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Sakshi Sharda
| Updated: 25 Mar, 2020 | Category: Business Conversion, Compliances

Conversion of Private Company into Section 8 Company: Complete Procedure

Conversion of Private Company into Section 8 Company

The concept of a Non-Profit Company is quite old in our country India. The Companies Act, 2013 provides for the Registration of Non-Profit Companies in India. Any person intending to form a Company with a non-profit object can register in India. Section 8 of Companies Act, 2013[1], read with the Companies (Incorporation) Rules, 2014, provides for the incorporation of a Non-Profit Companies under the Act. Under Companies Act, 2013, the Non-Profit Company is also known as Section 8 Company. In the article, we will discuss the procedure for Conversion of Private Company into Section 8 Company.

What is a Private Company and a Section 8 Company?

Private Company and a Section 8 Company

Private Company

A Private Company is defined under Section 2(68) of Companies Act, 2013. In a Private Company Articles of Association restrict the transferability of shares and prevent the public at large to subscribe for the shares of Private Company.

The Private Company can have a minimum paid-up capital of any amount now after the amendment in the Companies Act, 2013. The maximum number of the members is 200 (except in case of the One Person Company) for Private Company. The maximum number of the members does not include any former employee or present employees of the Private Company.

Section 8 Company

The Companies Act, 2013, provides the provisions relating to the Non-profit Company under Section 8 of the Act. Section 8 Company should have:

Section 8 Company should have
  • Main objects like promoting arts, science, commerce, research, education, sports, charity, religion, social welfare
  • The profit or any other income should be used in promoting the above objects
  • No payment of dividend to the members of the Company

The Section 8 Company is incorporated with the intent to carry on business with a charitable objective.

What are the benefits of Conversion of Private Company into Section 8 Company?

The benefits of the Conversion of Private Company into Section 8 Company are as follows:

  • There is an exemption from Stamp Duty during registration of the Section 8 Company.
  • Certain privileges and exemptions under the Companies Act, 2013.
  • A firm can also be a member of Section 8 Company.
  • The Memorandum of Articles (MoA) and Article of Association (AoA) of Section 8 cannot be altered unless prior approval of the Central Government is taken.

What is the Procedure for Conversion of Private Company into Section 8 Company?

Whenever there is a Conversion of Private Company into Section 8 Company, the Private Company needs the approval of its Board Members through a special resolution passed in Annual General Meeting or Extraordinary General Meeting. After the passing of the special resolution, Form MGT-14 is to be filed with the Registrar of companies (RoC). The MGT-14 should be filed within 30 days of passing of the special resolution by the Board. 

The procedure for Conversion of Private Company into Section 8 Company is as follows:

procedure for Conversion of Private Company into Section 8 Company

Apply for Name

The members should apply for the name in the (Reserve Unique Name) RUN Form. The Run form is submitted electronically on the official website of the Ministry of Corporate Affairs (MCA). The Form should be submitted with the fees as prescribed by the MCA.

Make Application under Form RD-1

An application in Form RD-1 will be made to the Registrar of the Companies with the prescribed fees for the incorporation of Section 8 Company. The following documents should be attached with RD-1 Form:

  • Form INC-12 should be attached with the application.
  • Draft of MoA for proposed Section 8 Company.
  • Draft of AoA for proposed Section 8 Company.
  • Declaration by Advocate, Chartered Accountant, or Company Secretary in practice as per INC-14.
  • Statement showing the details of the Assets Liabilities of the Company as on the date of application
  • The Audit Report of the existing Private Company
  • The Board Report of the existing Private Company
  • Statement of estimation of future expenditure and annual income of the proposed Company for the next 3 years.
  • The sources of income and the objects of expenditure should be mentioned.
  • A true certified copy of the resolution passed by the Board in the meeting approving the Company Registration under Section 8 Company
  • Declaration of each person making an application for the Conversion of Private Company into Section 8 Company as per INC-15.

Notice in Newspaper

A notice should be published in the newspaper (one in the vernacular language newspaper and one in English newspaper) by the Private Company of the application made for Conversion of Private Company into Section 8 Company. The Private Company should bear the expenses of the publication of notice in the newspaper. The notice should be published within a week from the date on which the application is made to the Registrar for the Conversion of Private Company into Section 8 Company. The Registrar should be given the copy of these publications as per Form INC-26 immediately after their publication in the newspaper.     

Grant of License

The Registrar should consider the objections raised against the Conversion of Private Company into Section 8 Company after the publication of notice is made in the newspaper. The Objections should be raised within 30 days from the date of publication of notice in the newspaper. After considering the objections Registrar of Companies (RoC), after consulting with the other authority or regulatory body, or Department of Central Government (CG) or State Government (SG), in his/her discretion, should decide whether the license for Conversion of Private Company into Section 8 Company should be granted or not. The Registrar should grant the license in Form INC-16 or INC-17 as prescribed by the MCA.

After granting the license, the Registrar can direct the Company to insert certain conditions in the Memorandum of Association (MoA) or in the Articles of Association (AoA).   

Conclusion

Section 8 Company is formed with a primary objective of charity. These Companies enjoy all the privileges and exemptions as provided in the Companies Act, 2013. To avail such privileges and exemptions, the Private Company goes for Conversion. The Conversion of Private Company into Section 8 Company is a lengthy and long-lasting task. We at Corpbiz have skilful and competent professionals to assist you in the process of Conversion of Private Company into Section 8 Company. Our professionals will help and assist you in getting through the process of Conversion. Our professionals will plan correctly and assure the successful completion of the process.

Read our article:Conversion of Sole Proprietorship Firm into Private Company

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Sakshi Sharda

Sakshi Sharda has done BBALLB(HONS) and holds a strong knowledge on the matters pertaining to finance and law. From the past one year she is working as a legal advisor and in her leisure time she works on improvising her knowledge. Sakshi is spreading her knowledge by writing for Corpbiz.

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