How to convert Section 8 Company into any other Company?

Last Updated at: October 23, 2019
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How to convert section 8 company into another company.
How to convert section 8 company into another company.

What is Section 8 Company?

Companies that are registered under Section 8 of the Companies Act, 2013 are those companies that pertain to Non-Government or Non-Profit Organizations. Such Section 8 companies are formed with an objective to promote the fields of trade, commerce, art, science, sports, education, research, religion, social welfare, environment protection or any other similar objectives. Any profits earned are utilized towards the object of the company and hence no dividend is paid to the members. Further, in India, Section 8 Companies are regulated by the Companies Act 2013

According to Section 8(4)(ii) of the Companies Act 2013, Section 8 company can duly convert itself into any other Company after complying with the prescribed conditions in the Act.

It must be noted that as per Rule 7(1) of the Companies (Incorporation) Rules 2014, Section 8 Company cannot be converted into a One Person Company.  

What are the conditions to convert Section 8 Company to any other kind of Company?

 Requirements for the conversion of Section 8 Company into any other kind of Company as per Rule 21, 22 and 23 of the Companies (Incorporation)Rules 2014 are enumerated below:

Section 8 Company shall pass a Special Resolution in the general meeting of its members for approval of such conversion.

  1. A certified true copy of the resolution and notice of General Meeting along with explanatory statement is required to be filed to ROC (Registrar of Companies) in form MGT-14 within 30 days of passing the resolution.

2. A company must intimate and obtain a “No Objection Certificate”, from authorities such as IT Department, Charity Commissioner, Central or State government department, Municipal body or any other recognized authority, in case it has obtained special status, privilege, benefit, exemption or grant from any of them.

3. The existing Section 8 Company must file an application to the Regional Director in Form INC 18 along with a copy to Registrar of Companies for its conversion to any other kind of Company.

4. The company shall file all its Financial Statements, Annual Returns, and all such Returns as required by the Act up to the previous year of making the application to the Regional Director. In case, an application is filed and 3 months have expired from the preceding date of Financial year to which financial statement has been filed, then, a statement of financial position duly approved by the Chartered Accountant up to the date of not preceding 30 days of submitting the application needs to be attached.

5.  A Declaration shall be given by the Board of Directors to the effect that no part of property or income of the Company has been directly or indirectly transferred or paid by way of bonus or dividend to persons or members of the Company or claiming through any one or more of them.

6. Along with the application, the Company shall also need to attach a Certificate from a Practicing CA/CS/CMA certifying that all the conditions relating to the conversion of Section 8 company as laid down in the Act has been duly complied with.

7. Within 7 days from the date of applying to the Regional Director, the applicant shall publish a notice in the newspapers at his own expense. Copy of such notices shall be sent to the Regional Director in Form INC 19 immediately after the publication of the notice.

8. Simultaneously, proof of serving of notice shall be sent to the below authorities by registered post or in-hand delivery:

    • Income Tax Officer or Chief Commissioner of Income Tax having jurisdiction over the Company
    • Charity Commissioner
    • Chief Secretary of the State in which the registered office of the Company is situated
    • Central or State government department in whose jurisdiction the Company is operating

Within 60 days from the receipt of the notice, the above authorities may make representations, if any, to the Regional Director.

Upon satisfaction, the Regional Director has the right to approve the application of conversion of Section 8 company to any company of the other kind, subject to all prevailing terms and conditions as it may deem fit at the time of conversion.

Make Your Business GST Ready

Conditions that may be imposed by the Regional Director are as under:

  • Post conversion, the Company shall not claim any kind of special status, Bonafede exemptions or advantages that it must have used to enjoy in the virtue of being a Section 8 Company.
  • In case the Company had possessed any real estate property from the government or any other authority at concessional rates, it may require to pay if there is any difference in the price at which that immovable property was possessed and the Market price of it at the time of conversion in respect of that immovable property.
  • Any accumulated profits or unutilized income from the previous year’s needs to be e used to clear outstanding (if any), settle the liabilities of creditors, suppliers and service providers and then settle the loans extended by promoters or any other members to whom any amount is due. Lastly, the balance shall be shifted to the Investor Education and Protection Fund within 30 days from the conversion of Section 8 Company.
  • The Company deserves to get a valid opportunity to discuss with the Regional Director, before getting the application rejected or imposed any conditions on the said company.

Amend the Memorandum of Association & Articles of Association by passing a Special Resolution, on receipt of approval from the Regional Director of the Company.

The Company shall, thereafter, obtain a fresh Certificate of Incorporation by filing a certified true copy of the approved application to the Regional Director within 30 days in Form INC 20 along with the mentioned fees.

Consequently, the License granted under Section 8 shall be permanently revoked and finally the name and status of the Company stand changed.

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