Section 8 Company Formation

There is no restriction in the provisions of the Companies Act, 2013 for a registered Trust to become a member of Section 8 Company. In case of unregistered trusts, provisions of section 89 would be applicable.

Section 8 Company, if covered under limits as prescribed under Rule 3 of Companies (Appointment of Directors) Rules, 2014 is required to appoint women director under second proviso to Section 149(1). Also, every existing section 8 company falling under the prescribed criteria should have complied with this provision within one year from the commencement of this provision i.e. by March 31, 2015.
Also, if section 8 company is incorporated under Companies Act, 2013 and falls under second proviso to Section 149(1), then, it should comply with the requirement of appointing women director within six months of the incorporation of the company.

Clause 5(ii) of the Form INC 13 provided under rule 19(2) of the Companies (Incorporation) Rules, 2014 provides that – “No portion of the profits, other income or property aforesaid shall be paid or transferred, directly or indirectly, by way of dividend, bonus or otherwise by way of profit, to persons who, at any time are, or have been, members of the company or to any one or more of them or to any persons claiming through any one or more of them.” In view of the above there is no restriction in payment of bonus to employees, however bonus cannot be paid to a member, even in his capacity as an employee.

A section 8 company can take loan from its members and pay interest thereupon, subject to the provisions of Chapter V of the Act read with rules made thereunder.

The activities which may be passed by the Board of section 8 companies through circulation instead of at a meeting, as given under section 179(3) are:

• To borrow monies
• To invest the funds of the company
• To grant loans or give guarantee or provide security in respect of loans.

There are special requirements to be complied with under the Foreign Contribution and Regulation Act, 2010 before a Section 8 Company can receive any contributions or donations from overseas/outside India from non-residents. The provisions of this act are in addition to the provisions under the Companies Act.

A Section 8 Company is prohibited from issue of bonus shares because:

• As per section 8(1)(b) of the Act, Section 8 Company shall intend to apply its profits, if any, or other income in promoting its objects;
• As per section 8(1)(c) of the Act, Section 8 Company should intend to prohibit the payment of any dividend to its members; and

There is no restriction in payment of remuneration to an employee/director. In case the employee is also a member, no remuneration or other benefit in money or money’s worth can be given to him except payment of out of pocket expenses, reasonable and proper interest on money lent, or reasonable and proper rent on premises let to the company.

As per exemption notification dated 05th June, 2015, the definition of Company Secretary in section 2(24) of the Companies Act, 2013 is not applicable on Section 8 Companies.