Advantages and Disadvantages of Section 8 Companies

Advantages and Disadvantages of Section 8 Companies

Advantages and Disadvantages of Section 8 Companies

In our previous post we have discussed about What are Section 8 Companies and their Characteristics. So, in continuance of that post, here are the Advantages and Disadvantages of Section 8 Companies.

Advantages of Registering Section 8 Companies:

1) Tax Exemption
Numerous Tax exemptions are provided to Section 8 Companies, specifically to the donors who are contributing to Section 8 Companies, they can claim the Tax exemption against the donation they made to a Section 8 company.

2) No minimum capital requirement
There is no prescribed limit over section 8 companies for the minimum capital requirement unlike other entities such as public limited, but the capital structure can be altered at any stage as the required for the growth of the company.

3) No stamp duty payable
A section 8 Company is exempted for the payment of stamp duty applicable for registration as applicable in case of other structures such as private limited or a public limited company.

4) Separate Legal entity
A Section 8 Company also holds its own identity like other companies structures, and has its own separate legal standing from its member. A Section 8 Company also has a perpetual existence.

5) Credible
A Section 8 Company has more credibility as compared to any other Non-profit organization structure be it a Trust or Society. As it is a licensed by the central government. It has more stringent regulations such as no change in MOA and AOA can be done at any stage or situation in a Section 8 Company. A section 8 company due its strict compliances as regard to functioning has a more reliable image in comparison to other legal structures.

6) No title required
Unlike the names requirements of the private limited or a public limited company, a section 8 company does not require to use a suffix next to its name.

Disadvantages of Registering Section 8 Companies:

The disadvantages are quite less in numbers as compared to its advantages. As there are many statutory obligations that such companies shall comply with like:

1) The profits of the companies could only be used for its object fields only i.e., art, commerce, science, sports, environmental protection and fields of such sort and not on anything else.

2) There could be no distribution of its profits to its shareholders or partners unlike in other limited companies where all the persons having its share in the company can enjoy such rights.

3) Unlike in the other limited companies, no member related to such companies could be appointed as a remunerating officer.

4) The members could enjoy zero benefits or allowance or any other advantages as such. They could only be reimbursed for their pocket expenses that might have occurred in the course.

5) The main objective of such companies under section 8 is to use its profits in promoting the particular fields only and not for any other purpose.

6) Such a company cannot alter or amend the Memorandum of Association or the articles of association without the prior approval of the central Government.

7) The central government has imposed various conditions which have to be complied with and such regulations and the impositions have to be necessarily included in their Memorandum of Association and Articles of Association or as directed by the central government.

8) Since they come under the definition of a company under section 25 of the Company’s act, so the income derived from the company would be applicable to pay tax. though there are exemptions but that doesn’t mean that they would completely be exempted from being subject to pay tax.

If you have any query regarding Section 8 Companies, feel free to comment.

Advantages and Disadvantages of Section 8 Companies

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