INTRODUCTION
A company is a legal entity formed by a group of individuals or entities to conduct business activities, provide goods or services, and pursue profit-making objectives. It is an organized and separate entity from its owners, known as shareholders or members, who contribute capital and share ownership in the company.
Companies can take various forms based on their legal structure and ownership, such as private companies, public companies, partnerships, limited liability companies (LLCs), and more. Each type of company has its own characteristics, rights, and responsibilities as defined by the laws of the jurisdiction in which it operates.
PRIVATE LIMITED COMPANY
A private limited company, also known as a privately held company or a closely held company, is an entity that is owned by private individuals, a group of individuals, or non-governmental organizations. Unlike public companies, private companies are not publicly traded on stock exchanges, and their shares are not available for purchase by the general public.
Since private companies are not subject to the same level of regulatory requirements and public disclosure as public companies, they have more flexibility and privacy in their operations. Private companies often have a smaller number of shareholders, which allows for faster decision-making and a more concentrated control of the company’s direction.
SECTION 8 COMPANY
Section 8 companies, are a type of nonprofit organization established under Section 8 of the Companies Act, 2013 in India. These companies are formed with the primary objective of promoting social welfare, charitable activities, or any other nonprofit objective. Those are the company are incorporated for charitable purposes.
DIFFERENCES BETWEEN A PRIVATE LIMITED COMPANY AND SECTION 8 COMPANY
| DIFFERENCES | Pvt Ltd Companies | Section 8 Companies |
| TYPE | It is created for profit making Purpose. | It’s a non-profit organisation. Created for charitable purpose. |
| DEFINITION | Section 2 (68) of the companies Act, 2013. | Section 8 of the companies Act, 2013. |
| OBJECTIVE | Profit Maximization. | To encourage art, science, commerce, charity religion, social welfare, education, sports or any other advantageous object such as for any charitable or not – for – profit purpose. |
| NAME | Must have suffix either “Limited” or “private Limited” | Must end with the words prescribed for such companies Like “Foundation, Forum, Federation Association etc”. |
| COVERSION | YES, it can be converted into Section 8 company. | YES, it can be converted into Private limited company. |
| STAMP DUTY | Mandatory to pay stamp duty as applicable on company’s Incorporation. | Not applicable. |
Consequently, the structure of both of the companies is quite similar but are absolutely different
From each other in terms of their main objective and functioning as the section 8 company is formed
For charitable purposes while private limited company is formed for profit – making purpose.
CERTAIN EXEMPTIONS ENJOYED BY PRIVATE COMPANIES AND SECTION 8 COMPANIES:
Private companies may enjoy certain exemptions depending on the jurisdiction and the specific regulations in place some are as follows –
- In some jurisdictions, private companies may have relaxed financial reporting requirements compared to public companies. They may be exempt from certain disclosure requirements, such as providing detailed financial statements or complying with stringent auditing standards.
- Private companies may be exempt from certain securities regulations. For example, they might be exempt from the requirement to register their securities with regulatory bodies or fulfil reporting obligations to shareholders.
- Private companies may enjoy exemptions related to corporate governance, executive compensation disclosures, or proxy statement filings.
- Private companies may be eligible for certain tax exemptions or incentives based on their industry, size, or location. These exemptions can vary widely and may include tax credits, deductions, or reduced tax rates. Governments often provide these incentives to stimulate investment, encourage economic growth, or support specific industries.
- Private companies may have exemptions from certain employment regulations that primarily apply to larger companies. These exemptions might involve specific labour laws related to employee benefits, working hours, or collective bargaining agreements.
Exemptions commonly associated with nonprofit or Section 8 companies –
- Nonprofit companies often enjoy tax exemptions or benefits on their income and assets. These exemptions can include exemption from income tax, property tax, or sales tax, depending on the specific regulations of the country or region.
- Nonprofit companies may be exempt from certain restrictions or regulations related to fundraising activities. This can include exemptions from registration requirements for soliciting donations or conducting charitable events.
- Nonprofit companies may have specific exemptions from corporate governance requirements that apply to for-profit companies. This can include relaxed reporting and disclosure obligations, as well as exemptions from certain shareholder rights or restrictions.
- Nonprofit companies may be subject to certain exemptions or modifications to labour laws, particularly when it comes to employment taxes or regulations related to volunteer work.
- Nonprofit companies may be eligible for grants or funding from government agencies, foundations, or other sources. These funds can provide financial support for their activities and programs, allowing them to fulfil their charitable objectives.
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