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Section 8 Company

Procedure for Close of Section 8 Company

A Section 8 corporation is defined as one whose goals include promoting the arts, business, research, education, charity, social welfare, or other similar goals. But how do you close a Section 8 company? Read through the article to know more about the Section 8 company closure process.

Promoters who are engaged in a not-for-profit business should ideally create a Section 8 company of the Companies Act, 2013. Following a company is registered under Section 8 as a public or private company, it is no longer required to use the phrases private limited or public limited after the firm’s keyword. 

Because this firm has the license to function as a charitable company, it is necessary to surrender that license by transforming the company into a normal corporation that is not a Section 8 Company. For the goal of converting the company into a standard company, the following items must be in working order.

Closure of a Section 8 Company

Strike off of section 8 company can be by surrendering their charity company license. The license can be revoked by changing the business into a regular corporation rather than a Section 8 corporation.

The conversion of a Section 8 corporation to a one-person corporation is not possible. Unlike other corporations, the assets of a Section 8 company are not transferred to the company’s management or shareholders when it is wound up. The Section 8 company’s assets are amalgamated with those of another Section 8 company.

What Is the Process to Close a Section 8 Company?

The steps listed below provide details on how to close section 8 company:

  1. Conduct a board of directors meeting and enact board motions for surrendering the license and holding a general meeting to obtain shareholder approval
  2. If shareholders agree to such a decision, organise an EGM and pass a special resolution (SR). Only then may the closure procedure begin
  3. Within 30 days of passing the SR in the EGM, submit MGT-14 together with all applicable documents, DSC, and costs
  4. The INC-18 must then be filled out and sent to the regional director (RD) along with the necessary paperwork and fees for conversion

The list of documents is given below:

  • A copy of the notice given to members informing them of the EGM’s call
  • A copy of SR
  • If there is a list of creditors, a copy of the same.
  • A copy of an explanatory statement
  • A copy of advertising in the INC-19 format – one in English and one in a vernacular newspaper in English and vernacular language
  • A copy of the application, along with proof of delivery, is to be sent to the Chief Commissioner of Income Tax, the Income Tax Officer in whose jurisdiction the company is located, the Charity Commissioner, the Chief Secretary of the state where the company’s registered office is located, and any other organisation or department of the Central or State Government or the administration in whose jurisdiction the company is situated
  • A statement by the board of directors stating that no part of the company’s earnings, assets, or property is paid or transferred to any member or other person
  • If it has gained any special grant, exemption, or privilege from any authorities or governmental agency, a copy of the NOC from the special authority is required
  • A copy of financial statements and annual returns submitted with the MCA up to the financial year before the application for license surrender filed with the RD
  • A copy of the certificate from a practising professional such as a Chartered Accountant, Company Secretary, or Cost Accountant.
  1. Following the RD’s permission, the business must file INC-20 with the registrar, together with a copy of the regional director’s approval, amended Memorandum and Articles of Association, and costs.
  2. The ROC may accept the request, in which case the section-8 company’s status will be changed to either a Pvt ltd or a public limited company, and the section-8 company will cease to exist.
  3. To close this business, the company must now follow the procedures for closing a regular business.

Post-approval Compliance

The firm will call a general meeting after receiving clearance from the Regional Director to enact a special resolution revising the memorandum of association and articles of organisation.

The following documents must be filed with the Registrar:

  • Within 30 days of receiving the order in Form INC -20, a certified copy of the Regional Director’s approval
  • The company’s amended memorandum of association and articles of association
  • A statement from the directors stating that all of the Regional Director’s conditions, if any, have been met.

Once the company has been converted to a normal company, the firm can be wound up using the procedures set out in the Companies Act of 2013 or the Insolvency and Bankruptcy Code of 2016.

Click here to know about: Section 8 Company Registration

Reasons to Close a Section 8 Company

  1. The Companies Act establishes a legal entity and a juristic person known as a company. As a result, a business must maintain consistent compliance throughout its existence. The purpose of the winding-up process is to close a dormant firm and avoid compliance obligations.
  2. If a corporation fails to register its compliance on time, it faces fines and penalties, as well as the directors being barred from founding another company. As a result, it is preferable to formally close an inactive corporation in order to avoid future fines or liabilities.
  3. When compared to the costs of maintaining compliance for a dormant corporation, it may be more cost-effective to dissolve a corporation and re-incorporate it when the time comes.

Documents Required for the Closure of a Section 8 Company

Following is the required list of documents:

  • A certified accurate copy of the special resolution, as well as a copy of the meeting notice, including the explanatory statement
  • Association memorandum
  • Articles of incorporation
  • A certified copy of the board resolution(s) sanctioning the conversion
  • A certified true copy of the special resolution passed for approval of any other sort of conversion, as well as the notification calling the general meeting and the applicable explanatory statement affixed thereto
  • Certificate from a CA/CS/CWA (in practice) attesting to the compliance with the Act’s and rules’ requirements
  • Statement of the company’s assets and liabilities as of a date within thirty days of that date, duly attested by the auditor
  • A copy of a registered valuer’s report on the market value of assets
  • Financial statements, reports of the Board of Directors, annual returns, and audit reports for each of the two fiscal years immediately preceding the date of the application, or for such year if the firm has only existed for one fiscal year
  • If there are any creditors, a letter of authorization from each of them is required.
  • A statement from the directors stating that all of the Regional Director’s conditions, if any, have been met.

Conclusion

If you want to know more about the Section 8 company closure process, Vakilsearch is your go-to online legal advisor. Simply go to our website and register yourself. An expert will contact you as soon as possible to assist you.

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