Features of Section 8 Company:
A Section 8 Company is registered as a limited company under section 8 of Companies Act, 2013 and holds the licence from Central Government, having the following features:
a. 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;
b. intends to apply its profits, if any, or other income in promoting its objects; and
c. intends to prohibit the payment of any dividend to its members,
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Procedure of applying for Licence under Section 8 of Companies Act, 2013
Central government, if it deems fit, may issue license to the applicant company to be registered as a limited company under Section 8 of Companies Act, 2013. However, the company is not allowed to use the words “Limited” / “Private Limited” in his name.
Procedure {as per Rule 19 of The Companies (Incorporation) Rules, 2014}
- The applicant has to apply in Form INC 32(SPICe) along with the fees prescribed in Companies (Registration offices and fees) Rules, 2014 to the Registrar for a license under sub section (1) of Section 8 of Companies Act, 2013
- The Memorandum of Association of the proposed Section 8 Company with the charitable objects shall be in Form INC-13
- The documents to be enclosed with the application include:
i. MOA & AOA of the company
ii. A declaration in Form INC-14 by any of the practicing professional out of an Advocate, a Chartered Accountant, Cost Accountant or Company Secretary that the memorandum and articles of association have been drawn up in conformity with the provisions of section 8 and rules made thereunder and that all the requirements of the Act and the rules made thereunder relating to registration of the company under section 8 and matters incidental or supplemental thereto have been complied with;
iii. an estimate of the future annual income and expenditure of the company for next three years, specifying the sources of the income and the objects of the expenditure;
iv. the declaration by each of the persons making the application in Form No. INC-15.
Restrictions/ Privileges for Section 8 Company
- A firm may be a member of the Section 8 company.
- A Section 8 company shall not alter the provisions of its memorandum or articles except with the previous approval of the Central Government.
- A Section 8 company may convert itself into company of any other kind only after complying with conditions as per rule 21, of The Companies (Incorporation) Rules, 2014
- The Central government may, by license, allow an existing company registered under the Companies Act, 2013 or under any previous act was formed with the objects specified in clause (a) of Section 8(1) of the Companies Act, 2013 and with the restrictions & prohibitions as mentioned respectively in clauses (b) & (c) of Section 8 (1), Companies Act, 2013 –
- if the company applies to the Central Government to be registered under Section 8 of Companies Act, 2013
- it omits the words “limited company” / “private limited” from its name
- subject to such conditions as the Central Government deems fit
- A Section 8 company shall amalgamate only with another Section 8 company and having similar objects.
Revocation of Section 8 License by Central Government
The Central Government has the power of revocation of the license granted to any company under Section 8 of Companies Act, 2013 through an order to that effect:
- if the company contravenes any of the requirements of section 8 of Companies Act, 2013 or any of the conditions subject to which a license is issued
- the affairs of the company are conducted fraudulently or in a manner violate the objects of the company
- prejudicial to public interest
Provided that no such order shall be made unless the company is given a reasonable opportunity of being heard.
Provided further that a copy of every such order shall be given to the Registrar.
Where a licence is revoked, the Central Government may direct that the company to be wound up under the Companies Act or amalgamated with another company registered under Section 8 of Companies Act, 2013, after giving company a reasonable opportunity of being heard.
Conversion of Section 8 Company to any other form {as per Rule 21, The Companies (Incorporation) Rules, 2014}
Conditions for Conversion:
(1) A Section 8 company which intends to convert itself into a company of any other kind shall pass a special resolution at a general meeting for approving such conversion.
(2) The explanatory statement annexed to the notice convening the general meeting shall mention details along with the reasons for opting for such conversion including the following, namely: –
a. the date of incorporation of the company;
b. the principal objects of the company as per the memorandum of association of the company;
c. the reasons as to why the activities for achieving the objects of the company cannot be carried on in the current structure i.e. as a Section 8 company;
d. if the principal or main objects of the company are proposed to be altered, what would be the altered objects and the reasons for the alteration;
e. what are the privileges or concessions currently enjoyed by the company, such as tax exemptions, approvals for receiving donations or contributions including foreign contributions, land and other immovable properties, if any, that were acquired by the company at concessional rates or prices and, if so, the market prices prevalent at the time of acquisition and the price that was paid by the company, details of any donations or bequests received by the company with conditions attached to their utilization etc.
f. details of impact of the proposed conversion on the members of the company including details of any benefits that may accrue to the members as a result of the conversion.
(3) 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 MGT.14 along with the fee
(4) The company shall file an application in Form INC.18 with the Regional Director with the fee along with a certified true copy of the Special Resolution and a copy of the Notice convening the meeting including the explanatory statement for approval for converting itself into a company of any other kind and the company shall also attach the proof of serving of the notice served to all the authorities mentioned in sub-rule (2) of rule 22 of The Companies Incorporation Rules, 2014
(5) A copy of the application with annexures as filed with the Regional Director shall also be filed with the Registrar.
Other Conditions to be Complied with by Companies Registered Under Section 8 Seeking Conversion into Any Other Kind as per Rule 22 of The Companies Incorporation Rules, 2014
(1) The company shall, within a week from the date of submitting the application to the Regional Director, publish a notice at its own expense, and a copy of the notice, as published, shall be sent forthwith to the Regional Director and the said notice shall be published in Form No. INC.19
i. at least once in a vernacular newspaper in the principal vernacular language of the district in which the registered office of the company is situated, and having a wide circulation in that district, and at least once in English language in an English newspaper having a wide circulation in that district; and
ii. on the website of the company, if any, and as may be notified or directed by the Central Government.
(2) The company shall send a copy of the notice, simultaneously with its publication, together with a copy of the application and all attachments by registered post or hand delivery, to the Chief Commissioner of Income Tax having jurisdiction over the company, Income Tax Officer who has jurisdiction over the company, the Charity Commissioner, the Chief Secretary of the State in which the registered office of the company is situated, any organisation or Department of the Central Government or State Government or other authority under whose jurisdiction the company has been operating and if any of these authorities wish to make any representation to Regional Director, it shall do so within sixty days of the receipt of the notice, after giving an opportunity to the Company.
(3) The copy of proof of serving such notice shall be attached to the application.
(4) The Board of directors shall give a declaration to the effect that no portion of the income or property of the company has been or shall be paid or transferred directly or indirectly by way of dividend or bonus or otherwise to persons who are or have been members of the company or to any one or more of them or to any persons claiming through any one or more of them.
(5) Where the company has obtained any special status, privilege, exemption, benefit or grant(s) from any authority such as Income Tax Department, Charity Commissioner or any organisation or Department of Central Government, State Government, Municipal Body or any recognized authority, a “No Objection Certificate” must be obtained, if required under the terms of the said special status, privilege, exemption, benefit or grant(s) from the concerned authority and filed with the Regional Director, along with the application.
(6) The company should have filed all its financial statements and Annual Returns upto the financial year preceding the submission of the application to the Regional Director and all other returns required to be filed under the Act up to the date of submitting the application to the Regional Director and in the event the application is made after the expiry of three months from the date of preceding financial year to which the financial statement has been filed, a statement of the financial position duly certified by chartered accountant made up to a date not preceding thirty days of filing the application shall be attached.
(7) The company shall attach with the application a certificate from practicing Chartered Accountant or Company Secretary in practice or Cost Accountant in practice certifying that the conditions laid down in the Act and these rules relating to conversion of a company registered under section 8 into any other kind of company, have been complied with.
(8) The Regional Director may require the applicant to furnish the approval or concurrence of any particular authority for grant of his approval for the conversion and he may also obtain the report from the Registrar
(9) On receipt of the application, and on being satisfied , the Regional Director shall issue an order approving the conversion of the company into a company of any other kind subject to such terms and conditions as may be imposed in the facts and circumstances of each case including the following conditions, namely;-
i. the company shall give up and shall not claim, with effect from the date its conversion takes effect, any special status, exemptions or privileges that it enjoyed by virtue of having been registered under the provisions of section 8;
ii. if the company had acquired any immovable property free of cost or at a concessional cost from any government or authority, it may be required to pay the difference between the cost at which it acquired such property and the market price of such property at the time of conversion either to the government or to the authority that provided the immovable property;
iii. 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 and the balance, if any, shall be transferred to the Investor Education and Protection Fund within thirty days of receiving the approval for conversion;
(10) Before imposing the conditions or rejecting the application, the company shall be given a reasonable opportunity of being heard by the Regional Director
(11) On receipt of the approval of the Regional Director,
i. the company shall convene a general meeting of its members to pass a special resolution for amending its memorandum of association and articles of association as required under the Act consequent to the conversion of the section 8 company into a company of any other kind;
ii. the Company shall thereafter file with the Registrar:
a. certified copy of the approval of the Regional Director within thirty days from the date of receipt of the order in Form No.INC.20 along with the fee;
b. amended memorandum of association and articles of association of the company.
c. a declaration by the directors that the conditions, if any imposed by the Regional Director have been fully complied with.
(12) On receipt of the documents referred to in sub rule (10) above, the Registrar shall register the documents and issue the fresh Certificate of Incorporation.
In case of default
If a company defaults in complying with any of the requirements laid down in Section 8, Companies Act, 2013, the company shall be punishable with fine which shall not be less than ten lakh rupees but which may extend to one crore rupees and the directors and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than twenty-five thousand rupees but which may extend to twenty-five lakh rupees, or with both:
Provided that when it is proved that the affairs of the company were conducted fraudulently, every officer in default shall be liable for action under Section 447 of the Companies Act, 2013.
In case of winding up
On the winding up or dissolution of a Section 8 company, if there remains any asset after the satisfaction of its debts and liabilities, that may be transferred to another Section 8 company having similar objects, subject to such conditions imposed by the Tribunal, or may be sold and proceeds thereof credited to Insolvency and Bankruptcy Fund formed under Section 224 of the Insolvency and Bankruptcy Code, 2016.
Author: CS Shikha Pubbi
Author Bio
In Form INC-19 under point 2, please clarify whether we have to mention existing objects of section 8 company or proposed objects after conversion.