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The concept of non-profit making company is quite old in India. In erstwhile Companies Act, 1956 it was regulated by Section 25 and that is why it was popular as Section 25 Company. However in Companies Act 2013 provisions related to non-profit making company are given in Section 8 read with Rule 19 and 20 of Companies (Incorporation) Rules, 2014.

Under Indian law, 3 legal forms exist for NGO or Non-Profit Organizations:

1. => Trusts

2. => Societies

3. => Section 8 Companies

Due to better laws, Section 8 Companies have the most reliable strongest organizational structure

1.  => Indian Trusts have no central law.

2. => Indian Societies have different legal and institutional frameworks from state to state.

3.  => Indian Companies (incl. Sec 8 companies), have one uniform law across the country –  Companies Act, 2013.

It is this robust Act that regulates the formation, management and accountability of a Section 25 company, thus making it more closely regulated and monitored than trusts and societies, and recognized all over the world.

Through this article we shall discuss the basic provisions and procedure for incorporation of a non-profit making company as given in Section 8 read with Rule 19 and 20 of Companies (Incorporation) Rules, 2014.

Section 8 Company or a Non-Profit organization (NPO) is a Company established for promoting commerce, art, science, religion, charity or any other useful object, provided the profits, if any, or other income is applied for promoting only the objects of the company and no dividend is paid to its members.

An NPO/NGO can be formed for promotion of any useful object like sports, education, research activities etc. The term No Profit does not mean that the Company cannot generate profit or income, but it essentially means applying the income for further promotion of the object and not for distributing it to the promoters. It means that the Company can earn profits but the promoters cannot be benefited out of those profits.

Corresponding provisions of the Companies Act, 1956:
Section 25

Corresponding provisions of the English Companies Act, 2006:
Sections 42, 181 and 226


As per Section 8 (1): A Non-profit making Company is a Company which:

(a) Has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of 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.



• These companies incorporated only for promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object.

• Non- Small Company: As per Section 2 (85) Proviso(B) –  Section-8 Company will not treated as Small Company.

• Status of Limited Company: As per Section 8(2) – Section 8 Company shall enjoy all the privileges and be subject to all the obligations of Limited Company.

• It is duty of Company to prove to Central Government that it will incorporate for above mentioned purpose only.

• License by Central Government: The Central Government may issue license with such conditions as it deems fit and allow the registration of such person or association of persons as a limited company without the addition to its name of the word “Limited”, or as the case may be, the words “Private Limited”.

• Power of ROC: The power of the Central government is delegated to the Registrar of Companies (‘ROC’) having Jurisdiction over the area where the Registered office of the company is proposed to be situated.2 Hence, the application for registering such company is to be made to the ROC.

•   Firm as a member of Non-Profit making Company: As per section 8(3) a partnership firm may become a member of the non-profit making company registered under section 8. Membership of such firm shall cease upon dissolution of the firm. However, partners of the dissolved firm may continue to be the members of such company in their individual capacity

• Key Benefits:

· Many privileges and exemptions under Company Law.

· Exemption of Stamp duty for registration.

· Registered partnership firm can be a member in its own capacity.

· Tax deductions to the donors of the Company u/s. 80G of the Income Tax Act.

•  Without Share Capital: These companies can be formed with or without share capital, in case they are formed without capital, the necessary funds for carrying the business are brought in form of donations , subscriptions from members and general public.

•  Not Required To Add The Suffix: Section 8 Companies are not required to add the suffix Limited or Private Limited at the end of their name. All companies having limited liability are required to use the term ‘limited’ or ‘private limited’ as the case may be in their names as required by section 13. But section 25 companies are allowed to dispense with the use of term ‘limited’ or ‘private limited’ from their names [sub-sec. (6)]. This helps the company to enjoy limited liability without disclosing to the public the nature of liability of its members

•  Easy Transferable Ownership: The shares and other interest of any member in the Company shall be a movable property and can be transferable in the manner provided by the Articles, which is otherwise not easily possible in other business forms. Therefore, it is easier to become or leave the membership of the Company or otherwise it is easier to transfer the ownership.


The DISADVANTAGES of section 8 companies over other companies registered under companies act are discussed below:

Though a Section 8 Company has many advantages and enjoys many privileges yet there are some statutory obligations which are required to be complied with and taken care of by such companies.

•  Key Conditions:

· Profit or Income of the Company shall be applied for the promotion of the main object

· Declaration of dividend or distribution of profit to the promoters is not allowed

· No member shall be appointed as a remunerated officer

· No remuneration / benefit shall be paid to a member being a servant / officer of the Company (except reimbursement of out of pocket expenses, reasonable interest on money lent or reasonable rent on the premises)

• Utilization of Profit: A Section 8 Company has to ensure that its profits and all other incomes are utilized only for the purpose of promoting its objects and not for any other purpose.

• It should also ensure that its profits are not distributed as dividend among its members.

• No Change in AOA and MOA: A company registered under this section shall not alter the provisions of its memorandum or articles except with the previous approval of the Central Government.

• Condition by Central Government: If the Central Government has imposed some conditions and regulations upon the company for granting a license under section 8 then such a company is bound by such conditions and has to ensure adequate compliance with them. Where such conditions and regulations have been imposed then such conditions and regulations are required to be included in the Articles or/and memorandum of the company as may be directed by the government.

•  Tax Liability: Section 25 Company is regarded as a ‘company’ within the meaning of the Income Tax Act, 1961 and as such its income is taxable according to the applicable rates similar to those applying to other companies.






· At Least 2 Promoters: Promoters who will promote/ incorporate the company. Promoters may be individual or body corporate.

· At Least 2 Directors: Directors should be individual only. No Body corporate/ HUF or Partnership Firm can be appointed as Directors.

· Generally, in most of the cases, Promoters and Directors are the same in Private Limited Companies.

2. OBTAIN DIGITAL SIGNATURE- The Subscriber applying for availability of name and the proposed Directors need to have DSC.  AS per Ministry of Corporate Affairs Class-II DSC is required for e-Filings under MCA21.  Subscriber an apply with any of DSC Vender i.e. E Mudra/ Siffy/ TCS etc

3. OBTAIN DIN- As envisaged under section 153 an individual intending to become Director needs to obtain DIN. For obtaining DIN e-form DIR-3 has to be filed which has to be certified by a practicing professional.


a. As per section 4(4) read with rule 9 application is to be made in e-form INC-1 for reserving the name agreed to by the Promoters (Six proposed names can be given). It has to also be ensured that the name being sought for is available and it is lawful. No need to add the suffix Limited or Private Limited at the end of their name.

b. The promoters should apply for the name of the company to be approved with the concerned ROC of the State where the company has to be formed in E Form- INC- 1 by payment of Rs. 1000 through Credit Card or Net Banking.

c. One of the Promoters should fill up e-form INC-1, digitally sign by Promoter and Professional and then upload the e-Form on the MCA21 Portal. Before doing so, the following three points have to be complied with:

i. All the Promoters should have their DIN No.
ii. At least one Promoter should have the DSC. (Class 2 Digital Signature)
iii. The proposed names selected should fall in guidelines prescribed.

d.  Info. Require to give in form INC-1 (Describing the Capital of Company, Main Objects, State in Which the Company is to be Incorporated and to Affix the Digital of Applicant).

e.  The reservation by the Registrar of name applied for is valid for 60 days from the date of application. Hence if a company is proposed to be registered with the said name referred to above, the promoters shall produce the documents to the Registrar for registration with in a period of 60 days from the date of application for name. If Promoters fail to file all the relevant form for incorporation within 60 days, then name will not be Available for you, Promoter have to file form INC-1 again for approval of Name.

After Name Approval Process:      

Once Name is approved by ROC, following are the Pre-Incorporation Steps:


Drafting of Memorandum of Association (MOA) and Article of Association (AOA) is generally a step subsequent to the availability of name made by the registrar It should be noted that the main objects should match with the objects shown in e-Form   INC-1 and must reflect in the name of company (Name should be like that a lay man can estimate the objects of company by Name of Company).

These two documents are basically the charter and internal rules and regulations of the company. Therefore, it must be drafted with utmost care and with the advice of the professional. The Directors/ promoters with the help of professional draft MOA and AOA.

Article of Association contains the internal regulations of the Company so care should be taken while drafting it. The model articles are given under table F of Schedule I. Now under Companies Act, 2013 requirement for making alteration to certain clauses of AOA can be made more stringent by way of inserting entrenchment provision.

Also ensure that the MOA & AOA are not ultra-vires the law (Section 6)

The formats of MOA are given in Form INC-13. 

Format of MOA and AOA revised from time to time because of change in Companies Act and recently Companies Act 2013 laid down another form of MOA which has total twelve clause. MOA of Section 8 company registration (previously called section 25 company) has been prescribed in form INC-13 by the companies act 2013 followed by rule 19 sub rule 2 of companies incorporation rule 2014. Procedure for drafting MOA of section 8 company start from 1st clause which contain name of the section 25 or 8 company example XYZ Foundation or XYZ association etc. Second clause state to mention state in which registered office of the proposed section 8 company will be situated example NCT of Delhi for Delhi or State of Haryana for Haryana etc.

Third clause of INC-13 i.e. MOA contains charitable object of section 8 company i.e. to establish industrial training center or college or social service center etc. i.e. only object having charitable purpose and restricted company to support with its fund which will make trade union or other company which are observed by its member.

Clause four of moa clearly mention that object of the company extend whole of India except J & K.

Fifth clause of the MOA restricted diversion of section 8 company income or property to any of its member or its related party in any form. It has also been clarified that profit of such company can only be utilized for its charitable object. Prudent Remuneration allowed to its member only when he actually provides services to the company.

Clause 6 provides that memorandum of association cannot be altered unless alteration has been previously approved by the registrar of company. Clause seven state liability of the member is limited clause eight contain information about share capital of the company. Clause 9 required to maintain certain record and books for expenditure income assets etc. and once in an every year accounts shall be examined by auditor about correctness of balance sheet and income & expenditure. Clause ten mentioned about dissolution of section 8 company and whereas clause eleven states section 8 company can be amalgamated only with section eight company having similar object and clause 12 contains detail of subscriber of MOA. Format of AOA of section eight company is same as for private limited company registration.

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Published by

CS Divesh Goyal
(Practicing Compnay Secretary)
Category Corporate Law   Report

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