Exemptions to Section 8 Companies Under the Companies Act 2013

  • Setindiabiz Team
  • April 5, 2024
Exemptions to Section 8 Companies Under the Companies Act 2013

Section 8 Companies are Non-profit companies formed under the Companies Act of 2013. They are regulated by the Central Ministry of Corporate Affairs, like any other company established in India. However, owing to the nature of their objectives, goodwill, and social welfare offered to society, the Government has relaxed a few of its compliance requirements. This has also drastically reduced their cost burden of operations and eliminated the financial struggles they frequently faced before. Let’s discuss a few of these relaxations in detail.

BRIEF SUMMARY

Section 8 Companies need not adhere to qualification standards set by the Companies Act while appointing their Company Secretary. Further, there is no minimum requirement of capital for setting up a Section 8 Company either. Similarly, there are other relaxations in the laws regarding annual general meetings, appointment of directors, formation of audit committees, and so on. A deep analysis of these relaxations can help you understand how convenient and beneficial starting a Section 8 Company can be.

What are Section 8 Companies?

Section 8 companies are non-profit entities established under Section 8 of Companies Act 2013. They are incorporated with the structure of a regular company and possess all its features like distinct legal identity, limited liability of stakeholders, and continued existence with freedom of share transfer. The primary purpose of Section 8 companies is promoting charitable objects especially those regarding education, healthcare, poverty alleviation, environmental sustainability, and the advancement of other social causes. Note that none of these activities generate income or profits for distribution among shareholders. Instead, any surplus generated from these activities is reinvested into advancing the charitable objectives of the organisaton further.
S.No. Key Features of Section 8 Companies
1.
Non-profit Objective
2.
Limited Liability
3.
No Minimum Capital Requirement
4.
Section 12 A & 80 G Tax Exemptions under the Income Tax Act
5.
Business Activities restricted to Section 8 of the Companies Act 2013
6.
Free Share Transfer Ensures Continued Existence

Key Compliances in a Section 8 Company

Before moving ahead with the Relaxations in compliance requirements, let’s first understand what the basic compliance requirements are in the first place! Remember, these requirements are essential and must be met timely to avoid any legal repercussions later. If you’re unsure of the time in which your compliances are due, we can provide a free consultation. Anyway, if they get delayed, you might have to pay penalties and additional late fees. Here’s the complete list of compliances.

  1. Incorporation with ROC: The Section 8 company must be incorporated with the Registrar of Companies (RoC) by filing necessary documents such as a Memorandum of Association (MOA), Articles of Association (AOA), and other relevant forms. 
  2. Adherence to Specific Objective: The company must ensure that its activities align with Section 8 of Companies Act 2013 and those mentioned in its MOA. Any deviation from the stated objectives will be inferred as non-compliance with prescribed laws and regulations.
  3. Board Meetings: The Board of Directors must call meetings at least four times a year at a gap of not more than 120 days. These meetings are essential for routine compliance matters like approval of financial statements, annual returns, auditor’s appointment, and so on. 
  4. Annual General Meeting (AGM): The company must conduct an annual general meeting of shareholders within the prescribed time frame, usually within six months from the end of the financial year. This meeting provides an opportunity for shareholders to review the company’s performance, approve financial statements, and ratify auditors appointment.
  5. Financial Statements: Section 8 companies are required to prepare and file annual financial statements to the ROC. This includes the balance sheet, income and expense statement, and cash flow statement of the orgnisation. Make sure these statements are audited before submission. 
  6. Statutory Registers: The company must maintain various statutory registers, including registers of members, directors, and debenture holders, as required by the Companies Act. These registers must be kept updated for inspection by regulatory authorities.
  7. Audit Requirements: Section 8 companies are subject to annual audit requirements as per the Companies Act. For this purpose, they must appoint auditors on an annual basis and intimate the same to the ROC.
  8. Tax Compliance: Section 8 companies must comply with tax regulations applicable to non-profit entities, including the filing of annual ITR, claiming tax exemptions under Section 12A of the Income Tax Act, and adhering to provisions related to tax deductions for donors (Section 80 G of Income Tax Act)
  9. Annual Returns: Section 8 companies are required to file annual returns with the RoC, providing details of the company’s activities, financial performance, and governance structure. These returns must be filed within 60 days from the end of the annual general meeting. 
  10. Compliance with Other Laws: In addition to the Companies Act, Section 8 companies must comply with other applicable laws, including those related to labour, environment, and fundraising activities.

Compliance Exemptions to Section 8 Companies

Section 8 companies enjoy several exemptions and relaxations when it comes to compliance requirements. These exemptions are provided to reduce the compliance burdens of Section 8 companies so that they can promote social welfare and goodwill activities without any hindrance. Additionally, this also reduces the overall cost of compliance, so that the income generated through grants and donations could be used to further the organisations’s objectives. Let’s explore some of these key exemptions.
  1. Appointment of Company Secretary: A Section 8 Company can appoint a company secretary who does not fall in the definition of company secretary under Section 2(24). A company secretary has been defined to mean a member of the institute of company secretaries of India (ICSI). However with this exemption in place a section 8 company can appoint any person as company secretary even if that person is not a member of ICSI.
  2. Minimum Paid-up Share Capital: A Section 8 company need not have minimum paid up share capital as prescribed under Section 2(68) and Section 2(71) for a private and a public company respectively. Thus the companies incorporated under section 8 are free to have any share capital.
  3. Flexibility in Annual General Meeting (AGM) Scheduling: The time, date, and place of each AGM can be decided beforehand by the Board of Directors having regard to the directions, if any, given in this regard by the company in its general meeting. [second provision to section 96(2)]. The company can fix the next AGM date in the meeting of shareholders and based on the instructions the board can call for the AGM. In ordinary companies the board of directors alone has the power to call for an AGM, However, in the case of section 8 companies, this power may be exercised by the shareholders.
  4. Notice Period for General Meetings: A section 8 company can call a general meeting by giving a clear 14 days notice. [Section 101(1)]. In case of companies other than the section 8 company a shareholders meeting can be called only by giving a notice calling such an AGM after 21 clear days. However a section 8 company can now call an AGM or EGM by giving just 14 days of clear notice.
  5. Exemption from Section 118 Requirements: A section 8 company need not comply with the requirements stipulated under section 118 dealing with Minutes of Proceedings of general meetings, meeting of Board of Directors and other meetings and resolutions passed by postal ballot. However, minutes may be recorded within thirty days of the conclusion of every meeting in case of companies where the articles of association provide for confirmation of minutes by circulation.
  6. Timely Sending of Financial Statements: A section 8 company can send a copy of the financial statements, including consolidated financial statements, if any, auditor’s report, and every other document required by law to be annexed or attached to the financial statements, which are to be laid before a company in its general meeting to its members not less than fourteen before the date of the meeting.
  7. Director Requirements: A section 8 company need not comply with the requirement of the minimum and maximum number of directors as stipulated under section 49(1) and the first proviso thereof.
  8. Exemption from Appointment of Independent Directors: A section 8 company need not appoint independent directors. Such companies are exempted from the requirement of sub-sections (4), (5), (6), (7), (8), (9), (10), 12(i) and (13) of sections 149 and 150.
  9. Consent Letter for Directors: A section 8 company need not obtain a consent letter from directors and file the same with RoC within 30 days of appointment as required under section 152(5).
  10. Notice of Candidature for Directors: A section 8 company need not comply with requirements of section 160 with respect to notice of candidature for appointment of a director other than a retiring director if the Articles of association of such company provide for election of directors by ballot.
  11. Directorship Limitation: The restrictions in section 165(1) with respect to limits on directorship will not apply for section 8 companies.
  12. Frequency of Board Meetings: A section 8 company can hold meetings of the Board of Directors once every six calendar months. Section 174 (1)] which is in contrast with the quarterly requirement of holding board meetings.
  13. Quorum Requirement for Board Meetings: The quorum requirement for Board meetings of a section 8 company shall be either 8 members or 25% of the total strength whichever is less. However, the quorum shall not be less than 2 members.
  14. Audit Committee Composition: A Section 8 company can have an Audit Committee without independent directors.
  15. Nomination and Remuneration Committee: A section 8 company need not comply with the requirements of section 178 concerning constituting the Nomination and Remuneration Committee and Stakeholders Relationship Committee.
  16. Compliance with Section 184(2) and Section 189 Requirements: A Section 8 company needs to comply with Section 184(2) and Section 189 requirements only in case of transactions about Section 188 where the terms and conditions of the contract or arrangement exceed Rs. 1,00,000.

Section 8 Companies are exempted from several compliances under the Companies Act 2013. These exemptions reduce the cost and compliance burden of these entities and allow them to carry out their activities seamlessly. The objective is to promote their philanthropic activities and further their cause in society without any hindrance. Hopefully, the discussion in this blog has given you a clarity of understanding regarding the subject. Post any further queries you have in the comments section or contact our advisors directly for help!

Conclusion

FAQs

Q1: What is Section 8 of Company Act 2013?

Section 8 of Company Act 2013 provides legal framework for regulation of Section 8 Companies in India.

Q2: What are the key benefits of Section 8 company?

Benefits of Section 8 Company include Limited Liability,100% tax exemption under Section 12 A of IT Act, continued existence through free share transfer, distinct legal identity and separate authority to control management.

Q3: What are the compliance requirements for Section 8 companies?

Compliance requirements for Section 8 companies include registration with the RoC, adherence to Section 8 objectives, conducting annual general meetings (AGMs), filing annual returns and financial statements, maintaining statutory registers, and filing annual ITR.

Q4: Can a Section 8 company earn profits?

While Section 8 companies are primarily non-profit entities, they can generate surplus income from their activities. This surplus income cannot be distributed to members or shareholders, and must be reinvested in carrying out the organisation’s activities.

Q5: Are there any restrictions on the activities of Section 8 companies?

Section 8 companies can pursue a wide range of activities. However, they must be stated in Section 8 of Companies Act 2013 and the MOA of the Company.

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