Pvt Ltd and Section 8 Company Differences
Whether you are a corporate professional, compliance expert, or an emerging business mind, knowing the differences between Pvt Ltd and Section 8 Company is pivotal. Doing so can raise your bar in terms of acumen about different legal structures. With that being said, let’s delve into the Pvt Ltd and Section 8 Company Differences to know what makes them two distinctively separate entities.
An overview of Private Limited entities and Section 8 companies
Before we dig into the Pvt Ltd and Section 8 Company Differences, let’s have a brief understanding of what they are.
Private limited is among the most widely accepted legal structures owing to its unprecedented flexibility and reliance on minimal compliances. Section 8, on the other hand, is preferred mostly by charitable organizations and NGOs seeking to operate in organized settings. Section 8 companies empower NGOs to avail various benefits like access to a definite management structure, availability of overseas funds i.e. donations, and minimal taxes. Notably, both structures are governed by the Companies Act 2013.
With the purview of the above, let’s take a closer look at the following grounds that differentiate both these structures.
Underlining Pvt Ltd and Section 8 Company Differences: Know what sets them apart
To better understand Pvt Ltd and Section 8 Company Differences, we have curated some fundamental grounds. Let’s see what they are and how they can help distinguish these entities:
Objectives
Most private limited companies have objects that revolve around profitability no matter which industry they serve or what business endeavors they cater to. Section 8 companies have no such objective since they are entitled to serve philanthropic objectives.
Minimum Authorised Share capital
It refers to the minimum amount of capital that the entity should procure as permitted by its MoA at the time of incorporation. The authorized share capital signifies the maximum threshold of share capital that a company is entitled to issue to its shareholders. For private limited companies, MCA has underlined a minimum limit of such capital amounting to Rs 100000. While the Section 8 companies do not have to comply with such a requirement.
Name compliance
As per the Ministry of Corporate Affairs i.e. MCA, every private limited company must include the term “Private” or“Limited company” in their name, meanwhile, Section 8 companies do not have to adhere to such compliance.
Winding up compliance
Winding up the private limited company is a hassle-free process, which can be achieved without adhering to any conversion requirement. Alternatively, Section 8 companies have to undergo an extensive process, which comprises three main steps namely, converting to a private limited company, surrendering a non-profit company license, and filing an application with MCA to wind up a private limited company. As it is evident, the process for closing a Section 8 is a bit tiresome and document-intensive as compared to the private limited company.
Stamp duty requirement
While incorporating a private limited company, the applicant needs to pay a specified stamp duty on the application form and founding documents. Meanwhile, the Section 8 companies are free to skip such a requirement; they are allowed for straightforward submission of incorporation documents with a standard fee.
Taxability benefits
The private limited companies attract standard corporate income tax on their income with no exemption as such. On the other hand, Section 8 companies are eligible for various tax exemptions under IT law since they are non-profit entities.
Now we have looked into the major grounds that set these entities apart, let’s have a look into the tabular depiction of the same for a definite understanding.
Tabular Representation Highlighting Pvt Ltd and Section 8 Company Differences
| Differences | Pvt Ltd Companies | Section 8 Companies |
| Type | It refers to a corporate entity that pursues profit-churning endeavors | Section 8 companies belong to the NGO regime and hence work for the society’s betterment. |
| Objective | These entities typically cater to commercial objectives that are centered on profit-reaping activities. | Section 8 entities can serve one or more facets of social services, catering to different areas art, sports, science, education, etc. |
| Minimum Authorised Share Capital | The Minimum Authorised Share Capital for Private limited companies has been capped at Rs 1 lakh. | As such, section 8 companies are not entitled to arrange such a capital. |
| Name | All Private Limited companies are liable to include the terms “Limited” or “Private Limited” in their name without fail. | Section 8 companies are not entitled to comply with name-related compliance |
| Winding-up | Winding up a private limited company requires no structure conversion or meeting a long process. | The winding up of a Section 8 Company requires meeting three major steps, such as converting a Section 8 entity into a private limited company, surrendering a non-profit company license, and winding up the company being converted. |
| Stamp Duty | During incorporation, the applicant must submit a Stamp duty charge on the registration form and charter documents. | Section 8 companies do not have to meet such a requirement. |
| Tax Exemptions | Tax exemptions in tax cuts and tax holidays aren’t available to such entities unless they are registered with special schemes. | Most Section 8 companies are eligible for significant tax discounts under the Income Tax Act Section 80G. |
Conclusion
Pvt Ltd and Section 8 Company Differences are inevitable from the way they are constituted and taxed. Tax consideration is another key parameter that sets them apart. However, there are commonalities between when it comes to governing legislation and conversion requirements. Keeping these points in mind will help you proceed with clarity during incorporation or meeting other compliances.
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