Q&A session on Section 8 Company conducted by Mehta & Mehta Legal Advisory Services on 26th February 2022 at 11:00 AM
1) Whether trust or society can be converted into Section 8 Company?
Ans: – Yes it is possible, any trust / society can be converted into Section 8 Company provided it is initially registered and subject certain conditions.
2) If receiving foreign contribution, Section 8 co should obtain FCRA registration?
Ans: – Yes, Section 8 companies that receive a foreign contribution or any donation from a foreign source, are required to obtain FCRA registration. Such registration and contributions are regulated under the Foreign Contribution Regulation Act, 2010 (provisions under section 6 (1), FCRA Act 2010)
3) Can directors. Registered under Section 8 Company can they take salary?
Ans: – If that director is the member himself than there is a prohibition as members can’t draw any remuneration but if he is only director and not a member he can draw salary. Even in certain cases if director member gets approval from central government he is further eligible to get salary.
4) In case of section 8 company whether should we consider co limited by shares or co limited by guarantee?
Ans: – Section 8 Company may be incorporated as a company limited by shares or by Guarantee (with or without share capital).
5) Can section 8 co undertake charitable activities abroad?
Ans Yes, According to section 6 (1) of FCRA Act 2010 states that Charitable Trusts, Societies, and Section 8 companies that receive a foreign contribution or any donation from a foreign source, are required to obtain FCRA registration. Such registration and contributions are regulated under the Foreign Contribution Regulation Act, 2010.
6) Is copy of certificate of commencement business is discontinued post filing of form 20A.
Ans: – Every company required to file form 20A (verified by a Chartered Accountant (CA) or Company Secretary (CS) or a Cost Accountant in practice.) shall file the same within 180 days of its incorporation.
7) Minimum paid up capital for Section 8?
Ans No minimum share capital required for forming Section 8 Company or NGO Company can be formed for charitable purpose by providing guarantee.
8) Whether contributions made by company can be treated under CSR activities based on object clause of Section 8 Company?
Ans:- Contributions made by company can be treated under CSR activities Further, forms like 12 A, 80 G and CSR 1 should be filed than only it will be treated under CSR activities.
9) Is there any separate process to get license before incorporation or it’s a part of incorporation process?
Ans: – Process was different before now we have to register and get licensed simultaneously. (Process of registering a section 8 company is the same as incorporating an NGO / trust/ society – only additional requirement is that the application seeks license from the government under section 8 company which is part of application process).
10) Is copy of certificate of commencement business is discontinued post filing of form 20A. Ans :- No it can’t be discontinued post filing as Form 20A is a declaration that needs to be filed by the directors of the company at the time of the commencement of the business. (Refer question no 6 above – form 20A – declaration that needs to be filed by the directors of the company at the time of commencement of business).
11) Do all newly incorporated Section 8 Company needs to file CSR-1?
Ans: – Form CSR 1 (by entities undertaking CSR activities) can be filed only when an NGO has a valid registration under Section 12AB and Section 80G of the Income Tax Act on the day of filing the form CSR 1 Online.
12) Section 8 Co limited by shares v/s limited by guarantee. pros and cons in managing memberships, please share insights?
Ans:-Not much of a difference except that precaution should be taken while seeking guaranteed amount need to be exercised. Other difference is seen related to voting pattern.
13) Minimum number of members required for Section 8 and also process to get new members in Section 8?
Ans: – Section 149(1) of the Companies Act 2013 – prescribed minimum of 3 & 2 directors for public limited & private limited company respectively and a maximum of 15 directors. But there is no minimum or maximum prescription for section 8 company.
14) In case of transfer of shares of S 8 co. how to decide the consideration amount?
Ans: – Transfer of shares of Section 8 Company can be done at face value mentioned in SH 4.
15) Can a section 8 Co. proposed to be converted into a Private Ltd. Co., continue using words like ‘Association’ in its name after the conversion? i.e. XYZ Association Pvt. Ltd
Ans: – No they cannot 16) As regards section 25 co limited by guarantee, whether a simple letter of guarantee is sufficient or whether the member needs to pay any amount of guarantee upfront? Ans: – No guarantee required upfront but in the event of winding up assurance should be given.
17) If section 8 is incorporated with Nil paid up capital, will it be termed as Company limited by guarantee??
Ans: – There should be special clause in its MoA / AoA 18) Any governmental subsidies to sec 8 companies? Ans: – No automatic exemption – by making application under section 12 A than only you will get exemption 80 G, CSR 1 should be filed.
19) If Bank account was not opened can INC-20A be file with Cash subscription as bank account is not opened??
Ans: – Yes
20) What would happen if INC-20A certificate for commencement of Business is not filed within 180 days of incorporation?
Ans: – Where no declaration has been filed with the Registrar within a period of one hundred and eighty days than registrar has reasonable cause to believe that the company is not carrying on any business or operations, he may, impose penalty for not filing and initiate action for the removal of the name of the company from the register of companies. Can sec 8 company with guarantee be converted into LLP? Ans: – It may be possible
21) At the time of incorporation selection of whether company will be with share capital or without need to be selected. The MOA and AOA need to be prepared accordingly?
Ans: – Section 8 companies are mandatorily required to file MOA and. AOA as pdf attachments – hence it has to select the option
22) Can you through light on process of transfer of Membership in Section 8 Company with Guarantee and after transfer of Membership will the transferor have any liability?
Ans: – The transfer of the membership in a company limited by guarantee is subject to the company’s AoA. Preferably, the AoA would have to set out the conditions of issuance of membership of the Company including qualifications, privileges, and obligations and also to specify the transferability of membership of the Company. Any transfer of membership, in case the articles contain restrictions with respect to transfer of membership, would have to fulfil the requirements prescribed. As per the provisions of the Companies Act, a past member is also liable to contribute if he ceased to be a member within one year before the commencement of winding- up and the present members fail to meet their liabilities.
23) In case transfer of shares in Section 8 Company with share capital, will book value be used?
Ans: – Where the consideration received upon transfer of unquoted shares is less than the fair value (again as per Rule 11UA), the fair value shall be imputed as the deemed consideration for such transfer. Rule 11UA does not require a valuation to be done, but to avoid confusion later, it may be advisable to get a valuation.
24) Do all newly incorporated Section 8 Company needs to file CSR-1?
Ans:- No only entities undertaking Corporate Social Responsibility activities is required to file eForm CSR-1 for all their CSR projects from 1 April 2021 as notified by MCA.
25) Since the company is not for profit, one of the criteria for valuation can be the value of assets in the company?
Ans: Shares of a section 8 company limited by shares are transferable by a shareholder to any other person which is done by and large at a face value since section 8 company is a non-profit entity.
26) Can Sec 8 Co. limited by guarantee take loan from its members/directors?
Ans: – Yes it can take loan from its members and directors.
27) Guarantee amount is payable at the time of winding up in Case of Section 8 Company?
Ans: – The liability of the members to pay the guaranteed amount arises only when the company has gone into winding up.
28) Obtaining 12A and 80G is a post incorporation separate application?
Ans: – Section 8 company can claim exemption of the Income, after getting registered under section 12-A of Income Tax Act.
29) If the purpose of the Section 8 Co. has been fulfilled and it is converted to a Pvt. Co. then after how many days can we apply for striking off the name of the company?
Ans: – There is no time limit as such once section 8 company is converted into Private Company it can go for voluntary winding up – subjection to satisfying the conditions for strike off.
30) How to add or delete members of section 25 company limited by guarantee?
Ans: – Adding member can be done by board and removal can be done during disqualification or misconduct.
31) Can section 8 company give loan to another company or its member or director? Any restrictions for this?
Ans: – No you can’t give loan to another company only section 8 co can provide loan to another section 8 company.
32) Do the condition of 3 year track record under rule 4(1)(d) to be fulfilled for obtaining CSR-1 registration number
Ans: – No track record of 3 years is not necessary to obtain CSR 1 registration number.
33) In company limited by shares we issue share certificate so in company limited by guarantee what acknowledged we have to give?
Ans: – certificate / letter of membership card. 34) Can charitable trust apply for CSR 1? Ans:-yes a charitable trust can obtain CSR-1, obtain 12 A, 80 G and pan number to get CSR 1on MCA portal.
35) Can Section 8 company directly strike off or first required to convert it into Private limited co and then apply for strike off?
Ans:- Voluntarily winding up is possible you can’t directly strike off you have to first convert your company into private limited and then can go for strike off.
36) Can section 8 companies be merged/ amalgamated?
Ans: – yes it can be merged.
37) Can section 8 companies be a holding company of another company?
Ans:-Yes, section 8 company can promote another company and be a holding company of another company.
38) Can sec 8 with guarantee can be also be strike off?
Ans:- Voluntarily winding up is possible – you can’t directly strike off you have to first convert your company into private limited and then can go for strike off.
39) Can corpus fund of section 8 company be considered equivalent to share capital and determine while calculating threshold of section 180 or 186?
Ans:- It depends on banker.
40) A Section 8 company has 2 Members who are also Directors of the company. Before commencing the operations, one of the Director resigns. The remaining Director wants to wind up the company. What steps needs to be taken? Ans: – Same striking off
41) Can section 8 company make an investment in shares of other company?
Ans: – Yes it can also makes investment subject to sec 178.
42) But can the remaining Director, alone, decide to convert and apply for strike off?
Ans: – No they have to appoint another director.
43) Can section 8 company give sitting fees to Directors?
Ans: – Yes it is permitted.
44) Can we remove guarantors on the basis of violation of integrity of the company?
Ans: – Yes
45) Can section 8 company follow different period as financial year?
Ans: – Subject to getting the permission from the ROC.
46) Is it compulsion to sec 8 co to have approval of ROC or having various committee?
Ans:-No it is not compulsory.
47) Can a section 8 company having assets, converted into private limited.
Ans: – Transfer everything than only convert.
48) There is a special event where the section 8 company had to sell their asset because of which the Profit has crossed 5 crore then do they have to do CSR or not? As usually they don’t cross more than 20 lakhs?
Ans: – Criteria is there then CSR has to be followed.
49) Section 8 company CSR provision Applicable 5 crore?
Ans: – Yes committee should be formed and separately CSR activities to be carried on section 8 company receive CSR funds though it is surplus it may be treated to the profit net profit or surplus CSR is applicable.
50) Whether MGT 8 Certification applicable to section 8 company?
Ans: – Since section 8 company also a company incorporated under Companies Act, having paid-up share capital of Rest 10 crore or more or Turnover of Rs 50 crore or above.
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