In this article we will discuss about the Conversion of trust into a section 8 company, Especially for organisations that work in the charitable field, it can be a great advantage and more importantly adds credibility to the trust converted as a Section 8 company. After the Companies Act of 2013, a Section 8 company is a company formed for charitable or other useful objects of any public nature. Driving change for Organisations Conversion of trust as Section 8 company provide funding possibility, Tax exemption, and structured operation.

In this article, we’ll explore the process, benefits, and requirements for converting a trust into a Section 8 company.

Why Convert a Trust into a Section 8 Company?

Many trusts convert to Section 8 companies to access the advantages provided under the Companies Act, including:

1. Credibility and Compliance: Section 8 companies fall under the jurisdiction of the Ministry of Corporate Affairs (MCA), this gives face value to stakeholders.
2. Access to Funding and Tax Benefits: Section 8 companies may also be entitled to exemptions under Sections 12AA and 80G of the IT Act, which will also draw the interest of the donors.
3. Structured Governance: Section 8 companies have well defined norms and guidelines, mandatory statutory audits and accountability so the stakeholders can have more confidence in this organisation.
4. Eligibility for CSR Funding: Section 8 Companies are considered under Corporate Social Responsibility (CSR), a possible mode of funding from corporations.

Conversion Process: Steps for Converting a Trust into a Section 8 Company

To convert a trust into a Section 8 company, an organization must follow a structured process that complies with MCA regulations.

√Step 1: Move a Motion for Conversion

The first important process is gaining the approval of the managing team inside the enterprise. The change in the legal status of the trust to a Section 8 company requires the trustees’ board approval. It should also approve the right of filing of applications, paperwork and management of the conversion.

√Step 2: Filing for Name Approval with MCA

Section 8 company is one of the purpose based company, so the name should be selected in accordance with this purpose.

1. The RUN (Reserve Unique Name) service on the MCA portal is available to check name availability.
2. The proposed name should be appropriate to the charitable objects of the company and certain words such as “Private Limited” or “Limited “cannot be included and Section 8 companies can use titles such as “Foundation”, “Association” or “Institute”.

√Step 3: As for the second step in setting up the company, you need to get the Memorandum and Articles of Association (MOA & AOA).

The MOA and AOA are among the most vital legal papers that describes the purpose and regulation of the Section 8 company.

• MOA (Memorandum of Association): Describes development of the goals, missions and the mission and vision statements for the Section 8 company, stating that the company is not-for-profit.
• AOA (Articles of Association): Sets out the conduct of business and management, and organizational requirements and outlines the roles of directors, and governance of such procedures.

The objectives in the MOA should not differ from that of the trust in order to ensure proper running of operations after conversion.

√Step 4: File the SPICe+ Form for Incorporation

The next step involves filing the SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) form on the MCA portal.

SPICe+ consolidates several registration forms into one, covering:

• Incorporation application
• PAN and TAN issuance
• Professional Tax and GST registration (if needed)

Supporting Documents: The following documents are required:

• Trust Resolution: Confirming conversion approval.
• Trust Registration Certificate.
• MOA and AOA drafted specifically for the Section 8 company.
• ID and Address Proofs for the proposed directors.

√Step 5: Apply for Section 8 License with INC-12 Form

With the incorporation application in progress, file Form INC-12 to obtain the Section 8 license. This license permits the organization to operate as a Section 8 company, subject to approval from the Regional Director.

• Submit a detailed statement describing the organization’s objectives and intended social impact.
• Attach a copy of the MOA, AOA, and other supporting documents requested by the MCA.

The Regional Director will review the application, and if approved, will grant a Section 8 license.

√Step 6: Obtain the Certificate of Incorporation

After completing the INC-12 application, the MCA will issue a Certificate of Incorporation in the organization’s new name and Section 8 status. This certificate marks the official conversion, recognizing the entity as a Section 8 company under the Companies Act, 2013.

√Step 7: Register with Income Tax Authorities for 12AA and 80G Exemptions

Once incorporated, apply for tax exemptions under Sections 12AA and 80G with the Income Tax Department to gain tax benefits and donor incentives.

• Form 10A: File this for 12AA registration to become eligible for tax exemption.
• Form 10G: Submit for the 80G certificate, which permits donors to claim tax deductions on donations made to the Section 8 company.

Compliance Requirements for Section 8 Companies

After conversion, Section 8 company has to abide by the regulation under Companies Act of 2013. Here are the key compliance obligations:

1. Annual Filing: Annual returns of a Section 8 company include a director’s report and statement of the company’s accounts.
2. Board Meetings: There must be at least two board meetings in a year:
3. Restricted Profit Distribution: There can be no distribution of profits or division of income since all it has to be ploughed back to the achievement of the organizations objectives.
4. Tax Compliance: Audit implementation, and the organization must retain its 12AA and 80G permissions for tax returns are due every year.

Benefits of Converting a Trust into a Section 8 Company

1. Enhanced Credibility and Transparency: Section 8 companies fall under the MCA regulation, and this gives assurance for any government body, donor or any partner to invest in such companies.
2. Eligibility for CSR Funding: While CSR laws require that corporations contribute to registered non-profit organizations, these Section 8 companies are potential targets of the corporate contribution.
3. Tax Benefits: One of the benefits of section-8 companies is of 12AA and 80G exemption which will encourage more donation from corporate or individual donor.
4. Organizational Structure and Governance: Section 8 companies also enjoy a well framed corporate structure that guarantees centrality of authority and accountability.

Conclusion

Change of a trust into a Section 8 company is generally a wise move by organizations that desire to gain more recognition, have more systemic form of management, and also access better funds. By virtue of the Companies Act, 2013 a Section 8 company has more formal recognition, availability of CSR funds and tax exemptions and hence is preferred by many charitable organizations. Therefore by strictly adhering to the outlined procedures and requirement it becomes easier for the trusts to abide by the Section 8 companies so as to effectively carry out their social responsibilities.

DISCLAIMER: The information provided in this article is intended for general informational purposes only and is based on the latest guidelines and regulations. While we strive to ensure the accuracy and completeness of the information, it may not reflect the most current legal or regulatory changes. Taxpayers are advised to consult with a qualified tax professional or you may contact to our tax advisor team through call +91-9871990777 or info@semantictaxgen.in