Not for Profit Organizations: What The Companies Act, 2013 says

“With any new business deal, don’t think about how much you can afford to get—think about how much you can afford to give. A spirit of giving will allow you to get.”

― Jarod Kintz

Not for profit organizations or as we simply say NPO, are those organizations which are established for promoting a cause, it may be a religious cause or may be related to environmental issues, child labor, children rights, for helping old age people, for providing food for free, etc.

Below are the examples of some big NGOs working in India:

  • Akshay patra: to feed hungry children.
  • Ekal vidyalaya: non-govt education movement in India, educating 10,00,000 children.
  • Children Rights and You (CRY): work towards child rights.
  • Help age India: protecting rights of old aged people.
  • World Wildlife Fund (WWF): working for animal protection and for reserving wild life.

A Non-Profit Organization can be registered in India by three modes:

  1. Registering society through The Societies Registration Act, 1860.
  2. Forming a trust through The Indian Trust Act, 1882.
  3. Registering a company through section 8 of The Companies Act, 2013. 

Here we will talk about section 8 of The Companies Act, 2013. 

SECTION 8(1): Where it is proved to the satisfaction of the Central Government that a person or an association of persons proposed to be registered under this Act as a limited company:

  1. 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;
  2. intends to apply its profits, if any, or other income in promoting its objects; and
  3. intends to prohibit the payment of any dividend to its members,

the Central Government may, by license issued in such manner as may be prescribed, and on such conditions as it deems fit, allow that person or association of persons to be registered as a limited company under this section without the addition to its name of the word “Limited”, or as the case may be, the words “Private Limited”, and thereupon the Registrar shall, on application, in the prescribed form, register such person or association of persons as a company under this section.

Explanation:

  • Basically, the main purpose of section 8 of The Companies Act, 2013 is to provide special benefits and privileges to the organizations for some specific purposes as mentioned in sub-section (1) of section 8 of The Companies Act, 2013 and where the Government of India is satisfied that the person or association of persons propose to be registered under this section will be formed as a limited company.
  • A section 8 company may be in form of a Private Limited Company, Public Limited Company, but not a One Person Company.

SECTION 8(2): The company registered under this section shall enjoy all the privileges and be

subject to all the obligations of limited companies.

SECTION 8(3): A firm may be a member of the company registered under this section.

Explanation: A firm, i.e. partnership firm (we can assume this because proprietorship firm does not have any legal identity) can be a member in companies registered under Section 8 of Companies act, 2013.

SECTION 8(4):

  1. 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.
  2. A company registered under this section may convert itself into company of any other kind only after complying with such conditions as may be prescribed.

Explanation : As under this section, a company is registered for some special or charitable purpose and for this special privileges are provided to them ,so  the Government needs to keep an eye on them that these facilities and privileges being not misused. As the MOA and AOA are constitution and written rules and regulations of the company’s working, they cannot be altered without prior permission of Central Government.

SECTION 8(5): Where it is proved to the satisfaction of the Central Government that a limited company registered under this Act or under any previous company law has been formed with any of the objects specified in clause (a) of sub-section (1) and with the restrictions and prohibitions as mentioned respectively in clauses (b) and (c) of that sub-section, it may, by licence, allow the company to be registered under this section subject to such conditions as the Central Government deems fit and to change its name by omitting the word “Limited”, or as the case may be, the words “Private Limited” from its name and thereupon the Registrar shall, on application, in the prescribed form, register such company under this section and all the provisions of this section shall apply to that company.

Explanation : Any limited company registered under companies act, 2013 or the previous companies act, 1956, i.e. any existing limited company which is formed with any of the objectives as mentioned in section 8(1)(a) and uses its profits for its business only and not for distribution and does not pay any dividend to its members, will be deemed to be a section 8 company and Central Government, if satisfied, may issue the company licence and allow it to be registered under section 8 of the companies act, 2013.

SECTION 8(6): The Central Government may, by order, revoke the licence granted to a company registered under this section if the company contravenes any of the requirements of this section or any of the conditions subject to which a licence is issued or the affairs of the company are conducted fraudulently or in a manner violative of the objects of the company or prejudicial to public interest, and without prejudice to any other action against the company under this Act, direct the company to convert its status and change its name to add the word “Limited” or the words “Private Limited”, as the case may be, to its name and thereupon the Registrar shall, without prejudice to any action that may be taken under sub-section (7), on application, in the prescribed form, register the company accordingly:

  • Provided that no such order shall be made unless the company is given a reasonable opportunity of being heard:
  • Provided further that a copy of every such order shall be given to the Registrar.

Explanation : If any company, has been granted licence by Central Government under section 8 of companies act, 2013, contravenes, violate any requirement of this section or any other conditions subject to which licence was issued or company is working fraudulently or in violative manner, against its objectives or against public interest, the Central Government may revoke the licence granted to that company under section 8 of the companies act, 2013 and direct the company to add “Private Limited” or “Public Limited” to its name depending on the type of company and registrar will register the company accordingly after getting application in prescribed form, but ROC will not take this action if the company has not been given a reasonable opportunity of being heard and copy of every such order shall be given to the ROC.

SECTION 8(7): Where a licence is revoked under sub-section (6), the Central Government may, by order, if it is satisfied that it is essential in the public interest, direct that the company be wound up under this Act or amalgamated with another company registered under this section: Provided that no such order shall be made unless the company is given a reasonable opportunity of being heard.

Explanation : If licence has been revoked and Central Government have reason to believe that the company should wound up or get amalgamated with any other section 8 company in public interest may, by order, direct the company to do so after giving it a reasonable opportunity of being heard.

SECTION 8(8): Where a licence is revoked under sub-section (6) and where the Central Government is satisfied that it is essential in the public interest that the company registered under this section should be amalgamated with another company registered under this section and having similar objects, then, notwithstanding anything to the contrary contained in this Act, the Central Government may, by order, provide for such amalgamation to form a single company with such constitution, properties, powers, rights, interest, authorities and privileges and with such liabilities, duties and obligations as may be specified in the order.

Explanation: If licence has been revoked and Central Government have reason to believe that the company should get amalgamated with any other section 8 company in public interest may, by order for such amalgamation and form a single company with such constitution, properties, powers, rights, interest, authorities and privileges and with such liabilities, duties and obligations as may be specified in the order.

SECTION 8(9): If on the winding up or dissolution of a company registered under this section, there remains, after the satisfaction of its debts and liabilities, any asset, they may be transferred to another company registered under this section and having similar objects, subject to such conditions as the Tribunal may impose, or may be sold and proceeds thereof credited to the Rehabilitation and Insolvency Fund formed under section 269.

Explanation:

  • After winding up or dissolution of the company registered under section 8, has some assets left after setting off its debts and liabilities, the tribunal may, after imposing such conditions to them as it thinks fit, transfer those assets to any other company registered under this section 8, having similar objects as of the company which is wound up, or
  • Those assets can be sold and proceeds of which shall be credited to Rehabilitation and Insolvency Fund formed under section 269 of companies act, 2013 which is formed for rehabilitation, revival and liquidation of the sick companies.

SECTION 8(10): A company registered under this section shall amalgamate only with another company registered under this section and having similar objects.

SECTION 8(11): If a company makes any default in complying with any of the requirements laid down in this section, the company shall, without prejudice to any other action under the provisions of this section, be punishable with fine which shall not be less than ten lakh rupees but which may extend to one crore rupees and the directors and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than twenty-five thousand rupees but which may extend to twenty-five lakh rupees, or with both:

Provided that when it is proved that the affairs of the company were conducted fraudulently, every officer in default shall be liable for action under section 447.

Explanation:

  • If company makes any default in complying with any requirement of section 8 of companies act 2013, it will be punishable with fine of minimum 10 lakh Rs, which can be extended upto 1 crore Rs. and
  • The directors and every officer of the company who is in default will be punishable with imprisonment for any term which may extend to 3 years or with fine of minimum 25 thousand Rs, which may extended to 25 lakh rs. or with both imprisonment and fine.

By Mayank vashishta

For any further query, you may contact author @ +91-9654530108

mayank@esachiv.co.in

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About Mayank vashishta

Mayank vashishta

Corporate Law Referencer

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