Introduction

Section 8 companies are non-governmental organizations that are established to promote various activities such as sports, commerce, charitable works, science, art, and more. These types of companies are registered to support underprivileged populations and industries in India. In this blog we will discuss about Section 8 companies annual compliances.

What is a Section 8 Company?

A Section 8 company is an NGO that is formed when a group or company intends to use its profits or earnings to promote the arts, commerce, education, charity, environmental defense, sports, science, research, collective welfare, and faith. Section 8 companies do not add the word "Limited" at the end of their name, but they are still considered a limited company.

Process of Section 8 Company Registration

• Apply for the name decided by the members

• Apply for Digital Signature Certificate.

• Fill the SPICe+ Form for Incorporation

• Obtain the Certificate of Commencement of Business

Section 8 Companies: Benefits

Section 8 Companies offer numerous benefits to those seeking to establish a non-profit organization. These include:

1. Section 8 Companies offer greater flexibility and are structured for systematic execution of non-profit objectives.

2. Section 8 Companies are registered under the Companies Act, which simplifies the registration process and eliminates the need for physical presence of partners or members.

3. Section 8 Companies have no minimum or maximum limit on the amount of paid-up capital.

4. Section 8 Companies are eligible for tax benefits under Section 12AA and 80G of the Income Tax Act, which can significantly reduce the tax liability of the organization.

5. Members or partners of any company or firm can access the Directorship of a Section 8 Company, which can be beneficial for those seeking to make a positive social impact through their work.

Annual Compliances for Section 8 Company

Section 8 companies are required to comply with several legal obligations and file various annual compliances. In this blog, we will discuss the different types of annual compliances filed by section 8 companies.

1. Appointment of Auditor: Section 139 of the Companies Act, 2013 mandates that every section 8 company appoints an auditor to handle its yearly financial reports. Form ADT-1 must be submitted to the Ministry of Corporate Affairs (MCA) to inform them about the appointment of the auditor and their details. The auditor will be hired for a maximum of five financial years and will audit the company's financial statements annually. The auditor must be appointed within 15 days of the Annual General Meeting (AGM). If the company fails to submit the Form ADT-1 within the deadline, it will incur penalties.

2. Maintaining Statutory Register: Under Section 8 of the Companies Act, 2013, the companies are obliged to maintain a register containing details of loans taken by the company, director details, changes in directors, charges created, and investments made.

3. Conduct Meetings: Section 8 companies are required to conduct an annual general meeting twice a year and other statutory meetings.

4. Report by Board of Directors: Directors of the company must prepare a report that contains information about the company's compliance, corporate social responsibilities, accounting, and other annexures, known as the Director's Report. The report must be filed with the AOC-4 Form.

5. Preparation of Financial Statements: The company must prepare financial statements, including a balance sheet, profit and loss statement, cash flow statement, and other financial documents that must be filed with the Registrar of Companies (ROC) and audited by the auditor.

6. Filing of Financial Statements: The AOC-4 Form must be filed within 30 days from the AGM date, failing which the company will incur a penalty.

7. Filing of Annual Returns: The MGT-7 Form must be filed within 60 days from the AGM date, failing which the company will incur a penalty.

8. Filing of Income Tax Return: Section 8 companies must file their income tax return by September 30th of every year to provide a summary of the company's total income.

Non-compliance Penalties for Section 8 Companies

Section 8 Companies must comply with certain rules and regulations, like all registered companies. If they fail to comply with these regulations, they can face penalties. Here are the penalties that a Section 8 Company can face for non-compliance:

1. If the Central Government determines that the company is operating dishonestly or against its stated goals, it may terminate the license.

2. The fines imposed against the company must not be less than Rs. 10 lakh and can be extended to Rs. 1 crore.

3. The directors & every officer of the company who is in default are subject to both imprisonment and monetary fines up to Rs. 25 lakhs.

4. If it is discovered that the company’s operation is carried on fraudulently, then every officer in default will be liable for their actions under section 447 of the Companies Act, 2013.

Therefore, it is important for Section 8 Companies to comply with all the regulations to avoid facing penalties. By doing so, they can maintain their legal status and continue to serve their respective purposes.

Conclusion

In conclusion, Section 8 companies are non-profit or non-governmental organizations that utilize their profits to promote various social causes. These companies can reap numerous benefits by adhering to their annual compliance requirements, while avoiding the harsh penalties that non-compliance may bring. Therefore, it is recommended to incorporate your business as a Section 8 company instead of a trust or society.