Contributed By: Priya Singh

Email: priya@simplybiz.in

Introduction

Section 8 companies, formed under the Companies Act, 2013, are non-profit organizations with charitable objects such as education, art, science, sports, social welfare, and similar causes. However, there may come a time when the members of such a company decide to discontinue its operations. Direct strike-off of Section 8 companies is not permitted without approval of the Regional Director (RD) because they were granted a license under Section 8 of Companies Act, 2013. So, the company first undergoes conversion into a private limited company and subsequently opts for strike-off under Section 248 of the Companies Act, 2013. This article provides a detailed overview of the legal process for strike-off after conversion, along with its implications and compliance requirements.

Legal Framework

1. Conversion of Section 8 Company into Private Limited Company

Converting a Section 8 Company (formed for charitable or not-for-profit purposes) into a Private Limited Company in India is a regulated and relatively complex process. The Ministry of Corporate Affairs (MCA) allows such conversion only under strict conditions since Section 8 companies enjoy special privileges (like tax exemptions, concessional fees, etc.)

Preconditions for Conversion:

Genuine Reason for Conversion – The company must justify why it no longer wishes to operate as a not-for-profit entity.
No Default – The Section 8 company must not have defaulted in filing annual returns, financial statements, or repayment of loans.
Asset Handling – Since assets of a Section 8 company are meant for charitable purposes, conversion requires that any accumulated profits/surplus be transferred to another Section 8 company, society, or trust and the assets must not be distributed among members.

Procedure for conversion:

1.1 Convening of Board meeting:

A Board Meeting needs to be conducted for the following actions:
 Approve the conversion.
 Fix the date, time, and venue for holding an Extraordinary General Meeting (EGM) to seek members approval by way of Special Resolution for the conversion and approve the draft notice of EGM along with explanatory statement.

1.2 Issuing Notice of EGM:

Notice of the EGM needs to be sent to all members, Directors, and Auditors at least 21 clear days before the date of EGM or shorter notice can also be sent subject to the clause mentioned in the Articles of Association of the Company.
The explanatory statement under section 102 of the Companies Act 2013 need to be attached along with the notice of EGM.

1.3 Holding of Extra Ordinary General Meeting & undertaking filings

Hold the EGM and pass a special resolution for:
 Conversion of the company into a Private Limited Company.
 Alteration of Memorandum of Association (MOA) and Articles of Association (AOA) accordingly.
 File the resolution with the Registrar of Companies (ROC) in form MGT-14 within 30 days of passing the Special Resolution.
 File MGT-7 (annual return) and AOC-4 (financials) up to date, if pending.

1.4 Holding of Extra Ordinary General Meeting & undertaking filings

File Form INC-18 with the Ministry of Corporate Affairs, addressed to the Regional Director (RD), along with following attachments:
 Certified true copy of special resolution with explanatory statement.
 Altered MOA & AOA.
 Certificate from a Practicing CA/CS/CMA that the company has complied with requirements of the Act.
 Statement of assets and liabilities, not older than 30 days from the date of making the application, duly certified by the Auditor.
 Details of donations, grants, and accumulated profits since incorporation.
 Declaration by Board that no part of income/ property has been distributed as dividend.
 Declaration by the Directors that the conditions of Section 8 have been complied with.
 Copy of MGT-7 (annual return) and AOC-4 (financials) up-to-date.
 Details of creditors and their approval (if applicable).
 NOC form authorities (If the Company has received government funding)
 Valuation Report regarding the property/assets (If any)

1.5 Publication of Notice:

Within 1 week of application to RD, publish notice in:
 One vernacular newspaper and one English newspaper circulating in the district of the registered office.
 Serve a copy of the notice to:
 Chief Commissioner of Income Tax.
 The Income Tax Officer within jurisdiction
 Charity Commissioner/Chief Secretary of the State.
 Any authority from whom the company has obtained special status (licenses, exemptions, etc.).
 Any objections must be sent to RD within 60 days.

1.6 RD Examination

The RD may seek clarifications or objections from authorities or the public.

If satisfied, the RD will issue an order approving conversion, subject to conditions (such as transfer of unutilized income/assets to another Section 8 company).

1.7 Post Approval Formalities:

Hold and conduct another Board Meeting to take note of the RD’s Approval and to formally adopt the altered MOA and AOA as per RD’s directions.

1.8 Filing with ROC

After RD’s approval, file Form INC-20 with MCA addressed to the ROC within 30 days of RD approval with the attachments- Altered MOA and AOA and RD order
The ROC verifies and issues a Fresh Certificate of Incorporation as a Private Limited Company.

1.9 Effects of Conversion & Post Conversion Compliance:

 The Section 8 license stands revoked.
 PAN, TAN, GST, bank accounts, and all statutory registrations with the new name/status should be updated.
 The donors, members, and stakeholders should be informed about the conversion.
 The Company must comply with normal Private Limited Company provisions (like minimum 2 Shareholders, 2 directors, restriction on transfer of shares, etc.).

2. Strike-Off under Section 248 of the Companies Act, 2013

Once the company has converted into a private limited company, it becomes eligible for voluntary strike-off under Section 248(2) of the Act. The Company may apply for voluntary strike-off if it has met the eligibility criteria mentioned below:
 No ongoing business operations:
 The company should have ceased to carry on business or operations for the last two immediately preceding financial years and has not made any application for dormant company status or not commenced business within one year of incorporation.
 No pending litigations should be there as on the date of filing application for strike off.
 All creditors (if any) should be paid off, and there should be no outstanding statutory dues.
 File all overdue financial statements, annual returns, and other pending forms before applying for strike-off.
 After the eligibility criteria have been met, the Company can proceed with making the application for strike-off.

Procedure for applying for strike-off:

2.1 Convening of Board Meeting:

Convene a Board Meeting and pass a resolution approving proposal to strike off the company and authorization to directors to sign and submit necessary documents.

2.2 Extinguish Liabilities:

Clear all assets and liabilities (if any) of the company.
Prepare accounts showing nil assets and liabilities (not older than 30 days) as on the date of application duly certified by a Chartered Accountant in practice.

2.3 Convening EGM to seek shareholder’s Approval

Notice of the EGM needs to be sent to all Shareholders, Directors, and Auditors at least 21 clear days before the EGM or shorter notice can also be sent subject to such clause being mentioned in the Articles of Association of the Company.

The explanatory statement under Section 102 of the Companies Act 2013 outlining the reason for strike off needs to be attached along with the notice of EGM.
Pass a Special Resolution (approval by at least 75% of members in terms of paid-up share capital) approving the strike-off application.

2.4 Filing of the application with ROC in form STK-2

The application for strike off should be filed with the ROC along with the following attachments:
 The Board Resolution authorising the strike off application.
 The Special Resolution with EGM notice and minutes
 Indemnity Bond in Form STK-3 executed on Rs. 500 non-judicial stamp paper, signed by all the Directors
 Individual affidavit in Form STK-4 from each Director on Rs. 200 stamp paper.
 Statement of Accounts (certified by a Chartered Accountant, not older than 30 days) from the application date.
 Copy of PAN and Aadhaar of directors duly certified by a practicing Chartered Accountant/Practicing Company secretary/Practicing Cost Accountant
 Bank statements showing a Zero Balance after all settlements.
 Consent of creditors, if any.

2.5 Verification by ROC:

 ROC examines the application and may seek further clarifications.
 If satisfied, ROC publishes a notice in Form STK-6 giving 30 days for objections from stakeholders/public.

2.6 Publication of Notice:

Notice of the proposed strike off is:
 Placed on the MCA website.
 Published in Official Gazette.
 Published in leading English and vernacular newspapers

2.7 Final Order and Strike-off

After expiry of 30 days and considering objections (if any), ROC issues a notice in Form STK-7.
Company’s name is struck off from the Register of Companies.
ROC publishes the notice in the Official Gazette — the company stands dissolved from the date of such publication
The status of the Company on MCA master data changes from active to Strike-off

2.8 Effect of Strike-off

 The company ceases to exist as a legal entity.
 Liability of directors, officers, and shareholders continues for any acts done before strike off.
 Company’s assets, if any, vest in the Central Government

Practical Considerations

Tax and Regulatory Compliance:
Before applying for strike-off, ensure that all pending tax returns (Income Tax, GST, TDS) are filed, and no government dues remain outstanding.
Treatment of Assets:
Since Section 8 companies hold property for charitable purposes, care must be taken to ensure compliance with conditions imposed by RD during conversion, especially regarding transfer of assets or funds to other Section 8 companies.

Liabilities:
Directors continue to remain liable for any liabilities or claims even after the name of the company is struck off, as per Section 250 of the Companies Act, 2013.

Timeline:
The entire process, from conversion to strike-off, may take 6–12 months, depending on RD approval timelines and ROC processing speed.

Conclusion

Strike-off after conversion of a Section 8 company into a private limited company is a multi-stage process requiring careful compliance with the Companies Act, 2013, and related rules. The conversion stage ensures that the company ceases to operate under charitable status, while the strike-off stage legally removes its name from the register of companies. Proper legal, tax, and accounting due diligence are crucial to avoid post-closure liabilities and ensure a smooth exit.

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