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    The Process of Striking Off a Section 8 Company

    A Section 8 company, established under the Companies Act, 2013, serves a vital purpose in the not-for-profit sector, engaging in charitable and social welfare activities. Unlike a standard commercial company, it is prohibited from distributing profits to its members. Its unique legal status, granted via a special license from the central government, makes the process of its closure or “striking off,” particularly distinct. It is not as simple as shutting down; it requires a formal, regulated procedure to ensure its liabilities are settled and its special status is appropriately surrendered.

    This article provides a comprehensive overview of the process for striking off a Section 8 company, detailing the eligibility criteria, the various methods of closure, the necessary documentation and the procedural steps to ensure a lawful and final dissolution.

     

    Table of Contents

    The Process of Striking Off a Section 8 Company

    Understanding a Section 8 Company

    Before delving into the closure process, it is important to define what a Section 8 company is. Registered under Section 8 of the Companies Act, 2013, these entities are formed with the sole purpose of promoting commerce, art, science, sports, education, research, social welfare or other similar objectives. Their key characteristics include:

    • A prohibition on paying dividends to members.
    • The use of any profits or income solely for furthering the company’s objectives.
    • They are not permitted to use the words “Limited” or “Private Limited” in their name.

    Eligibility Criteria for Striking Off

    A Section 8 company can only be struck off under specific circumstances. The primary grounds for initiating this procedure are:

    1. Inactivity Since Incorporation: The company failed to commence its business operations within one year of its establishment.
    2. Dormancy: The company has remained inactive for two consecutive financial years and has not applied for the status of a dormant company under Section 455 of the Act.
    3. Surrender of License: The company’s original non-profit objectives have become unfeasible or the company wishes to surrender its special license to pursue other goals.

    It is crucial for a company and its directors to understand these eligibility requirements before proceeding with any application for a strike-off.

    Modes of Striking Off a Company

    The Companies Act, 2013, outlines two primary methods for removing a company’s name from the official register:

    1. Strike-Off by the Registrar of Companies (ROC): This is an involuntary process where the Registrar initiates the removal of a company’s name. The ROC does this if it has reasonable cause to believe that a company is not carrying out business or has failed to file its statutory returns. The Registrar issues a formal notice in Form STK-1 to the company and its directors, giving them a period of thirty days to respond. This is a punitive measure for non-compliance.
    2. Voluntary Strike-Off by the Company: This is a proactive approach initiated by the company itself. After settling all its liabilities, the company can apply to the Registrar of Companies in E-Form STK-2 for the removal of its name. This application must be approved by a special resolution of its members, requiring a supporting vote of 75% of the members. This is the preferred route for a company that wishes to cease operations and achieve a final, lawful closure.

    Advantages of Formal Closure

    For a Section 8 company that has become dormant or is no longer pursuing its objectives, a formal strike-off offers several significant advantages:

    • Relief from Compliance Burden: A company is legally required to comply with the various provisions of the Companies Act, 2013 throughout its existence, regardless of its operational status. This can be a significant financial and administrative burden for an inactive company. Striking off provides a permanent cessation of these obligations.
    • Cost Reduction: Maintaining an inactive company, including a Section 8 entity, involves ongoing costs for statutory audits, filings and professional fees. The cost of a formal strike-off procedure is often a more viable and cost-effective long-term solution than incurring these recurring expenses.
    • Mitigation of Penalties: Failure to meet compliance requirements can result in substantial financial penalties and even the disqualification of directors. A timely and formal strike-off provides a mechanism to avoid these severe consequences, safeguarding the directors’ professional standing.

    Documentation and Procedure for Voluntary Strike-Off

    The process for voluntarily striking off a Section 8 company requires a structured approach to ensure all legal formalities are met.

    1. Passing of Resolutions:

    • A board resolution is passed to approve the closure of the company.
    • A special resolution is passed by the members, approving the strike-off with a 75% majority vote.

    2. Filing of E-Form STK-2:

    3. Necessary Documentation:

    • A certified true copy of the special resolution and the board resolution.
    • The company’s Memorandum of Association (MoA) and Articles of Association (AoA).
    • A statement of assets and liabilities, dated within thirty days of the application and duly audited.
    • Indemnity bonds from all directors.
    • A declaration from the directors confirming that the company has no liabilities and is not engaged in any litigation.
    • A copy of the latest financial statements and annual returns.

    4. Approval and Finality:

    • The ROC will review the submitted application and documents.
    • Once satisfied, the ROC will publish a notice in the Official Gazette, announcing the company’s name has been removed from the register. This marks the legal closure of the company.

    FAQs

    Q1: Why is it considered difficult to wind up a Section 8 Company compared to a standard company?

    The closure is more complex because a Section 8 company holds a special license granted for charitable purposes. Before a strike-off can be completed, this license must be formally surrendered and the company must ensure all its assets and liabilities are accounted for in accordance with the Act.

    Q2: Which form is required for a company to submit a voluntary strike-off request?

    A company must submit its voluntary strike-off request to the Registrar of Companies using E-Form STK-2.

    Q3: What happens to the assets of a Section 8 Company upon closure?

    The assets of a Section 8 company cannot be distributed among its members. As per the Act, upon closure, any remaining assets must be transferred to another Section 8 company with similar objectives or to a charitable cause as per the directions of the court.

    Q4: How long does the strike-off process typically take?

    The timeline can vary depending on the complexity of the company’s affairs and the promptness of document submission. On average, the process can take anywhere from three to six months.

    Conclusion

    The decision to strike off a Section 8 company requires careful consideration and strict adherence to a defined legal procedure. The process is designed not only to formally remove the company from the corporate register but also to ensure that its non-profit nature is respected throughout its final stages. By following the outlined steps, paying off all liabilities and correctly surrendering its license, a Section 8 company can achieve a lawful and final closure, providing a clear end to its corporate existence and safeguarding the integrity of the not-for-profit sector.

    For hassle-free Section 8 Company Strike Off and compliance, Filingg.com offers expert services to ensure your business thrives. For more details, contact 7791910007 or info@filingg.com today!