Introduction:
Every company has some objectives. Some companies have objectives of making profits by carrying out trade and commerce while some companies primarily have charitable and non-profit objectives. Generally companies having non-profit objectives prefer to form Section 8 companies instead of regular NGOs and associations or Societies or Trusts. This is because Section 8 Company has limited liability, so their personal assets will not be used in paying debts of the company. Here are some advantages that these companies enjoy. These companies are referred to as a “Section 8 Company” because they get recognition under Section 8 of Companies Act, 2013.
Definition of Section 8 Company:
The Companies Act defines “Section 8 company” as one whose objectives is to promote fields of arts, commerce, science, research, education, sports, charity, social welfare, religion, environment protection, or other similar objectives. These companies also apply their profits towards the furtherance of their cause and do not pay any dividend to their members.
These companies were previously defined under Section 25 of Companies Act, 1956 with more or less the same provisions. The new Act has, however, prescribed more objectives that Section 8 companies can have. Famous examples of Section 8 companies include Federation of Indian Chambers of Commerce and Industry (FICCI) and Confederation of Indian Industries (CII). The objective of these companies is facilitating the growth of trade and commerce and India.
Eligibility for forming Section 8 Company:
A person or an association of persons intending to be registered under Section 8 of the Companies Act, 2013 as a limited company –
- has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
- intends to apply its profits, if any, or other income in promoting its objects; and
- intends to prohibit the payment of any dividend to its members.
Formation of Section 8 Company:
- A person or an association of persons can make an application to the Registrar of Companies using requisite forms to form a company with charitable objectives under Section 8 of Companies Act.
- The Central Government, if satisfied, can accept such an application upon any terms and conditions imposed under the license granted by it. Once accepted, the Registrar of Companies will register the company after the applicants pay all requisite fees.
- It is important to note that such companies can only be limited companies. All privileges and obligations of limited companies apply in this case. Further, these companies also do not need to include the words “Limited” or “Private Limited” in their names, as all other companies have to.
- Since the existence of such companies is based on the license granted to them, they cannot even alter their memorandum or articles of association without the Central Government’s permission. They also cannot do anything that the license disallows.
Cancellation of License [Section 8(6)]:
Section 8 companies require a grant of a license by the Central Government. All such licenses are revocable as well on the following grounds:
- the company contravenes provisions of Section 8;
- terms of the license are violated;
- when its conduct is fraudulent, or it violates its own objectives and public policy.
The Government can even order the company to be wound-up or amalgamated with another similar company under certain circumstances. The Government has to hear the company before passing such orders.
Winding Up [Section 8 (9)]:
Section 8 companies can wind-up or dissolve themselves either voluntarily or under orders given by the Central Government. If any assets remain after satisfaction of debts and liabilities upon such winding-up, the National Company Law Tribunal can order the transfer of these assets to a similar company. It can also order that they must be sold and the proceeds of this sale should be credited to the Insolvency and Bankruptcy Fund.
Punishment for Contravention [Section 8 (11)]:
Any company that contravenes provisions of Section 8 is punishable with a fine ranging from Rs. 10 lakhs to Rs. 1 crore and directors and every officer of the company who are in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than twenty-five thousand rupees but which may extend to twenty-five rupees, or with both. Such officers can also face prosecution under stringent provisions of Section 447 (dealing with fraud) if proved that the any affairs of the company were conducted fraudulently.
Advantages of Section 8 Company
A section 8 company yields an array of benefits, unlike a Society or Trust. Following is the list of advantages for companies registered under Section 8:
- Tax benefits: Since Section 8 companies are a non-profit organization, so they leverage the exemption from the provision of income tax. The companies also get various other tax benefits and deductions. They employ many perks under section 80G of the Income Tax Act.
- Zero Stamp Duty: Section 8 companies do not require to pay stamp duty on the Memorandum of Association and Article of Association, unlike a private or public limited company.
- Minimal share capital: Unlike the other limited companies like public, private, or one person, Section 8 companies do not need much share capital to set up the entity. The members can directly use the funds from their subscriptions or donations.
- Exempted from any name: In opposes to other companies who are under obligation to use their company’s name as ‘limited company’, section 8 companies get exempted from the use of any title. Thus, they can perform their functions without updating the public about their limited liability status.
- Separate legal entity: Section 8 company has a distinct legal entity which means the company’s existence is different from its members. The company has a perpetual existence along with greater flexibility.
Disadvantages of Section 8 Company
Following are the drawbacks that every company registered under Section 8 has to bear:
- No distribution of profits: The members of a Section 8 company cannot share the profits amongst them. The profits get used only for the welfare of the company’s objective, which revolves around the advancement of art, science, commerce, sports, environmental protection and fields of such sort.
- Amendment in MOA and AOA: Such an entity cannot amend or alter the Memorandum of Association or the Articles of Association without having the approval of the Central Government beforehand.
- Zero benefits: The members of a Section 8 company gets zero benefits or any perks out of the company. They can afford to reimburse for their pocket expenses that may have occurred during the course.
- Limited objective: The central objective of Section 8 companies is to use the income and profits of the company in promoting some particular fields only and not for any other purpose.
- Multiple rules and regulations: The Central Government imposes much compliance on Section 8 companies. All the rules and regulations must include in the Memorandum of Association and Articles of Association.
Conclusion:
India still lacks behind in many areas in regard to education, healthcare, sports training etc. These aspects are provided by many nonprofit organizations. These NPO’s are the driving force behind the development of the society. The companies incorporated under Section 8 of the Companies Act, 2013 go a long way betterment of the society.
To motivate more people to help society, and award those who already do so, Incorporation of a company under Section 8 is a very convenient process. It does not take too much time and comes with a lot of advantages, and relaxed norms. All you need to ensure is that you fill the correct forms and carry the right documents you can get a Section 8 company incorporated easily. But above all you need to run it as per law, failing which consequences can be very high.
Introduction:
The Lok Sabha (Lower House of Indian Parliament) on Thursday (September 17, 2020) passed three legislations pertaining to the agriculture sector, ostensibly, to push agriculture marketing and commodities trade reforms in the country. The three bills that were passed are
- the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020,
- Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020
- Essential Commodities (Amendment) Bill, 2020.
These bills were introduced in the Lok Sabha on day one of the Monsoon session (September 14, Monday). The bills will replace the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020 promulgated by the President on June 5 this year once they are passed by the Rajya Sabha as well.
Bill on Agri market – The Farmer’s Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020
Benefits:
- Create an ecosystem where farmers and traders enjoy the freedom to sell and purchase farm produce outside registered ‘mandis’ under states’ APMCs (Agricultural Produce Market Committees).
- Help farmers in getting better prices through competition, abolishment of market fees and cost-cutting on transportation.
- Section 6 statesthat no market fee or cess or levy, by whatever name called, under any State APMC Act or any other State law, shall be levied on any farmer or trader or electronic trading and transaction platform for trade and commerce in scheduled farmers’ produce in a trade area.
- Promote barrier-free inter-state and intra-state trade of farmers’ produce.
- Section 3: Subject to the provisions of this Act, any farmer or trader or electronic trading and transaction platform shall have the freedom to carry on the inter-State or intra-State trade and commerce in farmers’ produce in a trade area.
- Provide a facilitative framework for electronic trading.
- Section 5 provides framework for electronic trading and transaction platform. The Central Government shall by rules
(a) specify the procedure, norms, manner of registration; and
(b) specify the code of conduct, technical parameters including inter-operability with other platform and modalities of trade transaction including logistics arrangements and quality assessment of scheduled farmers’ produce and mode of payment, for facilitating fair inter-State and intra-State trade and commerce of scheduled farmers’ produce in a trade area.
Drawbacks:
- States will lose revenue as they won’t be able to collect ‘mandi fees’ if farmers sell their produce outside registered APMC markets.
- If entire farm trade moves out of mandis the commission agents in states will lose their businesses.
- Farmers are not trained electronic trading and thus, they shall be highly prone to frauds
Bill on contract farming- The Farmer (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020
Benefits:
- Farmers can enter into a contract with agribusiness firms, processors, wholesalers, exporters or large retailers for sale of future farming produce at a pre-agreed price. It is the responsibility of sponsors or the farm service provider for compliance of any legal requirement for providing such farm services.
- Section 3 of the bill explains about farming agreement and its period. It also states that the responsibility for compliance of any legal requirement for providing such farm services shall be with the Sponsor or the farm service provider, as the case may be. The minimum period of the farming agreement shall be for one crop season or one production cycle of livestock, as the case may be, and the maximum period shall be five years.
- Section 4 of the bill states that the parties entering into a farming agreement may identify and require as a condition for the performance of such agreement compliance with mutually acceptable quality, grade and standards of a farming produce.
- Risk of market unpredictability is shifted from farmers to sponsors as the price of farming produce is predetermined at the time entering into agreement. Farming agreement may
- Section 5 of the bill explains that the price to be paid for the purchase of a farming produce may be determined and mentioned in the farming agreement itself and a guaranteed price to be paid for such produce.
- Ensure risk mitigation and flow of credit to farmer or Sponsor or both by linking farming agreement with insurance and credit instrument.
- Section 9: A farming agreement may be linked with insurance or credit instrument under any scheme of the Central Government or the State Government or any financial service provider to ensure risk mitigation and flow of credit to farmer or Sponsor or both.
- Effective dispute resolution mechanism with redressal timelines.
- Section 13 states that every farming agreement shall explicitly provide for a conciliation process and formation of a conciliation board consisting of representatives of parties to the agreement.
- Section 14 states that where, the farming agreement does not provide for conciliation process as required under sub-section (1) of section 13, or the parties to the farming agreement fail to settle their dispute under that section within a period of thirty days, then, any such party may approach the concerned Sub-Divisional Magistrate who shall be the Sub-Divisional Authority for deciding the disputes under farming agreements.
Drawbacks:
- Farmers in contract farming arrangements will be the weaker players in terms of their ability to negotiate what they need.
- It will affect the small farmers as many sponsors may not like to deal with a multitude of small and marginal farmers.
- Being big private companies, exporters, wholesalers and processors, the sponsors will have an edge in entire dealing including in disputes.
- Farmers who don’t know to read and write, chances are there they might get exploited by the sponsors.
- If the dispute doesn’t get resolved within the timelines provided in this bill then it will be the farmers who will be most affected.
- It may give rise to cash crop and corporates will call the shots. Ultimately subsistence crops will take a beating.
Bill relating to commodities : The Essential Commodities (Amendment) Bill, 2020
A new sub-section 1A in Section 3 of the act stipulated control orders — with respect to the supply of certain foodstuffs was added.
It would be issued only under extraordinary circumstances that may include war, famine, extraordinary price rise and natural calamity of grave nature
Benefits:
- The amendment bill will remove commodities like cereals, pulses, oilseeds, onion and potatoes from the list of essential commodities.
- Allows the central government to regulate the supply of certain food items only under extraordinary circumstances (such as war and famine). Stock limits may be imposed on agricultural produce only if there is a steep price rise.
- It will remove fears of private investors of excessive regulatory interference in their business operations.
- It will help to bring investment for farm infrastructure like cold storages, and modernising food supply chain.
- Will help both farmers and consumers by bringing in price stability.
- Will create competitive market environment and cut wastage of farm produce.
Drawbacks:
- Price limits for “extraordinary circumstances” are so high that they are likely to be never triggered.
- Big companies will have the freedom to stock commodities- it means they will dictate terms to farmers which may lead to less prices for the cultivators.
Conclusion: No doubt, the Bills help farmers by giving them freedom to sell the goods as per their own choice. However, the biggest chunk of Indian farmers are small farmers having no great education or source of income. The Bills, if become Acts, may increase the income of farmers on short term basis, but on long term, the small famers may end up becoming labourers of big corporates. Certainly the bills contemplate corporatisation of farm sector and it has its own advantages as well as disadvantages.