Section 8 Company: Relaxation in compliance norms under Company Law

Section 8 Company: Relaxation in compliance norms under Company Law

Legal & Compliance

Vakilsearch Staff

Vakilsearch Staff

13 Sep 2019, 09:45 — 6 min read

Background: The Ministry of Corporate Affairs now offers special benefits, conditions and rules for a company registered under Section 8 of the Companies Act, 2013. Vakilsearch in their previous article had shared the process to change GST registration details online. Here they share details about relaxation in compliance laws under the Companies Act.

 

Some of the prime conditions under Section 8 of the Companies Act, 2013

  1. Objects for promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment or any such related objectives.
  2. Intention to apply its profits or other income for promoting its objectives.
  3. Intends to prohibit the payment of dividends to its members subject to Central Government approval, by means of a license with prescribed conditions, this Section 8 on the registration of a company has the few privileges.

Other Conditions

Other than being a limited company, the central government’s approval is needed for the conversion of these companies and alteration in the provisions of Memorandum and Article of such companies.

Also read: Registrar Of Companies In India

 

Implications of Non-Compliance

Central Government has exclusive powers in case of non-compliance of conditions in the license and it can revoke the license if required. Additionally, it can compel winding up or compelled merger with similar registered Section 8 company. All the conditions specifically those of Central Government.

Listed below are some dispensations which are amended

Company Secretary

Company Secretary Requirement mentioned in Section 2(4) has been done away with so to appoint a Company Secretary is not mandatory for a Section 8 companies.

Capital requirements

Limited Liability Company is incorporated under Section 8 for which capital requirement is INR 5 lakhs and the same requirement has been done away so you don’t need this amount for registering a company. As we know the working of a non-profit company could strongly be affected due to capital constraints and hence this amendment to exempt has become very useful.

Annual General Meeting

Companies require a notice of 21 days which has now been reduced to 14 days u/s 101(1). Also, there is no requirement to follow Section 96(2) which had rules for time/place/restrictions on AGM. But time, date and place of each annual general meeting are to be decided before-hand by the Board of Directors with due regard to the directions if any given in this regard by the company in its general meeting. This means an AGM can be done at other than registered office, city and place different than office timing subject to General meeting directions that could be given.

The minutes of the meeting is not required to be as per Section 118 provisions but with the exception that if articles provide that minutes are required to be approved by circulation within 30 days  requirements of financial statements, audit reports and other documents that are to be sent 21 days before AGM is done away with for these companies.

Also read: What are the objectives of an Annual General Meeting of a company?

 

Directors

The requirement to have independent directors (Section 150) is done away with. And corresponding provisions of Section 149 are not applicable. So, there is no limit on the minimum and no maximum (Section. 165) of directors. But to conduct a board meeting there should be minimum 2 boards of directors.

Moreover, Section 8 companies do not require holding the first meeting of the board within 30 days of incorporation of the company. A meeting of the directors will still be necessary once every six months.

Also, individuals other than retiring directors to stand for directorship will not be enforceable in Section 8 companies which are similar to the exemption offered to private companies. However, this shall not be applicable for companies whose articles offer elections of directors by ballot.

Board Meetings

Unlike other companies that need board meetings at least four times in a year (Section 173), Section 8 company can meet in 6 months i.e. two times. Section 174 which stands for a quorum has been amended and now for Section 8 company, we have either eight or twenty-five per cent of total strength whichever is less as quorum subject to a minimum of two members. Powers of board mainly borrowing of money, investment of funds, to grant a loan, or give guarantee could only be exercised in board meetings. But now for Section 8 Company, it can be done by a circulation only.

Related Party transactions and compliances

Related party disclosures u/s 184(2) for interest disclosure by a Director and Section 184 is a Register for Contracts in which Directors are interested. Shall only be required if, as per the terms of the contract or agreement, the amount exceeds INR 1 lakh and Section 188 is applicable.

Conclusion

Being a Section 8 Company there are restrictions which require to be followed when extra compliances are removed. It mainly takes off the load from the organization working for the society. This is a great initiative by the Govt. to introduce such relaxations. Overall, makes the operations of these organizations smoother and more efficient.

Also read: How to apply for Digital Signature Certificate & its benefits

 

Image courtesy: shutterstock.com

 

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Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views, official policy or position of GlobalLinker.

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