Hemant S Kelkar, VCounsel Legal Services
Social impact ventures operate in a unique regulatory environment that combines traditional business compliance with specialised requirements for non-profit operations. As these organisations prepare to scale or fund-raise, a thorough legal due diligence process becomes essential for sustainability, transparency, and impact. This article presents a concise checklist for Section 8 companies and trusts in India to ensure comprehensive legal compliance before scaling or fundraising initiatives.
I. Entity Structure & Governance Compliance For Section 8 Companies:
- Essential Documentation: Verify Section 8 license, Certificate of Incorporation, MOA/AOA with charitable objects, and prohibition on dividend payments [4]
- Board Requirements: Minimum two directors (private) or three directors (public), with at least one director resident in India for 182+ days during the financial year [5]
- Governance Policies: Board materiality policy, conflict of interest policy, and designated key managerial personnel
For Trusts:
- Registration Verification: Properly executed and registered trust deed under applicable state laws or Indian Trusts Act, 1882
- Trustee Documentation: Clear definition of trustees’ powers, responsibilities, and succession procedures
- Object Clause Review: Ensure objects conform to definition of “charitable purpose” and trust property is clearly defined
II. Critical Regulatory Compliance Corporate Compliance:
- Annual Filings: MGT-7A/7 (Annual Return), AOC-4 (Financial Statements), DIR-8 (Director disqualification), and MBP-1 (Director interest disclosure)
- Meeting Requirements: Four board meetings annually (gap not exceeding 120 days), AGM within 6 months of financial year end
- Change Management: Prior Central Government approval for altering MOA/AOA, prompt filing of registered office or director changes
Tax Compliance:
- Essential Registrations: 12A/12AA/12AB and 80G of Income Tax Act, PAN/TAN, and timely filing of ITR-7
- TDS Obligations: Proper deduction, timely deposit, quarterly returns filing, and issuance of certificates
- GST Compliance: Registration (if applicable), appropriate invoicing, and timely return filing
Foreign Contribution Regulation:
- FCRA Registration: Valid registration certificate or prior permission, with timely renewal
- Banking Compliance: Dedicated FCRA account at State Bank of India, New Delhi Main Branch
- Utilisation Rules: Administrative expenses capped at 20% of foreign contribution, fund use limited to specified purposes
- Reporting Requirements: Annual FC-4 return within 9 months of year-end, quarterly online reporting of receipts
III. Operational Compliance Essentials Employment Law Compliance:
- Mandatory Registrations: EPF, ESI, Professional Tax, and Shops and Establishments Act
- Basic Documentation: Employment agreements, appointment letters, compliant HR policies
- Statutory Requirements: POSH Committee, minimum wages compliance, payment of bonus, and gratuity provisions
- Volunteer Management: Clear agreements distinguishing volunteers from employees
Intellectual Property Protection:
- Brand Protection: Registration of name, logo, and key programme identifiers as trademarks
- Content Protection: Copyright registration for publications, educational materials, and digital content
- IP Assignments: Clear IP ownership clauses in employment and consultant agreements
Data Privacy Compliance:
- Privacy Framework: Privacy policy, consent mechanisms, and compliance with the Information Technology Act, 2000 and Digital Personal Data Protection Act, 2023 (to come into force soon)
- Sensitive Data Handling: Extra protections for health, financial, and other sensitive personal information, especially of vulnerable groups like children, elderly, women,
- Data Security: Information security procedures, breach response plan, and regular security audits
IV. Fundraising Compliance Checklist Domestic Fundraising:
- Donation Processing: Proper receipts with 80G details, transparent record-keeping
- CSR Funding: Eligibility verification, compliance with CSR rules, utilisation tracking, and reporting
- Social Finance: Compliance with specific regulations for impact bonds or innovative funding models
International Fundraising:
- FCRA Compliance: Valid registration, separate bank account, proper utilisation records
- FEMA Requirements: Compliance with foreign exchange regulations for investments
- Grant Compliance: Adherence to international funder requirements, appropriate reporting
Financial Management:
- Internal Controls: Documented procedures, segregation of duties, authority matrix
- Fund Utilisation: Spending aligned with objects clause, proper expense documentation
- Anti-Financial Crime: KYC, anti-money laundering policies, PEP screening, corruption prevention
V. Scaling Readiness Assessment Governance Preparedness:
- Board Composition: Skills diversity, clear roles, specialised committees for oversight
- Compliance Management: Dedicated compliance function, regular audits, staff training
- Risk Management: Documented risk assessment process focused on scaling activities
Geographic Expansion Preparedness:
- Multi-State Operations: State-specific registration requirements, local compliance
- Contractual Framework: Standardised templates for partners, vendors, and collaborators
- Legal Capacity: Availability of legal expertise (in-house or external) to support expansion
VI. Sector-Specific Compliance
Beyond general requirements, social ventures must address specialised requirements based on their impact sector:
- Education: Recognition from education boards, RTE compliance, safety standards
- Healthcare: Clinical Establishments Act registration, biomedical waste management, practitioner licensing
- Environment: Environmental protection compliance, pollution control approvals
- Microfinance: RBI regulations for NBFC-MFIs, fair practices code implementation
Conclusion: Building Foundations for Impact
For social impact ventures preparing to scale or fundraise, legal due diligence serves as both a risk mitigation strategy and a foundation-strengthening exercise. The regulatory landscape for social sector organisations in India is increasingly complex, with heightened scrutiny around foreign funding, governance standards, and data protection.
Organisations should view this checklist not as a one-time exercise but as a framework for ongoing compliance management. By proactively addressing these compliance requirements, social impact ventures can focus their energy on scaling their mission rather than resolving preventable legal challenges.
Regular compliance audits, designated responsibility for legal compliance, and relationships with sector-specific legal advisors remain essential practices as organisations grow. With strong compliance foundations, social impact ventures can scale their operations with confidence, building credibility with funders, beneficiaries, and regulatory authorities alike.
Abbreviations
AGM: Annual General Meeting
AOA: Articles of Association
AOC-4: This form is for filing the financial statements with the Registrar of Companies (ROC).
CSR: Corporate Social Responsibility
DIR-8: This is a declaration by the director that he/she is not disqualified under Section 164(2) of the Companies Act, 2013.
EPF: Employees’ Provident Fund
ESI: Employees’ State Insurance
FCRA: Foreign Contribution (Regulation) Act
FEMA: Foreign Exchange Management Act
GST: Goods and Services Tax
IP: Intellectual Property
ITR-7: Income Tax Return Form 7
KYC: Know Your Customer
MBP-1: Directors use this form to disclose their interest in other entities as required under Section 184(1) of the Companies Act, 2013.
MGT-7A/7: It is used for filing the Annual Return by a company (MGT-7A is specifically for small companies and OPCs (One Person Companies).
MOA: Memorandum of Association
NBFC-MFIs: Non-Banking Financial Companies-Microfinance Institutions
PAN: Permanent Account Number
PEP: Politically Exposed Person
POSH: Prevention of Sexual Harassment
RBI: Reserve Bank of India
RTE: Right to Education
TAN: Tax Deduction and Collection Account Number
TDS: Tax Deducted at Source