Section 8 Microcredit Company Registration

Overview of Section 8 Company

To give easy credit to people belonging to the marginal class of society who are traditionally considered unsuitable for lending, microcredit companies were established. These companies increase financial inclusion by giving small credit to small and medium enterprises and people belonging to the lower-income group.  

NGOs intending to serve the small income group of society by lending small loans can be registered as Section 8 companies under the Companies Act 2013 or as a trust under the Trusts Act 1882. They can also register under the Societies Act 1860. Section 8 company registration is the incorporation process of such NGOs under the Companies Act 2013. 

These companies can be registered with an objective to promote Science, Commerce, Art, Technology, Sports, Social Research, Education, Social Welfare, Charity, Religion, and Environment protection. Section 8 companies are allowed to work anywhere after completion of the registration process.  

Benefits of Section 8 Company Registration

There are various advantages of obtaining Section 8 company registration under the Companies Act 2013. Let’s understand them in the following section.

• Tax Benefits: Section 8 companies are eligible to avail various tax-related benefits.
• No Minimum Capital Requirement: There is no limit on minimum capital required for set up of these companies for registration as the microcredit company.
• No Payment of Stamp Duty: If you are willing to register your firm as a Section 8  company, then you won’t be required to pay stamp duty on company incorporation. It is against the provision of payment on the AoA and MoA of the private limited company.
• It is a separate legal entity and acquires its legal identity from the members.
• Exemptions for Donors: These NGOs can register under Section 80G which give the donors of the NGO exemption from tax. This attracts more donations for the organisation.
• Credibility: These companies have more credibility than other types of charitable organisations as these are audited every year due to the provisions of the Companies Act.

Eligibility Criteria for Section 8 Company Registration

The following are minimum criteria that need to be met by an NGO willing to register as a Section 8 company.

• Any individual, Limited Company, a HUF is eligible to start a Section 8 Company.
• Two or more than two people who act as a shareholder or director must fulfill all the requirement of the compliances for the Section 8 company.
• At least one director of the Section 8 Company must be a citizen of India.
• The objective of Section 8 Company must be the promotion of Science, Art, Sports, social welfare, or giving financial assistance to small income groups.
• If any surplus donation generated, then it must be used in fulfillment of the primary objective of the company.
• Members, founders, directors cannot withdraw any numeration (indirectly or directly) from the company.
• The company must have a project plan and a vision for the next 3 years.