How to convert Private Company into a Section 8 Company?

The concept of a Non-Profit Company is quite old in our country India. The Companies Act, 2013 provides for the Registration of Non-Profit Companies in India. Any person intending to form a Company with a non-profit object can register in India. Section 8 of Companies Act, 2013. read with the Companies (Incorporation) Rules, 2014, provides for the incorporation of a Non-Profit Companies under the Act. Under Companies Act, 2013, the Non-Profit Company is also known as Section 8 Company. In the article, we will discuss the procedure for Conversion of Private Company into Section 8 Company.

Advantages of converting Private Company into Section 8 Company

• Privilege and exemption under the provisions of Companies Act 2013
• No stamp Duty for Registration
• Tax deduction under Section 12A and Section 80G of income tax to the organization’s income and to the donors.

Concept of Private Limited Company

The term “Private Limited Company” denotes a business format, which is privately held by a group of people known as Shareholders.  Further, this business format is chosen by all the start-ups and the business with high growth potential.

Section 2 (68) of the Companies Act 2013 defines the term “Private Limited Company”. In this format, the Articles of Association restricts the shareholders of the company from transferring their shares.

As per the Companies (Amendment) Act 2015, the requirement of having the minimum paid up capital for the Private Limited Company Registration has now been removed.

Further, for incorporating a Private Limited Company in India, a minimum of 2 and a maximum of 200 members are required. However, the term “member” does not include both former and present employee.

Concept of Section 8 Company

The term “Section 8 Company” denotes an NPO (Non Profit Organization) which promotes Arts, Education, Charitable Purpose, Protection of Environment, Science, Sports, Research, Religion and Social Welfare.

Further, the income earned by an NPO cannot be utilized for paying out dividends to the member of the company. Moreover, the same should be used only for the promotion of charitable objectives.

Furthermore, such companies need to obtain a certificate of section 8 company registration from the central government and are liable to comply with the rules specified by the government as well.

Documents Required for the Process of Conversion

The documents required for the process of conversion are as follows:

• Draft of MOA (Memorandum of Association);
• Draft of AOA (Articles of Association);
• A Declaration in Form INC 14 by either of the following:
• Advocate;
• Practising Chartered Accountant; or
• Practising Company Secretary;
• Statement showing the information about the Assets or Liabilities of the Company (As on the Date of Application);
• An Audit Report of the existing Private Company;
• A copy of the Board Report of the existing Private Company;
• A Statement regarding the estimation of the “Future Expenditure” and “Annual Income” of the proposed Company for the next 3 Financial Years;
• Details regarding the Income Sources;
• Details regarding the Objects of Expenditure;
• A True and Certified copy of the Board Resolution passed by the Board of Directors in the meeting for approving the “Company Registration” under Section 8 Company;
• Declaration filed in Form INC 15 by each person who is making an application for the “Conversion of Private Company into Section 8 Company”;

Forms Required for the Process of Conversion

Procedure for Conversion of a Private Limited company into Section 8 Company

Following is the process for conversion of a Private Limited Company into Section 8 Company:

• Application for Name Reservation:
  The Promoters shall apply for the name reservation of the proposed Company with concerned ROC of the state where the proposed Company has to be formed in the E-Form INC-1 with the prescribed fees.

• Application for conversion in E-form RD-1:
  Now, a person or association of persons who want to convert into section 8 company shall file an application under E-form RD-1 along with prescribed fees to the registrar to grant a license under the Section 8 Companies act 2013.

• Notice in Newspaper for Conversion
  The Converting Company shall publish a notice in Form INC 26 at its own expense within a week from the date of an application made. The notice shall be published in one vernacular newspaper in the principal the district in which the registered office of the proposed company is to be situated or is situated and one in English newspaper in the district and on the websites as may be notified by the Central government;
  The copy of the above notice published shall also file with Registrar immediately after the publication.

• Issue of License by Registrar
  Registrar could raise the applicant to furnish the approval or concurrence of the other Authority, Regulatory Body and department of Ministry of CG or SG.
  The Registrar after considering the objections, if any, received within 30 days from the date of publication of notice and after consulting any authority, regulatory body, Department or Ministry of the CG and SG, as it may decide whether the license shall or shall not grant.
  The license shall be in form INC-16 or from INC-17. The Registrar may direct the company to insert in its memorandum, or in its articles, or partly in one or partly in the other, such conditions of the license as may be specified by Registrar.

Conclusion

In a nutshell, a Section 8 Company is formed with the primary aim of charity. Further, these companies enjoy all the benefits, privileges, deductions, and exemptions as specified in the Companies Act 2013.

So, to avail off such privileges, exemptions, deductions, and benefits, a Private Limited Company decides to go for Conversion.

However, the process to Convert a Private Company into Section 8 Company is a back-breaking and lengthy task. We at Legal Window have a team of skilful and competent professionals who will assist you in the process to Convert a Private Company into Section 8 Company.