A section 8 organization can be converted into a private or a public company easily, but cannot be converted into a one-person company, Know how!

By following the rules and regulations of the Companies Act of 2013, a Section 8 company can convert to a private company. The process for converting a Section 8 company into any other type of Company is also outlined in the companies (incorporation) rules, 2014 regulations. In a Section 8 company, the profits generated are put towards the advancement and improvement of society. A Section 8 organization may apply for any other type of Company under the act according to Section 8(4)(ii) of the Companies Act of 2013. The method of Conversion of Section 8 Company to Private Limited is explained in this article.

What Are a Section 8 Company and a Private Company?

The purpose id Section 8 of company formation is to support and foster various activities linked to education, science, art, religion, sports, charity, social welfare, environmental protection, research, or any other relevant goal. Accordingly, there are no bonuses or dividends paid to Section 8 company members. Instead, section 8 uses its income to further its mission by advocating and attaining it. 

A private limited company has been legally restricted from a public company whose assets are offered for sale to the general public. The private Company’s inability to sell shares to the general public does not imply that it is a small business. A private company is what the Companies Act of 2013 defines in Section 2(68). The external validity of shares through the Company’s articles of association (AoA) is prohibited by Section 2(68) of the Companies Act, 2013. Two hundred members are the maximum that a private company can have.

What Are the Legal Provisions Associated With Converting a Section 8 Organization Into a Private Company?

The following legal requirements apply when a Section 8 organization is converted into a private company:

• The Companies Act, 2015 Section 8
• Companies incorporation rules, 2014 Rule 21
• Companies incorporation act, 2014 Rule 22
• The 2014 Companies Incorporation Rules’ Rule 23.

What Requirements Must Be Met for a Section 8 Company to Become a Private Company?

Pre-inquisition for the Conversion of a Section 8 company into a private company is as follows.

According to 2014’s Companies (Incorporation) Rules, rule 21

• The Company should adopt a Special Resolution for such Conversion of Section 8 organization into Private Corporation at its General Meeting
• The Explanatory Statement should have the General Meeting Notice attached. Included in the Explanatory Statement should be:

1. The Company’s date of incorporation
2. The Company’s Memorandum of Articles (MoA) lists the primary goals
3. The cause which prevents the Company’s current organisational structure from achieving the primary goal
4. If the Company’s primary objectives were to change? What would be changed, and why,
5. The specifics of how Conversion will affect the Company’s members
6. The particulars of any advantages the Company’s members may get upon its Conversion from a Section 8 organization to a private company
7. List of benefits and privileges that Section 8 organization now enjoys. Tax exemptions, gifts, contributions from abroad, and getting land or other immovable possessions are privileges and concessions
8. Information on the market value of the property the Company purchased and its discounted rate offered on that property
9. Information on grants and bequests that the Company has received.

• The Special Resolution adopted by the Company at its General Meeting should be filed with the Registrar of Companies in a certified genuine copy (RoC)
• The Registrar of Companies shall receive a certified authentic copy of the notice calling the Company’s general meeting (RoC)
• The following attachments must be included with the application submitted to the regional director:

1. An actual certified copy of the Special Resolution was approved at the Company’s general meeting
2. The exact accredited copy of the notice calling the Company’s annual public meeting
3. The following authorities should get a copy of the proof of service of the information:

• Regarding the Charity Commissioner
• Greetings to the company’s tax commissioner, the income tax commissioner. For the attention of the Chief Commissioner of Income Tax responsible for the Company
• To any federal, state, local, or other body or authority under whose control the Company acted
• The Registrar of Companies (RoC) should also receive a copy of the application submitted to the Regional Director.

Benefits of Private Limited Companies

Considering Conversion of Section 8 Company Into Private Company? Here’s what you need to know. 

Private limited companies are a popular form of business organization in India. Here are some benefits of private limited companies:

Limited liability: The liability of the shareholders of a private limited company is limited to the amount of their share capital. This means that the personal assets of the shareholders are not at risk in case the company incurs losses or faces legal action.

Separate legal entity: A private limited company is a separate legal entity from its shareholders. This means that the company can own property, enter into contracts, and sue or be sued in its own name.

Perpetual succession: A private limited company has perpetual succession, which means that the company continues to exist even if its shareholders change.

Easy to raise funds: Private limited companies can raise funds easily through equity or debt financing. They can also issue shares to their employees as part of an employee stock option plan (ESOP).

Better credibility: Private limited companies enjoy better credibility among customers, suppliers, and investors compared to other forms of business organizations.

As per Rule 22 of the Companies Incorporation Rules, 2014

• The Conversion of section 8 company should be announced in a notice published by the Company. In addition, the information must appear in at least one local newspaper in the community where the Company’s registered office is located and at least one English newspaper with a sizable readership in the neighbourhood. 
• Before submitting a conversion application to the regional director (RD), the Company’s annual returns and financial statements must all be filled out. 
• Before the Conversion, the Company’s directors must certify that no profit from the section 8 organization is used or distributed to the Company’s members or anybody else claiming through them.
• A certificate from a licensed chartered accountant (CA), company secretary (CS), or certified management accountant (CMA) attesting that all requirements for the Conversion of a section 8 organization into a private company as outlined in the Companies Act of 2013 have been met should be attached by the Company.
• Within 60 days of receiving the notice, the authorities must submit any objections to the regional director. The complaints must be submitted within 60 days after receiving the notification.
• The application to the Regional Director should be taken along with a copy of the proof of service of the Notice (RD).
• The Regional Director may request that the applicant seek authorisation for the Conversion from any specific authorities and ask for a letter from the Registrar of Companies (RoC).
• The Company should call a general meeting to change the articles of association (AoA) and the memorandum of association (MoA) for the Conversion after receiving the regional director’s approval. The Company shall submit the following documents to the Registrar of Companies (RoC) following the General Meeting:

1. The authenticated copy of the Regional Director’s approval and the required fees within 30 days of receiving the support on Form INC-20
2. The Company’s amended articles of association and memorandum of association
3. The Directors’ affirmation that any requirements set by the Regional Directors have been duly met.

What Is the Procedure for Conversion of Section 8 Company to Private Limited?

 

• Pass special resolution in general meeting

Per Rule 21 of the Companies (Incorporation) Rules, 2014, the Company must adopt a special resolution at its annual general meeting approving the Conversion. 

• Application to regional director

The Company must apply to the Regional Director under Rule 21 of the Companies (Incorporation) Rules, 2014. 

• Newspaper advertisement

The Company should publish a notice in the media for the Conversion of Section 8 organization into the Privately Owned Company after applying for the Regional Director. 

• New incorporation certificate

The Registrar of Companies will issue the applicant an incorporation certificate once they have received all necessary paperwork. The Company may apply for the 

Conclusion 

The Conversion of Section 8 Companies into any other kind of company is allowed under the Companies Act of 2013. When there is no way to accomplish the intended goal within the Company’s existing structure, companies turn to conversion. It takes time and effort to convert a Section 8 company into a private company. For more help and assistance in the conversion process, visit our website Vakilsearch and get in touch with our legal experts. 

FAQs

Can Section 8 company shares be transferred?

Yes, shares of a Section 8 company can be transferred.

What are the 2 ways in which government companies can be converted into private companies?

Government companies can be converted into private companies in two ways: (1) by altering the share capital of the company to convert it from a public company to a private company, and (2) by selling the government's stake in the company to private investors

Read more,

• Benefits of Section 8 Company
• AOA for Section 8 Company
• Procedure for Incorporating a Section 8 Company