The difference between Pvt Ltd Company and Section 8 Company

Choosing the right business structure is a crucial step for every Indian entrepreneur and NGO founder. Should the journey be profit-driven with a Private Limited Company, or purpose-driven with a Section 8 (non-profit) Company? Let’s help you decide.

Quick Summary

The main difference between Pvt Ltd company and Section 8 Company lies in their objectives. While both structures offer limited liability and strong legal protection, choosing the right entity depends on whether the goal is social impact (Section 8 company) or business expansion (Private Limited company).

Overview

Deciding between a Section 8 Foundation and a Private Limited Company is a key step for anyone starting a business or non-profit in India. Both are governed by the Companies Act, 2013, but serve distinct audiences and purposes. Section 8 companies operate as non-profit organizations, focusing on charity, social welfare, or cultural objectives.

Private Limited companies, on the other hand, are popular among startups and growth-minded businesses. Whether you are keen on building a successful business for your personal growth or contributing to social welfare, this guide will help you understand the clear difference between a Private Limited Company and a Section 8 Company to make the right choice. 

Key Objectives of Section 8 Company

A Section 8 Foundation is a non-profit organization registered under the Companies Act, 2013, dedicated to advancing social welfare and public benefits. Its main objectives include

• All profits generated are reinvested into furthering the foundation’s objectives and cannot be distributed as dividends.
•   Promoting education, art, science, research, culture, sports, and social welfare.

Key Objectives of a Private Limited Company

A Private Limited Company in India is primarily established for profit-making purposes. Its core objectives are:

• Generating profits, which can be distributed to shareholders as dividends, supports wealth creation and business growth.
• Commercial activities, scalability, and financial gain are its central focus, appealing to entrepreneurs seeking business expansion.

Pvt ltd Company Vs Section 8 Company

A Private Limited Company is perfect for those focused on commercial business, growth, and wealth creation. It attracts investors and allows profits to be shared among shareholders, supporting personal financial goals.

A Section 8 Company is the right structure for those committed to social impact. Registered under Section 8 of the Companies Act, it enables NGOs and social enterprises to operate with legal protection, zero profit distribution, and tax benefits.

Choose a Private Limited Company

• Profit and business expansion are your main priorities.
• You want easy access to funding, business credibility, or plan to distribute earnings.
• You foresee your business scaling or attracting new investors.

Choose a Section 8 Company

• You want all income used for charitable, social, or educational objectives.
• You seek legal recognition and tax benefits as an NGO.
• You aim to build trust and credibility for grants and donations.

How do a private limited company and a Section 8 company work legally?

The legal requirements for a Section 8 Foundation and a Private Limited Company are quite distinct in India. A Section 8 Foundation operates under Section 8 of the Companies Act, 2013, which means it’s officially recognized as a non-profit and must obtain a special license from the Registrar of Companies. To keep its charity status, it has to meet strict compliance rules, like filing annual financial reports and audits, as guided by the Ministry of Corporate Affairs.

One practical benefit is that Section 8 Foundations don’t need to pay stamp duty while registering. On the other hand, a Private Limited Company is set up under Section 2(68) of the same Act, but it doesn’t have any charitable obligations. It requires paperwork such as a Memorandum and Articles of Association, regular board meetings, yearly filings, and paying stamp duty during incorporation. These differences in legal framework help founders choose the set-up that matches their goals, whether it’s social impact or profit-making.

Key Differences Between  a Private Limited Company and a Section 8 Company

Quick Tips

• Be clear about your core purpose, whether it is profit or social welfare.
• Note the mandatory compliance, such as Annual filings, board meetings, and audit differences by structure.
• Remember that Section 8 Companies don’t have minimum capital requirements, while Private Limited Companies often start with more working capital for growth.
• Note that the name ‘’Private Limited” is chosen for profit entities, while “Foundation” or “Association” is chosen for Section 8s.
• For fundraising, Pvt Ltd enables equity funding and venture capital; Section 8s rely on grants and donations. 

FAQs 

Q1. What is the main difference between Section 8 and Private Limited Company?
A Section 8 Company is a non-profit entity that cannot distribute profits and operates for charitable objectives. A Private Limited Company is a profit-making entity focused on commercial growth and can distribute dividends.

Q2. Is Section 8 Company eligible for an income tax exemption?
Yes, Section 8 Companies can apply for tax exemption under 12A and tax-deductible receipts for donors under 80G.

Q3. Can a Private Limited Company be converted into a Section 8 Company?
Yes, following due process and regulatory approvals, a Private Limited Company can become a Section 8 Company, and vice versa, though the procedure requires government sanction.

Q4. What’s the minimum capital for each structure?
Section 8 Companies have no specified minimum capital; Private Limited Companies typically begin with at least INR 1 lakh, though the law allows lower amounts.

Q5. Do Section 8 Companies need to add ‘Limited’ or ‘Private Limited’ to their name?
No, Section 8 Companies can use names like ‘Foundation,’ ‘Association,’ or ‘Society’ as appropriate for their mission.