Oct 05,2019 | 15 min read

Section 8 Companies, Compliances and Winding Up Procedure

Author - Associate Zarmeen Jahan

Company Act 2013 is an act according to which the companies in India are to be regulated. The act has 29 chapters containing 470 sections. It replaced The Companies Act, 1956 after getting the approval from the President of India in 2013. Section 8 Company is a part of the Companies Act, 2013, which concerns to an established company 'for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object' provided the profits if any or other income is applied for promoting only the objects of the company and no dividend is paid to its members. Therefore, Section 8 Company is a company registered under the Companies Act, 2013 for charitable or not-for-profit purposes. A Section 8 Company is similar to a Trust or Society.

When an investor sets-up a business in India, whether it is an organisation, project office or a company, that business needs to comply with Indian rules and regulations. To legally operate, businesses must abide with certain requirements regarding the company’s transactions, employees and safety procedures. Before launching one's business, they should know the appropriate regulations for the industry while making sure to keep a log of any costs and dates related to their compliance. The definition of compliance includes efforts to ensure that organizations are abiding by both industry regulations and government legislation.

The laws by which the companies regulate are:

  • Corporations have strict internal requirements, which consist of forming a board of directors, conducting initial and annual director meetings, creating and updating bylaws, providing stock to shareholders and transcribing all stock transfers. Internal requirements are largely meant to ensure that a corporation is being run with integrity and free of corruption or other corrupting elements.

For a Company. the mandatory compliances with the Registrar of Companies (RoC) are the most essential of all. Some of the important provisions include the appointment of an auditor, conducting board and shareholder’s meetings, filing statutory annual returns, and maintenance of statutory registers. These criteria should be met and will be verified by the investors.

  • In India, companies need to maintain accounting records that meet the Indian Generally Accepted Accounting Policies.

  • All the Indian companies are subjected to payment of tax and stamp duty for their business transactions undertaken during any financial year and on the income generated from such operations. Non-payment of tax and stamp duty may attract moderate to heavy penalty, cause enforceability issue of the document and, in some cases, impounding of the documents by the authority.

  • Companies Act has also introduced the CSR (Corporate Social Responsibility) provisions where the corporate entities are obligated to undertake certain charitable activities. All companies which satisfy the CSR criteria will have to undertake CSR activities during the given financial year.

  • Employees' State Insurance Act,1948; the Maternity Benefits Act,1961; the Industrial Disputes Act,1948; The Contract Labor Act,1970; the Trade Union Act,1926 and others govern the issues such as working time and conditions of employment of workers, minimum wages and remuneration, rights and obligations of the trade unions, insurance of the employees, maternity benefits, employment retrenchment, payment of gratuity/provident fund, payment of bonus, regulations of the contract labor and such other issues concerning the employees.

  •  A company is required to abide with the provisions of the environmental laws such as Environment Act,1986; the Water Act,1974; the Air Act,1981 and others to the extent specifically applicable to the business operations of such company.

  • At least one meeting should be conducted in every three calendar months. Four such meetings should be held every calendar year.

  • Businesses engaged in cross border trading need to comply with customs duty regulations. The duty varies between products.

Winding up is a process using which the affairs of a company are wound up in a manner to dissolve the company and put an end to the life of a Company. In the process of winding up, the company’s assets are administered for the benefit of the members and creditors of the Company. The liquidator, realises its assets, pays its debts and finally distributes the surplus if any among the members and creditors, following their right as provided in the article of the Company Act,2013.

Conclusion

Each of these categories has a different set of compliance procedures and laws. To avoid any backfiring in the form of legal hassles or otherwise, it is better to be aware of all these formalities right at the inception stage. During winding up, the assets and liabilities of the Companies are disposed of by the liquidator so that in the end, the company shall not have any assets and liabilities

The act which is making sure that any business or action conducted by a company is within legal parameters or that all "reasonable" actions have been taken to prevent incidents.


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