As per Companies Act, 2013 Section 8 are the companies engaging in promoting commerce, art, science, sports, education, research, social welfare, religion, charity, or environmental protection and reinvest their profit into their objectives and prohibited from paying dividend to members and exempted from affixing word “Limited” in the end of their names.
The Section 8 Companies may find themselves to convert to Limited by Guarantee, This article briefs the legal compliances, two different structures of conversion along with procedure of both structures.
Conversion from Limited by share Into Limited by Guarantee
As per section 8(4)(ii) of Companies Act, 2013, the companies registered under section 8 may convert itself into company of any other kind only after complying with such conditions as may be prescribed. Before discussing it, we should know the difference between Company Limited by share capital and Company limited by Guarantee as follows:
- Capital Structure: A Company limited by shares requires share subscription amount showing in share capital clause in its MOA and a company limited by guarantee has no share capital and it is funded through grants, donation etc.
- Liability: In case of winding up of the Company, Liability of shareholders in limited to the unpaid amount of share capital in company Limited by share capital whereas in a Company limited by guarantee the liability is limited to amount guaranteed by the members of the company
- Ownership: In a company Limited by share ownership is based on percentage of shareholding, on the other hand a company limited by Guarantee the ownership is based on amount guaranteed by members of the company.
- Suitability: The Company Limited by shares capital is best suited for start ups and closely held non-profits while the company Limited by guarantee is best suitable with the Large scale industries supported by NGO or public fund and revenue comes from mainly from grants, donation and charity.
The aforesaid conversion has two perspectives as per companies Act.
- Section 8(4)(ii), Section 18, Section 66, Rule 37, Companies (Incorporation) Rules, 2014, Section 14 and Section 117 of the companies Act, 2013 governs the conversion. Though the Act does not prescribe the provisions for conversion, Judicial interpretation in case Azim Premji Trust Services Pvt. Ltd. C.P. (CAA) No. 52/BB/2022 permits the conversion. In the said case NCLT held that
- Absence of explicit procedural rules does not means prohibition of conversion.
- Section 18 allows companies to convert from one class to another.
A Section 8 company can convert from share capital structure to guarantee structure subject to compliance with applicable provisions.
The case resolved ambiguity arising from legislative silence and two Scenarios are there .
Scenario 1: Conversion Without Reduction of Share Capital (Section 66 of companies Act, 2013 not apply)- Conversion will be done through ROC route
Scenario 2: Conversion With Reduction of Share Capital (Conversion as per section 66 will be applicable)- Conversion will be done through NCLT route.
Scenario 1: Conversion Without Reduction of Share Capital
Section 18 of Companies Act, 2013 allows a company to convert itself from one class into another by altering its MOA & AOA. Section 18 permits widely conversion from one class into another class but the section is silent or ambiguous on conversion of Sec 8 Company having share capital into limited by guarantee leading to interpretational challenges in practice.
PROCESS FOR CONVERSION
1. Convene Board Meeting and Approve the following
- Approve the proposal for conversion
- Approve draft altered MoA and AoA and
- Notice for calling EGM for passing special resolution
2. Hold Extra-Ordinary General Meeting
- Pass a Special Resolution approving the conversion and alteration of MoA/AoA
- File Form MGT-14 with the ROC within 30 days along with certified copies of special Resolutions and explanatory statements U/s 102 of Companies, Act, 2013.
Rule 37 of Companies ((Incorporation) Rules, 2014 requires passing of special resolution by members of the Company in duly convened General meeting for approving such conversion and filing of Form INC-27 with the Registrar.
3. Publish Public Notice in newspaper
Within 7 days of passing the resolution, the company must publish a notice in one English and one vernacular newspaper, place it on its website (if any), and send individual notices to creditors and debenture holders. Objections, if any, must be submitted to the company and Registrar within 21 days.
4. Filing of Form INC-27 to concerned Registrar of Companies
Within 45 days from passing of Special resolutions, the company must file the conversion application in form INC-27 along with prescribed fees and required documents, including:
- Notice and Explanatory Statement of the General Meeting
- Certified copy of Special Resolutions
- Copies of newspaper publications
- Declaration by at least two Directors (including Managing Director, if any) stating that conversion will not affect existing debts or obligations (except limitation of members’ liability)
- Complete list of creditors/debenture holders (names, addresses, amounts due)
- Director’s declaration confirming dispatch of notices with proof
- Declaration by at least two Directors (including Managing Director, if any) confirming:
- Accuracy of creditor list and Proper estimation of their liabilities
- Auditor’s certificate confirming solvency and going concern status
- NOC from sectoral regulator (if applicable)
- NOC from secured creditors (if any)
- Declaration by at least two Directors (including Managing Director, if any) that no complaints, inspections, inquiries, or investigations are pending
- Filing of e-MOA and e-AOA as linked forms.
Upon satisfaction, the ROC issues a fresh Certificate of Incorporation (Form INC-11A).
Post-conversion conditions:
- No change of name for one year.
- No dividend distribution until past debts and liabilities (other than secured bank/FI debts) are satisfied.
Conversion is not permitted if:
- Net worth is negative
- Strike-off application is pending
- Annual returns/financial statements are in default
- Winding-up petition is pending
- Calls in arrears from directors remain unpaid for 6 months
- Any inquiry, inspection, or investigation is pending.
Scenario 2: Conversion Involving Reduction of Share Capital (Applicability of Section 66)
Section 66 of the Companies Act, 2013, governs the reduction of share capital for companies limited by shares or guarantee, requiring a special resolution and National Company Law Tribunal (NCLT) confirmation. It allows Companies to reduce their share capital subject to confirmation from the Tribunal. The process for such conversion are as follows:
1. Convene Board Meeting and Approve
- Approve the draft scheme for conversion,
- Approve draft altered MoA and AoA and
- Notice for calling EGM for passing special resolution
2. Hold Extra-Ordinary General Meeting
- Pass a Special Resolution approving the conversion and alteration of MoA/AoA
- File Form MGT-14 with the ROC within 30 days along with certified copies of special Resolutions and explanatory statements U/s 102 of Companies, Act, 2013.
3. Filing of petition to NCLT
The company must file Application to Tribunal in form RSC-1 within 30 days from passing of Special Resolution along with the following documents:
- Creditor List
- Auditor Certificate
- Deposit compliance
- Declaration of solvency (if not listed)
- Altered MoA and AoA along with copy of special resolutions.
The Tribunal, after receiving application for conversion, NCLT must notify the Central Government, Registrar, SEBI (for listed companies), and creditors. If no objections are received within three months, it is presumed they have no objection.
- The Tribunal may approve the reduction if creditors’ claims are settled, secured, or consented to, and if the accounting treatment complies with prescribed standards (certified by the auditor).
- The Tribunal issue order confirming the reduction in Form RSC-6, and the final certificate is provided in Form RSC-7.
- The company must publish the order and file it with the Registrar within 30 days.
4. The Registrar will then register it and issue a fresh certificate of incorporation .
Conclusion
So, reduction of share capital is the main determining factor to decide whether the conversion will be done through Registrar of Companies route is available or NCLT Route; If it is not ROC route will go, otherwise NCLT confirmation is mandatory. In both scenarios, creditor protection, solvency certification, and strict procedural compliance are critical.
When properly planned and executed, such conversion enhances structural clarity, strengthens regulatory compliance, and positions the organization for sustainable long-term social impact.
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