What is a Section 8 company? 

In India, it is a unique type of non-profit entity formed under the Companies Act of 2013. Such entities are formed to make some positive impact, such as social welfare, arts, education, charity, conservation of the environment, sports, science, or research. The most important thing that sets them apart from other companies? They do not distribute any profits to their shareholders. Any profits they make are reinvested in their causes.

Section 8 companies are also allowed to drop the Limited from their name, which is quite a statement about them not being profit-making entities. They have a few special benefits and exemptions under the Companies Act, Income Tax Act, and other regulations. But they are still bound by most of the same rules as other companies.

Section 8 company Compliances can be Categorized by different criteria

1. Event-based compliances: These arise when a specific event occurs in the company perhaps a change in the directors or the change in the registered office.

2. Time-based compliances: These are the regular ones. You have to file them every year, perhaps every six months or every quarter, depending on what the law requires.

3. Specific criteria-based compliances: Some laws apply only when your company meets specific criteria perhaps when it reaches a certain paid-up share capital or turnover.

Advantages of Section 8 company Compliance

1. Prevents Penalties for Non-Compliance: It prevents the company and its directors from facing penalties for non-compliance with the Companies Act, 2013.

2. Reduces Expenditure: It saves the company from incurring recurring costs for maintaining the company, such as audit costs, professional charges, and annual filing fees.

3. Relieves Directors: It relieves the directors of the company from the legal and financial obligations of the defunct company.

4. Faster Procedure: The procedure for striking off the company is much faster and simpler than the procedure for winding up the company.

5. Closes Old Financial Statements: It brings an end to the requirement of maintaining the books of accounts or filing tax returns for the inactive company.

6. Enhances Creditworthiness: It removes inactive companies from the records of the founders, which helps in maintaining a clean business record for future startups.

7. Removes Unnecessary Legal Risks: It removes the risk of the inactive company being used for any fraudulent activities.

8. Simplifies Business Structure: It allows the promoters to concentrate on their active companies without the hassle of a dormant company.

1. Incorporation Compliance

Incorporate the company under Section 8 of the Companies Act, 2013. Obtain a license from the ROC. Obtain PAN and TAN numbers. Open a bank account. Appoint the directors.

2. Annual ROC Compliance

Prepare the financial statements. File Form AOC-4 for financials. File Form MGT-7 for the annual return. Conduct the Annual General Meeting. Ensure that there are at least two board meetings in a year.

3. Income Tax Compliance

File the Income Tax Return using ITR-7. Obtain registration under Section 12A and 80G to obtain tax exemption benefits. Handle TDS compliance, if applicable. Maintain proper books of accounts.

4. Audit Compliance

Every year, conduct a statutory audit regardless of your turnover. Appoint an auditor. File the audit report.

5. Event-Based Compliance

File DIR-12 in case of a change in directors. Make changes to the ROC in case of a change in the registered office. Make changes to the MOA or AOA, if required. Increase the authorized capital, if required. Obtain approvals for any related party transactions.

Step by Step Procedure for Compliance

Step 1: Conduct Board Meetings

Minimum 2 Board Meetings in a year

Interval between two meetings should not be more than 90 days

Keep proper minutes and attendance records

Step 2: Keep Books of Accounts

Record all receipts, payments, donations, grants, and assets

Balance Sheet

Income and Expenditure Account

Receipt and Payments Account

Keep statutory registers

Step 3: Appointment of Auditor

Appoint a Chartered Accountant within 30 days of incorporation

File ADT-1

Ensure annual statutory audit is done

Step 4: Conduct Annual General Meeting (AGM)

Hold AGM within 6 months from the end of financial year

Pass financial statements

Pass appointment/reappointment of auditor

Step 5: File Financial Statements (ROC Filing)

You are required to file Form AOC-4 within 30 days of holding your AGM. Remember to attach your audited financial statements along with it.

Step 6: File Annual Return

Now, it is time to file Form MGT-7 within 60 days of the AGM. Ensure that you fill in all the details about your members, directors, and shareholding.

Step 7: Income Tax Compliance

It is time to file ITR-7. Remember that if you are seeking tax exemptions, you must possess 12A and 80G registrations. Also, if TDS is applicable, you must deduct and deposit it on time.

Step 8: Event-Based Compliance

If you have made any changes in your directors, you can use DIR-12. For any change in your registered office, or any modifications in your MOA/AOA, or if you have increased your capital, you must file the necessary forms.

Documents for compliance

1. Your company’s PAN card

2. Registration certificate and incorporation documents

3. MOA and AOA

4. Bank statements for all your operational accounts

5. A record of all your income and expenses

6. Shareholder list and holdings

7. Director details: PAN, Aadhaar, and addresses

8. Last year’s audited financial statements

9. Notes of all the meetings you conducted

10. Audit reports

11. A summary of what your company did this year

Section 8 companies must keep track of their annual compliance requirements not only because it is mandatory, but also because it will ultimately benefit them in maximizing their special status. By following the rules, you avoid the heavy penalties and ensure that your nonprofit organization is running in top shape so that you can concentrate on your cause.

Tax Esquire makes Section 8 compliance simple. Our team of qualified CAs is thoroughly conversant with the Companies Act 2013. We will take care of the paperwork and ensure that your books are in order. You can simply concentrate on your cause and leave the paperwork to us. Do not take the risk of facing penalties and unnecessary hassles. Contact us today and keep your Section 8 company in compliance.