The relevance of Annual Compliance for Section 8 Company

Soumya Bajpai

13 Sep, 2022

Section 8 Company has the objective of the encouragement in the field of arts, sports, science, research, religion, education, social welfare, and protection of the environment and other objectives. Section 8 Company is to be registered as Non- Governmental Organization under the Companies Act, 2013. The promoters of section 8 Company do not make and share profits which are made for charitable activities. The profit generated is likely to be invested in the company, which also helps in the promotion of the non-profitable activities of the company. Section 8 Company must mandatorily follow the Compliances prescribed under the Companies Act, 2013. It is necessary for Section 8 Company to follow compliances as mentioned by the Government. In case if a company does not comply with the compliances, then they might be liable for the penalties and can end up paying the penalties to the Government.

What is Section 8 company?

A Section 8 Company is that Company which is incorporated with the good intention and helps to promote charity, social welfare, protection of environment or any such other related activities. Section 8 Company, in its legal form, is a Non- Governmental Organization. These are the companies which are treated as Limited Companies, but it does not use the phrase limited in it. Section 8 Company also does not provide income or dividend to its members.

What are the required Compliances for section 8 Company?

The required Compliances which are necessary for section 8 Companies are listed below:

Appointment of Auditor: As provided under section 139 of the Companies Act 2013, after filing form ADT-1, it is must for the companies to appoint an auditor. The company shall be maintained the book of accounts and annual returns.

Maintenance of Financial Records: The Company requires to file the balance sheet, cash flow statement, profit and loss A/C, and other financial statements for the previous financial year.

Registers are to be maintained: The Company also requires maintaining a statutory register which consists of details like loans obtained, charges created, who its members, etc. are as enumerated under section 8 of the Companies Act 2013.

Preparation of the Director’s Report: The Directors of a company has to file their annual report in an appropriate manner, which must consist of fiscal data and corporate social responsibility. The board directors are responsible for presenting this report.

Income Tax Return Filing: Before every 30th September tax returns needs to be filed, which is at the end of every assessment year.

Financial Statements to be filed with Registrar: The financial statement must be filed within 30 days from the last general body meeting in the appropriate form (E-FORM AOC-4).

Annual Return to filed with the Registrar: The Limited companies need to file annual returns within 60 days of the annual general meeting in the Form MGT-7 with Registrar of Companies.

Appointment of Auditor by filing Form ADT-1

• The Auditor is appointed as per the provisions of Section 139 of the Companies Act, 2013.
• The first auditor for section 8 Company is to be appointed within 30 days from the date of its incorporation.
• The auditor can be either an individual or can be a firm.
• The auditor requires maintaining records for all the financial filings of a company.
• The Auditor appointment has to be in the first Annual General Meeting.
• The Auditor must hold office from the conclusion of the First AGM, i.e. Annual General Meeting to the conclusion of the sixth AGM, i.e. Annual General Meeting, which is for five years.
• A notice regarding appointment of the Auditor must be filed with the Registrar within 15 days of the Auditor’s appointment.
• All the criteria prescribed under Section 141[1] for eligibility of the auditor has to be fulfilled.

Maintenance of Financial Statements

• Section 8 Company needs to prepare the financial records on an annual basis.
• Once the financial records and statements get prepared, it must be produced to the registrar of the company.
• The financial records must contain the financial statements like the details of Trading Account, Balance sheet, Profit and Loss Account.

Registers have to be maintained.

• All Section 8 Companies must mandatorily have statutory records in the registers.
• Registers required to be maintained on a yearly basis to monitor how active the company has been annual.
• The Register must have the details such as of its members, loans, charges and investments.

Preparation of the Director’s Report

• According to Section 134 of the Companies Act, 2013, the Director’s Report is to be filed in Form AOC-4
• A Directors Report is prepared in order to explain the exact position of the company to the shareholders and the future scope of its business.
• The signed ‘minutes of meetings’ is also to be maintained at the Registered Office.

Income Tax Return Filing

• A Section 8 Company on or before 30th September of the next financial year has to file Income Tax Returns.
• It is mandatory to file Income Tax returns online in order to provide a complete overview of the income of the company.
• However, there are certain incomes which are to be excluded from the income tax.
• If the company is registered under Section 12A and 80G, then it can also claim for tax exemption.

Hold Board Meeting

• In the case of small companies, the Board meeting of every company should be held twice a year
• The gap between these two meetings must not be more than 90 days.

Hold Annual General Meeting

• Every year the Annual General Meeting is to be held on or before 30th September.
• All the Directors, auditors and its members should be notified about the meeting.
• The notice has to be sent to the directors, auditors and members by a given period of not less than 21 days notice.
• The notice regarding the Annual General Meeting is also needs to be published on the Company’s Official website.
• A report made of the Annual General Meeting must be submitted in Form MGT- 15 within 30 days of the meeting.

Filing of Financial Statements with ROC

• The copy of financial statements must be filed in E-form AOC-4.
• It must be filed within 30 days from the date on which the annual general meeting is held.

Filing of Annual return with ROC

• The annual return is required to be filed in Form MGT-7.
• It must be filed within 60 days from the conclusion of the AGM, i.e. Annual General Meeting.
• In the case, in any year if Annual General Meeting is not held, then also the annual returns must be filed within 60 days from the date on which the Annual General Meeting would have been held or from the date 30^th September.
• There must be reasons attached to the statement mentioning for not holding up the Annual General Meeting.

Importance of Compliances for a Section 8 Company

Section 8 Company is a form of NGO which is registered under the Companies Act, 2013. According to the Act, all Section 8 companies must adhere to the compliance, which is levied by Registrar of Companies and Income tax authorities. If there is a failure in fulfilling the required compliances, then the heavy penalties are to be paid, which may extend up to Rs. 1 lakh a year. Also, there might be possible chances that directors of such companies may even get blacklisted for a period of time. All the benefits given to Section 8 Company are for the ability to raise funds in the form of contributions and donations achieved through disciplined compliance.

Other Compliances for Section 8 Companies

• Notice as to the appointment of Auditor in Form ADT-1 within 15 days of the appointment.
• Director’s consent in Form DIR 2 to occupy the office within 30 days from the director’s appointment.
• Returns form in Form MR-1 within 60 days from the appointment of Managing Director, key managerial person or managers

Event-Based Annual Compliances of Section 8 Company

The annual compliances of section 8 company requires to be filed on the occurrence of certain events. Below is the checklist of event-based compliances:

1. Appointment, re-appointment or Removal of Directors 
2. Appointment of the Key Managerial person 
3. Appointment, re-appointment or Removal of Auditors 
4. Transfer of shares 
5. Change in the Company’s name
6. Change of Registered Address 
7. Any amendment in the Memorandum of Association 
8. Any other changes in the company’s policy

Due dates for the filing Section 8 Company Compliances

Section 8 Company must follow compliances within the duration mentioned below:

Immediate Compliance after Incorporation

Appoint Auditor within 30 Days: The Section 8 Company necessarily required appointing the Auditor within 30 days from the date of its incorporation for all the annual financial filings of a company.

Conduct Meeting for Board of Directors within 30 Days: The first time meeting of the Board of Directors has to be conducted within 30 days from the date of incorporation. Thereafter, the Board of Directors must hold at least one meeting on every six calendar months.

Annual General Meeting: A Section 8 company shall hold its first Annual General Meeting (AGM) within 9 months from the closure of the first financial year of the company.

Penalties for Non-Compliance

The Ministry of Corporate Affairs, i.e. MCA has prescribed penalties for section 8 Company if one does not comply with the procedures:

• The Central Government can revoke the license granted to the company if it has been found out that the company is working in a fraudulent manner or violates any of the objects of the company.
• The companies shall be liable to pay the fine, which shall not be less than 10 lakh rupees and further can be extended to 1 crore rupees.
• The Directors and the officer of the company who is in default must be punished with imprisonment for a term or fine which extend to 25 lakh rupees or with both.
• Every officer in default must be liable for his action under section 447 if it is discovered that the affairs of the company were conducted by fraud.

What are the benefits of following annual compliance of Section 8 Company?

The main benefit of meeting the compliance of Section 8 Company is to avoid the penalties. And also, it ensures the smooth functioning of the company. Below are some of the listed points:

• Better Credibility of the Companies
• Avoid getting into any legal trouble
• To build trust amongst the customers
• To avoid penalties
• There is no requirement of the minimum paid-up share capital or appointment of any Company Secretary.
• Non-applicability of the maximum number of the Directors.
• Non-requirement of the Independent Directors.
• No requirement for the constitution of nomination, Stakeholder Relationship Committee and Remuneration Committee

What is the Tax Compliances for the Section 8 Company?

A Section 8 company has a liability to pay corporate tax, as mentioned by the Income Tax Act. Also, it can claim for certain incomes which are to be excluded in calculating the total income when income tax is paid. The compliances need to be fulfilled to claim such exemptions are:

• The Section 8 Company must be registered under Section 12A of the Income Tax Act, and with the Principal Commissioner using the Form 10A.
• It must also comply with the conditions provided under Section 11, so for the eligibility for the exemption.
• The company requires to be approved under Section 80G, through Form 10B.

Conclusion

Section 8 Company enjoys the various exemptions and benefits like other kinds of NGOs. It is far better to incorporate a non-profit organization in the form of a Company rather than trust or society. The company needs to follow all the mandatory compliances and event-based compliances for avoiding facing the penalties imposed by the Government. The Ministry of Corporate Affairs, i.e. MCA^[1], has provided very strong punishments on the non-compliance. Section 8 Company also enjoys an extra benefit of the Tax exemption if it gets registered under Section 12A and 80G of the Companies Act, 2013.