Annual Compliance of Section 8 Company

Section 8 Companies (alternatively called non-profit or charitable companies) are corporations organized to carry out philanthropic activities. Section 8 of the Companies Act 2013 regulates these companies. Promoting education, researching art, science, sports, social welfare, religion, charities, environmental protection, or any other such objective is the primary intent of Section 8 Companies. Moreover, a Section 8 company must conduct an annual compliance exercise to maintain its transparency and accountability. This is set out in the Companies Act, 2013. They include having the annual returns and financial statements for each company filed with the Registrar of Companies (ROC), holding a general meeting every year, keeping such registers as those required by law to be kept up-to-date in terms of contents, and updating all changes or additions made hereunder under this Act. Section 8 Companies can also be registered, approved, or dissolved by the NCLT. However, the ROC regulates each year's compliance filings and other such matters. Section 8 Companies must adhere to the yearly compliance requirements to continue as non-profits and to remain transparent and accountable. Failing to meet these standards may result in penalties, lawsuits, or the loss of tax-exempt status for a company.

Types

Section 8 companies in India are incorporated under the Companies Act, 2013. The main aim of these non-profit organizations is to promote charitable or social causes. These companies are governed by the Companies Act of 2013 and the rules framed thereunder.The types of Annual Compliance of Section 8 Company are as follows:

• Every company, including Section 8, must hold an Annual General Meeting (AGM) within six months from the end of each financial year under Section 96 of the Companies Act. This AGM is an essential forum for the company's members to discuss and decide upon matters concerning the company's affairs.
• Section 134 of the Companies Act 2013 requires such companies to prepare financial statements. These financial statements and notes (including the balance sheet and profit and loss account statement of cash flow) must reflect a true reflection. These statements must conform to the pertinent accounting standards.
• Section 92 of the Companies Act 2013 stipulates that any company under this section must file an annual return with the Registrar of Companies within sixty days from its AGM. The company's directors, shareholders, and auditors are also detailed in the annual return.
• Besides the above compliances under the Companies Act, Section 139 of the Income Tax Act provides that Section 8 companies must file income tax returns. This income tax return reports the company's revenue and any available exemptions or benefits.

Requirements

Different sections under the Companies regulate annual compliance of a Section 8 Company in India Act,2013, and Regulations made thereunder--the Companies (Management & Administration) Rules, 2014, and also Income Tax provisions.

1. Appointment of Auditors: The appointment of auditors for Section 8 Companies is required by the aforesaid section 139. This provision covers all Section 8 Companies in India.
2. Holding of Annual General Meeting (AGM): Section 96 of the Companies Act 2013 provides that there must be an AGM within six months from the end of a financial year. This provision, Section 8 Companies in India.
3. Filing of Annual Returns: Section 8 Companies must submit their annual returns with the RoC within 60 days of holding an AGM, as per section 92 of the Companies Act 2013. The above provision covers all the Section 8 Companies in India.
4. Financial Statements: Section 134 of the Companies Act 2013 requires that every Class I Company prepare financial statements (Balance Sheet, Profit and Loss Accounts, and Cash Flow Statement). This provision applies to all Section 8 Companies in India.
5. Maintenance of Accounts: Books of accounts, financial records, and relevant documents. This provision applies to all Section 8 Companies in India.
6. Board Meetings: Section 8 companies must have at least four board meetings in a calendar year, with at most 120 days between two consecutive meetings. This is required by section 173 of the Companies Act, 2013. This provision covers many Section 8 Companies in India.
7. Disclosure of Interest by Directors: Every director must disclose his interest in any contract or arrangement with the company when the matter comes up for discussion at a Board Meeting under Section 184 of the Companies Act, 2013. This rule applies to all Section 8 Companies in India.
8. Statutory Registers: Section 88 of the Companies Act 2013 explains that statutory registers such as the Register of Members and Registers must be updated. This applies to all Section 8 companies in India.
9. Compliance Certificate: Rule 11 of the Companies (Management and Administration) Rules, 2014 provides that Section 8 companies with paid-up share capital exceeding Rs. turnover of Rs. 10 crore or more. The company must pay 50 crore or more and obtain a Compliance Certificate from a Company Secretary. The latter must be filed with the RoC as well.
10. Income Tax Compliance: Section 10(23C) of the Income Tax Act, 1961 exempts from tax Sections (8 companies). However, these companies are subject to income tax laws and must file annual returns. This provision covers all Section 8 Companies in India.

Advantages

• Every year, a Section 8 Company in India must comply to ensure that the company follows all legal obligations and makes its operations transparent. The relevant Act governing the compliance rules for Section 8 Companies is the Companies Act, 2013.
• Section 8 companies must satisfy several annual compliance requirements under the Companies Act 2013, including holding an AGM and filing financial statements with RoC. They must also keep statutory registers, etc.
• There are several legal consequences to non-compliance with the annual compliance requirements. For example, missing AGMs or financial reports on time leads to penalties of legal responsibility.
• If a Section 8 Company complies with the annual compliance requirements, it receives legal protection; such steps make clear that the company is running lawfully.
• Transparency and credibility in the eyes of stakeholders, such as investors, partners, and potential donors, is also shown by annual compliance. This strengthens the company's operations and its image.
• By adhering to the Income Tax Act, 1961--in particular concerning filing tax returns and auditing financial statements--a Section 8 Company can enjoy various specific tax benefits available only for such organizations.
• Regular compliance keeps the Section 8 Company running smoothly and in existence. It shows the firm's determination to operate within legal parameters.
• In addition, the annual compliance option means all statutory requirements under the Companies Act 2013. AGMs, financial statements, and statutory registers are all part of this.
• Following the requirements of an annual compliance standard can enhance the chances of raising capital from either domestic or overseas sources. It opens the door to grants, donations, and financing available only for compliant Section 8 Companies.
• Good governance within the organization is facilitated by regular compliance practice. It guarantees sound decision-making, accountability, and transparency--essential for the survival of a Section 8 Company.
• Meeting annual compliance requirements gives limited liability protection to the company's directors and members, protecting their assets from creditors or legal liabilities against the company.
• Not meeting the annual compliance standards can result in penalties and even legal action. Complying with compliance obligations on time means the Section 8 Company will not have to bear needless penalties or legal issues.
• Compliance with annual compliance means that a Section 8 Company can more easily avail itself of various government schemes, grants, and initiatives designed to encourage non-profit organizations.

Documents

The documents needed for Annual Compliance of Section 8 Company are as follows:

1. Minutes of Board Meetings and General Meeting
2. Financial Statements (Balance Sheet, Profit and Loss Account, Cash Flow Statement)
3. Within 60 days of the annual general meeting, the Annual Return in prescribed form MGT-7
4. Auditor's Report
5. Director's Report
6. Form MGT-7 (Annual Return)
7. ROC Form AOC-4 (Financial Statements) in the prescribed format
8. Form ADT-1 (Appointment of Auditor)
9. Register of Members
10. Register of Share Transfers
11. Register of directors and key managerial personnel
12. Register of Charges
13. Memorandum and Articles of Association

Process

In India, the annual compliance of a Section 8 Company is governed by many steps and legal requirements. The critical stages involved in this process are as follows:

Step 1: Maintain Statutory Registers

Section 8 companies must keep several statutory registers, including members 'registers, directors 'registers, and loans. The records must be kept updated per the Companies Act 2013 stipulations.

Step 2: Conduct Annual General Meeting (AGM)

According to Section 96 of the Companies Act 2013, every company registered under Section 8 must hold an annual general meeting (AGM) within six months from and after such financial year. The AGM is where financial statements are presented, auditors are appointed, and other matters relating to the company's running can be discussed.

Step 3: File Annual Return

Section 8 companies must file their annual return with the Registrar of Companies (RoC) within sixty days of holding an AGM. The yearly return should list information on the company's shareholders, directors, and financial statements.

Step 4: Prepare Financial Statements

The financial statements of section 8 companies must follow accounting standards prescribed by the Institute of Chartered Accountants of India (ICAI). The financial reports should include a balance sheet, profit and loss account, and cash flow statement.

Step 5: Audit of Financial Statements

Section 8 companies must perform an audit of their financial statements by qualified auditors. An auditor should be independent and give an opinion on the fairness of financial accounts.

Step 6: Income Tax Compliances

Section 8 Companies are required to abide by the Income Tax Act of 1961. It means filing income tax returns and applying for Tax Deduction and Collection Account Number (TAN) in case of TDS applicability.

Step 7: AOC-4 and MGT-7 Form

Upon the completion of the audit, Form AOC-4 (to file financial statements) and Form MGT-7 (to fill in annual returns) shall be submitted to RoC. The forms should be submitted within 30 days and 60 days, respectively, after the date of the AGM.

Step 8: Comply with Other Regulations

Besides the abovementioned compliances, Section 8 Companies should observe other extant laws, such as the GST Act. It includes maintaining GST returns and paying applicable taxes according to GST regulations.

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