Section 8 Company Compliance
Section 8 Company Compliance
A Section 8 company in India is a non-profit organization that promotes social welfare under the Companies Act, 2013. Section 8 companies, much like other companies, are subject to compliance requirements. Despite their non-profit nature and dedication to social causes, these organizations must adhere to specific regulatory obligations. This article delves into Section 8 Company Compliance, providing a clear and concise overview of the essential legal responsibilities.
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What is Section 8 Company?
A Section 8 company in India is a unique non-profit organization recognized under the Companies Act 2013. It promotes social welfare, arts, commerce, education, charity, environmental protection, sports, science, and research. Unlike typical for-profit companies, a Section 8 company uses its profits and income to advance its objectives rather than distributing them as dividends. These companies are exempt from using the term “Limited” in their name, reflecting their non-profit nature. Section 8 companies often enjoy certain exemptions and benefits under the Companies Act, Income Tax Act, and other regulations. Section 8 companies are subject to regulatory requirements similar to other companies.
Section 8 Company Compliance
Section 8 Company compliance refers to the set of legal obligations and regulatory requirements that Section 8 Companies in India must fulfil to maintain their non-profit status and adhere to the provisions of the Companies Act 2013. The compliance requirements for companies, including Section 8 companies, are diverse and vary based on different criteria. For a more organized understanding, these compliances can be categorized as follows:
- Event-Based Compliances: These are triggered by specific events or occurrences within the company.
- Time-Based Compliance: These are regular compliances that must be completed periodically, such as annually, half-yearly, or quarterly.
- Specific Criteria-Based Compliance: Certain compliances are required based on specific criteria like the company’s paid-up share capital, turnover, or other conditions.
Section 8 Company Compliance Checklist
The company compliance checklist is composed of the following must-haves which are as follows:
- Form ADT-1, Appointment of Auditor, must be submitted
- Maintaining account books
- Keeping Statutory Registers
- Financial statement preparation
- Filing income tax returns
- Financial statements (AOC-4)
- MGT-7, Annual returns to be filed with Registrar of Companies
Compulsory Annual Compliances for Section 8 Companies
Compulsory Annual Compliances for Section 8 Companies are explained here:
Auditor Appointment Compliance – Filing Form ADT-1
Under Section 139 of the Companies Act 2013, every Section 8 company must appoint an auditor. This appointment is necessary to audit the company’s annual financial statements. The auditor’s appointment details, valid for a maximum of five financial years, must be communicated to the Ministry of Corporate Affairs (MCA) using Form ADT-1.
- Form ADT-1 should be filed within 15 days following the company’s Annual General Meeting (AGM).
- Failing to submit Form ADT-1 within this timeframe can result in penalties for the company. The appointed auditor is responsible for the annual audit of the company’s financial records.
Statutory Register Maintenance Requirement
Companies must maintain a statutory register per the Companies Act 2013 provisions, Section 8. This register is an essential record-keeping component that documents various critical aspects of the company’s operations and governance. It must include detailed information on the following:
- Loans acquired by the company
- Comprehensive details of its directors
- Any changes in directorship
- Details of charges created on the company’s assets
- Records of investments made
This statutory register is a key reference for regulatory compliance and transparency, ensuring that all significant financial transactions and governance changes are accurately and systematically recorded.
Conducting Meetings
Section 8 companies are obligated to hold meetings as per the following guidelines:
- Annual General Meeting (AGM): Must be conducted twice a year.
- Other Statutory Meetings: In addition to AGMs, they are required to hold other statutory meetings as per regulatory requirements.
- Board Meetings: Held at least once every 120 days (four times a year) for the company’s directors to make decisions and plan strategies.
- Extraordinary General Meetings (EGM): Called for urgent matters that need attention before the next AGM.
- Creditors’ Meetings: Needed if the company is restructuring or going through similar processes to discuss and get approval from creditors.
- Committee Meetings: If the company has specific committees (like an audit committee), these must meet regularly to handle relevant issues.
- Other Meetings as Required: Sometimes, other meetings might be necessary based on legal requirements or significant changes in the company.
Board of Directors’ Report
Directors of a Section 8 company are required to prepare a comprehensive report, commonly referred to as the Director’s Report. This report encompasses several key aspects:
- Company Compliance Information: The report should detail the company’s compliance with various legal and regulatory requirements.
- Corporate Social Responsibilities (CSR): If applicable, it must include information about the company’s CSR activities.
- Accounting Details: The report should provide insights into the company’s financial accounting practices.
- Other Annexures: Any other relevant information or documents should be included as annexures.
This Director’s Report must then be filed along with Form AOC-4, a mandatory filing requirement for financial statements and other documents with the Registrar of Companies (ROC).
Preparation of Financial Statements
For Section 8 companies, preparing and submitting financial statements are crucial annual compliance requirements. These documents include:
- Balance Sheet : Details the company’s assets, liabilities, and shareholders’ equity at a specific time.
- Profit and Loss Statement: Also known as an income statement, this document summarizes the company’s revenues, costs, and expenses over a period, typically a fiscal year.
- Cash Flow Statement: This statement summarises the cash inflows and outflows in the company’s operating, investing, and financing activities.
- Other Financial Documents: Any additional financial records relevant to the company’s financial status.
These financial statements must be filed with the Registrar of Companies (ROC) and are subject to audit by the appointed auditor.
Filing of Financial Statements – AOC-4 Form
For Section 8 companies, it’s mandatory to file the AOC-4 Form, which is used to submit annual financial statements. Key points to note are:
- Deadline: The form must be filed within 30 days from the Annual General Meeting (AGM) date.
- Penalty for Non-compliance: If the company fails to file the AOC-4 Form within this timeframe, it will incur a penalty.
This filing is crucial as it ensures that the company’s financial records are officially recorded and available for regulatory scrutiny, maintaining transparency and compliance with the Companies Act.
Filing of Annual Returns – MGT-7 Form
Section 8 companies are required to adhere to the following guidelines regarding the filing of annual returns:
- Form MGT-7: This form is used for filing the company’s annual returns.
- Deadline: It must be filed within 60 days from the Annual General Meeting (AGM) date.
- Consequences of Delay: If the company fails to file the MGT-7 Form within this period, it will face a penalty.
Filing annual returns is essential to maintaining compliance and ensuring transparency about the company’s operational activities over the financial year.
Filing of Income Tax Return for Section 8 Companies
The income tax return filing is an important annual compliance requirement for Section 8 companies. Here’s what needs to be done:
The income tax return should be filed by September 30th of every financial year. This filing summarises the company’s total income for the respective financial year. However, the corporation may be exempt if registered under Sections 12A and 80G.
Event-Based Compliances for Section 8 Companies
Event-based compliances must be reported following specific occurrences within a Section 8 company. Unlike annual compliances, these are triggered by certain events and are non-periodic. Here’s a checklist of key event-based compliances for Section 8 companies:
- Transfer of Stock: Reporting any transfer of stock ownership.
- Share Distribution: Compliance related to the distribution or allotment of shares.
- Director Appointment/Resignation: Notifying about the appointment or resignation of directors.
- Auditors’ Appointment/Resignation: Reporting the appointment or resignation of auditors.
- Changes to the Company’s Name: Compliance procedures following a change in the company’s name.
- Changes to the Company’s MOU (Memorandum of Understanding): Any amendments to the MOU must be reported.
- Key Management Personnel Appointment: Reporting the appointment of key management personnel.
- Acceptance of Share Application Fund: Compliances related to accepting funds for share applications.
- Any Changes to the Company’s Structure: Reporting any significant restructuring or changes in the company’s organizational structure.
Tax Compliances for Section 8 Companies
Section 8 companies are subject to tax regulations under the Income Tax Act. However, they can avail of certain income tax exemptions by following specific procedures. To qualify for these exemptions, Section 8 companies must adhere to the following requirements:
- Register with Principal Commissioner: Section 8 companies should register using Form 10A under Section 12A of the Income Tax Act. This is necessary for tax exemptions.
- Follow Section 11 Conditions: To qualify for tax exemptions, Section 8 companies must meet the conditions in Section 11. These conditions usually involve using income for charitable, religious, or educational purposes.
- Submit Form 10B for Section 80G Approval: If the company wants tax benefits for donations it receives (under Section 80G), it should submit Form 10B for approval.
Documents Required for Section 8 Company Compliance
For effective compliance, a Section 8 company must have the following essential documents:
-
- Articles of Association (AoA)
- Memorandum of Association (MoA)
- Digital Signature Certificate (DSC)
- Company Incorporation Certificate
Penalties for Non-Compliance in Section 8 Companies
Like all registered companies, Section 8 Companies must adhere to certain rules and regulations. Failure to comply can lead to significant penalties:
- License Termination: If the Central Government finds that the company is functioning dishonestly or against its stated objectives, it may revoke its license.
- Monetary Fines: The company may be fined a minimum of Rs. 10 lakh, extending up to Rs. 1 crore for non-compliance with regulations.
- Penalties for Directors and Officers: The directors and every company officer in default may face imprisonment and monetary fines, potentially reaching up to Rs. 25 lakhs.
- Liability for Fraudulent Operations: If the company’s operations are found to be carried out fraudulently, every officer in default will be liable under section 447 of the Companies Act, 2013.
Therefore, Section 8 Companies must comply with all regulations to avoid these severe penalties.
Here is the table summarizing the compliances applicable to Section-8 (Non-Profit) Companies under the Companies Act, 2013:
|
Detailed Provision |
Statutory Timeline |
Required Form |
Reporting Authority |
| Declaration of commencement of business | Within 180 Days from the incorporation date | INC-20A | ROC |
| Intimation of declaration received under Section 89 | Within 30 days of declaration receipt | MGT-6 | ROC |
| Intimation of declaration received under Section 90 | Within 30 days of declaration receipt | BEN-2 | ROC |
| Directors’ KYC by every Individual who holds a DIN | Within 6 months from the financial year-end | DIR – 3 KYC | ROC |
| Intimation regarding the appointment of Statutory Auditor | Within 15 days of the auditor’s appointment | ADT-1 | ROC |
| Notice to the Registrar for appointment of First Statutory Auditor | Appoint within 30 days from the incorporation date | ADT-1 | ROC |
| Intimation regarding the resignation of the Statutory Auditor | Within 30 days of the auditor’s resignation | ADT-3 | ROC |
| Filing of Resolution and agreements as specified in Section 117 (3) | Within 30 days of resolution/agreement | MGT-14 | ROC |
| Intimation of Change in the Registered Office | Within 30 days of a change in the registered office | INC-22 | ROC |
| Return in respect of outstanding payments to Micro or Small Enterprise | Within 1 month from the conclusion of each half-year | E-Form MSME-1 | ROC |
| Filing of annual return | Within 60 days from the conclusion of the AGM | E-Form MGT-7 | ROC |
| Disclosure of Interest by Director | In the First Board Meeting of the Financial Year AND when there is a change | MBP-1 | NA |
Conclusion
Section 8 companies’ annual compliance requirements are not just a legal necessity but also a means to leverage the benefits associated with their status. By diligently following these regulations, Section 8 companies can avoid the stringent penalties associated with non-compliance, ensuring their continued operation and contribution to their respective social objectives.
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