Formation of companies with charitable objects

Section 8 of the 2013 Act corresponds to s. 25 of the 1956 Act. As per the 1956 Act, an association of persons alone could form a company under s. 25 of that Act. However, as per s. 8 of the 2013 Act, even one person can form a company under the section.

The scope of objects for which a company can be registered under s. 8 of the 2013 Act has been expanded. As per s. 25 of the 1956 Act, an association pursuing the objects of promoting commerce, art, science, religion, charity or any other useful object could be registered as a company under a license from the Central Government whereas under s. 8 of the 2013 Act a wider range of objects viz., promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object; have been enumerated for a person or an association to be registered as company under a license.

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A company registered under s. 8 of the 2013 Act may amalgamate with another company registered under the section with similar objects. While revoking the license of a company under s. 8(6) of the 2013 Act, the Central Government may, in public interest, instead or ordering winding up, can direct amalgamation of two companies registered under section 8 having similar objects. Section 25 of the 1956 Act did not have a provision relating to amalgamation with another company upon revocation of license. The grey area appears to be the usage of the terms ‘should be amalgamated with another company registered under this section and having similar objects’ under s, 8(8) of the 2013 Act leaving an impression that a company incorporated under s. 25 of the 1956 Act will not be covered by s, 8(8) of the 2013 Act.

Under sub-section (6) of s. 25 of the 1956 Act, the Central Government had general power to exempt companies registered under s. 25 from application other provisions of the Act as may be necessary, However this power is not granted under s. 8 of the 2013 Act.

Scope of section 8 of Companies Act, 2013

Section 8 of the 2013 Act itself specifies the objects for which such a company can be incorporated. The objects could be for promotion of arts, commerce, science, sports etc. The list is not exhaustive but only illustrative as is evident from the words “any such other object”.

Normally companies are incorporated for commercial purposes. They could be private or public companies, However, when there is a person or an association of persons desiring to incorporate a company for purposes other than commercial ones, section 8 of the 2013 Act permits registration of such person or association of persons as a company.

Formation of companies with charitable objects etc. [Section 8(1) to (3) of Companies Act, 2013]

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Section 8(1) of the 2013 Act provides for the registration of a person or an association of persons as a limited company under the Act without addition of the word “limited” or “private limited” under a license from the Central Government upon satisfaction of the following conditions that the proposed company:

  • has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any other object;
  •  intends to apply its profits or income in promoting its objects; and
  • intends to prohibit the payment of any dividend to its members.

A company registered under s. 8 of the 2013 Act shall have the same privileges and be subject to all the obligations of limited companies. Companies registered under s. 8 of the 2013 Act can have a firm as its member.

Restriction on alteration of memorandum and articles (Section 8(4) of Companies Act, 2013]

A company registered under section 8 of the 2013 Act cannot alter its memorandum or articles without prior approval of the Central Government. Such a company may convert itself to a company of another kind after complying with the conditions prescribed in Rules 21 and 22 of Companies (Incorporation) Rules, 2014. Under s. 25 of the 1956 Act dealing with registration of association of persons with charitable purposes etc. similar restrictions were placed on the alteration of memorandum of association alone.

Registration of an existing company [Section 8(5) of Companies Act, 2013]

In case the Central Government is satisfied that a limited company registered under the 2013 Act or any previous company law fulfills the conditions laid down in section 8(1) of the 2013 Act, it may by license allow such a company to be registered under section 8 subject to conditions as the Central Government may deem fit including omitting the word “limited” or “private limited” as the case may be from its name. Upon registration, such company shall be governed by the restrictions and privileges of section 8 of the 2013 Act. Contravention of provisions under section 8 (Section 8(6) to (10) of Companies Act, 2013]

  • Change in status of the company [Section 8(6)]: If a company registered under section of the 2013 Act contravenes the requirements of the section or the conditions subject to which license was granted; or if it conducts its affairs fraudulently or in a manner violative of the objects of the company or prejudicial to public interest, the Central Government may revoke the license granted and convert its status and change its name to add the word “limited” or “private limited” as the case may be.
  • Order for amalgamation with company having similar objects [Section 8(7), (8) and (10)]: Where a license is revoked under s. 8(6) of the 2013 Act and the Central Government is satisfied that in public interest the company should be amalgamated with another company registered under s. 8 and having similar objects, it may by order provide for such amalgamation to form a single company. Section 8(10) further clarifies that only a company registered under s. 8 with similar objects shall be amalgamated with the company whose license has been revoked under s. 8(6) of the 2013 Act.
  •  Order for winding up [Section 8(7) and (9)]: Where the Central Government is satisfied that a company whose licence has been revoked under s. 8(6) of the 2013 Act should be wound up in public interest it may direct that the company be wound up under the Act. Any asset that remains after satisfaction of the debts and liabilities of the company being wound up or dissolved, shall either be transferred to another company registered under s. 8 and having similar objects or be sold and proceeds thereof credited to the Rehabilitation and Insolvency Fund [section 269 of the 2013 Act].

Punishment for default [Section 8(11) of Companies Act, 2013]

Default in compliance of the requirements in s. 8 of the 2013 Act shall be punishable with a fine of minimum ten lakh rupees which may extend to one crore rupees in case of the company and with imprisonment for a term which may extend to three years or with fine not less than twenty five thousand and which may extend to twenty five lakh rupees or both in case of directors and every officer of the company who is in default. The penalty for non-compliance shall be in addition to other consequences of contravention of the provisions of s. 8 including revocation of licence, amalgamation of the company or winding up order.

Delegation of powers to Regional Directors and Registrar of Companies under Companies Act, 2013

The powers of the Central Government under section 8(4)(i) and section 8(6) of the 2013 Act have been delegated to Regional Directors at Mumbai, Kolkata, Chennai, Noida, Ahmedabad Hyderabad and Shillong vide Circular S.O. 1352(E) dated 21-05-2014 Similarly, the powers of the Central Government under ss. 8(1), 8(2), 8(4)0) except alteration of memorandum in case of conversion into another kind of company and of the 2013 Act have been delegated to the Registrar of Companies vide Circular S.O. 1353(E) dated 21-05-2014.

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