Section 8 companies have a number of compliances to be met under the Companies Act, 2013 and the Income Tax, 1961. While being compliant with the stipulated measures would render the companies more credible, failing to be so would attract hefty penalties to the companies levied by the Central Government.
Introduction to Section 8 Annual Compliance
A Section 8 company, defined under the Companies Act, 2013, is established as a non-profit entity, focusing primarily on the betterment of society and public welfare rather than generating financial profits. The core mission of Section 8 companies encompasses the promotion of fields such as arts, science, culture, and sports, along with supporting educational and religious initiatives.
Given their altruistic nature, these organisations reinvest any profits back into the company to further their charitable activities, rather than distributing earnings among members. This blog deals with the essential aspects of Section 8 Annual Compliance, providing a detailed checklist for maintaining adherence to regulatory requirements.
Section 8 Annual Compliance List
Despite enjoying certain exemptions under the Companies Act, 2013, Section 8 companies must still fulfil specific annual compliance requirements. These entities, although distinct from other types of companies outlined in the Act, are obligated to submit the required documents annually to the Ministry of Corporate Affairs (MCA) as part of their Section 8 annual compliance duties. Failure to comply with the stipulated regulations can lead to penalties imposed by the Central Government. The following is a checklist for Section 8 company annual compliance.
Appointment of Auditor
As per Section 139 of the Companies Act, 2013, it is compulsory for a section 8 company to appoint an auditor. The auditor, whether an individual or a firm, is to be appointed within 30 days from the date of incorporation of the company. A notice regarding the appointment of the auditor is to be sent to the Registrar of Companies (RoC) within 15 days from the date of appointment of the auditor.
The auditor takes care of filing the annual returns and financial statements of the company and is supposed to be present in the first Annual General Meeting (AGM) of the company. The auditor holds office from the first AGM to the end of the sixth AGM, which is a period of 5 years.
Maintaining the Company Register
The Section 8 companies are required to hold a statutory register that maintains records pertaining to the loans pursued by the company, details of the members of the company, etc. The registers are required to be revised annually to check the status of the company.
Arranging Meetings Periodically
The Section 8 Companies must conduct the Annual General Body meetings and other statutory meetings annually. The Directors, shareholders or members, and auditors are to be notified regarding the meeting and the notice has to be displayed on the company’s official website. The report of the Annual General Meeting must be furnished to the Registrar of Companies (RoC) within 30 days from the date of the meeting using the form MGT-15.
Preparation of Reports by the Directors
The Directors have to maintain records and submit reports with respect to fiscal overheads and other corporate social responsibilities of the company in the stipulated format, as directed in the Companies Act, 2013. The main intent of the director’s report is to reflect the financial position of the company and to ascertain the company’s activities for a given period. The Director’s report also comprises the ‘minutes of meeting’ of various meetings held at regular intervals.
Preparation of Financial Statement
The financial statements comprising the profit and loss accounts, balance sheets, cash flow statements, and other data relating to the credit flow and debit statements of the company are to be congruously recorded and filed for the previous financial year through Form AOC-4. The financial statement is to be filed within a period of 30 days from the date of holding the Annual General Meeting.
Filing of Annual Return Statements
The annual return statement is to be filed through the form MGT-7. It must be filed within 60 days from the date of the Annual General Meeting (AGM). Suppose the Annual General Meeting was skipped, for any reason. In that case, the financial statement must be filed within 60 days from the date on which the Annual General Meeting must have been held, mentioning the reasons for not conducting the Annual General Meeting.
Filing Income Tax Returns
A Section 8 company has to duly get ITR Filing on or before the 30th of September for the respective financial year. The tax returns can be filed online and it gives a blueprint of the company’s income, expenses, and profits accrued. However, a Section 8 company is given immunity with respect to a few provisions of income tax.
When a Section 8 company is registered under Sections 12A and 80G of the Income Tax Act, 1961, the profits of the company are completely exempted from paying the Income Tax.
Meeting Conducted by Board of Directors
The Section 8 companies are mandatorily required to hold Board Meetings, conducted by its Directors twice a year. The gap between the meetings thus held should not exceed a period of more than 90 days.
As per the Companies Act, 2013, the board meetings should have a minimum strength of 8 directors or 25% of the total strength of the company, whichever is lower. Nonetheless, the Board Meetings shall not take place with fewer than two members.
Section 8 Compliance Timeframe
| Form Nos. | Compliances | Due dates |
| AOC-4 | Director’s report | The 30 days following the Annual General Meeting |
| MGT-7 | Annual returns | Within 60 days of the Annual General Meeting |
| FORM- ITR 6 | Income Tax Returns | 30 September |
Advantages of Adhering to the Compliances
By being compliant with the norms stated under the Companies Act, 2013, the Section 8 companies acquire their fair share of benefits.
- The companies look more reliable and credible in the eyes of the potential investors. Being a Central Government licensed company and following the mentioned stringent norms would make the company more secure and plausible compared to Trusts or Societies
- By being compliant, the companies can avoid paying unnecessary penalties
- The strict compliance of the Section 8 companies, ensure that there won’t be any legal hassles in the future, thus enabling the company to carry out its activities steadily
- The compliance measures would enable the companies to avail more aid and funds from external resources effortlessly.
Establishing a Section 8 company, registering and being compliant with the Act thereafter, can be quite a grueling process. But with the right hands at work, the process can be dealt with rather efficiently. At Vakilsearch, our experts can handle the registration and compliance formalities diligently and can coordinate with the submission of the required information to the MCA. Our professionals have outstanding experience in handling a number of NGOs and hence know the nuances to carry out the various activities. We can assure you that the entire process can be accomplished from the comfort of your room when entrusted with us!
Conclusion
In conclusion, Section 8 companies, while distinct and exempt from certain provisions under the Companies Act, 2013, are still required to adhere to specific annual compliance obligations. These include the submission of director’s reports, annual returns, and income tax returns within stipulated time frames to the Ministry of Corporate Affairs (MCA). Ensuring compliance is crucial as non-adherence can result in penalties from the Central Government. The annual compliance process is an essential aspect of maintaining the legal standing and operational integrity of Section 8 companies.
FAQs
Can a Section 8 company be an NGO?
Yes, a Section 8 company can operate as an NGO. Section 8 companies are established for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any such other object, provided they apply their profits, if any, or other income in promoting these objectives.
Who is eligible for Section 8 company?
Individuals or groups intending to register a company with charitable purposes and willing to apply its profits or other income solely towards promoting its objectives without paying any dividend to its members are eligible for Section 8 company registration.
What is the limit of Section 8 companies?
There is no specific financial limit for Section 8 companies in terms of turnover or capital. However, they must ensure that their income and profits are used solely towards the objectives for which they were established and not for dividend distribution.
Can Section 8 companies receive donations?
Yes, Section 8 companies can receive donations. They are often involved in activities that qualify for charitable purposes, making them eligible to accept donations from individuals, corporations, and other entities.
Who is eligible for an NGO?
Anyone committed to the NGO's cause and willing to abide by its regulations and objectives can be eligible to join or start an NGO, depending on its specific membership rules and mission.
Is starting an NGO a good career?
Starting an NGO can be a fulfilling career path for those passionate about social causes and community service. It offers the opportunity to make a significant impact in chosen areas of interest. However, it requires dedication, effort, and the ability to navigate challenges associated with non-profit management and fundraising.
What are the disadvantages of NGOs?
NGOs may face challenges such as dependency on funding sources, which can impact their operations and sustainability. They may also encounter bureaucratic hurdles, limited resources, and the need for constant fundraising efforts. Additionally, NGOs might struggle with ensuring transparency and accountability, which are crucial for maintaining trust and credibility.
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