Complete Guide for Converting a Society into a Section 8 Company

The Companies Act, 2013 in India provides an avenue for societies that aim to promote charitable objectives to register as Section 8 companies. A Section 8 company is a non-profit organization, created primarily for social or charitable purposes, such as promoting commerce, art, science, education, or environmental protection. Societies looking to gain more legal credibility, access to funding, and tax benefits often consider conversion into a Section 8 company.

In this article, we explore the process, benefits, and important steps involved in converting a society into a Section 8 company under the Companies Act, 2013.

Why Convert a Society into a Section 8 Company?

A Section 8 company is a preferred choice for entities focused on social welfare for a few key reasons:

1. Enhanced Credibility: Section 8 companies are registered under the Ministry of Corporate Affairs (MCA), giving them more formal legal recognition compared to societies.
2. Tax Benefits: Section 8 companies can apply for income tax exemptions under Sections 12AA and 80G, making them eligible for funding and donations.
3. Structured Governance: Section 8 companies have a more organized governance structure, with regulated board meetings, audits, and annual compliance under the Companies Act, 2013.
4. Access to Government Schemes and Foreign Funding: Being a registered Section 8 company enables access to government grants, CSR funding, and foreign donations under the FCRA.

Key Steps for Converting Society into a Section 8 Company

The conversion process requires following specific steps to ensure compliance with both society and company laws. Here’s a step-by-step guide for the conversion:

1. Pass a Resolution for Conversion

The first step is to obtain approval from the society’s members. A special resolution should be passed in a general meeting of the society, agreeing to the conversion into a Section 8 company. This resolution should clearly state the intent to convert and authorize designated members to proceed with the required filings and paperwork.

2. Apply for Name Approval

To register as a Section 8 company, apply for name approval through the RUN (Reserve Unique Name) service on the MCA portal. Choose a name that reflects the charitable objectives and purpose of the organization. The name should end with the words “Foundation,” “Association,” “Federation,” “Institute,” or similar terms instead of “Private Limited” or “Limited,” as Section 8 companies are not permitted to use these commercial terms.

3. Draft Memorandum and Articles of Association (MOA and AOA)

Prepare the Memorandum of Association (MOA) and Articles of Association (AOA), which outline the objectives and rules of the proposed Section 8 company.

• MOA: This document details the charitable or social objectives of the company and its operational scope.

• AOA: This document contains the internal rules, governance structure, and roles of directors.

These documents must adhere to Section 8 company guidelines, clearly defining the non-profit objectives, and should align with the principles under the Companies Act, 2013.

4. Apply for Incorporation via SPICe+ Form

Once the name is approved, proceed to file the SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) form available on the MCA portal. This form covers various registrations under one application, such as:

• Company Incorporation
• PAN and TAN registration
• Professional Tax and GST registration (if required)

You will need to attach supporting documents, including the society’s registration certificate, MOA and AOA, and ID and address proofs of the proposed directors.

5. Attach Necessary Documents

The following documents are required to complete the conversion process:

• Resolution of the society consenting to conversion.
• Certificate of Registration of the society.
• MOA and AOA drafted specifically for the new Section 8 company.
• List of proposed directors and their consent forms.
• Proof of the society’s registered office address.

6. File Form INC-12 for Section 8 License

Once the SPICe+ form is approved, apply for a Section 8 license through Form INC-12 on the MCA portal. This license is crucial for operating as a Section 8 company and requires the approval of the Regional Director.

• Submit the proposed MOA and AOA and a detailed statement outlining the purpose, aims, and projected social impact of the company.
• Attach any additional documentation requested by the MCA.

The Regional Director will review the application, and upon approval, a Section 8 license will be granted, allowing the society to function legally as a Section 8 company.

7. Obtain Certificate of Incorporation

After the INC-12 application is approved, the MCA issues a Certificate of Incorporation under the new name and Section 8 company status. This certificate signifies the completion of the conversion, granting the organization recognition as a Section 8 company under the Companies Act, 2013.

8. Register with Income Tax Department for 12AA and 80G Exemptions

Following incorporation, apply for tax exemptions under Sections 12AA and 80G of the Income Tax Act. These exemptions provide tax benefits to the Section 8 company and incentivize donors, thus promoting charitable funding.

• Form 10A: File Form 10A for 12AA registration to receive tax exemption.
• Form 10G: File Form 10G to secure an 80G certificate, allowing donors to claim tax deductions on donations.

Compliance Requirements for Section 8 Companies

Once a society is converted into a Section 8 company, it must adhere to the compliance standards under the Companies Act, 2013:

1. Annual Filing: File annual returns, including financial statements and Board of Directors’ report.
2. Board Meetings: Conduct a minimum of two board meetings per year.
3. Income Utilization: Ensure all income is used solely for charitable purposes. No dividends can be distributed to members.
4. Tax Filings: File income tax returns and maintain compliance with Sections 12AA and 80G exemptions.

Benefits of Converting a Society into a Section 8 Company

1. Legal Recognition: Section 8 companies are recognized under the MCA, which increases credibility with stakeholders, including donors and government bodies.
2. Access to Government Funding: Section 8 companies can apply for CSR funding from corporations and other government schemes designed for non-profit entities.
3. Tax Benefits: Section 8 companies enjoy exemptions under Sections 12AA and 80G, which aid in attracting donations from individuals and corporations.
4. Structured Operations: The Companies Act, 2013 mandates structured operations, making Section 8 companies more transparent and accountable.

Conclusion

The conversion of a society into a Section 8 company is a strategic step for organizations looking to formalize their structure, gain enhanced legal recognition, and access more extensive funding opportunities. Under the Companies Act, 2013, this process brings numerous advantages, including limited liability, tax benefits, and a structured governance model. By following the outlined steps and staying compliant with MCA requirements, societies can transition into a Section 8 company smoothly and benefit from a stable and recognized legal structure to advance their charitable mission.

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