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Section 8 Company is an organization which is registered for charitable purposes; it can also be referred to as a Non-Profit Organisation (NPO) or NGO. It is an organization designated to promote arts, literature, commerce, charity, education, protection of the environment, science, social welfare, religion, research, sports, and aims to utilize its profits, if any, or any other income in furthering its objects. Section 8 companies function precisely like a limited liability company, particularly concerning all the rights and duties that arise with limited liability companies.
Although it is different from a limited liability company in one very significant feature, i.e. it could not use the words “Limited” or “Section 8” in its name. The income of the Company must be utilized to support only charitable purposes, and the Company cannot pay any profit to its members. The Central Government gives a certificate of incorporation to all such companies and also imposes some conditions and restrictions. In the event they don’t meet them, the Central Government may direct them to wind up the Company. In case fraud allegations are proved, legal action will be brought against all members of the Company. According to rule 8(7) of the Companies (Incorporation) Rules, 2014, Section 8 companies name shall include the words Academy, Association, Chambers, Confederation, Council, Charities, Development, Electoral Trust, Foundation, Federation, Forum, Organisation, Society and the like etc.