The Companies Act, 2013 has made it mandatory for all the Section 8 Company Companies to adhere to Section 8 Compliance with the MCA (Ministry of Corporate Affairs).
The purpose of forming Section 8 Company is to promote, encourage, and nourish activities related to art, science, sports, commerce, charitable activities, etc. Section 8 Company can be categorized as a Non-Governmental Organization. These companies enjoy the liberty of being treated as ‘Limited Company’, though, word ‘Limited’ is not added at the end of their names. Concisely, Section 8 companies work in the direction of promoting needy communities and sectors in India. These Companies are not liable to give income or dividend to its members.
Benefits of Section 8 Company Compliance
Gives company a better credibility
Protects the company from any legal trouble
Help the company in circumventing penalties
Work in the direction of forming trust amongst the customers
Documents Required for Annual Compliances of Section 8 Company
Memorandum of Association
Article of Association
Certificate of Incorporation
List of mandatory Section 8 company compliances
Appointment Of Auditor
It is compulsory for a Section 8 company to appoint an auditor to take care of their financial recordings every year.
Maintaining statutory records in registers is expected from Section 8 companies. These registers are maintained on a year basis and the purpose of these registers is to check how the company has performed annually. Information related to members, loans, charges and investment is provided in the register.
Maintenance Of Financial Statements
Financial records of a Section 8 Company are maintained on an annual basis. Once the financial records are prepared they are presented in the front of the registrar. Financial records consist of the following information:
Profit and Loss Account
Preparing Director’s Report
Section 134 of the Companies Act, 2013 says that Form AOC-4 is needed to file the Director’s Report. The purpose of preparing a Director’s Report is to give shareholders a preview of the financial position of the company and the scope of its business. The signed ‘minutes of meetings’ is required to be maintained at the Registered Office.
Income Tax Return Filing
Section 8 company are required to file for Income Tax Returns on or before 30th September of the next fiscal year. In order to give complete overview of the company’s income it is essential to file for Income Tax return. But if the company is registered under Section 12A and 80G it can avail the benefit of tax exemption.
Conduct Board Meeting
Board meeting of every company should be held twice a year in case of small companies. The gap between the two meetings should not be more than 90 days.
Conduct Annual General Meeting
Annual General Meeting of the Section 8 Company should be held yearly on or before 30th September. It is necessary for all the directors, members, and auditors to attend the meeting. They should be notified regarding the meeting by giving not less than 21days notice. Form MGT-15 is used to submit the report of Annual General Meeting. The report must be submitted within 30 days of conducting the meeting.
Filing Of Financial Return With RoC
E-form AOC-4 is used to file the copy of financial statements. It is filed within 30 days from the date on which the annual general meeting is held.
Filing Of Annual Return With RoC
Form MGT-7 is used to file the annual return of the company. Annual return is filed within 60 days from the conclusion of the Annual General Meeting. Where at whatever year no Annual General Meeting is held, the yearly return ought to be recorded inside sixty days from the days on which the yearly General Meeting ought to have been held that is 30 September. It ought to be connected with the announcement referencing the explanations behind not holding the Annual General Meeting.
Event-based Annual Compliances of Section 8 Company
Event based, as the name recommends, are the compliances should be documented on the event of explicit occasions. In contrast to annual compliances, these are non-periodical in nature.
Checklist For Event-Based Compliances For Section 8 Company:
Transfer 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
Section Company is bound to pay corporate tax as mentioned in the Income Tax Act. But by adopting certain measures the Company can exempt its certain income from the income tax. To entertain such exemptions Section 8 Company needs to fulfil the following compliances:
Section 8 companies must be registered under Section 12A of the Income Tax Act, with the Principal Commissioner using form 10A.
It must adhere to the conditions mentioned in the Section 11 if the company wants to fall under the criteria of eligibility for the exemption.
Section 80G must approve the company through Form 10B.
Penalties to be charged in case of Non-Compliance
The Ministry of Corporate Affairs has the authority to impose certain penalties in case it encounters any non-compliance with the procedures.
Penalties to be imposed are as follows:
The Central Government may disavow the permit allowed to the organization on the off chance that it finds that the organization is working falsely or in a way violative to the object of the organization.
The organizations will be culpable with fine, which will not be under ten lakh rupees and can be stretched out to one crore rupees.
The chiefs and each official of the organization who is in default will be culpable with detainment for a term which may stretch out to twenty-five lakh rupees or with both.
In the event that it is discovered that the issues of the organization were directed falsely, every official in default will be at risk for activity under area 447.
Due Dates for filling Section 8 Company Compliances
Non-compliance can lead to penalty and for the Section 8 Company the best way to ignore penalty is quite smooth, all the company has to do is follow the compliances within the stipulated period of time.
AGM (Annual General Meeting)
Within 30 days of AGM
Within 60 days of AGM
Income Tax Return
Can Section 8 Company be incorporated both as Private and Public Limited Company?
Yes, it is the candidate's decision to incorporate a Section 8 Company as a private or public limited company in the wake of meeting the consistence necessity for example 2 Directors and 2 individuals if there should arise an occurrence of privately owned business and 3 Directors and 7 individuals in the event of Public Limited Company. However, One Person Company (OPC) can't be joined as a Section 8 Company according to Rule 3 of the Companies (Incorporation) Rules, 2014.
Are there any prescribed criteria with respect to Minimum and Maximum number of directors in a Section 8 Company?
The prescription under section 149(1) of Companies Act 2013 as to having Minimum of three directors for public limited company and two directors for private limited company and maximum of fifteen directors is not applicable to section 8 company and thus there is no prescription with respect to minimum or maximum directors in a section 8 Company. However, second proviso to section 149(1) requires a woman director in prescribed class of companies. Also section 149(3) requires every company to have a resident director.
Are Secretarial standards applicable on a Section 8 Company?
No, there is a particular exemption to Section 8 and One Person Company from conforming to the Secretarial Standards. In any case, Companies must hold fast to Secretarial norms so as to raise the corporate governance standards.
Tax Benefits: Section 8 Company is a non-benefit association that is the reason they are excluded from certain arrangements of the personal expense. They are additionally given various different conclusions and other tax reductions. One of such exclusion is under Section 80G of the Income Tax Act, 1961, whereby contributors to non-benefit associations may guarantee a half discount against gifts made. The registration done under Section 80G will be legitimate for regularly a time of one-three years.
What is the penalty for non-compliance of requirements on the Annual General Meeting?
Inability to send a copy of audited fiscal reports to the individuals before the Annual General Meeting, and record the minutes of the meetings are each punishable with a fine up to rupees 25,000/ -
Inability to lead an Annual General Meeting is punishable with a fine up to Rupees one lakh.
Inability to present a report on Annual General Meeting is punishable with a fine of Rupees one Lakh which may reach out to Rupees five Lakh.
What happens if I don’t file my Annual Return?
Inability to document Annual Returns is punishable with a fine of Rupees 50,000 which may stretch out to Rupees five lakh.
Is it possible for a foreign Company to be registered as a Section 8 Company in India?
Section 2(42) of the Companies Act, 2013 defines the term “Foreign Company” and means any company or body corporate incorporated outside India which– (a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and (b) conducts any business activity in India in any other manner. Now since a Company or a body corporate incorporated outside India for doing not for profit activit es, which has opened a branch/liason office in India, cannot fall in definition of a foreign company as business activity is missing. Therefore, such company cannot be termed as foreign company. However, subject to compliance of FEMA regulations, it can open branch/liason offices. Such not for profit companies or bodies corporate incorporated outside India can promote and register a Section 8 Company in India as a distinct entity.
Can a company be treated as Section 8 Company as well as a small company provided that the company has not exceeded the thresholds prescribed for small companies under section 2(85)?
No. As per proviso to section 2(85), section 2(85) does not apply to a Section 8 Company and accordingly, a Section 8 Company cannot be treated as a small company. Likewise, a small company on conversion to a Section 8 Company shall cease to be a small company.
Is there any relaxation in Stamp duty payment on issuance of share certificate by a Section 8 Company?
Stamp duty on issue of share certificates is governed by Indian Stamp Act, 1899 as adapted by respective state or stamp act of respective state, as the case may be. No relaxation of special rate of stamp duty has been provided by any of the state in respect of stamp duty payable on issue of share certificates by Section 8 Company.
Can Section 8 Companies receive contributions from overseas or non-residents?
There are special requirements to be complied with under the Foreign Contribution and Regulation Act, 2010 before a Section 8 Company can receive any contributions or donations from overseas/outside India from non-residents. The provisions of the said Act are in addition to the provisions under the Companies Act.
Can a Society registered under the Societies Registration Act, 1860 be registered/converted into Section 8 Company?
Yes. Section 8(1) of the Companies Act, 2013 allows person or association of persons to be registered as a Section 8 Company on fulfilment of certain conditions and procedure as prescribed therein. The term “person” has not been defined in the Companies Act, 2013. Section 2(41) of the General Clauses Act, 1897 provides that “person” shall include any Company, or association or body of individuals, whether incorporated or not. Accordingly, a Society registered under the Societies Registration Act, 1860 is a person. Therefore, Society can be registered/converted as a Section 8 Company.