Introduction:-
Section 8 microfinance companies play a pivotal role in facilitating financial inclusion and empowering underserved communities. These entities operate with the primary objective of promoting charitable activities, including microfinance, and reinvesting their profits for the betterment of society. To establish a Section 8 microfinance company registration, it is crucial to understand the legal framework governing its registration and operation.
The Legal Foundation:-
The legal foundation for Section 8 microfinance companies in India is primarily based on the Companies Act, 2013. Section 8 of this act outlines the procedure for the incorporation, registration, and functioning of companies with charitable objects.
Procedure for Registration:-
- Name Approval: The first step in registering a Section 8 microfinance company is obtaining approval for its name from the Registrar of Companies (RoC). The name should reflect the company's objective of promoting charitable activities, especially in the realm of microfinance.
- Memorandum of Association (MOA): The MOA must be drafted, outlining the company's objectives, activities, and the commitment to apply its profits solely for charitable purposes. This document is submitted to the RoC along with the Articles of Association (AOA).
- License Under Section 8: To qualify for registration, a Section 8 microfinance company must obtain a license under Section 8 of the Companies Act. This license is granted by the RoC after evaluating the company's application and ensuring it meets the necessary criteria.
- Board Resolution: The company's board of directors must pass a resolution confirming the intent to apply for Section 8 registration. This resolution is submitted to the RoC along with the application.
- Form INC-12: The application for obtaining a license under Section 8 is submitted using Form INC-12. This form requires detailed information about the company, its objectives, the names of directors, and other pertinent details.
- Declaration of Compliance: Along with Form INC-12, a declaration of compliance with the requirements of Section 8 must be submitted. This document affirms the company's adherence to the charitable objectives and its commitment to reinvest profits for societal benefit.
- Income Tax Exemption: After obtaining Section 8 registration, the company can apply for income tax exemption under Section 12A of the Income Tax Act. This is crucial for ensuring that the company's profits are not subject to taxation, enabling it to allocate more resources towards its charitable endeavors.
Compliance and Reporting:-
Once registered, a Section 8 microfinance company registration must adhere to certain compliance requirements:
- Annual Returns: The company is required to file annual returns with the RoC, providing updates on its activities, financial statements, and other relevant information.
- Audit Requirements: Section 8 company are subject to regular audits by qualified chartered accountants. These audits ensure transparency and accountability in financial operations.
- Utilization of Funds: The company must demonstrate that its profits are being utilized solely for charitable purposes, as outlined in its MOA.
Conclusion:-
Establishing a Section 8 microfinance company involves navigating a specific legal framework that emphasizes charitable objectives and reinvestment for societal benefit. By adhering to the procedures outlined in the Companies Act, companies can contribute significantly to financial inclusion and the overall well-being of underserved communities.