What are the Compliances For Section 8 Companies?

In India, Section 8 companies are non-profit organizations. Their focus is to promote socially beneficial activities. It aims to promote efforts related to the advancement of art, science, education, philanthropy, religion, or any other beneficial move that benefits the community. This article explains Section 8 Company Compliance, provides a brief and simple summary of the fundamental legal requirements.

What is Section 8 Company?

Section 8 companies registered as non profit organization.They are established to support many types of activities such as sports, sports, art, science, religion, charitable activities, etc. Section 8 companies never add "Limited" at the end of their name, But still they are considered as a Limited company. Section 8 firms generally get the exemptions from Income Tax Act, and other regulations.

The Ministry of Corporate Affairs must receive annual and event-based (one-time) compliance reports from Section 8 companies. Infosys Foundation, Reliance Foundation, Tata Foundation, Reliance Research Institute, FICCI, CII, Pratham Education Foundation, India International Trade Center, and others are examples of Section 8 Companies. These organizations are registered under Section 8 of the Companies Act, 2013. They donate their profits to charities so Section 8 companies are registered under Section 12AA of the Income Tax Act and get 100% tax exemption. We will cover the annual compliance of Section 8 firms in this blog.

What is Section 8 Company Compliance?

section 8 company compliance describes the legal and regulatory standards .They must follow companies act 2013 to maintain their charitable organization. Section 8 companies are governed by many kinds of compliance Rules that depend according to their criteria from which they belong. These compliances are following category :

• Event-Based Compliances: These take place by particular events or situations in the company. 
• Time-Based Compliance: These are daily compliances that need to be finished on a quarterly, half-yearly, or annual basis.
• Specific Criteria-Based Compliance: certain compliances are necessary; it depends on the company's paid-up share capital, turnover, or other conditions.

List of Section 8 Company Compliance

A company's compliance checklist must include the following :

• It is necessary to file Form ADT-1, Appointment of Auditor.
• Maintaining up with financial records
• Maintaining Statutory Records
• Preparing financial statements
• filing income tax returns
• Statements of finances (AOC-4)
• Under MGT-7, annual returns have to be filed with the Registrar of Companies.

Mandate Annual Compliances for Section 8 Companies

Section 8 Companies' Mandatory Annual Compliances are explained here:

• Auditor Appointment Compliance - Filing Form ADT-1

according to Section 139 of the Companies Act of 2013 required to appoint an auditor Every Section 8 company. To audit the company's yearly financial accounts, this appointment is required. auditor's appointment details are valid for a maximum of five fiscal years. It must be reported by Form ADT-1 to the MCA.

• Form ADT-1 must be submitted, Within 15 days after the company AGM.
• If Form ADT-1 is not submitted by the deadline, the company will be fined.

• Maintaining Statutory Register:

Section 8 of the Companies Act allows companies to keep a register that contains details on the loans they have taken out, the directors' details, any changes to the directors, charges they have made, and investments they have made. 

This statutory register ensures that all important financial transactions and governance changes are completely and systematically documented, which makes it an essential resource for regulatory compliance and transparency.

• Conducting Meetings

Section 8 companies must follow specific guidelines while holding meetings:

• Annual General Meeting : It needs to be done twice a year.

• Other Statutory Meetings: According to legal regulations, they must also hold other statutory meetings in addition to AGMs.

• Board Meetings: Every company should have a board meeting twice a year, especially small companies. The gap between the two meetings should not be more than 90 days.

• Extraordinary General Meetings: It is held for immediate problems that must be resolved before the next AGM.

• Preparing Director's Report

According to Section 134, the Director's Report must be filed on Form AOC-4. Company's financial situation and business operations is the goal of creating a director's report. It is necessary to keep the signed "minutes of meetings" at the Registered Office. The Director Report and Form AOC-4, must be submitted to the ROC , which is important for financial statements.

• Preparation of Financial Statements

The financial records of a Section 8 company are maintained annually. After preparing the report the financial documents are submitted to the registrar. Financial records include the following data:

• Balance Sheet : explains the assets, liabilities, and shareholders' equity of the company at a specific time.
• Profit and Loss Statement: it gives an overview of the company's revenue, expenses, and expenses for a specific time period, typically a fiscal year.
• Cash Flow Statement: The company's daily operations, investments, and financial operations' cash inflows and outflows are provided in this statement.

These financial statements are subject to audit by the certified auditor and must be submitted to the ROC.

• Filing of Financial Return with RoC

A copy of the financial statements is filed under E-form AOC-4. It must be submitted within 30 days of the annual general meeting date.The company will be penalized if it doesn't submit the AOC-4 Form by this deadline.

• Filing of Annual Return with RoC

The company's annual return is filed by using Form MGT-7. The annual return is submitted within 60 days after the AGM. In case there is no AGM, the Annual Return must be filed within 60 days after the date of the AGM, which is September 30. It should be linked to the statement that specifies the reasons why the AGM was canceled.

The company will be penalized if it does not submit the MGT-7 Form within the given time frame.

• Income Tax Return Filing

Section 8 companies must submit their income tax returns before September 30th of the next fiscal year. To provide a complete account of the company's revenue, an income tax return must be filed. But a company can benefit from tax exemption if it is registered under Sections 12A and 80G.

Event-based Annual Compliances of Section 8 Company

 Event-based compliances are those that must be documented when particular events happen.The following is a list of important event-based requirements for Section 8 companies:

• Transfer of shares
• Allotment of shares
• Appointment/Resignation of Directors
• Appointment/Resignation of Auditors
• Modification in company's name
• Modification in company's MOA
• Appointment of Key Managerial Personnel
• Receipt of share application money
• Any alteration in the company's structure

Tax Compliance for Section 8 Companies

According to the Income Tax Act, The section company is required to pay corporate tax. the company might exempt some of its income from income tax by implementing particular procedures. Section 8 Company must comply with the following requirements:

• Section 8 companies must be registered under Section 12A of the Income Tax Act, with the Principal Commissioner using form 10A.
• If the corporation wishes to achieve the requirements for being eligible for the exemption, it has to meet with the requirements described in Section 11.
• The company requires Section 80G approval through Form 10B.

Documents Required for Section 8 Company Compliance

A Section 8 company needs the following important documentation in order to follow regulations properly:

• Memorandum of Association
• Article of Association
• DSC
• Certificate of Incorporation

Penalties to be charged in case of Non-Compliance

If it identifies any non-compliance with the procedures, the Ministry of Corporate Affairs has the power to apply certain penalties. The following penalties are to be applied:

• If the Central Government finds that the company is operating dishonestly, it has the power to suspend the license.
• Companies found to be in fault may face penalties that can go from ten lakh rupees to one crore rupees.
• All the directors and officers of the company who are in default, may face risk jail and fines of up to Rs. 25 lakhs.
• Every officer is responsible under section 447 of the Companies Act, if it is discovered that the company's operations were done illegally.

Due Dates for filling Section 8 Company Compliances

Penalties are possible from noncompliance, and the Section 8 Company can easily avoid penalties by just following the compliance requirements within the allotted time limit.

Conclusion

Section 8 companies are non-profit organizations. They use their profits to promote many kinds of social purposes. These companies can avoid the many penalties that can arise from non-compliance , by completing annual compliance requirements. So, it is recommended that you registered your company as a Section 8 company instead of a trust or society.