What can a section 8 company not do?
A section 8 company cannot pay a dividend to its members. Its profits, if any, are applied only to promoting its objects. It also cannot rewrite those objects, or convert into an ordinary company, unless the Central Government allows it.
Yes. It may receive income from its activity. That income is applied to the objects.
Can it pay its members?
Section 8 requires that the company intends to apply its profits or other income in promoting its objects, and that it prohibits the payment of a dividend. Members may be paid for work the company actually takes from them, on the terms the Act and the articles allow. They are not paid a share of profit because they are members. How the company is formed, and the papers, are on the section 8 page and the documents page.
Can it change its objects?
A change to the memorandum or the articles needs the prior approval of the Central Government. The objects stay inside the purposes the section names: commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or a similar object. An activity outside the memorandum is not cured by calling the surplus a donation. The company may still receive fees for the activity its objects cover. The bar is on distributing that income, not on receiving it.
When can the licence be revoked?
The Central Government may revoke the licence if the company contravenes a condition of section 8 or of the licence, or if the affairs are conducted fraudulently or in a manner prejudicial to the public interest. On revocation the company may be wound up, or amalgamated with another section 8 company, as the section provides. The licence is not a permanent shield against those conditions.
The company remains a company for its filings. Financial statements, the annual return, and an audit apply. It is outside the small-company test even when its figures are small. Those filings are on the section 8 compliance page.
Who receives the assets if it closes?
If the company is wound up, or the licence is revoked, the remaining assets, after debts, are transferred to another section 8 company with similar objects, or otherwise as the section and the Tribunal direct. Members do not divide that surplus among themselves. Closing the company is therefore not a way to take the accumulated property out.
Frequently asked questions
Four questions cover charging for work, the name, members’ votes, and the yearly filings.
Can it charge for its work?
Yes. It may receive income from its activity. That income is applied to the objects. It is not distributed as a dividend.
Must the name contain section 8?
No. The name uses a word such as Foundation or Association, and the licence allows the company to omit Limited or Private Limited.
Do members have no vote?
No. Members vote as the articles and the Act provide. What they cannot take is a dividend or the surplus on a winding up.
Is the yearly filing lighter than a private company’s?
No. It is still a company. It files financial statements and an annual return, and its accounts are audited. A section 8 company is not a small company.
Sources
The limits are section 8 of the Companies Act. The licence is revoked under section 8(6). Surplus assets on a winding up follow the section and the licence.