Persons who are engaged in running non-profit organisations may form a Section 8 Company under the Companies Act, 2013. If anyone wishes to close a Section 8 company for operating a private or public limited company, or for any other reason, they must wind up the company in accordance with specific processes. As it is a non-profit entity, no one can convert it into another form of company. Its entire funds must be transferred to the government or to another non-profit organisation.
A Section 8 Company comprises a non-profit organisation registered to encourage charitable objectives like social welfare, education, or the environment. A piece of an organisation’s main purpose is to be beneficial to the public, and such organisations are classified as Section 8 companies. In the case of a Section 8 company, the concept of closure arises only when it is necessary, which would be the case if there is continuing inactivity, failure to comply with regulations, or financial problems.
What is a Section 8 Company?
A Section 8 Company is a company registered under Section 8 of the Companies Act, 2013. The main purpose of such a company is the promotion of social, religious, charitable, educational, environmental, or scientific activities. Besides, the company should not have the intention of making a profit. It is banned from distributing its profits or income to its members and must apply all earnings toward the promotion of its cited objectives.
Implication of Closing a Section 8 Company
When a Section 8 Company is closed down, it means that the company has been legally wound up by a declaration from the Registrar of Companies under the Companies Act, 2013, by removing its name from the register of companies. Since such companies are run for charitable purposes, the closure of such a company must first clear all the debts, transfer the assets to another Section 8 company, and complete all the legal formalities. After acceptance, the company loses its legal identity and ends operations.
Modes of Closure Under Indian Law
Outlined below are the methods for how a Section 8 company may be closed as per the Indian law:
1. Strike Off under Section 248
The company must first have no liabilities & must be inactive for 2 years. It then files STK-2 Form with the Registrar. After public notice and no objections, the company is struck off.
2. Voluntary Winding Up
Members have voted to wind up the company by special resolution. A liquidator administers the payment of debts and the distribution of assets. Upon examination of the final report, the Registrar removes the company from the register.
3. Revocation of Section 8 License (Section 8(6))
The Central Government revokes the license if the company infringes on its non-profit nature. A company will either transform into a normal business or be dissolved through the tribunal. The assets are transferred to another Section 8 company.
4. Tribunal-Decreed Winding Up (NCLT)
The Tribunal can close the business if it is causing public harm, has committed fraud, or has failed to comply with regulations for five years. The liquidator manages the finances and the disposal of assets. The company will be terminated upon the Tribunal’s receipt of the final report.
Documents Needed for Closure of Section 8 Company
The following documents are needed to be filed for the closure of the Section 8 company:
- Certificate of Incorporation
- Article of Association
- DSC of Existing Directors
- Audit Report
- Profit and Loss Account Details
- Copy of Special Resolution SR accepting winding up of section 8 company
- Memorandum of Association
- Copy of EGM notice to members
- Last Audited Balance Sheet
- Copy of board resolution
- Copy of PAN
- Certificate granted by a practising CS/CA/CWA
- Copy of the list of creditors
- Company’s asset valuation report
Step-by-step Procedure to Close a Section 8 Company
Outlined below is the process for closing a Section 8 company:
Step 1: Board Resolution for Closure
Directors of the company collectively decide and resolve to give up the Section 8 license. Besides that, they also empower the calling of a general meeting to obtain shareholders’ consent for the closure. This corporate decision sets the process of closure in motion in accordance with the law.
Step 2: Shareholders’ Acceptance by Special Resolution
At an Extraordinary General Meeting (EGM), the shareholders decide on a special resolution to close the company. The resolution needs to be passed by a minimum of three-fourths of the shareholders who are present and voting. This is the formal way by which members agree to the closure.
Step 3: Filing Form MGT-14 with Registrar
The company files Form MGT-14 with the Registrar within 30 days of adopting the special resolution. Together with the filing, a copy of the certified resolution, the notice of the EGM, and the explanatory statements come. The filing is the official communication of the decision to RoC.
Step 4: Application for Surrender of License (Form INC-18)
The corporation files Form INC-18 with the Regional Director (RD) to seek surrender of the Section 8 license. The application should include the special resolution, EGM notice, explanatory statement, and proof of serving notices to the concerned authorities. This official application seeks permission from the government to wind up the non-profit company.
Step 5: Publishing Public Notice (Form INC-19)
Within one week from the date of filing Form INC-18, the company issues a notice in Form INC-19, in two newspapers, one in the local language and one in English. The notice informs the public about the proposed closure and invites any objections. Besides, the company, if having a website, posts the same notice there.
Step 6: Submission of Application to Registrar of Companies
After the application is submitted to the RD, a copy, along with the necessary documents, is also sent to the RoC. This step is about making the process open to the public and sticking to the correct procedures.
Step 7: Regional Director’s Review and Approval
The Regional Director reviews all documents deposited and may allow a license surrender. The RD can also impose conditions or require further steps before granting closure permission.
Step 8: Change to a Regular Company
After the RD has recognised the surrender, the company is required to convert into a private limited company or a public limited company. As part of the process, the company has to change its Memorandum and Articles of Association and submit Form INC-20 along with the RoC within 30 days after the order of the RD. This conversion permits the company to continue its winding-up under the regular company laws.
Step 9: Winding Up Process
Following conversion, the company first settles all of its liabilities and debts. It then hands over the leftover assets either as per its objectives or legal provisions. Lastly, you submit the final return to the RoC.
Step 10: Closure Certificate Issuance by Appropriate Authority
After the dissolution process is fully carried out and the verification of compliance, the Registrar issues the closure certificate. This certificate is considered a valid proof for the closure of a company, and the company is therefore no longer existing under the Companies Act.
Wrapping Up
The winding up of a Section 8 company signifies the completion of its legal and operational sojourn. The procedure for winding up, as a non-profit entity, has to be done with strict compliance with the statutory provisions under the Companies Act, 2013, and the regulations made thereunder. Ensuring that the company discharges all its liabilities, distributes its assets in accordance with its charitable purposes, and completes its regulatory filings leads to transparency and compliance with the rules.
In essence, the closure of a Section 8 company involves more than a mere formal step. It is a commitment towards protecting the interests of various stakeholders, the beneficiaries, and society in general. The company, by following proper channels either through voluntary winding up or through the intervention of the authorities, is basically showing its accountability and consideration for the legal framework that governs charitable institutions. This meticulous closure ensures that the company’s legacy of service stays intact, even though its formal existence ceases.
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