Strike off Section 8 Companies in India - ApkaTax | ApkaTax

Strike off Section 8 Companies

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✅ Handling all the criteria of Strike off Section 8 Companies, ensuring full compliance.
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Overview of Strike off Section 8 Companies

Section 8 companies are established with the purpose of advancing various noble causes such as art, commerce, sports, science, education, social welfare, charity, religion, and the protection of natural resources, among others. They are required to dedicate their profits exclusively to these designated objectives. Unlike traditional companies, Section 8 companies do not distribute dividends to their members. Instead, their business operations center around charitable goals. These entities fall under the Companies Act of 2013 and share similarities with trusts and societies. They provide an excellent option for promoters aiming to fulfill philanthropic intentions. However, they are prohibited from using terms like "private limited" or "public limited" in their names according to the governing Act. In contrast to typical registered companies, Section 8 companies face a more intricate procedure when ceasing their operations. To initiate the process of striking off a Section 8 Company, they must first undergo a conversion into a standard company and subsequently surrender their license to the relevant governing authority. The specific requirements for this course of action are stipulated in the governing legislation. Striking off a Section 8 company can be achieved through either voluntary surrender of their charitable company license or by transforming the business into a regular corporation, no longer classified as a Section 8 corporation. It is important to bear in mind that a Section 8 corporation cannot be converted into a one-person corporation. Furthermore, during the winding-up process, the assets of the Section 8 company are not transferred to its management or shareholders; rather, they are combined with the assets of another Section 8 company.

Regulation relating Strike off Section 8 Companies

Section 8 companies have the option to cease their operations by relinquishing their license to function as a charitable company. This license can be surrendered by transforming the company into a regular entity rather than a Section 8 company. It is important to note that a Section 8 company cannot be converted into a One Person Company.
To proceed with the closure, the company is required to convene a general meeting of shareholders, during which they must pass a resolution to strike off the company's name. This resolution must be supported by at least 75% of the members, based on the paid-up share capital of the company.

Eligibility of Strike off Section 8 Companies

The circumstances under which a Strike off Section 8 Companies can be opted for are as follows:

  1. The company has not commenced its operations within one year of its incorporation.
  2. The company has remained inactive for two consecutive preceding financial years and has not sought the designation of a Dormant Company as per Section 455 of the Act.
  3. The objectives of the Section 8 Company have been altered, and the company is facing challenges in aligning with the new objectives.

Non Qualifying Companies That Are Not Eligible for Strike Off

The following categories of companies are not eligible under Strike off Section 8 Companies:

  • Companies that are listed on the stock exchange.
  • Companies that have been delisted due to non-compliance with listing regulations, listing agreements, or other statutory laws.
  • Vanishing companies.
  • Companies that are under inspection or investigation, and if there are pending or ongoing prosecutions related to such inspections or investigations in a Court of law.
  • Companies that have not responded to notices for specific provisions.
  • Companies that have not complied with the follow-up instructions on any report under section 208 of the Act.
  • Companies with pending prosecutions in a Court of law for non-compliance with the above two provisions.
  • Companies facing any pending case for prosecution in a Court of law.
  • Companies that have applied for compounding of offences committed by the company or its officers in default, and the application is pending before the competent authority.
  • Companies that have accepted public deposits that are still outstanding.
  • Companies with unsatisfied charges on their assets.
  • Companies incorporated under Section 25 of the Companies Act, 1956, or Section 8 of the Act.

Benefits of Strike off Section 8 Companies

The following section outlines the key advantages of striking off Section 8 companies in India:

  • Evasion of Compliance Burden: Upon registration, a Section 8 company becomes obligated to adhere to the ever-changing compliances under the Companies Act, 2013 throughout its existence. This can pose challenges for companies lacking efficient management to address these obligations. Consequently, many companies choose to opt for striking off to avoid this burden.
  • Prevention of Penalties: A company that fails to meet its compliance requirements within the designated time frame often faces significant penalties and fines. In severe cases, these penalties can even disqualify directors from serving in other companies. Non-operational status can also lead to such adverse conditions. Striking off the company becomes the preferred solution to alleviate this issue.
  • Cost Efficiency: Running a business without generating income incurs substantial costs compared to the process of striking off the company. For a Section 8 company that is dormant or lacks any activities, striking off emerges as a viable and cost-effective option.

Types of Strike off Section 8 Companies

The types of Strike off Section 8 Companies are as:

  • Strike Off by ROC: The Registrar of Companies has the authority to issue a notice in Form STK-1 (Removal of Names of Companies from the Registrar of Companies) to the Companies and its Directors if there is a reasonable cause as specified above. This notice serves to notify the concerned companies of the intent to eliminate their names from the records and will ask them to appoint their representatives with the required documentation within a period of thirty days from the date of receipt of this notice. This procedure is commonly referred to as the Compulsory removal of name from the Registrar of Companies.
  • Strike off on the Company's Accord: A company has the option to file an application in E-Form STK-2 to the Registrar of Companies after settling its liabilities. This can be accomplished by passing a special resolution, which must be approved by seventy-five per cent of its members.

Requirement under Strike off Section 8 Companies

The option of strike-off can be applied based on the following reasons:

  • The company has not initiated its business activities within the first year after its incorporation.
  • The company has been inactive and not engaged in any business or activity during the past two financial years. Additionally, it has not obtained the status of a Dormant Company as per Section 455 of the Act.

Documents Required in Strike off Section 8 Companies

The Documents required in Strike off Section 8 Companies are listed as follows:

  • Resolution passed through special consent and notice for convening the meeting
  • Document outlining the company's objectives (Memorandum of Association - MoA)
  • Document containing rules and regulations for company operations (Articles of Association - AoA)
  • Choice reached by the Board of Directors.
  • Resolution passed through special consent and notice for the general meeting
  • Certificate provided by a certified Chartered Accountant, Company Secretary, or Cost and Works Accountant
  • Statement authenticating the company's assets and liabilities, verified by the auditor
  • Report evaluating the valuation of the company's assets from a registered valuer
  • No-Objection Certificate from all existing creditors, if applicable
  • Declaration submitted by the company's directors
  • Certificate confirming the company's incorporation
  • Permanent Account Number (PAN)
  • Official document detailing the company's objectives (Memorandum of Association - MoA)
  • Official document containing regulations for company operations (Articles of Association - AoA)
  • Audited financial statements for the previous year, including balance sheet and profit and loss account
  • Report prepared by an auditor
  • Copy of the newspaper advertisement
  • Digital Signature Certificate of current directors.

Process of getting Strike off Section 8 Companies

The process of Strike off Section 8 Companies is a complex and time taking one. Below mentioned is the step-by-step process to Strike off Section 8 Companies: - 

After receiving clearance from the Regional Director, the company will convene a general meeting to pass a special resolution amending the memorandum of association and articles of organization. The following documents must be submitted to the Registrar within 30 days of receiving the order in Form INC -20: a certified copy of the Regional Director's approval, the company's revised memorandum of association and articles of association, and a statement from the directors confirming compliance with any conditions set by the Regional Director. After the company has undergone the conversion to a standard entity, it becomes eligible for dissolution in accordance with the guidelines specified in either the Companies Act of 2013 or the Insolvency and Bankruptcy Code of 2016.
As previously mentioned, Section 8 companies do not have a standard procedure to wind up their affairs. The striking off of Section 8 companies is only effective following the given procedure:

Application with MCA for Conversion:
The first step in the striking off procedure is to apply for company conversion. The applicant firm must submit a prescribed application along with the mentioned documents to the Ministry of Corporate Affairs (MCA).

Application and Documentation Scrutiny:
Upon receiving the application and documents, the authority will conduct legal checks to ensure compliance with the governing legislation.

Approval by MCA for Conversion:
If no errors or discrepancies are found during the verification, the MCA will grant approval for conversion.

Application for Strike Off as Converted Private Limited Company:
In this step, the applicant addresses the formalities for striking off the company name. They are required to file a prescribed application with the MCA along with standard documentation and fees.

Approval for Strike Off:
The authority will grant approval for strike off after thorough verification of the submitted application and supporting documents.

Outcome relating to Strike Off Section 8 Companies:

  • Striking off Section 8 companies means the company will no longer exist legally and will cease its business operations.
  • The certificate of incorporation will be cancelled.
  • No further operations or annual returns will be possible.
  • The company's name will be removed from the register of companies by the Registrar of Companies (ROC).

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