Conversion of Section 8 Company limited by Shares to limited by Guarantee

Introduction:

The conversion of section 8 company limited by shares to limited by guarantee is not explicitly stated under the Companies Act, 2013; however the Conversion of company is permitted under the provisions of Section 18 of Companies Act, 2013. Based on the rulings of the Hon’ble Courts, it is observed that the conversion can be executed through a Scheme of Arrangement under section 230-232 read with section 66 of the Companies Act, 2013.   

• Provisions of Company Act, 2013 and Rules framed thereunder:

Section 8: Its Define the Section 8 Company:

The Companies Act, 2013 defines a Section 8 Company as one whose objectives is to promote commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such similar objects. Section 8 Company could be incorporated as limited by shares or limited by guarantee whether private or public section 8 company. The Conversion of section 8 company is allowed under the provisions of Section 18 of Companies Act, 2013. 

Section 66: Reduction of Share Capital:

Section 66 of Companies Act, 2013 lays down the procedure by which a company limited by shares or limited by guarantee and having a share capital may reduce its share capital. Capital reduction refers to a process by which a company reduces its share capital means reduction of issued, subscribed or paid-up share capital. The process requires the approval of the shareholders, Creditors, if any as well as the confirmation of the NCLT.

Section 230-232: Compromises or Arrangements with its Creditors and Members:

The conversion of section 8 company limited by shares to limited by guarantee is essentially covered within the scope of ‘arrangement’ between the company and its members, and under Section 2(21) of the Act, such company limited by guarantee prescribed for an undertaking to be given by the members to contribute to the assets of the Company in the event of its being wound up. The company can approach through a Scheme of Arrangement to Hon’ble National Company Law Tribunal to allow said conversion.

• Procedure for Conversion of Section 8 Company Limited by Shares to Limited by Guarantee:

The procedure to follow for such conversion of section 8 company limited by shares to limited by guarantee are are outlined briefly below:

1. 1. Drafting of the Scheme of Arrangement
   2. Convening the Board Meeting for the approval of Conversion and Scheme of Arrangement
   3. Convening the general meeting for the approval of Conversion and Scheme of Arrangement by way of special resolution
   4. Obtaining consent of creditor, if any
   5. Filing of Application of the Scheme with National Company Law Tribunal (The “NCLT”)
   6. Advertisement in newspaper and Service of notice along with the copy of scheme for inviting objections or suggestions, if any to the authorities required under the Act
   7. Filing of Affidavit of Service of Notice and advertisement to NCLT
   8. Filing/ submission of reply/rejoinder w.r.t. the objection/report of authorities
   9. Final hearing date will be scheduled by NCLT
   10. Publish advertisement for final hearing and serving notice to the regulators for submission of their report to NCLT
   11. Filing of the Final Order passed by the NCLT approving the scheme in e-Form with ROC
   12. Post arrangement compliance

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