Question

Which of the following statements are correct about Section 8 companies?
(i) It is a limited company.
(ii) It is prohibited from payment of any dividend to its members.
(iii) It applies its profits in promoting its objects
(iv) A firm may not be its member.

• A. Only (i), (ii), and (iii)
• B. Only (i), (ii), and (iv)
• C. Only (i), (iii), and (iv)
• D. Only (ii), (iii), and (iv)

Hint:

Although partnership firms generally lack legal personality to own corporate shares, Section 8(3) creates a special statutory exception allowing firms to become members of Section 8 companies.

Answer 1

The Correct Option is A

Step 1: Understanding the Question:
The question asks us to evaluate the statutory characteristics of Section 8 companies, which are established for charitable or non-profit purposes, under the Companies Act, 2013.

Step 2: Key Principles and Statutory Provisions:
Section 8 of the Companies Act, 2013, contains specific provisions regulating companies formed with charitable objects, including restrictions on profit distribution and membership.

Step 3: Detailed Explanation and Analysis:

• Under Section 8(1), a Section 8 company is registered as a limited company, but it is exempted from using the words "Limited" or "Private Limited" in its name.
Therefore, statement (i) is correct.

• Section 8(1)(c) explicitly prohibits the payment of any dividend to its members.
All earnings must remain within the company to further its goals.
Therefore, statement (ii) is correct.

• Section 8(1)(b) mandates that the company must apply its profits or other income solely in promoting its objects (such as art, science, sports, education, research, social welfare, or environment protection).
Therefore, statement (iii) is correct.

• Under Section 8(3), a partnership firm is explicitly permitted to be a member of a Section 8 company.
This is a notable exception to the general rule that partnership firms cannot hold shares in their own name because they are not distinct legal entities.
Therefore, statement (iv) is incorrect.

Step 4: Final Answer:
Since statements (i), (ii), and (iii) are correct, and statement (iv) is incorrect, the correct option is (A).