STRIKE OFF (CLOSURE) OF A SECTION 8 COMPANY BY CS YASH PAREEK (WWW.CSYASHPAREEK.IN)
||Om
Shri Ganeshay Namah||
STRIKE OFF
OF A
SECTION 8 COMPANY
TEAM
YPA
Prepared by CS Yash Pareek
Valuable inputs by CS Neha Jain
& CS Gajab Maheshwari
YASH PAREEK
& ASSOCIATES
Company
Secretaries
BHOPAL | INDORE |
NAGPUR | AHMEDABAD
Reach to us at:
Address: T-3,
3rd Floor, 207, M.P Nagar, Zone-II, Bhopal-462011, M.P
Mobile No: 9111575222
Email id: pcsyashpareek@gmail.com
PROCEDURE TO CLOSE SECTION 8 COMPANY
Applicable Sections &
Rules of Companies Act, 2013 (Act):
· Section 8 (4) (ii) of the Act
·
Rule 21 & 22 of the Companies (Incorporation) Rules,
2014.
· Section 248 & 249 of the Act
Process and relevant provisions with regard to closure of Section 8 company under the Companies Act, 2013 is detailed hereunder:
1. Section
8 company:
Section 8 company means Not for profit company incorporated under Section 8 (1) of the Companies Act, 2013 engaged in welfare activities for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment or any such other object, provided the profits, if any, or other income is applied for promoting only the objects of the company and no dividend is paid to its members.
2. Closure
of Section 8 company:
2.1 Section 8 (10) of the Act and License issued by Central Government (power delegated to Registrar of Companies) imposes restrictions on Section 8 companies which is extracted for your reference as below:
‘A company
registered under this section shall amalgamate only with another company
registered under this section and having similar objects.’
2.2 Extract of Section 248 (3) of the Act is produced below for your reference:
‘Nothing in sub-section (2) shall apply to a company
registered under section 8’.
2.3 Section 248(3) of the Act to be read in consonance with Section 8(10) of the Act makes clear that Section 8 companies cannot be struck off by Registrar of Companies in the same manner as applicable for other companies registered under the Act.
2.4 Section 8(1)(a) of the Act clearly states as follows:
‘Where it is proved to the satisfaction of the Central Government that a person or an association of persons proposed to be registered under this Act as a limited company has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object allow that person or association of persons to be registered as a limited company under this section i.e. Section 8.
2.5 Thus, Section 8 can be closed only as a Private Limited company after surrender of license granted to Section 8 company by Central government and addition to its name of the word "Limited", or as the case may be, the words "Private Limited’’.
Section 8 company cannot be converted into One Person Company.
That means, License obtained under Section 8(1) of the Companies Act, 2013 and pursuant to Rule 20 the Companies (Incorporation) Rules, 2014 needs to be surrendered before making application for strike off (closure) of company.
3. Surrender
of License:
Such license can be surrendered by converting the company into a normal company other than a Section 8 company i.e. conversion into Private Limited company.
4. Transfer
of assets of Section 8 company:
Unlike other companies, upon the winding up of a Section 8 company, the assets of the same are not transferred to the management or the shareholders of the company. The assets of the Section 8 company are merged with another Section 8 company.
5. Procedure
for Conversion of Section 8 company into any other Company:
5.1 Issue notice of board meeting for passing resolution for such conversion
5.2 Pass Board resolution for conversion with majority as per Companies Act, 2013
5.3 Pass resolution for authorization for issue of notice for convening extra-ordinary general meeting for passing special resolution for approval of said conversion.
5.4 Explanatory statement annexed to notice of general meeting shall contain following statement and disclosures:
· The date of incorporation of the company
· The principal objects of the company as set out in the 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 i.e. as a section 8 company.
· 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 prices 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 of the company including details of any benefits that may accrue to the members as a result of the conversion
5.5 Notice together with a copy of the application and all attachments by registered post or hand delivery simultaneously with its publication
· To the Chief Commissioner of Income Tax having jurisdiction over the company
· To the Income Tax Officer who has jurisdiction over the company
· To the Charity Commissioner
· To the Chief Secretary of the State in which the registered office of the company is situated
· To any organization or Department of the Central Government or State Government or other authority under whose jurisdiction the company has been operating and if any of these authorities wish to make any representation to Regional Director, it shall do so within sixty days of the receipt of the notice, after giving an opportunity to the Company.
5.6 Filing of Form MGT 14 with copy of resolution along with explanatory statement under Section 102 and amended copy of Articles of Association as attachment within 30 days of passing of the special resolutions
5.7 Filing of Form GNL-1 with the Registrar
5.8 Filing of Form INC-18 with the Regional Director
5.9 Publication of Notice and the said notice shall be in Form INC 19 in Within a week from the date of submitting the application to the Regional Director
· at least once in a vernacular newspaper in 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.
5.10 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
5.11 Whether the company has obtained any special status, privilege, exemption, benefit or grant(s) from any authority such as Income Tax Department, Charity Commissioner or any organization or Department of Central Government, State Government, Municipal Body or any recognized authority?
If Yes then a “No Objection Certificate” must be obtained, if required under the terms of the said special status, privilege, exemption, benefit or grant(s) from the concerned authority and filed with the Regional Director, along with the application.
5.12 Whether the Company have filed 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?
In the event the application is made after the expiry of three 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 thirty days of filing the application shall be attached.
5.13 Check whether a certificate from practicing Chartered Accountant or Company Secretary in practice or Cost Accountant in practice certifying that the conditions laid down in the Act and these rules relating to conversion of a company registered under section 8 into any other kind of company, have been complied with has obtained?
5.14 On receipt of the approval of the Regional Director, File Form INC-20.
5.15 Documents required for such conversion:
· Certified true copy of the special resolution along with a copy of the Notice convening the meeting including the explanatory statement;
· Memorandum of association;
· Articles of association;
· Certified true copy of board resolution(s) authorizing conversion; Certified true copy of the special resolution passed for approval for conversion into any other kind and notice convening the general meeting along with the relevant explanatory statement annexed thereto;
· Certificate from CA/CS/CWA (in practice) certifying that the conditions laid down in the Act and rules, have been complied with;
· Statement of assets and liabilities of the company as on the date not earlier than thirty days of that date duly certified by the auditor;
· Copy of valuation report by a registered valuer about the market value of assets; Audited financial statements, the Board’s reports, annual returns and the audit reports for each of the two financial years immediately preceding the date of the application or, where the company has functioned only for one financial year, for such year;
· NOC from all the creditors is mandatory, if any;
· A declaration by the directors that the conditions, if any imposed by the Regional Director have been fully complied with.
6. Strike
off of Section 8 companies:
Post surrender of license by conversion of Section 8 company into company of any other kind, such converted company can apply for strike off after complying with the provisions of Section 248 of the Companies Act, 2013.
7. Surrender
of other registrations held in the name of company:
· PAN
· TAN
· GST
· Any other registration or licenses
CONCLUDING STATEMENT:
1. As we are aware that any one wishes to do welfare activities in India is required to opt for one out of three following mentioned legal entities:
· Trust
· Society
· Section 8 company
2. Section 8 companies now a days is more popular as compared to the other existing legal entities due to its PAN India existence, transparent and more recognized platform due to its formation under the Central Act. However there are certain restrictions under the Act that a Section 8 needs to comply with which are stated I Section 8 itself along with in license issued by Central government.
3. However due to scarcity of resources, increased legal cost and other reasons, some Section 8 companies are finding it difficult to engage in the business and welfare activities or to sustain in with restrictions imposed on them may opt for conversion of Section 8 companies into Private limited companies. Post conversion, company will be at discretion to either continue the profit making business or apply for closure under Fast Track Exit mode under relevant provisions of the Companies Act, 2013.
4. Important aspects to be checked before applying for conversion and strike off:
· Details of movable, immovable properties, nature of liabilities as for strike off you need to have NIL assets and liabilities.
· Period of existence for meeting conditions under Section 248 (1) of the Act.
· Period since business is not commenced.
· Privileges taken by Section 8 company from government or from any other person
· Income tax return filed or any statutory dues pending.
· List of creditors and amount.
· Other relevant financial and non-financial information.
Professionals and promoters needs to exercise detailed due-diligence before making an application for conversion under Section 8 of the Act.
Happy reading.
Regards,
CS Yash Pareek [ICSI Silver Medalist]
Company Secretary I Yash Pareek & Associates {www.csyashpareek.in/Professional}
Entrepreneur I Manomay Innovations Private Limited {www.manomay.co.in}
Social Worker I Rukmani Devi Pareek Charitable Foundation {www.csyashpareek.in/socialwork}
Contact No.: 9111575222 Website: www.csyashpareek.in
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