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No. 1 e - Service Plateform in India

Non Profit Organisation

DigitalCA
Sep 24, 2019

                                                                 Section 8 Companies
                                                       (The Companies Act, 2013 Series)

The concept of such companies was introduced in the Companies Act 1913
that permitted companies with charitable objects etc. to be registered
without the words ‘Limited’ or ‘Private Limited’.

Section 25 of Companies Act, 1956 was then introduced for such companies based on English
Companies Act of 1948.

The Companies Act, 2013 continues with the provision for such companies and provides for a framework for the same
under Section 8 of the Companies Act, 2013. Considering the fact that
section 8 companies are distinct when compared to other commercial
entities and certain aspects need clarification from time to time.


The central government has also brought out certain exemptions to Section
8 Companies under Section 462 of Companies Act 2013 vide notification
dated June 05, 2015.

Still, there are doubts in the minds of corporate and
practitioners with respect to aspects including eligibility, board
composition, board committees, board process, e-voting requirements,
CSR provisions, General Meeting provisions and so on

Introduction.
History of Company with Charitable purpose
The concept of Section 8 companies was introduced in Companies
Act 1913 that permitted companies with charitable objects etc. to
be registered without the words ‘Limited’ or ‘Private Limited’.


The restriction was that the Companies were permitted to use the
profits only for the purpose for which the company was promoted
and there was a prohibition on the distribution of dividends.


Recommendation by Bhabha Committee.

Based on the recommendation of the Bhabha Committee,
Companies Act of 1956 was passed.

The Companies Act of 1956
came into force from 1st April 1956 and was largely based on the
English Companies Act of 1948.


Section 25 of Companies Act, 1956 was introduced for such
companies based on the English Companies Act 1948.

Bhaba committee
also recommended to permit partnership firms (though not a legal
entity) to be members of section 25 companies and provided for

Companies Act, 2013

The Companies Act, 2013 continues with the provision for such
companies and provides for a framework for the same under Section
8 of the Companies Act, 2013.

Section 8 continues to provide for a restriction on the application of profits
and permits the same only for the purpose for which the company
is promoted, prohibits declaration of dividend, continues to permit
partnership firms to be a member of section 8 companies etc. 2013
Act elaborates on the objects for such companies and specifies
objects like sports, education, research, social welfare and protection
of environment for which the Companies can be formed under this
section.

Types of NPOs 

In India, there are mainly the following types of non-profit
organizations i.e. 1. Section 8 Companies (earlier Section 25)

2.Societies registered under section 20 of the Societies
Registration Act of 1860.

3.Trusts formed under the Indian Trusts Act 1882


Constitutional Framework of NPOs

Under Schedule VII of the Indian Constitution, the subject ‘Trust
and Trustees’ finds mention at Entry No.10 in the Concurrent List
and ‘Charities & Charitable Institutions, Charitable and religious
endowments and religious institutions’ find a place at Entry No.28 of
the Concurrent list.

Therefore both the Centre and the States are
competent to legislate and regulate charitable organizations.


However, Section 8 companies are regulated through the Companies
Act, 2013, accordingly the registration and administration of these
companies are regulated only by the Central Government.