1. General Rule: No Profit Distribution Allowed

• A Section 8 company is prohibited from distributing profits to its members or directors.
  
• The company must apply all its income toward promoting its stated charitable or non-profit objectives.
  
• The focus is on service, not financial gain, for those involved in governance.
  
• Dividends and profit-sharing are strictly disallowed under Section 8 of the Companies Act, 2013.
  
• This ensures the integrity of its charitable nature.
  

2. Remuneration is Permitted Under Conditions

• While profit distribution is restricted, remuneration for professional services or managerial roles is permitted.
  
• Directors can be paid if they render genuine services that are necessary for the company’s functioning.
  
• Payment must be reasonable, justified, and properly documented.
  
• The amount must not be excessive for the services rendered.
  
• The Board must pass a resolution approving such remuneration.
  

3. Compliance with Related Party Transaction Rules

• Remuneration to directors may qualify as a related party transaction under Section 188 of the Companies Act.
  
• Prior approval from the Board of Directors is required.
  
• If thresholds are crossed, approval from shareholders may also be needed.
  
• The company must disclose such payments in its financial statements and reports.
  
• Transactions must be conducted at arm’s length and in good faith.
  

4. Tax and Statutory Implications

• Remuneration paid to directors is taxable in their hands as salary or fees.
  
• The company must deduct TDS and comply with other applicable tax laws.
  
• Payment records and employment contracts must be maintained.
  
• Companies must reflect such payments in their ITR filings and audit reports.
  
• Improper payments may result in the loss of tax exemptions.
  

5. Good Governance and Documentation Practices

• All remuneration must be backed by resolutions, contracts, and board minutes.
  
• It should be in line with the company’s Articles of Association.
  
• Disclosures should be made in annual reports and compliance filings.
  
• Transparency and justification are key to avoiding regulatory objections.
  
• Directors must not exploit their position for personal financial gain.