Differences between a Private Limited Company and Section 8 Company

Section 2(20) of the Companies Act, 2013 states the meaning of a company as “Company means the incorporation of a company by an association of different persons under the laws established by the Companies Act, 2013 or any other previous company act.” The Companies Act has provided for different types of business arrangements that can be initiated by an individual or a group of people, like public companies, private companies, one-person companies, etc.

A Private Company, as mentioned under Section 2(68) of the Companies Act 2013, has a minimum of 2 members and a maximum of 200 members. Private companies can’t invite the general public to subscribe to their shares and securities.

Section 8 Companies, also known as companies formed with charitable objects, According to Section 8 of the Companies Act, 2013, these companies are formed to promote the charitable objects of commerce, art, science, sports, education, research, social welfare, religion, charity, environmental conservation, etc.

What is a Private Company?

A Private Company does not offer its securities to the general public for subscription through stock exchanges; rather, such trading is done either privately or over the counter. Such companies might also restrict the rights of their members when it comes to transferring shares. A Private Company can also transition to a public company at a later point of time in its lifetime. Going public would give the company access to several other funding prospects as compared to a private corporate body. A Private Company cannot invite the general public to subscribe to their shares or debentures. Shares of Private Companies are not freely transferable, and these shares can’t be transferred. A Private Company should have private limited as a suffix in its name. When a private corporation goes public, all the privately owned securities become public property and can now be listed on the stock exchange. Other characteristics of a Private Company include:

• The minimum number of members in a private company is 2, and the maximum is 200.
• It has a minimum paid-up capital of ₹1 lakh.
• Such a company does not invite the general public to subscribe to its deposits.
• As per the Companies Act, 2013, every private company is required to use the suffix “Pvt. Ltd.” in its registered name. For example, XYZ, being a private company, must disclose that through the suffix XYZ Pvt. Ltd.

What is a Section 8 Company?

Section 8 Company is a type of company under the Companies Act, 2013. There is a motive behind the formation of any company; a company that is not formed for any profit is called a Non-Profit Organization (NPO). In India, any company that is registered as an NPO is also called a Section 8 company. Section 8 Companies can be defined as companies that have a reason and will to promote arts and culture, wildlife, education, sports, trade and commerce, and any other similar activity. Any company that falls under the category of a Non-Profit Organization (NPO) must use all the profits and any form of revenue to promote these aspects only. Section 8 companies are exempted from the rules for paying dividends to their members. The rules of the Companies Act, 2013 by the Ministry of Corporate Affairs and offices of the Registrar of Companies (ROC) govern the Non-Profit Organization (NPO)/Section 8 Company in our country. The Central Government issues licenses to companies that register themselves under Section 8 of the Companies Act, 2013. These licenses given to them are on condition, and if the company is not following the prerequisites, then the central government can revoke such licenses given to them.

Differences between a Private Limited Company and Section 8 Company

Basis	Private Company	Section 8 Company
Definition	Definition of a Private Company is provided under Section 2(68) of the Companies Act, 2013	The definition given under Section 8 of the Companies Act, 2013 discusses associations and Non-Profit Organizations.
Type of  Company	A private Company is a corporate entity. Its objective is to earn profit via conducting business activity.	Section 8 Companies are a Non-Profit Organization. They are constituted for charitable purposes.
Objective	The objective of a Private Company is to undergo commercial activities which in turn creates profit for the company.	Section 8 Companies’ objective is to promote philanthropic objectives such as encouraging art, sports, science, education, etc.
Minimum Authorised Share capital	To constitute a private company, a company is required to have a minimum authorized share capital of ₹1 Lakh.	Companies Act has not provided for any minimum share capital for Section 8 companies. However, Section 8 companies are permitted to change their capital structure but with the approval from the Central Government.
Conversion	Any Private Limited company can be converted into a Public company or as a Section 8 company as per the Companies Act, 2013.	Section 8 Companies can be converted into a Private Limited or Public company, either on an order or approval from the Central Government.
Winding up of the Company	A Private Company may choose for voluntary winding up.	Section 8 company can be wound up by following steps: By Converting the company to a Private Limited company. By Surrendering the non-profit company license. By following the wind-up process of a Private Limited Company.
Stamp Duty	Private Company is required to pay the stamp duty on the forms like MoA and AoA.	Section 8 companies are exempted from paying stamp duty on incorporation forms; i.e., MoA and AoA.
Exemptions	No tax exemptions are given to the Private Companies.	Section 8 companies are given several exemptions under section 80G of the Income Tax Act.
Name	All Private Companies must have “Private Limited” at the end of their name.	No such provision applies to Section 8 Companies.

Conclusion

The Companies Act, 2013 has provided for different types of business arrangements that can be employed by individuals or groups of people to operate business activities, like Public Companies, Private Companies, One-Person Companies, Section 8 Companies, etc. A Private Company does not offer its securities to the general public for subscription through stock exchanges; rather, such trading is done either privately or over the counter. Such companies might also restrict the rights of their members when it comes to transferring shares. The minimum number of members in a Private Company is 2, and the maximum is 200. It has a minimum paid-up capital of ₹ 1 lakh. As per the Companies Act, 2013, every Private Company is required to use the suffix “Pvt. Ltd.” in its registered name. For example, XYZ, being a private company, must disclose that through the suffix XYZ Pvt. Ltd. Section 8 Company is a type of company under the Companies Act, 2013. There is a motive behind the formation of any company; a company that is not formed for any profit is called a Non-Profit Organization (NPO). In India, any company that is registered as an NPO is also called a Section 8 company. Section 8 Companies can be defined as companies that have a reason and will to promote arts and culture, wildlife, education, sports, trade and commerce, and any other similar activity. Any company that falls under the category of a Non-Profit Organization (NPO) must use all the profits and any form of revenue to promote these aspects only. Section 8 Companies are exempted from the rules for paying dividends to their members.

Frequently Asked Questions (FAQs)

1. What is a Private Company?

Answer:

A Private Company is one that does not offer its securities to the general public for subscription through stock exchanges, rather such trading is done either privately or over the counter.

2. What is a Section 8 Company?

Answer:

Section 8 Company is a type of company under the Companies Act, 2013. There is a motive behind the formation of any company, a company that is not formed for any profit making is called a Non-Profit Organization (NPO). Section 8 Companies can be defined as companies that have a reason and will to promote arts and culture, wildlife, education, sports, trade and commerce, and any other similar activity.

3. What is the limit for the minimum and maximum number of members in a Private Company?

Answer:

According to the provisions of Companies Act 2013, the minimum number of members in a private company is 2 and the maximum is 200.

4. How can a Section 8 Company use its profits?

Answer:

If a Section 8 company earns profits, they have to reinvest the profit earned to promote the same business objectives for which it was originally constituted. Section 8 company can not distribute any dividends to its members.

5. Who can revoke the license of Section 8 Company?

Answer

The Central government issues licenses to companies that register themselves under Section 8 of the Companies Act, 2013. These licenses given to them are on a condition, and if the company is not following the prerequisites, then the central government can revoke such licenses given to them.