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How To Convert Section 8 Company Into Any Other Company

Convert Section 8 Company Into Any Other Company

A non-profit organization, also known as a Section 8 company, is one that has as its objectives the promotion of business, the arts, sciences, sports, education, research, social welfare, religion, charitable giving, environmental protection, or any other such objective. It also forbids the payment of dividends to its members and intends to use any profits, if any, or other income in furthering these objectives. The business that has been registered as a Section 8 company is subject to all the responsibilities and entitled to all the rights of limited corporations.

What is Section 8 Company?

The Section 8 Company’s main objective is to support charity causes. The 2013 Companies Act applies to these businesses. Due to the constitutional framework, Section 8 enterprises are more open and effective than other non-profit organizations. These businesses want to encourage things like business, the arts, sports, sciences, welfare, research, social responsibility, religion, and environmental protection. These businesses are not permitted to distribute the earnings to their members under the current Act. Instead, the company uses its profit to further its mission. We shall cover the benefits and drawbacks of section 8 Company in this article. By adopting a special resolution to this effect and filing an application with the Regional Director in accordance with the requirements of Rules 21 and 22 of the Companies (Incorporation) Rules, 2014, any Section 8 Company intending to have itself converted into the company of any other kind may do so.

What are the Mandatory Requirements:

  1. By approving a Special Resolution in a legally called general meeting, the company will ask its shareholders and members for permission before converting.
  2. Along with the notice of the general meeting, the company must include a thorough explanation of the conversion’s reasons.
  3. At its own expense, the company must publish a notice of the proposed conversion.
  4. The Board of Directors must provide a statement stating that the company will refrain from paying or transferring any income or assets to current or former members of the company, as well as anybody suing on their behalf, directly or indirectly.
  5. In the event that any special status, privilege, exemption, benefit, or grant is received from any government, the company must get a No Objection Certificate (NOC).
  6. Section 8 company compliances: The company must receive a Compliance Certificate from a licenced Chartered Accountant (CA), Company Secretary (CS), or Cost Accountant (CWA) attesting that all conversion-related requirements of the Act and its implementing rules have been met.
  7. Before submitting an application to the Regional Director, the Company must submit all of its financial statements, Annual Returns, and other pertinent statutory returns required by the Act up to the financial year in question (RD).
  8. A statement of the company’s financial status properly certified by a Chartered Accountant (CA) made up to a date within 30 days of submitting the application must be included with a conversion request if it is filed after the passing of three months from the start of the previous fiscal year.

Process of Section 8 Company Registration Online

Section 8 company registration process :

  1. Call a Board of Directors Meeting [According to Section 173 & SS-1]: The firm must call a Board of Directors meeting to approve the proposal to transform the Section 8 Business into a company of any other kind. For more information on the specific steps, see the Procedure for Conducting Board Meetings.
  2. Convene General Meeting [Section 96, 100, and Secretarial Standard (SS-2)]: The company is required to call a General Meeting of its Members in order to approve a Special resolution that would allow the Section 8 Company to become any other type of company. For a complete procedure, see the Procedure for Conducting General Meeting.
  3. The firm must submit Form MGT-14 to the Registrar of Companies (ROC) within 30 days of approving a Special Resolution in the General Meeting, along with the necessary paperwork and payment in accordance with the 2014 Companies (Registration offices and fees) Rules.
  4. In accordance with Section 8(4)(ii) of the Companies Act of 2013 and Rules 21(4) and 21(5) of the Companies (Incorporation) Rules of 2014, submit a conversion application to the Regional Director (RD):
    • The business must submit Form No. INC-18, along with the required fees and the supporting documentation, to the Regional Director (RD) in order to request approval for its conversion into any other kind.
      • Mandatory attachments:
        • Audited financial statements, Board reports, annual reports, and audit reports for each of the two fiscal years that directly before the application date, or for any fiscal year in which the firm has only operated for one fiscal year.
        • NOCs (No-Objection Certificates) from each and every creditor
      • Optional attachments:
        • Statement of financial situation, if relevant, including any details of fixed assets that were alienated during the previous three fiscal years
        • Written approval from lenders for any outstanding loans No-Objection Certificates (NOCs) from relevant authorities in the event that the firm has been granted a special status or privilege
        • No-Objection Certificate (NOC) obtained from sectoral regulatory authority in case company is being regulated by such authority. 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 a discounted rate or free of cost.
        • any more optional attachments that you consider appropriate.
    • Additionally, the company must make sure to file a copy of the application with the Registrar that includes all of the annexures that were submitted to the Regional Director (RD).
  5. According to Companies (Incorporation) Rules, 2014 Rule 22(2), the notification must be sent to the other authorities:
  6. The following parties who have jurisdiction over the corporation must receive copies of the notice, its publication, application, and any necessary attachments by registered mail or personal delivery:
    • Chief Income Tax Commissioner
    • Officer of Income Taxes
    • Chief of Charities
    • Chief Secretary of the State in which the corporation has its registered office
    • Every organisation, department of the federal government, state government, or other entity that has jurisdiction over the corporation must submit any objections to the regional director within 60 days of receiving the notification.
  7. According to Companies (Incorporation) Rules, 2014 Rule 22(1), the notice filed to the regional director should be published:
    • The Company should, at its own expense and within one week of the day the Regional Director (RD) receives the application, publish the following notice regarding the intended conversion:
      • at least three times in a newspaper with wide distribution in the district where the company’s registered office is located, at least three times in an English newspaper with wide distribution in that district, and at least three times on the company’s website, as may be advised or directed by the central government.
    • Additionally, a duplicate of this public notice in Form No. INC 19 must be forwarded right away to the Regional Director (RD).
  8. Rule 22(8), 22(9), and Rule 22(10) of the Companies (Incorporation) Rules, 2014, need the regional director’s (RD) approval.
  9. Subject to the following criteria and conditions, the Regional Director (RD) shall issue an order allowing the conversion of a section 8 business into a company of any other kind:
    • After its conversion date, the company must forfeit and cease claiming any special status, exemptions, or benefits it had as a result of being registered under section 8’s regulations.
    • The company may be required to pay the government or the authority that provided the immovable property with the difference between the cost at which it acquired the property and the market price of that property at the time of conversion if it had received any immovable property free of charge or at a reduced cost from that government or authority.
    • The company must first pay off all outstanding statutory obligations, amounts owed to lenders, amounts owed to creditors, suppliers, service providers, and others, including employees. After that, any loans made by the promoters or members, or any other amounts owed to them, must be paid back, and any remaining funds, if any, must be transferred to the Investor Education and Protection Fund within 30 days of receiving them.
  10. Call a Board of Directors Meeting [In accordance with Section 173 & SS-1]: In order to alter its memorandum of association and articles of association as required by the Act as a result of the conversion of the section 8 company into a company of any other sort, the company must call a meeting of its board of directors. For more information on the specific steps, see the Procedure for Conducting Board Meetings.
  11. In accordance with Sections 96, 100, SS-2, and 22(11)(i) of the Companies (Incorporation) Rules, 2014, a general meeting should be called.
  12. In order to alter its memorandum of association and articles of association as required by the Act as a result of the conversion of the section 8 company into a company of any other sort, the company must call a general meeting of its members. For a complete method, see the Procedure for Conducting General Meeting.
  13. Form MGT-14 [Section 117 of the 2013 Companies Act] submission:
  14. Following the adoption of the Special Resolution in the General Meeting, the business must submit Form MGT-14 to the Registrar of Companies (ROC) within 30 days, together with the necessary paperwork and fees as outlined in the 2014 Companies (Registration offices and fees) Rules.
  15. In accordance with Rule 22(11)(ii) of the Companies (Incorporation) Rules, 2014, submit a conversion application to the registrar.
  16. After receiving the Regional Director’s (RD) permission, the company must file a certified genuine copy of that approval with the Registrar in Form No. INC 20 within 30 days of the order’s receipt date, together with the required fee and the necessary documents:
    • a copy of the central government’s order
    • changed Memorandum of Association and Articles of Association certified authentic copy
    • Any other optional attachments that the board of directors may determine appropriate for section 8 company compliances with requirements in the event of license surrender.
  17. The 2014 Companies (Incorporation) Rules’ new Certificate of Incorporation [Rule 22(12)]:
  18. In order to complete the conversion process, the applicant business must submit certain papers, which the Registrar will register before issuing a new Certificate of Incorporation.
  19. Post-Conversion Requirements:
    • Every modification to the company’s memorandum or articles must be documented in every copy, depending on the circumstance. [Companies Act of 2013 Section 15(1)]
    • Each Company must: Get your company’s name, registered office address, corporate identity number, phone number, fax number, email address, and website address written on all of your correspondence, notifications, and other official publications [Section 12(3)(c) of the Companies Act, 2013].
    • Print the company’s name on money, promissory notes, bills of exchange, and other papers [Section 12(3)(d) of the Companies Act, 2013]
    • Send all banks, authorities, and other suppliers of basic utility services the new address of the company’s registered office, if appropriate.

Benefits of Section 8 Company

Unlike its competitors, such as Trusts or Societies, Section 8 Companies provide a variety of benefits. The list of realistic advantages provided by Section 8 firms is as follows:

  • Obtaining Tax Benefits

Due to the fact that Section 8 firms are more akin to charity organizations, they are eligible for the numerous exemptions provided under the IT Act. These businesses are eligible for many tax breaks and a tax reduction. These businesses benefited greatly from tax-related incentives provided by Section 80G of the Income Tax Act[1].

  • 0% Stamp Duty

The Section 8 firms, unlike other businesses covered by the 2013 Companies Act, are not required to pay stamp duty on the MOA and AOA.

  • Very Low Share Capital

A Section 8 company may be formed without a minimum paid-up share capital, unlike private, public, or OPC companies. These businesses are free to change their capital structure as necessary in the future.

  • From Any Name Exempt

Companies under Section 8 are not required to include words like Limited or Private Limited in their name. These organizations have limited liability and are registered.

  • Distinct legal entity

A section 8 corporation has a unique legal standing that suggests its existence is unrelated to the existence of its members. The section 8 entity is unendingly valid.

  • Increased Reputation

They are able to establish more credibility than other categories of NGOs like Society and trust because of the flexible and open constitutional structure of Section 8 corporations.

Eligible For Foreign Contribution

If a company is registered under the Foreign Contribution Regulation Act of 2010, it is eligible to collect donations from abroad. This gives them the much-needed research they need to support their humanitarian activities.

Conditions to Convert Section 8 Company to Any Other Kind of Company?

The following prerequisites must be met in order for a section 8 business to be converted into any other type of company under Rule 21.

For the approval of the conversion of a section 8 company into any other sort of company, a special resolution must be voted in a general meeting of the company’s members.

The company’s general meeting notice must be sent together with the justification. The explanation must contain the following:

  1. the date of incorporation; the primary purpose of the business as stated in the memorandum of association;
  2. The justification for why the company’s operations are unable to forward its purpose; if the company’s primary goal is to be changed, the justification for the proposed change in the company’s goal and the suggested new goal.
  3. concessions that the firm has access to, such tax breaks, permission to accept donations from abroad, land, and other moveable property. information on the donations the business has received, together with any restrictions on how they will be used;
  4. The results and advantages of the members’ conversion.
  • Within 30 days following the special resolution’s passage, a certified true copy of it together with a copy of the notice of the members’ general meeting must be filed with the Registrar of Companies in form MGT 14 and accompanied by the required filing fees.
  • The following papers must be sent with an application in Form INC 18 to the regional director, together with the required fees:
  • an authentic copy that has been certified of the resolution adopted at the general meeting;
  • a duplicate of the notification of the general meeting and the justification;
  • Proof that the notification was delivered to each of the authorities listed below:
  • Chief Secretary of the state where the firm’s registered office is located, Income Tax Officer, Charity Commissioner, and Chief Commissioner of the Income Tax Authority having authority over the corporation;
  • to the regulatory body that has jurisdiction over the business.
  1. The registrar of businesses must receive a copy of the application submitted to the regional director.

The additional requirements listed in Rule 22 for converting a section 8 business into any other type of corporation are as follows:

  • Within a week of filing an application to the regional director, notice must be published at its own expense;
  • To alert INC 19 of the notification, a copy must be provided to the regional director.
  • The notification must be printed in two newspapers—one in the local language of the district where the firm’s registered office is located and one in an English daily with a sizable readership—as well as, if the company has one, on its website;
  • Within 60 days of receiving the notification, authorities may submit a complaint to the regional director. after providing the business with a chance;
  • As evidence of notice being served, an application must be accompanied by a statement from the board of directors stating that no money has ever been paid directly or indirectly from the company to anyone who is or has ever been a member, to any one or more of them, or to anyone claiming through any one or more of them.
  • A corporation is required to give the regional director its financial statements, yearly returns going back to the fiscal year before to the application, and further returns up to the application filing date.
  • If the application is submitted after the previous financial year’s financial statement has been filed for the preceding three months, the financial statement must be properly certified by a chartered accountant within the previous 30 days of the application’s submission, and it must be attached. The certificate must be obtained from a professional “practising chartered accountant, company secretary, or cost accountant.”
  • The applicant’s consent to the authority for such a conversion may be required by the regional director, who may also request the registrar’s report.

What are the Conditions which can be Imposed by the Regional Director

Rule 22(8) states that the regional director must be satisfied before issuing an order for the conversion of the firm, subject to any restrictions and conditions that may be imposed under the following circumstances

  • With effect from the conversion date, the company may no longer make use of any rights or exemptions that it previously had as a result of its registration under Section 8 of the 2013 Companies Act.
  • The firm must pay the difference between the price at which the immovable property was bought and the market price of that property at the time of conversion in the event that the company purchased the immovable property from the government or another authority at a discounted rate.
  • If the company had any unused income or accumulated profits from the prior year, those funds would be used to pay off any outstanding debts, as well as any amounts owed to creditors, suppliers, or promoters or members who provided loans. Any remaining funds would then be transferred, within 30 days of conversion, to the Investor Education & Protection Fund.
  • Before rejecting the application or adding any restrictions, the firm must be given the chance to be heard.

Changing from a Section 8 company: Requirements

Rule 22(10) specifies the following:

  • The special resolution to alter the company’s articles of incorporation and memorandum of association must be approved by the regional director of the company before it can be adopted in the general meeting of the company’s members.
  • An revised copy of the memorandum of association and article of association must be filed in Form INC 20 within 30 days together with the applicable fees. The directors must also provide a statement stating that any requirements set by the regional director had to have been met.
  • The registrar shall issue the certificate of incorporation after receipt of the required paperwork.
  • While the Companies Act of 2013’s Section 8 licence must be cancelled.
  • To alter the status and name of the business, Form INC 20 must be submitted to the registrar together with the necessary payments.

Conclusion

As was previously indicated, a Section 8 Company that has been converted cannot continue to claim the same rights and exemptions. Before choosing such a conversion, you must be aware of these points. Typically, section 8 corporations are established to further altruistic goals like the advancement of science, art, culture, charity, etc. These businesses experience little legal obstacles while obtaining legal status through registration. The post-registration phase, however, is different since these businesses must adhere to a number of regulatory requirements that serve as a barrier. Less stability and no member profit allocations are two prominent drawbacks of section 8 companies. However, these businesses do have certain benefits in terms of taxes.

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