Section 8 Compliance

As per the Companies Act, 2013, a Section 8 company in India is a non-profit organization that promotes social welfare. Like other businesses, Section 8 companies must comply with certain regulations. These organizations are committed to humanitarian issues and operate as non-profits, yet they still have legal requirements to follow. This essay explores Section 8 Company Compliance, offering a clear and understandable overview of the fundamental legal responsibilities.

What is Section 8 Company?

A Section 8 company in India is a special kind of non-profit organization that the Companies Act of 2013 recognizes. The Companies Act of 2013 encourages social welfare, the arts, business, education, charitable giving, sports, science, and research. Unlike most for-profit businesses, a Section 8 company does not pay dividends; instead, it spends its income and profits to further its goals. These businesses, being non-profit organizations, cannot use the word “limited” in their names. Section 8 companies often enjoy unique exclusions and advantages under the Company Act, the Income Tax Act, as well as other laws. Companies listed under Section 8 have the same regulatory obligations as other companies.

Section 8 Company Compliance

The regulatory and legal requirements that Section 8 firms in India must fulfill to preserve their non-profit status and comply with the Companies Act 2013 are referred to as Section 8 Company Compliance. Businesses, including Section 8 corporations, are subject to a range of compliance responsibilities that change according to certain standards. To better understand these compliances, we can categorize them into the following groups:

• Event-Based Compliances: Events or occurrences within the organization initiate event-based compliances.
• Time-Based Compliance: These are periodic, such as annual, half-yearly, or quarterly, regular compliances.
• Specific Criteria-Based Compliance: Certain compliances are required on the basis of specific criteria, such as the company’s paid-up share capital, turnover, or other conditions.

Compulsory Annual Compliances for Section 8 Companies

The following is an explanation of the compulsory annual compliances for Section 8 companies:

Auditor Appointment Compliance – Filing Form ADT-1

Every Section 8 company is required to appoint an auditor in accordance with Section 139 of the Companies Act 2013. This appointment is critical for the company’s annual financial statements audit. You need to use Form ADT-1 to inform the MCA of the auditor’s appointment details, valid for a maximum of five financial years.

• Within 15 days of the company’s Annual General Meeting (AGM), you are required to submit Form ADT-1.
• The company may incur penalties if it fails to submit Form ADT-1 within the specified timeframe. The annual audit of the company’s financial records is the responsibility of the appointed auditor.

Conducting Meetings

The following rules must be followed during meetings for Section 8 companies:

• There must be two Annual General Meetings (AGM) each year.
• Other Statutory Meetings: In addition to AGMs, they are required to conduct other statutory meetings in accordance with regulatory requirements.
• Board Meetings: The company’s directors meet at least once every 120 days (four times a year) to formulate strategies and make decisions.
• Creditors’ Meetings: Required for discussing and obtaining permission from creditors if the company is restructuring or undergoing comparable processes.
• Committee Meetings: It is essential that the company’s specific committees, such as the audit committee, convene regularly to address important matters
• Extraordinary General Meetings (EGM): For essential matters that require attention prior to the upcoming AGM.
• Other Meetings as Required: Other meetings may be required in certain cases due to legal requirements or substantial changes within the organization.

Statutory Register Maintenance Requirement

According to Section 8 of the Companies Act 2013, companies are required to maintain a statutory register. This register is a critical record-keeping component that documents a variety of critical aspects of the company’s operations and governance. The register must contain detailed information on the following subjects:

• Loans acquired by the company
• Any changes in directorship
• Records of investments made
• Comprehensive details of its directors
• Information on the charges made against the company’s assets

This statutory register is a critical resource for regulatory compliance and transparency, guaranteeing that all significant financial transactions and governance changes are accurately and systematically recorded.

Preparation of Financial Statements

Financial statement preparation and submission are essential annual compliance requirements for Section 8 companies. The following documents are included:

• Balance Sheet: The assets, liabilities, and shareholders’ equity of the company at a particular point in time are detailed.
• Profit and Loss Statement: Also known as an income statement, this document gives a thorough summary of the company’s revenues, costs, and expenses over a given period, usually a fiscal year.
• Cash Flow Statement: This statement summarizes the cash inflows and outflows related to the company’s financing, investing, and operating activities.
• Other Financial Documents: Any additional financial records that are essential to the company’s financial status.

The appointed auditor must audit the financial statements after submitting them to the Registrar of Companies (ROC).

Board of Directors’ Report

Directors of a Section 8 company are required to generate a comprehensive report, usually known as the Director’s Report. This report includes numerous critical components:

• Company Compliance Information: The report should provide a comprehensive overview of the company’s adherence to a variety of legal and regulatory requirements.
• Corporate Social Responsibilities (CSR): If applicable, it must include details regarding the organization’s corporate social responsibility activities.
• Accounting Details: The report should provide insights into the financial accounting practices of the company.
• Additional Annexures: As annexes, please include any supplementary pertinent information or relevant documents.

The Registrar of Companies (ROC) must receive this Director’s Report and Form AOC-4 as a mandatory filing requirement for financial statements and other documents.

Filing of Annual Returns – MGT-7 Form

The following guidelines for submitting annual returns are mandatory for companies under Section 8:

• Form MGT-7: This form is employed by the organization to submit its annual returns.
• Deadline: Within sixty days following the Annual General Meeting (AGM), it must be submitted.
• Consequences of Delay: The company will be subject to a penalty if it fails to submit the MGT-7 Form within the specified time frame.

It is important to submit annual returns to guarantee transparency regarding the company’s operational activities during the financial year and to maintain compliance.

Filing of Financial Statements – AOC-4 Form

Section 8 companies are required to submit their annual financial statements using the AOC-4 Form. Important elements to consider include:

• Deadline: You must submit the form within 30 days of the Annual General Meeting (AGM).
• Penalty for Non-compliance: The company will be subject to a penalty if it fails to submit the AOC-4 Form within the specified timeframe.

This filing ensures transparency and compliance with the Companies Act by officially recording and making the company’s financial records available for regulatory review.

Filing of Income Tax Return

One of the most important compliance requirements for Section 8 firms is the annual submission of income tax returns. The following needs to be completed:

• Each fiscal year requires the submission of income tax returns by September 30th. This filing summarizes the company’s complete income for the relevant financial year. However, if the corporation registers under Sections 12A and 80G, it may be exempt.