Are you interested in converting your society or trust into a more formal structure? Consider a Section 8 company under the Companies Act, 2013.
Background
Conversion of society or trust in India into a company registered under section 8 of Companies Act, 2013 is governed by the provisions contained under Part I of Chapter XXI - Companies Authorized to Register under this Act. Section 366 to 374 of Companies Act, 2013 read with Rule 4 and 5 of Companies (Authorised to Register) Rules, 2014 govern the conversion of societies or trust into section 8 company.
Section 366 of the Act uses word company which includes any partnership firm, limited liability partnership, cooperative societies, society, or any other business entity formed under any other law for the time being in force.
In this article, we will be specially covering the conversion of society or trust into a company registered under section 8 of the Act. Before moving towards the process, let’s understand what the word society, trust and section 8 company means.
Society: Society is a group of people who are associated with each other to fulfil a shared goal or to serve a common mission. Such a goal or mission may relate to the development of any scholarly, philanthropic works or academic research. A society is a number of persons united together by mutual consent, in order to act jointly for some common purpose. A minimum of 7 members are required to form and register the society under Societies Registration Act, 1860.
Trust: A trust is a legal relationship in which the holder of a right gives it to another person or entity who must keep and use it solely for another's benefit. In other words, a trust is an entity through which a person who creates trust (sponsor or author) vests some rights or interests into a person (trustee) who is responsible for safeguarding the rights or interest vested for beneficiary.
Section 8 Company: A section 8 company is the is a non- profit organization incorporated for promoting charitable activities, arts, culture, education, and sports. A section 8 company cannot distribute its earnings as dividends to its members and it shall utilize its profit toward promotion of its object.
These organisations are generally formed to promote social welfare, social development and other charitable purposes.
Why convert society or trust into section 8 company?
Section 8 company is the separate legal entity specifically incorporated for social purposes under the provisions of Section 8 of Companies Act, 2013. As compared to society or trust, a wide range of social activities can be undertaken through a single company. Also, it enjoys more credibility as section 8 company is incorporated only after approval from the Central Government. Accounts of the section 8 company is required to filed with Registrar of Companies (RoC) annually which offers better transparency.
Now let’s see how society or trust can be converted into a company registered under Section 8 of Companies Act, 2013.
Points to Remember:
The first thing to be kept in mind is that a society or trust can be converted only into a section 8 company limited my guarantee. It cannot be converted into section 8 company limited by shares.
Also, the societies which have failed to comply with the filing requirements with Registrar of Societies are not allowed to get converted into section 8 company.
A society or trust having more than 200 members cannot be converted into section 8 company directly. Firstly, it has to reduce the number of members to below 200 and then only it can proceed for conversion.
Step 1 - Special Resolution:
First of all, a meeting of members of the society or trust is to be held for obtaining approval for conversion of society or trust into section 8 company. The said conversion shall be approved by the majority of members present in the meeting in person or through proxy. In that meeting, the proposed director shall be authorised to complete the process of conversion.
Step 2 -Name Reservation
After obtaining the member’s consent, the next step is to apply for the name reservation in Form SPICe+ Part A. While applying for name reservation, “Part I Section 8 Company” should be selected. But it is advisable before applying for names, ancillary process like preparing Digital Signature Certificates (DSC) of proposed directors and members should be completed as name is reserved only for 20 days.
Step 3 - Advertisement
Once the name applied for is reserved, an advertisement in Form URC-2 shall be published in one English and one in vernacular language newspaper for giving notice of conversion to the public and seeking objections from public within 30 days from date of publication of advertisement. The advertisement in Form URC- 2 shall be addressed to Central Registration Centre (CRC), Indian Institute of Corporate Affairs (IICA), Plot No. 6,7 & 8, Sector 5, IMT Manesar, Gurgaon, Haryana- 122050.
It is to be noted that an application for conversion of society or trust into section 8 company can be made only after 15 days but before expiry of 30 days from date of advertisement giving notice of conversion.
Step 4 - Application for Conversion
Application for Conversion is made in Form URC-1 along with Form SPICe+ Part B, Form Agile Pro and Consent of members in Form INC-9. Form URC- 1 is an additional form filed with the incorporation forms.
Step 5 - Memorandum and Articles of Association
Whether the Memorandum and Articles of Association of the proposed Section 8 company to be filed electronically or physically as an attachment under Form SPICe+ Part B depends on the number of members. If the number of members of the Section 8 company is up to 7 members, then the Memorandum and Articles of Association will be filed in electronic form. If the number of members of the section 8 company is more than 7, then physical Memorandum and Articles of Association shall be attached as an attachment under Form SPICe+ Part B.
As the society or trust that is to be converted in section 8 company, is limited by guarantee, in case of Memorandum of Association, Table B in Schedule I of Companies Act, 2013 shall be referred and in case of Articles of Association, Table H in Schedule I of Companies Act, 2013 shall be referred.
Other Attachments in Form SPICe+ Part B:
Proof of address for registered office of the company along with no objection certificate from the owner of the address.
Aadhar Card of members and proposed directors of the company
Bank Statement or Utility Bill not older than 2 months mentioning address of the members and proposed directors.
PAN Card of members and proposed directors.
Form INC- 14: Declaration by Professional
Form INC- 15: Declaration by Members and Directors
Projected Income and Expenditure Statement
Statement of Assets and Liabilities
Attachments in Form URC-1:
No objection certificate from secured creditors, if any.
Written consent from majority members present at meeting in person or through proxy.
Particulars of members along with details of shares held by them.
Declaration of two or more directors verifying details of members.
List of proposed directors along with DIR-2 And DIR-8.
Affidavit from all members for dissolution of entity.
Society or trust registration certificate and instruments constituting entity.
Copy of newspaper advertisement.
Certificate from CA/CS/CMA certifying compliance with Indian Stamp Act, 1899.
Latest Income Tax Return copy.
Copy of resolution declaring amount of guarantee.
Object of company along with declaration from all members for compliance with prohibition contained in section 8(1)(b) and 8(1)(c) of Companies Act, 2013.
Copy of statement of accounts of existing entity duly certified by auditor prepared not later than 15 days before the application date.
The Registrar of Companies (RoC) has 30 days from date of publication of advertisement in Form URC-2 to decide on the application for conversion of society or trust into section 8 company. If the Registrar of Companies (RoC) is satisfied on the basis of documents furnished, a Certificate of Incorporation and a license under Section 8(1) will be issued.
Disclaimer: This article is intended for educational and informational purpose only. It is recommended to seek the assistance of a Practising Company Secretary or consultant in India to choose the most appropriate type of entity for your business.
It is informative article for conversion of Trusts to section 8 co.