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. 

To Conclude…

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.

The post What Are the Norms for Section 8 Company Name Registration? appeared first on MUDS.

The government of India is working with full earnestness towards a major policy objective shift to achieve financial inclusivity. To fulfill this dream, the Microfinance Institutions have taken center stage as they extend financial services to people of low-income strata working tirelessly to find a way out of poverty.

Microfinance refers to an array of financial services, including loans, savings, and insurance, available to poor entrepreneurs and small business owners who have no collateral and wouldn’t otherwise qualify for a standard bank loan. More often, small loans are given to those living in developing countries and working in small businesses of different trades like carpentry, fishing, transportation, etc.

India is a growing economy with a large population. Government banks and private sector banks cannot open their branches in every village. Though Indian banks have increased their presence but still they have limited reach in remote areas. Micro Finance Company Registration allows these financial institutions to work in remote areas and empower farmers or small businesses in the villages.

Basic Features of a Micro-Financing Institution

With micro finance company registration, a small finance institution can be introduced in a rural or remote area with an objective to assist the unbanked and under-banked sections of the Indian population. Over the years, microfinancing has emerged as a unique economic development tool that has helped crores of underprivileged people.

Following are the key features of Micro-Finance Institutions:

• Deals in low amounts to finance small loans requirement of people.
• Must have a minimum net worth as prescribed by the Regulator.
• Must be incorporated under the new Companies Act 2013, or the earlier Companies Act, 1956.
• Has been registered with an appropriate agency and obtained necessary licenses/ permits.

Benefits of Micro-financial Business

The distinctive features of the micro-finance lending management solution allow lenders to have access to this huge untapped sector of the Indian economy without the need for manual intervention, excessive paper load, and massive wait times.

Governments of India and the Reserve Bank of India have created a conducive policy framework for Microfinance Institutions (MFIs) to ensure legitimacy and impetus to the sector.

The following are the benefits of getting Micro Finance Company Registration:

• Provides access to funding for small businesses.
• Encourage self-sufficiency and entrepreneurship among the rural population.
• It offers a better overall loan repayment rate than traditional banking products.
• Strengthen the financial condition of businesses or people requiring instant capital.
• Helps in meeting credit needs for such a population range by offering various loans like emergency loans, consumption loans, business loans, working capital loans, housing, etc.

Different Categories of Micro-Finance Companies

Microfinance can be broadly categorized into 3 types, based on type of products:

a) Micro-loans –Microfinance loans are significantly different from others as these are provided to borrowers without any collateral. The aim of these small loans is to have its recipients outgrow smaller loans and be ready for traditional bank loans.

b) Micro-savings – Micro-savings accounts are a unique concept as they allow entrepreneurs to operate savings accounts with no minimum balance. The main objective of such accounts is to help users inculcate financial discipline and develop a habit of saving for the future.

c) Micro-insurance– Micro-insurance is a uniquely designed insurance cover provided to borrowers of microloans and its distinct feature is that these insurance plans have much lower premiums than traditional insurance policies.

Brief About Micro Finance Business

Micro Finance Institutions (MFIs) in India have played a major role in its overall development, as these institutions have empowered underprivileged people by extending monetary support to all communities and regions. The MFIs have gained a foothold in rural areas and underdeveloped areas, where nationalized banks are yet to reach. Thus, by giving opportunities to millions of people to fulfill their dreams and ambitions, these MFIs not only help in the economic growth of the country but also in a fair distribution of wealth in all parts.

Listed below are few most prominent types of Microfinance businesses in India:

1. Non-Banking Financial Company – Micro Finance Institution (NBFC-MFI)

Reserve Bank of India (RBI) defines NBFC-MFI as a non-deposit-taking company under NBFC micro finance company registration (other than a company licensed under Section 25 of the Indian Companies Act, 1956) with Minimum Net Owned Funds of Rs.5 crores.

For NBFC incorporation of MFIs in the North Eastern Region of the country, the Minimum Net Owned Funds specified is Rs. 2 crores.

All companies seeking micro finance company registration as NBFC-MFIs must have more than 85% of its net assets as “qualifying assets”.

NBFC – MFIs must fulfill the following criteria for NBFC Micro finance company registration:

• Loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding 1,00,000 or urban and semi-urban household income not exceeding 1,60,000;
• The loan amount does not exceed 50,000 in the first cycle and 1,00,000 in subsequent cycles;
• The total indebtedness of the borrower does not exceed 1,00,000;
• Tenure of the loan should not be less than 24 months for loan amount in excess of 15,000 with prepayment without penalty;
• Loan to be extended without collateral;
• The aggregate amount of loans, given for income generation, is not less than 50 per cent of the total loans given by the MFIs;
• The loan is repayable on weekly, fortnightly or monthly installments at the choice of the borrower.

NBFC Micro Finance Company Registration Procedure in India

NBFC Micro finance company registration procedure in India to be followed is according to the guidelines specified by the RBI.

Step 1: Register a Company

Step 2: Raise authorized and paid-up capital to Rs.2 crore

Step 3: Deposit Rs.2 crore in fixed deposits and obtain a certificate

Step 4: Get all the certified copies and complete the other RBI formalities

Step 5: Fill online application for micro finance company registration

Step 6: Submit the hard copy of the application for micro finance company registration to the Regional Office of the RBI

After the completion of the NBFC Micro finance company registration procedure in India, the Head Office of RBI shall issue the NBFC license. An applicant can check the status of the application online with the help of acknowledgment number.

2. A Section 8 Company:

Section 8 Company is a company registered under the Companies Act, 2013 for charitable or not-for-profit purposes, which pertains to an established ‘for promoting

• Commerce
• Art
• Science
• Sports
• Education
• Research
• Social Welfare
• Religion
• Charity
• Protection of environment
• Or any such other object’, provided the profits, if any, or other income is applied for promoting only the objects of the company and no dividend is paid to its members.

Registration through Section 8

Compared to NBFC-MFI, the requirements for registration of a section 8 Company and apply for central government licenses is quite simple.

Requirements for Registration Under Section 8

Maximum INR 50,000 can be given for the business purpose and INR 125,000 for the residential dwelling.

• No minimum net owned fund requirement.
• No RBI approval is required since RBI has exempted such companies from registration.

3. Nidhi Company:

A Nidhi is a company that seeks micro finance company registered under Section 406 of Companies Act, 2013 and is classified as an NBFC.

“Nidhi” means a company that has been incorporated as a Nidhi with the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit.

The deposits, thus gathered in a Nidhi company are then used for its members or shareholders and the company provides loans or advances, acquires government-issued stocks, bonds, debentures, securities, etc.

A micro finance company registration done as a Nidhi company is regulated by the Ministry of Corporate Affairs and all its financial dealings are monitored by the RBI.

4. Co-operative Society:

A micro finance company registration of a Cooperative Society is done as that of an autonomous association of people united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically controlled business. Thus, cooperatives cannot accept deposits from the general public but are only permitted to do so through their members.

When cooperatives and microfinance go hand in hand and are managed well, as registered under micro finance company registration, then they render help and power to the neediest and help improve their lives.

Cooperatives seeking micro finance company registration are to be done under the conventional state-level cooperative acts, the national level Multi-State Cooperative Societies Act (MSCA 2002), or under the new State-level Mutually Aided Cooperative Societies Act (MACS Act).

FURTHER MICRO FINANCE BUSINESS CAN FURTHER BE CLASSIFIED AS:

• Payday loan business online
• Peer to Peer (P2p) Lending

(a) Payday Loan Business Online:

Payday loans have grown in popularity over the years, mainly as a result of the economic downturn and tightening lending practices by banks and credit unions. Many individuals who previously could get approved for a personal loan or borrow against the equity in their homes have found that they no longer qualify for these types of loans.

Payday loans are short-term loans that require no collateral and generally range in amounts from 5000 to 50000. They are meant to be fully repaid within a very short period of time (two weeks). Lenders provide these loans to consumers who are faced with an unexpected financial situation that can’t be put off until the next time they get paid.

A payday loan is a unique and practical concept under which small, unsecured short-term cash loans can be borrowed by people to get through the month until their next salary comes in hand.

Typically, Payday loans target the working classes who have difficulty in making two ends meet at the end of each month and these loans need to be repaid within a short period of time. These loans come at a very high cost due to short tenure, urgent nature, and repayment risk associated with it. Payday loans in India are availed by people only in case of an emergency like a medical emergency, wedding, payment of school fees, etc.

(b) Peer to Peer (P2P) Lending:

P2P lending is a form of crowd-funding used to raise loans that are paid back with interest. It can be defined as the use of an online platform that matches lenders with borrowers in order to provide unsecured loans. The borrower can either be an individual or a legal person requiring a loan. The interest rate may be set by the platform or by mutual agreement between the borrower and the lender. Fees are paid to the platform by both the lender as well as the borrower.

The borrowers pay an origination fee (either a flat rate fee or as a percentage of the loan amount raised) according to their risk category. The lenders, depending on the terms of the platform, have to pay an administration fee and an additional fee if they choose to use any additional service (e.g. legal advice etc.), which the platform may provide.

P2P lending works very differently from other financing tools and borrowing from these is not from a financial institution but it is from an individual or group of individuals who are willing to loan money to applicants who are found qualified as per the criteria set by them.

BRIEF PROCEDURE REQUIRED TO BE FOLLOWED FOR SET-UP MICROFINANCE BUSINESS

Step-1 The Applicant Company must comply with the registration requirement under the new Companies Act 2013/ Reserve Bank of India/ Multi-State Cooperative Societies Act, 2002/ Societies Registration Act, 1860 and/or Indian Trust Act 1882.
Step-2 The applicant company must have sufficient net worth according to the micro finance business requirement.
Step-3 Determine your risk-bearing capacity and structure your business.
Step-4 Apply for registration with the regulation agency and obtain the necessary permits/licenses.
Step-5 After satisfaction of all requirements the regulation agency will grant a registration certificate and necessary permits/license as the case may be.

It was rightly said by Ralph Waldo Emerson– “Every Wall is a Door”
Thus, take a step forward to open the door for the new FDI norms.

MUDS MANAGEMENT is recognized as one of the most-respected, knowledgeable, and pocket-friendly legal and financial solutions company. Give us a call right now at +91 9599653306 and start a conversation immediately for Micro Finance Company Registration.

The post MICRO-Finance Company Registration: SETTING UP A MICRO-FINANCE COMPANY appeared first on MUDS.