Conversion of Section 8 company Into Any other Company

The basic difference between the Section 8 Company and a Private Company is that the Section 8 Company is basically a ‘not-for-profit’ organisation primarily whereas a private Company is meant to make profits. Sometimes, there may be possibilities that the management of a Section 8 Company intend to convert itself into any other Company because of new business opportunity or such other similar reasons.

Accordingly, in this article, we shall study about the regulatory framework, procedure and frequently asked questions (FAQs) on conversion of a Section 8 Company into any other type of business objective.

REGULATORY FRAMEWORK WHICH COVERS CONVERSION OF SECTION 8 TO PRIVATE COMPANY: –

• Section 8(4)(ii) 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

PRE-REQUISITES FOR CONVERSION: –

1. The existing management of a Section 8 Company should be well ready with the proposed business plan.

2. No objection certificate in case where the Company has obtained any special status, privilege, exemption, benefit or grant(s) from any authority or from Govt.

3. The Company should have filed all its financial statements and Annual Returns up to the financial year preceding the submission of the application to the Regional Director.

4. The Company have not transferred any part of the Income or property of the Company by way dividend or bonus or otherwise.

PROCESS OF CONVERSION: –

The entire process of conversion is covered in the Rules and the Act just clear the possibility of conversion.

• The Company shall send a notice for convening general meeting to its members along with the relevant documents. The explanatory statement annexed to the notice convening the general meeting shall set out in detail the reasons for opting for such conversion including the following, namely: –

1. the date of incorporation and the principal objects of the company,

2. the reasons as to why the activities for achieving the objects of the company cannot be carried on as a section 8 company,

3. Reason of alternation of main object of the company,

4. List of privileges currently enjoyed by the company if any, that were acquired by the Company at concessional rates or gratuitously and, if so, the market prices prevalent at the time of acquisition, details of any donations received by the company with conditions attached to their utilization etc.,

5. Details of impact and benefits of the proposed conversion on the members,

6. Declaration to the effects that they have not transferred any part of the Income or property of the Company by way dividend or bonus or otherwise.

• A certified true copy of the special resolution along with a copy of the Notice convening the meeting including the explanatory statement shall be filed with the Registrar in Form No. MGT.14 along with the fee.
• The Company shall file an application in Form No.INC.18 with the Regional Director with the fee and following attachments to the applications: –

1. A Certified Copy of the resolution.

2. A Copy of the notice convening the meeting including explanatory statements,

• Proof of service the Notice with the Authorities.
• A copy of the application with annexures as filed with the Regional Director (“RD”) shall also be filed with the Registrar.
• Newspaper advertisement- Within a week of submission of application to the RD, the Company shall publish a notice in the newspaper at its own expenses, a copy of which shall also be sent to RD. The Notice shall be in form INC-19, and it shall be published in as following:

1. the vernacular newspaper in the vernacular language of the district in which the registered office of the company is situated; and

2. at least once in English newspaper in district in which the registered office of the Company is situated and having nationwide wide circulation.

• The Company shall circulate a notice to different authorities as mentioned following having jurisdiction over the Company which are as follows along with the application by registered post or by hand delivery.

1. Chief commissioner of income tax

2. Income tax officer

3. Charity Commissioner

4. Chief secretary of the state in which registered office of the company is situated.

5. Any office of CG, SG having jurisdiction over the Company.

(If these authorities wish to make representation to RD, it shall do so with a period of 60 days of receipt of notice.)

• The Company shall attach with the application a certificate from Practicing CA, PCS, or Cost Accountant in practice certifying that the conditions laid downs in the Act and these rules has been complied with.
• On receipt of application and on being satisfied, the RD shall pass the order of conversion with certain conditions, as may be required depending upon the facts and circumstances of each case:

1. Giving up all the privileges, benefits, donation, grants, special status that enjoyed by it by virtue of having been registered under the Section 8 of Companies Act, 2013;

2. Required to pay the difference of the price between the cost at which property has acquire by company at concessional rate and market price of the property at the time of the conversion;

3. any accumulated profit or unutilised income of the company brought forward from previous years shall be first utilized to settle all outstanding statutory dues, amounts due to lenders claims of creditors, suppliers, service providers and others including employees and lastly any loans advanced by the promoters or members or any other amounts due to them.

4. However, it is pertinent to mention that before imposing any conditions or rejecting the application, the RD shall give a reasonable opportunity of being heard to the Company.

POST CONVERSION PROCESS: –

The Company shall intimate to the Registrar of revocation of licence of Section 8 Company in Form No. INC. 20 within 30 days of receipt of order along with the fee to convert its status and change of name accordingly with following attachments: –

• A CTC of order of RD
• Altered MOA
• Declaration by directors that the conditions, if any, imposed by the Regional Directors has been duly complied with.

FREQUENTLY ASKED QUESTIONS (FAQs):

1. In case the conversion is in the mid of the financial year, then also shall will the financial statements of the previous year work?

Reply: In such cases where the application for conversion is made within three months of closure of financial year i.e., maximum by June for the financial year ended March then the financial statements for the previous year can be attached. However, if the specified period of three months has been extended then, a statement of the financial position duly certified by chartered accountant made up to a date not exceeding thirty days of filing the application shall be attached.

2. Does the application need to be filed physically with the office of Regional Director as well?

Reply: Yes, the application needs to be filed physically as well with the RD.

3. How does the application need to be submitted to the Registrar of Companies?

Reply: The application should be submitted to the office of the Registrar of Companies in eForm GNL-2 and in physical form as well.

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(The author i.e., Kajal Goyal is a Company Secretary in Practice at M/s. Kajal Goyal and Associates and can be reached at (M) +91-9999952595 and (E) cskajalgoyal@gmail.com)