Conversion of Section 8 Company into Any Other Kind of Company

Ashish M. Shaji

25 Nov, 2020

Section 8 Company may convert itself into any other kind of company according to section 8(4) (ii) of the Companies Act 2013 after complying with the conditions as may be prescribed. In this article, we will discuss the Conversion of Section 8 Company in any kind of company.

What is Section 8 Company?

Section 8 Company is formed with a view to encourage certain acts of art, science, sports, religion, education, charity etc. The profits arising from the company are used to achieve and promote the objective of the company.

Section 8 Company Registration under section 8 of the Companies Act 2013 cannot be converted into One Person Company.

Procedure for Conversion of Section 8 Company into a company of any other kind according to Rule 21, 22

Here are the following conditions for the conversion of section 8 company into any other kind of company as per Rule 21^[1].

• A special resolution shall be passed in a general meeting of the members of the company for approving the conversion of section 8 company into any other kind of company.
• Notice of the general meeting of the company shall be dispatched with the explanatory statement. The explanatory statement shall include:

1. The date of company registration;
2. The main object of the company mentioned in the Memorandum of Association of the company;
3. Reason to state why the activities of the company cannot be carried on to achieve the object of the company;
4. If the main object of the company is proposed to be altered, the reason for such alteration in the object of the company and what would be the altered object.
5. Concessions enjoyed by the company, such as tax exemptions, approvals regarding receiving donations including foreign contribution, land and other immovable property. Details regarding the donations received by the company with conditions attached to their utilization;
6. Impact and the benefit of the conversion of the members.

• A certified true copy of the special resolution with a copy of the notice of the general meeting of the members shall be filed with the Registrar of Companies in form MGT 14 along with the prescribed fees within 30 days of passing the resolution.
• An application shall be filed with the regional director in Form INC 18 along with the requisite fees with the following documents:

1. A certified true copy of the resolution passed in the general meeting;
2. With the copy of the notice of the general meeting with the explanatory statement;
3. Proof of serving the notice to all the authorities mentioned below:

• Chief Commissioner of Income Tax Authority having jurisdiction over the company;
• Income Tax Officer;
• Charity Commissioner;
• Chief Secretary of the state where the registered office of the company is situated;
• To the authority under whose jurisdiction the company is operating.

4. A copy of the application filed with the regional director is required to be filed with the registrar of companies.

Following are the other conditions necessary for the conversion of section 8 company into any other kind of company as per Rule 22:

• Notice shall be published at its own cost within a week of submitting an application to the regional director;
• Copy of notice shall be sent to regional director inform INC 19;
• The notice shall be published in the newspaper of the district where the registered office of the company is situated in vernacular language and one in the English newspaper having a wide circulation and also on the website of the company if any;
• Authorities can make representation to the regional director within 60 days of the receipt of the notice. After giving an opportunity to the company;
• Proof of serving notice shall be attached to an application;
• A declaration shall be given by the board of directors that no income of the company has been paid directly or indirectly to the persons who are or have been the members of the company or to anyone or more of them or to any persons claiming through any one or more of them.
• A company is required to file its financial statement and annual returns up to the financial year preceding the application are submitted to the regional director and other returns are required up to the date of submission of application.
• In case the application is filed after the expiry of 3 months from the date of preceding financial year in which the financial statement is filed and the financial statement must be duly certified by the Chartered Accountant up to the date of not preceding 30 days of filing the application shall be attached;
• A Certificate shall be attached to the application, which shall be obtained from professional “practicing Chartered Accountant or Company Secretary or Cost Accountant” certifying the conditions and rules related to the conversion of section 8 company into any other kind of company.
• The Regional Director may require the approval of the authority for such conversion from the applicant and may also obtain the report from the registrar.

Condition which can be Imposed by the Regional Director

As per Rule 22(8) on the receipt of an application, after being satisfied the regional director shall issue an order for the conversion of the company subject to the terms & conditions that may be imposed under the following conditions:

• With effect from the date of conversion, Company shall not claim any exemption & privileges which have been enjoyed by the company by virtue of being registered under the provision of Section 8 of the Companies Act 2013.
• In case the company has acquired any immovable property on concessional rates from the government or any other authority then the company has to pay the difference between the cost at which it was acquired and the market price of that property at the time of conversion in respect to that immovable property.
• In case of any unutilised income or accumulated profits of the company brought forward from the previous year shall be utilized for the purpose of settle outstanding dues, or any amount due to creditors, suppliers or loans advanced by promoters or members or any amount due to them and in case of any balance it shall be transferred to the Investor Education & Protection Fund within 30 days of conversion.
• The company shall be given an opportunity of being heard before rejecting the application or imposing any conditions.

Conversion of Section 8 company: Required Compliances

According to Rule 22(10) it states that:

• On the receipt of the approval by the Regional Director of the company, the special resolution shall be passed in the general meeting of the members of the company for the purpose of amending the memorandum of association and article of association.
• A certified copy of the approval of the regional director shall be filed within 30 days in Form INC 20 along with the fees;
• An amended copy of the memorandum of association and article of association;
• Declaration by the directors that in the case of any conditions imposed by the regional director must have been complied with.
• After receiving the documents, the registrar shall issue the certificate of incorporation.
• Whereas license granted under section 8 of the companies act 2013, shall be revoked.
• Form INC 20 shall be filed with the registrar with the requisite fees to change the status and the name of the company.

Conclusion

As stated earlier after conversion of a Section 8 Company, the company cannot claim privileges and exemptions as before. These points must be known before you opt for such conversion.

Read our article: Simplification of the Process of Incorporation of Section 8 Companies (MCA Update)