Sec. 8 Companies These are limited companies formed under the Companies Act. The Government grants them a special license under sec. 8 to drop the words ‘Private Limited’ or ‘Limited’ from their name. There are three conditions for this: 1. The Company must be formed for charitable objects. 2. Income and profits should be applied towards these objects. 3. It should not pay any dividend to its members. Such a company can operate in any state without additional formalities. It can be formed with just two persons. Members may be Indian or foreigners. It should have at least two directors, who need not be members. The company can be formed with shares - each member gets votes in proportion to their shares. If the company is formed with guarantee, then each member gets one vote. Can directors and members be paid for their services? This is now easier. You can pay prudent remuneration for actual services - without getting government approval. However, there are severe penalties for violation of any provisions of the Act. And unlike the previous Act, charitable companies now enjoy no relaxation in fees or other formalities. Whether the company is big or small, it must comply with all requirements of the Companies Act. Forming a sec. 8 company are more complicated than a trust or a society. It costs you more and takes more time. There are a number of complex formalities in running the company, and it is easy to make a costly mistake. Even so, a sec. 8 company is more robust, transparent and accountable than a trust or a society. If you are not afraid of paperwork, and can afford to spend the extra money, then this is the best form to choose for publicly supported development work.
Using a company for non-profit work is like flying a plane. It costs more money to buy and to maintain. You need a trained pilot and a good crew. You are also heavily regulated. However, if you can afford it and have a long journey ahead, you might find this safer and more comfortable than taking a bus.