Transfer of business
This query is : Resolved
17 June 2013
Can anyone please tell me what is the procedure for transfer of business from Sec.25 Company (limited by guarantee) to an already existing Private Limited Company??
And what are the documents to be drafted?
And what are the documents to be drafted?
17 June 2013
Hi
Go to the following link, it may help you:
https://www.caclubindia.com/experts/merger-and-amalgamation-of-sec-25-company-1215599.asp
The Ministry of Corporate Affairs (“MCA”) vide Circular F.No.17/178/2011-CL-V and Circular F.No.17/178/2011-CL-V has provided details on above matter.
Go to the following link, it may help you:
https://www.caclubindia.com/experts/merger-and-amalgamation-of-sec-25-company-1215599.asp
The Ministry of Corporate Affairs (“MCA”) vide Circular F.No.17/178/2011-CL-V and Circular F.No.17/178/2011-CL-V has provided details on above matter.
18 June 2013
Dear Mr. Ajay,
Thanx for your reply.
But those are proposed guidelines. And since merger is difficult we are thinking to go for transfer of business..Any guidelines for the same??
Please guide.
Thanx for your reply.
But those are proposed guidelines. And since merger is difficult we are thinking to go for transfer of business..Any guidelines for the same??
Please guide.
18 June 2013
No, MCA has not issued any other guidelines for merge ring with other company of section 25 company.
You can merge only with other section 25 company and not with other company.
You can merge only with other section 25 company and not with other company.
18 June 2013
But Sir, I am talking about transfer of whole business, like all assets and liabilities to another pvt co. through an agreement and carrying out the business in the name of that pvt ltd. co....isn't it a good option??
02 August 2025
Transferring the entire business from a **Section 25 Company** (now Section 8 Company under the Companies Act, 2013) to an existing **Private Limited Company** by way of an asset and liability transfer agreement is *technically possible*, but there are some important legal and procedural points to keep in mind:
---
### Key Considerations:
1. **Nature of Section 25/8 Company**
* It is a **not-for-profit company**, limited by guarantee, formed for promoting charitable or non-commercial activities.
* Its income and assets must be applied only for promoting its objectives and cannot be distributed as profit.
2. **Restrictions on Transfer or Merger**
* The MCA allows merger/amalgamation **only between Section 25/8 companies**.
* Merger with a Private Limited Company is *not allowed* under MCA guidelines.
3. **Transfer of Business by Agreement**
* You may transfer assets and liabilities to a Private Limited Company by **sale/purchase or transfer agreement** (asset transfer).
* However, since the Section 8 company is non-profit, this should be done carefully to ensure:
* No private benefit is derived by members or directors.
* Assets are transferred at fair market value or as per the terms in the trust deed/MOA/AOA.
* Compliances with terms of Section 8 company and any trust/charitable restrictions.
* You will likely need **approval of the Company’s Board, members, and possibly the Charity Commissioner or High Court** depending on your jurisdiction.
4. **Approval from Authorities**
* Since the company is registered under Section 8, any transfer of assets or business may require **prior approval from the Registrar of Companies (ROC)** and possibly from the **Regional Director (RD)** or **Company Law Board (CLB)** or the **Court**.
* Ensure no violation of the company’s charitable status or MOA/AOA provisions.
---
### Suggested Procedure:
1. **Board Resolution:** Approve the proposal to transfer assets and liabilities to the Private Ltd company.
2. **Valuation:** Get the assets and liabilities valued by a qualified valuer or Chartered Accountant.
3. **Member Approval:** Obtain approval in a General Meeting (special resolution) if required.
4. **Draft Transfer Agreement:** Prepare a comprehensive asset and liability transfer agreement specifying the terms.
5. **Regulatory Approvals:** Obtain approvals from MCA, RD, or relevant authorities if required.
6. **Execution of Agreement:** Transfer the assets, liabilities, contracts, etc. as per the agreement.
7. **Notify Authorities:** Inform ROC and other relevant authorities about the transfer.
8. **Update Books and Records:** Close the books of the Section 8 company for the transferred business and update the books of the Private Ltd company accordingly.
---
### Documents to be drafted:
* Board resolutions and member resolutions
* Valuation report of assets and liabilities
* Transfer Agreement (Assets & Liabilities Transfer Agreement)
* No-objection certificate or consent from any regulatory authority (if applicable)
* Application to ROC or Regional Director for approval (if required)
* Minutes of meetings
---
### Important Notes:
* **Tax Implications:** Transfer may attract capital gains or other taxes; consult a tax expert.
* **Non-Profit Restrictions:** You cannot distribute any gains/profits arising from the transfer to members/directors.
* **Legal Advice:** Strongly recommended to consult a company law expert or lawyer for drafting documents and obtaining approvals.
---
If you want, I can help draft a basic template for the **Assets & Liabilities Transfer Agreement** or provide a checklist for approvals. Would that help?
---
### Key Considerations:
1. **Nature of Section 25/8 Company**
* It is a **not-for-profit company**, limited by guarantee, formed for promoting charitable or non-commercial activities.
* Its income and assets must be applied only for promoting its objectives and cannot be distributed as profit.
2. **Restrictions on Transfer or Merger**
* The MCA allows merger/amalgamation **only between Section 25/8 companies**.
* Merger with a Private Limited Company is *not allowed* under MCA guidelines.
3. **Transfer of Business by Agreement**
* You may transfer assets and liabilities to a Private Limited Company by **sale/purchase or transfer agreement** (asset transfer).
* However, since the Section 8 company is non-profit, this should be done carefully to ensure:
* No private benefit is derived by members or directors.
* Assets are transferred at fair market value or as per the terms in the trust deed/MOA/AOA.
* Compliances with terms of Section 8 company and any trust/charitable restrictions.
* You will likely need **approval of the Company’s Board, members, and possibly the Charity Commissioner or High Court** depending on your jurisdiction.
4. **Approval from Authorities**
* Since the company is registered under Section 8, any transfer of assets or business may require **prior approval from the Registrar of Companies (ROC)** and possibly from the **Regional Director (RD)** or **Company Law Board (CLB)** or the **Court**.
* Ensure no violation of the company’s charitable status or MOA/AOA provisions.
---
### Suggested Procedure:
1. **Board Resolution:** Approve the proposal to transfer assets and liabilities to the Private Ltd company.
2. **Valuation:** Get the assets and liabilities valued by a qualified valuer or Chartered Accountant.
3. **Member Approval:** Obtain approval in a General Meeting (special resolution) if required.
4. **Draft Transfer Agreement:** Prepare a comprehensive asset and liability transfer agreement specifying the terms.
5. **Regulatory Approvals:** Obtain approvals from MCA, RD, or relevant authorities if required.
6. **Execution of Agreement:** Transfer the assets, liabilities, contracts, etc. as per the agreement.
7. **Notify Authorities:** Inform ROC and other relevant authorities about the transfer.
8. **Update Books and Records:** Close the books of the Section 8 company for the transferred business and update the books of the Private Ltd company accordingly.
---
### Documents to be drafted:
* Board resolutions and member resolutions
* Valuation report of assets and liabilities
* Transfer Agreement (Assets & Liabilities Transfer Agreement)
* No-objection certificate or consent from any regulatory authority (if applicable)
* Application to ROC or Regional Director for approval (if required)
* Minutes of meetings
---
### Important Notes:
* **Tax Implications:** Transfer may attract capital gains or other taxes; consult a tax expert.
* **Non-Profit Restrictions:** You cannot distribute any gains/profits arising from the transfer to members/directors.
* **Legal Advice:** Strongly recommended to consult a company law expert or lawyer for drafting documents and obtaining approvals.
---
If you want, I can help draft a basic template for the **Assets & Liabilities Transfer Agreement** or provide a checklist for approvals. Would that help?
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