Procedure for Conversion of Section 8 Company into any Other Kind

Khushboo Sharma

Khushboo Sharma

Published on: Nov 28, 2022

Aakanksha Singhal

Updated on: Oct 18, 2023

★★★★★(11 Rating)

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Introduction:

A Non-profit Company or Section 8 Company is a company which has promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object as its objects, intends to apply its profits, if any, or other income in promoting its objects and prohibits any payment of dividend to its members. The company registered as a Section 8 company enjoys all the privileges and is subjected to all the obligations of limited companies.

Any Section 8 Company intending to get itself converted into the company of any other kind may do so by passing a special resolution to this effect and making an application with the Regional Director in terms of the provisions of Rule 21 and Rule 22 of the Companies (Incorporation) Rules, 2014.

Mandatory Requirements:

1. Company shall seek approval of its Shareholders/Members for conversion by passing a Special Resolution in a duly convened general meeting.
2. Company shall annex a detailed explanatory statement indicating the reasons for conversion together with the notice of the general meeting.
3. Company shall publish a notice pertaining to the proposed conversion at its own expense.
4. The Board of directors shall furnish a declaration that the company will abstain from directly or indirectly paying or transferring the income or property of the company to any person who is or has been the company’s members or any person who is claiming through any one or more of them.
5. Company shall procure a No Objection Certificate (NOC), in case of any special status, privilege, exemption, benefit or grant(s) is availed from any authority.
6. Company shall obtain a Compliance Certificate from any practicing Chartered Accountant (CA) or Company Secretary (CS) or Cost Accountant (CWA) to the effect that all the prescribed conditions of the Act and rules made thereunder pertaining to conversion are adhered to.
7. Company is required to file all its financial statements, Annual Returns and all other relevant statutory returns required under the Act up to the financial year prior to the submission of application to the Regional Director (RD).
8. In case the application for conversion is made after the expiry of 03 months from the date of preceding financial year, then a statement of company’s financial position duly certified by Chartered Accountant (CA) made up to a date within 30 days of filing the application shall be attached with such application.

Procedure:

1. Convene a Meeting of Board of Directors [As per section 173 & SS-1]:
   The Company shall convene a Meeting of its Board of Directors to pass a Board resolution for the following:
   • to consider and approve the proposal of converting the Section 8 Company into a company of any other kind.
   • alteration of Memorandum of Association (MOA) of the Company subject to the approval of the Members of the Company
   • alteration of Articles of Association (AOA)
   • to delegate authority to Company Secretary or any one director of the company to sign, certify and file the required form with Registrar of Companies and to do all such acts and deeds as may be necessary to give effect to the conversion.
   Refer to the Procedure for Conducting Board Meeting for a detailed procedure.”
2. Convene General Meeting [Section 96, 100 and Secretarial Standard (SS-2)]:
   The Company shall convene a General Meeting of its Members to pass a Special resolution for the following:
   • to consider and approve the proposal of converting the Section 8 Company into a company of any other kind.
   • alteration of Memorandum of Association (MOA)
   • alteration of Articles of Association (AOA)
   • to delegate authority to Company Secretary or any one director of the company to sign, certify and file the required form with Registrar of Companies and to do all such acts and deeds as may be necessary to give effect to the conversion.
   Refer to the Procedure for Conducting General Meeting for a detailed procedure.
3. Filing Form MGT-14 with ROC:
   The company shall file Form MGT-14 with the Registrar of Companies (ROC) within 30 days of passing Special Resolution in General Meeting along with the requisite documents and fees as specified in the Companies (Registration offices and fees) Rules, 2014.
4. File Conversion application with the Regional Director (RD) [Section 8(4)(ii) of the Companies Act, 2013 and Rule 21(4) & 21(5) of the Companies (Incorporation) Rules, 2014]:
   • The company shall file an application in Form No. INC-18 seeking approval from the Regional Director (RD) for its conversion into any other kind along with the prescribed fees and the following documents
     • Mandatory attachments:
       • e-Memorandum of association
       • e-Articles of association
       • Certified true copy of board resolution(s) authorizing conversion
       • Certified true copy of special resolution authorizing conversion into any other kind and notice convening the general meeting along with explanatory statement annexed thereto
       • Certificate from practicing Chartered Accountant (CA) or Company Secretary (CS) or Cost Accountant (CWA)certifying that the conditions laid down in the Act and rules have been complied with
       • Statement of company’s assets and liabilities as on the date not earlier than 30 days of that date duly certified by auditor
       • Copy of valuation report by a registered valuer w.r.t market value of assets
       • Audited financial statements, Board’s reports, annual returns and audit reports for each of the 02 financial years immediately preceding the application date or where the company has functioned only for 01 financial year for such year
       • No-Objection Certificate (NOC) from all the creditors
     • Optional attachments:
       • Statement of financial position if applicable
       • Minutiae of fixed assets alienated if any, whilst preceding 03 financial years
       • Lenders written consent in case of any outstanding loan
       • No-Objection Certificate (NOC) from concerned authority in case company has obtained any special status/ privilege
       • Testimony in lieu of differential amount paid in case company has acquired any immovable property through lease or otherwise from any Government/ authority/ body corporate/ person since incorporation at concessional rate or free of cost
       • Minutiae of donation/grant/benefit received since its incorporation if company has received any such amount
       • No-Objection Certificate (NOC) received from sectoral regulatory authority in case company is being regulated by such authority
       • Any other optional attachment(s) as may deem fit.
   • Company shall also ensure filing the copy of application with the Registrar comprising of all the annexures as were filed with the Regional Director (RD).
5. Serving the notice to all other authorities [Rule 22(2) of Companies (Incorporation) Rules, 2014]:
   Company shall circulate the copy of notice, its publication, application and all the vital attachments by registered post or hand delivery to the following who has jurisdiction over the company:
   • Chief Commissioner of Income Tax
   • Income Tax Officer
   • Charity Commissioner
   • Chief Secretary of the State where company’s registered office is situated
   • Any organization or Department of Central Government or State Government or other authority under whose jurisdiction the company has been operating And such authorities shall make their representations, if any to the Regional Director within 60 days of receipt of the notice.
6. Publish the Notice submitted to Regional Director [Rule 22(1) of Companies (Incorporation) Rules, 2014]:
   • The Company shall at its own expense and within a week from application date of submitting application to the Regional Director (RD) publish a notice about the proposed conversion as under:
     • at least once in a vernacular newspaper and in principal vernacular language of the district where company’s registered office is located having wide circulation in that district, and at least once in English newspaper having a wide circulation in that district and
     • on company’s website as may be notified or directed by Central Government
   • Also, a copy of such published notice in Form No. INC 19 shall be forthwith sent to the Regional Director (RD).
7. Approval by the Regional Director (RD) [Rule 22(8), 22(9) & 22(10) of the Companies (Incorporation) Rules, 2014]:
   The Regional Director (RD) shall issue an order approving the conversion of section 8 company into a company of any other kind subject to the below-stated terms and conditions:
   • Company shall give up and abstain from claiming w.e.f its conversion date any special status, exemptions or privileges that it enjoyed by virtue of having been registered under the provisions of section 8
   • In case company had acquired any immovable property free of cost or at a concessional cost from any government or authority, then it may be required to pay the difference between cost at which it acquired such property and market price of such property at the time of conversion either to the government or to the authority that provided the immovable property
   • Any accumulated profit or unutilized income of the company brought forward from previous years shall be first utilized to settle all outstanding statutory dues, amounts due to lenders claims of creditors, suppliers, service providers and others including employees and lastly any loans advanced by the promoters or members or any other amounts due to them and the balance, if any, shall be transferred to the Investor Education and Protection Fund within 30 days of receiving the approval for conversion.
8. Filing of Form MGT-14 [Section 117 of the Companies Act, 2013]:
   The company shall file Form MGT-14 with the Registrar of Companies (ROC) within 30 days of passing Special Resolution in General Meeting along with the requisite documents and fees as specified in the Companies (Registration offices and fees) Rules, 2014.
9. File Conversion Application with the Registrar [Rule 22(11)(ii) of the Companies (Incorporation) Rules, 2014]:
   Company subsequent to the receipt of the approval of the Regional Director (RD) shall file a certified true copy of such approval within 30 days from the date of receipt of order in Form No. INC 20 along with stipulated fee and the following documents with the Registrar:
   • Copy of Order of Central Government
   • Amended e-Memorandum of Association of the company and amended e-Article of Association of the company
   • Declaration of directors for compliance of conditions in case of surrender of license
   • Any other optional attachment(s) as may deem fit.
10. New Certificate of Incorporation [Rule 22(12) of Companies (Incorporation) Rules, 2014]:
    The Registrar shall register the documents furnished by the applicant company for conversion and thereafter issue a fresh Certificate of Incorporation.
11. Post Conversion Compliances:
    • Every Alteration made in the memorandum or articles of the company shall be noted in every copy of the memorandum or articles as the case may be. [Section 15 (1) of the Companies Act, 2013]
    • Every Company shall:
      • Have the new Altered Memorandum and Articles of Association with new Certificate of Incorporation printed
      • Paint or affix its name, and the address of its registered office, and keep the same painted or affixed, on the outside of every office or place in which its business is carried on, in a conspicuous position, in legible letters, and if the characters employed therefor are not those of the language or of one of the languages in general use in that locality, also in the characters of that language or of one of those languages [Section 12(3)(a) of the Companies Act, 2013]
      • Have its name engraved in legible characters on its seal, if any [Section 12(3)(b) of the Companies Act, 2013]
      • Get its name, address of its registered office and the Corporate Identity Number along with telephone number, fax number, if any, e-mail and website addresses, if any, printed in all its business letters, billheads, letter papers and in all its notices and other official publications [Section 12(3)(c) of the Companies Act, 2013]
      • Have its name printed on hundies, promissory notes, bills of exchange and such other documents [Section 12(3)(d) of the Companies Act, 2013]
    • Send the new address of its registered office to all the Banks, authorities and other Basic Utility Service providers as may be applicable.
12. File Necessary Amendment Application under the following Acts:
    • Goods and Services Act
    • Shops & Establishment Act
    • Factories Act
    • Inter-State Migrant Workmen Act
    • Private Security Agency Act
    • EPF and ESIC
    • Other Labor Laws
    • Industry Specific Laws.