Section 8 Company Annual Return
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Introduction
In India, Section 8 companies, also known as not-for-profit companies, function with a social mission at their core. Registered under the Companies Act, 2013, these organizations prioritize activities like education, environmental protection, or charitable work. Unlike for-profit companies, any profits they generate must be reinvested towards their social goals and cannot be distributed to shareholders. While similar in structure to for-profit companies with a board of directors, Section 8 companies serve a distinct purpose – creating positive social change within a legal framework that ensures accountability and transparency. There are specific compliances that Section 8 Companies are required to adhere to.
Features of Section 8 Companies
- Non-Profit Objective: They must have a primary objective of promoting social welfare, and any profits must be reinvested into the company rather than distributed to members.
- No Minimum Share Capital: Unlike other companies, Section 8 companies do not require a minimum paid-up share capital.
- Charitable Nature: The company’s objective must be to promote fields like commerce, art, science, research, education, sports, religion, social welfare, etc.
- Limited Liability: The members of a Section 8 company enjoy limited liability, meaning their personal assets are protected in case of company debts.
- Special License: They must obtain a special license from the Registrar of Companies (RoC) to operate, confirming their non-profit status.
- Tax Benefits: Section 8 companies are eligible for certain tax exemptions and benefits under the Income Tax Act.
Annual Return Compliances for Section 8 Companies
- Annual Return Filing (Form MGT-7): Every Section 8 company must file an annual return in Form MGT-7 with the Registrar of Companies (RoC) within 60 days from the date of the Annual General Meeting (AGM). The return must include details of the company’s directors, shareholders, and any changes that occurred during the year.
- Financial Statements (Form AOC-4): Financial statements, including the balance sheet, profit and loss account, and cash flow statement, must be filed in Form AOC-4 within 30 days from the date of the AGM. These statements should be audited and signed by a qualified Chartered Accountant.
- Director’s Report: The Director’s Report must be attached to the financial statements and include details about the company’s performance, key financial metrics, and other significant information. It should be signed by at least two directors, including the Managing Director, if any.
- Holding of Annual General Meeting (AGM): Section 8 companies are required to hold an AGM every year. The first AGM should be held within 9 months from the end of the first financial year, and subsequent AGMs should be held within 6 months from the end of the financial year, but not later than 15 months from the date of the last AGM.
- Appointment/Reappointment of Auditors (Form ADT-1): The appointment or reappointment of the auditor must be filed in Form ADT-1 within 15 days from the date of the AGM. The auditor should be appointed for a period of 5 years, and the appointment should be ratified by the members at every AGM.
- Maintenance of Statutory Registers: Section 8 companies must maintain various statutory registers such as the register of members, register of directors and key managerial personnel, and register of loans and investments.
- Compliance Certificate (Form INC-20A): Newly incorporated Section 8 companies must file Form INC-20A to obtain a certificate of commencement of business. This form must be filed within 180 days of incorporation, declaring that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him.
- Minutes of Meetings: Minutes of all board meetings and general meetings must be properly recorded and maintained. These minutes should be signed by the Chairman of the meeting and kept at the registered office of the company.
- Annual Compliance with Income Tax: Section 8 companies must file their income tax returns annually. They may also need to comply with tax audits if their turnover exceeds the prescribed limits.
- Complying with CSR Provisions: If applicable, Section 8 companies must comply with Corporate Social Responsibility (CSR) provisions, ensuring that the prescribed percentage of profits is spent on CSR activities.
Penalties for Non-Compliance
- Fines: Companies may face monetary penalties imposed by regulatory authorities for failure to submit annual returns within the prescribed timelines.
- Legal Action Against Directors: Directors and officers responsible for the compliance may be held personally liable, which could include fines or disqualification from holding directorship positions in other companies.
- Loss of Benefits: Non-compliance may lead to the loss of exemptions or benefits granted to Section 8 companies under the Companies Act, such as tax benefits or special privileges.
- Compounding of Offences: Companies may be required to pay additional fees or penalties for compounding the offences related to non-compliance.
- Court Proceedings: Regulatory authorities may initiate legal proceedings against the company and its directors, which could result in court orders mandating compliance or imposing further penalties.
What is included in this
FAQs
A Section 8 company is a non-profit organization in India established under the Companies Act, 2013, with the objective to promote commerce, art, science, sports, education, research, social welfare, religion, charity, or any other useful purpose.
Section 8 companies must file annual returns in Form MGT-7 and financial statements in Form AOC-4, hold an Annual General Meeting (AGM), and maintain statutory registers and records.
Annual returns must be filed within 60 days from the date of the Annual General Meeting (AGM), which should be held within six months from the end of the financial year.
Documents include Form MGT-7, Form AOC-4, audited financial statements, Director’s Report, and minutes of the AGM.
Yes, Section 8 companies must appoint an auditor to audit their financial statements and file Form ADT-1 for the appointment or reappointment of auditors.
Failure to comply can lead to penalties and fines for both the company and its directors, potentially involving monetary sanctions and disqualification of directors.
Yes, Section 8 companies can receive donations and grants from individuals, corporations, and governments, provided they comply with the regulations governing such receipts.
Section 8 companies must ensure their income and profits are applied solely for promoting their objectives and are not distributed to members as dividends.
Form MGT-7 is the annual return form that provides details about the company’s registered office, principal business activities, particulars of holding, subsidiary and associate companies, and members and debenture-holders, among other details.
Form AOC-4 is used for filing the company’s financial statements, including balance sheet, profit and loss account, cash flow statement and other relevant documents.
Statutory registers include the register of members, register of directors and key managerial personnel, register of charges, and register of loans and investments, among others.
Yes, Section 8 companies must hold an AGM within six months from the end of the financial year to present the financial statements and other matters requiring shareholder approval.
Yes, but the process involves obtaining approval from the Regional Director and ensuring that any remaining assets after liabilities are transferred to another Section 8 company with similar objectives.
Form INC-20A is filed to obtain a certificate of commencement of business, confirming that the company has filed the necessary declaration within 180 days of incorporation.
