What Does It Mean to Close a Section 8 Company

What Does It Mean to Close a Section 8 Company?

Online Legal India LogoBy Online Legal India Published On 09 Jun 2025 Category Section 8 Company

A Section 8 Company is a non-profit entity registered to promote charitable objectives like education, social welfare, or the environment. While these companies aim for the public good, closure becomes necessary in cases of prolonged inactivity, financial constraints, or regulatory non-compliance. In this article, you will understand “what does it mean to close a Section 8 company”, its compliance and more.

What is a Section 8 Company?

A Section 8 Company is a company registered under Section 8 of the Companies Act, 2013, with the primary objective of promoting charitable, social, educational, religious, scientific, or environmental causes, without the intention of earning profit. It is prohibited from distributing its income or profits to its members and must apply all earnings toward the promotion of its stated objectives.

What Does It Mean to Close a Section 8 Company?

Closing a Section 8 Company means legally ending its existence under the Companies Act, 2013, by removing its name from the Registrar of Companies’ register. Since these companies operate for charitable purposes, closure requires settling all outstanding dues, transferring assets to another Section 8 entity, and completing all necessary legal filings. After approval, the company loses its legal identity and ceases operations.

Modes of Closure Under Indian Law

Listed below are the modes of closure of a Section 8 company under Indian law:

  • Voluntary Winding Up

Members decide to close the company through a special resolution. A liquidator handles debt settlement and the transfer of assets. The Registrar strikes off the company after reviewing the final report.

  • Strike Off under Section 248

If the company stays inactive for two years and holds no liabilities, it files Form STK-2 with the Registrar. After public notice and no objections, the company gets removed from the records.

  • Tribunal-Ordered Winding Up (NCLT)

The Tribunal orders closure for fraud, public harm, or five years of non-compliance. A liquidator manages accounts and asset disposal. The company dissolves after the final report reaches the Tribunal.

  • Revocation of Section 8 License (Section 8(6))

The Central Government cancels the license if the company violates its non-profit nature. The company either converts into a regular entity or dissolves through the Tribunal. Assets move to another Section 8 company.

Pre-Requisites Before Closure of a Section 8 Company:

Listed below are the pre-requisites before closure of a Section 8 company:

  • Settlement of Liabilities

The company clears each debt before it seeks closure. It pays suppliers, employees, tax offices, and every other creditor in full. A zero-debt status removes future claims against directors.

  • Disposal of Assets

The company moves every asset to another Section 8 company that shares similar goals. It prepares an asset transfer deed and submits it to the Registrar. No director or member gains personal benefit from the asset sale or transfer.

  • Board and Member Approval

The Board of Directors passes a resolution that supports closure. A subsequent general assembly of members passes a special resolution with at least seventy-five per cent support. Both resolutions confirm complete internal consent.

  • Submission of Returns

The company files every overdue financial statement and annual return with the Registrar of Companies. Up-to-date records show compliant conduct and help the Registrar accept the closure request.

How to close a Section 8 Company

Listed below process on how to close a Section 8 company:

Step 1: Board Resolution for Closure

The directors conduct a meeting and pass a resolution to surrender the Section 8 license. This resolution also approves the convening of a general meeting to seek shareholders’ approval for closure. This formal decision initiates the legal closure process.

Step 2: Shareholders’ Approval via Special Resolution

An Extraordinary General Meeting (EGM) is called, where shareholders vote on a special resolution to close the company. The resolution requires approval from at least three-fourths of the shareholders present and voting. This step ensures that members formally consent to the closure.

Step 3: Filing Form MGT-14 with Registrar

Within 30 days of passing the special resolution, the company files Form MGT-14 with the Registrar of Companies (RoC). This filing includes a certified copy of the resolution, the notice of the EGM, and any explanatory statements. The filing officially notifies the RoC about the decision.

Step 4: Application for License Surrender (Form INC-18)

The company submits Form INC-18 to the Regional Director (RD) to request surrender of the Section 8 license. The application must include the special resolution, EGM notice, explanatory statement, and proofs of serving notices to the relevant authorities. This formal application seeks governmental approval to close the non-profit company.

Step 5: Publication of Public Notice (Form INC-19)

The company publishes a notice in Form INC-19 in one vernacular and one English newspaper within one week of filing Form INC-18. The notice informs the public of the intended closure and invites any objections. The company also posts this notice on its website, if available.

Step 6: Submission of Application to Registrar of Companies

A copy of the application submitted to the RD, along with all supporting documents, is also filed with the RoC. This step ensures transparency and compliance with procedural requirements.

Step 7: Regional Director’s Review and Approval

The Regional Director reviews all submitted documents and may approve license surrender. The RD may also impose conditions or require additional actions before granting closure permission.

Step 8: Conversion into a Regular Company

Once the RD approves the surrender, the company must convert into either a private limited or public limited company. This involves amending its Memorandum and Articles of Association and filing Form INC-20 with the RoC within 30 days of the RD’s order. This conversion allows the company to proceed with winding up under regular company laws.

Step 9: Winding Up Procedure

After conversion, the company settles all outstanding liabilities and debts. It then distributes remaining assets according to the company’s objectives or legal provisions. Finally, it files the final return with the RoC.

Step 10: Issuance of Closure Certificate

Once the winding-up completes and compliance is verified, the Registrar issues a closure certificate. This certificate legally dissolves the company, ending its existence under the Companies Act.

Winding up of a Section 8 Company via NCLT

Listed below are the steps of winding up a Section 8 company via NCLT:

Step 1: Filing a Petition

A petition to wind up a Section 8 company initiates the process. This petition can be submitted to the National Company Law Tribunal (NCLT) by the company itself after obtaining approval from its board and shareholders. Alternatively, the Registrar of Companies (RoC), creditors, or contributories can also file the petition. The petition must clearly state the legal grounds for winding up and include all necessary supporting documents.

Step 2: Admission of Petition

Once the NCLT receives the petition, it carefully reviews the stated grounds and accompanying documents. If the tribunal finds the petition valid and justified, it formally admits the petition. This admission marks the beginning of the winding-up process and often leads to an order directing the company to wind up its affairs.

Step 3: Appointment of Liquidator

Following the tribunal’s order, the NCLT appoints an Official Liquidator or a provisional liquidator to take control of the company’s operations. The liquidator assumes responsibility for managing the company’s assets, liabilities, and overall affairs during the winding-up process. This ensures an organised and lawful settlement of the company’s closure.

Step 4: Public Announcement

The liquidator publishes a public notice in widely circulated newspapers. This announcement invites creditors and other stakeholders to submit claims against the company within a specified time frame. This step ensures transparency and allows all parties with potential claims to come forward.

Step 5: Verification of Claims

The liquidator carefully examines all claims submitted. It involves confirming the legitimacy of each claim and compiling a comprehensive list of creditors entitled to receive payments. If any disputes arise regarding the claims, the NCLT adjudicates and resolves these conflicts.

Step 6: Realisation of Assets

The liquidator takes possession of the company’s assets and undertakes their sale or disposal. The proceeds from these sales convert the company’s physical and financial assets into cash, which is then ready for distribution to creditors and other stakeholders.

Step 7: Distribution of Proceeds

The funds realised from asset sales are distributed according to the priority rules outlined in the Companies Act, 2013. Secured creditors, employees, and other claimants receive payments in the legally prescribed order until all liabilities are settled.

Step 8: Final Report and Dissolution

After settling all debts and distributing the assets, the liquidator submits a detailed final report to the NCLT. Upon reviewing this report and confirming that all obligations are met, the tribunal issues an order officially dissolving the company. This order legally ends the company’s existence.

Post-Closure Compliance of a Section 8 company:

Below is a list of the post-closure compliance of a Section 8 company:

  • Intimation to the Income Tax Department

The company must inform the Income Tax Department about its closure. This involves submitting a formal application to the jurisdictional Assessing Officer, requesting the cancellation of the company's Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN). Additionally, the company should ensure that all pending tax returns are filed and any outstanding tax liabilities are settled. This step is crucial to prevent future tax-related complications.

  • Closure of Bank Accounts

All bank accounts held in the name of the company must be closed. Before closure, the company should ensure that all transactions are settled, and there are no pending dues or credits. The bank may require the submission of the company's closure documents, including the dissolution order from the National Company Law Tribunal (NCLT) or the Registrar of Companies (RoC), board resolutions approving the closure, and identification documents of the authorised signatories. Proper closure of bank accounts prevents unauthorised transactions and ensures that the company's financial activities are conclusively terminated.

  • Preservation of Records

Even after dissolution, the company is required to preserve its books of accounts, statutory registers, and other relevant records for a specified period. As per the Companies Act, 2013, and the Income Tax Act, 1961, companies must retain their financial and accounting records for at least eight years from the end of the financial year to which they pertain. This retention is necessary for addressing any future legal, tax, or regulatory inquiries. The records should be stored securely and should be accessible for inspection by authorised authorities if required.

Penalties for Non-Compliance (Post-Closure)

Below are the penalties for non-compliance post closure of a Section 8 company:

  1. Failure to Inform the Income Tax Department

If the company does not inform the Income Tax Department about its closure, it continues to remain active in government records. Tax notices may be issued. The department may impose penalties under the Income Tax Act for non-filing of returns or failure to surrender PAN and TAN. This creates unnecessary legal complications for the former directors.

  1. Non-Closure of Bank Accounts

If the company does not close its bank accounts, it risks misuse of funds. Unclosed accounts can be used for illegal transactions or fraud. Banks may report such activity to financial regulators. The company’s directors may face regulatory action for negligence or failure to secure company assets.

  1. Improper Record Retention

The Companies Act mandates that all statutory records, including financial statements and board resolutions, must be preserved for eight years from the date of closure. If the company fails to retain these records, it cannot defend itself during legal scrutiny or government audits. Authorities may treat it as willful non-compliance and impose fines.

  1. Unsettled Liabilities or Dues

If the company leaves any debts unpaid, such as taxes, employee dues, or vendor payments, creditors can initiate legal action. The Registrar of Companies may also reopen the closure process. Directors may be disqualified under Section 164 of the Companies Act if the company fails to pay statutory dues.

  1. False Declaration or Suppression of Facts

If the company files false declarations during the closure process or hides material facts (such as undisclosed liabilities), it violates Sections 447 and 448 of the Companies Act. These sections deal with fraud and false statements. Punishment includes monetary penalties and imprisonment for the responsible directors or signatories.

Consequences of Improper Closure of a Section 8 Company

Below is a list of the consequences of improper closure of a Section 8 company:

  1. Directors’ Disqualification

Section 164(2) of the Companies Act states that directors lose eligibility for five years if the company fails to submit annual accounts and returns for three straight years or fails to clear debts. This restriction halts service in any other company, damages professional standing, and blocks future board roles.

  1. Revocation of NGO Benefits

A Section 8 Company enjoys tax concessions, land grants, and FCRA approval. Improper closure prompts authorities to cancel these concessions and demand fresh tax assessments. Grants may require a refund, FCRA approval may face suspension, and past exemptions may be clawed back, creating fresh liability and eroding goodwill.

  1. Legal Proceedings and Penalties

Registrar of Companies may impose fines and prosecute under the Companies Act for non-compliance. Courts can issue orders to enforce closure duties or penalise failures. Such legal action consumes time and resources and may result in imprisonment or high monetary penalties.

  1. Financial Liabilities for Directors

Unpaid debts remain enforceable after closure. Creditors can sue directors and seek personal assets to recover dues, salaries, or taxes. The Act extends responsibility to officers in default, so private wealth faces risk until all obligations end.

  1. Reputational Damage

An improper exit signals poor governance and attracts media criticism. Stakeholders lose trust, partners hesitate to collaborate, and donors withhold support. This stain follows directors into future ventures and reduces access to grants or investments.

Conclusion

To sum up, understanding what does it mean to close a Section 8 Company is essential for ensuring a lawful and seamless exit from charitable operations. Closure is not just a termination of activities—it is a structured legal process involving asset transfer, debt clearance, regulatory filings, and post-dissolution compliance. Each step must align with the Companies Act, 2013 to avoid legal consequences or reputational risks.

While the closure process may seem detailed and compliance-heavy, expert assistance simplifies every stage. Among the many available services, Online Legal India stands out by offering reliable legal consultation and complete support for Section 8 Company closure. With their expert guidance, you can ensure that every legal formality is fulfilled properly, reducing future liabilities and bringing your non-profit journey to a professional and compliant close.


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