Audit Trials – Newly Introduced by MCA

MCA (Ministry of Corporate Affairs) has introduced a new audit trail feature that mandates accounting software used by certain companies or individuals to enable an audit trail facility.

As per the MCA’s requirement, the audit trail feature should create an edit log for any changes made on transactions and record the date of each change being made and cannot be disabled. This would enable businesses to track all financial activities while helping to maintain transparency and detecting fraud¹.The requirement was initially made applicable for the financial year commencing on or after the 1st day of April 2021 vide notification G.S.R. 206 (E) dated March 24, 2021. However, its applicability has been deferred two times and this requirement is finally applicable from April 1, 2023.

Its features:

  • The audit trail feature is designed to record an “edit log” or audit trail of each transaction entered in the accounting software which can be reviewed by auditors or regulators.
  • This feature will make it easier to track changes and identify errors, potential fraud, or other discrepancies in accounting data.
  • This feature must be available for all authorized users of the accounting software and cannot be disabled.
  • The accounting software must ensure the integrity, generation, and retention of the audit trail for a minimum period of eight years.
  • The implementation of the audit trail feature has been delayed until April 1, 2023, and all accounting software used by certain companies or individuals are expected to comply with this new rule.

These are some of the key features of the audit trail feature introduced by the MCA, which is aimed at promoting transparency and accuracy in financial reporting and auditing.

Pros of Audit Trials – Newly Introduced by MCA:

  • Increases transparency: The use of audit trails can help increase transparency, making it easier to track changes to financial data and identify potential fraud or errors.
  • Supports compliance: The MCA may require certain companies to use audit trails in order to comply with regulations. Having this feature built-in to accounting software can make it easier for companies to meet these requirements.
  • Can provide a better understanding of financial data: By tracking changes to financial data over time, it is easier to identify trends and patterns that may be important for business decisions

Cons of Audit Trials – Newly Introduced by MCA:

  • Can be resource-intensive: Depending on the size of the organization and the amount of data being tracked, using audit trails may require additional resources (such as storage space and processing power).
  • Can introduce delays: If auditors need to review audit trails as part of an investigation, this can introduce additional delays in the financial reporting process.
  • User errors may still occur: Even with audit trails in place, it is still possible for human errors to occur (such as accidentally entering incorrect data). Audit trails can help identify these errors after the fact, but they do not prevent them from happening in the first place.

The audit trail requirement introduced by the Ministry of Corporate Affairs (MCA) is expected to be helpful for Chartered Accountants (CAs). The audit trail feature can provide a comprehensive record of transactions, which can make it easier for CAs to detect and prevent fraudulent activities and ensure accuracy in accounting records. Additionally, the implementation of an audit trail can help CAs in conducting audits more efficiently and effectively.

Implementation of an audit trail can be helpful in ensuring accuracy in accounting records and preventing fraudulent activities. However, the effectiveness of the audit trail feature will depend on how well it is implemented by companies and how rigorously it is monitored by auditors and regulators.


Basics On Trusts


“Trust is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner.”

Trusts are formed for charitable purposes which include Relief to the poor, Education, Medical relief, Preservation of environment and Preservation of monuments or places or objects of artistic historic interest and the advancement of any other object of general public utility

Provided that the advancement of any other object of a general public utility shall not be a charitable purpose if it involves the carrying on of any activity like trade, commerce or business or any activity of rendering any service concerning any trade, commerce or business, for a cess or fee or any other consideration of the nature of cess or application or retention of the income from such activity,

Unless: – 1. Such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility;

  1. The aggregate received from such activity activities during the previous year does not exceed 20% of the total receipts are the trust institution undertaking search activity activities of that previous year.


Any Individual who are competent to contract can form a trust. The trusts can also be created by HUF’s, an association of persons, a company and guardian on behalf of a minor, after seeking permission from the principal court of original jurisdiction.


The trusts can be formed either as a society or as a section 8 company. Usually, the Trust Deed is the document that establishes the registration of the Trust.

Parties to the TRUST

AUTHOR – Person creating the Trusts

TRUSTEE – Members of the Trust

BENEFICIARY – The persons who will benefit from the trust.

The contents of the trust deed are as follows

  • Name of the Trust
  • Place of office of the Trust
  • Objects of the Trust
  • Number of Trustees
  • Term of the Trustees
  • Trust Management
  • Appointment or Resignation or Termination of Trustees
  • Power, Function and Duties of the Trustees
  • Application of Trust Property
  • Other important matters.

The above-mentioned lists are not exhaustive.

Once the trust deed is executed it should be registered with the registrar.

Then the trust should apply for PAN card and Bank account in the name of the Trust.


Trusts can seek registration u/s 12A to claim an exemption under provisions of Income Tax Act 1961. Section 12A deals with registration of trust.

Earlier trust, institution, or NPO/ NGO, once registered, held a lifetime validity unless the Income Tax Department cancels it. The Income-tax Department introduced changes to the rules and application format for funds, charitable trusts, universities, institutions—including educational and medical institutions—and NPOs/ NGOs from April 1, 2021. Thus, the trusts which are already registered are required to reapply for the same and obtain a new registration under a new Section 12AB.


Thus, the provisional registration u/s 12 shall be made online by filing application in the Form 10A.The following are the attachments required for duly filing in FORM 10A

  • Self-certified copy of the instrument creating the trust or establishing the institution
  • Self-certified copy of the document evidencing the creation of the trust, or establishment of the institution
  • Self-certified copy of registration with Registrar of Companies or Registrar of Firms and Societies or Registrar of Public Trusts, as the case may be
  • Self-certified copy of registration under Foreign Contribution (Regulation) Act, 2010, if the applicant is registered
  • Self-certified copy of existing order granting registration under section 12A or section 12AA or section 12AB, as the case may be*
  • Where the trust or institution has been in existence during any year or years prior to the financial year in which the application for registration is made, Self-certified copies of the annual accounts of the trust or institution relating to such prior year or years (not being more than three years immediately preceding the year in which the said application is made) for which such accounts have been made up.

FORM 10A should be filed at least one month prior to the commencement of the previous year relevant to the assessment year from which the said approval is sought. The approval of provisional registration will be given in FORM 10AC and is valid for three years.


Trusts which are provisionally registered must apply for a final registration by filing FORM 10AB. at least six months before the expiry of provisional registration or six months within the commencement of charitable activities, whichever is earlier. The registration will be granted for a period of five years. The approval of final registration will be given in FORM 10AD.The following are the attachments required for filing FORM 10AB

  • where the applicant is created, is established, under an instrument, self-certified copy of the instrument;
  • where the applicant is created, is established, otherwise than under an instrument, self-certified copy of the document evidencing the creation of the applicant
  • self-certified copy of registration with Registrar of Companies or Registrar of Firms and Societies or Registrar of Public Trusts, as the case may be;
  • self-certified copy of registration under Foreign Contribution (Regulation) Act, 2010 (42 of 2010), if the applicant is registered under such Act;
  • self-certified copy of existing order granting registration or approval under section 12A or section 12AA or section 12AB or clause (23C) of section 10 or section 80G of the Income-tax Act, as the case may be;
  • self-certified copy of order of rejection of application for grant of registration under section 12A or section 12AA or section 12AB or clause (23C) of section 10 or section 80G of the Income-tax Act, as the case may be, if any;
  • where the applicant has been in existence during any year or years prior to the financial year in which the application for registration is made, self-certified copies of the annual accounts of the applicant relating to such prior year or years for which such accounts have been made up;
  • where a business undertaking is held by the applicant as per the provisions of sub-section (4) of section 11 and the applicant has been in existence during any year or years prior to the financial year in which the application for registration is made, self-certified copies of the annual accounts of such business undertaking relating to such prior year or years for which such accounts have been made up and self-certified copy of the report of audit as per the provisions of section 44AB
  • where the income of the applicant includes profits and gains of business as per the provisions of sub-section (4A) of section 11 and the applicant has been in existence during any year or years prior to the financial year in which the application for registration is made, self-certified copies of the annual accounts of such business relating to such prior year or years for which such accounts have been made up and self-certified copy of the report of audit as per the provisions of section 44AB
  • self-certified copy of the documents evidencing adoption or modification of the objects; and
  • note on the activities of the trust or institution or fund.

Steps for filing FORM 10A / FORM 10AB

  • Log on to the E-filing portal of income tax department
  • Go to “Income Tax Forms” under e-File tab.
  • Select the Form Name as Form 10A/10AB
  • Fill in the details as required in the form and attach the required and applicable attachments.
  • Submit the form using digital signatures or EVC as required while return filing.


Filing of ITR

It is mandatory for trusts to furnish Income tax return annually. If the trust is required to get its accounts audited then the due date for filing ITR is 31st October and in any other case 31st July of the assessment year.

Audit of accounts

The audit is also pre prerequisite for claiming exemption, where the total income of the trust computed without giving effect to the provisions of section 11 and 12 exceeds Rs 2,50,000 in any previous year, then the accounts of the trust for that year should be audited by a Chartered Accountant.

Publication of Accounts

Publication of Accounts in the newspaper if the annual income/the receipts of the Trust which have been created from the Trust property exceed Rs. 1 crore.

Filing of GST Returns

If the Trust has GSTIN, then it is required to provide GST Returns monthly or quarterly (as may be applicable).

Filing of TDS Return & Issuance of TDS Certificates

If any Trust is deducting tax at source for salaries paid to the staff/employees. It needs to provide Certificates of TDS to the persons on whose behalf TDS was being collected. It should be done within one month from the closure date of the Financial Year. Apart from this, quarterly TDS Returns are also required to be filed.


Internal Financial Control


As per section 134 of The Companies Act, 2013, the term “Internal Financial Control” means the policies and procedure adopted by the company to ensure:

  • Orderly and efficient conduct of business, including adherence to company’s policies,
  • Safeguarding of its assets,
  • Prevention and detection of frauds and errors,
  • Timely preparation of reliable financial information.

The Act has set increased responsibility and accountability on Board of Directors, Audit committee, Senior Management and Independent Auditors. The approach that should be adopted by companies should be that of a comprehensive risk management program – Enterprise Risk Management (ERM).


Section 134 of companies Act 2013 All listed entities The director’s responsibility statement shall state the director had laid down internal financial controls to be followed by the company and such that internal financial control is adequate and operating effectively.
Section 143 of companies Act 2013 All entities (listed/unlisted) The auditor’s report shall state whether the company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such IFC.
Section 177 of companies Act 2013 All entities having an audit committee The audit committee shall evaluate internal financial controls and risk management system.

The audit committee may call for comments of auditors about internal control systems before their submission to the board.

Schedule IV All entities having independent directors The independent directors should satisfy themselves on the integrity of financial information and ensure that financial controls and systems of risk management are robust and defensible.
Rule 8 (5) of Companies Accounts rule All entities (listed/unlisted) The board report shall state the details in respect of adequacy of internal financial controls with reference to the financial statement.


Exemption from IFC for specified Private limited companies

  • One- person company (OPC)
  • A private limited company having a turnover of less than Rs. 50 Crores as per latest audited financial statement or having aggregate borrowings from bank or financial institutions or body corporate at any point of time during the financial year less than Rs. 25 Crores.


Primary objective of IFC is to identify opportunities for improvement and to draw up recommendations & good practices that can be used as a benchmark to develop or strengthen their internal control systems and enhance the reliability of their financial statements. Other Objectives include:

  • Efficiency and effectiveness in operations.
  • Prevention and detection of fraud and error.
  • Safeguarding of its assets.
  • Accuracy and completeness of accounting records.
  • Reliability of Financial Reporting.


Internal Control = Internal control over financial reporting + Operational control reporting + Fraud prevention reporting.


  1. Assess the current state of internal controls
  2. Embrace a widely acceptable framework or guidelines
  3. Set the right tone at the top i.e., those charged with governance
  4. Ascertain organizational risks which have financial impact
  5. Define the control objectives and control Activities to mitigate the risk
  6. Ongoing continuous monitoring of the functioning of control
  7. Obtain independent assurance on the effectiveness of the internal controls i.e., Independent Auditors


By placing more accountability and responsibility on the Board and Audit committee with respect to internal financial controls, the Companies Act 2013 is attempting to align the corporate governance and financial reporting standards with global best practices. With adequate and effective internal financial controls, some of the benefits that the companies would experience include:

  • Senior Management Accountability
  • Improved Controls over financial reporting process
  • Improved investor confidence in entity operations and financial reporting process
  • Promotes culture of openness and transparency within the entity
  • Trickling down of accountability to operational management
  • Improvements in Board, Audit Committee and senior management engagement in financial reporting and financial controls.
  • More accurate, reliable financial statements
  • Making audits more comprehensive


Internal financial controls also become important as they help derive values in the form of

  • Fresh Independent look at key business processes
  • Identification of potential operating process opportunities
  • Updated formal, centralized, and managed internal financial controls documentation for the company
  • Enhanced support to CEO/CFO certifications
  • Enhanced control environment, thereby mitigating risk
  • Better understanding of inherent and residual control risks in internal controls
  • Helps in business process redesigning to plug revenue leakage & cost
  • Containment opportunities
  • Helps in rationalizing the number of controls across organization – moving to smart and automated controls
  • Helps in standardizing policies and procedures for multi-location / multi- business companies
  • Fosters a control conscious work culture for people behind controls
  • Provides assurance to the CEO/CFO as well as improves business performance
  • In some instances, also serves as a base for blue print of optimal procedures while thinking about ERP.


Under section 143(3)(i) of the Act, an auditor of a company is required to state in his/her audit report whether the company has an adequate Internal Financial Controls (IFC) system in place and the operating effectiveness of such controls. Explanation to Section 134(5)(e) of the Act defines IFC to include policies and procedures adopted by the company for ensuring orderly and efficient conduct of its business, accuracy and completeness of the accounting records, and timely preparation of reliable financial information.

As per the Guidance Note “Internal Financial Controls Over Financial Reporting” (ICFR) shall mean:

“A process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles”. A company’s internal financial control over financial reporting includes those policies and procedures.

Pertain to the maintenance of the records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company.

Provides reasonable assurance that transactions are recorded as necessary to permit preparation of financial statement in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and director of the company.

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect of the financial statement.


Section 134(5)(e) of the Act (which deals with the directors’ responsibility statement) requires directors of listed companies to state whether they had laid down IFC to be followed by the company and that such IFC are adequate and were operating effectively.

Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.

This responsibility also includes Maintenance of adequate accounting records in accordance with the provisions of the Act, for safeguarding of the assets of the Company, for preventing and detecting frauds and other irregularities, Selection and application of appropriate accounting policies, Making judgments and estimates that are reasonable and prudent  and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.


The auditor’s objective in an audit of IFC – Financial Reporting (which is generally carried out along with an audit of financial statements) is to express an opinion on the adequacy and operating effectiveness of the company’s IFC – Financial Reporting. A company’s internal financial control cannot be considered effective if one or more material weakness exists.

Globally also, auditor’s reporting on internal controls is together with the reporting on financial statements and such internal controls reported upon relate only to internal controls over financial reporting.


Corporate Social Responsilbility – Sec 135


As per Sec 135(1), Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or net profit of rupees five crore or more during the immediately preceding finnacial year fall under the ambit of CSR Provisions.


Atleast 2% of average net profits of the company made during the immediately preceding three financial years.

Also, as per Sec 135(6) any amount remaining unspent under section (5), pursuant to any ongoing project, undertaken by a company shall be within a period of thirty days from the end of the financial year transferred to a special account opened by the company for that financial year in any scheduled bank named “Unspent CSR account” and such amount to be spent by the company within the period of 3 years from the date on which it has been transferred.


The excess amount spent in the earlier years can be set off against the required 2% CSR expenditure up to immediately succeeding three financial years subject to complaince with the conditions stipulted under rule 7(3) of the companies rules,2014. This position is applicable from 22nd  January,2021 and has a prospective effect. Thus, no carry forward shall be allowed for the excess amount spent, if any , in financial year prior to FY 20-21.


Net profit for the purpose of calculation for the amount to be spent on CSR activities is as per Sec 198 of the Companies Act, 2013 which is primarily PROFIT BEFORE TAX with other adjustment as refered in rule 2(h) of CSR rules.

Other Adjustment:

Net Profit before Tax should not include:

1) capital payments and reciepts.

2)Income tax.

3)Set off of past losses.


Sec 135(9) where the amount to be spent by a company under sub section (5) does not exceed fifty lakh rupees the requirement under sub section (1) for constituion of the CSR committee shall not be applicable and the functions of such committee provided under this section shall, in such cases be discharged by the board of directors of such company.

Listed companies Three or more directors out of which atleast one shall be Independent Director
Unlisted public companies Three or more directors out of which atleast one shall be Independent Director.

However if there is no requirement of having an independent director in the company, two or more directors

Private Companies Two or more directors. No independent directors are required as mentioned in the proviso under section 135(1).

Functions CSR Committee:

The Corporate Social Responsibility Committee shall —

  • formulate and recommend the CSR policy to the Board;
  • recommend the amount of expenditure to be incurred on CSR activities;
  • monitor the CSR policy of the company from time to time; and
  • formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy, which shall include the items as mentioned in rule 5(2) of the Companies (CSR Policy) Rules, 2014. For companies covered under Section 135(9) of the Act and not required to have CSR Committee, these functions shall be carried out by the Board itself.

CSR Committee shall meet atleast twice a year.

Rule 5(2) of the Companies (CSR Policy) Rules,2014

a) the list of CSR projects or programmes that are approved to be undertaken in areas or subjects specified in Schedule VII of the Act;

b) the manner of execution of such projects or programmes as specified in sub-rule (1) of rule 4;

c) the modalities of utilisation of funds and implementation schedules for the projects or programmes;

d) monitoring and reporting mechanism for the projects or programmes;



Administrative overheads are the expenses incurred by the company for ‘general management and administration of CSR functions. However, the expenses which are directly incurred for the designing, implementation, monitoring, and evaluation of a particular CSR Project or Programme shall not be included in administrative.

Administrative expenses generally comprises of items such as employee cost, Utilities, office Supplies, legal expenses etc. However expenses which are attributable to project implementation shall be included in project cost only.

Example: Salary and training for the employees workings in the CSR division of a company, Stationary Cost, travelling expenses etc. may be included in administrative overheads. However, salary of school teachers or other staff, etc. for education-related CSR projects shall be covered under education project cost.

The maximum permissible limit for administrative overheads is 5% of Total CSR Expenditure of the company for the Financial Year.


Company which are required to Contribute to CSR activites can contribute according to the List given in Schedule VII of section 135 of companies act, 2013 -mentioned in Annexure-A



On going project has been defined under rule 2(1)(i) of the companies rule,2014 as a –

  1. A multi- year project, stretching over more than one financial year.
  2. Having a timeline not exceeding three year excluding the year of commencement.
  3. Includes such project that was initially not approved as multi year project but whose duration has been extended beyond one year by the board based on reasonable justification.


As per the definition of ongoing project, maximum permissible time limit for any project shall be three Financial year excluding the financial year in which project has been commenced. i.e., (1+3) financial years.


  • Activities are undertaken in pursuance of normal course of business of the company.
  • Any activity undertaken by the company outside India except for training of Indian sports personnel representing any State or Union territory at national level or India at international level,
  • Contribution of any amount directly or indirectly to any political party under section 182 of the Act;
  • Activities benefitting employees of the company as defined in clause (k) of section 2 of the Code on Wages, 2019 (29 of 2019);
  • Activities supported by the companies on sponsorship basis for deriving marketing benefits for its products or services;
  • Activities carried out for fulfilment of any other statutory obligations under any law in force in India.


If the company spends less than the amount required to be spent under the CSR Obligation, the board shall specify the reason for not spending in the Board’s report and shall deal with the unspent amount in the following manner:

Unspent Account pertains to ‘Ongoing Projects’ Transfer such unspent amount to separarte bank of the company to be called ‘Unspent bank account’ Within 30days from the end of financial year.
Unspent Account pertains to ‘Other than Ongoing Projects’ Transfer unspent amount  to any fund included in schedule VII of the Act. Within 6Months  from the end of financial year.


The said non-compliance is a civil wrong and shall attract the following penalties:

COMPANY Twice the unspent amount required to be transferred to any fund included in Schedule VII of the Act or Unspent CSR Account, as the case may be or one crore rupees which ever in higher.
EVERY OFFICER IN DEFAULT 1/10th of the Unspent Account required to be transferred to any Fund included in Schedule VII of the Act or Unspent CSR Account or Two lakh whichever is higher.

The penalty does not relieve the company from the obligations under the law, and the penalty is over and above the obligated amount required to be transferred under section 135(5) or 135(6). The penalty is the consequence of abiding the law, and not an alternative for the same.



Company can undertake CSR activities throughthe following three modes of Implementation,

1)Implementation by Company itself,

2)Implementation through eligible implementing agencies as per sub rule (1) of rule 4.

3)Implementation in collabration through one or more companies as prescribed in sub rule (4) of  rule 4.

Rule 4(1) of the Companies (CSR Policy) Rules, 2014 provides the eligible entities which can act as an implementing agency for undertaking CSR activities.

These are:

  • Entity established by the company itself or along with any other company – a company established under section 8 of the Act, or a registered public trust or a registered society, registered under section 12A and 80G of the Income Tax Act, 1961.
  • Entity established by the Central Government or State Government – a company established under section 8 of the Act, or a registered trust or a registered society.
  • Statutory bodies – any entity established under an Act of Parliament or a State legislature.
  • Other bodies – a company established under section 8 of the Act, or a registered public trust or a registered society, registered under section 12A and 80G of the Income Tax Act, 1961, and having an established track record of at least three years in undertaking similar activities.



As per rule 8(1) of the companies (CSR Policy) Rule,2014, the Board’s Report pertaining to any financial year, for a CSR eligible company, shall include an annual report on CSR containing particulars specified in Annexure  I or Annexure II.


Every Company which is required to comply with CSR policies must file the Form CSR2 with Ministry of Corporate affairs within 31st March every year.


As per rule 9, the Board of Directors of the company shall mandatorily disclose the following on their website if any, for Public access,

1) Composition of the CSR Committee,

2) CSR Policy,

3) Projects approved by the Board.


  • Eradicating hunger, poverty and malnutrition, 2 [promoting health care including preventive health] and sanitation 3 [Including contribution to the Swatch Bharat Kosh set-up by the Central Government for the promotion of sanitation] and making available safe drinking water;
  • Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects;
  • Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centers and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups;
  • Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water 4 [including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga];
  • Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional arts and handicrafts;
  • Measures for the benefit of armed forces veterans, war widows and their dependents, 5 [Central Armed Police Forces (CAPE) and Central Para Military Forces (CPMF) veterans, and their dependents including windows];
  • Training to promote rural sports, nationally recognized sports, Paralympic sports and Olympic sports;
  • Contribution to the Prime Minister’s National Relief Fund or 6 [Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund) or] any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women; 7
  • A)Contribution to incubators or research and development projects in the field of science, technology, engineering and medicine, funded by Central Government or State Government or Public Sector Undertaking or any agency of the Central Government or State Government; and
    Contributions to public funded Universities; Indian Institute of Technology (IITs); National Laboratories and autonomous bodies established under Department of Atomic Energy (DAE); Department of Biotechnology (DBT); Department of Science and Technology (DST); Department of Pharmaceuticals; Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH); Ministry of Electronics and Information Technology and other bodies, namely Defense Research and Development Organization (DRDO); Indian Council of Agricultural Research (ICAR); Indian Council of Medical Research (ICMR) and Council of Scientific and Industrial Research (CSIR), engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs)].

Section 8 Company: Conversion Of Society Into A Not-for-profit Company


A Society is formed for charitable assistance, promotion of science, literature, fine arts, foundation or maintenance of libraries, upkeep of historical buildings, museum and galleries of paintings, works of art etc.

Societies are governed by The Societies Registration Act. 1975.  There are various existing government societies and government-controlled societies registered under the said Act. The Government has considered to bring uniformity in the management and governance framework of the societies to enable the societies to work in a more efficient and transparent manner by bring the societies under the legal framework of The Companies Act,2013.

The existing societies have an option to convert them into a Private Company as per the Companies Act,2013 which would envisage them with the following benefit –

  1. Well established corporate governance process
  2. Timely filing of financials and annual accounts with the registrar under Section 129
  3. Regular Board and Committee meetings

Also, a private companies with charitable objectives can be incorporated under Section 8 of the Companies Act,2013

Section 8 companies are the companies which may be incorporated for

  1. charitable or not-for-profit purposes for charity, sports, promoting commerce, art, science, education, research, social welfare, religion, protection of environment or any such other object
  2. They shall apply the income for promoting the objects of the company.
  3. No dividend shall be paid to its members.



  1. As per Section 366 of the Companies Act, 2013, there is a requirement for a special resolution. Three-fourth of the members of the society should vote in favor of the special resolution to convert the society into a section 8 company.
  2. Prior consent from secured and unsecured creditors must have been obtained by the society.
  3. After a special resolution is passed in the meeting of members of society for such conversion All the promoter Directors of the Section 8 Company are required to obtain Digital Signature Certificate, and Director Identification Number along with the requisite documents as specified in Annexure 1.


  1. For the purpose of clause (b) of section 374 of the Act, every ‘society’ seeking registration shall publish an advertisement about registration under the said Part, seeking objections, if any within twenty-one clear days from the date of publication of notice and the said advertisement shall be in Form No.URC. 2, which shall be published in a newspaper and in English and in the principal vernacular language of the district in which Society is in existence and circulated in that district.
  2. Notice shall be given to the concerned Registrar (Society) under which it was originally registered and shall require that objections, if any to the Registrar, shall be made within a period of twenty-one days from the date of such notice, failing which it shall be presumed that they have no objection and the notice shall disclose the purpose and substance of matters in relation to objections.
  3. The Registrar shall, after considering the application and the objections, if any, received by him within thirty days from the date of publication of advertisement, and after ensuring that the company has addressed the objections, suitably decide whether the registration should or should not be granted.


A registered Society shall file a Form No. URC. 1 for proposed conversion to registration as a company limited by guarantee under section 8 and shall attach the documents mentioned in Annexure 2.

There should be two or more members for the purpose of registration.


Where an application is made by a society or trust for registration as a company limited by guarantee and it has been proved to the satisfaction of the Registrar that the proposed company has its objects in accordance with clause (a) of subsection (1) of section 8 of the Act and it intends to comply with the restrictions and prohibitions as mentioned respectively in clause (b) and clause (c) of that sub-section,

The Registrar shall issue a license in Form No. INC. 16 to allow such society or trust to be registered as a limited company under Section 8


After obtaining the license , the society shall apply for Name approval of the proposed Company in Part A of Spice+ .Thereafter Filing of Memorandum and Articles of Association (AoA) is required with other relevant papers as mentioned in Annexure 3  in Part B of Spice.

Thereupon the registrar will issue a certificate of incorporation in Form No.INC.11 for the incorporation of company.


Where a Society has obtained a certificate of registration as per section 367, an intimation to this effect shall be given, within fifteen days of such registration to the concerned Registrar (society) under which it was originally registered, along with necessary documents or papers for its dissolution as Society.

Annexure 1: Documents Required for DSC & DIN :

  1. Identity Proof: Copy of PAN Card – Self-Attested and attested by a Govt. Gazetted Officer
  2. Address Proof: Copy of Aadhar Card or Driving License) – Self-Attested and attested by a Govt. Gazetted Officer
  3. Photos: Soft Copy of Passport Size Photograph


  • A list showing the names, addresses and occupations of all persons, who on a day, not being more than six clear days before the day of seeking registration, were members of the society with proof of membership;
  • A list showing the particulars of persons proposed as the first directors of the company, along with DIN, passport number, if any, with expiry date, residential addresses and their interests in other firms or bodies corporate along with their consent to act as directors of the company;
  • A list containing the names and addresses of the members of the governing body of the society;
  • A certified copy of the certificate of registration of the society;
  • Written consent or No Objection Certificate from all the secured creditors of the applicant;
  • Written consent from the majority of members whether present in person or by proxy at a general meeting agreeing for such registration, and the resolution shall also provide for declaration of the amount of guarantee;
  • An undertaking that the proposed directors shall comply with the requirements of the Indian Stamp Act, 1899 (2 of 1899) as applicable;
  • A copy of the latest income tax return of the society;
  • Details of the objects of the company along with a declaration from all the members that the restrictions and prohibitions as mentioned in clause (b) and clause (c) of sub-section (1) of section 8 of the Act shall be complied.
  • In case a society or trust intending to register as a company under section 366 of the Act is registered under section 12A of the Income Tax Act, 1961 (43 of 1961) for claiming exemption on its income, an intimation in this regard shall be sent to the Income- tax authorities and proof of its service shall be attached.
  • A copy of the notice, as published and the copy of the notice served on Registrar (Societies) along with proof of service, shall be attached.
  • Statement of accounts, prepared not later than fifteen days preceding the date of seeking registration and certified by the Auditor together with the Audited Financial Statements of the previous year, wherever applicable shall be attached.

[Provided that if the assets of the existing company during the immediately preceding three years are revalued for the purpose of vesting of its assets with the company to be incorporated under this Act, the surplus arising out of such revaluation shall not be deemed to have been credited to the capital account or current account of partners.]

  • An undertaking from all the members or partners or trustees providing that in the event of registration as a company under Part I of Chapter XXI of the Act, necessary documents or papers shall be submitted to the registering or other authority with which the company was earlier registered, for its dissolution
  • The list of members and directors and any other particulars relating to the company which are required to be delivered to the Registrar shall be duly verified by the declaration of any two or more proposed directors.”.


For the Proposed Company:

  • Suggested Name of the Company (preferably 3 choices)
  • Proof of Proposed Address of the Registered Office

(Rental Agreement or Lease Deed along with rent receipts, And Telephone bill or Gas Bill or Mobile bill or EB Card with last two months bill Payment Receipt )

For the proposed Directors/Shareholders

  1. Copy of PAN Card (mandatory)
  2. AnyTwo of the following as proof of Identity:

(Copy of Passport or Voters Identity Card or Driving License or Aadhar Card)

  1. Any Oneof the following as proof of residence:

(Bank Statement or Electricity Bill or Telephone Bill or Mobile Bill.)