Conversion of a Section 8 Company into a Public Company: Understanding the Process, Types, and Keywords

Section 8 Company, also known as a not-for-profit company, is a type of company that is registered under the Companies Act, 2013, for the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, or any other useful object, provided that 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. A Section 8 Company is formed with the sole purpose of promoting the above-mentioned objects, and its members have no personal interest in the activities of the company. However, there may be instances where a Section 8 Company may need to be converted into a Public Company. This article aims to provide an overview of the process of converting a Section 8 Company into a Public Company, along with the types and keywords involved.

Process of Conversion

The process of converting a Section 8 Company into a Public Company involves the following steps:

1. Obtaining Board Approval: The first step in the conversion process is obtaining the approval of the Board of Directors of the Section 8 Company. The Board of Directors must pass a resolution approving the conversion and authorizing the filing of the necessary documents with the Registrar of Companies (ROC).
2. Obtaining Members’ Approval: The next step is obtaining the approval of the members of the Section 8 Company. A special resolution must be passed by the members of the company in a general meeting, approving the conversion and authorizing the Board of Directors to take all necessary steps for the same.
3. Filing of Application with ROC: Once the approvals of the Board of Directors and the members of the company are obtained, an application must be filed with the ROC. The application must be filed in Form INC-27, along with the necessary documents, such as a copy of the special resolution, Memorandum of Association (MOA), Articles of Association (AOA), and other relevant documents.
4. Obtaining Approval from ROC: After the application is filed, the ROC will examine the same and may ask for additional information or documents, if required. Once the ROC is satisfied with the application and the documents, it will issue an approval in Form INC-28.
5. Amending MOA and AOA: After obtaining the approval of the ROC, the MOA and AOA of the Section 8 Company must be amended to reflect the new status as a Public Company. The necessary changes must be made to the MOA and AOA, and the amended copies must be filed with the ROC.
6. Issuing of Certificate of Incorporation: Once the amended MOA and AOA are filed with the ROC, it will issue a Certificate of Incorporation, confirming the conversion of the Section 8 Company into a Public Company.

Types of Conversion

There are two types of conversion of a Section 8 Company into a Public Company, as follows:

1. Voluntary Conversion: A Section 8 Company can be converted into a Public Company voluntarily. The members of the company can pass a special resolution in a general meeting, approving the conversion and authorizing the Board of Directors to take all necessary steps for the same. This type of conversion is usually done when the Section 8 Company wants to expand its activities and raise capital from the public.
2. Compulsory Conversion: A Section 8 Company may be compulsorily converted into a Public Company if it fails to comply with the provisions of the Companies Act, 2013. For instance, if a Section 8 Company starts distributing profits to its members, it may lose its status as a not-for-profit company and be required to be converted into a Public Company

Keywords involved in Conversion

1. Memorandum of Association (MOA): The MOA is a legal document that defines the objectives and scope of the company’s activities. It contains the company’s name, registered office, objectives, and the liabilities of its members. In the case of a conversion, the MOA must be amended to reflect the change in the company’s status.
2. Articles of Association (AOA): The AOA is a legal document that defines the rules and regulations of the company. It contains the rules for the management of the company, such as the powers of the directors, the conduct of meetings, and the rights and duties of the shareholders. In the case of a conversion, the AOA must be amended to reflect the change in the company’s status.
3. Registrar of Companies (ROC): The ROC is a statutory body that is responsible for registering and regulating companies in India. It is under the Ministry of Corporate Affairs, and its functions include maintaining records of companies, issuing certificates of incorporation, and ensuring compliance with the Companies Act, 2013.
4. Special Resolution: A special resolution is a resolution passed by the members of the company in a general meeting, requiring the approval of at least 75% of the members present and voting. In the case of a conversion, a special resolution must be passed to approve the conversion and authorize the Board of Directors to take all necessary steps for the same.
5. Form INC-27: Form INC-27 is the application form for the conversion of a Section 8 Company into a Public Company. It must be filed with the ROC, along with the necessary documents and fees.
6. Form INC-28: Form INC-28 is the approval form issued by the ROC, confirming the conversion of the Section 8 Company into a Public Company.

Benefits of Conversion

There are several benefits of converting a Section 8 Company into a Public Company, such as:

1. Raising Capital: A Public Company can raise capital from the public through the sale of shares, debentures, and other securities. This can help the company to expand its activities and achieve its objectives.
2. Improved Credibility: A Public Company has better credibility in the eyes of the public and investors than a Section 8 Company. This can help the company to attract more investment and partnerships.
3. Greater Flexibility: A Public Company has greater flexibility in its operations than a Section 8 Company. It can enter into partnerships, joint ventures, and collaborations with other companies and individuals, which can help it to achieve its objectives.
4. Professional Management: A Public Company is required to have a Board of Directors and a management team, which can provide professional management to the company. This can help to improve the efficiency and effectiveness of the company’s operations.
5. Better Governance: A Public Company is subject to greater regulatory oversight than a Section 8 Company. This can help to ensure better corporate governance and compliance with laws and regulations.

Conclusion

In conclusion, converting a Section 8 Company into a Public Company is a complex process that requires careful planning and execution. The process involves obtaining the approval of the Board of Directors and the members of the company, filing an application with the ROC, amending the MOA and AOA, and obtaining a Certificate of Incorporation. There are two types of conversion, voluntary and compulsory, and several keywords involved, such as MOA, AOA, ROC, special resolution, Form INC-27, and Form INC-28. There are several benefits of converting a Section 8 Company into a Public Company, such as raising capital, improved credibility, greater flexibility, professional management, and better governance. Companies considering a conversion should carefully evaluate the pros and cons and seek professional advice to ensure a successful and smooth transition