Convert Section 8 Company to a Private Limited Company

The conversion is governed by Section 8(4)(ii) of the Companies Act, 2013, read with Rules 21 and 22 of the Companies (Incorporation) Rules, 2014, as amended by the Companies (Incorporation) Amendment Rules, 2023. These provisions detail stringent conditions, application processes, and requirements for conversion.

The Regional Director (RD) of the Ministry of Corporate Affairs is the primary approving authority. While the Registrar of Companies (ROC) handles filings, the core approval for license revocation and status change rests entirely with the RD.

The conversion changes the entity's status from non-profit to for-profit. The company loses its Section 8 license, forfeits all tax exemptions (Section 12A/80G), gains the capability to distribute dividends, becomes subject to standard corporate tax rates, and can raise equity capital from investors.

A Section 8 company cannot be converted directly into a One Person Company (OPC) or a Limited Liability Partnership (LLP).

• OPC Conversion : Expressly prohibited by Rule 7(1) of the Companies (Incorporation) Rules, 2014.
• LLP Conversion : Direct conversion is not permitted under the LLP Rules, 2009.

Indirect Conversion to LLP: A Section 8 company must first convert into a Private Limited Company (a complex process requiring Regional Director approval under Section 8(4) of the Companies Act, 2013). Once converted, the Private Limited Company can then apply to become an LLP.

Common reasons include a desire for commercial profit-making activities, a need for significant equity capital raising, a strategic shift from an unsustainable non-profit model, expansion into profit-generating business operations, or an inability to achieve objectives within the Section 8 framework.

Yes, an existing Private Limited company can convert to a Section 8 company by filing Form INC-12 with the prescribed fees, subject to meeting the criteria for charitable objectives and obtaining a Central Government license under Section 8.

Yes, conversion requires approval via a Special Resolution passed at a General Meeting. This requires at least 75% approval from voting members, accompanied by a detailed explanatory statement, as per Rule 21.

No, Rule 21(4) mandates that the company must have filed all financial statements (AOC-4) and annual returns (MGT-7/7A) up to the preceding financial year. All defaults must be rectified before applying.

Companies with FCRA registration must obtain a specific NOC from the FCRA department (Ministry of Home Affairs) regarding foreign funds utilisation and compliance status before RD approval. This is a critical step to ensure that all foreign contributions are accounted for in accordance with the Foreign Contribution (Regulation) Act, 2010.

Yes, NOCs are mandatory from all regulatory bodies where registered, typically including the Income Tax Department (for 12A/80G registrations), Charity Commissioner, FCRA department (if applicable), and any government department providing grants or oversight.

The Act doesn't specify a minimum operational period. However, companies must justify conversion reasons and demonstrate full regulatory compliance since incorporation. Recent incorporations face closer scrutiny from the RD for a genuine operational history.

Section 8 companies that receive CSR funds must account for their utilisation in accordance with the original objectives. Any unutilized CSR funds must be managed in accordance with CSR rules and RD conditions.

Form INC-18 is the specific e-form for filing a conversion application with the Regional Director. It must include comprehensive documentation, including audited financial statements, resolutions, valuation reports, and declarations, as per Rule 22.

Form INC-19 is the public notice format. The whole procedure is:

• First, the application for conversion is filed with the Regional Director (RD) in Form INC-18.
• Second, the public notice in Form INC-19 is published within a week of filing Form INC-18, inviting objections.
• Finally, the RD takes cognisance because the company must file proof of the notice publication back to the RD within 30 days of the publication date.

Rule 22(2) of the Companies (Incorporation) Rules, 2014: Mandates publishing the notice (INC-19) within a week of applying (INC-18). Rule 22(7) of the Companies (Incorporation) Rules, 2014: Requires the company to file proof of the notice publication with the Regional Director within 30 days of publication.

MOA must remove Section 8 specific clauses (dividend prohibition, charitable objects) and adopt commercial objectives. AOA must align with the requirements of a Private Limited company, including provisions for share transfer restrictions and director appointments.

Yes, a comprehensive valuation report from a Registered Valuer is mandatory to determine the fair market value of all assets, which is crucial for the RD's determination of payables or transferable amounts upon conversion.

Form MGT-14 must be filed with the ROC within 30 days of passing the Special Resolution for conversion and alteration of the MOA/AOA, and registering the resolution with the MCA before filing the INC-18 application.

The company must submit audited financial statements (Balance Sheet and Income & Expenditure Account) with the Auditor's Report, not older than 30 days from the application date, demonstrating the actual financial position.

Yes, Rule 21(5) mandates a certificate from a practising Chartered Accountant (CA), Company Secretary (CS), or Cost Accountant (CMA) confirming compliance with all conditions stipulated by the Act and Rules.

Key steps include: Board approval, EGM convening with 21-day notice, passage of a Special Resolution, filing of MGT-14, submission of an INC-18 application to the RD, publication of a public notice in INC-19, procurement of an NOC, RD review and approval, and finally, filing of INC-20 for a new incorporation certificate.

Rule 21(2) requires the Explanatory Statement to include principal objects, reasons why these cannot be achieved, as Section 8, proposed conversion details, impact on members and public, and justification for commercial operations.

During the 30-day public notice period after INC-19 publication, any person can file objections with RD. The company must respond to objections, and RD considers all submissions before making a decision.

Yes, conversion inherently involves a name change. Section 8 indicators, such as "Foundation" or "Association," must be removed, and the "Private Limited" suffix must be added as a mandatory requirement for private companies.

Form INC-20 is filed with the ROC after receiving RD approval, serving as intimation about the conversion. RD's order and amended MOA/AOA must be attached for the new Certificate of Incorporation.

A copy of the conversion notice and application must be served to the Chief Secretary of the State where the registered office is situated, ensuring the state government is aware of the charitable Organisation's status change.

Rule 22(10) mandates that accumulated surplus cannot be distributed to members but must be transferred to another Section 8 company or Investor Education and Protection Fund within 60 days of receipt of the RD's order.

Rule 22(9) requires payment of the difference between the acquisition cost and the current market value to the government before approval for conversion is granted. This prevents misuse of government concessions.

The entity loses all tax exemptions, including 12A registration and 80G benefits. Becomes subject to standard corporate tax rates (currently 25-30%). Conversion may trigger an exit tax on asset appreciation and the surrender of concessions.

No, accumulated surplus earned during Section 8 operations cannot be distributed after conversion. These funds remain subject to RD conditions, typically requiring transfer to another charitable Organisation.

All donor funds must be utilised for original charitable purposes before conversion or transferred to another Section 8 company. Donor consent may be required for fund transfer depending on the donation terms.

Government grants must be fully accounted for and utilised as per the original sanction. Any unutilized grants must be returned to the granting authority or transferred as per their specific instructions.

The process typically takes 4-6 months, including internal approvals (30-40 days), a mandatory 30-day public notice period, NOC procurement, and RD review (30-90 days). Complex cases may take 8 to 10 months to resolve.

Rule 22(2) mandates that public objections be received within 30 days after the publication of Form INC-19. This period cannot be shortened regardless of circumstances.

Yes, Form INC-20 must be filed with the ROC within 30 days of receiving the RD's approval order. Delay may result in penalties and complications in obtaining a new certificate.

Form MGT-14 must be filed within 30 days of passing the Special Resolution at the General Meeting. Late filing attracts additional fees and may delay the conversion process.

Missing deadlines results in additional fees, potential penalties under the Companies Act, and may require fresh applications. RD may reject applications for non-compliance with timelines.

RD must consider all objections received within 30 days of receipt. RD may hold a hearing at which the company and objectors present their arguments. The company must provide satisfactory responses to proceed.

If RD rejects the application due to non-compliance, significant objections, or evidence of mismanagement, the company may continue as a Section 8 entity. The company may rectify issues and reapply, or appeal to NCLT if grounds exist.

Yes, the company can appeal the RD's rejection to the National Company Law Tribunal (NCLT) within the specified period. Appeal must demonstrate an error in RD's decision or present new material facts.

Valid objections include evidence of fund misuse, violation of Section 8 conditions, pending liabilities to beneficiaries, incomplete charitable projects, or public interest concerns regarding asset transfer.

Yes, all directors must provide a declaration confirming that no dividend payments have been made, proper income utilisation, and no unauthorised transfers to members or related parties, as per Rule 21(6).

Yes, once converted to Private Limited, the entity can pay remuneration to directors per standard Companies Act provisions and AOA terms, removing Section 8 restrictions on compensation.

No, conversion doesn't absolve the company of any liabilities, debts, or obligations incurred as a Section 8 entity. A Private Limited company remains fully responsible for all past commitments and liabilities.

Failure to comply with the RD's approval conditions (such as payment differentials or asset transfers) may result in conversion revocation, restoration to Section 8 status, and penalties under the Companies Act for non-compliance.