Home Tax & Compliance Section 8 Company Compliance

Section 8 Company Compliance

Section 8 Company compliance involves adhering to legal, financial and regulatory requirements, including annual filings, audits, board meetings and maintaining proper records. It ensures transparency, accountability, and alignment with the objectives of promoting charitable or non-profit activities as mandated by the Companies Act and governing authorities in India.

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Section 8 Company Compliance

Under the Companies Act 2013, a section 8 company is a non-profit entity established to promote sectors such as trade, arts, science, sports, education, research, social welfare, environmental protection, and other charitable causes. Unlike traditional profit-oriented companies, section 8 companies are formed to serve society and are legally prohibited from distributing profits among their members. If any profit is generated, it has to be reinvested in the company to fulfill its objectives.

To maintain their legal standing and credibility, Section 8 Companies are required to comply with various statutory obligations as prescribed by the Companies Act, 2013. These include holding an Annual General Meeting (AGM), maintaining accurate financial records, filing annual returns with the Registrar of Companies (ROC), and ensuring timely income tax compliance. Apart from mandatory compliances, there are some event-based compliances, like intimation to the MCA about appointment directors and key managerial personnels, their resignation, changing the name of the company, etc. Adhering to these regulatory requirements is essential to avoid penalties and maintain good corporate governance.

What is a Section 8 Company?

As per Section 8 of the Companies Act, 2013, a company can be registered as a non-profit organization (without "Limited" or "Private Limited" in its name) if it promotes fields like commerce, education, charity, or environmental protection, uses its income for these objectives, and does not distribute profits to its members. The Central Government grants such registration through a license. These companies have the same rights and responsibilities as other limited companies.

Benefits of Forming a Section 8 Company in India

The liabilities of members of the company are limited to their shares in the company.
The company has its own identity in the eyes of the law, which allows it to enter into contracts independently.
Individuals, associations of persons, and firms can be members of Section 8 companies.
Section 8 Companies enjoy certain exemptions from procedural compliance and are subject to less stringent regulations than other types of companies.
There is no requirement for minimum capital to incorporate a section 8 company.
Section 8 Companies may be eligible for various tax exemptions under the Income Tax Act of 1961.

Mandatory Compliances for Section 8 Companies

Annual compliance for Section 8 companies includes several necessary standards that must be met to keep legal standing and avoid fines. These include:

1. Appointment of Auditor ADT-1

As per Section 139 of the Companies Act, 2013, a Section 8 company ought to appoint an auditor within 30 days from the date of its incorporation. The appointment of an auditor is valid for 5 years. Companies are required to inform the Registrar of Companies (ROC) about this appointment by filing Form ADT-1 (online at the MCA portal) within 15 days of the Annual General Meeting (AGM) where the auditor was appointed or reappointed.

2. Maintain Statutory Register

Section 8 organizations are mandated to maintain statutory registers at their registered office. It includes keeping the:

3. Convene Statutory Meeting

As per the Companies Act, 2015, every company, including Section 8 companies, is required to hold its first Board meeting within 30 days of incorporation. It has to conduct an Annual General Meeting twice a year and a Board Meeting once every 120 days. It is pertinent to note that the gap between two AGMs should not exceed 15 months.

4. File Financial Statements AOC-4

Section 8 companies are mandated under Section 129 of the Companies Act. 2013, to file the financial statements with the MCA via the AOC-4 form within 30 days of the AGM. The financial statements must include the following:

Balance Sheet
Income and Expenditure Account
Cash Flow Statement
Statement of Changes in Equity, etc.

5. File the Annual Return MGT-7 Form

Section 92 of the Companies Act, 2013, mandates that every company shall prepare and file an annual return at the end of each financial year. The yearly return contains the information regarding:

Its registered office, principal business activities, holding, subsidiary, or associate companies (if any).
Details of the company’s share capital, including changes in shareholding during the year.
Details of directors and key managerial personnel, including their remuneration and any changes such as appointments or resignations.
Summary of the share distribution, including details of equity, preference shares, and any debentures or securities issued.
Information regarding any deposits received, loans taken, or financial obligations
Penalty or punishment imposed on the company or its directors and details of compounding offence and appeals made by the company

The Annual return must be filed with the Registrar of Companies (RoC) online at the MCA portal within 60 days of the Annual General Meeting (AGM).

6. Income Tax Return Filing (ITR)

Despite being a non-profit organization, companies registered under Section 8 of the Companies Act, 2013, are required to file an income tax return annually. After claiming exemptions under Sections 11 and 12 of the Companies Act, 2013, these companies need to use Form ITR-7 before 30 September of the relevant assessment year. The return should give details about the organization’s income, donations received, grants utilized, and expenses incurred to further its objectives.

7. DIR-3 KYC

The Companies Act, 2013, requires all company directors holding DIN to update their personal and professional details on the Ministry of Corporate Affairs (MCA) portal using DIR-3 KYC. The following information shall be disclosed in the DIR-3 KYC form:

Full name, date of birth, residential address proof, contact number, e-mail address of the directors,
Recent passport-sized photograph of the director
Aadhar Card of the Director
Digital Signature Certificate (DSC) of the Director

NOTE: For first-time filings, directors must submit their DIR-3 KYC form via the MCA portal. If a director’s contact number and personal information remain unchanged, the DIR-3 KYC Web form will be used afterward. However, if any details have changed, the standard DIR-3 KYC form must be filed.

Due Dates for Filing Mandatory Compliances of Section 8 Company

Compliance	Due Date
Appointment of Auditor & ADT-1 Filing	An auditor should be appointed within 30 days from incorporation. The ADT-1 form should be filed within 15 days after AGM.
Maintenance of Statutory Registers	Ongoing
Conducting the First Board Meeting	Within 30 days of Incorporation
Regular Board Meetings	At least once every 120 days
Annual General Meeting (AGM)	Must be held in such a manner that the gap between two AGMs does not exceed 15 months.
Filing of Financial Statements (AOC-4)	Within 30 days of conducting AGM
Filing of Annual Return (MGT-7)	Within 60 days of conducting AGM
Income Tax Return (ITR-7)	Before 30 September of the relevant assessment year.
DIR-3 KYC	Before 30 September each year.

Foreign Contribution Regulation Act, 2010(FCRA) Compliance

Suppose a Section 8 company receives foreign contributions. In that case, it has to secure an FCRA license or registration from the Ministry of Home Affairs, which authorizes the receipt and utilization of such funds. Once it obtains the permit, the company is required to maintain records of all foreign contributions, including their sources and amounts. Additionally, it must file an annual return with the Ministry giving details about the total funds received, a breakdown of how these funds were utilized, and reconciling bank statements from the designated foreign contribution account.

Event-based Compliance for Section 8 Companies

Appointment or Resignation of Directors: If there is any change in the board of directors' composition, such as the appointment or resignation of directors, the company must inform the director by filing the DIR-12 form within 30 days of the appointment or resignation.
Appointment of Key Managerial Personnel (KMP): Section 8 companies are mandated to appoint certain KMP, including the Managing Director or CEO, Company Secretary, and Chief Financial Officer. The appointment process involves passing a board resolution and filing an e-Form DIR-12 with the ROC within 30 days of the appointment.
Change in Registered Office Address of the Company: If the company’s registered office is changed, the new address must be updated with the ROC by filing the INC -22 form within 30 days of the change in address.
Change in Name of the Company: If the company's Board of Directors and shareholders decide to change its name, it must be communicated to the ROC by filing the INC-29 form within 30 days of the board meeting where the resolution was passed.
Amendment in the Memorandum of Association (MOA) or Articles of Association (AOA): Section 8 companies that intend to amend their MoA and AoA have to obtain prior approval from the RoC. The directors shall pass the board resolution along with an e-form GNL-1 to the RoC. After receiving approval from the company shareholders, the company shall file the MGT-14 form.
Transfer of Shares: Section 8 companies must update their register of members in case of a share transfer, cancel the previous share certificates, and issue new share transfer certificates to the new shareholders.

Checklist for Section 8 Company Compliance

For Section 8 company compliance, the following checklist is essential:

Appoint an auditor within 30 days of incorporation of the company
Keep updated records of the registers at the registered office of the company
Conduct the first Board Meeting within 30 days of incorporation of the company
Hold subsequent Board Meetings at least once every 120 days
Submit the company's financial statements to the Registrar of Companies (ROC) within 30 days of the AGM
File the Annual Return with the ROC within 60 days of the AGM
Ensure that all directors complete their KYC verification annually by 30th September
If the company receives foreign contributions, make sure that you obtain the necessary FCRA registration or prior permission and file annual returns detailing the receipt and utilization of foreign funds.

Common Mistakes to Avoid

Neglecting the deadlines
Not keeping the records accurately
Not conducting the required number of board meetings
Receiving foreign contributions without proper registration or not adhering to reporting requirements
Failure to update director KYC information

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Frequently Asked Questions

What is a Section 8 Company? +

A Section 8 Company is a type of non-profit organization in India formed under the Companies Act, 2013. Its primary objective is to promote fields like commerce, art, science, education, research, social welfare, religion, charity, and environmental protection.

What are the mandatory compliance requirements for a Section 8 Company? +

Mandatory compliances include appointing an auditor within 30 days of incorporation, maintaining statutory registers, holding regular board meetings and an Annual General Meeting (AGM), filing financial statements (Form AOC-4) within 30 days of the AGM, filing annual returns (Form MGT-7) within 60 days of the AGM, and filing income tax returns annually using Form ITR-7 before 30th September.

Are Section 8 Companies eligible for tax exemptions? +

Yes, Section 8 Companies can avail of several tax exemptions under Sections 12A and 80G of the Income Tax Act, 1961.

Can a Section 8 Company receive foreign contributions? +

Yes, but to receive foreign contributions, a Section 8 Company must obtain registration under the Foreign Contribution Regulation Act (FCRA) from the Ministry of Home Affairs. Once registered, the company must maintain detailed records of all foreign contributions and file annual returns detailing the receipt and utilization of these funds.

Is there a minimum capital requirement to start a Section 8 Company? +

No, there is no minimum capital requirement for incorporating a Section 8 Company.

Can the name of a Section 8 Company include words like 'Limited' or 'Private Limited'? +

No, Section 8 Companies are prohibited from using the suffixes 'Limited' or 'Private Limited' in their names. Instead, they often use terms like foundation, forum, association, federation, chambers, confederation, council, electoral trust, and the like to reflect their non-profit nature.

What happens if a Section 8 Company violates compliance requirements? +

Non-compliance can lead to penalties, including fines and potential revocation of the company's license. Directors and officers may also face legal action.