Introduction to Conversion of Section 8 Company to Other Company
Section 8 companies are those companies which has its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object; intends to apply its profits, if any, or other income in promoting its objects; and intends to prohibit the payment of any dividend to its members.
An existing company seeking conversion of Section 8 Company to Other Company shall make an application to the Regional Director for conversion of its status. Once the approval is given by the Regional Director, the company shall cease to enjoy all the privileges /concessions obtained by it on account of being section 8 company. A company registered under this section may convert itself into company of any other kind only after complying with certain condition.
Conditions for Conversion of Section 8 Company to Other Company
Conversion of Section 8 Company to Other Company require passing of a special resolution at a general meeting for approving such conversion.
The explanatory statement annexed to the notice convening the general meeting shall set out in detail the reasons for opting for such conversion of Section 8 Company to Other Company including the (a) the date of incorporation of the company; (b) the principal objects of the company as set out in the memorandum of association; (c) the reasons as to why the activities for achieving the objects of the company cannot be carried on in the current structure i.e. as a section 8 company; (d) if the principal or main objects of the company are proposed to be altered, what would be the altered objects and the reasons for the alteration; (e) what are the privileges or concessions currently enjoyed by the company, such as tax exemptions, approvals for receiving donations or contributions including foreign contributions, land and other immovable properties, if any, that were acquired by the company at concessional rates or prices or gratuitously and, if so, the market prices prevalent at the time of acquisition and the price that was paid by the company, details of any donations or bequests received by the company with conditions attached to their utilization etc. (f) details of impact of the proposed conversion on the members of the company including details of any benefits that may accrue to the members as a result of the conversion.
A certified true copy of the special resolution along with a copy of the Notice convening the meeting including the explanatory statement shall be filed with the Registrar in Form No.MGT.14 along with the fee.
The company shall file an application in Form No.INC.18 with the Regional Director with the fee along with a certified true copy of the special resolution and a copy of the Notice convening the meeting including the explanatory statement for approval for converting itself into a company of any other kind and the company shall also attach the proof of serving of the notice served to all the authorities mentioned in sub-rule (2) of rule 22.
A copy of the application with annexures as filed with the Regional Director shall also be filed with the Registrar.
Other Conditions to be Complied with by Companies Seeking Conversion of Section 8 Company to Other Company
The company shall, within a week from the date of submitting the application to the Regional Director, publish a notice at its own expense, and a copy of the notice, as published, shall be sent forthwith to the Regional Director and the said notice shall be in Form No. INC.19 and shall be published (a) at least once in a vernacular newspaper in the principal vernacular language of the district in which the registered office of the company is situated, and having a wide circulation in that district, and at least once in English language in an English newspaper having a wide circulation in that district; and (b) on the website of the company, if any, and as may be notified or directed by the Central Government.
The company shall send a copy of the notice, simultaneously with its publication, together with a copy of the application and all attachments by registered post or hand delivery, to the Chief Commissioner of Income Tax having jurisdiction over the company, Income Tax Officer who has jurisdiction over the company, the Charity Commissioner, the Chief Secretary of the State in which the registered office of the company is situated, any organisation or Department of the Central Government or State Government or other authority under whose jurisdiction the company has been operating and if any of these authorities wish to make any representation to Regional Director, it shall do so within sixty days of the receipt of the notice, after giving an opportunity to the Company.
The copy of proof of serving such notice shall be attached to the application.
The Board of directors shall give a declaration to the effect that no portion of the income or property of the company has been or shall be paid or transferred directly or indirectly by way of dividend or bonus or otherwise to persons who are or have been members of the company or to any one or more of them or to any persons claiming through any one or more of them.
Where the company has obtained any special status, privilege, exemption, benefit or grant(s) from any authority such as Income Tax Department, Charity Commissioner or any organisation or Department of Central Government, State Government, Municipal Body or any recognized authority, a “No Objection Certificate” must be obtained, if required under the terms of the said special status, privilege, exemption, benefit or grant(s) from the concerned authority and filed with the Regional Director, along with the application.
The company should have filed all its financial statements and Annual Returns upto the financial year preceding the submission of the application to the Regional Director and all other returns required to be filed under the Act up to the date of submitting the application to the Regional Director and in the event the application is made after the expiry of three months from the date of preceding financial year to which the financial statement has been filed, a statement of the financial position duly certified by chartered accountant made up to a date not preceding thirty days of filing the application shall be attached.
The company shall attach with the application a certificate from practicing Chartered Accountant or Company Secretary in practice or Cost Accountant in practice certifying that the conditions laid down in the Act and these rules relating to conversion of Section 8 company to other company, have been complied with.
The Regional Director may require the applicant to furnish the approval or concurrence of any particular authority for grant of his approval for the conversion of section 8 company to other company and he may also obtain the report from the Registrar
On receipt of the application, and on being satisfied , the Regional Director shall issue an order approving the conversion of the company into a company of any other kind subject to such terms and conditions as may be imposed in the facts and circumstances of each case including the following conditions, namely;-
(a) the company shall give up and shall not claim, with effect from the date its conversion takes effect, any special status, exemptions or privileges that it enjoyed by virtue of having been registered under the provisions of section 8;
(b) if the company had acquired any immovable property free of cost or at a concessional cost from any government or authority, it may be required to pay the difference between the cost at which it acquired such property and the market price of such property at the time of conversion either to the government or to the authority that provided the immovable property;
(c) any accumulated profit or unutilised 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 thirty days of receiving the approval for conversion of section 8 company to other company;
Before imposing the conditions or rejecting the application, the company shall be given a reasonable opportunity of being heard by the Regional Director.
On receipt of the approval of the Regional Director:-
the company shall convene a general meeting of its members to pass a special resolution for amending its memorandum of association and articles of association as required under the Act consequent to the conversion of section 8 company to other company;
the Company shall thereafter file with the Registrar (a) a certified copy of the approval of the Regional Director within thirty days from the date of receipt of the order in Form No.INC.20 along with the fee; (b) amended memorandum of association and articles of association of the company (c) a declaration by the directors that the conditions, if any imposed by the Regional Director have been fully complied with.
On receipt of the documents referred above, the Registrar shall register the documents and issue the fresh Certificate of Incorporation.
Procedure for Conversion of Section 8 Company to Other Company
Documents Required for Conversion of Section 8 Company to Other Company
(a) Memorandum of Association
(b) Article of Association
(c) Certified true copy of board resolution(s) authorizing conversion of section 8 company to other Company
(d) Certified true copy of the special resolution passed for approval for conversion into any other kind and notice convening the general meeting along with the relevant explanatory statement annexed thereto
(e) Certificate from CA/CS/CWA(in practice) certifying that the condition laid down in the Act and rules, have been complied with
(f) Statement of assets and liabilities of the company as on the date not earlier than 30 days of that date duly certificate by the auditor
(g) Copy of valuation report by a register valuer about the market value of assets
(h) Audited financial statements, the Board’s report, annual returns and the audit reports for each of the two financial years immediately preceding the date of the application or, where the company has functioned only for one financial year , for such year
(i) NOC from all the creditors in mandatory, if required
(a) Statement of financial position if applicable
(b) Full details of fixed assets alienated if any, during the preceding 3 financial years
(c) Written consent of the lenders is mandatory if any loan outstanding
(d) NOC from the concerned authority in case special status is mandatory when the company has obtained any special status/ privilege
(e) Proof of payment of differential amount is mandatory if the company has acquired any immovable property through lease or otherwise from any Government or authority or body corporate or person since incorporation at concessional rate or free of cost
(f) Details of donation/grant/benefit received since incorporation of company is mandatory if company has received any donation and/or grant/ benefits from any person or authority since incorporation
(g) Copy of NOC received from sectoral regulatory authority is mandatory if company is being regulated by any sectoral regulator
(h) Any other information can be provided as an optional attachmen(s).