CONVERSION OF SEC. 8 COMPANY INTO A COMPANY OF ANY OTHER KIND

Section 8(4)(ii) of the Companies Act, 2013 provides that a company registered under Section 8 may convert itself into company of any other kind only after complying with such conditions as may be
prescribed.   Section 8 company cannot be converted to One Person Company.

Rule 21, 22 and 23 of the Companies (Incorporation) Rules, 2014 prescribe the procedure of conversion of Section 8 Company into a company of any other kind.

Rule 21 prescribes the following conditions for conversion of a company registered under Section 8 into a company of any other kind:

The company shall pass a special resolution at a general meeting for approving conversion of Section 8 into a company of any other kind;
In the notice to such general meeting the explanatory statement as mentioned below should be annexed:
The date of incorporation of the company;
The principal objects of the company as in Memorandum of Association;
The reasons as to why the activities for achieving the objects of the company cannot be carried on in the current structure;
If the principal or main objects of the company are proposed to be altered, what would be the altered objects and the reasons for the alteration;
What are the privileges or concessions currently enjoyed by the company, such as tax exemptions, approvals for receiving donations or contributions including foreign contributions, land and other immovable properties,  If any, that were acquired by the company at concessional rates or gratuitously and, if so, the market prices prevalent at the time of acquisition and the price that was paid by the company, details of any donations or bequests received by the company with conditions attached to their utilization etc.,
Details of impact of the proposed conversion on the members including the details of any benefits that may accrue to the members as a result of the conversion;
A certified true copy of the special resolution with a copy of the notice for the convening of the general meeting including the explanatory statement shall be filed with the Registrar in Form No. MGT-14 along with fee;
The company shall file an application in Form No. INC 18 with the Regional Director with the  fee along with the following:
A certified true copy of the special resolution;
A copy of the notice convening the general meeting including the explanatory statement for approval of the members for such conversion;
Proof of serving of notice served to all the authorities as below:
Chief Commissioner of Income Tax having jurisdiction over the company;
Income tax officer who has jurisdiction over the company;
The Charity Commissioner;
The Chief Secretary of the State in which the registered office of the company situated;
Any organization or Department of the Central Government or State Government or other authority under whose jurisdiction the company has been operating.
A copy of the application with annexure as filed with the Regional Director shall also be filed with the Registrar.
Rule 22 stipulates the following other conditions to be complied with by Section 8 company for conversion:

The company shall, within a week from the date of submitting the applications to the Regional Director, publish a notice at its own expense, and a copy of the notice, as published, shall be sent to the Regional Director in Form No. INC-19;
The notice shall be published-
At least once in a vernacular newspaper to the principal vernacular language of the district in which the registered office of the company is situated and having a wide circulation in that district and at least once in English Language in an English newspaper having a wide circulation in that District; and
On the website of the company, if any, and as may be notified or directed by the Central Government;
The authorities, if want to make any representation to the Regional Director, shall do so within 60 days of the receipt of the notice, after giving an opportunity to the company;
The copy of proof of serving of such notice shall be attached to the application;
The Board of Directors shall give a declaration to the effect that no portion of the income or property of the company has been or shall be paid or transferred directly or indirectly by way of dividend or bonus or otherwise to persons who are or have been members of the company or to any one or more of them or to any persons claiming through any one or more of them.
The company shall file all its financial statements and annual returns up to the financial year preceding the submission of the application to the Regional Director and all other returns required to be filed under the Act up to the date of submitting the application to the Regional Director and in the event of the application is made after the expiry of 3 months from the date of preceding financial year to which the financial statement has been filed, a statement of the financial position duly certified by Chartered Accountant made up to a date not preceding 30 days of filing the application shall be attached;
A certificate obtained from practicing Chartered Accountant or Company Secretary or Cost Accountant certifying that the conditions laid down in the Act and the Rules relating to conversion of a company registered under Section 8 into any other kind of company have been complied with, is also to be attached with the application;
The Regional Director may require the applicant to furnish the approval or concurrence of any particular authority for grant of his approval for such conversion and he may also obtain the report from the Registrar;
Conditions that may be imposed by Regional Director

Rule 22 (8) provides that on receipt of the application and on being satisfied the Regional Director shall issue an order approving the conversion of the company into a company of any other kind subject to such terms and conditions as may be imposed in the facts and circumstances of each case including the following conditions:

The company shall give up and shall not claim with effect from the date of conversion takes effect, any special status, exemptions or privileges that it enjoyed by virtue of having been registered under the provisions of Section 8;
If the company had acquired any immovable property free of cost or at a concessional cost from any government or authority, it may be required to pay the difference between the cost at which it acquired such property and the market price of such property at the time of conversion either to the government or to the authority that provided the immovable property;
Any accumulated profit or unutilized income of the company brought forward from previous years that shall be first utilized to settle all outstanding statutory dues, amounts due to lenders claims of creditors, suppliers, service providers and others including employees and any loans advanced by the promoters or members or any other amounts due to them and the balance, if any, shall be transferred to the Investor Education and Protection Fund within 30 days of receiving the approval of conversion;
Before imposing the conditions or rejecting the application the company shall be given a reasonable opportunity of being heard.

Compliance after approval

Rule 22 (10) provides that on receipt of the approval of the Regional Director the company shall convene a general meeting to pass a special resolution for amending the memorandum of association and articles of association.  The company shall file with the Registrar:

A certified copy of the approval of the Regional Director within 30 days from the date of receipt of the order in Form No. INC 20- along with the fee;
Amended memorandum of association and articles of association of the company;
A declaration by the directors that the conditions, if any imposed by the Regional Director have been fully complied with.
Certificate of incorporation

On receipt of the required documents the Registrar shall register the documents and issue the certificate of incorporation.   Where the licence granted to a company registered under Section 8 has been revoked, the company shall apply to the Registrar in Form No. INC 20 along with the fee to convert its status and change of name accordingly..



By: Mr. M. GOVINDARAJAN