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
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 Necessary Papers for Striking Off Procedure
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
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 necessary papers mentioned above.
Application and Necessary Paperation scrutiny
Upon receiving the application and necessary papers, the said authority shall make some legal checks against the rules mentioned under the governing legislation.
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.
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 paper works and standard fees.
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 necessary papers.
Outcome relating to strike off section 8 companies
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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.