Procedure for conversion of Section 8 Company

INTRODUCTION

Subject to the provisions of Companies Act 2013 read with the Companies (Incorporation) Rules, 2014 and with the approval of the Regional Director, the Company may by a Special Resolution, amend its Memorandum of association and Articles including alterations having the effect of conversion of the section 8 Company into a Company of any other kind. [Rule 22(11)]

MANDATORY REQUIREMENTS FOR CONVERSION OF THE SECTION 8 COMPANY INTO ANY OTHER TYPE OF COMPANY

1. To hold Board meeting for In-Principle approval for conversion of Section 8 Company into another type of Company.

2. To hold the General Meeting and pass the required resolution for the conversion of Section 8 Company into another type of Company.

3. Make an application to the Regional Director for the conversion of the Company. [Rule 21(4)]

4. The Company should publish a notice in the newspapers for the Conversion of Section 8 Company within a week from the date of submitting an application to the Regional Director. [Rule 22(1)]

5. Upon receiving approval of the Regional Director, the Company shall convene a general meeting to pass a special resolution for amending its memorandum of association and articles of association consequent to the conversion of the section 8 company into a company of any other kind.

6. Name clause of the Memorandum needs to be amended to delete the word ‘Foundation’ and to substitute it with 'Private Limited' or 'Limited' as per the case.

7. Where the Company to be formed is to be a Public Company then to make sure at least 3 directors on the Board and at least 7 members.

8. Change of name of the Company shall not be allowed which has not filed annual returns or financial statements due for filing with the Registrar or which has failed to pay or repay matured deposits or debentures or interest thereon. [Rule 29(1)]

PROCEDURE IN DETAIL

1. Convene a Meeting of Board of Directors

a) for approving proposal of conversion of section 8 Company into a company of any other kind, and to recommend the same for approval of Shareholders in General Meeting of the Company

b) to consider and approve the reduction in the total number of members of the Company to a maximum of 200 members (as per the case)

c) to authorize the Director or Company Secretary of the Company or any other professional to appear before the Regional Director and other authorities for the approval regarding conversion of the Company.

d) to fix the day, date, time and venue of the General Meeting.

e) to approve the draft notice for convening the General Meeting along with explanatory statement annexed to the notice as per Section 102

f) to authorise Company Secretary or any one director of the company to sign, certify and file all the required forms, documents and returns with Regional Director and Registrar of Companies and to do all such acts and deeds as may be necessary to give effect to the proposed conversion.

2. Convene a General Meeting of Members of the Company

a) for approving proposal of conversion of section 8 company into a company of any other kind

b) to consider and approve the reduction in the total number of members of the Company to a maximum of 200 members (as per the case)

3. Filing of Form MGT-14 with ROC within 30 days of passing such resolution

Make sure the explanatory statement the following particulars: 

a) the reasons for opting for such conversion, in detail.

b) the date of incorporation of the company

c) the principal objects of the company as set out in the memorandum of association

d) 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.

e) 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

f) 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 or gratuitously 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

g) 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.

4. Draft and Submission of Application for Conversion of Section 8 Company to RD

An application for the conversion of Section 8 Company shall be drafted and shall be filed to Regional Director in e-Form INC-18 along with the fee of Rs. 2000 and with following Documents:

i) Memorandum of Association,

ii) Articles of Association,

iii) Copies of Board resolution passed

iv) Copies of Special resolution passed along with a copy of the Notice convening the meeting including the explanatory statement, 

v) Certificate from CA/CS/ICWA (in practise) certifying that the conditions laid down in the Act and rules, have been complied with;

vi) Statement of assets and liabilities of the Company, as on the date not earlier than 30 days of that date duly certified by the Auditor

vii) Copy of valuation report by a registered valuer about the market value of the assets

viii) The audited financial statements, the Board's reports, annual returns and the audit reports for each of the two financial years immediately preceding the date of the application or, where the company has functioned only for one financial year, for such year;

ix) Statement of financial position, made up to a date not preceding 30 days of filing the application, duly certified by a chartered accountant. It will be applicable only in case the application is being filed after the month of June.[Rule 22(6)] 

x) Full details of fixed assets alienated if any, during the preceding three financial years;

xi) Written consent of the lenders, if any loan is outstanding

xii) No Objection Certificate from the concerned authorities in case of special status, applicable in case 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,

xiii) Proofs of payment of differential amount, applicable in case the company had acquired any immovable property free of cost or at a concessional cost from any government or authority, paid 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; 

xiv) Details of donation/grant/benefit received since incorporation of company, if any,

xv) NOC obtained from all the creditors

xvi) NOC or approval or concurrence letter received from sectoral regulatory authority; 

xvii) Affidavit verifying the application;

xviii) Affidavit (general)

5. Publication of Notice

The Company shall, within a week from the date of submitting the application to the Regional Director, publish a notice in Form No. INC-19 and it shall be published:

i) at least one 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

ii) at least one in English language in an English newspaper having a wide circulation in that district.

a) copy of notice shall be sent forthwith to the Regional Director. 

b) on the website of the company, if any

6. Submission of Application for Conversion to other authorities

a) An application for the conversion of Section 8 Company shall be (simultaneously) submitted alongwith a copy of notice and all other attachments, by registered post or hand delivery, to all the authorities i.e. 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. 

b) For the purpose of point no. 4, 5 & 6, we send a single set of documents containing a petition (and other attachments as per point no 4), the newspapers of notice and proof of service (of point no. 6 govt authorities) in hard copy format. Please note that this has to be submitted within 7 days to RD.

7.  Submission of Application for Conversion of Section 8 Company to RoC

A copy of the application with annexures as filed with the Regional Director shall also be filed with the Registrar in e-form GNL-2 and in physical form as well. 

(Pls note: Application both in hard copy and soft copy is to be sent to both RD and RoC)

8. Vetting by RD

a) 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 

b) RD may also obtain the report from the Registrar.

9. Observations to RD

If any of the authorities (as mentioned in point no. 6) wish to make any representation to the Regional Director, it shall do so within sixty days of the receipt of the notice, after giving an opportunity to the Company. Means initially they will approach the Company for seeking its reply and then after the company's reply they will approach RD.

10. Order by RD

On receipt of the approval of the Regional Director, 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;

11. Filing of order and other documents

the Company shall thereafter file with RoC

(a) 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. 

(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. Issuance of fresh Certificate of Incorporation (COI) by the RoC

CONCEPTS

1. The above procedure what we just saw is for the voluntary conversion as initiated by the Company itself. Do you know that a Section 8 Company shall also be converted mandatorily/ compulsorily in case the Central Government, by order, revoke the licence granted to the company registered under this section if the company contravenes any of the requirements of section 8 of the Act (section 25 of the Companies Act, 1956) or

in case any of the conditions subject to which a licence is issued or the affairs of the company are conducted fraudulently or in a manner violative of the objects of the company or prejudicial to public interest, and direct the company to convert its status and change its name to add the word "Limited" or the words "Private Limited", as the case may be, to its name [Section 8(6)]  

2. For conversion of section 8 company, application to RD does need approval of the members in the general meeting, 

3. If the Company wants a separate name other than the existing one, then in the general meeting in which MOA and AOA is being altered, we can pass a SR for change of name and comply with the procedure of INC-24.

4. 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. If not required under the said special status then we don't need to do anything regarding this.

5. All MCA filings to be up to date: 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 Companies Act up to the date of submitting the application to the Regional Director.

6. RD shall issue the order for approval of the conversion, subject to such terms and conditions as may be imposed in the facts and circumstances of each case including the following conditions:

a) 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;

b) 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;

c) 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.

FAQs for further clarity

Q. Can a section 8 Company be closed?

Ans. No, we can not close a section 8 company directly. Instead, we convert it into a Private Limited Company or a Public Limited Company first and then we close this private limited company.

Q. Are all these three documents [as per point no. 11] to be filed together in INC-20 or MoA in MGT-14 and declaration in GNL-2 separately (since the language is not clear in the rules)?

Ans. No. all these documents shall be attached in a single form and shall be filed together in INC-20 only.

Q. Can a Section 8 Company alter its Memorandum of Association or Articles of Association by only passing a special resolution?

Ans.  A Section 8 Company can alter the provisions of its Memorandum or articles by passing a special resolution. However,  if alteration in Memorandum or Articles results in conversion of Section 8 Company to any other kind of company, prior approval of RD is required.

Q. Can a Section 8 company be converted into any type of Company?

Ans. No, a Section 8 Company can be converted into any type of company but not into One Person Company. [Rule 7(1) Incorporation Rules]