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“A Section 8 company is a non-profit organization that is registered under the Companies Act, 2013. The purpose of the organization is to promote commerce, art education, charity or environmental protection. A core rule of Company 8 is to reinvest all profit generated back into the company and not distribute it among shareholders as dividends. For a foreign business looking to register a Section 8 company in India, having a clearer understanding of the structure is crucial, and that is what this blog is all about. “
A conversation around a Private Limited Company or a Wholly Owned Subsidiary is a common occurrence. A foreign business does not usually go looking for a Section 8 Company. The name is unfamiliar, the structure is unclear, and the information online may skip the parts that matter most to a foreign entity.
A Section 8 Company is a non-profit organisation that is incorporated under the Companies Act, 2013 and governed by the Ministry of Corporate Affairs (MCA). The compliance is strict, and the income distribution can be confusing. The gaps tend to show up once the structure is already in place, and the regulatory complexity becomes harder to ignore. While companies are known to tackle the compliances on their own, it’s advisable to speak to an expert who can guide you on the right path.
Before covering the regulatory complexities, lets understand the basics of Section 8 Company.
Section 8 company incorporated under Section 8 of the Companies Act, 2013, and hence it got its name. It is categorised as a Non-Profit Organisation. They are granted a special license through the Registrar of Companies (ROC) by the Central Government to avoid using “Limited” or “Private Limited” in their name. It allows them to have a visible marker that sets them apart from commercial companies, despite being structured as a private or public limited entity.
The objective for the incorporation of a Section 8 Company is broad. It includes education, scientific research, sports, social welfare, religion, charity or any other activity that is beneficial for the welfare of the people in the country.
When it comes to the legal aspect of the business, it mostly revolves around the restriction on profit distribution. The profit that the company generates must be dedicated completely towards the promotion of the company’s stated objective. No dividend may be declared, and no members may derive personal financial benefits from the company’s earnings.
Going by core definitions of a Section 8 company and an NGO, they may look the same, but there are fundamental differences. All Section 8 Companies are Non-Profit Organisations, but not all NGOs can be termed as a Section 8 Company. The table below mentions key differences:
| Basis | NGO | Section 8 Company |
|---|---|---|
| Legal Status | A voluntary non-profit organisation that may be registered as a trust, society, or other entity. | A separate legal entity incorporated under the Companies Act, 2013. |
| Governing Law | Governed by the relevant Trust Act, Societies Registration Act, or other applicable laws. | Governed by the Companies Act, 2013 and regulated by the Ministry of Corporate Affairs (MCA). |
| Primary Purpose | Established to pursue charitable, social, educational, religious, or welfare objectives. | Formed to promote commerce, art, science, sports, education, research, social welfare, religion, charity, environmental protection, or similar objectives. |
| Funding Sources | Primarily funded through donations, grants, memberships, and corporate sponsorships. | Can receive funding through grants, donations, government support, and other permitted sources. |
| Regulatory Compliance | Generally subject to fewer compliance requirements, depending on its structure. | Subject to corporate governance, filing, and compliance requirements under the Companies Act, 2013. |
| Name Requirements | Naming requirements vary depending on the registration structure. | Exempt from using the words “Private Limited” or “Limited” in its name. |
| Management Structure | Managed by trustees, governing body members, or office bearers. | Managed by directors and members, similar to other companies. |
| Tax Treatment | May claim income tax exemptions if eligible and registered under applicable tax provisions. | May also avail tax exemptions subject to compliance with applicable tax laws and registrations. |
| Credibility and Transparency | Credibility depends on the organization’s structure, governance, and reporting practices. | Often perceived as having higher transparency due to stricter regulatory oversight and disclosure requirements. |
| Separate Legal Identity | Depends on the form of registration. | Has a distinct legal identity separate from its members. |
Going through the process of registering a Section 8 company over an NGO is not just about preferences. It is all about the benefits that it brings along. These benefits include:
Any “person or association of persons” can apply for registration as a Section 8 company, provided the eligibility criteria are met. The Companies Act, 2013, does not define “person” in a way that excludes foreign nationals. This is worth noticing for foreign businesses evaluating this structure.
Eligibility Criteria for registering a Section 8 Company are as follows: –
The total cost of setting up a Section 8 Company in India depends on the state of registration and the complexities of the application. The table below provides an indicative price range. It is advisable to check the official government portal for updated fees.
| Cost Component | Indicative Range |
|---|---|
| Name Reservation (RUN) | INR 1,000 |
| Digital Signature Certificate (DSC) per director | INR 1,500 to INR 3,000 |
| Government filing fees (ROC) | INR 500 to INR 8,000 |
| Stamp duty on MoA/AoA | Exempt in most states |
| Professional fees (CA/CS) | INR 10,000 to INR 50,000 |
*Prices are indicative. Check government portal for updated cost.
To register a Section 8 Company in India, specific documents are required. The document requirements fall across three categories:
For Directors and Members:
For the Registered Office:
Incorporation Documents (prepared by professionals):
Note: All the documents originated outside India must be notarised in the country of origin. If needed, they must be apostilled in accordance with Indian requirements.
To register a company in India, the process is entirely online and is done on the MCA portal. Section 8 Company follows the same path. The steps involved are:
Step 1: Obtain Digital Signature Certification (DSC)
All proposed directors must obtain a Class 3 DSC. This certification is an electronic equivalent of a physical signature and can be used to authenticate all documents that are to be filed.
Step 2: Reserve the Company Name
Company name must be applied through the Reserve Unique Name (RUN) services available on the MCA portal.
Step 3: Prepare Incorporation Documents
MoA and AoA must be drafted as per the prescribed format under the Companies (Incorporation) Rules, 2014.
Step 4: Apply for the Section 8 Licence
Before the company can be formally incorporated, Form INC 12 must be submitted to the Regional Director of the MCA. The Regional Director then reviews the objects and plan of the company before issuing a license. The process typically takes around 15 working days.
Step 5: File SPICe+ Form on the MCA Portal
Once the Licence is granted, the next step involves filing the incorporation form using the SPICe+ form. Government fees are paid online at this stage.
Step 6: Receive Certificate of Incorporation
Once the verification is completed, the Registrar of Companies (RoC) issues the Certificate of Incorporation along with a Company Identification Number (CIN). PAN and TAN are processed through the SPICe+ system automatically.
Following incorporation, the company should apply for:
Note: The total time from initiating the DSC process to receiving the CoI takes around 15 to 25 working days.
Most of the compliance requirements of Section 8 companies are similar to those of other companies. However, there are some exemptions available specifically to them. The requirements are:
Failure to comply with any of the above provisions can result in penalties, licence revocation under Section 8(11) of the Companies Act, and in serious cases, prosecution of the directors.
The short answer is yes. The fuller answer requires understanding that two separate regulatory frameworks apply, and they do not always point in the same direction.
There is no restriction under the Companies Act that prevents a foreign national or foreign entity from being a promoter, director, or member of a Section 8 company in India. Section 8(1) of the Act permits any “person or association of persons” to register, and the term “person” is not defined in a way that excludes foreign nationals.
The position becomes more nuanced when a foreign entity intends to infuse capital. Section 8 companies are frequently incorporated as companies limited by guarantee without share capital, relying on donations, subscriptions, and grants for their operations.
However, since FEMA, read with the RBI’s Non-Debt Instruments (NDI) Rules, only permits Indian entities to receive FDI through the issuance of equity instruments to non-resident persons, a Section 8 company that intends to receive foreign equity investment must be structured as a company limited by shares. That structural decision has significant downstream implications for governance and how the entity is set up from the outset.
A Section 8 company wishing to receive donations or grants from foreign sources must obtain registration under the Foreign Contribution Regulation Act, 2010 (FCRA), administered by the Ministry of Home Affairs. FCRA registration requires the organisation to have been in existence for at least three years and to have spent a minimum of INR 10,00,000 on its stated objectives during that period, excluding administrative costs.
A dedicated FCRA bank account must be maintained with the New Delhi Main Branch of the State Bank of India. FCRA registration is valid for five years and must be renewed on time. For organisations that need to receive foreign contributions before completing three years of operation, a prior permission application can be submitted to the Ministry of Home Affairs for a specific project and donor.
The interaction between FEMA and FCRA in the context of Section 8 companies is an area that requires careful legal structuring. The two regimes are distinct in purpose and in consequence, and foreign businesses should obtain specific advice on which framework applies to their intended funding model before committing to a structure.
A Section 8 company is not the only way to run a non-profit in India. For foreign organisations that need institutional credibility, access to CSR funding, and a governance structure that holds up under scrutiny, it is the most defensible choice. The registration process is entirely online, the legal framework is central rather than state-dependent, and the resulting entity operates with the full backing of the Companies Act.
The part that catches most foreign businesses off guard is not the registration itself. It is the regulatory layer that sits around foreign funding. Getting that right at the outset avoids costly restructuring later. Professionals at Stratrich Consulting can guide you understanding the complexities around it.
