Conversion of Section 8 company into Private Company

FIRST, WE UNDERSTAND THE MEANING OF SEC 8 COMPANY AND PRIVATE COMPANY

SEC 8 COMPANY:  section 8 company is formed to encourage and nourish certain acts of art, education, science, sports , religion, charity, social welfare, research, protection of environment or any other related objective. The sec 8 company does not pay any bonus or dividend to its members. The profits of this company are used towards achieving and promoting the objective of the company.

PRIVATE COMPANY: SECTION 2(68) OF COMPANIES ACT, 2013 DEFINES PRIVATE COMPANY

“private company” means a company   having a minimum paid-up share capital  as may be prescribed, and which by its articles,—

(i) restricts the right to transfer its shares;

(ii) except in case of One Person Company, limits the number of its members to two hundred:

Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member:

Provided further that—

(A) persons who are in the employment of the company; and

(B) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased, shall not be included in the number of members; and

(iii) prohibits any invitation to the public to subscribe for any securities of the company.

THE PROVISIONS WHICH DEAL WITH THE CONVERSION OF SEC 8 COMPANY INTO PRIVATE COMPANY

• Section 8 of the Companies Act, 2013.
• Rule 21 of the Companies Incorporation Rules, 2014.
• Rule 22 of the Companies Incorporation Rules, 2014.
• Rule 23 of the Companies Incorporation Rules, 2014

The procedure for conversion of sec 8 company into private company as follows:-

1. Company should pass a Special Resolution in its General Meeting for the Conversion of Section 8 Company into Private Company.

2. The Notice of the General Meeting should be sent along with Explanatory Statement. The Explanatory Statement should include:

• The Incorporation date of the Company.
• The main objects in the Memorandum of Article (MoA) of the proposed Company.
• The reason due to which the current structure of the Company is not able to achieve the main object.
• If the main objects of the Company are proposed to be altered then what would be the altered objects and the reason for alteration of such objects.
• The details of the impact of Conversion on the members of the Company
• The details of the benefits that may accrue to the members of the Company after the Conversion of Section 8 Company into Private Company.
• List of privileges and concessions which are currently enjoyed by Section 8 Company. The privileges and concessions include the tax exemptions, receiving donations, foreign contributions, land or any other immovable properties.
• The details of the market price of the property acquired by the Company and the concessional rate given by the Company of such property.
• The Details of donations and bequests received by the Company.

3. The company has to file with the ROC the certified true copy of the special resolution in form MGT-14 within 30 days from the date of passing of the special resolution.

4. A company must intimate and obtain a “No Objection Certificate”, from authorities such as IT Department, Charity Commissioner, Central or State government department, Municipal body or any other recognized authority, in case it has obtained special status, privilege, benefit, exemption or grant from any of them.

5. The existing Section 8 Company must file an application to the Regional Director in Form INC- 18 along with a copy to Registrar of Companies for its conversion to any other kind of Company along with following documents:-

• A certified true copy of the resolution passed in the general meeting;
• With the copy of the notice of the general meeting with the explanatory statement;
• Proof of serving the notice to all the authorities mentioned below:

• • Chief Commissioner of Income Tax Authority having jurisdiction over the company;
  • Income Tax Officer;
  • Charity Commissioner;
  • Chief Secretary of the state where the registered office of the company is situated;
  • To the authority under whose jurisdiction the company is operating.

6. A Declaration shall be given by the Board of Directors to the effect that no part of property or income of the Company has been directly or indirectly transferred or paid by way of bonus or dividend to persons or members of the Company or claiming through any one or more of them.

7. Along with the application, the Company shall also need to attach a Certificate from a Practicing CA/CS/CMA certifying that all the conditions relating to the conversion of Section 8 company as laid down in the Act has been duly complied with.

8. The company shall file all its Financial Statements, Annual Returns, and all such Returns as required by the Act up to the previous year of making the application to the Regional Director.

In case, an application is filed and 3 months have expired from the preceding date of Financial year to which financial statement has been filed, then, a statement of financial position duly approved by the Chartered Accountant up to the date of not preceding 30 days of submitting the application needs to be attached.

9. The company shall publish notice in the newspaper of the district where the registered office of the company is situated in vernacular language and one in the English newspaper having a wide circulation and also on the website of the company if any;

10. The applicant shall file a copy of such notices to the Regional Director, in Form INC- 19 immediately after the publication of the notice.

11. After the approval from the Regional Director, the Company should hold a General Meeting for the alteration of Memorandum of Association (MoA) and the Articles of Association (AoA) for the Conversion. The Company after the General Meeting shall file with the Registrar of Companies:

a. The true certified copy of the approval of the Regional Director within 30 days of receipt of approval in Form INC-20 with the prescribed fees.

b. The altered Memorandum of Association (MoA) and Articles of Association (AoA) of the Company.

c. The declaration by the Directors that the conditions if any imposed by the Regional Directors are duly complied with.

FORMS TO BE FILLED:-

• RUN
• MGT-14
• INC-18
• INC-19
• INC-20

It must be noted that as per Rule 7(1) of the Companies (Incorporation) Rules 2014, Section 8 Company cannot be converted into a One Person Company.