SECTION 8 COMPANY COMPLIANCE

Section 8 company is a company which registered as a Non-Profit Organization. The objective of these companies is to promote the fields of arts, commerce, science, research, education, sports, charity, social welfare, environment protection and other similar activities. A non-profit organization can be registered under the Registrar of societies or as a Non-profit making organization under the Section 8 Company of the Company Act, 2013.

Section 8 companies were previously defined under Section 25 of Companies Act, 1956 with almost the same provisions. The new companies Act, 2013 prescribed more objectives that Section 8 companies can have.

These companies use their all income or profit towards the furtherance of their objectives and did not distribute as dividend amongst its shareholders.

A Section 8 company is required to fulfill the compliance imposed by the Registrar of Companies (ROC) and Income tax authorities. Failure to file their compliance requirements results in paying heavy penalties, and that organizations and their directors’ can even get disqualified for a period of time.

Below are the given compliances which a company need to fulfill:


• APPOINTMENT OF AUDITOR BY FILING FORM ADT-1
  Under section 139 of the Companies Act 2013, it is mandatory for companies to appoint an auditor. The book of accounts and annual returns of the company should be audited by the statutory auditor who will be appointed for a period of 5 years.
  
  The first auditor of a section 8 Company is to be appointed within 30 days from the date of its incorporation.
  
  The auditor can be an individual or a firm.
  
  The auditor needs to verify all the financial filings of the company.
  
  The Auditor is to be appointed in first Annual General Meeting of the company.
  
  The Auditor should hold office from the conclusion of the First Annual General Meeting to the conclusion of the sixth Annual General Meeting that is for five years.
  
  A notice of Auditor’s appointment must be filed with the Registrar within the fifteen days of the Auditor’s appointment.
  
  An auditor should meet all the criteria mentioned in Section 141[1] for eligibility to be appointed in the company.




• MAINTENANCE OF FINANCIAL STATEMENTS
  Section 8 Company has to prepare its financial records on an annual basis.
  After preparation of the financial records and statements, it must be submitted to the registrar.
  
  The financial records should contain financial statements such as Trading Account, Profit and Loss Account and Balance sheet of the company.




• MAINTENANCE OF STATUTORY REGISTERS
  The company is required to maintain a statutory register, it should contain the details of members, loans obtained, investments, charges created, its directors, etc. as specify under section 8 of the companies’ act 2013.
  
  Registers are to be maintained on an annual basis to check how active the company has been annually.




• PREPARATION OF THE DIRECTOR’S REPORT
  Companies have to file their directors Report in Form AOC-4 as per Section 134 of the Companies Act, 2013.
  
  A Directors Report is prepared with the purpose to describe the shareholders the exact financial position of the company and the scope of its business.
  
  The record of signed “minutes of meetings” needs to be keep at the Registered Office.




• INCOME TAX RETURN FILING
  A Section 8 Company has to file Income Tax Returns on or before 30th September of the next financial year also known as in assessment year.
  
  To give complete information of the income of the company, it is necessary to file Income Tax returns online.
  
  But, it can claim certain income to be excluded from income tax.
  
  Section 8 companies registered under Section 12A and 80G can claim tax exemption while filing their tax returns.




• HOLD BOARD MEETING
  Board meeting of every company should be held twice a year in case of small size companies.
  
  The gap between the two meetings should not be more than 90 days.




• HOLD ANNUAL GENERAL MEETING
  Section 8 companies should hold its Annual General Meeting every year on or before 30th September.
  
  All the Directors, members, and auditors should be notified about the meeting. The notice should be sent to the directors, members, and auditors by giving not less than 21 days.
  
  The notice of the Annual General Meeting should be published on the Company’s Official website.
  
  A report of the Annual General Meeting must be submitted to the registrar of companies within the 30 days of the meeting in Form MGT- 15.




• FILING OF FINANCIAL STATEMENTS WITH ROC
  Section 8 company should file its copy of financial statements in Form AOC-4 with registrar of companies.
  
  It should be filed within the thirty days from the date on which the annual general meeting is held.




• FILING OF ANNUAL RETURNS
  Company should file its annual return in Form MGT-7 to the registrar of companies.
  
  Form MGT-7 should be filed within 60 days from the conclusion of the Annual General Meeting.
  
  If in any case annual general meeting is not held in a year then the annual return should be filed within sixty days from the days on which the annual General Meeting should have been held that is 30 September.
  
  It should be attached with the statement justifying the reasons for not holding the Annual General Meeting in that particular year.

Some compliance needs to be filed on the occurrence of certain events. Below is the list of some event-based compliance:

Appointment, re-appointment or Removal of Directors

Appointment, re-appointment or Removal of Auditors

Appointment of the Key Managerial person

Transfer of shares

Change in Company’s name

Amendment in the Memorandum of Association (MOA) of the company

Change in Registered Address of the business

Any other changes in policy of company

The Ministry of Corporate Affairs has lay down some penalties for section 8 Company for not complying with the procedures:

• The Central Government can revoke the license granted to the company if it finds that the company is working dishonestly or in a manner violating to the object of the company.

• The companies will be punishable with fine, which will not be less than ten lakh rupees and can be extended to one crore rupees.

• The directors and every officer of the company who is in default will be punished with imprisonment for a specific time and with twenty-five lakh rupees or with both.

• If it is found that the affairs of the company were conducted fraudulently, every officer in default will be responsible for action under section 447.

The main reason for fulfilling the compliance of Section 8 Company is to avoid penalties. Also, it ensures the trouble free functioning of the company. Below are some of the listed points:

• For Better Credibility of the Company

• To avoid getting into any legal trouble

• To build trust amongst the customers

• To avoid penalties