The Companies Act 2013 regulates Section 8 companies in India. Under Section 8(4)(ii) of the Companies Act 2013, a Section 8 company can convert itself into any other company once it has complied with the conditions.
What is Section 8 Company?
A Section 8 Company, also known as a not-for-profit or nonprofit organization, is formed for promoting charitable or social objectives. However, there may arise circumstances where a Section 8 Company wishes to convert into a different type of company. This article provides an overview of the legal provisions, requirements, procedures, and consequences involved in the conversion of a Section 8 Company into any other form of company.
A Section 8 Company, governed by the Companies Act, 2013, is incorporated with the primary objective of promoting art, commerce, charity, education, protection of the environment, science, social welfare, etc. It prohibits the payment of dividends to its members and utilizes its profits solely for furthering its stated objectives.
What are the Mandatory Requirements:
To convert a Section 8 Company into another form, certain conditions must be met, including
- The company must have obtained the prior approval of the Regional Director.
- The company should have complied with all its statutory obligations, such as filing of financial statements and annual returns.
- All the members and creditors must have been given an opportunity to object to the proposed conversion.
Legal Provisions for Conversion of Section 8 Company Into Any Other Company
The conversion of a Section 8 Company into any other type of company is regulated by legal provisions, such as Section 8(6) and Section 8(7) of the Companies Act, 2013. These provisions outline the steps, conditions, and compliance requirements for the conversion process.
Conversion of Section 8 company into a company of any other kind
The procedure to convert a Section 8 Company into another type of company typically involves the following steps:
- Board Resolution:The board of directors must pass a resolution approving the conversion and authorizing the filing of the necessary applications.
- Obtaining Regional Director’s Approval:An application seeking the approval of the Regional Director must be filed, accompanied by the prescribed documents and fee.
- Approval from Central Government: Once the Regional Director approves the conversion, the company needs to obtain approval from the Central Government.
- Compliance after Approval:Following the approval, the company must undertake various compliance actions, such as altering its Memorandum and Articles of Association, updating registrations, and notifying relevant authorities.
Documents required for the conversion of a section 8 company into any other company:
The documents typically required for the conversion of a Section 8 Company into another type of company include
- Application to the Regional Director.
- Board resolution approving the conversion.
- Draft Memorandum and Articles of Association of the proposed company.
- Audited financial statements and annual returns.
- Statement of assets and liabilities.
- Affidavits and declarations as prescribed.
Procedure for Conversion of Section 8 Company into a Company:
Converting a Section 8 Company into a different type of company involves several steps and compliance with legal requirements. The procedure for conversion typically includes the following:
- Board Resolution: The board of directors of the Section 8 Company must convene a meeting and pass a resolution approving the conversion. The resolution should authorize the filing of necessary applications with the relevant authorities.
- Obtaining Regional Director’s Approval: The company needs to apply for approval from the Regional Director of the respective jurisdiction. The application must include the following:
a. Application Form: Prepare the application in the prescribed format, providing details about the company, its current status, proposed changes, reasons for conversion, and other relevant information.
b. Supporting Documents: Attach the necessary documents, such as:
i. Board resolution approving the conversion.
ii. Draft Memorandum and Articles of Association of the proposed company.
iii. Audited financial statements and annual returns of the Section 8 Company.
iv. Statement of assets and liabilities.
v. Affidavits and declarations as required by the authorities.
c. Fee Payment: Pay the prescribed fee along with the application.
- Approval from the Regional Director: After submitting the application, the Regional Director will review the documents and evaluate the proposed conversion. If satisfied, they will grant the approval for the conversion.
- Central Government Approval: Once the Regional Director approves the conversion, the company must seek approval from the Central Government within a specified period. The application for Central Government approval should be submitted with the required documents and fees.
- Compliance after Approval: After obtaining the approvals, the company must undertake certain compliance actions, including
a. Alteration of Memorandum and Articles of Association: Make necessary changes to the Memorandum and Articles of Association to reflect the new type of company and its objectives.
b. Update Registrations: Update the company’s registrations and licenses with the relevant authorities, such as the Registrar of Companies.
c. Notification: Notify various stakeholders, such as members, creditors, employees, and other interested parties about the conversion and the resultant changes.
d. Transfer of Assets and Liabilities: Transfer the assets and liabilities of the Section 8 Company to the newly converted company as per the conditions specified by the Regional Director.
- Compliance with Post-conversion Requirements: The converted company must comply with the ongoing obligations and legal requirements applicable to its new type, such as maintaining updated financial records, filing annual returns, conducting audits, etc.
The consequence of the conversion of Section 8 Company into any other Company
Upon successful conversion, the Section 8 Company will cease to exist as a not-for-profit entity. It will assume the characteristics and obligations of the newly converted company, which may include changes in the capital structure, the addition of shareholders, and the ability to distribute dividends, subject to applicable laws.
Conditions to Convert Section 8 Company to Any Other Kind of Company?
The Regional Director may impose certain conditions while granting approval for the conversion. These conditions may pertain to the transfer of assets, liabilities, and contracts, ensuring compliance with applicable laws, or any other requirement considered necessary.
Conclusion
The above authorities may make representations to the Regional Director within 60 days of receiving the notice.
The Regional Director may approve the conversion of a Section 8 company to any other kind of company, subject to all prevailing terms and conditions that may be applicable at the time of conversion.
FAQ:
Q1: Can Section 8 company shares be transferred?
No, Section 8 Companies are prohibited from issuing shares or transferring ownership interests to their members
Q2: How can a company be converted into another type of company?
The conversion process involves obtaining the necessary approvals from the Regional Director and the Central Government, along with complying with the prescribed legal requirementsv
Q3: Does a Section 8 company have shareholders?
A Section 8 Company does not have shareholders in the traditional sense, as it is not structured to distribute profits to its members. Instead, it has members or subscribers who are associated with the company for promoting its objectives.
