Differences between Pvt Ltd and Section 8 Company

Introduction

When you incorporate a new company, you have the option of forming various types of companies: a Public company, a Private Limited company, One Person Company or a Section 8 company. However, all these types of companies have many differences, with Section 8 companies being the most different. In this article, we’ll be going in-depth into the differences between Pvt Ltd and Section 8 companies so that you know when you should go for Private Limited company registration or Section 8 company registration.

Company Types

All companies come under the purview of the MCA and the Companies Act, 2013 governs them. To register a Section 8 company as well as a Private Limited company, you have to fill web form SPICe+ on the MCA portal. However, apart from this, Section 8 companies and Private Limited companies have no similarities per se. Let’s understand these company types:

Private Limited Company

Private Limited companies are commercial entities; their goal is to make profit. They need a minimum of two shareholders for incorporation and can have a maximum of 50 shareholders. Additionally, Private Limited companies do not get listed on the stock exchange. What this means is that the shares of private limited companies are not open to everyone. This is different from Public companies where anyone can buy their shares.

A Section 8 Company

A Section 8 company is a type of non-profit entity. All Section 8 companies are incorporated for charitable purposes. Section 8 companies do not aim to make any profit. A Section 8 company can only spend its funds for the furtherance of its charitable objectives. Additionally, Section 8 companies do not issue shares. 

Differences between a Private Limited Company and Section 8 Company  

Differences	Pvt Ltd Companies	Section 8 Companies
Type	It is a corporate entity. It is created for profit-making purposes.	It’s a non-profit organisation. It is created for charitable purposes.
Objective	They are formed for commercial objectives.	To further philanthropic objectives such as encouraging art, sports, science, education, etc.
Minimum Authorised Share capital	Need to have a minimum authorised share capital of INR 1 Lakh.	Section 8 companies do not need to have any minimum share capital. Additionally, Section 8 companies are permitted to change their capital structure in the future.
Name	All Private Limited companies must have “Limited” or “Private Limited” at the end of their name.	Section 8 companies do not have any name-related requirements like Private Limited companies.
Conversion	A Private Limited company can be converted into a Public company as well as a Section 8 company.	Section 8 companies can be converted into a Private Limited or Public company.
Winding-up	You can voluntarily wind-up a Private Limited company.	You can wind-up a Section 8 company by these steps: 1. Firstly, convert the company to a Private Limited company 2. Secondly, surrender your non-profit company licence; 3. Thirdly, follow the wind-up process of private limited companies.
Stamp Duty	Stamp duty is charged on the company’s incorporation forms, MoA, and AoA.	Section 8 companies don’t have to pay stamp duty on AoA and MoA.
Tax Exemptions	No such Tax exemptions.	Many tax exemptions are granted under the Income Tax Act Section 80G.

Conclusion

Incorporating any company is something you need to properly consider. All types of companies have many benefits as well as shortfalls. As mentioned before, you incorporate Private Limited companies or Section 8 companies for completely different goals. Before deciding what kind of company you want to go for, it’s very important to compare the differences and be aware of the objectives of your company. If you intend to make even a little profit from your organisation, then you should go for Private Limited company registration, not Section 8 company registration. However, if you want to further a charitable purpose, Section 8 companies are preferable. 
For most purposes, Private Limited Companies are preferable. This is because Private Limited companies can take many different forms, and have many different objectives. Hence, generally, most organisations go for Private Limited company registration.

Frequently Asked Questions