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March 4, 2021

FAQ’s on Conversions to Section 8 Companies and vice-versa

by CA Shivam Jaiswal in Corporate Law

FAQ’s on Conversions to Section 8 Companies and vice-versa

1. What are the pre-conditions and the procedure for conversion of companies already registered under the Companies Act 1956 or Companies Act, 2013 into a Section 8 Company?

Answer: Any existing limited company registered under this Act or under any previous company law can apply for conversion subject to the following:

The Memorandum and Articles of Association either have (or are amended such that they have) the objects specified in clause (a) of sub-section (1) of Section 8 and the restrictions and prohibitions as mentioned respectively in clauses (b) and (c) of that sub-section are incorporated in the Memorandum/ Articles, and the Company is desirous of being registered under Section 8, without the addition to its name of the word “Limited” or as the case may be, the words “Private Limited”.

For conversion, the procedure prescribed under section 8(5) read with Rule 20 of the Companies (Incorporation) Rules, 2014 shall apply.

2. Can a company registered under Section 8 be converted into any other company?

Answer: Yes, a Section 8 Company can be converted into any other company including OPC as prescribed under Section 8(4)(ii) read with Rules 21 and 22 of Companies (Incorporation) Rules, 2014. This is further subject to restrictions and compliances as per other applicable laws including Income tax Act, 1961.

3. Can a Society registered under the Societies Registration Act, 1860 be registered/converted into Section 8 Company?

Answer: Yes. Section 8(1) of the Companies Act, 2013 allows person or association of persons to be registered as a Section 8 Company on fulfillment of certain conditions and procedure as prescribed therein. The term “person” has not been defined in the Companies Act, 2013. Section 2(41) of the General Clauses Act, 1897 provides that “person” shall include any Company, or association or body of individuals, whether incorporated or not. Accordingly, a Society registered under the Societies Registration Act, 1860 is a person. Therefore, Society can be registered/converted as a Section 8 Company.

4. Can a Co-operative Society registered under the Co- operative Societies Act or Multi State Co-operative Societies Act be registered/converted in to a Section 8 Company?

Answer: Section 8(1) of the Companies Act, 2013 provides for registration of a person or association of persons as a section 8 Company on fulfillment of certain conditions and procedure as prescribed therein. The term “person” has not been defined in the Companies Act, 2013. Section 2(41) of the General Clauses Act, 1897 provides that “person” shall include any Company, or association or body of individuals, whether incorporated or not. Section 9 of The Multi-State Cooperative Societies Act, 2002 provides that Multi-State Cooperative Society shall be a Body corporate on its registration.

In view of above it can be concluded that a Multi-State Cooperative Society is a person and accordingly can be registered as a Section 8 Company in terms of the provisions of the Companies Act, 2013 after completion of necessary formalities prescribed therein.

5. Can a Trust registered under the trust Act be registered/ converted in to a Section 8 Company?

Answer: Section 8(1) of the Companies Act, 2013 allows person or association of persons to be registered as a Section 8 Company on fulfillment of certain conditions and procedure as prescribed therein. The term “person” has not been defined in the Companies Act, 2013. Section 2(41) of the General Clauses Act, 1897 provides that “person” shall include any Company, or association or body of individuals, whether incorporated or not. Accordingly, a Trust is a person. Therefore, there is no bar in conversion of trust to Section 8 Companies.

6. Can a Limited liability partnership be registered/ converted in to a Section 8 Company?

Answer: Yes. Section 8(1) of the Companies Act, 2013 allows person or association of persons to be registered as a Section 8 Company on fulfillment of certain conditions and procedure as prescribed therein. The term “person” has not been defined in the Companies Act, 2013. Section 2(41) of the General Clauses Act, 1897 provides that “person” shall include any Company, or association or body of individuals, whether incorporated or not. Accordingly, a Limited Liability Partnership is a person. Therefore, it can be registered/ converted as a Section 8 Company.

7. Whether a One person Company can be converted in to a Section 8 Company?

Answer: Yes, one person company may convert itself into a private/ public company and then conversion of such private/public company into Section 8 is possible.

8. Can a partnership firm be registered/converted in to a Section 8 Company?

Answer: Yes. Section 8(1) of the Companies Act, 2013 allows person or association of persons to be registered as a Section 8 Company on fulfillment of certain conditions and procedure as prescribed therein. The term “person” has not been defined in the Companies Act, 2013. Section 2(41) of the General Clauses Act, 1897 provides that “person” shall include any Company, or association or body of individuals, whether incorporated or not. Accordingly, a Partnership Firm is a person.

Therefore, a partnership firm can be registered as a Section 8 Company.

9. Whether a Section 8 Company can be converted into a One person Company?

Answer: No, Rule 7(1) of the Companies (Incorporation) Rules, 2014 prohibits conversion of Section 8 Company to one Person Company.

10. Is it mandatory to publish advertisement in newspaper at the time of conversion of an entity in to a Section 8 Company? If yes, in what form and manner?

Answer: Yes. Rule 20 of Companies (Incorporation) Rules, 2014 provides for the procedure for conversion of an entity into a Section 8 Company. Sub-rule (3) of rule 20 of Companies (Incorporation) Rules, 2014 provides that any entity which is desirous of being registered as section 8 Company, it, inter- alia, shall be required to publish a notice in Form No. INC- 26 within a week from the date of making the application to the Registrar in at least once in a vernacular newspaper in the principal vernacular language of the district in which the registered office of the proposed company is to be situated or is situated, and circulating in that district, and at least once in English language in an English newspaper circulating in that district. A copy of the notice, as published, shall be sent forthwith to the Registrar and also to be placed on the websites as may be notified by the Central Government.

11. Whether the object of a Section 8 Company can extend beyond the state in which its registered?

Answer: Yes. Clause 4 of the Form INC 13 provided under rule 19(2) of the Companies (Incorporation) Rules, 2014 requires to make mention that – “The objects of the company extend to the “ Further like other Companies, the section 8 Companies objects can extend beyond state in which its registered office is situated.

12. Whether the object of Section 8 Company can extend beyond the India?

Answer: Yes. Clause 4 of the Form INC 13 (Memorandum of Association) filed in pursuant to Rule 19(2) of the Companies (Incorporation) Rules, 2014 requires to state that “The objects of the company extend to the………….. ” Further states that “here enter the name of the State or States, and Country or Countries.” Accordingly, the objects of Section 8 Company may be extended beyond India.

13. Whether Section 8 Company can carry out micro finance activities?

Answer: Yes, subject to compliance of applicable RBI Act, Guidelines and directions, Section 8 Companies can carry out micro finance activities. The micro finance activities should be for the promotion of activities as stated in section 8(1)(a) of the Companies Act, 2013

14. Whether Section 8 Company can be formed for providing advisory, consulting services to Section 8 Companies?

Answer: Yes, in line with the objects stated in section 8(1)(a) of the Companies Act, 2013.

15. Whether Section 8 Company can alter its objects? If yes, if any permission required?

Answer: Yes, the objects of Section 8 Company can be altered by taking shareholders’ approval and approval of Registrar of Companies in terms of Section 8.

16. Is there is any restriction on a Section 8 Company from making borrowings from bank, financial institutions etc.?

Answer: There is no restriction on borrowing by Section 8 Company. However, provisions of section 180, if applicable, required to be complied with.

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