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Convert a Private Company into Section 8 Company: A Guide
Shivani Jain
| Updated: Oct 01, 2020 | Category: Conversion of Company

Convert a Private Company into Section 8 Company: A Guide

The term “Convert a Private Company into Section 8 Company” denotes the procedure wherein a Limited Company decides to change its profit earning activities into charitable activities. Further, the term “Charitable Objective” denotes promoting Arts, Education, Charitable Purpose, Protection of Environment, Science, Sports, Research, Religion and Social Welfare,

In this blog, we will discuss the Benefits and Process to Convert a Private Company into Section 8 Company.

Concept of Private Limited Company

The term “Private Limited Company” denotes a business format, which is privately held by a group of people known as Shareholders.  Further, this business format is chosen by all the start-ups and the business with high growth potential.

Section 2 (68) of the Companies Act 2013 defines the term “Private Limited Company”. In this format, the Articles of Association restricts the shareholders of the company from transferring their shares.

As per the Companies (Amendment) Act 2015, the requirement of having the minimum paid up capital for the Private Limited Company Registration has now been removed.

Further, for incorporating a Private Limited Company in India, a minimum of 2 and a maximum of 200 members are required. However, the term “member” does not include both former and present employee.

Concept of Section 8 Company

The term “Section 8 Company” denotes an NPO (Non Profit Organization) which promotes Arts, Education, Charitable Purpose, Protection of Environment, Science, Sports, Research, Religion and Social Welfare.

Further, the income earned by an NPO cannot be utilized for paying out dividends to the member of the company. Moreover, the same should be used only for the promotion of charitable objectives.

Furthermore, such companies need to obtain a certificate of section 8 company registration from the central government and are liable to comply with the rules specified by the government as well.

Benefits of Converting a Private Company into Section 8 Company

The benefits to convert a Private Company into Section 8 Company are as follows:

  1. Provides Exemption from Stamp Duty during the Registration of  a Section 8 Company;
  2. Offers Privileges and Benefits under the Companies Act 2013;
  3. A Partnership Firm can become a member of a Section 8 Company;
  4. A Section 8 Company cannot alter or modify its MOA (Memorandum of Association) and AOA (Articles of Association) without the prior from the Central Government;
  5. Avails Tax Deduction under section 12A and 80G of the Income Tax Act;

Documents Required for the Process of Conversion

The documents required for the process of conversion are as follows:

  1. Draft of MOA (Memorandum of Association);
  2. Draft of AOA (Articles of Association);
  3. A Declaration in Form INC 14 by either of the following:
  4. Advocate;
  5. Practising Chartered Accountant; or
  6. Practising Company Secretary;
  7. Statement showing the information about the Assets or Liabilities of the Company (As on the Date of Application);
  8. An Audit Report of the existing Private Company;
  9. A copy of the Board Report of the existing Private Company;
  10. A Statement regarding the estimation of the “Future Expenditure” and “Annual Income” of the proposed Company for the next 3 Financial Years;
  11. Details regarding the Income Sources;
  12. Details regarding the Objects of Expenditure;
  13. A True and Certified copy of the Board Resolution passed by the Board of Directors in the meeting for approving the “Company Registration” under Section 8 Company;
  14. Declaration filed in Form INC 15 by each person who is making an application for the “Conversion of Private Company into Section 8 Company”;

Forms Required for the Process of Conversion

For for Conversion of Private Company into Section 8 Company

The forms required for the Process to Convert a Private Company into Section 8 Company are as follows:

Form No Purpose of the Form
RUN Form For applying name with MCA (Ministry of Corporate Affairs)
Form RD 1 Application for the Process of Conversion
Form INC 14 Declaration From the Practising Advocate, Chartered Accountant, and Company Secretary
Form INC 15 Declaration by each person who is making an application for the “Conversion of Private Company into Section 8 Company”
Form INC 26 For filing the copies of Publication with the Registrar of Companies
Form INC 16 or Form INC 17 Grant of License by the Registrar

Process to Convert a Private Company into Section 8 Company

Process to Convert a Private into Section 8 Company

The steps involved in the process to Convert a Private Company into Section 8 Company are as follows:

Apply for Name Approval

The first and the foremost step in the process of conversion is to apply for the Name Approval in Form RUN (Reserve Unique Name). The company needs to file this form electronically on the official MCA[1] (Ministry of Corporate Affairs) portal. Further, this form should be filed with the fees prescribed by the MCA.

File Application under Form RD 1

In the next step, the directors of the company need to file Form RD 1 with the Registrar of Companies, together with the fees for the Incorporation of Section 8 Company.

Further, the application should be accompanied by the prescribed documents as well.

Get the Notice Published in Newspaper

Now, the company needs to get a notice published in the 2 newspapers. The first one should be the in Vernacular Language and the second one must be in English Newspaper).

Further, such a publication will be made by the private company regarding the application filed for the conversion into Section 8 company. Also, the private company will only bear the expenses of publication in the newspaper.

Moreover, it shall be relevant to state that the publication must be made within a period of 1 week, starting from the date of filing the application for conversion with the Registrar of Companies.

Lastly, the copy of the notice published in the newspaper must be filed with the ROC or Registrar of Companies in Form INC 26 immediately after publication.

Issuance of the License of Section 8 Company Registration

After submitting the notice published for the Conversion of Private Company into Section 8 Company, the Registrar may consider raising objections.

However, the said objections must be raised within a period of 30 days, starting from the date of publication of notice in the newspaper.

Further, after considering the objections raised, the ROC will consult with the authorities as follows before the issuance of a license:

  1. Other Regulatory Authorities;
  2. Department of Central Government;
  3. Department of State Government;

Furthermore, the Registrar of Companies needs to grant the license for the Conversion in form INC 16 and INC 17 as prescribed by the MCA (Ministry of Corporate Affairs).

Lastly, after granting the license for Section 8 Company Registration, the Registrar of Companies (ROC) can direct the said Company to insert some special conditions in the MOA (Memorandum of Association) and in the AOA (Articles of Association).   

Conclusion

In a nutshell, a Section 8 Company is formed with the primary aim of charity. Further, these companies enjoy all the benefits, privileges, deductions, and exemptions as specified in the Companies Act 2013.

So, to avail off such privileges, exemptions, deductions, and benefits, a Private Limited Company decides to go for Conversion.

However, the process to Convert a Private Company into Section 8 Company is a back-breaking and lengthy task. We at Swarit Advisors have a team of skilful and competent professionals who will assist you in the process to Convert a Private Company into Section 8 Company.

Also, Read: Procedure of Conversion of Private Company into LLP.

Shivani Jain

Shivani has completed her B com LLB (Hons) and has the experience of writing various research papers during her college time. Earlier she was working as an Associate in a Delhi based Law Firm, but her interest in writing made her pursue Legal Content Writing as a career. Her core area of interest is in writing about various legal enactments, tax, and finance.

Top Rated CA
 

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