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.
A Section 8 company is one that is registered as a non-profit organization under Section 8 of the Companies Act, 2013. Unlike other companies under the Act, Section 8 companies do not operate for monetary profits, but work for the betterment of society and the welfare of people predominantly. The pivotal objective of these companies is to promote arts, science, culture, sports and to encourage educational or religious activities.
As these companies are evolved with charitable intent, the profits reaped are not shared among the members of the company. The profit is ideally invested again in the company to carry out the activities of the company.
Read on this blog to know about section 8 company compliance checklist.
Annual Compliance List for Section 8 Companies
Although the Section 8 companies are quite different from the other companies under the Companies Act, 2013 and do enjoy exemptions, there are compliances that are to be adhered to by these companies mandatorily. Like the other companies defined in the Companies Act, 2013, a Section 8 company is also supposed to cater to the annual compliance regularly by filing the stipulated documents to the Ministry of Corporate Affairs (MCA). Non-compliance with the rules stated below will result in the company being levied with penalties by the Central Government. Below given is section 8 company annual compliance checklist.
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.
Know more: Section 8 Company Registration Fees
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). If the Annual General Meeting was skipped, for any reason, 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.
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!