A guide to Commencing Business in India

A business is defined as an organization or entity involved in commercial, industrial, or professional activities providing goods or services to the public. Businesses can be profit entities or non-profit organizations fulfilling a charitable mission or furthering a social cause. Businesses range in scale and scope from sole proprietorships to large, international corporations.

When you start a business, you will have to decide which business structure (also legal structure or business form) to adopt. All business organizations have a few common characteristics: the formal structure business objectives, the use of resources, the requirement of direction, and the legal regulations controlling them. Based on factors such as the degree of liability, tax regulations, and applicable laws, business organizations are divided into the following:

• Sole Proprietor
• Partnership
• Companies / Corporations
• Limited liability companies
• Foreign Subsidiary
• Not-for-Profit Organization (Section 8 Companies)

Types of legal entities with features, advantages, and registration requirements:

1. Proprietorship Firm

A Sole proprietorship can be explained as a kind of business or an organization that is owned, controlled, and operated by a single individual who is the sole beneficiary of all profits or losses, and responsible for all risks. It is a popular kind of business, especially suitable for small businesses at least for their initial years of operation. Sole Proprietorship firm does not require any formal registration.

The legal status of a sole proprietor can be defined as follows:

• It is not a separate legal entity from the business owner.
• The business owner has unlimited liability.
• It can sue or be sued in the owner’s name.

Features of Sole Proprietorship:

• Minimum Formality: A sole proprietorship does not have a separate regulation to govern it. And so, there are not many special policies and rules to comply with. moreover, it no longer requires incorporation or registration of any kind.

• No Separate Entity:  Without the sole trader, the business has no identity because he is the only person who performs all the business activities. No separate legal identity will be bestowed upon the sole proprietorship.

• Continuity: As the business and owner are the same, death, retirement, bankruptcy, insanity, imprisonment, etc will affect the sole proprietorship. In such a situation, the proprietorship will cease to exist and the business will come to an end. So, the sole proprietorship is dependent on its owner.

• Liability: Since there is no separation between the owner and the business, the personal liability of the owner is also unlimited. He is personally liable for all the debt that can be recovered from his estate when funds are insufficient.

• Sole Risk Bearer and Profit Recipient: A sole proprietor is the only one who bears all the risks related to business. All the profits and losses which are earned from the business are to be enjoyed by the sole owner. So, he must bear the full risk in exchange for enjoying full profit.

Advantages of Sole Proprietorship:

• Ease of formation: The establishment of a sole tradership concern is easier as compared to other forms of organization. A person with a small amount of capital can start the business without undergoing many legal formalities.

• Flexibility: The sole trader is free to change the nature and scope of his business operations, whenever the situation demands. The flexibility is available because the sole trader is the sole owner of the business.

• Quick Decisions: Sole proprietorship concern facilitates quick decision-making and prompt action. Exclusive control and direction of the proprietor result in increased efficiency, production of quality products, and reductions of costs.

• Confidentiality of information: A sole proprietor has the authority to make his decisions regarding business activities. Since the sole owner is the only decision-maker of the business, he keeps all the business-related information confidential. Hence, a sole trader is not bound by law to bring out its accounts in the eye of the public.

• Minimum Government Regulation: The sole tradership firm is subject to the minimum control of Government regulations. The sole trader has to comply with income tax, sales tax, and labor laws. He is not subject to special legislation as in the case of companies and partnership firms. The dissolution of the firm is also easy.

• Low overhead cost: The overhead costs of management are less as compared to other forms of business enterprises. Since the sole trader himself manages the business, he can achieve greater economy in the business operations.

• Sense of Accomplishment: A small success of the business gives the feeling of fulfillment of the goals of the business and he gets motivated. Hence, getting profits or long-term benefits gives him a feeling of personal satisfaction.

2. Partnership Firm

A partnership firm represents a business entity that is formed to make a profit from the business. Two or more parties come together with a formal agreement known as a partnership deed to own and manage the business. It is governed by the Indian Partnership Act, of 1932.

Essential elements of a partnership:

• An Agreement: The most important requirement of a partnership firm is that there must be an agreement between the partners to start a partnership firm. The partnership is a result of a contract. It does not arise from status, operation of law, or inheritance. Thus, at the time of the death of the father, who was the partner in the partnership firm, the son can claim a share in the partnership property but cannot become a partner unless he enters into a contract for the same with the other partners.

• Maximum no. of partners: As a partnership is a result of the contract, at least 2 persons are necessary to constitute a partnership. The Indian Partnership Act, of 1932 does not mention anything about the maximum no. of partners in a partnership firm but as per the Companies Act, a partnership consisting of more than 10 persons for a banking business and more than 20 persons for any other business is considered illegal. Hence, these should be regarded as the maximum limits to the number of partners in a partnership firm.

• Sharing of Profits: Earning a profit must be the core objective of running a partnership firm. If two or more people start a non-profit organization, it will not be considered a partnership firm. The profits earned by a partnership firm should be shared among the partners as determined by the contract.

• Running a business: The essential element of a partnership is that the parties must have agreed to carry on a business. Every partner in a partnership firm has the right to carry out business decisions for the benefit of the partnership as well as for individual partners. A mutual agency among the partners is necessary, empowering every partner to decide for himself and on behalf of others.

Types of Partnership:

• Partnership at will: The partnership where there is no provision made by contract between the partners for the duration of the partnership, or the determination of their partnership.

• Particular Partnership: A particular partnership is temporary and is usually created to carry out a project. It is formed when the partners mutually decide on a specific date to end the partnership. Instead of a date, they can also decide to dissolve the partnership when the specific objective of the partnership is achieved.

Types of Partners:

Type of partner	Role
Active Partner	An active partner is involved in the day-to-day business operations
Dormant Partner	A dormant partner is a partner by agreement but does not get involved in day-to-day business operations.
Nominal Partner	The nominal partner neither invests money nor takes active participation in the business. They are normally the face of the partnership firm to add goodwill to the firm.
Partner by Estoppel (holding out)	When a person either verbally or in written form tells a client he/she is a partner and receives credit or some other favor, he/she will be legally considered as a partner by estoppel.
Sub-partner	When a partner shares his/her profit with a person outside the firm, the latter becomes a sub-partner.
Minor partner	A partner who is less than 18 years of age is called a minor partner. He/she cannot file any legal suit against other partners.
Partner in profit only	Partner in profit becomes a partner with the agreement of all partners that he/she will not be liable to losses of the firm.
Secret partner	A secret partner invests money in the business and has a say in the day-to-day operations. However, he/she keeps their identity a secret and doesn’t want anyone to know of their association with the firm.

 

Contents of Partnership deed:

Partners don’t need to write a partnership deed to create a partnership firm, it’s better to have one for legal purposes. A partnership deed is a legal document that has all terms and conditions related to the business, relationship among partners, responsibilities, profit sharing ratio, etc.

There is no legal format for a partnership deed, but it generally contains the following:

• Name and address of the firm as well as all the partners.
• Nature of business to be carried on
• Date of commencement of business
• Duration of partnership (whether fixed period/project)
• Capital contribution by each partner
• The profit-sharing ratio among the partners.

The above are the minimum essentials that are required in all partnership deeds. The partners may also mention any additional clauses such as:

• Interest on partner capital, Partner’s loan, and interest, if any, to be charged on drawings.
• Salaries, Commission, etc, if any, payable to partners
• Method of preparing accounts and arrangement for audit.
• Division of task and responsibility i.e., the duties, powers, and obligations of all the partners.
• Rules to be followed in case of retirement, death, and admission of a partner.

The partnership deed created by the partners should be on stamp paper under the Indian Stamp Act and each partner should have a copy of the partnership deed.

How to register a Partnership firm:

It is not legally required to register a partnership firm. However, it is better to register the firm as a partnership firm to enforce the rights of partners in court, if required.

Registration of the partnership firm may be done before starting the business or anytime during the continuance of the partnership. The procedure for registration of partnership firms is simple in India. An application and prescribed fees are required to be submitted to the Registrar of Firms of the State in which the firm is situated. The following documents are also required to be submitted along with the applications:

• Application for Registration of Partnership in Form No.1
• Duly filled specimen of Affidavit
• A certified true copy of the Partnership Deed.
• Ownership proof of the principal place of business or rental/lease agreement thereof.

The application or statement must be signed by all the partners, or by their agents especially those authorized on this behalf. When the registrar is satisfied with the points stated in the partnership deed, he shall record an entry of the statement in a register called the Register of Firms and issue a Certificate of Registration.

The Register of Firms maintained at the office of the Registrar contains complete and up-to-date information about each registered firm. This Register of Firms is open to inspection by any person on payment of the prescribed fees.

Any person interested in viewing the details of any firm can request the Registrar of Firms for the same and on payment of the prescribed fees, a copy of all details of the Firm registered with the Registrar would be given to the applicant

It should however be noted that registration with the Registrar of Firms is different from Registration with the Income Tax Dept. All firms must apply for Registration with the Income Tax Department and have a PAN Card.

After obtaining a PAN Card, the Partnership Firm would be required to open a Current Account in the name of the Partnership Firm and operate all its operations through this Bank Account.

3. Limited Liability Partnership

A limited liability partnership is a partnership in which some or all of the partners have limited liabilities. It therefore can exhibit the elements of partnership and corporations. In an LLP, each partner is not responsible or liable for the other partner’s misconduct or negligence. 

Benefits of limited liability partnership:

• Separate legal entity: LLP has a separate legal entity distinct from its partners. LLP can sue and be sued in its name. Its existence is not affected by the entry or exit of partners.

• Limited liability of partners: The partners of the LLP have limited liability. The liability of the partners is limited to the contributions made by them. It means that the partners are only responsible for paying the contribution made by them in case the business suffers a loss.

• No requirement of minimum contribution: LLP can be started with minimum capital money. There is no requirement for a minimum paid-up capital before going for incorporation.

• Lower registration cost and less compliance: The cost of registering LLP is much lower compared to any other company (Public or Private). The compliance to be followed by LLP is also low. The LLP needs to file only 2 statements annually, Annual Return and Statement of Accounts and solvency.

• Perpetual succession: LLPs provide for perpetual succession of business, unlike a partnership firm where partners’ exit affects the constitution.

• Taxation aspect of LLP: LLP is not liable to pay tax on the income and share of its partners. Thus, no dividend distribution tax is payable. Bonus, commission or remuneration, and interest to partners, are allowed as deductions.

Requirements of setting up a limited liability company:

• A minimum of 2 partners are required to register LLP. No maximum limit on the number of partners
• There should be a minimum of 2 designated partners who shall be individuals and at least one should be resident in India.
• There is no minimum capital requirement in the formation of LLP. Stamp duty on the deed is based on the amount of capital.

Documents required for LLP registration:

• PAN of all partners
• Latest passport-size photographs of all partners.
• Identity proof of each partner (Aadhar Card, Passport, Driving License, or Voter ID)
• Address proof of all partners (Bank statement or passbook, electricity bill, telephone bill, Aadhar Card or any utility bill)
• Copy of Mobile bill, telephone bill, electricity bill, or bank statement of all partners with present address.
• Registered office address proof – Electricity bill along with rent agreement/ownership proof of proposed registered office.
• Stamp paper for LLP agreement of state where LLP is to be incorporated.
• Documents must be self-attested.

How long does it take to register LLP:

The complete procedure includes the application of DIN, approval of name, incorporation certificate, PAN, and TAN application. The approximate time taken for each is below:

• Application for DSC – 1-2 days
• Application for approval of name – Form 1 or RUN LLP – 2-3 days
• Certificate of Incorporation – Form 2 or FiLLiP – 4-5 days
• PAN and TAN application – 2-3 days
• Payment of stamp duty and LLP agreement – 2-3 days

In all, it takes around 15-18 days to register and incorporate LLP.

Process for limited liability partnership registration: –

• Obtain Digital Signature Certificate (DSC): As all the documents for LLP registration in India are filed online, they are required to be digitally signed. DSC is required to validate and certify the identity of the person holding the certificate.

• Application of Director Identification Number (DIN): Once DSCs are obtained application for DIN can be made. Each person can have only one DIN. DIN is an 8-digit unique identification number allotted by the central government given to any person planning to be a director or partner in LLP.

• Approval of Name (Form 1 or RUN LLP): Once two DINs are available, an application for reservation of name can be made on the MCA portal. Before getting approval of the company name, LLP – RUN (Limited Liability Partnership – Reserve Unique Name) is filed for the reservation of the name of the proposed LLP. The name shall be processed by the Central Registration Centre under Non-STP.

• Incorporation of Company as an LLP (Form 2/ FiLLiP): After the name approval application by the MCA, an LLP name approval letter will be issued to the proposed partners will get the approval letter. The partners then have 60 days to file the required incorporation documents and register the LLP. In case of not filing the LLP within 60 days of the name approval letter, a person must re-obtain the approval for a name for the LLP. If the application for LLP registration is acceptable, the registrar will issue the incorporation certificate.

• Filing of LLP Agreement (Form 3): Once the incorporation certificate is issued, LLP will be considered to be registered. An LLP agreement is a written agreement between the partners of the LLP. The partners of the LLP then have 30 days’ time to file the partnership deed of the LLP with the MCA. In case of not filing the LLP agreement within 30 days, a fine will be applicable.

• PAN and TAN Application: Once the certificate of incorporation has been issued, you can apply for LLP’s PAN and TAN application using forms 49A and 49B by attaching the certificate of incorporation.

• Opening of Bank Accounts: Once PAN and TAN numbers are issued you can proceed with opening of bank account for LLP and submit the required documents to the bank.

• GST and Income Tax Registration: LLP must get registered with GST and Income Tax, for periodic filing of various returns under GST and Income Tax.

4. Private Limited Company

A Private limited company is a company which is privately held for small businesses. It is the simplest and most popular form of business registration in India.

Benefits of a Private Limited Company:

1. Separate legal entity: A private limited company is a distinct legal entity and the company is responsible for the management of its assets and liabilities, debtors, and creditors.
2. Limited Risk: As the private limited company is a separate legal entity, the shareholders are liable only to the extent of the contribution made.
3. Raising Funds: There are many compliances requirement for registering a private limited company, it is desired by the entrepreneurs as it helps in raising capital through equity and at the same time restrict liability.
4. Business Continuity: Private limited companies enjoy perpetual succession as the company is a separate legal entity. Thus, the cessation/ death of a director/ or member does not affect the life of a Private Limited Company. The members may come and go, but the company goes on forever.
5. Trustworthiness: With ROC registration, any person can check the details of the company through MCA, which increases the trustworthiness.
6. Power to sue and be sued: Being a separate legal entity, a private limited company can file a suit against a third party in its name and the third party may also file a suit against it.
7. Transfer of shares: The shares of private limited company are freely transferable subject to the conditions as may be imposed by the board of directors. So, it becomes easy to control the transfer/ dilution of interest without any outside interruption.

Requirements of setting up a private limited company:

• A minimum number of 2 directors who are adults with the maximum being 15.
• One of the directors has to be an Indian Citizen and Indian Resident, the other director can be a foreign national.
• Each of the directors should have DIN i.e., director identification number.
• It is also required to have 2 shareholders in the company and the maximum number of shareholders can be 200
• The shareholders can be the directors themselves, natural persons,s or artificial legal entities
• Minimum authorized capital of Rs. 1 lakh.
• The Directors should have valid proof of the company’s registered office during incorporation. 

How long does it take to register a company:

The complete procedure includes approval of name, DIN, and Incorporation of DIN. The approximate time taken for each is as below:

• Approval of name through form INC 1 takes 6-7 days
• Allotment of DIN through Form DIR – 3 takes 1-2 days
• Incorporation of the company through INC 1 and INC 22 takes 7-10 days.

Therefore, it takes around 15-20 working days.

Documents required to be submitted:

• PAN application
• TAN registration
• Director Identification numbers
• Digital Signature certificates
• Name approval (INC 1)
• Drafting odd Memorandum of Association (MOA) and Articles of Association (AOA)
• Issue of certificate of incorporation

Process for Private Company Registration:

1. Obtain Digital Signature Certificate (DSC): The main aim of applying for DSC is to sign the e-forms required for company registration. It ensures the security and authenticity of the documents filed electronically. The digital signature certificates must be obtained from government-recognized certifying agencies
2. Apply for Directors Identification Number (DIN): DIN needs to be obtained by one who wants to be a director in a company. One DIN is sufficient to be a director in any number of companies
3. Name Approval: To get the name approval, there are 2 options:

Option 1: RUN (Reserve Unique Name) approval: with this, you can ensure whether the name is available or not. However, this method does not allow you to resubmit once it is submitted. In case the name gets rejected you can resubmit by paying Rs. 1000 for each submission

Option 2:  Apply through INC 32: Incorporating a company through Simplified Proforma for Incorporating Company electronically (SPICe- INC 32), with eMOA (INC 33) and eAOA (INC 34), is the default option and most companies are incorporated through SPICe only. With SPICe INC 32 you can resubmit 2 times.

4. Memorandum of Association (MOA) and Articles of Association (AOA): Form INC – 33 is for eMOA and INC – 34 is for eAOA. Memorandum represents the charter of the company while Articles contain the internal rules and regulations of the company. These forms are filed online on the MCA portal as a linked form with INC 32. Both these forms must be digitally signed by subscribers to the MOA and AOA.
5. Issue of Certificate of Incorporation: Once MOA and AOA are approved, MCA issues an incorporation certificate which will include the date of incorporation and PAN number of the company.
6. PAN and TAN application: Through single form INC-32, you can also apply for company’s PAN and TAN by using forms 49A for PAN and 49B for TAN. Once all the details in the form are duly filled in along with the required documents, MCA will approve the registration and CIN (Corporate Identity number) will be allocated.
7. Opening of Bank Accounts: Once all the documents are issued by MCA i.e., certificate of incorporation, CIN, and name approval, all these documents need to be submitted to the bank for opening of the Bank Account in the company’s name.
8. GST and Income Tax registration: The private company must get registered with GST and Income tax, for periodic filing of various returns under GST and Income Tax.

5. Foreign Subsidiary

A foreign subsidiary company is any company, where 50% or more of its equity shares are owned by a company that is incorporated in another foreign nation. The said foreign company in such a case is called the holding company or the parent company. A company to be a foreign subsidiary in India, the company itself must be incorporated in India. It does not matter which country the parent company is incorporated in.

Benefits of incorporating a foreign subsidiary:

• Brand Recognition: By setting up a branch in a new country, the brand gets introduced to more people and expands its reach.

• Trade secrets: Along with control over the operations, the company’s trade secrets, and expertise will be protected. A wholly-owned subsidiary can be incorporated in India after looking into all the benefits that come with establishing a subsidized company in India.

• Cost-effective: The holding and subsidiary companies can use a common financial system, and they can share their administrative and other expenses. This provides them a huge benefit by making things cost-effective.

• Access to local information: A business can develop new commercial relationships with local companions and set up joint ventures with them resulting in business growth.

• Increased Expansion Possibilities: Expanding into a new country can promote higher business growth and income that would not have been viable in the home country, particularly when the current market is saturated with competitors.

Minimum requirements for a subsidiary company registration:

• There should be a minimum of 2 Directors and two shareholders in the Indian subsidiary.
• At least one of the directors shall be an Indian Resident and Indian Citizen.
• There should be a local Indian office address for the registered office address.
• Foreign parent company shall hold more than 50% shares in Indian subsidiary company.

Process of Incorporation of Foreign Subsidiary:

MCA has introduced SPICe+ Form to ease the process of incorporation. The SPICe+ form is divided into 2 parts:

• Part A – Reservation of name of new companies
• Part B – All the other services which are required for incorporation of the company.

1. Obtaining a Digital Signature Certificate: The main aim of applying for DSC is to sign the e-forms required for company registration. It ensures the security and authenticity of the documents filed electronically. The digital signature certificates must be obtained from government-recognized certifying agencies. Documents required for DSC:

• Proof of identity: PAN Card/ Passport/ Driving License or any other Government ID bearing the signature of the applicant, If the applicant is an Indian national. Attested copy of Passport/ Visa/ Resident Permit for foreign nationals.
• Address Proof: Copy of Aadhar Card/Voter ID Card/Driving license or any other utility bill which is not older than 3 months if the applicant is an Indian national. Attested copy of the Passport/VISA/ Resident Permit for foreign nationals.
• Attested Copy: An attested copy of the ID Card is sufficient if the applicant is an Indian national. If it is a foreign national then it should be attested by the embassy of the foreign or it should be apostatized by Native Country.
• Passport Size photograph.

2. Approval of Name: The SPICe+ form shall be filed for foreign subsidiary incorporation. Part – A of the SPICe+ form can be used for the reservation of name, which is reserved for 20 days.

In the case of a foreign company incorporating a subsidiary in India, then the original name of the holding company can be used as it is along with adding the word ‘India’ or the name of any Indian state or city, if otherwise available. This will ensure that the subsidiary company receives the benefits of the goodwill of the foreign holding company. The following documents shall be submitted if the name of the foreign holding company is used:

• NOC of the foreign company to use the same name.
• Apostilled copy of the charter of the foreign company.
• Apostilled copy of the resolution of the foreign company.

While filling in the information in Part A of the form, the following information should be provided:

• Type of Company
• Class of Company (Private limited or Public limited)
• Category of the Company (Limited by shares, limited by guarantee, unlimited company)
• Sub-category of the Company (Non-government, Union government, State government, subsidiary of a company incorporated outside India)
• Description of the main division
• Particulars of the proposed or approved name

Save the information and submit it. After clicking the submit tab, you will be provided with two options, i.e., ‘Submit for Name Reservation’ or ‘Proceed for Incorporation’. In case you go for a name reservation, you will have to pay a nominal fee of Rs. 1000.

3. While filing the Part – B of the form, the following documents shall be required:

• Notarised/Apostilled copy of the resolution passed by the foreign company mentioning the name of the authorized representative, number of shares subscribed
• Notarised/Apostilled ID proof of the authorized representative will be required in case of non-resident.
• Notarised/Apostilled copy of the charter document of the foreign company.
• Name of at least one director who is resident in India.
• The main division of industrial activity.
• Notarised/Apostilled copy of Memorandum of Association
• Notarised/Apostilled copy of Articles of Association
• Registered Office Address Proof (Rent agreement, lease agreement, etc)
• Copy of utility bills.
• DIN of all directors.
• DIR-2 declaration for consent to act as director shall be required from both the resident as well as non -resident.
• INC -9 furnishing declaration to act as a subscriber or first director

The required details are filled and uploaded with relevant attachments in the Form SPICe+ including the linked AGILE PRO and Form INC – 9. Once submitted using the relevant DSC, the ROC shall review the details and grant a Certificate of Incorporation accordingly.

AGILE PRO is required to be filed for application of registration of Goods and Services (GSTIN), Employee State Insurance Corporation (ESIC) registration, Employees Provident Fund Organization (EPFO), Profession Tax Registration and opening of Bank Account. It is mandatory to fill out the AGILE PRO form along with the SPICe+ Form for the incorporation of the new company.

INC – 9 is a declaration that is given by the director and is filed along with the SPICe+ Form at the time of incorporation. An affidavit of the director is also filed along with INC – 9.

Post Incorporation Procedure:

• The foreign subsidiary in India shall receive the subscription money from the foreign holding subscriber company.
• The subsidiary company shall file e-form INC -20A concerning the declaration of the commencement of business.
• Collection of Foreign Inward Remittance Certificates from the banks.
• The subsidiary company shall issue a share certificate to the subscribers.
• The foreign subsidiary company shall file an FC – GPR return with the RBI concerning the issue of share capital against investment by the foreign company in the foreign company subsidiary in India.

NOT FOR PROFIT ORGANISATION (Section 8 )

An NGO can be registered as a Section 8 company under the Companies Act 2013. These companies are formed with the object of promoting different types of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any other object. It must have the intention to use the profits or other forms of income to promote these aspects. Section 8 companies have several rules, processes, requirements, and procedures.

Features of the Company under section 8:

Under Section 8 of the Companies Act, the company must be a non-profit source that is dedicated to promoting welfare in the country. The features are:

• An individual or HUF or limited company is eligible to start Section 8 company registration in India
• Two or more persons who will act as a shareholders or Directors of the company should fulfill all the requirements and compliances of the Section 8 company registration
• At least one of the directors shall be a resident of India. However, a firm may be a member of the company registered under this section.
• Founders, members, and directors of the company cannot draw any remuneration in any form of cash or kind.
• No Profit should be distributed among the members and director of the company directly or indirectly.
• The surplus generated must be used for meeting the principal objective of the Section 8 company only.

Documents required for registration of Section 8 companies:

• Passport size photo of all directors and shareholders
• ID proof of all members of the company
• List of directors and promoters
• Rent agreement (if rented)
• No objection certificate (NOC) from the landlord
• Electricity bill or water bill with property papers (if self-owned)
• Latest Bank statement
• Aadhar Card
• Memorandum of Association(MOA) and Articles of Association (AOA)

Benefits of Section 8 companies:

• Charitable objective: Section 8 companies do not aim to make profits. Their objective is purely charitable.
• No minimum share capital: Section 8 companies, unlike all other companies, do not require a prescribed minimum paid-up share capital.
• Separate legal entity: Section 8 company registration has a separate legal entity. It acquires a distinct legal entity from its members.
• Limited Liability: As it is a separate legal entity, members of these companies can have only limited liability.
• No stamp duty: No stamp duty is imposed on the incorporation of Section 8 companies in India as it is against the provision of the payment of stamp duty on the MOA and AOA of the private limited companies.
• Government license: Such companies can function only if they have the Central Government’s license. The Government can revoke this license as well.
• Credibility: Section 8 company has more credibility than any other form of a charitable organization. It is under the strict provision of the Companies Act which requires a mandatory audit every year.
• Exemption to the Donators: Under Section 80G of the Income Tax Act, the exemption is granted to the Donators if the Section 8 company is registered under Section 80G.
• Privileges: Since these companies possess charitable objectives, the Companies Act and Income Tax Act have accorded several benefits and exemptions to them.

Process for registering a Section 8 company in India:

• Obtain DSC: Obtain DSC of at least one director to sign E-forms related to incorporation
• DIN Application: Once DSC is received, file form DIR -3 with ROC for getting DIN. Once DIR-3 is approved, ROC will allot DIN to the proposed directors.
• File Form RUN for reservation/availability of company name: Applicants can access the free name search facility of existing companies available on the MCA portal. Section 8 companies should contain words like Foundation, Society, Association, Council, Club, Charity, Academy, organization, Federation, Institute, Development, etc.
• Section 8 company registration license: After name approval, the application should be made for a Section 8 company registration license from the regional director. The regional director will review the objectives, and plans and will grant a permit for Section 8 company registration. The regional director usually takes 15 days to issue a license to operate as a Section 8 company.
• Filing of Section 8 Incorporation Forms on MCA portal: After getting approval from regional director, application is made to file Section 8 company registration with the requisite documents before ROC. Once all clarifications are provided to ROC, ROC shall issue a Certificate of Incorporation along with a Company Identification Number (CIN)
• MOA and AOA Submission: Once the license is issued, drafting of MOA and AOA is required to file a Section 8 company registration application. The objectives of the company will be detailed in the MOA and the rules, and the by-laws will be mentioned in AOA.
• PAN, TAN, and Bank Account: Once the license and incorporation certificate have been issued Section 8 company can apply for PAN and TAN. PAN and TAN are obtained in 7 working days. After this Bank account can be opened and all documents such as MOA, AOA, PAN, and Incorporation certificate must be submitted.

Annual Compliance for Section 8 Companies:

• Organizing a minimum of two board meetings per year.
• Mandatory Audit
• Maintenance of books of accounts
• Preparation of Financial Statements
• Annual returns, as well as other e-filing forms such as MGT-7, AOC-4, and so on
• Additional compliances to fulfill registration requirements under section 12AA, 80G of the Income Tax Act, applicable to donations, and so on.

Disclaimer: The details available on this webpage are for general information purposes only. While we endeavor to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, or reliability of the laws. Any reliance you place on such information is strictly at your own risk, and we request you to visit the government websites/ respective statutory laws and take expert opinion before relying on the information mentioned above.