Procedure to Convert Section 8 Company into a Private Limited Company

The notion of non-profit corporations is present under Section 8 of the Companies Act, 2013. Non-Profit Corporations are not a new concept in our nation, India. Profits from Non-Profit Corporations are subject to reinvestment in society’s benefit and progress. Furthermore, under Section 8(4) (ii) of the Companies Act, 2013, a conversion of Section 8 Company can take place into any other type of company. Let us discuss about Procedure to Convert Section 8 Company into a Private Limited Company in detail.

Section 8 Company 

Non-Government or Non-Profit Organizations are corporations that have registration under Section 8 of the Companies Act, 2013. Section 8 corporations come with the goal of promoting trade, business, art, science, sports, education, research, religion, social welfare, environmental protection, or other similar goals. Any earnings made are used towards the company’s goals; hence no dividends are distributed to the shareholders. In addition, the Companies Act of 2013 governs Section 8 companies in India.

Section 8(4)(ii) of the Companies Act 2013 states that a Section 8 business can change itself into any other company after meeting the Act’s requirements.

Applicable Legal Provisions

The following are the legal provisions that apply to the conversion of a Section 8 corporation into a private corporation:

• The Companies Act, 2013 – Section 8
• Rule 21 under Companies Incorporation Rules, 2014
• The Companies Incorporation Rules, 2014 – Rule 22
• Rule – 23 The Companies Incorporation Rules, 2014

Conditions Prevalent

The following are the requirements for converting a Section 8 company into any other type of company under Rule 21, 22, and 23 of the Companies (Incorporation) Rules 2014.

At a general meeting of the company’s members, the company must approve a Special Resolution approving the conversion:

• Submission of Statement : Within 30 days of passing the resolution, a certified genuine copy of the resolution and notice of General Meeting, coupled with an explanatory statement, must be filed with the ROC (Registrar of Companies) in form MGT-14.

• No Objection Certificate : If a corporation has gained special status or privilege, it must notify and get a “No Objection Certificate” from authorities such as the IT Department, Charity Commissioner, Central or State government department, Municipal body, or any other recognized authority.

• Submission of Application to Regional Director: For its conversion to any other type of company, the current Section 8 Company shall submit an application to the Regional Director in Form INC 18 with a copy to the Registrar of Companies.

• Filing of Financial Statement: The firm must file the applicable Financial Statements, Annual Returns, and other Returns with the Regional Director up to the preceding year of filing the application. If an application is made after three months have passed since the last day of the financial year for which a financial statement has been filed, a statement of financial status officially authorized by a Chartered Accountant up to the date of the application must be included.

• Declaration: The Board of Directors shall provide a declaration stating that no portion of the Company’s property or revenue has been directly or indirectly transferred or paid as a bonus or dividend to people or members of the Company, or claiming via any one or more of them.

• Grant of Certificate: In addition to the application, the Business must provide a Certificate from a Practicing CA/CS/CMA attesting to the fact that all of the Act’s prerequisites for the conversion of a Section 8 company are already done.

• Publishing of Notice: The applicant must print a notice in the press at his own expense within 7 days after submitting his application to the Regional Director. After publication, a copy of such notices must be move to the Regional Director in Form INC 19.

Notice of Authenticity

At the same time, proof of service of the notice must be given to the following authorities through registered mail or hand delivery:

• The Income Tax Officer or the Chief Commissioner of Income Tax in charge of the Company.
•  Commissioner for Charities.
• The Chief Secretary of the State in which the Company’s registered office is located.
• The department of the federal or state government under whose authority the Company operates.

The aforementioned authorities have 60 days from the date of receipt of the notification to make any representations to the Regional Director.

The Regional Director has the authority to approve the application for conversion of a Section 8 business to any other type of company, subject to all terms and restrictions in effect at the time of conversion.

Conversion of a Section 8 Company into a Private Company

The following is the method for converting a Section 8 corporation into a private corporation:

• In the General Meeting, pass a Special Resolution: As per Rule 21 of the Companies (Incorporation) Rules, 2014, the Company must approve the Conversion by a special resolution. The Registrar of Companies shall receive a genuine certified copy of the Special Resolution as well as the Explanatory Statement (RoC). Within 30 days after the Special Resolution’s passage, a copy of the Special Resolution, as well as the Notice to Convene General Meeting, shall fill in Form MGT-14.

• Submission to the Regional Director: The Company must file an application with the Regional Director as per Rule 21 of the Companies (Incorporation) Rules, 2014. Submission of an application takes place under Form INC-18, together with the appropriate fee.

• Advertisement in the Newspaper: The Company shall issue a notice in the media for the Conversion of Section 8 Company into Private Company. This can take place after submitting an application to the Regional Director. Within a week of submitting an application to the Regional Director, the application may get its publication in the newspaper.
  The Regional Director should receive a copy of the Notice issued in Form INC-19.

• Certificate of Incorporation: The Registrar of Companies will provide an Incorporation Certificate to the applicant upon submission of the requisite paperwork. After the withdrawal of the Company’s Section-8 Company license; the Company can file Form INC-20 with the Registrar of Companies to request a conversion of its status and name.

Consequences of Conversion

Certain restrictions may be imposed by the Regional Director (RD) after the completion of all conditions. Moreover, he may issue an order for acceptance of the application for the Conversion of Section-8 Company into a Private Company. 

As per Rule 22 of the Companies (Incorporation) Rules, 2014 the following are the conditions set by the Regional Director:

• The Company cannot claim the same benefits and exemptions after Conversion. Further, as it had when it have registration under Section 8 of the Companies Act, 2013.

• If the Company purchased any immovable property from the government at a lower rate than the market price; then newly formed Private Company must pay the difference between the market price and the lower rate.

• The Company has some unutilized revenue, and accrued gains from the previous year; Moreover, it should be utilizes to pay off existing debts or any amounts to suppliers or creditors.

• If there is any money left over after paying all the bills; its deposition shall be submit to the Investor Education & Protection Fund. The funds may be transfer within 30 days of the Section 8 Company’s conversion to a private company.

Takeaway

As per the Companies Act, 2013 under Section 8 the conversion of any company into any other type of company takes place. When there is no method to attain the aim within the present structure of the company, companies turn to conversion. Moreover, the Companies Act 2013 governs the conversion of a Section 8 corporation into a private corporation.

Furthermore, the major cause for conversion is that businesses are unable to achieve their targeted goals within their current Organizational structure. Furthermore, converting a Section 8 corporation to a private corporation is a time-consuming and complex procedure that requires professional guidance.

Our experts will guide you through the conversion process and ensure that your job took place flawlessly.