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Convert Society or Trust into Section 8 Company

Conversion of a Society or Trust or Such other entity into a Company:

MCA vide its notification dated 5th July, 2018 has brought the Companies (Authorized to Register) Second Amendment Rules, 2018 (‘Amendment Rules’). The said Amendment Rules shall also come into force from 15th August, 2018.

The section (section, 366) deals with registration of unregistered entities like partnership firms, LLPs, cooperative societies and such other entities, as a company under the Act, 2013. The amendment paves way for such entities having two or more members to get them registered under the Act, 2013 either as a company limited by guarantee, company limited by shares or unlimited companies.

Conversion into a company under the Companies Act, 2013 now possible with 2 members:

Unregistered entities like LLPs, partnership firms, societies, etc. with two or more members can with effect from 15th August, 2018 onwards opt for conversion into a company limited by liability or guarantee or with unlimited liability in accordance with the provisions of Part XXI of the Act, 2013.

Why Society or Trust convert into a Company:

Any Society, Trust, Firm, Partnership Firm, Limited Liability Partnership, Co-operative Society or any other business entity formed under any other law for the time being in force may convert into Section 8 Company under section 366 of the Companies Act, 2013. The following are the requirements to convert into Section 8 Company:

  • Better Recognition: The goodwill of the Society or Trust or such other entity and its brand value is kept intact and continues to enjoy the previous success story with a better legal recognition.

  • Limited Liability: Consequent upon the conversion of Society or Trust or Such other entity into a Company, it may enjoy the benefits of Limited Liability protection to members of the Company.

  • No Stamp Duty Implications: All movable and immovable properties of the firm automatically vest in the Company. No instrument of transfer is required to be executed and hence no stamp duty is required to be paid. As per section 3 of the Indian Stamp Act, 1899, the Stamp Duty is payable on transfer or property or conveyance. Mere vesting of property consequent upon the converson into a company will not amount to transfer or conveyance and hence no Stamp Duty is payable.

  • Separate Legal Entity: The members of the Company may come and may go but Company may not go that means the members are different and the Company is different. Company can own assets on it own name and can sell. It can sue and can be sued in a court of law. By conversion into a company, it can get the status of separate legal entity.

  • No Capital Gain Tax: No Capital Gains tax shall be charged on transfer of property from Socity or Trust or Such other entity into a Company.

  • Carry Forward and Set off Losses and Unabsorbed Depreciation: The accumulated loss and unabsorbed depreciation of Society or Trust or Such other entity is deemed to be loss/ depreciation of the successor company for the previous year in which conversion was effected. Thus such loss can be carried for further eight years in the hands of the successor company.

  • Transfer of Assets and Liabilities: All the assets and liabilities of the Society or Trust or Such other entity immediately before the conversion become the assets and liabilities of the company automatically.

Who can convert into Section 8 Company:

The following entities can convert into a Section 8 Company:

  • Any Partnership Firm.

  • LLP.

  • Society.

  • Trust.

  • Co operative Society.

  • Any other business entity formed under any other law for the time being in force.

Who can not convert into Section 8 Company:

The following entities can not convert into Section 8 Company:

  • A company registered under the Indian Companies Act, 1882 or under the Indian Companies Act, 1913 or the Companies Act, 1956, shall not register in pursuance of this section;

  • A company having the liability of its members limited by any Act of Parliament other than this Act or by any other law for the time being in force, shall not register in pursuance of this section as an unlimited company or as a company limited by guarantee;

Requirements for converting Society or Trust or Such other entity into Section 8 Company:

Any Society, Trust, Firm, Partnership Firm, Limited Liability Partnership, Co-operative Society or any other business entity formed under any other law for the time being in force may convert into Section 8 Company under section 366 of the Companies Act, 2013. The following are the requirements to convert into Section 8 Company:

  • Two or more members are required to form this company.

  • Particulars of members/partners along with the details of shares held by them to be provided.

  • Declaration of two or more directors verifying the particulars of all members/partners to be provided.

  • Affidavit from all the members/partners for dissolution of the entity to be provided.

  • Copy of the instrument constituting or regulating the entity to be provided.

  • Copy of Newspaper advertisement to be provided.

  • Certificate from a CA/CS/CWA certifying the compliance with all the provisions of Stamp Act, to the extent applicable to be provided.

  • 3/4th consent of the majority members to be provided.

  • No objection certificate/Consent given by secured creditors to be provided.

  • Statement of accounts of the existing entity, prepared not later than 15 days preceding the date of application duly certified by auditor to be provided.

  • Undertaking by the proposed directors for compliance with requirements of Indian Stamp Act, 1899 to be provided.

  • A copy of latest Income Tax Return of the firm to be provided.

  • Two or more members Id and Address proof should be proviced.

Notes:

  • In case a society or trust intending to register as a company under section 366 of the Act is registered under section 12A of the Income Tax Act, 1961 (43 of 1961) for claiming exemption on its income, an intimation in this regard shall be sent to the Income- tax authorities and proof of its service shall be attached with Form No. URC-1.

  • Upon registration of a society or trust as a company under the Act, no application for conversion into a company of any other kind, except conversion from a private company to a public company or vice-versa, shall be made till the expiry of a period of ten years from the date of incorporation under the Act.

  • No application for registration as a company under the Act shall be made by a trust during the pendency of any proceedings under section 92 of the Code of Civil Procedure.

  • An undertaking from all the members or partners or trustees providing that in the event of registration as a company under Part I of Chapter XXI of the Act, necessary documents or papers shall be submitted to the registering or other authority with which the company was earlier registered, for its dissolution.

Step by Step Conversion Process:

  • 1

    Convene a Meeting of Members

    Through CompaniesHouse - One Day Job

    First and foremost thing is to convene a meeting of the members of the Society or Trust or Partners of the Firm or LLP to discus the conversion into Company. Take the consent of 3/4th members. Decide who are the first directors of the Company.

  • 2

    Company Name Application

    Through MCA Portal - 10 minutes Job

    Check the Proposed Company name availability through MCA and Trademark portals and apply for Name application as Part I Section 8 and pay the requisite fee. Attach the necessary supporting documents such as Resolution of the members of the Socity or Trust or Such other entity. Subject the availability, the Offier of MCA will approve the Name Application.

  • 3

    Apply for Digital Signature Certificates (DSC)

    Through eMudhara - 30 Minutes Job

    Apply Digital Signature Certificates for the members of the Society or Trust or Such other entitiy. Do the Roll Check as Authorised Representative on MCA web portal for all these members.

  • 4

    Publish Newspaper Advertisement

    Through English and Local Language Newspapers - One Day Job

    Publish newspaper advertisement (ie. in Form URC-2) in two newspapers ie. one in English and another in the principal vernacular language of the district.

  • 5

    Take No Objection from Creditors

    Through Existing Creditors - One Day Job

    Take No objection letters from the exising credtiros of the Society or Trust or Firm or LLP or Such other entity as the case may be.

  • 6

    Prepare the Supporting Documents for URC-1 & Incorporation filing

    Through CompaniesHouse - 1 Day Job

    Prepare all the necessary documents such as PAN, Id and Address Proofs of members, declaration of members, addifavits of members, copy of the instrument constituting or regulating the entity, certificate from a CA/CS/CWA certifying the compliance with all the provisions of Stamp Act, to the extent applicable, 3/4th consent of the majority members, no objection certificate/Consent given by secured creditors, statement of accounts of the existing entity, prepared not later than 15 days preceding the date of application duly certified by auditor, undertaking by the proposed directors for compliance with requirements of Indian Stamp Act, 1899, copy of latest Income Tax Return of the entity, MOA & AOA.

  • 7

    Incorporation

    Through MCA Portal - 1 Day Job

    File SPICePartB, SPICeMOA, SPICeAOA, Form URC-1 etc., and pay the requisite fee. On scruitiny and if every thing is in order, the MCA Office will approve the forms and issues you the certificate of Incorporation.

  • 8

    Intimation to Registrar of Societies or Trust Registrar or Firm Registrar

    Through CompaniesHouse - 1 Day Job

    This is the final stage where the entity has to inform the previous registering authority about it's converstion to a Company.

Let's Clear Your Doubts


What is DIN?

DIN stands for Director Identification Number. Every Director of the company will get this unique Director Identification Number subsequent upon the Company Incorporation. With this DIN, he/she can register any number of companies.

A DIN holder has to file his KYC with MCA every year on or before 30th day of September otherwise a penalty of Rs. 5000/- will be imposed.

What is DSC?

DSC stands for Digital Signature Certificate. Class-III Digital Signature Certificate is required for each Shareholder while registering his/her company.

There are different companies who issue Class-III DSCs. These companies are called DSC Certifying Authorities. We have associated with eMudhra Tamil Nadu. eMudhra is one of the largest Digital Signature Certifying Authority in India.

What is Authorised Share Capital?

An authorized share capital is a share capital amount upto which the shareholders can invest in equity of the company.infact, this the permission limit to invest amount into Equity Sharecapital.

What is Paidup Sharecapital?

Paid up share capital is an amount, which is deposited by the shareholders of the compnay in company's bank account towards share capital.

Now the company can be registed with a minimum amount of share capital of Rs. 2/- ie. Rs.1/- investment by each shareholder.

What is CIN?

A CIN is a company identificaton number, which is generated by the Ministry of Corporate Affairs while generating the Certificate of Incorporation.

We can treat it as the company registration number.

What is the duration for Company Registration?

If we apply direct incorporation without applying for Certificate of Name Availability, it may take 3 to 5 working days. Some times, it may be incorporated even in one day.

But it is advisable to apply first company name and then incorporation and in this case it may take 10 to 15 days.

What is the Government fee for Company Registration?

For one lakh authorised share capital company, the total government fee including Digital Signature Certificates would be approximately Rs. 4,000/-.

CompaniesHouse is authorised by the Ministry of Corporate Affairs to provide company registration service throughout India at an affordable cost of Rs. 1,999/-.

Can I start company from my home address?

Yes, you can start a Company from your home address too.

Can I register my Company on my own?

No, you can not register Company on your own as Professionals like Company Secretary/Chartered Accountant has to sign digitally along with a Director on the application forms, then only your Companay will be registered.

What is minimum amount of Sharecapital with wich I can start my Company?

Now. For a two person private limited company Rs. 2/- is the minimum sharecapital and for one person private limited company Rs. 1 will be the minimum amount of sharecapital is required.

What are the minimum number of Directors required to register a Section-8 Company?

Minimum of two directors are required to register a Section-8 Company.

Who can apply for registration of a Section 8 Company?

Any person or an association of persons intending to register a limited liability company for objects specified below can opt to apply for registration of Section 8 Company.

The following have to be proved to the satisfaction of the Central Government that:
(a) its objects includes promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;.
(b) the company after incorporation intends to apply its profits, if any, or other income in promoting such objects only; and
(c) the company intends to prohibit the payment of any dividend to its members.

Is it mandatory that the name of section 8 Company shall include the words like – Foundation, forum, association, federation, chamber, confederation, Council, electoral trust etc.?

Yes.

Can a One Person Company (OPC) be incorporated as or convert into a Section 8 Company?

No. Rule 3 of the Companies (Incorporation) Rules, 2014 prohibits a one person company to be incorporated as section 8 company or to convert into a Section 8 Company.

Can a one person company become a member of Section 8 Company?

No, Rule 3(6) of the Companies (Incorporation) Rules, 2014 prohibits one person company to invest in securities of any body corporate.

Can a partnership firm or an Limited Liability Partnership become a member of Section 8 Company?

Yes, under the Companies Act, 2013, a Partnership firm or an LLP can become the member of Section 8 Company. The provisions of respective Acts need to be complied with by the partnership firm or LLP as the case may be.

Can a Trust become a member of Section 8 Company?

Yes, trust can become a member of the Section-8 Company.

Whether a Co-operative society can become subscriber/ member of a Section 8 Company?

A Co-operative society can be regarded as Person and thus capable of becoming subscriber of a company including Section 8 Company.

Can Section 8 Companies receive contributions from overseas or non-residents?

There are special requirements to be complied with under the Foreign Contribution and Regulation Act, 2010 before a Section 8 Company can receive any contributions or donations from overseas/outside India from non-residents. The provisions of the said Act are in addition to the provisions under the Companies Act.

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