Possibility-suggestion to convert charitable Trusts / Registered Society (ies) into Section 8 (i.e. Non-profit company) under the provisions of the Companies Act, 2013
Background and Requirement to operate educational institutions
As per requirements of AICTE and CBEC all institutions affiliated with them for providing education should not be for profit making. In order to meet the requirement as stated by above authorities, the educational institutions had to start their activities and operations under Charitable Trust / Registered Society.
It may further be noted that any other type of Charitable institutions / Registered Society (ies) with different objects may also be converted into Section 08 company as per provisions of the Companies Act, 2013.
Present scenario of operating educational institutions in INDIA
In last 20 years, large number of educational institutions have come up to provide education in field of medical, engineering and management. Most of the institutions have very small number of trustees / members, who by their efforts have grown the institutions to a very big level.
Transferability of Charitable Trust / Registered Society
As per law of the land, membership of a Charitable Trust/ Registered Society is neither transferable nor it can be bequeathed. In the event of death of any trustee / member, his successors shall have no legal right to be a trustee / member in Charitable Trust / Registered Society, as the case may be.
Hence, if one or all of the members intend to transfer their membership in favour of a person / group of persons, the existing trustee(s) / member(s) have to resign, and new person/ persons to be admitted / inducted as trustee / member.
Solution i.e. Registration / Conversion of the Charitable Trust / Registered Society in to a company registered under Section 8 of the Companies Act, 2013
Considering the above critical concern regarding transferability and also in order to overcome from such situation, it is proposed to convert Charitable Trust / Registered Society into a Non-profit company, i.e. company registered under Section 8 of the Companies Act, 2013 and / or to incorporate a Non-profit company in terms of the provisions of the Companies Act, 2013 initially.
Upon conversion, all members of Charitable Trust / Registered Society will become shareholders / members of the company. Any shareholder may transfer his / her / its share to any other person after complying with the applicable provisions of the Companies Act, 2013 read with Articles of Association of the company.
It may further be noted that any other type of Charitable Institutions / Registered Society (ies) with different objects may also be converted into Section 08 company as per provisions of the Companies Act, 2013.
Capital Gain on Conversion of Charitable Trust / Registered Society into a Non-profit company
In case of conversion of Charitable Trust / Registered Society in terms of the provisions of Chapter XXI Part-I (i.e. companies Authorized to register under the Companies Act, 2013), No capital gains will be chargeable in terms of provisions of Income-tax Act on such conversion.
Capital Gain on transfer of Shares
It is however pertinent to mention that any consideration received on such transfer will be chargeable to the Capital Gains under Income-tax Act and rules framed thereunder.
Stamp Duty on transfer of fixed assets upon conversion
Stamp Duty on transfer of fixed assets from Charitable Trust / Registered Society to a company upon successful conversion, need to be ascertained state-wise as stamp duty is a state subject.
CA Pardeep Tayal | Author
CS Sachin Saluja | Co-Author
Author Bio
May be the Charitable Trust will have to obtain permission from competent authority for transfer of its assets ( Surely IT Authorities ) , as there is winding up of the trust and as per rule it can transfer only to similar non profit making entity