Closure of a Section 8 Company: A Comprehensive Guide

Closure of a Section 8 Company: A Comprehensive Guide

A Section 8 company in India is a type of non-profit organization aimed at promoting commerce, arts, science, sports, education, research, social welfare, religion, charity, and protection of the environment.

Closure of a section 8 company 

These companies are formed with the intent of using profits (if any) and other income only for promoting the objectives of the company. They cannot pay any dividend to their members. However, there may arise situations where the company needs to be closed. This article provides a detailed guide on the closure of a Section 8 company.

Reasons for Closure

The closure of a Section 8 company can occur due to various reasons, including but not limited to:

1.      Insolvency: When the company is unable to pay its debts.

2.      Voluntary Decision: When the members decide to close the company.

3.      Failure to Commence Business: If the company has not commenced business within a year of incorporation.

4.      Non-Compliance: Failure to comply with statutory requirements.

Methods of Closure

The closure of a Section 8 company can be executed through the following methods:

1.     Voluntary Winding Up:

·        Board Meeting: The Board of Directors must convene a meeting to pass a resolution for winding up the company.

·        General Meeting: A special resolution must be passed in a general meeting of the members. The resolution must be approved by at least three-fourths of the members present.

·        Declaration of Solvency: The directors must declare that they have made a full inquiry into the affairs of the company and have concluded that the company has no debts, or it will be able to pay its debts fully from the proceeds of assets sold in the voluntary winding up.

·        Appointment of Liquidator: A liquidator is appointed to wind up the company’s affairs and distribute its assets.

2.     Compulsory Winding Up:

·        Tribunal Order: The National Company Law Tribunal (NCLT) can order the winding up of the company under circumstances such as the company’s inability to pay debts, or if the Tribunal believes that it is just and equitable to wind up the company.

·        Petition for Winding Up: A petition can be filed by the company, its creditors, or contributories for winding up.

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3.     Striking Off

·        Application to Registrar: If the company is defunct, an application can be made to the Registrar of Companies (RoC) for striking off the company’s name from the register of companies.

·        Form STK-2: The application must be submitted in Form STK-2 along with the prescribed fee.

·        Affidavit and Indemnity Bond: The application should be accompanied by an affidavit and indemnity bond from all directors.

·        Notice by Registrar: The RoC will issue a public notice and, after a period of 30 days, strike off the name of the company if no objections are received.

Documents Required for Closure of a Section 8 Company

·        Board Resolution and Special Resolution: Certified copies of the resolutions passed by the board and the members.

·        Declaration of Solvency: A declaration signed by the directors.

·        Statement of Assets and Liabilities: A detailed statement showing the company’s assets and liabilities.

·        Consent of Creditors: In case of voluntary winding up, the consent of at least two-thirds of the creditors is required.

·        Affidavit and Indemnity Bond: Required for striking off the company.

Post-Closure Compliances

Once the closure of a Section 8 company is completed, the following steps must be taken:

1.      Intimation to Authorities: Informing various regulatory authorities such as the Income Tax Department, GST Department, etc., about the closure.

2.      Accounts and Records: Ensuring that all accounts and records are settled and stored as per legal requirements.

3.      Final Return: Filing the final return with the Registrar of Companies.

Section 8 Company Registration

Before considering the closure of a Section 8 company, it's important to understand the process of Section 8 company registration. The registration involves several steps to ensure compliance with legal requirements and to establish the company as a non-profit entity:

1.      Digital Signature Certificate (DSC): Obtain DSC for the proposed directors.

2.      Director Identification Number (DIN): Apply for DIN for the proposed directors.

3.      Name Approval: File Form INC-1 to get the name approved by the RoC.

4.      MoA and AoA: Draft the Memorandum of Association (MoA) and Articles of Association (AoA) specifying the company’s objectives and rules.

5.      License Application: Apply for a license under Section 8 of the Companies Act, 2013, using Form INC-12.

6.      Incorporation: File Form INC-7 (Application for Incorporation) along with other necessary documents.

Understanding the registration process helps in better managing the lifecycle of the company, from inception to potential closure.

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Conclusion

Closing a Section 8 company involves a series of well-defined legal procedures to ensure compliance with the statutory requirements. It is advisable to seek professional help from legal and financial experts to navigate through the process smoothly. Proper closure ensures that all obligations are settled and the company is dissolved without any legal complications in the future. For those considering the formation of a Section 8 company,

understanding the Section 8 company registration process is equally crucial. It ensures that the company is established on a solid legal foundation, ready to achieve its non-profit objectives.