Section 8 Company Compliance
Under the Companies Act 2013, a section 8 company is a non-profit entity established to promote 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 under 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 compliance with the Income Tax Act, 1961. Apart from mandatory compliances, there are some event-based compliances, like intimation to the MCA about the appointment of directors and key managerial personnel (KMP), their resignation, changing the name of the company, etc. Adhering to these regulatory requirements is essential to avoid penalties and maintain good corporate governance.
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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 commerce, education, charity, or environmental protection, uses its income for these objectives, and does not distribute profits to its members. Section 8 companies can function after obtaining a ‘license’ from the Central Government of India. The government has the power to revoke the license at any time.
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 legal identity, which enables 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 are eligible for various tax exemptions under the Income Tax Act, 1961.
Mandatory Compliance 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:
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.
Maintain Statutory Register
Section 8 companies are mandated to maintain statutory registers at their registered office. It includes keeping the following:
- Register of members of company MGT-1
- Register containing the details of directors, key managerial personnel, and their shareholdings.
- Register of charges CHG-7
- Register of Loans, Investments, Guarantees, and Securities MBP-2
- Register of Contracts or Arrangements in which the directors of the companies are interested MBP-4
- Register of Deposits
- Register of Investments of the Company held by the company in the name of others
Convene Statutory Meeting
As per the Companies Act, 2013, every company, including Section 8 companies, is required to hold its first Board meeting within 30 days of incorporation. Companies incorporated under Section 8 of the Companies Act, 2013, have to conduct their first AGM within 6 months from the end of each financial year. It is pertinent to note that the maximum gap between the two Annual General Meetings (AGMs) cannot exceed 15 months.
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.
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 the 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).
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, personal residential address proof, contact number, and e-mail address of the directors
- A 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.
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.
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 of 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 the AGM |
| DIR-3 KYC | Before 30 September each year |
| Income Tax Return (ITR-7) | Before 30 September of the relevant assessment year. |
Foreign Contribution Regulation Act, 2010(FCRA) Compliance
If 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, FC-GPR, on the RBI FLAIR system, 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
- Declaration of Commencement of Business (Form INC-20A): Every company incorporated after the Companies (Amendment) Ordinance, 2019, is required to file Form INC-20A within 180 days of incorporation.
- Appointment or Resignation of Directors (DIR-12): 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.
- Disclosure of Interest by the Directors (MBP-1): Directors in the Section 8 companies are mandated to disclose their interest in the other entities at the Board Meeting of the financial year by filing the form MBP-1
- Appointment of Key Managerial Personnel (KMP) (DIR-12): 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 (INC-22): 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 (INC-24): 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-24 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) (MGt-14): 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.
- Filing DPT-3 form: Every Section 8 company must file Form DPT-3 annually to furnish information about deposits and/or outstanding loans.
- File PAS-6 Form: It is a Reconciliation of the Share Capital Audit Report for every company incorporated under Section 8 of the Companies Act, 2013, with the Registrar of Companies (RoC) at the end of the half-year.
- Transfer of Shares (SH-4): 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.
What is the deadline for filing AOC-4 for a Section 8 Company?
It must be filed within 30 days from the date of the Annual General Meeting (AGM).
Is DIR-3 KYC mandatory for all Section 8 Company directors every year?
Yes, all directors must update their DIR-3 KYC annually by 30th September.
Do Section 8 Companies require a minimum capital to start operations?
No, there is no minimum capital requirement for incorporating a Section 8 Company.
Are Section 8 Companies exempt from income tax?
They can claim exemptions under Sections 11 and 12 of the Income Tax Act,1961.
What happens to the alternate if the director who appointed them ceases to be a director?
They can claim exemptions under Sections 11 and 12 of the Income Tax Act,1961.
Is the appointment of an auditor compulsory for Section 8 Companies?
Yes, an auditor must be appointed within 30 days of the company’s incorporation and informed via the ADT-1 form.
Can a Section 8 Company accept foreign donations?
Yes, but only after registering under the FCRA with the Ministry of Home Affairs.