Sub.: Note on conversion of Trust to Section 8 Company.
A) INTRODUCTION:
Section 8 companies are those companies which are formed for the sole purpose of promoting commerce, art, science, religion, charity or any other useful object and have been granted a license by the central government recognizing them as such. Such companies should intend to apply its profits, if any or other income only in promoting its objects and must also prohibits payment of dividend to its members.
The income of NPO cannot be used for paying out dividends to the company’s members and has to be for the promotion of charitable objectives. Such companies obtain an incorporation certificate from the central government and are liable to adhere to the rules specified by the government.
B) ELIGIBILITY TO APPLY FOR SECTION 8 COMPANY:
An individual or an association of individuals is eligible to be registered as Section 8 Company if it holds below-mentioned intentions or objectives. The objectives have to be confirmed to the satisfaction of the Central Government.
- Its objects should be only to promote commerce, art, science, religion, charity or any other useful object.
- It should intend to apply its profits or other incomes only in promoting its objects; and
- Central government should have granted a license to such a company recognizing them as such
C) CHARACTERISTICS OF A SECTION 8 COMPANY ARE:
- It must have at least 2 shareholders.
- It must have at least 2 Directors
- The director and shareholder can be the same person
- Minimum share capital requirement is Rs. 1 Lakh
- Prohibited from paying any dividend to its members.
- Profit and other income are applied only for promoting the objects of the company.
D) ADVANTAGES OF A SECTION 8 COMPANY
- Many privileges and exemptions under Company Law.
- Exemption of Stamp duty for registration.
- Registered partnership firm can be a member in its own capacity.
- Tax deductions to the donors of the Company u/s. 80G of the Income Tax Act.
- No need to add any suffix to its name like ‘limited’ or ‘Private Limited’.
- No restriction on transfer of shares.
OPTIONS AVAILABLE TO CONVERT TRUST TO SECTION 8 COMPANY.
OPTION 1.
Takeover of existing Trust by newly Incorporated Company. (limited by shares)
OPTION 2.
Registering the existing Trust as a Part 1 Section 8 Company in accordance with section 366 of Companies Acts, 2013.(limited by guarantee)
For more details kindly contact us.
Pramodkumar R. Ladda
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