Section 8 Company

Conversion of a Section 8 Company into a Public Company

calendar11 Jan, 2023
timeReading Time: 8 Minutes
Conversion of a Section 8 Company into a Public Company

A Section 8 company cannot put its profits or income to any other use other than advancing its objectives. Section 8 companies cannot pay dividends towards members. A Section 8 organisation is established for charitable or not-for-profit purposes. As per Section 8 of the Companies Act, 2013, for an organisation to operate as a Section 8 company, it must be established for objects like “promotion of commerce, art, science, social welfare, religion, sports, education, research, charity, protection of the environment and any other similar object”. A Section 8 company can only use the income and profits from the Company for the advancement of the charitable objects of the Company. It is barred from distributing dividends to its shareholders and providing any remuneration to its promoters, members, founders and directors. In this blog, we will discuss the Conversion of a Section 8 Company into a Public Company.

A Section 8 company can be easily converted into a public company or any other company by following the procedure and the framework laid down under the Companies Act, 2013 and Companies Incorporation Rules, 2014. Section 8(4)(ii) of the Companies Act 2013 states that a Section 8 company can convert itself into any other company by following the prescribed conditions. It can be converted into a private or public company rather than a one-person company.

Rule 21, Rule 22, and Rule 23 of the Companies Incorporation Rules, 2014, govern the conversion of a Section 8 company into any other company. The procedure for converting Section 8 company into any other company is laid down in Section 8(5) of the Companies Act, 2013 and Companies Incorporation Rules, 2014- Rule 20. Rule 21 provides conditions where a Section 8 company can be simply converted into any other company. Rule 22 provides for the Company’s requirement to inform the registrar of companies under form INC-20 with the requisite fee after the Section 8 licence of the Company has been revoked. Rule 23 deals with telling the registrar of companies of the revocation of the Section 8 licence of the Company.

Requirements for the Conversion of a Section 8 Company into a Public Company

There are specific prerequisites for the Conversion of a Section 8 Company into a public company. Below mentioned are the requirements:

  • The Company’s management must be Reddy with the proposed business plan to bring the conversion to fruition
  • Where the Company has obtained any special privilege, status, exemption, grant or any other benefit from the government or any other authority, it should get a no-objection certificate from the search authority or government.
  • The Company must have filed all its annual returns and financial statements up to the fiscal year which precedes the application submission.
  • The Company must not have transferred its income, profits, or any part of its property through shares or dividends.

Important Documents Required for the Conversion of a Section 8 Company into a Public Company

There are certain documents for the Conversion of a Section 8 Company, into a public company and they are as follows:

  • a true copy of the special resolution about the conversion passed in the general meeting.
  • Copy the notice informing the general meeting and the explanatory statement.
  • Proof of notice which has been served on requisite authorities.
  • A certified copy of the approval for the conversion granted by the regional director is to be filed under Form INC-20 Within 30 days of receiving such permission.
  • The altered memorandum of association and the articles of association.
  • All the mandates imposed by the regional director have been complied with by the directors.

Essential Forms to be filed for the Conversion of a Section 8 Company into a Public Company

Certain forms are required to be filed with the registrar of companies for the process of conversion of a Section 8 company. Below mentioned are some of the necessary forms:

  • Form DIR-12: this form is filed to intimate the registrar of companies to the appointment of directors of the Company if any. A public company requires a minimum of three directors. A third director must be appointed if the Section 8 company has only two directors. Form DIR-12 is to be filed within 30 days of the appointment of such director.
  • RUN Form: This form is to be filed if the applicants want to change the Company’s name after its conversion. The Reserve Unique Name application is available on the MCA website. It can be used to search the database for existing company names and reserve a unique name for the Company which is not similar or identical to any existing company name.
  • Form MGT-14: this form is filed to intimate the registrar of companies of resolutions passed in the board meetings of the Company. Form MGT-14 is to be filed within 30 days of giving a special resolution for conversion by the Company.
  • Form INC-18:  the application seeking approval of the regional director to convert the Company into a public company is filed under this form.
  • Form INC-19: after the notices have been published in the newspaper, a copy of notice of the Company’s conversion is to be sent to the regional director and filed under this form. This form must be filed within seven days of filing Form INC-18.
  • Form INC-20: this form must be filed within 30 days of the receipt of the copy of approval from the regional director to apply to revoke the license granted under Section 8.

Procedure for the Conversion of a Section 8 Company into a Public Company

Section 8 companies looking to convert into a public company must follow the below-mentioned steps:

  • The Company must hold a board meeting to approve the conversion of the Section 8 company into a public company and to send notice of the general body meeting.
  • The Company is required to hold a general meeting. The notice of the General Meeting (GM) must be sent along with an explanatory statement which must contain the following details:
    • The date of incorporation of the Company.
    • The objects of the proposed Company as laid down in the memorandum of association over MOA.
    • The reasons why the existing Company cannot achieve the main object of the proposed Company.
    • If the Company is looking to alter the main objects of the Company, then a list of the altered objects and the reason for such alteration.
    • The impact of the Company’s conversion into a public company on its members.
    • Any benefit that the members of the Company may receive after such conversion.
    • All the benefits, concessions, exemptions, and privileges enjoyed by the Section 8 company. This may include donations, exemption from tax, and foreign contributions.
    • All donations that the Company has received.
    • The market price of all the properties acquired by the Company and the concessional rates given by the Company for such properties.
  • In the general meeting, the Company must pass a special resolution approving the conversion of the Section 8 company into a public company.
  • Within a period of 30 days of passing the special resolution, the Company is required to file Form-MGT-14 giving details of the special resolution passed by providing a true certified copy of the special resolution passed. The Company is required to file the form with the registrar of companies.
  • Suppose the Section 8 company has obtained any benefits, grants, or concessions from departments of the central government, the state government, municipal bodies, or any other recognised authorities. In that case, it shall obtain a no-objection certificate from search departments or sources.
  • Section 8 company must apply form INC-18 with the regional director to convert the Company into a public company. A copy of the application shall also be sent to the registrar of companies. The application must be attached with the following documents:
    • A true certified copy of the special resolution passed in the general meeting.
    • Copy of the notice giving intimation of the general meeting along with the explanatory statement.
    • A notice is also to be sent to certain authorities. Proof of the notices sent to all of these authorities must also be attached. The authorities include the income tax officer who has jurisdiction over the Company, the chief commissioner of the income tax authority who has jurisdiction over the Company, the charity commissioner, the Secretary of the State in which the Company’s registered office is situated, departments of the State Government and the Central Government. The notice can be sent to these authorities through in-hand delivery or registered post.
  • A declaration must be given by the board of directors stating that no part of the Company’s income or any part of the Company’s property has been transferred directly or indirectly or has been paid by means of shares or dividends to the members of the Company or to any other persons.
  • The application must also be attached with a certificate from a practising-chartered accountant or company secretary certifying that all requirements as laid down under the law pertaining to the conversion of a Section 8 company into a public company have been complied with.
  • The Company must file its annual returns, fiscal statements, and any other returns that it must file as per the provisions of law up to the year preceding when the application is made to the regional director. Suppose the application is made after three months from the previous fiscal year from the year for which the financial statement has been filed. In that case, the application must be attached with a statement as to the Company’s current financial position, which has been duly certified by a chartered accountant. This statement must be up to a date not more than a period of 30 days from the filing date of the application.
  • The Company is also required to file a notice in a daily newspaper circulated in the district where the registered office of the Company is situated. The notice must be published in newspapers in the vernacular language and the English language. The notice must also be posted on the website of the Company.
  • Once these notices have been published, as stated above, the Company is required to send a copy of such notices under form INC-19 of such conversion to the regional director.
  • Once the regional director has received the applicant and assessed and reviewed the submissions made, the regional director shall grant her approval. The Company is required to hold a second general meeting to alter the articles of association, the AOA, the memorandum of association, or the MOA pertaining to the conversion. After the general meeting, the Company is required to file with the registrar of companies the following:
    • Once the approval has been received from the regional director, the Company is required to file a true certified copy of the regional director’s approval under Form INC-20 along with the prescribed fees.
    • The altered articles of association and memorandum of association of the Company.
    • Declaration by the directors that all the mandates imposed by the regional director have been complied with.

Post Approval Compliances after conversion of a Section 8 Company into a Public Company

Once the approval has been received from the regional director, the Company is required to file a true certified copy of the regional director’s approval under Form INC-20 along with the prescribed fees. The applicants also have to submit the altered articles of association and memorandum of association and the Company, along with a declaration by the directors that all the mandates imposed by the regional director have been complied with.

Once the registrar of companies has received the application under Form INC-20 and has reviewed and approved it, the registrar shall issue a fresh incorporation certificate. The Section 8 company will, in effect, have wound up and ceased to exist.

Consequences of Conversion of a Section 8 Company into a Public Company

Once a Section 8 company has been converted into a public company, there are certain specific conditions that the regional director shall impose in accordance with Rule 22 of the Companies Incorporation Rules, 2014, once the regional director has granted approval for conversion:

  • The Company can no longer receive any benefits, privileges, exemptions, or concessions previously granted to the Section companies.
  • While the Company was a Section 8 company and had acquired specific properties from the government in its name in such capacity by paying concessional rates, the Company is required to pay the difference in amount after it has been converted into a public company.
  • If the Company happens to have any income or profits which have remained unutilised, then such income or gains must be used to clear any outstanding dues of the Company. After the payment of such outstanding dues, if such any balance amount remains, it shall be transferred to the IEPF or the Investors Education and Provident Fund.

Conclusion

A Section 8 organisation is an entity which has been established for charitable purposes or not-for-profit purposes like the promotion of science, social welfare, commerce, research, sports, religion, art, charity, education, protection of the environment and for any other similar purposes. A Section 8 company in India can be converted into a public company or any other company by following the procedure and the framework laid down under the Companies Act, 2013[1] and Companies Incorporation Rules, 2014. Once a Section 8 company has been converted into a public company, it shall lose all the benefits and exemptions granted by the central government and other authorities to Section 8 companies. If it had acquired properties from the government as a Section 8 company by paying concessional rates, the Company is required to pay the difference in amount after it has been converted into a public company.

Read Our Article: Conversion Of Section 8 Company Into Private Company: Complete Overview

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