Tarun AggarwalIf you’re looking to create a non-profit organization to attract CSR funding, starting a Section 8 company can be the perfect solution. Section 8 companies, governed by the Companies Act, 2013, are designed to promote charitable activities such as education, social welfare, environment conservation, and healthcare. With the growing interest of corporations in meeting their Corporate Social Responsibility (CSR) mandates, Section 8 companies are becoming a popular choice for organizations looking to access CSR funding.
In this article, we’ll walk you through the process of starting a Section 8 company to align with CSR goals, ensuring your organization is eligible to receive CSR funding from corporations.
What is a Section 8 Company?
A Section 8 company is a non-profit organization established to promote objectives like education, social development, arts, sports, and environmental protection. Unlike other business entities, the profits of a Section 8 company must be reinvested in its charitable activities.
Corporations prefer contributing to Section 8 companies for CSR funding as these entities enjoy higher credibility, structured governance, and tax benefits. This legal structure also makes it easier to comply with regulatory requirements and maintain transparency, which is crucial for gaining the trust of CSR sponsors.
How CSR Funding Works for Section 8 Companies
Corporate Social Responsibility (CSR) is a mandate for companies with a net worth of ₹500 crore or more, or a turnover of ₹1,000 crore or above, or net profit of ₹5 crore or more. These companies are required to spend at least 2% of their average net profit on approved CSR activities.
CSR funding is provided only to registered non-profit organizations, and setting up a Section 8 company ensures that your organization meets this eligibility. Once registered, a Section 8 company can receive CSR funding for various projects that align with the company’s CSR policies.
Benefits of Starting a Section 8 Company for CSR Funding
Starting a Section 8 company offers several advantages, especially for organizations seeking CSR funding:
- Tax Exemptions: Section 8 companies are eligible for tax exemptions under Section 12A and 80G of the Income Tax Act, making them more attractive to donors and corporate sponsors.
- Credibility and Transparency: Companies prefer donating CSR funds to Section 8 companies due to their structured governance and regulatory compliance.
- Funding Opportunities: Many corporations allocate their CSR funding only to registered entities like Section 8 companies, ensuring a steady flow of funds for social projects.
- Separate Legal Identity: A Section 8 company enjoys the status of a separate legal entity, which protects the personal assets of its members from any liabilities.
Steps to Start a Section 8 Company for CSR Funding
Here’s a step-by-step guide to setting up your Section 8 company and becoming eligible to receive CSR funding:
1. Obtain a Digital Signature Certificate (DSC)
The first step is to apply for a Digital Signature Certificate (DSC) for the directors. This is necessary to sign the application documents digitally on the Ministry of Corporate Affairs (MCA) portal.
2. Apply for Director Identification Number (DIN)
Each director of the company must apply for a Director Identification Number (DIN) through the SPICe+ form on the MCA website.
3. Name Reservation for the Section 8 Company
The next step is to reserve a unique name for your Section 8 company using the RUN (Reserve Unique Name) service on the MCA portal. Make sure the name reflects the organization’s objectives and aligns with CSR activities.
4. Prepare the MOA and AOA
Draft the Memorandum of Association (MOA) and Articles of Association (AOA), which define the company’s objectives and operational framework. Clearly outline your company’s alignment with CSR-related goals to attract CSR funding.
5. Apply for License under Section 8
Submit an application for a license under Section 8 of the Companies Act, 2013 along with your MOA, AOA, and other required documents. The license is granted by the Registrar of Companies after ensuring that the organization serves non-profit objectives.
6. Incorporation of the Company
After obtaining the license, complete the incorporation process by filing the SPICe+ form on the MCA portal. Once approved, you will receive the Certificate of Incorporation, marking the official registration of your Section 8 company.
How to Attract CSR Funding for a Section 8 Company
Once your Section 8 company is registered, the next step is to attract CSR funding. Here are some strategies to ensure your organization is eligible and attractive for corporate sponsorships:
- Align with CSR Policies
Ensure your projects align with the CSR goals of companies. Most companies prefer to fund projects related to education, healthcare, environment, or skill development. - Obtain 12A and 80G Certifications
To make your organization eligible for tax-exempt donations, apply for Section 12A and 80G registrations. These certifications make your company more appealing to corporates looking for CSR funding. - Build Relationships with Corporates
Networking with companies that actively participate in CSR initiatives is essential. Use online platforms, CSR events, and personal meetings to pitch your projects to potential sponsors. - Demonstrate Transparency and Impact
Corporations value transparency. Regularly report the progress of your projects and show measurable impact to maintain credibility and attract more CSR funding.
Compliance Requirements for Section 8 Companies Receiving CSR Funding
After receiving CSR funding, your Section 8 company must comply with several legal and financial requirements:
- Annual Filing: File annual returns and financial statements with the MCA.
- Audit of CSR Funds: Ensure proper utilization of CSR funds and conduct annual audits by certified auditors.
- Board Meetings: Conduct regular board meetings to review the company’s performance and ensure compliance with CSR policies.
Conclusion
Starting a Section 8 company is the best way to structure your non-profit organization and become eligible for CSR funding in India. The credibility, transparency, and tax benefits offered by a Section 8 company make it an attractive option for corporations looking to fulfill their CSR obligations. By aligning your projects with corporate CSR policies and ensuring compliance with legal requirements, you can successfully attract CSR funding to make a positive impact on society.
Follow the steps outlined in this guide to register your Section 8 company and start building strong relationships with companies to secure CSR funding for your charitable initiatives. With proper planning and execution, your Section 8 company can thrive as a trusted recipient of CSR contributions.
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