Conversion of Section 8 company Into Any other Company

The concept of non-profit organizations came in the early 19^th century. In India, non-profit organizations are covered under section 8 of the Companies Act, 2013. The main purpose of a non-profit organization is to invest the profits earned for the betterment of the society. A section 8 company can convert into any other company. The Companies(Incorporation) Rules, 2014 and section 8(4)(ii) of the Companies Act discuss the procedure for  Conversion of Section 8 company Into Any other Company

Here, we will look into section 8 company, incorporation, and conversion of Section 8 company Into Any other Company.

What is Section 8 Company?

Section 8 company is incorporated to encourage art, science, social welfare, protection of environment and charity, etc. The profits arising from the company are used for achieving and promoting the main objective of the company. It does not pay any dividend to the members. These are incorporated under section 8 of the Act. It can be formed by two or more persons or by an association of persons. These companies are mainly non-profit organizations and non-governmental organizations.

Legal Provisions for Conversion of Section 8 company Into Any other Company

 Rule 21 of the Companies Incorporation Rules, 2014 states the conditions for the conversion of section 8 company into any other company. Rule 22 discusses when the license granted to section 8 company is revoked, then the company has to apply to the ROC in form INC-20 along with fees, and Rule 23 of the Companies Incorporation Rules, 2014 deals with the intimation to ROC of the revocation of the license which is issued under section 8.

Who can apply for Section 8 Company registration?

Any person or group of people intending to register a non-profit company can opt for registration of section 8 company. they have to include promotion of arts, science, education, social welfare, and protection of the environment, etc. as their objective. The company has to donate the profits in the promotion of such objects and it prohibits in the payment of dividends.

Process for incorporation of a Section 8 Company

• Firstly, they have to get the digital signatures of the directors of the company along with DIN.
• After that they have to make an application for the reservation of name and check the name availability .
• One has to get the license necessary for incorporation of section 8 company. The applicant has to make an application to the ROC in form INC. 12(application for grant of license) along with the MOA and AOA of the company.
• A declaration in form INC-14 by a CA/CS or advocate stating that draft MOA and AOA are drawn in conformity with section 8 is submitted for license. The application also contains an estimated annual income and expenditure for the upcoming three years. They have to specify the source of the income and the object behind the expenditure.

Closure of Section 8 company

Section 8 companies can wind up by surrendering their license. It can be surrendered by converting the company into any other company. Under Rule 7(1) of the Company (Incorporation) Rules, 2014 the section 8 company is not permitted to convert into a one-person company.

Conversion of section 8 company into a company of any other kind

• Rule 21 of the Companies (Incorporation) Rules, 2014 prescribes the conditions for the conversion of section 8 company into any other company. Under Section 8 of the Companies Act, a company has to pass a special resolution in the general meeting for the conversion of section 8 company.
• The notice of the general meeting is sent along with the explanatory statement.
• The company has to submit the copy of the special resolution in form MGT-14 with the Registrar within 30 days from passing the special resolution.
• The section 8 company has to obtain a no-objection certificate.
• They have to file an application to the Regional Director in form INC-18 with a prescribed fee.
• The Board of directors submits a declaration stating that there was no transfer or payment of any bonus or dividend.
• Along with the application, the applicant has to submit a certificate by a CA/CS certifying that all the conditions are complied with.
• The company has to submit all the financial statements and annual returns up to the previous year of making the application.
• After the submission of application to the Regional Director, the company has to publish a notice for conversion of Section 8 Company into any other company in the local newspaper where the company is situated and English newspaper, and the official website of the company. This has to be done within 1 month of application submission with the regional director.
• The applicant has to file a copy of the notice with the Regional Director in form INC-19.
• After the approval from Regional Director, the company has to hold the general meeting for the alteration of MOA and AOA.
• The copy of the application submitted with the regional director is filed with the Registrar of the company.
• The ROC issues the incorporation certificate after the submission of required documents. When the license of the company is revoked then the company can apply for conversion of their status and name with the ROC in form INC-20.

Documents required for the conversion of section 8 company into any other company

• The company has to submit a copy of the resolution which is passed in the general meeting of the company.
• Copy of the notice of general meeting and the explanatory statement.
• Proof of serving notice to the authorities.
• The company has to submit the certified copy of the approval of the Regional Director in form INC-20 along with the prescribed fees within 30 days.
• Altered MOA and AOA.
• Declaration by directors that the conditions are duly complied with.
• Forms RUN, MGT-14, INC-18, 19, and INC-20.

Consequence of conversion of Section 8 Company into any other Company

According to Rule 22 of the Companies (Incorporation) Rules, 2014 certain conditions are imposed by the Regional director after the approval of the conversion. Following are few conditions laid down under Rule 22-

• The section 8 company cannot avail any privilege and exemptions after conversion.
• If the company has previously bought an immovable property at a discounted rate from the government, then they have to submit the difference at that time from the market price.
• If the company has any unutilized income or profits then it should be used to clear the dues of the company. if there is any amount left after the payments then it will be transferred to the investor education and protection fund.

Compliance after approval

The company has to submit a certified copy of the approval of the regional director within 30 days from the date of receipt of the order in form INC-20. They have to submit the amended MOA and AOA and declaration that they have complied with all the rules. Once section 8 company is converted then the company winds up under the Companies Act.

Conclusion

Section 8 of the Companies Act deal with companies having charitable objects. They are incorporated for the betterment of the society and for the promotion of science, social welfare and any such object. But sometimes, there is a need for conversion of Section 8 Company into any other kind of Company. The Companies Act provides for such conversion.