A Section 8 Company under the Companies Act, 2013 is a special type of non-profit organization formed with the objective of promoting charitable, educational, cultural, social, or other activities that benefit society. Unlike profit-making companies, a Section 8 Company reinvests its earnings back into its objectives instead of distributing dividends to its members.
Being registered under the Companies Act provides it with greater credibility and structure when compared to a Trust or Society. It can be incorporated as either a private limited or a public limited company, making it a popular choice for NGOs, charitable institutions, and organizations seeking CSR funding or foreign donations.
Key Features of Section 8 Company and its Practical Benefits
A Section 8 Company, formed under the Companies Act, 2013, is designed to promote charitable and non-profit objectives while offering distinct legal, financial, and regulatory advantages. The following features highlight its practical benefits:
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Features |
Practical Benefits |
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Non-Profit Objective |
ü The companies Act, 2013 that Section 8 company is dedicated exclusively to social, charitable, cultural, environmental, or educational purposes. ü It enhances public trust by positioning the organization as mission-driven rather than profit-driven. ü It builds confidence among donors, CSR contributors, and institutions that their contributions are being used for genuine causes. |
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No Profit Distribution |
ü A Section 8 company ensures that all income and surplus are applied solely towards the promotion of its objectives. ü It prohibits the distribution of dividends or profits to members, reinforcing its non-profit character. ü This structure enhances credibility with government bodies, funding agencies, and the general public. |
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Separate Legal Entity |
ü Section 8 Companyacts as a distinct legal person, separate from its members. ü It enables the organization to own and transfer property in its own name. ü It allows the company to enter into contracts, sue, and be sued, thereby increasing accountability and operational independence. |
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Limited Liability |
ü Section 8 Company being a separate legal entity protects members by limiting their financial liability to the extent of their shareholding or contribution. ü It ensures that personal assets of members remain safe, even if the company faces financial difficulties. ü This protection encourages professionals, philanthropists, and corporates to associate with the company without fear of personal financial risk. |
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Eligibility to Accept Donations |
ü A Section 8 company enables acceptance of donations and grants from individuals, corporates, and institutions. ü It allows eligibility for CSR funding under Section 135 of the Companies Act, 2013. ü It facilitates receipt of foreign contributions (subject to FCRA registration), widening the scope of resource mobilization. |
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Regulatory Exemptions |
ü A Section 8 company enjoys certain relaxations under the Companies Act, 2013. ü It is exempted from the requirement of using “Limited” or “Private Limited” in its name. ü These exemptions make it easier to focus resources on social objectives rather than administrative formalities. |
A Section 8 Company not only safeguards the interests of its members but also strengthens public trust, enhances fundraising opportunities, and ensures compliance with legal frameworks, making it an ideal vehicle for pursuing sustainable social impact.
Taxation & Exemptions for Section 8 Companies
Apply online through a leading consultant of Section 8 Company Registration in Delhi and enjoy several tax benefits and exemptions under the Income Tax Act, 1961, designed to support their non-profit objectives. Proper registration under specific sections enables these companies to raise funds more effectively and maintain compliance while minimizing tax liabilities.
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Tax Provision / Registration |
Practical Benefits |
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Section 12A Registration |
ü Grants exemption from income tax on profits or income used for charitable purposes. ü Income must be reinvested in furthering the company’s objectives. |
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Section 80G Registration |
ü Donors contributing to the company can claim tax deductions, making it easier to attract individual and corporate donations. |
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Tax Relief on Capital Gains |
ü Certain capital gains may be exempted if used for charitable activities, reducing the tax burden on income from assets or investments. |
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Exemption on Income from Property / Donations |
ü Income received as donations or from property used for charitable purposes may be fully or partially exempt from tax. |
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GST Benefits |
ü Section 8 Company may avail exemptions under GST for specific activities, donations, or supplies related to charitable purposes (subject to compliance). |
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Other Reliefs / Incentives |
ü Other reliefs include concessional rates or relief under special government schemes, grants, or CSR funding eligibility for projects aligned with charitable objectives. |
Why Section 8 Company is the Preferred Choice for NGOs and CSR Initiatives
Among the available legal structures for charitable and non-profit work, a Section 8 Company stands out as the most robust and reliable. Unlike Trusts or Societies, it provides uniform governance, higher accountability, and greater recognition, making it the preferred vehicle for NGOs, NPOs, and CSR-driven initiatives.
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Reason |
Why Section 8 Company is Preferred over Trusts & Societies |
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Uniform Legal Framework |
A Section 8 Company is governed by the Companies Act, 2013, ensuring uniform applicability across India, unlike Trusts and Societies which are subject to varied state laws. |
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Higher Credibility |
Registration with the Registrar of Companies (ROC) gives Section 8 Companies greater recognition and credibility in the eyes of donors, corporates, and government bodies. |
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Structured Governance |
Section 8 company is managed by a Board of Directors under clear corporate governance norms, reducing risks of mismanagement often seen in Trusts (trustee-controlled) or Societies (committee disputes). |
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Transparency & Accountability |
Mandatory audits, annual filings, and statutory disclosures ensure financial discipline, making Section 8 Companies more trustworthy than Trusts and Societies, which have weaker enforcement. |
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CSR Funding Eligibility |
Section 8 Companies are explicitly recognized under Section 135 of the Companies Act as eligible recipients of CSR funds, whereas Trusts and Societies are not directly mentioned. |
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Foreign Funding Access |
Section 8 Companies with FCRA registration inspire greater confidence among international donors because of their corporate compliance structure. |
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Perpetual Succession |
Being a separate legal entity, a Section 8 Company continues irrespective of changes in membership, unlike Trusts or Societies which may face continuity or dispute issues. |
Thus, Section 8 Companies offer the right balance of credibility, compliance, and sustainability, making them a more reliable vehicle for long-term social impact than Trusts or Societies.
Conclusion
A Section 8 Company offers a robust and transparent framework for pursuing charitable, educational, cultural, and social objectives. With its strong legal recognition, structured governance, limited liability, eligibility for CSR funding, and tax benefits, it provides both credibility and operational flexibility. Whether for NGOs, NPOs, or corporate CSR initiatives, a Section 8 Company stands out as a reliable and preferred vehicle for creating sustainable social impact in India.
