Author: JKG

Post Incorporation Compliances under the Companies Act, 2013: A Practical Guide for Companies in India

Introduction

Incorporating a company is only the beginning of its legal journey. The initial period after incorporation is crucial, as a company must complete several essential formalities that establish its operational and governance framework.

Timely compliance during this stage ensures a smooth transition from incorporation to business operations and lays the foundation for sustainable corporate management.

Failure to comply with these requirements can result in heavy penalties, disqualification of directors, prosecution, and even the striking off of the company from the Register of Companies.

What are Post Incorporation Compliances?

Post Incorporation Compliances refer to the statutory obligations that every company must fulfill immediately after incorporation and throughout its existence.

These compliances ensure that the company operates transparently, maintains proper governance, protects stakeholders, and complies with Indian corporate laws.

Objectives of Post Incorporation Compliances

The primary objectives include:

• Ensuring corporate transparency
• Protecting shareholders and creditors
• Maintaining statutory records
• Promoting good corporate governance

Immediate Post Incorporation Compliances

Immediately after incorporation, a company is required to complete several foundational compliances to legally commence its operations. These compliances establish the company’s corporate governance framework and ensure compliance with the Companies Act, 2013.

1. Opening of Bank Account and Deposit of Subscription Money

Every company should open its bank account immediately after incorporation to receive the subscription money from the subscribers to the Memorandum of Association.

Under Section 10A of the Companies Act, 2013 read with Rule 23A of the Companies (Incorporation) Rules, 2014, every company having share capital shall not commence any business or exercise any borrowing powers unless—

(a) a declaration is filed by a director within a period of one hundred and eighty days of the date of incorporation of the company in form INC-20A with the Registrar that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him on the date of making of such declaration; and

(b) the company has filed with the Registrar a verification of its registered office as provided in sub-section (2) of section 12.

Penalty in case of non-compliance

The declaration for commencement of business must be filed within 180 days from incorporation. Failure to comply attracts the following penalty,

The company shall be liable to a penalty of fifty thousand rupees and every officer who is in default shall be liable to a penalty of one thousand rupees for each day during which such default continues but not exceeding an amount of one lakh rupees.

Where no declaration has been filed with the Registrar within a period of one hundred and eighty days of the date of incorporation of the company and the Registrar has reasonable cause to believe that the company is not carrying on any business or operations, he may, remove of the name of the company from the register of companies.

2. Display of Company Details

As per Section 12(3) of the Companies Act,2013, Every company shall—

(a) paint or affix its name, and the address of its registered office, and keep the same painted or affixed, on the outside of every office or place in which its business is carried on, in a conspicuous position, in legible letters, and if the characters employed therefor are not those of the language or of one of the languages in general use in that locality, also in the characters of that language or of one of those languages

(b) have its name engraved in legible characters on its seal, if any

(c) get its name, address of its registered office and the Corporate Identity Number along with telephone number, fax number, if any, e-mail and website addresses, if any, printed in all its business letters, billheads, letter papers and in all its notices and other official publications and

(d) have its name printed on hundies, promissory notes, bills of exchange etc.

3. Issue Share Certificates

As per Section 56(4)(a) Every company shall, unless prohibited by any provision of law or any order of Court, Tribunal or other authority, deliver the certificates of all securities allotted, transferred or transmitted within a period of two months from the date of incorporation, in the case of subscribers to the memorandum.  

4. Appointment of First Auditor

As Per Section 139(6) of the Companies Act, 2013, The First Auditor of the Company shall be appointed by the Board of Directors within 30 days from the date of Registration of the Company

5. Holding of First Board Meeting

Every Company shall hold its First Board Meeting within 30 days of the date of incorporation and thereafter hold a minimum number of four meetings of its Board of Directors every year in such a manner that not more than one hundred and twenty days shall intervene between two consecutive meetings of the Board.

6. Disclosure of Interest by the Directors

As Per Section 184(1) of the Companies Act 2013, Every Director shall at the first meeting of the Board in which he participates as a  and thereafter at the first meeting of the Board in every  or whenever there is any change in the disclosures already made, then at the first Board meeting held after such change, disclose his concern or interest in any or companies or bodies corporate, firms, or other association of individuals which shall include the shareholding in form MBP-1

7. Statutory Registers

The company is required to maintain the following registers

• Register of members
• Register of Directors & KMP
• Register of Contract and Arrangements in which the Directors are interested
• Register of Charges
• Register of Loans, Guarantees, Securities and Investments and
• Any other registers as required under the Companies Act, 2013

8. Payment of Stamp Duty

Pursuant to Stamp Act, 1899 stamp duty shall be paid on share certificates issued to subscribers and to any person to whom share certificates will be issued after allotment within the time specified under the said provisions. And in case of delayed, non-payment or evasion of payment of stamp duty on the issue of share certificate in case of Allotment of share, the company shall be liable for heavy penalty under the Act.

Conclusion

Post incorporation compliance is an essential part of a company’s journey after receiving its Certificate of Incorporation. Incorporation only creates the legal existence of a company, but continuous compliance ensures that the company remains legally active, transparent, and well-governed.

 

 

For any further query or consultations, please connect with us:

J. K. Gupta & Associates

(Company Secretaries & Insolvency Professionals)

Email: cs@jkgupta.com; Mobile: 9953887741

Delhi || Noida

www.jkgupta.com

 

Incorporation of a Company in India

Introduction

Before an idea blooms into a successful business, it must have a recognized legal identity. This legal recognition of a company is its incorporation.

In India, incorporation is the legal process of formally registering a business under the Companies Act, 2013. Through this process, a company becomes a separate legal entity capable of owning property, entering into contracts, and carrying on business in its own name.

Once incorporated with the Registrar of Companies (ROC) under the Ministry of Corporate Affairs (MCA), the company becomes legally distinct from its shareholders and directors, enjoying its own rights and responsibilities independent of its owners.

Incorporation is not merely a formality of registration; it enables a company to enjoy several legal and commercial benefits available only to registered companies.

Benefits of Incorporation

1. Separate Legal Entity – A company has an identity separate from its shareholders and directors and can own assets, enter contracts, and sue or be sued in its own name.
2. Limited Liability – The liability of shareholders is limited to their shareholding. Personal assets are generally protected from the company’s liabilities.
3. Perpetual Succession – The company continues to exist irrespective of changes in ownership or management.
4. Ease of Raising Capital – Registered companies have better access to funding and investment opportunities.
5. Enhanced Credibility – Incorporation increases the company’s goodwill and builds confidence among investors, customers, and financial institutions.

Types of Companies

Broadly, companies may be incorporated as:

1. One Person Company (OPC)
2. Private Limited Company
3. Public Limited Company

While the rights, obligations, and compliance requirements vary for each type, the incorporation process remains largely the same.

Pre-requisites for Incorporation

1. Digital Signature Certificate (DSC)

A valid Digital Signature Certificate is required for the proposed directors and subscribers to digitally sign the incorporation documents.

2. Minimum Number of Directors and Members

The minimum number of directors and members depends on the type of company.

Type of Company	Minimum Directors	Minimum Members
One Person Company (OPC)	1 (Maximum 15)	1
Private Limited Company	2 (Maximum 15)	2–200
Public Limited Company	3 (Maximum 15)	Minimum 7 (No maximum limit)

 

3. KYC Documents

Identity and address proofs such as PAN, Aadhaar, Passport, Voter ID, along with recent utility bills or bank statements (not older than 2 months) of all directors and subscribers, should be readily available.

Steps for Incorporation

Step 1: Name Reservation

A unique and distinctive name must first be selected for the proposed company.

The Ministry of Corporate Affairs provides a single-window incorporation system through SPICe+.

The applicant may choose either of the following options:

Option 1: Apply through SPICe+ Part A

If the applicant wishes to reserve only the company name initially, they may be filed under Rule 9 of the Companies (Incorporation) Rules, 2014 through SPICe+ Part A upon payment of the prescribed fee.

Option 2: File SPICe+ Part A and Part B Together

If the applicant intends to reserve the name and incorporate the company simultaneously, the complete SPICe+ application may be filed in a single process.

Along with SPICe+, the AGILE-PRO-S form is filed for registration with:

• GSTIN
• EPFO
• ESIC
• Professional Tax (where applicable)
• Corporate Bank Account

The following documents are generally attached with the application:

• e-MOA and e-AOA
• Declaration by subscribers
• Registered office address proof
• Utility bills
• Identity and address proof of subscribers

Step 2: Filing of Incorporation Forms

After compiling all required information and documents, the incorporation application is filed online through the SPICe+ portal on the MCA website.

The application consists of:

• Part A – Reservation of the proposed company name.
• Part B – Incorporation of the company along with applications for DIN, PAN, TAN, GST registration (where applicable), EPFO, ESIC, Professional Tax (in applicable States), and opening of a Corporate Bank Account through AGILE-PRO-S.

The prescribed government fees and applicable stamp duty are paid at the time of filing.

Step 3: Verification by the Registrar of Companies (ROC)

The Registrar of Companies examines the application and supporting documents to ensure compliance with the Companies Act, 2013 and the Companies (Incorporation) Rules, 2014.

If any discrepancy or deficiency is found, the ROC may seek clarification or require rectification within the prescribed period.

Once satisfied, the ROC approves the incorporation application.

Step 4: Issue of Certificate of Incorporation

After approval, the Registrar issues the Certificate of Incorporation (COI) under Section 7 of the Companies Act, 2013.

The Certificate serves as conclusive evidence that the company has been legally incorporated and generally contains:

1. Corporate Identification Number (CIN)
2. Name of the Company
3. Date of Incorporation
4. Permanent Account Number (PAN)
5. Tax Deduction and Collection Account Number (TAN)

From the date of incorporation, the company can enter into contracts, own property, institute or defend legal proceedings, and carry on business in its own name, subject to applicable laws.

Step 5: Post-Incorporation Compliances

Incorporation is the beginning of the company’s legal existence. Certain statutory compliances must be completed thereafter to ensure continued compliance with applicable laws.

These include:

1. Opening the company’s bank account.
2. Issuing share certificates within the prescribed time.
3. Appointment of the first auditor, wherever applicable.
4. Maintaining statutory registers and records.
5. Obtaining industry-specific licences or registrations, if required.
6. Filing the Declaration for Commencement of Business, wherever applicable.
7. Filing the Form INC-22 for verification of registered office within thirty days of its incorporation, where the company is incorporated with the correspondence address.
8. Ensure the timely submission of annual returns and financial statements to the Registrar of Companies (ROC).

Timely compliance helps to avoid penalties and ensures smooth business operations.

 

Conclusion

Incorporation forms the legal foundation of a company and enables it to conduct business in a structured and regulated manner. The Companies Act, 2013 provides a comprehensive framework for incorporation while promoting transparency, accountability, and ease of doing business.

Although incorporation involves procedural and documentation requirements, the introduction of the integrated SPICe+ system has significantly simplified the process by enabling multiple registrations through a single online platform. Once incorporated, the company enjoys great advantages.

However, incorporation is only the beginning. Continuous compliance with statutory requirements and corporate governance standards is essential for maintaining the company’s legal standing and supporting its long-term growth. A properly incorporated and compliant company not only protects the interests of its stakeholders but also strengthens the confidence of investors, creditors, customers, and regulatory authorities.

For any further query or consultations, please connect with us:

J. K. Gupta & Associates

(Company Secretaries & Insolvency Professionals)

Email: cs@jkgupta.com; Mobile: 9953887741

Delhi || Noida

www.jkgupta.com

DECODING INDIA’S NEW LABOUR CODES: A UNIFIED COMPLIANCE GUIDE FOR CORPORATE PROFESSIONALS

Introduction

It lays the foundation for a future ready workforce and stronger, resilient industries driving labour reforms for Aatmanirbhar Bharat. The enforcement of India’s four comprehensive Labour Codes marks the most historical legislative shift in employment law since Independence. Each code addresses distinct domain of employment regulation. Effective from 21^st November 2025, with final central rules notified on 8^th May 2026, the Ministry of Labour and Employment has consolidated 29 existing labour laws into 4 streamlined codes. All prior enactments stand repealed.

For Practising Company Secretaries and corporate advisors, transitioning clients to this new regulatory architecture is a matter of critical operational urgency. Non-compliance no longer carries minor penalties; it exposes corporate entities to severe systemic risk.

1. The Code on Wages, 2019: The 50% Remuneration Rule

The Code on Wages, 2019 standardizes the definition of “wages” u/s 2(y) across all industries to eliminate arbitrary allowance structures and mandates a National Floor level minimum wage below which no state can fix the minimum wages. Key compliance obligations include:

• The 50% Wages Threshold: The code introduces a unified definition of ‘wages’ that includes basic pay, dearness allowance (DA), and retaining allowance must constitute at least 50% of the total Cost to Company (CTC).
• The Allowance Cap: Excluded components (such as HRA, conveyance, bonus and special allowance etc.) cannot cumulatively exceed 50% of the total remuneration. Any access is deemed wages. This directly impacts PF contribution calculation, gratuity computation and bonus eligibility.
• Minimum Wages: Every employer must pay at least the applicable minimum wages as notified by the appropriate government (Central or State). The Code mandates revision of minimum wages every five years. Employers operating in multiple states must track state-specific minimum wage notifications and update payroll accordingly.
• Overtime Treatment: Employers shall pay for every hour or for part of an hour so worked in excess, at an overtime rate which shall not be less than twice the normal rate of wages for all consent-based overtime work.
• Strict Salary Release Deadlines: The employer shall pay or cause to be paid wages to the employees, engaged on –

• daily basis, at the end of the shift;
• weekly basis, on the last working day of the week, that is to say, before the weekly holiday;
• fortnightly basis, before the end of the second day after the end of the fortnight;
• monthly basis, before the expiry of the seventh day of the succeeding month.

 

2. The Code on Social Security, 2020: Expanded Welfare and Gratuity Re-fits

The Social Security Code (SSC) modernizes benefit delivery while placing stringent time blocks on statutory investigations. It is arguably the most impactful of the four codes for employment, as it expands the ambit of social security to gig workers, platform workers and the unorganized sector, while also amending the provision governing EPF, ESI, gratuity & maternity benefits.

• Fixed-Term Gratuity Pro-Rata: Fixed-term (contract) employees are now eligible for pro-rata gratuity after completing just 1 year of continuous service, even if they have not completed five years of continuous service. This eliminates the previous irregularity where short-tenure fixed-term employees were excluded from gratuity.
• Employees Provident Fund (EPF): The SSC retains the EPF framework but aligns with the definition of wages under the Code on Wages, 2019, meaning the PF contributions must be calculated on the expanded wage base.
• Reduced Litigation Deposits: To appeal an order before the EPFO Tribunal, employers are required to deposit only 25% of the disputed amount, a significant reduction from the prior 75% in The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.
• Maternity Benefits: The SSC preserve the 26-week paid maternity leave and additionally, it mandates the provision of creche facilities for establishments with 50 or more employees and enable the government to extend maternity benefits to home-based workers.

 

3. The Industrial Relations Code, 2020: Operational Redefinitions

The Industrial Relations Code, 2020 completely adjusts the parameters of workplace handling and dispute systems.

• Standing Orders Threshold: The mandatory requirement to formulate and certify Model Standing Orders now applies only to establishments with 300 or more workers, offering major administrative relief to MSMEs. Establishment below this threshold may adopt a model standing order notified by government. The Certified standing orders must cover terms of employment, working hours, disciplinary proceedings, and governance redressal.
• Trade Unions: The code introduces a new concept of – Sole Negotiating Union – Where only one Trade Union of workers registered under the code is functioning in an industrial establishment, then employer may recognise such Trade Union as sole negotiating union of the workers.

If more than one Trade Union of workers registered under the code then, the Trade Union having fifty-one per cent or more workers on the muster roll of that industrial establishment, then employer may recognise such Trade Union as sole negotiating union of the workers.

• Direct Tribunal Access: Workers can now approach Industrial Tribunals directly after a failed conciliation, completely bypassing long-drawn government referral methods.

4. The Occupational Safety, Health and Working Conditions Code, 2020

The OSH Code, 2020 consolidates compliance by replacing a mountain of scattered state and central permits with a unified filing platform and it expands the definition of establishment and introduces uniform norms for working hours, safety & contractor regulation.

• The Single-Window Paradigm: Multiple overlapping licenses and registrations are replaced by a single electronic registration, single operating license, and single annual return.
• Working hours: No worker shall be required to work for more than 8 hours a day and 48 hours a week. Overtime is permissible up to 144 hours per quarter with double rate overtime wages.
• Gender-Neutral Workplace Access: Women are legally permitted to work night shifts across all sectors, including underground mining and hazardous operations, subject to explicit written consent and prescribed safety protocols (CCTV, secure transport).
• Mandatory Safety Committees: Factories employing 500 or more workers must appoint a qualified safety officer. The Safety Committee shall consist of an equal number of members representing the employer and the workers, which shall not exceed twenty. The committee reviews safety measures and reports on accidental trends.
• Free Annual Health Check-ups: Every employer of dock work, building or other construction work shall arrange to conduct free of cost medical examinations for employee, who has completed forty years of age.
• Mandatory Appointment Letters: Every employer is legally obligated to issue formal, standardized appointment letters to all workers upon hiring to establish a clear employment history.

Conclusion: The Transition Role of PCS

The four new labour codes mark the biggest shift in India’s employment laws in decades. By replacing a strict, punitive system with a guidance-based model, the government is putting the responsibility for compliance directly on businesses. Companies can no longer afford to sit back and wait while individual states finalize their local guidelines.

To prevent operational disruptions, management and Company Secretaries must take immediate action. This means restructuring salary setups to meet new wage definitions, upgrading digital tracking tools, and implementing stronger safety protocols for women. Ultimately, true compliance is no longer just about passing inspections, it is about building a modern, self-regulated workplace.

 

For any further query or consultations, please connect with us:

J. K. Gupta & Associates

(Company Secretaries & Insolvency Professionals)

Email: cs@jkgupta.com; Mobile: 9953887741

Delhi || Noida

www.jkgupta.com

Special Exemptions and Privileges Available to Small Companies under the Companies Act, 2013

 

Introduction

Every successful business begins with a vision but sustaining that vision requires a regulatory framework that supports growth rather than hinders it. Recognizing this reality, the Companies Act, 2013 offers a simplified compliance framework for small companies, allowing entrepreneurs to focus more on growing their businesses and less on navigating regulatory hurdles. These special exemptions and privileges strike a balance between ensuring corporate accountability and promoting ease of doing business, making the corporate journey more manageable for smaller enterprises.

Meaning of Small Company

Under Section 2(85) of the Companies Act, 2013, a “small company” is defined as any company, other than a public company, that satisfies both of the following criteria

 Paid-up Share Capital: Does not exceed ₹10 crore.

 Turnover: For the immediately preceding financial year does not exceed ₹100 crore

Mandatory Exclusions

Even if a company meets the capital and turnover thresholds above, it cannot be classified as a small company if it is:

• A Public Company
• A Holding Company or a Subsidiary Company
• A Company registered under Section 8 (Non-profit organizations)
• A company or body corporate governed by any Special Act

 

 Major Privileges and Exemptions Available to Small Companies

1. Only Two Board Meetings in a Year

As per Section 173(5) of the Companies Act, 2013, A Small Company is required to hold only one Board Meeting in each half of the calendar year, with a minimum gap of 90 days between the meetings.

2. Cash Flow Statement Not Mandatory

As per Section 2(40) of the Companies Act, 2013, Financial Statements of a Small Company are not required to include a Cash Flow Statement.

3. Abridged Board’s Report

As per Section 134 of the Companies Act, 2013 read with Rule 8A of the Companies (Accounts) Rules, 2014, Small Companies are permitted to prepare an abridged Board’s Report instead of a detailed report.

4. Lesser Penalty for Non-Compliance

As per Section 446B of the Companies Act, 2013, Notwithstanding anything contained in this Act,  if penalty is payable for non-compliance of any of the provisions of this Act by a One Person Company, small company, start-up or Producer Company, or by any of its officer in default, or any other person in respect of such company, then such company, its officer in default or any other person, as the case may be, shall be liable to a penalty which shall not be more than one-half of the penalty specified in such provisions subject to a maximum of two lakh rupees in case of a  and one lakh rupees in case of an  or any other person, as the case may be.

5. Annual Return in Simplified Form

As per Section 92 of the Companies Act, 2013, Small Companies are required to file their Annual Return in Form MGT-7A instead of Form MGT-7.

6. No Mandatory Rotation of Auditors

As per Section 139(2) of the Companies Act, 2013, The provisions relating to mandatory rotation of auditors are not applicable to Small Companies.

     7. Exemption From Dematerialization of Securities

Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014, mandates that every private company, other than a small company, shall issue and hold its securities only in dematerialized form and facilitate dematerialization.

Accordingly, small companies are expressly exempt from the mandatory dematerialization requirements under Rule 9B.

8. Fast Track Merger

As per Section 233 of the Companies Act, 2013, A merger between two or more small companies or a holding company and its wholly owned subsidiary or such other class or classes of Companies as may be prescribed may be carried out under the fast-track merger process without following the more elaborate merger procedure applicable to other companies.

9. No Mandatory Independent Directors Requirement

Small companies are not required to appoint independent directors as the only the listed company and the public companies which are covered under the prescribed limits are required to appoint independent director.

10. Exemption from Appointment of Key Managerial Personnel (KMP)

As per Section 203 of the Companies Act, 2013, Small companies are not required to appoint Whole-Time Key Managerial Personnel such as:

• Managing Director, or CEO or Manager and in their absence, a Whole-Time Director
• Company Secretary; and
• Chief Financial Officer

11. No Mandatory Compliance with Managerial Remuneration Limits

As per Section 197 of the Companies Act, 2013, Small companies are generally outside the strict framework of managerial remuneration restrictions applicable to public companies.

12. No Mandatory Requirement of Women Director

Unlike certain classes of companies, small companies are not required to appoint a woman director under Section 149(1).

13. Exemption from Corporate Governance Committees

Small companies are not required to constitute:

• Audit Committee
• Nomination and Remuneration Committee
• Risk Management Committee

Conclusion

The Companies Act, 2013 recognizes the unique challenges faced by small companies and provides them with several exemptions and procedural relaxations to promote ease of doing business. These benefits reduce compliance costs, simplify governance, and enable businesses to focus on growth while ensuring essential legal compliance. However, companies must regularly assess their eligibility for small company status, as these privileges are available only so long as they continue to satisfy the prescribed criteria.

 

For any further query or consultations, please connect with us:

J. K. Gupta & Associates

(Company Secretaries & Insolvency Professionals)

Email: cs@jkgupta.com; Mobile: 9953887741

Delhi || Noida

www.jkgupta.com

 

 

 

 

 

 

EMPLOYEE STOCK OPTION PLANS (ESOPs)

APPLICABLE LAWS AND PROVISIONS

The Companies Act, 2013, governs ESOPs by laying down the basic rules for how companies can grant stock options to their employees. Section 62(1)(b) read with Rule 8 of Companies (Share Capital and Debentures) Rules, 2014 authorizes companies to issue ESOP’S to employees, directors or officers ensuring shareholders’ approval. SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 also need to be followed (Listed Companies)

 

INTRODUCTION

ESOP (Employee stock option plans) is a corporate benefit plan designed to reward and retain employees in the company. ESOP provides employees with an opportunity to acquire a share in the wealth of the company at concessional rate. Unlike traditional salary or cash bonuses, ESOPs provide employees with equity-linked rewards, which creates a sense of belonging and alignment with the company’s long-term objectives. ESOP’s also acts as a golden handcuff to employees because they are intentionally structured to tie an employee’s financial future to the company.

 

PROCEDURE OF ISSUANCE OF ESOP’S

Section 62(1)(b) of the Companies Act, 2013 and Rule 12 of Companies (Share Capital and Debentures) Rules, 2014 governs the issuance of ESOP.

• Verify whether the company’s Article of Association (AOA) authorizes the issuance of Employee Stock Option Plans (ESOPs). If explicit authorization is lacking, the company must amend the AOA by obtaining shareholder approval in a general meeting.
• Formulate the comprehensive ESOP Scheme document, ensuring it clearly defines core terms such as eligibility criteria, vesting schedules, and the exercise period.
• Convene a meeting of the Board of Directors to pass a board resolution approving the draft ESOP Scheme and authorizing the issuance of notice to call an Extraordinary General Meeting (EGM).
• Hold the general meeting and pass the special resolution to approve the ESOP scheme.

 

ELIGIBILITY FOR ESOP’S

The extant regulations pertaining to ESOPs lays down some criteria for who eligible employees could be. For instance, Explanation to Rule 12 (1) of Companies (Share Capital and Debentures) Rules, 2014 states that –

For the purposes of clause (b) of sub-section (1) of section 62 and this rule Employee means-

(a) a permanent employee of the company who has been working in India or outside India; or

(b) a director of the company, whether a whole-time director or not but excluding an independent director; or (c) an employee as defined in clauses (a) or (b) of a subsidiary, in India or outside company but does not include–

(i) an employee who is a promoter or a person belonging to the promoter group; or

(ii) a director who either himself or through his relative or through anybody, directly or indirectly, holds more than ten percent of the outstanding equity shares of the company.”

 

EXECUTION OF ESOP’S

• Grant the options: Issue formal grant letters to eligible employees offering them a specific number of options at a predetermined exercise price.

 

• Vesting Period: Upon completion of the vesting period, employees fulfill the tenure requirement and acquire the right to purchase the shares.

 

• Exercise and Allotment: Employees submit their exercise application and pay the required exercise price, after which the Board of Directors convene Board meeting to formally allot the shares.

 

• Filing of Form PAS-3 allotment of shares: The company must file the Return of Allotment with the Registrar of Companies (ROC) within 30 days from the date of allotment.

 

TYPES OF ESOP’S

1. Employee Stock Option Scheme (ESOS) – This is the most common type of ESOP. An employee stock option scheme (ESOS) grants an employee the contractual right to acquire corporate shares at a fixed, predetermined exercise price, which is frequently set below current fair market value. Distributed as a strategic component of executive or staff remuneration, these options typically mature over a designated vesting period tied to time-based or performance-driven metrics. Upon exercise, participants enjoy full shareholder privileges, including voting entitlements and dividend distributions

 

2. Employee Stock Purchase Plan (ESPP)- An employee stock purchase plan (ESPP) allows employees to purchase company stock at a discounted price and gradually increase their ownership stake in the business through periodic investments. ESPP allows participation in company profits as well, in the form of dividends.

 

3. Restricted Stock Units (RSU’s)- These are a type of ESOP that allow employes to convert RSU’s into company’s share in exchange for a certain number of years working for the company or when specific performance milestone is achieved.

 

4. Stock Appreciation Rights (SARs)– These are a type of ESOP that allows employees to receive payment based on the appreciation of company stock over a certain period. Companies can use SARs to provide employees with stock benefits without diluting their equity.

 

5. Phantom equity plan – A Phantom Equity Plan (PEP) is a type of ESOP that allows employees to receive payment based on the value of the company’s stock without actually owning any shares. Companies provide mock stocks to them that tracks the value and performance of company’s real shares.

 

ROUTES FOR ISSUING ESOP’S

Under Indian law, a Company can issue ESOPs broadly through two routes – the Direct Route and the Trust Route – The choice depending on whether the Company is listed or unlisted and its own preference for administrative simplicity versus flexibility.

Direct Route

 Under the direct route, the company issues stock options directly to eligible employees. Upon the employee’s decision to exercise these options, the company executes a fresh issuance of equity capital. This process increases the total outstanding share capital of the Company, and the employee also becomes the registered shareholder of the company.

Trust Route

 Here the company set up an Employee Welfare Trust (EWT) which acts as an intermediary – holding shares and transferring them to employees upon exercise of options, instead of the Company allotting fresh shares directly. This mechanism eliminates the need for issuance of fresh equity shares, thereby preventing the dilution of the company’s existing equity capital structure. Consequently, this route is widely utilized by listed entities leveraging secondary market liquidity.

 

Governing law (Listed Companies): SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, the SEBI Regulations mandate the trust route in specified circumstances, such as secondary market acquisition-based schemes.

Two Sub-methods of funding the trust:

Primary acquisition: the company allots fresh shares to the trust, which then transfers them to employees on exercise.

Secondary acquisition: the trust purchases existing shares from the share’s market/promoters, capped at 2% of the paid-up capital per year and 5% cumulatively and subject to shareholder approval and specific SEBI disclosure norms.

 

It requires trust deed, trustee appointments separate demat account, annual disclosures (for listed entities), and adherence to related party transaction norms since the trust is typically treated as a related party.

As the Trust is structured exclusively as a non-business entity for ESOP administration, it does not possess independent liquidity to fund open-market share acquisitions. Consequently, pursuant to the enabling provisions of Section 67 of the Companies Act, 2013, the company may legally advance loans or provide financial assistance to the Trust, thereby enabling it to acquire and hold the requisite equity shares for subsequent allotment to employee beneficiaries.

 

BENEFITS OF ESOP’s

• Psychological ownership: An ESOP cultivates psychological ownership by tangibly linking an employee’s daily efforts to the company’s financial success and building an emotional investment in the organization.
• Wealth accumulation: ESOP acts as a wealth building engine , especially when combined with compounding stock value. For employees confident in their company’s trajectory, stock option can grow into a significant financial asset over time.
• Enhance company culture: Ownership drives accountability. Teams become more transparent, collaborative , and focus on value creation when everyone has skin in the game.
• Better productivity: Since employees themselves want to gain profits earned by the company , ESOP can boost employee productivity.

 

ESOP IN STARTUP

An ESOP is a benefit that gives employees the right to buy a small part of company’s shares at fixed price in the future which means that if the startup grows and becomes valuable over time, this gives employees a chance to earn extra money on top of their salary.

Startup may offer ESOPs to their promoters, directors and employees without the restrictions on promoter participation that applies to other private companies. Additionally recognized startups can enjoy deferred tax payments of ESOPs.

 

CONCLUSION

ESOP serves as a bridge connecting an employee’s daily contributions to the overarching success of the organization. It is one of the best ways to reward employees, enhance profitability, generate the spirit of ownership and make employees more loyal towards the company. ESOP can act as an emotional investment in the company by the employee. It is a vital internal corporate action which helps to retain talented and skillful employees in the company.

For any further query or consultations, please connect with us:

J. K. Gupta & Associates

(Company Secretaries & Insolvency Professionals)

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NAVIGATING SOCIETY COMPLIANCES IN INDIA: A CORPORATE AND INSTITUTIONAL FRAMEWORK

Introduction

Registered Societies occupy a unique space in India’s legal landscape – they are neither corporations nor partnerships, yet they carry significant legal personality & accountability. Thousands of educational institutions, charitable organizations or trusts, and other welfare associations are operating as registered society.

As establishing a Society under the Societies Registration Act, 1860 (or corresponding state-specific legislation) is a popular framework for promoting charity, education, science, literature, and the arts. However, securing registration is only the first step to safeguard its legal identity, protect its tax-exempt status, and maintain public trust. Society must adhere to an array of annual and periodic compliances.

Despite their non-commercial character, societies remain bound by a dense web of statutory obligations that the governing boards of such organizations often underestimate. A comprehensive understanding of these statutory responsibilities is indispensable for ensuring legal compliance, maintaining sound governance, and avoiding severe regulatory penalties. Recognizing and diligently fulfilling these obligations not only safeguards society from legal repercussions but also reinforces its credibility, accountability, and institutional integrity.

This article provides a structured overview of society compliance in India, covering registration, governance, financial discipline & consequential obligations.

1. Registration – The Foundation of Legal Existence

A society acquire legal existence only upon registration with the competent authority – typically the Registrar of Societies or sub-divisional magistrate under the applicable state laws. The process involves:

• Drafting and signing of Memorandum of Association (MOA) by at least 7 members (in most states).
• Framing of bye-laws or Rules & Regulations of society.
• Submission of the registration application along with the prescribed fees, affidavit and identity proofs of the founding members.
• Obtain the Certificate of Registration which contains the unique registration number.
• Post registration, obtaining the Permanent Account number (PAN) in the name of society.

2. Governance and Mandated Meetings

Transparent governance forms the backbone of a legally compliant Society. Regulatory bodies look closely at how a Society conducts its internal democracy.

• The Annual General Meeting (AGM): Societies must convene an AGM at least once every calendar year. The primary agenda includes approving the annual budget, passing audited financial statements, and appointing statutory auditors.
• Governing Body Meetings: The executive committee or managing board must meet regularly—typically quarterly—as prescribed by the Society’s own specific Rules and Regulations to oversee operational decisions.
• Notice and Quorum Protocol: Meeting notices, along with the precise agenda, must be served to all registered members within the timeline stipulated in the Byelaws or state amendments usually clear 14 days. Decisions are legally binding only if the mandatory quorum is met.

3. Annual Post-AGM Filings with the Registrar

The execution of institutional meetings must be supplemented by systematic, time-bound reporting to the jurisdictional Registrar of Societies.

• Filing the List of Governing Body: Within 14 days of the AGM (or the timeline specified by state amendments), a complete list containing the names, occupations, and addresses of all elected managing committee members must be submitted to the Registrar.
• Annual Activity Report: A comprehensive narrative report outlining the projects executed, objectives achieved, and utilization of public or private funds during the financial year must accompany the annual filing.

4. Financial Accountability and Audits

Given that Societies frequently manage public funds, philanthropic donations, and government grants, their financial architecture is subject to stringent regulatory oversight or scrutiny.

• Statutory Audit Engagements: Every registered Society must maintain clean, double-entry books of accounts. The annual financial statements comprising the Balance Sheet, Income and Expenditure Statement, and Receipts and Payments Account must be audited by a practicing Chartered Accountant.
• Data Retention and Preservation: Financial vouchers, invoices, bank statements, and general ledgers must be securely preserved at the registered office for the legally mandated period, which is typically eight financial years.

5. Maintenance of Statutory Registers

Societies are legally obligated to maintain updated physical or digital records, which must remain accessible for inspection by regulatory authorities or members.

• Register of Members: A chronological ledger detailing the full name, address, occupation, admission date, and date of cessation for every member of the general body.
• Minutes Books: Formally bound or secure, unalterable digital logs dedicated strictly to record the official resolutions, voting metrics, and minutes of both General Body and Governing Body proceedings.
• Asset Register: A comprehensive, itemized inventory tracking all movable and immovable properties owned, acquired, or disposed of by the institution.

6. Direct and Indirect Tax Compliances

Sustaining the status of a Registered Non-Profit Organization (RNPO) requires continuous, precise interaction with the Central Board of Direct Taxes (CBDT) and indirect tax authorities under the unified framework of the Income Tax Act, 2025.

• Annual Income Tax Returns (Form ITR-7): Irrespective of total income or transaction volume, every RNPO must file its annual return in Form ITR-7 on or before October 31^st of the relevant tax year.
• Maintenance of Section 332 and 354 Registrations: Tax exemptions on institutional income formerly under Section 12A/12AB are now governed by Section 332. Tax deductions accelerated to donors formerly under Section 80G are now governed by Section 354. For smaller entities whose total annual income does not exceed ₹5 Crore, the institutional registration validity under Section 332 is extended to 10 years. For larger entities, the institutional timeline remains 5 years. Donor deduction certificates under Section 354 strictly retain a 5-year renewal window regardless of organization size. Missing these critical timelines triggers a cessation of charitable status, exposing accumulated institutional assets to a severe Exit Tax.
• Goods and Services Tax (GST) Compliance: If an RNPO executes commercial activities, organizes ticketed exhibitions, or renders taxable services exceeding the prescribed state or national thresholds, it must secure GST registration and file regular monthly or quarterly returns. Under Sections 345 and 346 of the new Act, any commercial activity must remain strictly incidental to the core charitable objectives, separate books of accounts must be maintained, and for General Public Utility (GPU) entities, receipts from such activities must not exceed 20% of total receipts to safeguard tax exemptions.

7. Foreign Funding and Global Compliances

Organizations looking beyond domestic borders for financial aid, grants, or endowments fall under the strict preview of international and national security regulations.

• FCRA Registration or Prior Permission: A Society is legally prohibited from accepting foreign hospitality or financial contributions without obtaining valid registration or explicit prior permission under the Foreign Contribution (Regulation) Act.
• Annual Form FC-4 Filings: Entities holding active FCRA designations must electronically submit an annual return via Form FC-4. This must be accompanied by an exclusive audited financial statement of foreign funds within nine months of the closing of the financial year on or before December 31^st.

Conclusion: The Legal Risks of Non-Compliance

Neglecting these statutory obligations exposes an institution to severe regulatory and operational risks. The Registrar of Societies and allied tax authorities hold the power to impose financial penalties, suspend digital filing access, revoke tax-exempt status, and, in cases of chronic non-compliance, strike the entity off the register.

Given the complex intersections of state-specific society laws, central direct tax provisions, and time-sensitive renewal structures, professional legal and financial oversight is highly recommended to ensure the long-term compliance of your institution.

For any further query or consultations, please connect with us:

J. K. Gupta & Associates

(Company Secretaries & Insolvency Professionals)

Email: cs@jkgupta.com; Mobile: 9953887741

Delhi || Noida

www.jkgupta.com

Conversion of Society into Company

Society is a non-profit organization; often registered and governed under the Societies Registration Act, 1860, which may be formed for literary, scientific, charitable, or similar purposes. Minimum 7 persons are required for formation of a society.

While societies registered under the Societies Registration Act, 1860, are distinct from corporate bodies governed by the Company Act, 2013, they still are a separate legal entity and possess a distinct legal framework.

Societies are similar to Section 8 companies in terms of the purpose of formation but have limited scope in operations and fundraising.

For a local, domestic, low administration and less compliant purpose, societies are the best option but for high credibility, more fundraising and national or international scope, a Section 8 company must be preferred.

How a Society Registered Under a Different Act Convert into a Section 8 Company?

At first glance, the idea that a society formed under an entirely different statute can be converted into a Section 8 company may seem unusual or even unnatural. A society is typically registered under a separate legislative framework with its own governing structure, compliance requirements, and regulatory philosophy. On the other hand, a Section 8 company is incorporated under the Companies Act, 2013, and is subject to a more structured corporate governance regime. The apparent difference in their legal origins often raises the question: how can an entity created under one law seamlessly transition into another?

However, what may appear unconventional is, in fact, a legally recognized and well-regulated process. The legislature, acknowledging the evolving needs of non-profit and charitable organizations, has deliberately provided a mechanism for such conversion. Regulators have laid down a structured procedure within the Companies Act, 2013, enabling societies and other eligible entities to register themselves as Section 8 companies, provided they comply with the prescribed conditions and procedural requirements Provided under the Companies Act 2013. This ensures continuity of objectives while bringing the organization within the corporate regulatory framework.

The rationale behind permitting such conversion is practical and policy driven. Many societies, over time, expand their scale of operations, funding sources, and stakeholder engagement. Transitioning into a Section 8 company often enhances credibility, improves governance standards, and facilitates better regulatory oversight. Thus, rather than being an unnatural shift, the conversion reflects a structured legal evolution from one recognized form of organization to another.

Further, under the provisions of conversion of Companies Act, 2013, the term “Company” includes any partnership firm, limited liability partnership, cooperative society, society or any other business entity formed under any other law for the time being in force.  The word company is broad enough to accommodate such transitions.

Therefore, the conversion of a society into a Section 8 company is not an anomaly but a legally sanctioned transformation supported by the statutory framework itself.

A registered society can be converted into a Section 8 Company limited by Guarantee by following the prescribed legal process governed under provisions of Companies Act 2013. However, this involves several steps, approvals, and documentation.

A smooth conversion process requires multiple steps and compliances with both societies and company laws.

 

Conclusion:

The conversion of a registered society into a Section 8 company is a big step for organizations to formalize their structure, be more recognized and access more extensive funding opportunities. Under the Companies Act, 2013, this process brings numerous advantages. By following the outlined steps and staying compliant with MCA requirements, societies can convert into a Section 8 company smoothly and benefit from a stable and recognized legal structure to achieve their charitable mission.

 

For Any Query and Support Contact:

J. K. Gupta & Associates

Email: jkg@jkgupta.com

Phone Nos. +919953887741 / +911147657222

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SEBI (PIT)-PPT

INTRODUCTION

Section 8 of the Companies Act, 2013 provides for a mechanism through which an Association can be registered as a Company, if such association is formed for promoting commerce, art, science, sports, education, research, social welfare, Charity, religion, protection of environment or any other useful object and intends to apply its profits/income in promoting its objects. The objective of this provision is to provide corporate personality to such Associations but at the same time exempting them from some of the cumbersome legal requirements. Section 8 companies also plays very important role in compliance of the provisions of corporate social responsibility. Under the provisions of Section 8 of the Companies Act, 2013, a company can also be formed for non-profit objectives. These may not be charitable. These companies are also allowed to drop the words ‘limited’ or ‘private limited’ from their names. The promoters while deciding whether to register themselves as a society or as section 8 company may keep the following distinctive feature in mind:

 WHO CAN FORM A SECTION 8 COMPANY

• Any two or more persons or association of persons (including a partnership firm)
• Any existing company

Here it is important to mention that One Person Company cannot be a Section 8 Company. (Rule 3(5)) of Company Incorporation Rules.

PROCEDURE FOR INCORPORATION OF SECTION 8 COMPANY

1. Obtain Digital Signatures

Nowadays various document prescribed under the Companies Act, 2013, are required to be filed with the digital signature (DSC) of the Managing Director or Director or Manager or Secretary of the Company, therefore, it is compulsorily required to Obtain a Class II Digital Signature Certificate from authorized DSC issuing Company for at least one director to sign the E-forms related to incorporate like form INC.1 and other documents.

2. Obtain Director Identification Number

 As per 153 of the Companies Act, 2013, every individual intending to be appointed as director of a company shall make an application for allotment of Director Identification Number in form DIR.3 to the Central Government in such form and manner and along with such fees as may be prescribed.

Therefore, before submission of e-Form INC.1 for availability of name, all the directors of the proposed company must ensure that they are having DIN and if they are not having DIN, it should be first obtained.

3. Name availability for proposed company

 As per section 4(4) read with Rule-9 of Companies (Incorporation) Rules, 2014, application for the reservation/availability of name shall be in Form no. INC.1 along with prescribed fee of Rs. 1,000/-. In selection of Company name should be in accordance with name guidelines given in Rule-8 of Companies (Incorporation) Rules, 2014. The name will be valid for a period of 20 Days from the date on which the application for Reservation was made. However, Registrar can extend the same on application for extension by the applicant. After approval of name ROC will issue a Name availability letter w.r.t. approval for availability of name for a proposed company.

4. Preparation of the Memorandum of Association (MOA) and Articles of Association (AOA)

 Drafting of the MOA and AOA is generally a step subsequent to the availability of name made by the Registrar. It should be noted that the main objects should match the objects shown in e-Form INC.1. These two documents are basically the charter and internal rules and regulations of the company. Therefore, it must be drafted with utmost care and with the advice of the experts and the other object clause should be drafted in a very broader sense. The memorandum of association of the proposed company shall be in Form No.INC.13 and Articles of Association in  Form INC 31.

5. License under section 8 for new companies with charitable objects

A person or an association of persons (hereinafter referred to in this rule as “the proposed company”), desirous of incorporating a company with limited liability under sub-section (1) of section 8without the addition to its name of the word “Limited”, or as the case may be, the words “Private Limited”, shall make an application in SPICe+ Simplified Proforma for Incorporating company Electronically Plus: INC-32) along with the fee as provided in the Companies (Registration offices and fees) Rules, 2014 to the Registrar for a license under sub-section (1) of section 8.

• The memorandum of association of the proposed company shall be in Form No.INC.13.
• The application filed under sub-rule (1) shall be accompanied by the following documents, namely.
• The memorandum and articles of association of the proposed company.
• The declaration by an Advocate, a Chartered Accountant, Cost Accountant or Company Secretary in practice, that  [the memorandum] and articles of association have been drawn up in conformity with the provisions of section 8and rules made thereunder and that all the requirements of the Act and the rules made thereunder relating to registration of the company under section 8 and matters incidental or supplemental thereto have been complied with;
• An estimate of the future annual income and expenditure of the company for the next three years, specifying the sources of the income and the objects of the expenditure.
• The declaration by each of the persons making the application.
• A company registered under this section shall not alter the provisions of its memorandum or articles except with the previous approval of the Central Government.
• The company registered under this section shall enjoy all the privileges and be subject to all the obligations of limited companies.

 

REVOCATION OF LICENSE

License issued under section 8 can be revoked on account of non-compliance of any of the provisions relating to the grant of the License and conditions of the said license. Central Government has power to revoke the license granted to a company under section 8 of the Act. Sub-section (6) of the section 8 of the act states that the Central Government may, by order, revoke the license granted to a company registered under this section if the company contravenes any of the requirements of this section or any of the conditions subject to which a license is issued or the affairs of the company are conducted fraudulently or in a manner violative of the objects of the company or prejudicial to public interest.

The central Government, without prejudice to any other action against the company under this Act, direct the company to convert its status and change its name to add the word “Limited” or the words “Private Limited”, as the case may be, to its name and thereupon the Registrar shall, without prejudice to any action that may be taken, on application, in Form No. INC.20 along with the fee as provided in Companies (Registration, Offices and Fees) Rules, 2014 to convert its status and change of name accordingly.

Where a license is revoked under sub-section (6), the Central Government may, by order, if it is satisfied that it is essential in the public interest, direct that the company be wound up under this Act or amalgamated with another company registered under this section:

Where a licence is revoked under sub-section (6) and where the Central Government is satisfied that it is essential in the public interest that the company registered under this section should be amalgamated with another company registered under this section and having similar objects, then, notwithstanding anything to the contrary contained in this Act, the Central Government may, by order, provide for such amalgamation to form a single company with such constitution, properties, powers, rights, interest, authorities and privileges and with such liabilities, duties and obligations as may be specified in the order.

• If on the winding up or dissolution of a company registered under this section, there remains, after the satisfaction of its debts and liabilities, any asset, they may be transferred to another company registered under this section and having similar objects, subject to such conditions as the Tribunal may impose, or may be sold and proceeds thereof credited to [“Insolvency and Bankruptcy Fund formed under section 224 of the Insolvency and Bankruptcy Code, 2016“]

 

• A company registered under this section shall amalgamate only with another company registered under this section and having similar objects.

CONVERSION OF SECTION 8 COMPANY INTO ANY OTHER COMPANY

A company registered under section 8 of the act can convert itself into a company of any other class or kind. To convert, the company needs to comply with the below mentioned procedure.

A company registered under section 8 which intends to convert itself into a company of any other kind shall pass a special resolution at a general meeting for approving such conversion.

The explanatory statement annexed to the notice convening the general meeting shall set out in detail the reasons for opting for such conversion including the following:

• Date of incorporation of the company.
• The principal objects of the company as set out in the memorandum of association.
• Reasons as to why the activities for achieving the objects of the company cannot be carried on in the current structure i.e. as a section 8 company.
• If the principal/main objects of the company are proposed to be altered, what would be the altered objects and the reasons for the alteration.
• What are the privileges/concessions currently enjoyed by the company, such as tax exemptions, approvals for receiving donations/contributions including foreign contributions, land and other immovable properties, if any, that were acquired by the company at concessional rates/prices or gratuitously and, if so, the market prices prevalent at the time of acquisition and the price that was paid by the company, details of any donations or bequests received by the company with conditions attached to their utilization etc.
• What would be the impact of the proposed conversion on the members of the company including details of any benefits that may accrue to the members as a result of the conversion.

A certified true copy of the special resolution along with a copy of the Notice convening the meeting including the explanatory statement shall be filed with the Registrar in Form No. MGT.14 along with the fee as provided in Companies (Registration, Offices and Fees) Rules, 2014 and then the company shall file an application in Form No. INC.18 with the Regional Director with the fee as provided in Companies (Registration, Offices and Fees) Rules, 2014 along with a certified true copy of the special resolution and a copy of the Notice convening the meeting including the explanatory statement for approval for converting itself into a company of any other kind and a copy of the same application shall also be filed with the Registrar.

The company shall, within a week from the date of submitting the application to the Regional Director, publish a notice at its own expense, and a copy of the notice, as published, shall be sent forthwith to the Regional Director. The said notice shall be in Form No. INC.19 and shall be published.

• At least once in a vernacular newspaper in the principal vernacular language of the district in which the registered office of the company is situated, and having a wide circulation in that district, and at least once in English language in an English newspaper having a wide circulation in that district.
• on the website of the company, if any, and as may further be notified/directed by the Central Government.

– The company shall send a copy of the notice, simultaneously with its publication, together with a copy of the application and all attachments by registered post or hand delivery, to the Chief Commissioner of Income Tax having jurisdiction over the company, Income Tax Officer who has jurisdiction over the company, the Charity Commissioner, the Chief Secretary of the State in which the registered office of the company is situated, any organization or Department of the Central Government or State Government or other authority under whose jurisdiction the company has been operating. If any of these authorities wish to make any representation to the Regional Director, it shall do so within sixty days of the receipt of the notice.

– Copy of proof of serving such notice shall be attached to the application.

– The Board of directors shall give a declaration to the effect that no portion of the income or property of the company has been or shall be paid or transferred directly or indirectly by way of dividend or bonus or otherwise to persons who are or have been members of the company or to any one or more of them or to any persons claiming through any one or more of them.

Where the company has obtained any special status, privilege, exemption, benefit or grant(s) from any authority such as Income Tax Department, Charity Commissioner or any organization or Department of Central Government, State Government, Municipal Body or any recognized authority, a “No Objection Certificate” must be obtained, if required under the terms of the said special status, privilege, exemption, benefit or grant(s) from the concerned authority and filed with the Regional Director, along with the application.

The company should have filed all its financial statements and Annual Returns up to the financial year preceding the submission of the application to the Regional Director and all other returns required to be filed under the Act up to the date of submitting the application to the Regional Director and in the event the application is made after the expiry of three months from the date of preceding financial year to which the financial statement has been filed, a statement of the financial position duly certified by chartered accountant made up to a date not preceding thirty days of filing the application shall be attached.

The company shall attach with the application a certificate from practicing Chartered Accountant/ Company Secretary in practice/ Cost Accountant certifying that the conditions laid down in the Act and these rules relating to conversion of a company registered under section 8 into any other kind of company, have been complied with.

The Regional Director may require the applicant to furnish the approval or concurrence of any particular authority for grant of his approval for the conversion.

On receipt of the application, and on being satisfied, the Regional Director shall issue an order approving the conversion of the company into a company of any other kind subject to such terms and conditions as may be imposed in the facts and circumstances of each case including the following conditions:

• The company shall give up and shall not claim, with effect from the date its conversion takes effect, any special status, exemptions or privileges that it enjoyed by virtue of having been registered under the provisions of section 8;
• If the company had acquired any immovable property free of cost or at a concessional cost from any government or authority, it may be required to pay the difference between the cost at which it acquired such property and the market price of such property at the time of conversion either to the government or to the authority that provided the immovable property;
• Any accumulated profit or unutilized income of the company brought forward from previous years shall be first utilized to settle all outstanding statutory dues, amounts due to lenders claims of creditors, suppliers, service providers and others including employees and lastly any loans advanced by the promoters or members or any other amounts due to them and the balance, if any, shall be transferred to the Investor Education and Protection Fund within thirty days of receiving the approval for conversion; Before imposing the conditions or rejecting the application, the company shall be given a reasonable opportunity of being heard by the Regional Director.

 

On receipt of the approval of the Regional Director

The company shall convene a general meeting of its members to pass a special resolution for amending its memorandum of association and articles of association as required under the Act consequent to the conversion of the section 8 Company into a company of any other kind and thereafter shall file with the registrar a certified copy of the approval of the Regional Director within thirty days from the date of receipt of the order in Form No. Inc.20 along with the following documents:-

 

• Amended e-memorandum of association and e-articles of association of the company.
• A declaration by the directors that the conditions, if any imposed by the Regional Director have been fully complied with.

On receipt of the required documents, the Registrar shall register the documents and issue the fresh Certificate of Incorporation.

 

CONVERSION OF ANY OTHER CLASS OF COMPANY INTO SECTION 8 COMPANY

 

A Limited Company, Subject to some conditions is allowed to convert itself into Section 8 Company in terms of provisions contained under Section 8(5) of the Companies Act, 2013. To convert, the company needs to comply with the below mentioned procedure  

The new set of Memorandum of Association (in e-form INC-13) and Articles of Association should be adopted by passing Special Resolution in the Extraordinary General Meeting (EGM) after proposing it in the Board Meeting by passing Board Resolution.

A certified true copy of the special resolution along with a copy of the Notice convening the meeting including the explanatory statement shall be filed with the Registrar in Form No. MGT.14 along with the fee as provided in Companies (Registration, Offices and Fees) Rules, 2014 and then the company shall file an application in Form No. INC.12 with the ROC with the fee as provided in Companies (Registration, Offices and Fees) Rules, 2014 along with a certified true copy of the special resolution and a copy of the Notice convening the meeting including the explanatory statement for approval for converting itself into a Section 8 Company and a copy of the same application shall also be filed with the Registrar.

• the e-Memorandum of Association and e-Articles of Association of the company;
• the declaration by an Advocate, a Chartered Accountant, Cost Accountant or Company Secretary in Practice, that the memorandum and articles of association have been drawn up in conformity with the provisions of section 8 of the Act and rules made thereunder and that all the requirements of the Act and the rules made thereunder;
• a statement showing in detail the assets (with the values thereof), and the liabilities of the company, as on the date of the application or within thirty days preceding that date;
• the certified copy of the resolution passed in general or board meetings approving registration of the company under section 8 of the Act; and
• a declaration by each of the persons making the application

 

Further as per form INC -12, the following would also be required

• Estimation of future income and expenditure for the next three years

 

The company shall, within a week from the date of submitting the application to the Registrar, publish a notice at its own expense, and a copy of the notice, as published, shall be sent forthwith to the Registrar. The said notice shall be in Form No. INC.26 and shall be published.

• At least once in a vernacular newspaper in the principal vernacular language of the district in which the registered office of the company is situated, and having a wide circulation in that district, and at least once in English language in an English newspaper having a wide circulation in that district.
• on the website of the company, if any, and as may further be notified/directed by the Central Government.

The license for Section 8 Company shall be issued by ROC in INC-16 or INC-17, as the case may be.

• The Registrar may direct the company to insert in its MOA/AOA, such conditions of the license, as may be specified in this behalf.

EXEMPTIONS TO SECTION 8 COMPANIES UNDER COMPANIES ACT 2013
(vide Notification dated 05.06.2015)

 

•  Provision of Section 2(24) relating to Company Secretary shall not apply to   Section 8 Company
• The provision given under Section 2(68) and 2(71) relating to requirement of minimum paid up share capital of Private Company and Public Company respectively shall not apply to Section 8 Company.
• A general Meeting of Section 8 Company may be called by giving not less than clear fourteen days’ notice.
• In sub section 2 of section 96, the following clause has been added before the explanation and after the proviso:

“Provided further that the time, date and place of each annual general meeting are decided upon beforehand by the board of directors having regard to the directions, if any, given in this regard by the company in its general meeting.

• The provision contained under Section 118 relating to Minutes of proceedings of general meeting, meeting of Board of Directors and other meeting and resolutions passed by postal ballot shall not be applicable to Section 8 Company.

Except that minute, may be recorded within thirty days the conclusion of every meeting in case of Companies where the articles of association provide for confirmation of minute by circulation.

• A copy of the financial statements, including consolidated financial statements, if any, auditor’s report and every other document required by law to be annexed or attached to the financial statements, which are to be laid before a company in its general meeting, shall be sent to every member of the company, to every trustee for the debenture-holder of any debentures issued by the company, and to all persons other than such member or trustee, being the person so entitled, not less than fourteen days before the date of the meeting
• Provision Contained under Section 149(1) and first proviso to Subsection (1) which is relating to minimum and maximum number of Directors in a Company shall not applicable to Section 8 Company.
• Provision Contained under following:
• Section 149(4) relating to number of Independent Directors
• Section 149(5) relating to time period provided for compliance of Section 149(4)
• Section 149(6) relating to definition of Independent director
• Section 149(7) relating to declaration by Independent director
• Section 149(8) relating to Compliance of provision specified under Schedule IV
• Section 149(9) relating to remuneration of Independent director
• Section 149(10) and 149(11) relating to term of Independent director
• Section 149(12)(i) relating to liability of Independent director
• Section 149(13) relating to non-applicability of section 152(6) and 152(7) to appointment of Independent director

Shall not be applicable to Section 8 Company

 

• The provision contained under Section 150 relating to Manner of Selection of Independent director shall not be applicable to Section 8 Company.
• Provision contained under Section 152(5) relating to Consent of director to hold the office as director shall not be applicable to Section 8 Company.
• Provision contained under Section 160 relating to the right of persons other than retiring director to stand for directorship shall not be applicable to Section 8 Company whose articles provide for election of directors by ballot.
• Provision contained under Section 165(1) relating to the number of directorships.
• Provision contained under Section 173(1) relating to Meetings of Board shall apply to the extent that the Board of Directors of Section 8 Company shall hold at least one meeting within every six calendar months.
• The quorum for meetings of the Board shall be either eight members or twenty five percent of its total strength whichever is less.

Provided that the quorum shall not be less than two members

• The provision contained under Section 177(2) relating to” independent directors forming a majority in Audit Committee” shall not be applicable to Section 8 Company.
• The provisions contained under Section 178 relating to the Nomination and Remuneration Committee and Stakeholders Relationship Committee shall not be applicable to Section 8 Company.
• The Board may decide the following matters by circulation instead of at meeting:

(i) to borrow monies

(ii) to invest the funds of the Company

(iii) to grant loans or give guarantee or provide security in respect of loans

• The provision contained under Section 184(2) relating to disclosure of interest by director shall apply only if the transaction with reference to section 188 on basis of terms and conditions of the contract or arrangement exceeds one lakh rupees
• The provision contained under Section 189 relating to register of contracts or arrangements in which directors are interested shall apply only if the transactions with reference to Section 188 on the basis of terms and conditions of the contract or arrangement exceeds one lakh rupees.

PENAL PROVISIONS

 

Applicable Provisions: Section 8 and 447 of the Act

Sub-section (11) of the section 8 of the act states that if a company makes any default in complying with any of the requirements laid down in this section, the company shall, without prejudice to any other action under the provisions of this section, be punishable with fine which shall not be less than ten lakh rupees but which may extend to one crore rupees and the directors and every officer of the company who is in default shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to twenty-five lakh rupees, or with both:

Provided that when it is proved that the affairs of the company were conducted fraudulently, every officer in default shall be liable for action under section 447 of the Act.

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