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CA Foundation · Business Laws · The Companies Act, 2013

Kiran Foundation was incorporated to promote education and charity, with a licence from the Central Government under section 8 of the Companies Act, 2013. Which statement about it is correct?

A section 8 company must apply its profits towards promoting its charitable or similar objects and cannot pay dividends to its members. It may be either public or private and is typically limited by shares or guarantee, not unlimited.

  1. AIt must apply its profits to promote its objects and cannot pay dividends to its membersCorrect
  2. BIt may distribute profits as dividends to members if the licence is granted
  3. CIt must be a public company and cannot be a private company
  4. DIt must have unlimited liability of members

Explanation

A section 8 company is formed for promoting charity, education, science, art and similar objects, with the intention of applying profits to promote its objects and prohibiting payment of dividend to members. It may be a public or private company and is usually limited by shares or guarantee. So only the first option is correct.

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