Section 8 Company Means What?
If you’ve ever heard someone say, “We’re running a Section 8 company,” and wondered whether it’s a business, an NGO, or something in between—you’re not alone.
The term "Section 8 company" sounds technical, but the idea behind it is actually very simple and purpose-driven. It exists for people who want to do good work in a structured, legally recognized way, without the intention of making personal profits.
By the end, you’ll know:
- What a Section 8 company really is
- Whether it can do business
- How it uses its profits
- Its features, advantages, and examples
- Why many NGOs now prefer Section 8 over trusts or societies
Section 8 Company Means What exactly?
In simple terms, a Section 8 company means:
A non-profit organization (NPO) registered under the Companies Act, 2013, formed for promoting charity, commerce, arts, science, education, sports, or social welfare, where profits must be used for its objectives and not distributed as dividends to members.
That one sentence captures the entire spirit of a Section 8 company.
It is:
- A company
- With charitable or non-profit objectives
- Governed by company law
- But without profit distribution to members
Legal Meaning of a Section 8 Company
Legally speaking, a Section 8 company is
- A company established with the purpose of promoting:
- Charity
- Education
- Arts
- Science
- Commerce
- Sports
- Social welfare
- Environmental protection
- Any similar non-profit objective
- Charity
The law allows companies with charitable objects to be registered under Section 8, provided they follow strict conditions.
What Makes a Section 8 Company Different from Normal Companies?
The biggest difference lies in profit usage.
A Section 8 company:
- Promotes social welfare
- Uses profits for its objectives
- Does not pay dividends to its members
In contrast, a normal private or public company:
- Exists to earn profits
- Distributes profits to shareholders
So the intent is completely different.
Is a Section 8 company a business or an NGO?
This is one of the most common questions.
The honest answer is
👉 It is legally a company but functionally a nonprofit organization.
That’s why you’ll often hear it described as
- A corporate form of NGO
Many modern NGOs prefer Section 8 companies because they offer:
- Better credibility
- Strong governance
- Higher donor confidence
Can a Section 8 Company Do Business?
Yes—but with an important condition.
A Section 8 company can carry out activities that generate income, but:
- The income must be incidental to its main objectives
- The profits cannot be distributed
For example:
- An education-focused Section 8 company can charge training fees
- A skill-development NGO can run paid workshops
- A research organisation can receive consultancy income
As long as profits are reinvested into the mission, it is allowed.
Why Section 8 Companies Exist Under Company Law
Historically, charities were registered as
- Trusts
- Societies
But these structures had:
- Weak governance
- Limited transparency
- Poor accountability
So the law introduced Section 8 to:
- Bring non-profits under a strong legal framework
- Ensure professional management
- Protect donor and public interest
That’s why Section 8 companies are governed by the Companies Act, 2013.
Key Features of a Section 8 Company
Let’s break down the main features of a Section 8 company in practical terms.
1. Non-Profit Objective
The company must exist for:
- Charity
- Education
- Arts
- Commerce
- Social welfare
- Or similar goals
Profit-making cannot be the primary objective.
2. No Dividend Distribution
This is non-negotiable.
Even if the company earns a surplus:
- No dividend
- No profit sharing
- No bonus linked to profits
Everything goes back into the mission.
3. Separate Legal Entity
Just like any company, a Section 8 company:
- Has a separate legal identity
- Can own property
- Can enter contracts
- Can sue or be sued
This makes it much stronger than informal NGOs.
4. Limited Liability
Members’ liability is limited to:
- Share capital (if limited by shares), or
- Guarantee amount (if limited by guarantee)
Personal assets are protected.
5. High Credibility and Trust
Because it is regulated by MCA:
- Donors trust it more
- Government bodies prefer it
- CSR funding becomes easier
Section 8 Company: Private or Public?
Another common doubt:
Is a Section 8 company private or public?
The answer is:
👉 A Section 8 company can be either private or public, depending on its structure.
What matters is:
- Its objects
- Its non-profit nature
Not whether it is private or public.
Section 8 Company Limited by Guarantee
Many Section 8 companies are
- Limited by guarantee, not shares
This means:
- Members promise to contribute a fixed amount (say ₹10,000)
- Only if the company is wound up
This structure is common in charitable organizations.
Examples of Section 8 Companies in India
To make this real, here are Section 8 company examples:
- Educational foundations
- Skill development organisations
- Research institutions
- CSR implementation agencies
- Environmental protection NGOs
- Art and culture promotion bodies
Many well-known NGOs and CSR partners operate as Section 8 companies.
Advantages of a Section 8 Company
Let’s talk about why people choose this structure.
1. Legal Recognition and Credibility
Being registered under the Companies Act gives:
- Strong legal standing
- Higher transparency
2. Better Governance
Mandatory:
- Board of Directors
- Regular meetings
- Annual filings
This reduces misuse of funds.
3. Easier CSR Funding
Most corporates prefer:
- Section 8 companies for CSR projects
Because compliance standards are clear.
4. Tax Benefits (If Approved)
With additional registrations (like 12A and 80G):
- Donors get tax benefits
- Organisation becomes more attractive
Disadvantages of a Section 8 Company
It’s not perfect for everyone.
1. No Profit Distribution
Founders cannot take profits.
2. Higher Compliance
Compared to trusts or societies:
- ROC filings
- Board meetings
- Audits
Compliance discipline is mandatory.
3. Strict Government Control
Any deviation from objectives can:
- Lead to cancellation of license
Section 8 Company Registration: Broad Overview
At a high level, registration involves:
- Choosing charitable objects
- Getting name approval
- Obtaining Section 8 license
- Incorporation with ROC
While Section 8 company registration fees are lower than normal companies, compliance standards are higher.
Can Members Draw a Salary in a Section 8 Company?
Yes, but carefully.
- Reasonable remuneration is allowed
- It must be justified
- It must not be profit-linked
This ensures professionals can work full-time without misuse.
Section 8: Company vs Trust vs Society (Quick Comparison)
|
Aspect |
Section 8 Company |
Trust |
Society |
|
Law |
Companies Act |
Trust Act |
Societies Act |
|
Governance |
Strong |
Weak |
Moderate |
|
Credibility |
High |
Moderate |
Moderate |
|
Compliance |
High |
Low |
Medium |
That’s why modern NGOs increasingly prefer Section 8.
Why Section 8 Companies Are Growing in India
India’s CSR ecosystem, startup philanthropy, and social entrepreneurship culture have grown rapidly.
Section 8 companies offer:
- Professional structure
- Legal clarity
- Public trust
Which is why they are becoming the default choice for serious nonprofits.
Key Takeaways
- "Section 8 company" means a legally recognised non-profit company
- It is registered under the Companies Act, 2013
- It promotes charity, education, arts, commerce, and social welfare
- Profits are used for objectives, not dividends
- It can earn income but cannot distribute profits
- It offers high credibility and governance
Final Thoughts
A Section 8 company is proof that impact and structure can go together.
It allows people to work for society, education, culture, and welfare—without compromising on professionalism, transparency, or legal strength.
If your goal is not “how much profit can I make?” but rather “how much difference can I make?”, then a Section 8 company is one of the strongest legal vehicles available in India today
