The Audit Requirements For Section 8 Registration

A Section 8 company in India is a non-profit organization recognized under the Companies Act, 2013. These organizations are set up to promote social welfare, arts, commerce, education, charity, environmental protection, sports, science, and research. Unlike for-profit companies, Section 8 companies use their profits to further their objectives rather than distributing them as dividends. While they enjoy certain exemptions and benefits, Section 8 companies must adhere to various compliance requirements, including auditing. This article provides a comprehensive overview of the compliance obligations of Section 8 company Registration, particularly focusing on audit requirements.

What is a Section 8 Company?

A Section 8 company is a distinct non-profit entity under the Companies Act, 2013, dedicated to promoting social causes. These companies, reflecting their non-profit nature, are exempt from including the term "Limited" in their name. The profits and income generated by Section 8 companies are solely used to promote their objectives. Additionally, they often benefit from exemptions under the Companies Act, Income Tax Act, and other regulations.

Section 8 Company Registration Compliance:

Section 8 Company Registration involves adhering to a set of legal obligations and regulatory requirements to maintain their non-profit status under the Companies Act, 2013. These requirements are categorized into event-based, time-based, and specific criteria-based compliances.

Event-Based Compliances: These are triggered by specific events within the company.

Time-Based Compliance: These routine compliances need to be finished on a quarterly, half-yearly, or annual basis.

Particular Criteria-Based Compliance: According to certain requirements, such as the company's paid-up share capital, turnover, or other circumstances, certain compliances are necessary.

Section 8 Company Compliance Checklist

Section 8 companies in India are those incorporated for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment, or any such other object. They are required to comply with several legal and regulatory requirements.

1. Form ADT-1: Appointment of Auditor

Form ADT-1 is used to notify the Registrar of Companies (RoC) about the appointment of an auditor. Within fifteen days of the appointment, this form needs to be submitted. It Ensures that the company’s financial statements are audited by a qualified professional.
Process:

• The Board of Directors must appoint an auditor in their first meeting or during the Annual General Meeting (AGM).
• Adopt a resolution authorizing the meeting.
• File Form ADT-1 along with the required documents, such as the consent letter from the auditor and a certified copy of the resolution passed by the board.

2. Maintaining Account Books

Companies covered by Section 8 are required to keep accurate and current books of accounts. Facilitates transparency and accuracy in financial reporting and ensures all financial transactions are recorded properly.

Requirements:

• Account books should reflect a true and fair view of the state of affairs of the company.
• Must be kept at the registered office and be available for inspection.
• Includes records of all receipts, payments, sales, purchases, and other financial transactions.

3. Keeping Statutory Registers

Companies under Section 8 must keep a number of statutory registers. It Ensures compliance with legal requirements and keeps track of the company’s statutory obligations.

• Registers to Maintain:
• Register of Members
• The KMP, or Register of Managerial Personnel and Directors,
• Register of Charges
• Loans, Guarantees, and Investments Registration
• Register of Contracts with related parties and particulars of contracts in which directors are interested

4. Financial Statement Preparation

Companies must prepare financial statements that include the balance sheet, profit and loss account, cash flow statement, and notes to accounts. It Provides a comprehensive view of the company’s financial performance and position.

Requirements:

• Financial statements must comply with the accounting standards prescribed under the Companies Act, 2013.
• The designated auditor should conduct the audit.
• Must be approved by the Board of Directors and signed by authorized signatories before being submitted to the members in the AGM.

5. Filing Income Tax Returns

Companies under Section 8 must keep a number of statutory registers. It ensures compliance with the Income Tax Act, 1961, and helps in the assessment of the company’s tax liabilities.

Process:

• Prepare the tax computation as per the applicable provisions of the Income Tax Act.
• File the income tax return using the prescribed form (ITR-6 for companies).
• Submit the return electronically on the Income Tax Department’s e-filing portal by the due date, typically September 30th of the assessment year.

6. Financial Statements (AOC-4)

Form AOC-4 is used to file the company’s financial statements with the RoC. It ensures that the company’s financial information is publicly available and complies with the disclosure requirements of the Companies Act.

Process:

• Prepare the financial statements and get them audited.
• Pass a resolution for the approval of the financial statements in the Board Meeting.
• File Form AOC-4 along with the audited financial statements, Director’s Report, Auditor’s Report, and other necessary attachments within 30 days of the AGM.

7. MGT-7: Annual Returns to be Filed with the Registrar of Companies

Form MGT-7 is used to file the annual return of a company with the RoC.
Provides details about the company’s directors, shareholders, indebtedness, and other key information.

Requirements:

• Annual return must be prepared as per the provisions of Section 92 of the Companies Act, 2013.
• Should contain information as of the end of the financial year.
• Must be submitted no later than sixty days following the AGM date.

By adhering to this compliance checklist, Section 8 Registration can ensure that the Section 8 companies operate within the legal framework set forth by the Companies Act, 2013, and maintain their status as entities dedicated to social welfare and public good.

Compulsory Annual Compliances for Section 8 Company Registration:

1. Auditor Appointment Compliance – Filing Form ADT-1

Under Section 139 of the Companies Act, 2013, every Section 8 company must appoint an auditor to audit the company’s annual financial statements. The details of the auditor’s appointment must be communicated to the Ministry of Corporate Affairs (MCA) using Form ADT-1 within 15 days of the company’s Annual General Meeting (AGM). Non-compliance can result in penalties.

2. Statutory Register Maintenance Requirement

Section 8 companies must maintain a statutory register, which documents critical aspects of the company’s operations and governance, including:

• Loans acquired by the company.
• Detailed information on directors.
• Changes in directorship.
• Information about charges made against the company's assets.
• Records of investments made.

3. Conducting Meetings

Section 8 companies are required to hold various meetings:

• Annual General Meeting (AGM): This needs to happen once a year.
• Board Meetings: They are held once every 120 days or more.
• Extraordinary General Meetings (EGM): Convened to discuss pressing issues.
• Committee Meetings: Regular meetings for specific committees like audit committees.

4. Board of Directors’ Report

The Directors of a Section 8 company must prepare a comprehensive report covering compliance information, CSR activities (if applicable), accounting details, and other relevant information. This report is filed along with Form AOC-4.

5. Preparation of Financial Statements

Annual compliance includes preparing and submitting financial statements such as:

• Balance Sheet: Lists the assets, liabilities, and equity held by the company's shareholders.
• Profit and Loss Statement: Summarizes the company’s revenues, costs, and expenses.
• Cash Flow Statement: Summarizes the cash inflows and outflows.

These financial statements must be filed with the Registrar of Companies (ROC) and audited by the appointed auditor.

6. Filing of Financial Statements – AOC-4 Form

The AOC-4 Form is used to submit annual financial statements within 30 days from the AGM date. Failure to comply results in penalties.

7. Filing of Annual Returns – MGT-7 Form

Annual returns must be filed using Form MGT-7 within 60 days from the AGM date. Non-compliance leads to penalties.

8. Filing of Income Tax Return

Section 8 companies must file their income tax returns by September 30th each financial year. If registered under Sections 12A and 80G, they may qualify for exemptions.

Documents Required for Section 8 Company Registration:

Essential documents for compliance include:

• Articles of Association (AoA)
• Memorandum of Association (MoA)
• Digital Signature Certificate (DSC)
• Company Incorporation Certificate

Penalties for Non-Compliance in Section 8 Companies

Non-compliance can lead to severe penalties:

• License Termination: If the company functions dishonestly.
• Monetary Fines: Ranging from Rs. 10 lakh to Rs. 1 crore.
• Penalties for Directors and Officers: Including imprisonment and fines up to Rs. 25 lakhs.
• Liability for Fraudulent Operations: As per section 447 of the Companies Act, 2013.

Conclusion

Annual compliance requirements for Section 8 companies are not just legal necessities but also a means to leverage benefits associated with their status. By following these regulations diligently, Section 8 companies can avoid stringent penalties, ensuring their continued operation and contribution to their social objectives.

LegalRaasta simplifies Section 8 company Registration. Our professionals make sure your Section 8 Registration complies with all laws and guidelines pertaining to the Companies Act of 2013. We take care of everything—from filling out the required paperwork to keeping track of things and creating financial statements—so you can focus on your philanthropic endeavours. With our assistance, you can stay in compliance and avoid fines. Get in touch with our experts today for seamless Section 8 company compliance!