How does a private company differ from a section 8 company?
A private company is formed to carry on a business and may distribute its profits. A section 8 company needs a licence, is formed for the objects in that section, applies its profits to those objects, and does not pay a dividend. The licence is not an income-tax exemption.
What is each one formed to do?
Section 2(68) describes a private company: it restricts the right to transfer its shares, limits the number of members, and prohibits an invitation to the public to subscribe for its securities. It has at least two members and two directors. It may carry on any lawful business its memorandum allows, and it may pay a dividend.
Section 8 is a licence for a company whose objects are the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or a similar object. It intends to apply its profits or other income to those objects, and it prohibits a dividend to its members. It may be limited by shares or by guarantee. The licence is obtained before the company is registered as a section 8 company. How that company is formed is on the section 8 page. A private company that is not a section 8 company is on the private company page.
How do the names and the profits differ?
| Point | Private company | Section 8 company |
|---|---|---|
| Purpose | A business the memorandum allows | The objects named in section 8 |
| Profits | May be distributed | Applied to the objects. No dividend |
| Name | Ends with Private Limited | Uses the words the licence allows, such as Foundation or Association |
| Board meetings | Four a year, unless it is a small company or a start-up | At least one in every six calendar months |
A conversion either way needs the Central Government’s approval under section 8. It is not a routine change of name. The meeting rules for a section 8 company, including the 14-day notice for a general meeting, are on the meetings page.
What does the licence not do?
The licence does not exempt the company’s income from tax. That exemption, where it exists, is a separate registration. It does not make a donation deductible for the donor. Stamp duty on the memorandum and the articles remains a state charge. The licence also does not remove the need for directors, a registered office, or accounts.
Frequently asked questions
Four questions cover tax, stamp, a dividend, and board meetings.
Does the section 8 licence exempt income?
No. The licence limits the objects and bars a dividend. An income-tax exemption is a separate registration. The licence does not grant it.
Is stamp duty waived?
No. Stamp on the memorandum and the articles is a state charge. The section 8 licence does not cancel it.
Can a section 8 company pay a dividend?
No. Its profits are applied to its objects. A dividend to members is not permitted.
Is one board meeting a year the maximum?
No. A section 8 company holds at least one board meeting in every six calendar months. That is a minimum. It is not a cap of one meeting.
Sources
A private company is section 2(68) of the Companies Act, 2013. A section 8 company needs a licence and applies its income to the objects in that section.