Section 8 company in India is a kind of company which is registered under the Companies Act, 2013 and is an organization engaged in promoting social causes and is not for profit. Like other companies Section 8 companies are bound by certain legal compliances. These organizations do not operate for the profit of their owners or shareholders and are committed to one or more social missions and goals; however, they have certain legal requirements to fulfil. In terms of its scope this article focuses on providing a comprehensive yet basic understanding of Section 8 Company Compliance regimes.

What is Section 8 Company?

Section 8 Company is a type of company which is registered under companies act and focused on promoting the economic improvement of its members within its area of operation. Section 8 companies are also referred to as non-profit companies in India which is a type of company recognized under the Companies Act, 2013. The Trust supports art, commerce, social/civic welfare, education & child welfare, charities, environmental conservation, sports, sciences and research. Unlike most commercial organizations, for a Section 8 company, the profits and incomes are deployed for the executive of objectives and not for the distribution of dividend. These companies cannot use the word “Limited” in their name due to the fact that the majority of them are non-profit. Section 8 companies also have certain privileges like exemptions and facilities under the enactment of companies act, income tax act etc. Essentially, section 8 companies have many provisions like any other companies and they hence fall under the control of the regulatory authorities of the country.

Section 8 Company Compliance

Section 8 Company compliance therefore can be explained as the corporate and legal responsibilities that Section 8 Companies within India are legally bound to uphold that which preserves their non-profit status and recognizes the Companies Act 2013. As the above stated, various compliance are needed for companies depending on one factor or the other and in the same way, Section 8 companies also have regulatory demands which may or may not be similar to other business entities depending on several factors. For a more organized understanding, these compliances can be categorized as follows:

• Event-Based Compliances: These are occasioned by certain occurrences in the company for instance, change in management or organizational structure.
• Time-Based Compliance: These are repeated and necessary exercises that have to be performed at certain intervals for instance, annually, half-yearly or quarterly.
• Specific Criteria-Based Compliance: There are certain specific compliances which are necessary to meet specific standards such as paid up share capital; sales turnover or other terms and conditions.

Company Compliance Checklist of Section 8 Companies

 The company compliance checklist is composed of the following must-haves which are as follows:

• The Notice of Audit Appointment; the form ADT-1-Appointment of Auditor, must be filed.
• Maintaining account books
• Keeping Statutory Registers
• Financial statement preparation
• submitting income tax returns
• Financial statements (AOC-4)
• MGT-7, is the returns to be filed with the Registrar of Companies annually.

Annually Required Compliance for Section 8 Company

Compulsory Annual Compliances for Section 8 Companies are explained here:

Auditor Appointment Compliance – Filing Form ADT-1

As per the provision of Companies Act 2013, every Section 8 company is bound to appoint an auditor under section 139. This is due because the position is needed to address the audit of the company’s annual financial statements. Auditor’s appointment for a maximum of five years has to be filed with the Ministry of Corporate Affairs (MCA) utilizing Form ADT-1.

• ADT-1 should be submitted within 15 days of the company’s holding of the Annual General Meeting if any.
• More importantly, failure to file Form ADT-1 before this period will attract penalties for the company. Main responsibility of the appointed auditor is to conduct annual audit on the company’s’ financial statement.

Statutory Register Maintenance Requirement

The Companies Act 2013 specifications governing the Company state that a statutory register must be kept by all Companies. This register is one of the basic records that capture several important facets of the operation and management of the firm. It must include detailed information on the following:

• To avoid a bad image or a low credit score, the company has to make sure that it only acquires loans that it can afford, from reputable lenders.
• Some detail information regarding its directors
• Any changes in the directorship of Company <Company Name> whereby the shareholders of one Company <Company Name> becomes the shareholders of another Company <Company Name> is unlawful and shall be void.
• More specifically, the nature of charges raised on the value of the company’s fixed resources.
• Entrance records of investment that has been made.

This statutory register is an important record within the Acts that are regulatory in nature, so it depicts record of major changes in the financial happening and the governing structure comprehensively and systematically.

Conducting Meetings

Section 8 companies are obligated to hold meetings as per the following guidelines:

• Annual General Meeting (AGM): need to be conducted at least on semi-annual basis.
• Other Statutory Meetings: Besides AGMs, they are mandated to conduct other statutory meeting in a manner that follows the spirit of the law.
• Board Meetings: Al least once within a period of 120 days or four times a year effective for the company’s directors to make choices regarding the strategies.
• Extraordinary General Meetings (EGM): To address urgent business which require consideration before the next Annual General Meeting.
• Creditors’ Meetings: Required in situations where the company is reeling out or undergoing processes like restructuring and debts so as to make consultations and to seek debt approvals from creditors.
• Committee Meetings: If the company has certain committees like audit committee, these should also convene periodically to address the issues of the company.
• Other Meetings as Required: In some cases there could be other meetings as per the legal frameworks or where there is any major change in the firm.

Board of Directors’ Report

Section 8 of the company law mandates directors, of a Section 8 company, to prepare a detailed report which goes by the name of Director’s Report. This report encompasses several key aspects:

• Company Compliance Information: It should provide information on how the company handles some of the legal and regulatory as well as industry standards.
• Corporate Social Responsibilities (CSR): If available, it must contain information to the CSR program of the company.
• Accounting Details: The report should give the specific details on the financial accounting in the company.
• Other Annexures: Any other relevant information or documents should be included as annexures.

This Director’s Report has to be accompanied with Form AOC-4 that is a statutory form for submitting the financial statements and other forms with the Registrar of Companies (ROC).

Preparation of Financial Statements

In its annual compliance, one of the necessary procedures which Section 8 companies have to undertake is the preparation of and filing of the financial statements. These documents include:

• Balance Sheet: Describes how much the company owns at a particular time, what it owes at a given time and how much the shareholders invested in the company at a given point.
• Profit and Loss Statement: This is also referred to as a profit and loss account and avails a statement of the company’s revenue and expenditure for a given financial period, usually the fiscal year.
• Cash Flow Statement: This statement provides an Overview of cash receipts and cash payments through the operating, investing and financing activities.
• Other Financial Documents: All the other financial documents relating to the company’s financial position.

It has to be filed with the Registrar of Companies (ROC) and following head are auditable by appointed auditor. These are Consolidated Balance sheets, Consolidated Income statements, consolidated statements of cash flow and Company’s Balance sheets.

For assessment of income tax liability of the Company following return of income is required to be filed where the total income exceeds Rs. 10 lakhs during the year: AOC-4 Form

Section 8 companies are bound to file the AOC-4 Form which is filed for filing of annual financial statement. Key points to note are:

• Deadline: The form must be filed within 30 days of the company’s Annual General Meeting or AGM for short.
• Penalty for Non-compliance: For the failing to file the AOC-4 Form within this timeframe the company will attract penalty.

This is important as it means that there is record of the company’s financials as required by the law and to prevent any irregularities from being carried out without being detected.

Filing of Annual Returns MGT 7 Form

Section 8 companies are required to adhere to the following guidelines regarding the filing of annual returns:

• The legal form is MGT-7 through which the company has to fill its annual returns.
• Deadline: It is required that such a notice must be given within sixty days from the holding of the AGM.
• Consequences of Delay: In case the company does not file the MGT-7 Form within this period then it attracts a penalty.

This is important so as to be found in compliance besides to provide information on the various activities that the company undertakes during the financial year as depicted by the annual returns.

Filing of Income Tax Return for Section 8 Companies

Generally, Section 8 Companies has to file its Income Tax Return, whether it is exempted from income tax or not or if there is no income earned during that financial year.

The income tax return filing is one of the compliance that every Section 8 company needs to fulfil every year. Here’s what needs to be done:

It also known that the income tax return has to be submitted within thirty September of the financial year. This filing gives a total income for the company for the respective financial year as detailed below. But in case the corporation has been registered under Sections 12A and 80G, it will not be liable for the same.

Event-Based Compliances for Section 8 Companies

Through its compliance relevant to different Events, this Section deals with Compliances that Section 8 Companies need to follow.

Event-based compliances are the ones which need to be reported after some specific incidence in Section 8 Company. While most of the compliance requirements are based on the fiscal year of the company, most of these are event initiated, and are not performed annually. Here’s a checklist of key event-based compliances for Section 8 companies:

• Transfer of Stock: Submitting any transaction of transfer of stock.
• Share Distribution: Pertaining to compliance of the company in relation to the distribution or allotment of shares.
• Director Appointment/Resignation: Providing information of the appointment or resignation of directors and other matters connected therewith.

• Auditors’ Appointment/Resignation: Notifying the shareholders of the appointment or resignation of auditors.
• Changes to the Company’s Name: On the practical level, they are responsible for compliance procedures after a change in the company’s name.
• Changes to the Company’s MOU (Memorandum of Understanding): The same of happening if there are any changes that are made on the MOU then it should be disclosed.
• Key Management Personnel Appointment: In relation to the reporting of key management personnel.
• Acceptance of Share Application Fund: On acceptance of funds for share applications there are certain compliances that existed.
• Any Changes to the Company’s Structure: Communicating any major developments or changes in the organisational structure of the company.

Tax Compliances for Section 8 Companies

Section 8 company is a separate form of company with its own set of implements that are distinct to its kind and acquiring tax compliances for this kind of company needs quite some time and effort.

Section 8 companies are governed by the income tax laws According to the Income Tax Act. But, there are some exemptions which they can claim on income tax by following some procedure. To qualify for these exemptions, Section 8 companies must adhere to the following requirements:

• Register with Principal Commissioner: To qualify for registration as section 8 companies, they should use form 10A with the complying with section 12A of income tax Act. This is needful especially for issues to do with tax privileges.
• Follow Section 11 Conditions: The companies that get to enjoy the tax exemptions are those that meets the provisions of Section 11 as dictated by Section 8. These conditionality, usually pertain to spending income to fund charitable, religious or educational initiatives.
• Submit Form 10B for Section 80G Approval: If the company wants tax benefits for donation that it makes or receives (under Section 80G) then it is supposed to file Form 10B.

Documents needed to Comply with Section 8 of the Companies Act

For efficient operation of a Section 8 company there must possess the following documents that are as follows:

• Company by-laws
• Memorandum of Association (MOA),
• Digital Signature Certificate (DSC).
• Company Incorporation Certificate

 Note: Sometimes the additional documents may be required; so, do not hesitate to consult our experts.

Penalties for Non-Compliance in Section 8 Companies

Like every registered company under the companies act, Section 8 Companies are bound with some rules and regulation. Failure to comply can lead to significant penalties: Failure to comply can lead to significant penalties:

• License Termination: This license can be withdrawn by the Central Government if the Government ever realises that the company is operating fraudulently or in a manner that does not align with the company’s charter.
• Monetary Fines: The Company may face penalty to a minimum of Rs. 10 lakh and may go up to Rs. 1 crore if the Company fails to conform to the regulatory norms.
• Penalties for Directors and Officers: The directors and every company officer in default may have to face imprisonment without any one rupee and upto Rs.25 lakhs.
• Liability for Fraudulent Operations: If the company operations are ascertained to have been solicited fraudulently each corporate officer in default will be liable under section 447 of the Companies Act, 2013.

Hence, all such regulations bear stringent consequences and Section 8 Companies need to abide by each of them by the book.

Below is the table showing compliances required to be complied by the Section-8 (Non-Profit) Companies under Companies Act, 2013: