ANNUAL COMPLIANCE FOR SECTION 8 COMPANY| DUE-DATE, BENEFITS AND PENALTIES| CHECKLIST FOR SECTION 8 ANNUAL COMPLIANCES
“Charity sees the need, not the cause”. Section 8 companies are incorporated with the same motive. These are non-profit organizations with benevolent objectives and have been provided with some relief from the burden of heavy compliances. These can be either public or private companies. But there are certain requirements for entering into this category of companies even if you are converting into a charitable company.
The requirements to be fulfilled to be registered under this section are-
a. that it has for its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
b. that it intends to apply its profits, if any, or other income in promoting its objects; and
c. that it intends to prohibit payment of any dividend to its members.
The spheres like research and development, education, social welfare, and environmental protection are indispensable for human lives to foster with. These companies pledge to focus their funds and activities only to these areas. Any other company which satisfies the requirements may come under this section subject to the conditions imposed by the Central Government.
Since these companies are formed with a formidable objective, they are being bestowed certain privileges and exemptions by the Companies Act, 2013 itself:
- Such companies have been exempted from the requirement of having a minimum amount of share capital.
- The Government may allow it to be registered as a limited company without using the word “limited” or “private limited” as a part of its name.
- It enjoys all the benefits and obligations of being a limited company.
- A partnership firm may be made a member of such a company.
- Amalgamation by choice can also be made with a charitable company with similar objects.
- The Company has better credibility amongst donors, Government departments, and other stakeholders.
- Many exemptions have been conferred upon such companies, including the manner of enrolling members and appointing directors.
- As held by Company Law Board in 2005 in Ratnesh H Bagga v Central Circuit Cine Assn, if such a Company refuses to accept any person as a member, he cannot proceed under Section 58 for an order that he should be granted membership.
- It has the right to suspend the members temporarily in accordance with the Company’s articles.
- It is easier to leave the membership since the shares are considered as movable property and are easily transferable in the case of section 8 companies.
- Income tax exemption can be granted to it by the Income Tax Commissioner under section 12AA.
DETAILS REQUIRED FOR REGISTRATION
- Self-attested Copies of the PAN Card, ADDRESS PROOF, and Bank Account Statement of all the proposed directors need to be attached.
- Duly signed DSC Form of all directors of the proposed Company.
- A copy of the current Electricity Bill/Water Bill/House Tax etc. of the premises proposed to be used as registered office of the Company needs to be given to identify the registered office.
- Educational Qualification, Profession/Occupation of all the Directors.
- Resident Address, Contact Number, Email Id of all the Directors.
- The proposed names for the Company shall be stated preference-wise with a description of the significance of each such name.
- The State in which Company is to be registered.
- Authorized and Paid-Up capital of the Entity.
- Main Object of the Proposed Company.
- The number of Proposed Shareholders.
This information should be correct and will be used by the Central Government to decide whether to give the Entity the status and privilege of section 8 or not. This is the reason why the filing should be done very carefully. If any other legal entity is also a member of the Company, for example a partnership firm, it shall also \be mentioned while seeking Registration under section 8. The correct details of the members, whether relatives or non-relatives, shall be given in the filing.
APPOINTMENT OF AN AUDITOR (Section 139)
An auditor should be appointed to audit the book of accounts and annual returns of the Company. His tenure will be for a period of 5 years.
ANNUAL FORM (AOC-4)
The company is required to file its financial statement in Form AOC-4 within 30 days of holding of the Annual General Meeting.
ANNUAL RETURN (MGT-7)
The Company is required to file its Annual Return with the management details, shareholders’ details in Form MGT-7 with Registrar of Companies (ROC) within 60 days of holding of the Annual General Meeting.
INCOME TAX RETURN
The Company needs to file an income tax return at the end of every assessment year.
The Government has exempted section 8 companies from section 173(1). Therefore, these are required to have at least one meeting in every six months and a total of two meetings in a financial year. In Sunil Dev v Delhi and District Cricket Association (1994), it was held that failure to lay accounts before the Annual General Meeting did not invalidate the meeting.
DISCLOSURE OF INTEREST BY DIRECTOR (SECTION184(1))
Every director is mandatorly required to diclosure his interest at the first meeting of the Board in which he participates as a director and thereafter at the first meeting of the Board in every financial or changes in his interest.
NOTICE OF ANNUAL GENERAL MEETING
The Company can hold a meeting with a minimum of 14 days notice as against 21 days notice otherwise applicable under section 101 (1) of Companies Act.
THE NUMBER OF DIRECTORS
These Companies are exempted from section 149(1) of the Companies Act 2013. The threshold of having minimum and a maximum number of directors prescribed in the section is not applicable to section 8 Companies.
QUORUM FOR BOARD MEETINGS
As per section 174(1) of the Companies Act read with exemption notification, a quorum for board meetings of section 8 companies is 8 directors or 25% of its total strength, whichever is lower. However, the quorum shall not be less than two members.
PENALTIES FOR NON-COMPLIANCE
The Central Government may deprive the Company of its license if there is no compliance, but a reasonable opportunity of being heard must be given to the Company. A copy of the order has to be served on the Registrar.
After the revocation of license, the Central Government may order winding up of the Company if it is necessary to do so in the public interest or order its merger with another company registered as a charitable Company. In case of any default being made in complying with the requirements of the section is a punishable offense. Both the Company and its directors are punishable. Further, any fraud on the part of the officers of the Company would make them liable to be proceeded against under section 447.
Section 8(11) gives the penalties in case of fraudulent actions of the Company. There can be imposed a fine of not less than 10 Lakh rupees extendable up to 1 Crore rupees. Every director and officer of the Company in default shall be punishable with imprisonment for a term which can be of three years with fine which shall not be less than 25,000 rupees but which can extend to 25 Lakh rupees, or with both.
Section 8 companies have been given some privileges, but the Government needs to be vigilant enough that these charitable organizations don’t turn into profit-making ventures. The courts have also been in the past unforgiving to any deviation from these compliances. The guise of the charity shall not be used as a way to do unencumbered business. The Company needs to act within the sphere of its stated objects, and in case it wants to change its objects, it needs to seek prior permission of the Central Government. These are nonprofit organizations, and members and officers cannot reap any dividends and allowances. All the profits need to be utilized into fostering the objectives of the Company.