An Overview on Strike off Section 8 Companies
Section 8 companies is established to promote art, commerce, sports, science, education, social welfare, charity, religion, protection of natural resources, or any such other object. Such companies are obligated to allocate their profit to serve the said objects only. The concept of dividend distribution among members does not work in Section 8 Company. The overall business affairs of section 8 companies revolve around charitable goals. Section 8 companies fall under the Companies Act, 2013, and it is identical to trust and society. Section 8 company is ideal for promoters seeking to serve charitable intentions. Such companies cannot use a term like private limited or public limited in their name as it is prohibited under the governing Act.
Why voluntary strike off is not available to Section 8 companies?
Unlike other registered companies, a Section 8 entity does not have a straightforward procedure for shutting down their business operations. To serve this objective, first, they need to convert into a normal company and then surrender their license before the governing authority. The requirements have been cited under the governing legislation.
Reasons to strike off Section 8 Companies
Conditions under which strike off route can be opted by the
Section 8 Company;
- The company has failed to undertake its operation within one year of its incorporation.
- The company has remained non-operational for the preceding two financial years and has failed to seek for the status of Dormant Company u/s 455 of the Act.
- The object of Section 8 Company has been changed, and the company is finding it hard to align with it.
Benefits relating to strike off section 8 companies
The section below discusses the common benefits of striking off section companies in India:
Once registered, Section 8 company is liable to follow the ever-evolving compliances under the Companies Act, 2013 for its entire lifecycle. This may be a problem for a company lacking sound management for addressing such compliances. This is one of the prominent reasons why companies opt to strike off their existence.
A company that fails to comply with compliances on time typically ends up paying hefty penalties and fines. Some penalties are so severe that they restrain directors from serving another company. Being non-operational is another reason that could create such conditions for the company. Ideally, striking-off is the only solution to such a problem.
The cost of running a business that does not have an income is much higher than striking off the company. Therefore, striking off a section 8 company that does not have any activities or is dormant is a viable option for it.
Mandatory Documents for Striking Off Procedure
- Special resolution and notice convening the meeting
- Memorandum of association (MoA);
- Articles of association (AoA);
- Board resolution
- Special resolution and notice of the general meeting
- Certificate issued by practising CA/CS/CWA
- Statement of the company’s asset and liabilities authenticated by the auditor
- Company assets valuation report by a registered valuer
- NOC by all the creditors, if any
- A declaration by the company’s directors
- Certificate of Incorporation
- Memorandum of Association of company
- Article of Association of company
- Last year audited balance sheet & profit & loss A/c
- Audit report
- Copy of newspaper advertisement
- Digital Signature Certificate of existing director
Procedure to strike off section 8 companies
As mentioned earlier, Section 8 companies do not have a standard procedure to close their business affairs. Strike off section 8 companies only come to an effect after the following the given procedure
1. Application with MCA for Conversion
Company conversion is the first step in the strike off procedure. To serve this purpose, the applicant firm needs to submit a prescribed application with the Ministry of Corporate Affairs along with the documents mentioned above.
2. Application and Documentation scrutiny
Upon receiving the application and documents, the said authority shall make some legal checks against the rules mentioned under the governing legislation.
3. Approval by MCA for conversion
If the authority does not find any errors or discrepancies during the verification, they will grant their approval for conversion to the applicant firm.
4. Application for Strike off the private limited company as converted
In this step, the applicant can address the formalities for striking off the company name. For this, they are required to file the prescribed application with the Ministry of Corporate Affairs along with standard documentation and standard fees.
5. Approval for Strike off
Approval for Strike off shall be granted by the authority after making in-depth verification of the submitted application and supported documents.
Outcome relating to strike off section 8 companies
- Strike off section 8 companies imply that the company shall no longer be able to continue their business journey on the legal front i.e. they will cease to exist after following this process
- The certificate of incorporation is deemed to be cancelled
- No further operations can be executed, and neither the annual return would be possible.
- The company's name shall be discarded from the register of companies by ROC.
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Frequently Asked Questions
The prevailing by-laws prohibit section 8 companies from opting procedure that ensures straightforward shutdown, unlike other companies.
The companies that have undergone striking off procedures would cease to exist on MCA’s database.
No, after such a process, they would cease to exist and thereby cannot perform any activities in relation to their goal.
Ministry of Corporate affairs.
Copy Board resolution, special resolution, a certificate from creditors, financial statements, so on and so forth.
Yes, the prevailing legalisation mandates the companies to hold board meetings and pass a special resolution before applying for striking off procedure.
No, once the company has undergone the striking off process, it cannot be retrieved with any procedure whatsoever.
Heavy compliances, trouble in serving the company’s goals, and change in the company’s objectives are some common reasons that compel Section 8 companies to choose the striking off route.