Section 8 company

Not every charity in India is a trust. Some are companies — a special kind that cannot pay a dividend to anyone.

A Section 8 company is a company incorporated under Section 8 of the Companies Act, 2013, with an object such as commerce, art, science, sport, education, research, social welfare, religion, charity or environmental protection. Whatever profit it makes must go back into that objective. It cannot hand profit to shareholders.

The workbook's Regulation 292A(e) list of eligible Not for Profit Organisations names a Section 8 company as one option, right alongside a charitable trust and a charitable society. A company earlier registered under Section 25 of the repealed Companies Act, 1956 counts too — the old name for the same idea.

For an aspiring NPO choosing a legal form, the Section 8 company sits at the more corporate end of the spectrum.

Table 1.1 compares a Trust, a Society and a Section 8 Company side by side:

The workbook notes there is no single regulator across these three forms — each is governed by a different law, so accounting and reporting requirements differ by form even though all three can qualify as an NPO for the Social Stock Exchange.

Illustrative organisation; figures reflect the workbook's minimum-member rule.

Kiran Foundation wants to run vocational-training centres for differently-abled youth and reinvest every rupee of surplus into new centres. Its founders choose a Section 8 company, not a trust, because they want a formal governance structure with a board.

They appoint 2 directors, who are also the 2 shareholders, meeting the workbook's minimum. They register with the RoC, adopt an MOA and AOA setting out the charitable object, and commit to filing annual returns and audited accounts with the RoC every year.

Because Kiran Foundation is a company registered under Section 8, it also automatically satisfies one of the seven entity types Regulation 292A(e) accepts as a Not for Profit Organisation, once it separately establishes primacy of social intent.

Chapter 1 (Introduction to Social Sector Ecosystem), sections 1.3 and 1.3.1 and Table 1.1, compares a Trust, a Society and a Section 8 Company on governing law, constitution document, registration authority, minimum members and annual compliance. Chapter 3's Table 3.1 repeats Section 8 companies as one of the entities eligible for NPO registration. Expect a question asking the minimum members for a Section 8 company, or which authority registers it.

• 2 directors and 2 shareholders for a Section 8 company — not 7, which is the Society's minimum, and not 2 trustees, which is the Trust's minimum. The same two people can hold both roles.
• A Section 8 company is registered with the RoC, not a Charity Commissioner or Societies Registrar — those apply to Trusts and Societies respectively.
• Being a Section 8 company alone does not make an organisation an NPO for SSE purposes. It still has to separately establish primacy of social intent under Regulation 292E.
• A company registered under Section 25 of the repealed Companies Act, 1956 is treated the same as a Section 8 company under the current Act.