Section 8 Company Under the Companies Act, 2013

Section 8 Company Under the Companies Act, 2013

Introduction

A Section 8 Company is a type of non-profit organization registered under the Companies Act, 2013, primarily for promoting charitable, social, or other not-for-profit objectives such as arts, commerce, education, research, sports, environment protection, and social welfare.

Unlike other companies that operate for profit, a Section 8 Company reinvests its earnings into achieving its objectives and cannot distribute dividends to its members.

The Ministry of Corporate Affairs (MCA) grants such companies a license under Section 8 of the Companies Act, 2013, subject to compliance with specific regulations.

Is a Cash Flow Statement Mandatory for a Section 8 Company?

✅ Yes, a Section 8 company is required to prepare a Cash Flow Statement.

Legal Justification:

1. Definition of Financial Statements (Section 2(40) of the Companies Act, 2013)
• As per Section 2(40), a financial statement includes:
• Balance Sheet
• Profit & Loss Account (or Income & Expenditure Account for Section 8 companies)
• Cash Flow Statement
• Statement of Changes in Equity (if applicable)
• Explanatory Notes

Exception:

• Only the following are exempt from preparing a cash flow statement:
• One Person Companies (OPCs)
• Small Companies
• Dormant Companies

o   📌 Important: The law does not exempt Section 8 companies from preparing a cash flow statement.

“One Person Company” means a company which has only one person as a member;

“Small Company” means a company, other than a public company, —

(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees; or and

(ii) turnover of which as per profit and loss account for the immediately preceding financial year as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees

Provided that nothing in this clause shall apply to—

(A) a holding company or a subsidiary company;

(B) a company registered under section 8; or

(C) a company or body corporate governed by any special Act;

Dormant Company

As per sec 455 of the Companies Act, 2013 “Dormant Company” means a company

Where a company is formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the Registrar in such manner as may be prescribed for obtaining the status of a dormant company.

Explanation. —For the purposes of this section, —

(i)   “Inactive company” means a company which has not been carrying on any business or operation, or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years;

 (ii) “significant accounting transaction” means any transaction other than—

(a) payment of fees by a company to the Registrar;

(b) payments made by it to fulfil the requirements of this Act or any other law;

(c) allotment of shares to fulfil the requirements of this Act; and

(d) payments for maintenance of its office and records

Conclusion

Therefore it can be concluded

• that the financial statements of Small Companies, Dormant Companies and OPCs need not include a cash flow statement.
• However, Section 8 companies are not included in this exemption, because it is neither an OPC nor it is a Small Company.
• It can only be exempted if it applies for Dormant Company.

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