The Section 8 Companies are entities whose incorporation rules and other regulatory obligations are based on their classification made as per their objective. Earlier, these entities were called Section 25 companies when they were regulated under the Companies Act of 1956. Since the advent of the Companies Act 2013, these entities have been referred to as Section 8 Companies. The classification is based on the objective mentioned in the AoA. These companies are generally formed with an objective to promote Education, Research, Science, Charity, Sports, Religion, or any other such philanthropic Act. The profit earned by these companies must be used for the promotion of their mentioned objective and hence, these companies don’t pay any dividend to their existing members. Obviously, there are many relaxations given to these companies by the government due to their objective of goodwill.
These entities are governed by the rules and regulations of the Companies Act 2013. These are incorporated and regulated by the Registrar of Companies (RoC) working under the Ministry of Corporate Affairs (MCA). The many regional offices of the RoC are responsible for the regulation of such companies located in their region of jurisdiction. We all know that the company incorporation rules of any type of company also involve the selection and approval of an appropriate name for their company. The rules vary with the type of company seeking registration. In this writing piece, we will understand the complete procedure for Section 8 company name approval and registration. In the later section, we will also understand in brief the relaxations given to these companies as per the norms of the Companies Act 2013.
Understanding Section 8 Company Name Approval
In this section, we will understand the complete procedure of the name approval process for Section 8 Company. The procedure is completely online and requires a modest fee to be paid for name reservation. The applicant willing to reserve a unique name for its Section 8 company can apply online on the MCA’s portal for the same. The procedure involves the submission of an online form on the portal under the service of ‘Reserve Unique Name’ (RUN). Once an applicant visits the homepage of the MCA portal, he can head to the top menu where he can find the Services section in horizontal alignment. In this SERVICES section, he can pick the RUN services to start the reservation process for the company name.
It should be noted while submitting the proposed names, the applicant should exclude words like Limited or private limited at the end. The acceptable terms for use in the name as per the objective of the company are chambers, forums, council, foundation, electoral trust, association, federation, etc.
Role of RUN Services
Earlier, there were numerous issues related to the name approval process when it was done in offline mode. To mitigate such problems, the MCA came up with the RUN services which made the process easier with online processing. Now any person with average computer skills can apply for name registration as it doesn’t require any specialized technical knowledge. However, it does require knowledge of the procedure and legal implications. The RUN platform is intuitive and user-friendly. The platform is also used for modifications in the existing name of the company.
Who Can Use This Service?
Any user who has created an account on the MCA’s portal is eligible to file for the name reservation procedure. With the login details of the MCA’s account, the user can locate the services section on the dashboard and find the RUN services for the application.
Criteria for Name Modification and Reservation
While filing for the name approval of the Section 8 firm, the applicant must ensure that the suggested name is in line with the Company Name Availability guidelines. The company should also understand that a unique trademark is also imperative in this scenario to ensure that the proposed name of the company is as per the provision of Section 4(2) of the Companies Act. In case the name doesn’t meet the norms of the Act, it will be liable for rejection.
As far as documents required are concerned, there are no specific docs required for the process. However, if the name is borrowed from any previous firm or is similar to any existing company’s name then, a NOC should be submitted from those companies. The NOC should state that the old company has no issues with the applicant company using its name. The file size allowed for submission through a single document is less than or equal to 6MB.
Post Application, the Central Registration Centre (CRC) examines the said application and the documents as per the rules of the Companies Act. The application is also verified for errors. If the Registration Centre finds that the application meets all the set norms, then it will approve the name for the company. In case the name doesn’t suit the compliance norms, then it could be rejected. The center can also ask for any additional document if it deems so. Whether the application is accepted or rejected will be intimated to the applicant via email.
Submitting Objects for Name Approval
The applicant firm will have to send a copy of the objective of the Section 8 Company to support the proposed name. The authority scrutinizes the proposed name based on whether it suits the objective of the firm or not. As of now, the portal only allows the submission of one proposed name for the reservation, and multiple name proposals are not allowed. Thus, the suggested name must be matching the objective of the firm to avoid being rejected by the authority. Once a company name receives approval from the authority after submission through RUN services, will be valid for a period of,
- Twenty days from the approval date for the new company and,
- Valid for sixty days from the approval’s date for name modification of an existing company.
Fee Structure for Name Reservation
The fee to be paid for name reservation through the MCA portal is Rs. 1000. The fee is the same for name modification of an existing entity. Once the application is filed and the fee is paid, the RUN service portal generates a Service Request Number (SRN). This number acts as the acknowledgment for payment of fee and filing of the application. One should note that the said amount is non-refundable even in case the application is rejected. Thus, the company must take caution while applying for the name registration and ensure that it meets all the requirements. In case the application is rejected, the MCA has not notified any norms for Applicants to file for resubmission of an application. Thus, in case the application is revoked by MCA or rejected on any ground, a fresh application must be made by repaying the requisite fee to the authority.
Relaxations for Section 8 Companies
The Section 8 companies are involved in the promotion of activities in areas that benefit society. Thus, the government has offered several relaxations in compliance norms for these companies. These relaxations ensure that these companies can meet their objective smoothly. Following is the list of a few relaxations explained in brief.
- No Requirement of Company Secretary
As per the norms of the Companies Act, these firms are not required to appoint a Company Secretary to look after the compliance related matters of the firm. This helps the company in being cost effective as Company Secretaries generally draw high end salaries for their services.
- Minimum Share Capital Exclusion
Taking into account the relaxations offered to the privately-owned entities, the Section 8 Companies are exempted from holding a certain minimum amount of Share Capital. This was further amended to include the non-profit firms in this relaxation as per section 2(71) and section 2 (68) of the Companies Act 2013.
- Relaxation to Record Minutes of Meeting
Section 118 of the Companies Act has provisions concerning pre-decided minutes of meetings and time to pass the resolution. However, this section doesn’t apply to the Section 8 Companies. The company can record the minutes in the 30 days time period after the conclusion of the meeting in case, the firm’s articles require confirmation of the same.
- Short Notice Period for AGM
As per Section 101, the notice period to serve notifications to the members of the company concerning Annual General meetings or AGM has been reduced to 14 days. Earlier, the time period for the notice was 21 days before the AGM. The timeline for notice is also valid for meetings related to decision-making on the Financial transactions of the company.
- Requirement of Only Two Directors
Section 149(1) of the Act doesn’t apply to the Section 8 companies. There are only two Directors that are needed for the firm and the cap on minimum no. of directors requirement has been scrapped. These firms also don’t need to appoint independent directors. The relaxations are given for board meetings as well. These companies don’t need to organize the first board meeting within 30 days of their incorporation like other types of firms. Although, the norm to convene a meeting of the directors every six months is still in place.
- Relaxations on Board Meetings for Decisions
There have been relaxations given to the companies related to organizing board meetings to take decisions. The Companies Act states that the board meetings should be convened to make every decision related to the company’s operation. However, in the case of a Section 8 company, the board has the right to decide on matters such as borrowing, investment, and granting credit or advances without organizing an official meeting. This saves a lot of time for the board members and speeds up the decision making process.
- Limited Document Requirements to Conduct Transections
The requirement to furnish documentation while conducting transactions is also limited in the case of a Section 8 company. A director of such a firm is accountable to disclose his interest in any other company in case a financial transaction is involved. Even the company is needed to disclose the details of such transactions in a maintained company register as per Section 188 of the Companies Act 2013. This should be done for all transactions whose limit has crossed the threshold of Rs. One Lakh.
Why Expert Assistance Is Needed?
When it comes to document verification for any process, the MCA has been quite wary of any fraudulent information being furnished. Hence, it takes a lot of scrutiny before passing any application from the departments working under this ministry. Mostly, the MCA’s officers are quite spot on while detecting errors in the application. Thus, it has been recommended by every expert that while applying to get any kind of approval related to company law, a firm must meet all the requirements and furnish an absolutely error-free application. The said process needs a lot of due diligence and thus, it is advised that the firm takes help from legal or financial consultancies before applying.
These firms take the responsibility of filing an error-free application on behalf of the applicant. They have full knowledge of the said procedures of applications and thus, the chances of making any error are reduced to none. This also saves the applicant from losing his fee paid for the registration due to rejection.
So, we understood the complete process of name registration for a Section 8 Company. The process is similar to the process of name registration of other firms with the difference being the sending of the objective. Section 8 companies are classified and given relaxations from compliance norms due to their objective. Thus, the name must reflect the company’s objective to avoid any confusion. We also understood in brief about a few relaxations provided to these types of firms. These are other relaxations as well which have not been highlighted in this piece. Readers are advised to contact their respective trusted legal adviser to understand to complete the process of Section 8 Company incorporation. This will clear their mind on the process involved in the registration of such a firm and the related regulatory norms.