Conversion of Cooperative Society into Section 8 Company: Procedure & Benefit

Like companies, partnership firms and LLPs, cooperative society is another common form of the constitution with legal validity. Eventually, the society may undertake certain charitable or other social activities at a scale and seek tax exemptions. However, such societies may face several challenges, including financial difficulties, governance issues and regulatory constraints. To overcome these challenges, members of such societies usually opt to convert cooperative societies into Section 8 companies act 2013, which provide several advantages over traditional cooperative societies.

This legal transformation not only provides limited liability protection to members but also offers tax benefits, greater flexibility in operations, and increased credibility. Let’s understand the benefits of converting cooperative society into section 8 company and how we can do so. However, before that, let’s understand the meaning of cooperative society and Section 8 Company.

What is a Cooperative Society?

A cooperative society is a voluntary association of individuals that come together to work towards a common interest or objective. Cooperative societies are registered under the Cooperative Societies Act, 1912 or under any other law for the time being in force. The primary motive for forming a cooperative society is to provide support to its members. 

What is Section 8 Company?

Section 8 company is a not-for-profit company incorporated under the Companies Act, 2013 with the object of charity, social welfare, promotion of sports, environment protection etc. Company under Section 8 operates solely towards the advancement of its objects and does not operate for the purpose of earning profits although some profits may be earned incidentally while carrying out its objectives. 

Benefits of Converting Cooperative Society into Section-8 Company

Conversion of cooperative society into Section 8 company in India can provide several benefits, including the following:

• Limited Liability: One of the most significant benefits of Section 8 Company over cooperative society is that it has limited liability. This means that the personal assets of the Company's members or directors are protected in the event of any legal action or financial losses. 
• Separate Legal Entity: A Company registered as Section 8 company has a separate legal entity, which means it can own property, enter into contracts, and sue or be sued in its own name. This provides greater flexibility and protection for the organisation and its members.
• Greater Credibility: Section 8 companies are viewed as more credible and professional than cooperative societies. This can be particularly important for organisations that want to attract investors or partners, or who are seeking grants or other types of funding.
• Greater Autonomy: A Section 8 company has greater autonomy and control over its operations and decision-making processes. This can be particularly important for organisations that want to expand or diversify their activities.
• Easier to Raise Funds: Section 8 Company typically raise funds easier than cooperative societies, as they can issue shares and accept donations from the public. This can be particularly important for organisations that need to raise significant amount of capital to fund their activities.
• Tax Benefits: Section 8 Companies are eligible for tax exemptions under the provisions of the Income Tax Act, 1961 if they satisfy the prescribed conditions. This helps in reducing their operating costs and increasing their profitability.
• Minimum Number of Members: Section 8 company requires a minimum of 2 directors or members whereas the minimum number of members for cooperative society is 10.

Procedure for Conversion of Cooperative Society into Section 8 Company

Let’s understand the procedure for conversion of cooperative society into section 8 company. The society needs to file an application form for conversion of cooperative society into section 8 company in the prescribed form URC -1. 3/4th of the members of such a society should vote in favour of conversion. Further, it shall publish an advertisement in the newspapers, one in an English newspaper and one in the vernacular newspaper. All the supporting documents required for conversion of society into company shall be submitted along with the application and payment of the requisite amount of fees. The Registrar of Companies will scrutinise the application and pass the order for conversion of the cooperative society into Section 8 company.

In a Nutshell

Conversion of a cooperative society into Section 8 company opens the door for higher funding, better management and scalability in operations. Further, it is relatively easier for the Section 8 company to attract donations from the public, including foreign funds, as compared to the cooperative society. In case you want to convert cooperative society into Section 8 company, then ASC Group can assist you with the necessary guidance, formalities and support to execute the conversion. 

Also Read - Conversion of LLP to Private Limited Company

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