New legislation for social impact companies likely

The government is considering a new law for setting up social impact companies, where profits can be distributed among the shareholders.

An official said having such companies would help in attracting private capital towards developmental activities in the country.

The corporate affairs ministry is working on a new concept for having social impact companies and the plan is to have a separate legislation in this regard, the official told PTI.

Social impact or community interest companies are there in many Western jurisdictions, including the UK.

The larger idea is to attract private capital into companies that do social good and work towards achieving sustainable development goals, the official said.

The work on the concept of social impact companies is at a very early stage, the official said, adding that it is likely to take a few years to have the required legislative framework.

Unlike Section 8 companies, these new class of companies would be allowed to pay dividends to the shareholders, which means they can share their profits within permissible limits. They would also have more freedom in carrying out their business activities, the official added.

According to the official, the new companies would be "more of an evolved version of Section 8 companies".

Section 8 companies are the not-for-profit ones and are prohibited from paying dividends to its members.

Currently, there are more than 11 lakh registered companies that are active in the country. Active companies are those which are compliant with various requirements, including timely filing of financial statements, under the Companies Act.