Conversion of Section 8 Company into Private Limited Company

Introduction: Understanding the Conversion of a Section 8 Company into a Private Limited Company is crucial for organizations aiming for a change in structure. In this article, we will delve into the meaning of a Section 8 Company and the comprehensive process of its conversion.

Let us understand the meaning of Section 8 Company: –

♦ Where it is proved to the satisfaction of the Central Government that a person or an association of persons proposed to be registered under this Act as a limited company—

• has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
• intends to apply its profits, if any, or other income in promoting its objects; and
• intends to prohibit the payment of any dividend to its members,

then CG may allow that person or association of persons to be registered as a section 8 company.

Further Section 8 (4)(ii) of Companies Act 2013 provides for section 8 companies to convert itself into company of any kind.         

To convert a section 8 company into private limited company, the provision of rule 21, 22, 23 of Companies (Incorporation) Rules, 2014 has to be complied with.

Following is the step-by-step Procedure: –

1. Company should pass the Board resolution for conversion of section 8 company to private company in the duly convened meeting in accordance with the section 173 of Companies Act 2013

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

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-14within 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 FormINC- 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.

9. 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.

10. 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;

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

Liasoning with Regional Director

12. 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.

13. The Company after the General Meeting shall file with the Registrar of Companies:

• The certified copy of the approval of the Regional Director within 30 days of receipt of approval in Form INC-20with the prescribed fees.
• The altered Memorandum of Association (MoA) and Articles of Association (AoA) of the Company.
• The declaration by the Directors that the conditions if any imposed by the Regional Directors are duly complied with.

Conclusion: In conclusion, the conversion of a Section 8 Company into a Private Limited Company involves a meticulous process encompassing legal formalities, compliance, and thorough documentation. Organizations must navigate each step with precision to ensure a seamless transition.