectives and should not resemble the name of any existing company. The name should also include the words “Section 8” or “Section 8 Company.”

  2. Drafting Memorandum and Articles of Association: The next step involves drafting the memorandum and articles of association, which outline the company’s objectives, rules, and regulations. These documents must align with the non-profit and charitable purposes of Section 8 Companies.

  3. Obtaining Digital Signatures: To complete the online registration process, the directors and subscribers of the Section 8 Company need to obtain digital signatures. Digital signatures are required for electronically signing documents.

  4. Applying for Director Identification Number (DIN): Directors of the company need to apply for a Director Identification Number (DIN), which is a unique number issued by the Ministry of Corporate Affairs. DIN is required for directorship in any company.

  5. Filing the Application: The Section 8 Company must file an application with the Registrar of Companies (ROC) in the prescribed format. This application should include all the necessary documents, such as the memorandum and articles of association, digital signatures, and the necessary fees.

  6. Review and Approval: The ROC will review the application and documents to ensure compliance with legal requirements. If everything is in order, the ROC will approve the registration.

  7. Certificate of Incorporation: Upon approval, the ROC will issue a Certificate of Incorporation, confirming the formation of the Section 8 Company.

  8. Obtaining a Certificate of Commencement of Business: If the Section 8 Company plans to receive donations or funds, it must apply for a Certificate of Commencement of Business. This certificate allows the organization to commence its non-profit activities.

Can a small company be a Section 8 company

As per proviso to section 2(85), section 2(85) does not apply to a Section 8 Company and accordingly, a Section 8 Company cannot be treated as a small company. Likewise, a small company on conversion to a Section 8 Company shall cease to be a small company.

MINIMUM MEMBER REQUIRED TO FORM A SECTION 8 COMPANY

What is Section 8 company applicability

Here are some key points regarding the applicability of Section 8 companies:

  1. Non-profit Objective: Section 8 companies are formed for promoting charitable or non-profit objectives. The profits, if any, are applied towards promoting the company’s objectives, and they are not distributed among the members as dividends.

  2. License Requirement: To be recognized as a Section 8 company, an organization needs to obtain a license from the Central Government. This license is essential for the company to be registered under Section 8.

  3. Name of the Company: The name of a Section 8 company usually ends with words like Foundation, Association, Society, Council, Club, Charities, Institute, Organization, Federation, Chamber of Commerce, etc.

  4. No Minimum Capital Requirement: Unlike other types of companies, there is no minimum capital requirement for a Section 8 company.

  5. Tax Benefits: Section 8 companies may be eligible for tax exemptions under the Income Tax Act, as they are formed for charitable purposes.

  6. Restrictions on Dividends: As per the regulations, a Section 8 company cannot distribute any dividends to its members. Any income or profits earned must be applied towards the promotion of the company’s objectives.

Can Section 8 company be public or private

A Section 8 company in India can be either a public company or a private company, as the distinction between public and private companies is based on factors such as the number of members, transferability of shares, and public invitation to subscribe for shares. The choice between public and private status depends on the organization’s structure and goals. Both public and private Section 8 companies must comply with the regulations outlined in the Companies Act, 2013. The primary focus remains on promoting charitable or non-profit objectives, regardless of whether the company is public or private in nature.

How many shareholders does a Section 8 company have

A Section 8 company in India, as per the Companies Act, 2013, can have any number of shareholders, and there is no specific minimum or maximum limit prescribed by law. The focus of Section 8 companies is on promoting charitable or non-profit objectives, and the emphasis is placed on the organization’s activities and purposes rather than the number of shareholders. The formation of a Section 8 company requires the approval of the Central Government, and the company must obtain a license to operate. The regulatory framework allows flexibility in terms of the number of shareholders, enabling these companies to attract individuals, institutions, or entities that share a commitment to the organization’s charitable goals. The key criterion is the dedication to using any income or profits for the promotion of the specified objectives rather than distributing dividends to the shareholders.

Can Section 8 company be consolidated

The term “consolidation” in the context of a Section 8 company typically refers to the financial reporting practice of combining the financial statements of a parent company and its subsidiaries. In the case of Section 8 companies in India, they may have subsidiaries, associates, or joint ventures, and the accounting standards require the consolidation of their financial statements if certain criteria are met. The decision to consolidate is primarily guided by the level of control the Section 8 company has over its subsidiaries.

While Section 8 companies are formed for charitable or non-profit purposes, they may engage in activities that involve financial transactions with other entities. If a Section 8 company has subsidiaries or associates that meet the criteria for consolidation under accounting standards, it would typically follow the applicable accounting principles to consolidate the financial information of these entities. However, the primary focus of a Section 8 company remains on advancing its charitable objectives, and financial reporting practices would be in accordance with relevant accounting standards and regulations.

CONCLUSION OF MINIMUM MEMBER IN SECTION 8 COMPANY

A Section 8 Company in India is a legal structure designed for non-profit and charitable organizations. It must have a minimum of eight members, two directors, and seven subscribers to register and commence its operations. While the minimum requirements are specified by the Companies Act, 2013, Section 8 Companies can have additional members and directors as needed to effectively fulfill their charitable objectives. These organizations play a vital role in advancing charitable, educational, cultural, religious, social, and environmental activities for the benefit of society.

HOW AURIGA ACCOUNTING HELP YOU TO DEFINE MINIMUM MEMBER OF SECTION 8 COMPANY

1. Initial Consultation:

  • Auriga Accounting can begin by conducting an initial consultation with individuals or organizations interested in establishing a Section 8 Company. During this consultation, they will assess the specific charitable objectives and goals of the entity, which will determine the ideal number of members required.
 

2. Legal Guidance:

  • Section 8 Companies are subject to legal and regulatory requirements under the Companies Act, 2013. Auriga Accounting can provide legal guidance to ensure that the organization complies with the minimum member requirements stipulated by the law.
 

3. Membership Structure:

  • Auriga Accounting can help define the membership structure of the Section 8 Company based on the entity’s goals. This includes determining the minimum and maximum number of members and subscribers necessary to support and fulfill the non-profit and charitable objectives.
 

4. Drafting Memorandum and Articles of Association:

  • The memorandum and articles of association of a Section 8 Company play a crucial role in defining the minimum member requirements, governance structure, and charitable objectives. Auriga Accounting can assist in drafting these documents to align with the specific goals of the entity while meeting legal standards.
 

5. Application Preparation:

  • Auriga Accounting can prepare the application for the formation of the Section 8 Company, ensuring that it includes all necessary information regarding the members, subscribers, and directors. They will verify that the application meets legal requirements.
February 26, 2024

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