MICRO-FINANCE COMPANY COMPLIANCES.
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WHAT IS MICROFINANCE COMPANY ?
An organisation that offers small-scale financial services, such as loans, credit, or savings, is known as a microfinance company. These enterprises were created to simplify the credit system for small businesses since they are unable to obtain bank loans due to the lengthy application process. As a result, it is frequently referred to as a micro-credit organisation. They provide small loans to various households and small businesses that do not have access to or are not eligible for traditional banking services.People who live in rural areas are eligible for minor loans of up to Rs. 50,000, whereas those who live in urban areas are only eligible for loans up to Rs. 1,25,000. The simplest approach to establish a Micro Finance Company in India is to establish a Section-8 Company with the Ministry of Corporate Affairs (MCA), which may be done without spending any additional money or providing any type of guarantee. A microfinance organisation can provide loans at low interest rates under the direction of the RBI and the federal government. They give a lot of help to every aspect of rural and agricultural development, including job and income creation. In India, there are primarily 2 types of microfinance organisations that are permitted; the first type must be registered with the latter is a non-profit organisation that is registered as a section 8 company and does not require approval from the RBI.
MANDATORY CONDITIONS FOR MICRO FINANCE ORGANISATION
Essentially, there are only 2 ways to sign up for a microfinance institution (MFI). Creating a business and then requesting RBI approval is one method. A “Microfinance company” must have a net owned fund of Rs. 5 crore and promoters with active profiles in order to qualify. Registering as a section 8 company is the second option. The second method of registration is provided by LegalRaasta. Apply for central government permits, which include the following features:
- You can donate up to Rs. 50,000 for business purposes and Rs. 1,25,000 for a home.
- No minimum required for net owned funds. You are free to make a decision.
- Since the RBI has exempted this company from registration, no RBI approval is required.
NO RBI APPROVAL
Only non-banking finance companies are authorised to conduct financial operations in India (NBFC). The Reserve Bank of India (RBI) has, however, given some business entities an exception so that they may conduct banking activities up to a certain amount. By its master circular, the RBI issued the following: RBI/2015-16/15 DNBR (PD) CC.No.052/03.10.119/2015-16 All Section 8 companies engaged in microfinance activities have been freed as of July 1, 2015, and they are immune from the regulations of the RBI Act of 1934.
The Reserve Bank of India Act, 1934 (2 of 1934), Sections 45-IA, 45-IB, and 45-IC do not apply to any non-banking financial company that is
(a) Taking part in microfinance operations, offering credit not exceeding Rs. 50,000 for a business enterprise and Rs. 1,25,000 to cover the purchase of a home to any poor person in order to help him improve his level of income and standard of living; and
b) Licensed in accordance with Section 25 of the 1956 Companies Act; and
(c). Refusing to accept public deposits as described in Notification No. 118 /DG (SPT)-98, dated January 31, 1998, paragraph 2(1) (xii).
MANDATORY DOCUMENT
PAN card:
In the case of Indian citizens, the PAN card of shareholders and directors.
Rent agreement:
If you have rented property, then a copy of rent agreement.
Passport-size image
A recent photo of the directors and shareholders that is not older than 10 months.
Address proof
Electricity bill, water bill, bank statement, gas or telephone bill of shareholders and directors.
ID proof
Copy of Aadhaar card/voter identity card/passport/driving license of directors and shareholders.
NOC from the owner
No objection certificate is needed from the owner of the registered office.
MANDATORY COMPLIANCES FOR MICRO FINANCE COMPANY
The Micro Finance Company must follow to some basic requirements. The following are the most crucial compliances, though:
RBI COMPLIANCES : Even if the corporation is not needed to register with the RBI, it is still expected to adhere to its rules.
COMPANY ACT : The Corporations Act, 2013, which applies to all firms, also applies to Section 8 companies.
ADDITIONAL: The Corporations Act, 2013, which applies to all firms, also applies to Section 8 companies.
INTRODUCTION TO SECTION 8 COMPANY COMPLIANCES:
The Companies Act of 2013 makes Section 8 Compliance with the MCA a requirement for all Section 8 Company Companies (Ministry of Corporate Affairs).
Creating Section 8 Company was done to support, nurture, and advance endeavours in the arts, sciences, sports, business, humanitarian work, etc. A non-governmental organisation can be categorised as a Section 8 Company. Although the word “Limited” is not added to the end of the names of these firms, they have the freedom to be treated as “Limited Companies.” In a nutshell, Section 8 businesses seek to support underprivileged communities and industries in India. These Corporations are not required to pay their members any dividends or income.
DOCUMENTS NEEDED FOR SECTION 8 COMPANY ANNUAL COMPLIANCES
- Memorandum of Association (MOA)
- Article Of Association (AOA)
- DSC
- Certificate Of Incorporation
LIST OF REQUIREMENTS FOR SECTION 8 COMPANY COMPLIANCES
Appointment Of Auditor: A Section 8 firm must appoint an auditor to oversee their financial records on a yearly basis.
Maintaining Registers: The expectation for Section 8 companies is that they will maintain statutory records in registers. These registers are kept on an annual basis with the aim of evaluating the company’s performance on a yearly basis. The register contains details about members, loans, fees, and investments.
Maintenance Of Financial Statements: A Section 8 Company’s financial records are kept on an annual basis. The financial records are provided to the registrar after they have been prepared. Information found in financial documents includes the following:
- First Trading Account
- The Profit and Loss Statement
- Balance Sheet
Preparing Director’s Report: The Director’s Report must be submitted using Form AOC-4, according to Section 134 of the 2013 Companies Act. The goal of writing a director’s report is to provide shareholders with a sneak peek of the company’s financial situation and commercial operations. The “minutes of meetings,” which must be signed, must be kept at the registered office.
Income Tax Return Filing: Section 8 companies must file their income tax returns by September 30th of the next fiscal year, at the latest. It is crucial to file an income tax return in order to provide a comprehensive summary of the company’s earnings. However, the company can benefit from tax exemption if it is registered under Sections 12A and 80G.
Conduct Board Meeting: Every board meeting should take place twice a year, even for tiny businesses. There shouldn’t be more than 90 days between the two meetings.
Conduct Annual General Meeting: Every year, on or before September 30th, the Section 8 Company’s annual general meeting should be convened. The meeting must be attended by all of the directors, members, and auditors. They should be informed about the meeting with at least 21 days’ notice. To submit the report of the annual general meeting, use form MGT-15. Within thirty days following the meeting, the report must be sent in.
Financial Return Filing with the RoC: To submit the copy of financial statements, utilise E-form AOC-4. It must be submitted within 30 days of the annual general meeting’s date.
Annual Return Filing with RoC: The corporation submits its yearly return using Form MGT-7. Within 60 days of the Annual General Meeting’s conclusion, the annual return is filed. If there isn’t an annual general meeting for a given year, the annual return must be filed within sixty days of the day the annual general meeting should have taken place, which is September 30. It should be related to the notification that details the justifications for cancelling the annual general meeting.
SECTION 8 COMPANY TAX COMPLIANCES
Section According to the Income Tax Act, a company is required to pay corporate tax. However, the Company is able to exclude some of its income from income tax by taking specified steps. The following requirements must be met by Section 8 Company in order to consider such exemptions:
- According to Section 12A of the Income Tax Act, Section 8 corporations are required to register with the Principal Commissioner using form 10A.
- If the business wants to meet the requirements for exemption eligibility, it must follow the rules outlined in Section 11.
- The business must receive Form 10B approval from Section 80G.
PENALTIES TO BE CHARGED IN CASE OF NON-COMPLIANCES
In the event that any procedure is not followed, the Ministry of Corporate Affairs has the power to apply certain fines.
Penalties to be imposed are as follows:
- In the unlikely event that it discovers that the group is operating dishonestly or contrary to its stated goals, the Central Government may revoke the authorization granted to the organisation.
- The organisations will be subject to a fine that cannot be less than ten lakh rupees and may not exceed one crore rupees.
- The organization’s chiefs and any official who is in default will be liable for both detention for a period that might last up to 25 lakh rupees, as well as both.
- In the event that it is discovered that the issues of the organization were directed falsely, every official in default will be at risk for activity under area 447.
DUE DATES FOR FILLING SECTION 8 COMPANY COMPLIANCES
The best way for a Section 8 Company to avoid a penalty is fairly simple; all the company needs to do is follow the compliances within the allotted time frame. Non-compliance might result in a penalty.
COMPLIANCES | DUE DATE |
Annual General Meeting (AGM) | 30th September |
AOC-4 | Within the 30 days of AGM |
MGT-7 | Within the 60 days of AGM |
Income Tax Return | 30th September |
