Application to Regional director for Conversion of Section 8 company into Company of Any Other Kind [Form INC-18]

Introduction:

India has a long history of companies in our country. Profits made by non-profit organisations are used to improve and grow society. Furthermore, under Section 8(4)(ii) of the Companies Act, 2013, a Section 8 company can be converted into any other type of company. The Companies (Incorporation) Rules, 2014 also outline the process for converting a Section 8 corporation into another type of corporation. In this article, we’ll go over how to convert a Section 8 corporation into a private corporation. [1]

Private Company

Section 2(68) of the Act defines a private limited company. [2]The Articles of Association of a Private Company limit the transferability of shares and prohibit the general public from purchasing shares in the Private Company. Following the modification to the Companies Act of 2013, a private company can now have a minimum paid-up capital of any amount. For a Private Company, the maximum number of members is 200 (unless in the case of a One Person Company). Any previous or current workers of the Private Company are not included in the maximum number of members.

What is Section 8 Company?

A Section 8 company is a non-profit organisation that is registered under Section 8 of the Companies Act of 2013. It can join another company if its Memorandum of Association allows it to invest in the other firm’s stock. Reliance Foundation, the Federation of Indian Chambers of Commerce and Industry (FICCI), and TATA Foundation are three instances of Section 8 corporations.  Section 8(4)(ii) of the Companies Act 2013 states that a Section 8 business can change itself into any other company after meeting the Act’s requirements.[3]

Purpose of Forming a Section 8 Company

Section 8 of the Businesses Act 2013 contains laws governing the formation of companies dedicated to philanthropic purposes such as trade, art, science, sports, education, research, social welfare, religion, charity, environmental protection, and so on. Such a firm (also known as a “Section 8 Company”) wants to use its income to further its objectives and does not pay any dividends to its shareholders.[4]

Conditions for Section 8 Company Eligibility

The following three conditions must be completed in order to be classified as a firm under Section 8:

1. It was founded to promote philanthropic causes.
2. Profits are put to good use in the promotion of goods.
3. Dividends will not be paid out.

Procedure for Converting a Section 8 Corporation into Any Other Type of Corporation Under Rule 21, 22[5]

As per Rule 21, the prerequisites for converting a section 8 business into any other type of corporation are as follows.

1. A special resolution must be passed by the members of the company in a general meeting to approve the conversion of a section 8 company into any other type of company.
2. The notice of the company’s general meeting must be accompanied by an explanatory statement. The explanatory statement must include the following:
3. The date of the company’s formation.
4. The company’s main purpose, as stated in the Memorandum of Association.
5. Reasons why the company’s actions cannot be continued in order to fulfil the company’s goal.
6. If the company’s principal object is recommended to be changed, explain why it is being changed and what the new object will be.
7. Tax exemptions, permissions for receiving donations, including international contributions, land and other immovable property are among the benefits obtained by the company. Details on the donations collected by the company, as well as the conditions tied to their use.
8. The impact and benefit of member conversion.
9. Within 30 days of passing the special resolution, a certified true copy of the resolution, as well as a copy of the notice of the general meeting of the members, must be filed with the Registrar of Companies in form MGT 14 together with the specified fees.
10. Form INC 18 and the accompanying documents must be filed with the regional director, together with the required fees:
11. An accurate and certified copy of the general meeting resolution.
12. Includes a copy of the notification of the general meeting, together with an explanation.
13. Proof that the notification was served on all of the authorities listed below:
14. Income Tax Officer.
15. Charity Commissioner.
16. Chief Secretary of the state where the firm’s registered office is located.
17.  Chief Commissioner of the Income Tax Authority having jurisdiction over the company.
18. To the government agency that has jurisdiction over the corporation.
19. The registrar of companies must receive a copy of the application submitted with the regional director.

Other prerequisites for converting a section 8 business into any other type of company as per Rule 22 are as follows:

1. Within a week of submitting an application to the regional director, notice must be published at its own expense.
2. INC 18will receive a copy of the notice, which will be forwarded to the regional director.
3. The notification must be published in two newspapers: one in the vernacular language of the district where the company’s registered office is located, and one in an English newspaper with a broad distribution, as well as on the company’s website if one exists.
4. Authorities have 60 days from the date of receipt of the notification to make a representation to the regional director. After providing the corporation with an opportunity.
5. Proof of service of notice must be added to the application.
6. The board of directors must make a declaration that no business revenue has been paid directly or indirectly to the persons who are or have been members of the company, or to any one or more of them, or to anyone claiming via any one or more of them.
7. A company must provide its financial statement and annual returns to the regional director for the financial year preceding the application, and other returns are necessary up to the date of application submission.
8. If the application is filed after the expiration of three months from the date of the previous financial year in which the financial statement is filed, the financial statement must be duly certified by a Chartered Accountant within the preceding 30 days of filing the application.
9.  A Certificate must be attached to the application, which must be obtained from a professional accountant.
10. The Regional Director may ask the applicant to receive the authority’s consent for such a conversion, as well as a report from the registrar.

Conversion of a Section 8 Company into a New Company

A corporation that is already registered under Section 8 and wants to change its status must submit an application to the Regional Director. Once the Regional Director has given his approval, the company will lose all of the rights and concessions it has received as a Section 8 corporation. By filing e-Form INC-18, a business under Section 8 can change itself into any other type of company. For such a conversion to be approved, it must pass a special resolution at a general meeting. Section 8 (4) (ii) of the Companies Act, 2013 and Rule 21(4) of the Companies (Incorporation) Rules, 2014 both require the filing of E-Form INC-18[6].

Attachments to INC-18 Form

• A copy of the MOA and the AOA
• Resolution of the Board of Directors
• A copy of the Special Resolution, as well as the Notice and Explanatory Statement, is attached.
• A certificate from the PCA/PCS/Practicing ICWA attesting to the fact that the Acts and Rules have been followed.
• Assets and Liabilities Statement
• Proof of service of the Notice to the above-mentioned authorities.
• The market value of the assets is mentioned in the valuation report by a registered valuer.
• The previous two financial years’ audited financial statements, or one financial year’s audited financial statements, as the case may be.
• If any assets were sold in the previous three financial years, please provide details.
• Consent of all the company’s lenders/creditors
• The director certifies that no property has been transferred to any member in the form of dividends or otherwise.
• Within 7 days of submitting Form INC-18 to the Regional Director, publish the notice of conversion in Form INC-19 once in a vernacular newspaper with a wide circulation in the district where the company’s registered office is located and once in an English language newspaper with a wide circulation in the district.
• Hold a General Meeting to amend the Company’s MOA and AOA after RD approves the application filed in Form INC-18. Give shareholders 21 days’ notice.
• Within 30 days of passing a special resolution, file form MGT-14 with the Altered MOA and AOA, a copy of the special resolution passed, and the notification and explanatory statement.
• Fill out form INC-20 to notify the ROC of the revocation or surrender of a licence issued under Section 8, along with the RD’s approval for conversion, the altered MOA and AOA, and the board’s declaration in this regard, if any.
• The concerned ROC would approve the application for surrender of the licence issued under Section 8 and issue a new Certificate of Incorporation (COI) to the converted Private Limited Company or Public Limited Company after a thorough examination of the papers submitted.[7]

Issuance of New Certificate of Incorporation

The Registrar of Companies (ROC) will issue the applicant firm a new Certificate of Incorporation upon receipt of the requisite documentation.

Furthermore, upon the revocation of a Section 8 Company’s license, the firm can file an MCA Form INC 20 with the Registrar of Companies to convert its name and status.[8]

Conclusion

As previously indicated, a Section 8 Company that has been converted cannot claim the same privileges and exemptions as before. Furthermore, the main cause for conversion is that businesses are unable to achieve their targeted goals within their current organisational structure. You can contact us directly at the numbers provided if you have any questions about the Online Private Limited Company Registration process. Furthermore, converting a Section 8 corporation to a private corporation is a time-consuming and complex process that requires professional guidance. [9]

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References:

[1]http://ebook.mca.gov.in/Childwindow1.aspx?pageid=26020&type=RU&ChildTitle=Chapter%20II%20The%20Companies%20(Incorporation)%20Rules,%202014

[2] The Companies Act, 2013

[3]https://finlawportal.com/a-complete-overview-of-section-8-company/

[4]https://vakilsearch-com.cdn.ampproject.org/v/s/vakilsearch.com/advice/how-to-convert-section-8-company-into-any-other-company/amp/?amp_js_v=a6&amp_gsa=1&usqp=mq331AQKKAFQArABIIACAw%3D%3D#aoh=16277047562396&referrer=https%3A%2F%2Fwww.google.com&amp_tf=From%20%251%24s&ampshare=https%3A%2F%2Fvakilsearch.com%2Fadvice%2Fhow-to-convert-section-8-company-into-any-other-company%2F

[5]https://enterslice-com.cdn.ampproject.org/v/s/enterslice.com/learning/conversion-section-8-company-kind-company/?amp_js_v=a6&amp_gsa=1&usqp=mq331AQKKAFQArABIIACAw%3D%3D#aoh=16277047562396&referrer=https%3A%2F%2Fwww.google.com&amp_tf=From%20%251%24s&ampshare=https%3A%2F%2Fenterslice.com%2Flearning%2Fconversion-section-8-company-kind-company%2F

[6]The Company Act By Avatar Singh

[7]https://nagpalandcompany.com/2021/04/19/conversion-of-section-8-company-into-private-limited-company-closure-of-section-8-company/

[8]https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=5899

[9]https://taxguru-in.cdn.ampproject.org/v/s/taxguru.in/company-law/conversion-section-8-company-private-company.html?amp_js_v=a6&amp_gsa=1&amp&usqp=mq331AQKKAFQArABIIACAw%3D%3D#aoh=16277047562396&referrer=https%3A%2F%2Fwww.google.com&amp_tf=From%20%251%24s&ampshare=https%3A%2F%2Ftaxguru.in%2Fcompany-law%2Fconversion-section-8-company-private-company.html