How to Start a SECTION 8 ANNUAL COMPLIANCE

service package

Overview of Section 8 Annual Compliances

A Section 8 Company is established with the purpose of promoting science, art, commerce, sports, charitable activities, and similar causes. These companies focus on supporting underrepresented communities and sectors in India. As a type of Non-Governmental Organization (NGO), a Section 8 Company is one of the most popular forms of NGO in India. Registered under the Companies Act, 2013, it must adhere to the compliances outlined in the Act. It is crucial for Section 8 Companies to stay compliant with these regulations, as failure to do so can result in penalties. The Companies Act, 2013 mandates strict adherence to compliance requirements set by the Ministry of Corporate Affairs (MCA) for all Section 8 Companies in India.

Benefits of Following Section 8 Annual Compliances

Adhering to Section 8 Annual Compliances offers several advantages:

  • Transparency in Operations: Compliances such as the preparation and filing of financial statements and annual returns provide a clear picture of the company’s financial health. This helps ensure transparency in the company's operations and status.

  • Improved Credibility: Companies that file their compliances on time enjoy better credibility. This enhances their ability to access financial assistance and credit from authorities and stakeholders.

  • Avoidance of Legal Complications: Failing to comply with regulations can lead to legal issues, including notices from the Ministry of Corporate Affairs (MCA), which could escalate into more serious legal problems. Timely compliance helps prevent such risks.

  • Building Trust: Companies that are transparent with their financial details and comply with regulations on time earn the trust of customers, vendors, suppliers, and regulatory bodies. This trust enhances their reputation and fosters stronger relationships.

  • Avoiding Penalties: One of the most significant reasons to meet compliance deadlines is to avoid penalties. Non-compliance can result in consequences such as company closure, license revocation, or hefty fines.

Checklist for Section 8 Annual Compliances in India

  1. Filing ADT-1 (Appointment of Auditor)
    A Section 8 Company must appoint an auditor, as mandated by Section 139 of the Companies Act, 2013. The company must notify the MCA of the auditor's appointment by filing the ADT-1 form. The appointed auditor will conduct the audit of the company's accounts and annual returns for a term of five years.

  2. Maintenance of Books of Accounts
    Section 8 Companies are required to maintain accurate books of accounts, which include records of all financial transactions, annual returns, and other relevant filings.

  3. Maintenance of Statutory Registers
    Section 8 Companies must keep statutory registers, which contain details such as member information, loans, investments, and charges. These registers provide an overview of the company’s operations throughout the year.

  4. Convening Meetings
    An annual general meeting (AGM) must be conducted once a year within six months after the end of the financial year. Additionally, the board of directors must convene other necessary meetings throughout the year.

  5. Director’s Report
    A Director’s Report must be prepared, which includes information about the company’s compliance status, financial results, and corporate social responsibility activities. This is a mandatory requirement for every Section 8 Company under the Companies Act, 2013.

  6. Preparation of Financial Statements
    Section 8 Companies are required to prepare their financial statements for the preceding financial year. These include the balance sheet, cash flow statement, and profit and loss statement.

  7. Income Tax Return Filing
    Section 8 Companies must file their income tax returns by September 30th of the following financial year. Filing tax returns is essential for reporting the company’s total income.

  8. Filing of Financial Statements (AOC-4)
    The company must file a copy of its financial statements using the AOC-4 form within 30 days after holding the annual general meeting (AGM).

  9. MGT-7: Filing of Annual Return with ROC
    As a limited company, a Section 8 Company is required to file the annual return with the Registrar of Companies (ROC) using Form MGT-7. This must be filed within 60 days after the AGM.

Event-based Annual Compliances for Section 8 Companies
Event-based compliances are non-periodic filings that occur upon specific events. Below are some of the key event-based compliances for a Section 8 Company:

  • Appointment or resignation of directors
  • Appointment or resignation of auditors
  • Transfer of shares
  • Appointment of key managerial personnel (KMP)
  • Receipt of share application money
  • Change in the company’s name
  • Amendment of the company’s Memorandum of Association (MOA)
  • Change in the company’s registered address
  • Other changes to the company’s structure

Due Dates for Filing Section 8 Company Compliances

To avoid penalties and fines for non-compliance, it is crucial for Section 8 Companies to adhere to the prescribed deadlines for filings. Below are the due dates for various Section 8 Company compliances:

Compliance Due Date
AGM (Annual General Meeting) 30th September
AOC-4 (Financial Statements) Within 30 days of the AGM
MGT-7 (Annual Return) Within 60 days of the AGM
Income Tax Returns (Form ITR-6) 30th September

Penalties for Non-Compliance

The Ministry of Corporate Affairs (MCA) has the authority to impose penalties for non-compliance with the regulations. The following penalties may be applicable:

  1. Revocation of Permit: If the government finds that the organization is operating improperly or violating its stated objectives, it may revoke the permit granted to the organization.

  2. Penalties for Directors and Officers: The directors and any officials responsible for the default may face imprisonment and/or a fine up to Rs. 25 lakhs, or both.

  3. Fraudulent Activities: If it is discovered that the organization’s affairs were conducted fraudulently, all officials in default will be liable to action under Section 447 of the Companies Act.

  4. Penalty for the Organization: The organization itself may be penalized with a fine not less than Rs. 10 lakhs, which can extend up to Rs. 1 crore.