Procedure for the Conversion of a Company Registered Under Section 8 Into a Company of any Other Kind

Introduction

Companies Act, 2013 in Section 8 provide for formulation of companies with charitable objects, etc. It can be established only after the Central Government is satisfied that a person or an association of persons proposed to be registered under this Act as a limited company has its object for the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object and that it intends to apply its profits or other income in promoting its objects. Further, it prohibits to pay dividends to its members.

Procedure

Step 1- Hold a Board Meeting

• A board meeting has to be called in compliance with sections 8, 173 and secretarial standards-1.
• At the meeting, conversion of a section 8 company to any other kind would be considered.
• Fix day, date, time and agenda for the general meeting for passing the special resolution.
• Approve draft notice of general meeting along with explanatory statement for the purpose of passing special resolution.
• Authorize CS or any other officer to issue notice of the general meeting under the authority of the Board to every member

Step 2- Call a General Meeting

• Call a general meeting to pass a special resolution for conversion of existing company into section 8 company and change of name.
• It has to be in compliance with Section 8, 100 and 110 of CA, 2013 and Secretarial Standards- 2.

Step 3- Form and Documents Filing

• Copy of the special resolution has to be filed along with notice convening the meeting and explanatory statement with the ROC within 30 days of passing in Form MGT-14.

Step 4- Arrangement of NOC, Certificate, etc.

• With respect to the special status, privilege, exemptions, benefits or grants received from income tax department, charity commissioner or any organisation of department of the central government or state government, obtain a NOC (No objection certificate), if required under the terms of the special status, privilege, exemption, benefit grants from the concerned authority.
• When application is made after lapse of 3 months from the preceding financial year then a statement certified by CA has to be filed stating the financial position of the company. It should be made on a date not preceding 30 days from filing the application.
• Certificate from a practicing Chartered Accountant or Company Secretary in practice or Cost Accountant certifying that the conditions required for conversion are fulfilled.

Step 5- Forms and Documents Filing

• File application with the RD (Regional director) for seeking approval for converting itself into a company of any other kind in Form INC-18 along with necessary documents and fee of Rs. 2000/-
• Copy of the application to the RD has to be filed with ROC in form GNL-2.

Step 6- Advertisement In Newspaper

• Within a week of submitting an application to the RD, the company shall publish a notice in Form INC-19 at its own expense.
• At least once in the principal vernacular language newspaper of the district where registered office is situated and at least one English language newspaper.
• A copy of the notice so published shall be sent to the RD in Form RD-1.
• The notice copy should be simultaneous to the publication be sent via hand delivery or registered post to the –
  • Chief commissioner of income tax
  • The charity commissions
  • Chief secretary of the state
  • Any other organisation or department of the state under whose jurisdiction the company is working.

Step 7- Regional Director Approval/Order

• Upon receiving the application, if the RD is satisfied then he shall issue an order approving the conversion of the company, upon such conditions as deemed necessary.
• Direct that the company upon conversion cannot seek recourse to the special status and benefits granted to section 8 company.
• Direct that if the company acquired any immoveable property free of cost or at concessional rate from the government or the authority then it maybe required to pay the difference in amount.
• Direct that the accumulated profit or unutilized income of the company should be used to settle all outstanding statutory dues, amount due to lender, creditors, suppliers, etc, and if balance remains then be transferred to IEPF (Investors Education and Protection Fund) within 30 days of receiving the approval of conversion.
• Before imposing the condition or rejecting the application, a reasonable opportunity of being heard should be given by the RD.

Step 8- Board Meeting

• In compliance with Section 8, 173 and Secretarial Standards-1, hold a meeting of the board wherein following things would be discussed-
• Take note of the order issued by RD approving the conversion of the section 8 company into any other kind of company.
• Consider and approve the alteration in MOA/AOA of the company after conversion of the company.
• Consider and give declaration by the directors that the conditions, if any imposed by RD have been fully complied with.
• Fix the day, date, time and agenda for the general meeting for passing a special resolution for amending its MOA/AOA as required under the Act consequent to conversion of section 8 company into any other kind.
• Approve the draft notice of the general meeting along with explanatory statement for the purpose of passing the special resolution.
• Authorize CS or any other officer to issue notice of general meeting under the authority of the board to every member.
• Authorize CS or CFO or any director of the company to file the certified copy of the approval of RD to ROC.

Step 9- General Meeting

• To be conducted in compliance with sections 8,100 and 110 and secretarial standards-2.
• At the general meeting, special resolution would be passed to change the name of the company and to amend the MOA/AOA as required.
• Resolution maybe passed by means of postal ballot.

Step 10- Form and Documents Filing

• Section 117 read with rule 24 of the companies (management and administration) rules, 2014- copy of the special resolution has to be filed with the ROC within 30 days of passing the Form MGT-14.
• File a certified copy of the approval of RD with ROC within 30 days from date of receipt of order in Form INC-20 along with necessary documents and fees.

Step 11- Certificate From ROC

• As per section 8(4)(ii) of CA, 2013 read with rule 22(11) of the companies (incorporation) rules, 2014, on receipt of the documents, ROC shall register the documents and issue the fresh Certificate of Incorporation (COI) to the company.

Step 12- Post Compliances

• As per section 15(1) of CA, 2013- ensure that the alterations in MOA/AOA are reflected in every copy of the document.
• Further, to conform to section 12(3), paint or affix new name outside office; print new letter heads, engrave name on official seal.
• Inform the change in the name to concerned authorities.

Estimated Timeline

The whole process can take somewhere between 91 days to 259-267 days depending upon the time consumed at each stage. An estimated timeline is as follows-

1. Board meeting – 1 day to 8-10 days
2. General meeting- 1 day to 23-25 days
3. Filing of a copy of special resolution with ROC 1 day to 30 days
4. Filing of application with RD- 10 days
5. Advertisement in newspaper- 3 days to 7 days
6. Order of RD- 60 days to 90 days
7. Board meeting- 1 day to 8-10 days
8. General meeting- 1 day to 23-25 days
9. Filing of application with the central government (power delegated to ROC) and grant of approval 7 days to 20 days
10. Filing of certified copy of order of RD with ROC 1 day to 30 days
11. Certificate from ROC- 5 days to 10 days.

Conclusion

In case a non-profit organisation availing exemptions and benefits by virtue of license under Section 8 of the CA, 2013 wants to move into profit seeking sector it can use the above given procedure to convert itself from a section 8 into a company of any other kind.