Essential Documents for Section 8 Microfinance Company Registration
Microfinance companies play a crucial role in offering financial assistance to individuals and small businesses that lack access to traditional banking services. In India, these entities can be registered as either a Non-Banking Financial Company (NBFC) or a Section 8 microfinance company. Section 8 microfinance company registration is a preferred option for non-profit organizations as it does not require RBI approval, making the process more accessible and cost-effective.
To register a Section 8 microfinance company, several essential documents must be submitted. Directors and shareholders must provide identity and address proof, including PAN and Aadhaar cards. Foreign directors, if any, need to submit a passport as an additional requirement. Passport-sized photographs and voter ID or driving licenses serve as supplementary identity verification.
The company’s registered office must also be verified. If the office is rented, a rental agreement and a No Objection Certificate (NOC) from the landlord are required. Additionally, a recent utility bill serves as proof of address. For company incorporation, a Digital Signature Certificate (DSC) and Director Identification Number (DIN) are mandatory. The Memorandum of Association (MoA) and Articles of Association (AoA) define the company’s objectives and operational framework. Declarations such as the INC-9 and DIR-2 forms confirm legal compliance and director consent.
Section 8 microfinance company registration fees vary based on professional services, government charges, and documentation. Estimated costs include government fees (Rs. 5,000–7,000), professional service charges (Rs. 10,000–25,000), and other expenses like DSC, DIN, and stamp duty.
With no minimum capital requirement, tax benefits, and exemption from RBI regulations, Section 8 microfinance company registration is a cost-effective and efficient way to promote financial inclusion. By following the correct registration process, businesses can contribute to economic empowerment and sustainable development.
Introduction
Microfinance companies play a crucial role in promoting financial inclusion by providing small loans and financial assistance to individuals, entrepreneurs, and small businesses that do not have access to traditional banking services. These companies bridge the gap in financial accessibility, helping marginalized communities, self-employed individuals, and micro-enterprises grow and sustain their businesses. By offering credit without requiring collateral, microfinance companies empower people to invest in their livelihoods, enhance productivity, and improve their economic status.
To legally operate a microfinance company in India, proper registration is essential. This ensures compliance with government regulations, financial transparency, and smooth business operations. The registration process involves adhering to legal and regulatory frameworks established by authorities such as the Reserve Bank of India (RBI) and the Ministry of Corporate Affairs (MCA). A microfinance company in India can be registered under two primary categories—Non-Banking Financial Company (NBFC) or Section 8 microfinance company.
An NBFC microfinance company requires RBI approval, along with a minimum capital of Rs. 5 crore for operations. These companies operate on a commercial basis and follow stringent financial regulations set by RBI. On the other hand, a Section 8 microfinance company is a non-profit entity registered under the Companies Act, 2013 This structure does not require RBI approval, making it a more accessible and cost-effective option for organizations focused on social welfare and financial inclusion rather than profit-making.
This blog provides a comprehensive overview of the documents required for microfinance company registration, particularly focusing on Section 8 microfinance company registration. Understanding the necessary documentation and legal procedures will help businesses navigate the registration process efficiently and establish a compliant and successful microfinance institution.
Understanding Microfinance Company Registration
Microfinance company registration is a crucial step in legally establishing a financial institution that provides small loans and financial assistance to individuals, low-income groups, and small businesses. These companies serve as an alternative to traditional banks, offering microcredit to those who lack access to formal banking services. The primary objective of microfinance institutions is to promote financial inclusion by empowering economically weaker sections of society through easy access to credit, helping them start or expand small businesses and improve their livelihoods.
In India, microfinance companies can be registered under two common structures, depending on their operational goals and regulatory requirements:
1. NBFC Microfinance Company
A Non-Banking Financial Company (NBFC) Microfinance Company is a financial institution that operates with the approval of the Reserve Bank of India (RBI). To register as an NBFC microfinance company, a minimum capital requirement of Rs. 5 crore is mandated by the RBI. These companies are strictly regulated and must adhere to RBI’s guidelines regarding loan disbursement, interest rates, and financial reporting. NBFC microfinance companies operate on a commercial basis, earning revenue through interest on loans while ensuring financial sustainability.
2. Section 8 Microfinance Company
ASection 8 microfinance company is a non-profit entity registered under the Companies Act, 2013. Unlike NBFC microfinance companies, Section 8 companies do not require RBI approval, making the registration process simpler and more affordable. These organizations primarily focus on social welfare, providing micro-loans for income generation and community development rather than profit-making. Section 8 microfinance companies enjoy tax benefits and exemptions, making them a preferred choice for organizations and NGO Registration committed to financial inclusion and economic empowerment.
Since Section 8 microfinance companies do not require RBI registration, they are widely chosen by businesses and social enterprises aiming to provide financial assistance without commercial motives. Their simplified regulatory framework makes them an attractive option for those seeking to support underprivileged communities without facing stringent compliance requirements.
Documents Required for Section 8 Microfinance Company Registration
For successful Section 8 microfinance company registration, the following documents are required:
1. Directors’ and Shareholders’ Documents
- PAN Card: Mandatory for all directors and shareholders.
- Aadhaar Card: Proof of identity and residence.
- Passport (if applicable): Required for foreign directors.
- Voter ID/Driving License: Additional identity proof.
- Passport-sized Photographs: Recent colored photos of all directors and shareholders.
2. Registered Office Documents
- Rental Agreement: If the office space is rented.
- No Objection Certificate (NOC): From the landlord.
- Electricity Bill/Utility Bill: As address proof, not older than two months.
3. Company Incorporation Documents
- Digital Signature Certificate (DSC): For online filing of documents.
- Director Identification Number (DIN): Mandatory for all directors.
- Memorandum of Association (MoA): Defines the objectives of the microfinance company.
- Articles of Association (AoA): Specifies the rules and regulations governing the company.
- Declaration by Directors (INC-9 Form): Affidavit confirming compliance with legal requirements.
- Consent to Act as a Director (DIR-2 Form): Signed consent from directors.
4. Application Forms and Declarations
- SPICe+ Form: For company registration under Section 8.
- Declaration in INC-15: Declaration by promoters stating the non-profit nature of the organization.
- Board Resolution: Approving the formation of the Section 8 microfinance company.
- Financial Projection Plan: A business plan outlining the company’s financial goals.
Section 8 Microfinance Company Registration Fees
The cost of Section 8 microfinance company registration varies based on professional fees, government charges, and legal documentation requirements. The estimated costs include:
- Government Fees: Around Rs. 5,000 to Rs. 7,000, depending on state charges.
- Professional Fees: Varies from Rs. 10,000 to Rs. 25,000 based on service providers.
- Digital Signature Certificate (DSC) and Director Identification Number (DIN) Fees: Around Rs. 2,000 per director.
- Stamp Duty and Other Charges: Varies as per state laws.
Advantages of Section 8 Microfinance Company Registration
Registering a microfinance company as a Section 8 company offers numerous benefits, making it an attractive choice for organizations focused on financial inclusion and social welfare. Unlike NBFC microfinance companies, which require substantial capital and regulatory compliance, Section 8 microfinance companies enjoy greater flexibility, lower financial barriers, and tax benefits. Here are the key advantages:
1. No Minimum Capital Requirement
One of the most significant benefits of Section 8 microfinance company registration is that there is no minimum capital requirement. Unlike NBFC microfinance companies, which must maintain a minimum capital of Rs. 5 crore, Section 8 companies can start their operations with any amount of capital based on their financial capacity. This makes it easier for non-profit organizations, NGOs, and social enterprises to establish a microfinance company without the burden of raising substantial funds at the outset.
2. Tax Exemptions and Financial Benefits
Section 8 microfinance companies enjoy tax exemptions under Sections 12A and 80G of the Income Tax Act, 1961 These exemptions reduce the financial burden on the organization, allowing them to allocate more resources toward their social andfinancial assistance programs. Donations made to Section 8 companies by individuals or businesses may also qualify for tax deductions, encouraging philanthropic contributions and financial support.
3. No RBI Compliance Requirements
Since Section 8 microfinance companies are non-profit organizations, they are not required to obtain approval from the Reserve Bank of India (RBI). This eliminates the need for complex regulatory compliance, such as capital adequacy norms, risk assessment protocols, and financial reporting, which NBFCs must follow. By avoiding RBI’s strict regulations, Section 8 microfinance companies can operate with greater ease and lower administrative costs.
4. Promoting Financial Inclusion
A core objective of Section 8 microfinance companies is to bridge the gap between financial services and underserved communities. These organizations provide small loans, microcredit, and financial support to individuals who do not have access to traditional banking services. By offering loans without collateral at low or zero interest rates, these companies empower small businesses, self-employed individuals, women entrepreneurs, and low-income groups to improve their economic conditions.
Step-by-Step Process of Section 8 Microfinance Company Registration
Registering a Section 8 microfinance company requires completing several legal and regulatory steps to ensure compliance with the Companies Act, 2013. The process involves obtaining necessary approvals, drafting legal documents, and fulfilling government formalities. Below is a detailed step-by-step guide to Section 8 microfinance company registration:
1. Obtain Digital Signature Certificate (DSC) and Director Identification Number (DIN) for Directors
The first step is to obtain a Digital Signature Certificate(DSC) and Director Identification Number(DIN) for all directors of the company.
- DSC is required for digitally signing electronic documents during the registration process. It is issued by certified agencies authorized by the government.
- DIN is a unique identification number allotted to directors, which is mandatory for anyone looking to serve as a director in a company.
To obtain these, directors need to submit identity proof (PAN Card), address proof (Aadhaar Card, Passport, or Driving License), and passport-sized photographs to the relevant authorities.
2. Apply for Name Reservation via RUN Form
The next step is to apply for name approval using the Reserve Unique Name (RUN) form on the Ministry of Corporate Affairs(MCA) portal. The company’s name must:
- Align with the objectives of a Section 8 company (e.g., including words like “Microfinance,” “Foundation,” or “Trust” to reflect its non-profit nature).
- Not conflict with any existing company names or trademarks.
Applicants can propose two names in the RUN form. Once approved, the name remains reserved for 20 days, within which the registration process must be completed.
3. Draft Memorandum of Association (MOA) and Articles of Association (AOA)
After name approval, the company needs to draft two critical documents:
- Memorandum of Association (MOA): Defines the objectives and purpose of the company, ensuring that it operates as a non-profit organization focused on microfinance services.
- Articles of Association (AOA): Specifies the rules, regulations, and governance structure of the company, including decision-making procedures and director responsibilities.
Both documents must be signed by all directors and shareholders and submitted as part of the incorporation process.
4. Submit SPICe+ Form for Incorporation
The Simplified Proforma for Incorporating a Company Electronically (SPICe+) is an integrated form for registering a company under Section 8 of the Companies Act, 2013. This form must be submitted through the MCA portal and includes details such as:
- Company name, objectives, and address
- Details of directors and shareholders
- MOA and AOA
- Digital signatures of directors
- Declaration by directors regarding compliance with legal provisions
Once submitted, the MCA verifies the application and, upon approval, proceeds with issuing the company’s Certificate of Incorporation
5. Receive Section 8 License from MCA
After the successful incorporation of the company, the next step is obtaining the Section 8 license from the Ministry of Corporate Affairs (MCA). This license certifies that the company is a non-profit entity dedicated to financial inclusion and microfinance services.
To obtain the Section 8 license, the company must submit:
- The approved MOA and AOA
- A declaration in Form INC-15, stating that the company’s income will be utilized for social welfare and not for personal profit
- A detailed business plan outlining financial projections and operational strategies
Once the MCA approves the application, the company is officially granted Section 8 status, allowing it to operate as a legal microfinance institution.
6. Obtain PAN, TAN, and Open a Bank Account
The final step in the registration process is to obtain:
- Permanent Account Number (PAN) for taxation purposes
- Tax Deduction and Collection Account Number (TAN) to comply with tax laws related to deduction at source (TDS)
- A bank account in the company’s name for financial transactions
These registrations ensure that the company is fully compliant with tax regulations and can legally operate as a microfinance entity.
Conclusion
Starting a microfinance company in India requires careful documentation and legal compliance. For Section 8 microfinance company registration, businesses must provide essential documents related to directors, office premises, incorporation, and declarations. Understanding the Section 8 microfinance company registration fees and advantages can help organizations make informed decisions. By following the correct registration process, microfinance companies can contribute to financial inclusion and economic development in India.
Why Choose VakilKaro for Microfinance and NBFC Registration?
Registering a Microfinance Company or an NBFC (Non-Banking Financial Company) requires legal expertise, regulatory compliance, and proper documentation. VakilKaro stands out as a trusted legal service provider offering seamless registration services for both Section 8 Microfinance Companies and NBFCs. Here’s why VakilKaro is the ideal choice:
1. Expert Legal Guidance
VakilKaro has a team of experienced company registration experts, chartered accountants, and legal advisors who specialize in financial regulations. Their knowledge ensures that your microfinance or NBFC registration process is compliant with RBI, MCA, and SEBI regulations.
2. Hassle-Free Documentation Process
From preparing MOA, AOA, and business plans to obtaining DSC, DIN, and RBI approvals, VakilKaro handles the entire documentation process, saving businesses from complex paperwork and compliance errors.
3. Quick and Efficient Processing
VakilKaro ensures faster approvals by accurately filing applications, reducing delays caused by errors or incomplete submissions. Their streamlined process helps businesses start their operations without unnecessary waiting periods.
4. Cost-Effective Services
With affordable pricing and transparent fee structures, VakilKaro offers competitive packages for Section 8 Microfinance Company registration and NBFC registration, ensuring cost-effectiveness without compromising service quality.
5. End-to-End Support
Beyond registration, VakilKaro provides continued assistance with compliance filings, tax benefits, RBI guidelines, and operational strategies, ensuring businesses remain legally sound and financially stable.