PROCEDURE TO CONVERT A COMPANY

ACCORDING TO SEC 8 OF COMPANY ACT—–

Companies that are registered under Section 8 of the Companies Act, 2013 are those companies that pertain to Non-Government or Non-Profit Organizations. Such Section 8 companies are formed with an objective to promote the fields of trade, commerce, art, science, sports, education, research, religion, social welfare, environment protection or any other similar objectives. Any profits earned are utilized towards the object of the company and hence no dividend is paid to the members. Further, in India, Section 8 Companies are regulated by the Companies Act 2013

According to Section 8(4)(ii) of the Companies Act 2013, Section 8 company can duly convert itself into any other Company after complying with the prescribed conditions in the Act.

BASIC CONDITIONS WHICH ARE REQUIRED FOR CONVERSION—–

Requirements for the conversion of Section 8 Company into any other kind of Company as per Rule 21, 22 and 23 of the Companies Incorporation Rules 2014 are enumerated below:

  • Section 8 Company shall pass a Special Resolution in the general meeting of its members for approval of such conversion.
  • A certified true copy of the resolution and notice of General Meeting along with explanatory statement is required to be filed to ROC (Registrar of Companies) in form MGT-14 within 30 days of passing the resolution.
  •  A company must intimate and obtain a “No Objection Certificate”, from authorities such as IT Department, Charity Commissioner, Central or State government department, Municipal body or any other recognized authority, in case it has obtained special status, privilege, benefit, exemption or grant from any of them.
  • The existing Section 8 Company must file an application to the Regional Director in Form INC 18 along with a copy to Registrar of Companies for its conversion to any other kind of Company.
  • The company shall file all its Financial Statements, Annual Returns, and all such Returns as required by the Act up to the previous year of making the application to the Regional Director. In case, an application is filed, and 3 months have expired from the preceding date of financial year to which financial statement has been filed, then, a statement of financial position duly approved by the Chartered Accountant up to the date of not preceding 30 days of submitting the application needs to be attached.
  • A Declaration shall be given by the Board of Directors to the effect that no part of property or income of the Company has been directly or indirectly transferred or paid by way of bonus or dividend to persons or members of the Company or claiming through any one or more of them.
  •  Along with the application, the Company shall also need to attach a Certificate from a Practicing CA/CS/CMA certifying that all the conditions relating to the conversion of Section 8 company as laid down in the Act has been duly complied with.
  •  Within 7 days from the date of applying to the Regional Director, the applicant shall publish a notice in the newspapers at his own expense. Copy of such notices shall be sent to the Regional Director in Form INC 19 immediately after the publication of the notice.
  • Simultaneously, proof of serving of notice shall be sent to the below authorities by registered post or in-hand delivery:
  • Income Tax Officer or Chief Commissioner of Income Tax having jurisdiction over the Company
  • Charity Commissioner
  • Chief Secretary of the State in which the registered office of the Company is situated
  • Central or State government department in whose jurisdiction the Company is operating
  • Within 60 days from the receipt of the notice, the above authorities may make representations, if any, to the Regional Director.

Upon satisfaction, the Regional Director has the right to approve the application of conversion of Section 8 company to any company of the other kind, subject to all prevailing terms and conditions as it may deem fit at the time of conversion.

Conversion of Private Company into Public——

A Private Company has many privileges and exemptions, and it may enjoy these benefits, as long as it maintains its character as a Private Company. When this character is lost, the private company becomes public and the provisions of the Company act relating to public companies become applicable to such a company.

Circumstances:

  1. Default: The Court may examine to find out whether any provisions of the Companies Act have been violated by the Company. If the default is due to inadvertence or some sufficient cause based on just and equitable grounds, the court may declare that Company as Private; otherwise as public.
  2. Operation of Law: Deemed Public Company:
    • Conversion: No public money is to be involved in a private company. But a Public Company may incorporate a number of Private Companies who may still maintain private character. These are not allowed to have the privileges of a private company. Hence, it is provided (Sn 43-A) that if 25% or more of the paid-up capital is held by a public company, such a private company becomes public.
    • Turnover: As per 1988 Amendment, if the turnover exceeds a sum fixed by Central Govt. the company becomes public. This conversion is effective on the expiry of three months from the end of the accounting year.
    • Notice: Notice, within 3 months of such a Private Company becoming public, must be given to the Registrar, who shall effect the necessary changes.
    • Special features: Such a deemed public company may retain the characteristics of a private company the membership may be below 7.
  3. Conversion by Choice: A private company may by passing a special resolution, changing its articles, convert itself into a Public Company. Within 30 days it must file a prospectus (or statement in lieu of prospectus) with the registrar. It must comply with all other requirements of a public company, e.g., increasing the membership 7, appointment of Directors etc.

Conversion of a Public Company into Private Company:

A Public Company may be passing a Special Resolution, changing its articles, convert itself into Private Company. However, the approval of the Central Government is essential, for such a change.

There is no direct or express provision in the Act for the conversion of a public company into a private company except a reference in the proviso to s.31(1). A public company having a share capital and membership within the limits imposed upon private companies by s.3(1) (iii), may become a private company by following the procedure as given below:

  • The company in general meeting has to pass special resolution for altering the articles so as to include therein the necessary restrictions, limitations and prohibitions and to delete any provision inconsistent with the restrictions. For instance, a private company has to put certain restrictions on the right of members to transfer their shares.
  • The word ‘Private’ should be added before ‘Limited’.
  • The approval of the Central Government to the alteration in the articles for converting a public company into a private company should be obtained.
  • Within one month of the date of the receipt of the order of approval, a printed copy of the altered articles must be filed with the Registrar.
  • With thirty days of the passing of the special resolution, a printed or type-written copy thereof should be filed with the Registrar.

REFERENCE —–

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