Those entities which are created for a temporary or specific purpose are specific purpose entities or special entities. The main purpose of special entity is to hide debt (inflating profits) or to hide ownership, and obscure relationships between different entities which are in fact related to each other in order to avoid financial risk for the firm. For Special Entity Registration in India, one can either have Non Banking Finance Companies or Section 8 Company.
- Protection against bankruptcy by safeguarding assets
- Keeping your secrecy for projects without getting the competitors to know about them
- Management and protection of Funds
- High Cost and legal obligations
- Compliance with Rigid Rules
- Loss in tax benefits for parent company
Non‐Banking Institution is a company whose principal business is receiving of deposits, under any scheme/ arrangement or in any other manner, or lending in any manner. So the basic purpose of Non Banking Finance Companies (NBFC’s) is accepting deposits. The basic question before beginning the operations which comes is “how to start a non banking financial company”.
However if one wants to start a business by working in art, science, sports, education, religion etc, then he can go for Section 8 company as well.
Classification of NBFC’s
Asset Finance Company (AFC): Its principal business is financing of physical assets which support any economic/productive activity,
Investment Company (IC): It is an institution which carries the business of acquisition of securities,
Loan Company (LC): Its principal business is providing finance whether by making loans or advances or for any activity other than its own excluding Asset Finance Company.
Infrastructure Finance Company (IFC): It carries out the business of providing infrastructure loans
Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC): It promotes the flow of long term debt into infrastructure projects.
Non-Banking Financial Company – Factors (NBFC-Factors): It is engaged in the principal business of factoring.
Gold Loan NBFCs in India: Their principal business is giving gold loans.
Residuary Non-Banking Companies (RNBCs): Its principal business is receiving of profits.
Non Banking Financial Companies Registration
- The company first needs to register itself under Companies Act 2013
- The company must belong to any of the above type by carrying out such activities
- The concerned company needs to pay a capital fund of INR 2 crores at the minimum
A section 8 company is established ‘for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object’, provided the profits, if any, or other income is applied for promoting only the objects of the company and no dividend is paid to its members.
Hence besides Non Banking Financial Companies, special entity can also be started by opening a section-8 company.
Who can form Section 8 Company?
- An individual or a group of individuals ( Minimum 2 required)
- Any existing company (except One Person Company)
- Section 8 Company registered for charitable or not-for-profit purposes.
- It is similar to a Trust or Society; except that it is registered under MCA whereas the Trusts and Societies are registered under State Government regulations.
- It has more credibility amongst donors, Government departments and other stakeholders.
- For Section 8 Company, name of the Company can be incorporated without “Limited” or “Private Limited” being used at the end as the case may be.
Section 8 Company Registration Procedures in India
Section 8 Company Registration includes the following steps:
- Obtain Digital Signature Certificate
- Obtain Director’s Identification Number (DIN) (Form DIR-3)
- Name Reservation (INC-1)
- Filing INC-12 (Drafting MoA & AoA)
- Granting license by central government in Form INC 16
We can also provide help with company formation outside India.
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