Annual Compliance for Section 8 Company

Section 8 companies play a pivotal role in advancing charitable and social objectives in India. To maintain their non-profit status and ensure transparency, these organizations must adhere to specific annual compliance requirements. This article provides a comprehensive overview of the essential filings, statutory obligations, and timelines that Section 8 companies must follow to remain compliant and uphold their commitment to public welfare.

What is Section 8 Company?

In India, a Section 8 company is a non-profit organization incorporated under the Companies Act, 2013. The primary objective is to promote areas like commerce, art, science, sports, education, research, social welfare, religion, charity, and environmental protection. These companies are prohibited from distributing profits to their members; instead, any income generated must be reinvested to further their stated objectives.

Unlike traditional companies, Section 8 companies reinvest their profits to further their objectives and do not distribute dividends to their members. They are required to obtain a license from the Central Government to operate and are subject to regulatory oversight by the Ministry of Corporate Affairs. These companies enjoy certain benefits, which include tax exemptions under the Income Tax Act 1961, provided they are registered under Section 12A/12AB and comply with specific conditions.

Additionally, donors to Section 8 companies may be eligible for tax deductions under Section 80G of the Income Tax Act. Section 8 companies must adhere to compliance requirements similar to other companies, such as proper accounting records maintenance, annual returns filing, and undergoing periodic audits to ensure transparency and accountability.

Section 8 Company Compliance

Section 8 companies in India, established under the Companies Act, 2013, are non-profit organizations dedicated to promoting charitable objectives. To maintain their legal standing and tax-exempt status, these companies must adhere to specific compliance requirements. These are categorized into three main types:

• Event-Based Compliance

Triggered by specific events within the company, such as changes in directors or alterations to the company's structure.

• Time-Based Compliance

Regular filings that must be completed periodically which include annual returns and financial statements.

• Specific Criteria-Based Compliance

Requirements that depend on particular criteria, like the company's financial thresholds or other conditions.

Adhering to these compliance categories ensures that Section 8 companies operate within the legal framework and continue to benefit from the privileges granted to non-profit entities.

Mandatory Annual Compliances for Section 8 Companies

Section 8 companies in India, established under the Companies Act, 2013, are mandated to adhere to specific annual compliance requirements to maintain their non-profit status and ensure transparency in operations. These compliances encompass timely filings, financial disclosures, and statutory obligations, all crucial for the company's legal standing and credibility.

• Appointment of Auditor and Filing Form ADT-1

Every Section 8 company must appoint an auditor to audit its financial statements. The appointment details should be filed with the Registrar of Companies (RoC) using Form ADT-1 within 15 days from the date of the Annual General Meeting (AGM) in which the auditor is appointed or reappointed.

• Maintenance of Statutory Registers

Under the Companies Act, 2013, companies are mandated to maintain specific statutory registers to ensure transparency and regulatory compliance. These registers include detailed records of loans acquired, comprehensive information about directors and any changes therein, documentation of charges created on company assets, and records of investments made.

If you maintain these registers is crucial to provide stakeholders with accurate information about the company's financial and managerial activities. Failure to maintain these registers can lead to penalties and legal repercussions, which emphasizes their importance in the corporate governance framework.

• Conducting Meetings

Section 8 companies in India are mandated to adhere to specific meeting requirements under the Companies Act, 2013, to ensure effective governance and compliance. They must hold their first Annual General Meeting (AGM) within nine months from the end of the first financial year.

Subsequent AGMs should be conducted within six months from the end of each financial year, which ensures that the interval between two AGMs does not exceed fifteen months. Additionally, these companies are required to convene at least one Board Meeting every six months, with a minimum of two directors present to constitute a quorum.

Extraordinary General Meetings (EGMs) can be called to address urgent matters that cannot wait until the next AGM. Such meetings can be initiated by the Board of Directors or upon the requisition of members who hold at least one-tenth of the voting power, with a minimum notice period of fourteen days.

• Preparation of Director’s Report

The Board of Directors of a Section 8 company is required to prepare a comprehensive Director's Report annually. This details the company's adherence to legal and regulatory requirements, financial accounting practices, Corporate Social Responsibility (CSR) activities, if applicable, and any other pertinent information.

This report must be filed with the Registrar of Companies (ROC) using Form AOC-4 within 30 days of the Annual General Meeting (AGM). Timely submission of the Director's Report and Form AOC-4 is crucial to maintain compliance and transparency.

• Preparation and Filing of Financial Statements (Form AOC-4)

Section 8 companies in India are required to prepare annual financial statements, which include the balance sheet, profit and loss statement, and cash flow statement. These statements must be approved by the Board of Directors and audited by a statutory auditor.

Subsequently, the company must file these financial statements, along with the auditor's report and the Director's Report, with the Registrar of Companies (RoC) using Form AOC-4.

This filing should be completed within 30 days from the date of the Annual General Meeting (AGM). Timely submission ensures compliance with the Companies Act, 2013, and maintains transparency in the company's financial affairs.

• Filing of Annual Returns (Form MGT-7)

Section 8 companies in India are mandated to file an annual return using Form MGT-7 with the Registrar of Companies (RoC) within 60 days from the date of their Annual General Meeting (AGM). This return provides a comprehensive overview of the company's structure and activities, which include details about its shareholders, directors, and any significant changes that occurred during the financial year.

Timely submission of Form MGT-7 is crucial for maintaining the company's compliance status and ensuring transparency in its operations. Failure to file within the stipulated timeframe can lead to penalties and may impact the company's legal standing.

• Filing of Income Tax Return (ITR-7)

Section 8 companies in India must file their annual income tax returns using Form ITR-7. For companies whose accounts are subject to audit, the due date for filing ITR-7 is typically 30th September of the assessment year.

To avail tax exemptions, these companies should obtain 12A registration, which exempts their income from taxation, and 80G registration. This enables donors to avail deductions on their contributions. Timely filing and proper registrations are essential to maintain compliance and benefit from available tax exemptions.

Event-Based Compliance for Section 8 Companies

Event-based compliances for Section 8 companies are non-periodic obligations that arise upon the occurrence of specific events within the company. These compliances are crucial to maintain transparency and adhere to the legal framework established by the Companies Act, 2013. Prompt reporting to the Registrar of Companies (RoC) is essential to avoid penalties.

Key event-based compliances include

• Transfer or Allotment of Shares

As per the Companies Act, 2013, any transfer or allotment of shares in a Section 8 company must be reported to the Registrar of Companies (RoC) by filing the appropriate forms, such as Form SH-4 for share transfers and Form PAS-3 for share allotments, within the prescribed timeframes. Failure to comply with these requirements can result in penalties for the company and its officers.

• Appointment or Resignation of Directors

As per the Companies Act, 2013, any appointment or resignation of directors in a Section 8 company must be reported to the Registrar of Companies (RoC) by filing Form DIR-12 within 30 days of the event.

• Appointment or Resignation of Auditors

Under the Companies Act, 2013, Section 8, companies must notify the Registrar of Companies (RoC) about any changes in auditors by filing Form ADT-1 within 15 days of the Annual General Meeting (AGM) where the appointment or reappointment occurs. If an auditor resigns, they must submit Form ADT-3 to the RoC within 30 days, detailing the reasons for resignation. Failure to comply with these filing requirements can result in penalties under the Companies Act, 2013.

• Modification in the Company’s Name or Memorandum of Association (MOA)

Any modification to a Section 8 company's name or its Memorandum of Association (MOA) requires adherence to specific legal procedures under the Companies Act, 2013. This includes passing a special resolution and obtaining necessary approvals from the Registrar of Companies (RoC) and, in certain cases, the Central Government.

• Appointment of Key Managerial Personnel (KMP)

Under Section 203 of the Companies Act, 2013, companies are required to appoint Key Managerial Personnel (KMP) such as the Managing Director, CEO, Company Secretary, and CFO, and report these appointments to the Registrar of Companies (RoC) by filing Form DIR-12 within 30 days.

• Receipt of Share Application Money

Under Section 42(6) of the Companies Act, 2013, companies must allot securities within 60 days of receiving share application money. If they are unable to do so, they must refund the money within the next 15 days. Failure to refund within this period results in the amount being treated as a deposit, which attracts 12% annual interest and potential penalties.

• Alteration in the Company’s Structure:

Under Section 232 of the Companies Act, 2013, significant structural changes in a Section 8 company, such as mergers or demergers, require adherence to specific legal procedures. This includes obtaining necessary approvals from the Registrar of Companies (RoC) and, if applicable, the National Company Law Tribunal (NCLT).

Tax Compliance for Section 8 Companies in India

Section 8 companies are non-profit organisations registered under the Companies Act, 2013. Even though they work for charitable purposes, they still need to follow certain tax rules under the Income Tax Act, 1961. However, these companies can claim tax exemptions if they meet specific compliance requirements.

• Registration under Section 12A

A Section 8 company must register with the Income Tax Department under Section 12A of the Income Tax Act to claim income tax exemption.

The company must submit Form 10A to the Principal Commissioner or Commissioner of Income Tax (Exemptions) to obtain tax exemption. This registration is essential for availing the exemption on the income that is applied towards charitable purposes, as specified under the Income Tax Act.

• Compliance with Section 11

Once registered under Section 12A, the company must follow the conditions given under Section 11 of the Income Tax Act to continue availing tax exemptions.

The main condition under Section 11 is that the income of the company must be used solely for its charitable or non-profit activities, such as education, relief to the poor, or social welfare. Additionally, any profit earned should not be distributed among the members but must be used to further the primary objectives of the company.

• Approval under Section 80G

If the Section 8 company wants its donors to get tax benefits on their donations, it must apply for Section 80G approval.

To obtain approval under Section 80G, the company should file Form 10B as part of the application process. Once the approval is granted, donors become eligible to claim tax deductions on the donations they contribute to the company.

Documents Required for Section 8 Company Compliance

To follow all legal and tax compliances, a Section 8 company must keep certain important documents ready. These documents are necessary for registration, filing returns, and applying for tax exemptions.

• Memorandum of Association (MoA)

This is a legal document that defines the company’s purpose and the scope of its charitable activities. It outlines the objectives for which the company was formed.

• Articles of Association (AoA)

The AoA contains the rules for managing the internal operations of the company. It guides how meetings are held, how decisions are made, and how the company is run.

• Digital Signature Certificate (DSC)

A DSC is required for signing electronic documents submitted to government portals. It is mandatory for directors and authorized signatories of the company.

• Certificate of Incorporation

This is the official document issued by the Registrar of Companies (ROC) when the Section 8 company is legally registered. It proves the company’s existence under the Companies Act, 2013.

Note: Depending on the type of compliance or registration, such as 12A or 80G, additional documents may be required. It is advisable to consult with professionals for case-specific guidance.

Penalties for Non-Compliance in Section 8 Companies

Just like any other registered company, a Section 8 company has to follow certain legal rules. If these rules are ignored, the consequences can be quite serious. Here is what can happen:

• The Government Can Cancel the Licence

If the Government finds that the company is not working as per its stated charitable objectives or is being dishonest, it has the power to cancel the company's licence altogether.

• Big Fines

For breaking important rules, the company can be fined anywhere between Rs.10 lakh and Rs.1 crore. That is a heavy cost for non-compliance.

• Directors Can Be Penalised Too

It is not just the company that gets punished. Directors and other officers who are responsible for the mistakes can face personal fines up to Rs.25 lakh, and in serious cases, even imprisonment.

• In Case of Fraud

If the company is found to be involved in fraud, the punishment is more severe. Under Section 447 of the Companies Act, officers can be held criminally responsible, which could lead to imprisonment along with financial penalties.

Important Compliance Tasks for Section 8 Companies

• A Section 8 company must declare the commencement of its business within 180 days from the date of incorporation. This is done by filing Form INC-20A with the Registrar of Companies (ROC). Submission of this declaration is a mandatory compliance step to confirm that the company is ready to begin its operations.
• When a Section 8 company receives a declaration of ownership or significant beneficial interest from any individual or entity, it is required to inform the Registrar of Companies (ROC) within 30 days. This is done by filing Form MGT-6 for ownership declarations under Section 89, and Form BEN-2 for significant beneficial ownership under Section 90 of the Companies Act, 2013.
• Every director holding a Director Identification Number (DIN) is required to complete their KYC process within six months from the end of the financial year. This is done by submitting Form DIR-3 KYC to ensure that the director’s details are updated and verified in the records of the Ministry of Corporate Affairs (MCA).
• A Section 8 company must appoint its first statutory auditor within 30 days of incorporation and file the details with the Registrar of Companies (ROC). For any subsequent appointments of auditors, the company must file the necessary information within 15 days of the appointment. This is done by submitting Form ADT-1.
• If an auditor resigns from a Section 8 company, the resignation must be reported to the Registrar of Companies (ROC) within 30 days of the resignation. This is done by filing Form ADT-3 to ensure that the company’s records are updated with the change in auditors.
• When a Section 8 company passes certain important resolutions such as changes in its structure, objectives, or key policies, it must report these decisions to the Registrar of Companies (ROC) within 30 days. This is done by filing Form MGT-14, which ensures that such resolutions are properly recorded and made part of the company’s official filings.
• If a Section 8 company changes its registered office address, it must notify the Registrar of Companies (ROC) within 30 days of the change. This update is made by filing Form INC-22, which ensures that the company's official address is accurately reflected in government records.
• If a Section 8 company has outstanding payments due to Micro or Small Enterprises, it is required to report these dues to the Registrar of Companies (ROC) every six months. This is done by filing Form MSME-1, which helps ensure timely payments to small businesses and promotes financial transparency.
• A Section 8 company must file its annual return within 60 days from the date of holding its Annual General Meeting (AGM) by submitting Form MGT-7 to the Registrar of Companies (ROC).
• Each director of a Section 8 company is required to disclose any financial interest they have in other businesses during the first board meeting of the financial year. Additionally, this disclosure must be updated whenever there is a change in their financial interest. The declaration is made using Form MBP-1, which is maintained internally within the company.

Conclusion

Section 8 company means operating for a good cause, but that doesn’t mean you are free from legal responsibilities. You have to stay compliant to protect the company, its directors, and the people it serves. If you are ever unsure about any requirement, it is a smart idea to get help from a compliance expert or legal advisor.

Online Legal India is here to support you in every step of the process. Whether you need help with Company Registration or GST Filing, we have got you covered with expert guidance and hassle-free services. Our dedicated team ensures that all your compliance requirements are handled efficiently. Visit Online Legal India Today.