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 Under Indian law, 3 legal forms exist for Non-Profit organizations:

  1. Trusts
  2. Societies
  3. Section 25 companies

 Due to better laws, Section 25 companies have the most reliable strongest organizational structure. Section 25 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 licence by the central government recognizing them as such. Thus, there are three criteria for determining whether a particular company is section 25 company or not:

1) Its objects should be only to promote commerce, art, science, religion, charity or any other useful object.

2) It should intend to apply its profits or other incomes only in promoting its objects; and

3) Central government should have granted a licence to such a company recognizing them as such, these types of companies can be either public company or private company having a limited liability.

FORMATION PROCEDURE OF SECTION 25 COMPANIES:

Step – 1 Form 1A: Name approval: An application in E-Form 1A has to be made for availability of name to the registrar of companies, with a fee of Rs. 500/-. It can be filed electronically. Six name in preferential order need to be proposed

Step-2 Application to Regional Director: After the availability of name is confirmed, an application should be made in writing to the regional director of the company law board for granting license under this section. The application must include copies of the memorandum and articles of association of the proposed company, as well as a number of other documents, including a statement of assets and a brief description of the work proposed to be done upon registration. 

Step – 3 Filing of Application copy to the RoC: The applicants must also furnish to the registrar of companies (of the state in which the registered office of the proposed company is to be, or is situate) a copy of the application and each of the other documents that had been filed before the regional director of the company law board.

 Step – 4 Publication of Notice: Within a week from the date of making the application to the regional director of the company law board, the applicants are required to publish a notice in the prescribed manner at least once in at least two news papers. One notice should be in an English newspaper circulating in that district and in a  language of the district in which the registered office of the proposed company is to be situated or is situated and circulating in that district.

 Step – 5 Grant of Approval: If the registrar satisfies that the application is complete in all respects and in the best interest of the country, regional director can grant the licence under this section with or without conditions and may also direct the company to insert in its memorandum, or in its articles, or in both, such conditions of the licence as may be specified by him in this behalf

Step – 6 Other Incorporation formalities: After obtaining licence under section 25 the company shall be formed as a normal company and the other formalities of incorporation shall be complied with.

Step – 7 Registration under Section 80G: If a section 25 company gets itself registered under section 80G then the person or the organization making a donation to the NGO will get a deduction of 50% from his/its taxable income. The company has to apply in Form No. 10G to the Commissioner of Income Tax for such registration. Normally this approval is granted for 2-3 years but can be granted earlier depending upon the situations.

Grant of licence to an existing company:

An existing company should pass special resolution to restrict its object for non-profit making purposes and also obtain approval of the Company Law Board for the same. Name of the company should be changed (including deletion of the word ‘limited’ or ‘private limited’ ) with the permission of the Central Government . 

The ADVANTAGES of section 25 companies over other companies registered under companies act are discussed below:

 1)      All companies having limited liability are required to use the term ‘limited’ or ‘private limited’ as the case may be in their names as required by section 13. But section 25 companies are allowed to dispense with the use of term ‘limited’ or ‘private limited’ from their names [sub-sec. (6)]. This helps the company to enjoy limited liability without disclosing to the public the nature of liability of its members.

2)      A partnership firm is allowed to be a member of the section 25 company [sub-sec (4)] inspite of the fact that the law does not recognizes them as a legal person. The only limitation in this regard is that on dissolution of such a firm its membership of the company ceases.

3)      Minimum Share Capital: As per the provision of section 3 of the companies act a private company is required to have a minimum share capital of rupees one lakh and public company is required to have minimum share capital of five lakh rupees. However Section 25 Companies have been exempted from this requirement regarding minimum share capital by insertion of sub-section (6) through Amendment Act of 2000. As such they can be registered even if they have share capital less than the statutory minimum.

4)      Publication of Name: A section 25 company has been exempted from the provisions of section 147 and as such is not required to mention its name and address as required in case of all other companies.

5)      Annual Returns of a Company not having Share Capital: Section 25 Company without a share capital is also required to file returns with the Registrar as required by section 160 but it has been exempted from mentioning the particulars of the members who are presently with the company or have ceased to be members since holding of its last AGM.

6)      Time and Place of AGM: Section 25 Company has been exempted from provisions provided under section 166(2), As such they are free to determine the date, place and time of its AGM according to their convenience and feasibility the only condition being that time, place and date of such meeting should have been pre determined by the Board of Directors in accordance with directions of the company if any.

7)      Notice of AGM: By virtue of section 171(1) a company is required to call AGM by giving not less than 21 days notice in writing to its members. But Section 25 Company has been given some relief in this regard by allowing them to hold an AGM after giving a notice of 14 days length instead of 21 days as required by section 171(1).

8)      Maintaining of Books of Accounts: Every company is required by section 209(4-A) to maintain books of accounts relating to a period of eight years immediately preceding current year along with its vouchers. However a Section 25 Company is required to maintain books of account relating to a period of only four years instead of eight years immediately preceding the current year.

9)      Increase in Number of Directors: Under section 259 a public company is not allowed to increase the number of it directors beyond the permissible limits under its articles without the approval of Central Government provided such increase results in total number of directors to go beyond twelve. But Section 25 Companies are exempted from this section and are thus free to increase the number of its directors without seeking approval of central government[vide Notification No. 2767, dated 5-8-1964].

10)  Board Meetings: Under section 285 the meeting of Board of Directors should be held at least once in every three months and four meetings should be held in a year. However section 25 companies are required to hold meetings of Board of Directors/Executive Committee/Governing Committee only once in every six months [vide Notification No. SO 1578 dated 1-7-1968]. The rest of the section 285 will apply to section 25 companies as it is, therefore section 25 companies are allowed to hold Board meetings only once in six months but should have held four meetings in a year.

11)  Quorum for Meetings: The required quorum for a board meeting of any company under section 287 is one/third of its total strength which is arrived at after deducting the number of interested directors from the total number of directors on the Board or at least two whichever is higher. But the section 25 company is exempt from this section to the extent that the required quorum for any board meeting is eight members or one/fourth of its total strength whichever is less provided it should not be less than two members in any case.

12)  Exercise of certain Powers: Section 25 companies are allowed to decide following three matters by passing a resolution by circulation instead of at meetings: · the power to borrow moneys other than on debentures, · the power to invest funds of the company, and · the power to make loans. The remaining powers specified in section 292 viz., power to make calls on shareholders in respect of money unpaid on their shares; power to authorise by back of shares in accordance with section 77A; and power to issue debentures, can be exercised only by passing of resolutions at duly conducted meeting of Board of Directors of section 25 company [vide Notification No. 2767, dated 5-8-1964].

13)  Maintenance of Registers of Contracts: Under section 301 a company is required to maintain register of all the contracts to which section 297 or 299 applies. But a section 25 company is exempt to the extent that it allowed to maintain register of only those contracts to which sub-sections (1) and (3) of section 297 apply. Thus they are exempted from maintaining registers of those contracts which are made in pursuance of sub-section (2) of section 297 or are covered by section 299.

14)  Maintenance of Register of Directors: Section 25 company has been exempted from operation of sub-section (2) of section 303 and as such they are not required to notify changes among its directors, etc to the Registrar. They are only required to maintain Registers of their Directors, Managing Directors, Managers and Secretary in prescribed format containing specified particulars and updating the register by making changes in it as when there is some change among the Directors, Managing Directors, Managers and Secretary of the company.

15)  Qualification for Secretaryship: A Section 25 Company is exempt from the provision of section2(45) to the extent that the rules regarding the qualification of a Secretary do not apply to them [vide Notification NO. F.2/3/76-CLV dated 09-01-1976]. As section 2(45) do not apply to them they are free to appoint any person as its Secretary whom it feels fit and proper for the same.

16)  Applicability of CARO: Section 25 Companies are exempted from applicability of Companies Auditor’s Report Order 2003(CARO). CARO has been made applicable to all companies from 1st January 2004. But CARO expressly exempts section 25 companies from its applicability vide Clause 2(iii) of Para I of the Order.

17)  Payment of Registration Fees: The fees payable by a Section 25 Company at the time of registration and further increase of its share capital has been kept very low in comparison to other companies and is at present fixed at mere Rs. 50/- irrespective of the authorized amount of share capital (Circular No. 6 dated 24-06-1996 and Notification No. SO 3879 dated 22-12-1962)

18)  Stamping of Memorandum and Articles: The Articles and Memorandum of a Section 25 Company are not required to be stamped in accordance with the Indian Stamp Act, 1899.

19)  Raising Money: A Company can sell shares of the Company to the public or can accept deposits from public and can therefore raise money easier than other business structure types. The modes of financing business carried on by company are numerous

20)  Easy Transferable Ownership: The shares and other interest of any member in the Company shall be a movable property and can be transferable in the manner provided by the Articles, which is otherwise not easily possible in other business forms. Therefore , it is easier to become or leave the membership of the Company or otherwise it is easier to transfer the ownership.

Drawbacks or Obligations of section 25 companies:

 

Though a Section 25 Company has many advantages and enjoys many privileges yet there are some statutory obligations which are required to be complied with and taken care of by such companies.

1) A Section 25 Company has to ensure that its profits and all other incomes are utilised only for the purpose of promoting its objects and not for any other purpose.

2) It should also ensure that its profits are not distributed as dividend among its members.

3) Section 25 Company cannot alter its objects clause in its Memorandum without seeking the written approval of central government [sub section (8)].

4) If the Central Government has imposed some conditions and regulations upon the company for granting a licence under section 25 then such a company is bound by such conditions and has to ensure adequate compliance with them. Where such conditions and regulations have been imposed then such conditions and regulations are required to be included in the Articles or/and memorandum of the company as may be directed by the government.

5) Section 25 Company is regarded as a ‘company’ within the meaning of the Income Tax Act, 1961 and as such its income is taxable according to the applicable rates similar to those applying to other companies.

 6) If an existing company obtains a licence under section 25 it has to ensure that its objects are confined to those mentioned in section 25 itself and if not make proper alteration to its memorandum and articles.

7) Long Closing Proceedings: It is generally not easy to close the company as compared to other forms of business, the procedure to close is long and involves compliance of various formalities, at times it takes 1-2 years to completely wind-up the company. Moreover in certain cases, it is necessary to take the permission of the High Court to close the Company.

Revocation of Licence: The Central Government after giving reasonable opportunity of hearing can revoke the licence by passing a speaking order.

 Winding up of the company It can also be wound up if the objects for which it had been established have been fully achieved. The surplus assets if any may be given to a similar charitable cause.

 Hence, having noticed various benefits and drawbacks of section 25 companies, its clear that such companies are a well regulated form of non-profit organizations and the prescribed incorporation and dissolution procedures and other provisions helps the government in keeping a check on the working of such companies.

77 Responses to “SECTION 25 COMPANIES UNDER COMPANIES ACT 1956”

  1. Ramnarayan

    Sir
    Mera naam Ramnarayan hai aur maine Upasac co.(uttrakhand parvatiya sanvardhan co. ) me 6 saal tak kaam kiya as a business promotor humara epf katta tha hume sallary a/c me aati thi medical insurence ka katta tha aur tds ka bhi kata tha bawjood iske ki co. ne ak din hum 7 employes ko gramin local samitee jo ki swayatt sahkarita hai unke under kar diya aur kaha ki ab aapko inke saath hi kaam karna hai co.sallry samitee ko degi aur samitee apko samitee ke under hone se hume kaphi nuksaan hai humara paisa tak kata jata hai .
    kya is sambandh me koi humari help kar sakta hai aur kya saal do saal gujar jane ke baad bhi hum labour court ja sakte hai .Mo -7895291799

    Reply
  2. Vijay Puri

    Is section 25 company governed by the new rules framed under the Indian Company’s Act for election of directors i.e deposit of Rs.1.00 lac as security deposit for contesting an election.

    Reply
  3. PARUL

    CAN US SAY UNDER WHICH FORM WILL THE COPY OF ADVT PUBLISHED IN PAPERS AFTER FILING FORM RD 1 FOR FORMING SEC 8 CO BE INTIMATED TO ROC/RD??

    Reply
  4. Tushar

    Can you help me understand if a division of a public company can be converted into a Section 25 (now Section 8) company?

    Reply
  5. A K MUKHERJEE

    dear sir,
    I stay in a complex in kolkatta our complex has 615 flats at present the complex is run by section 25 company which is under promoter and we are the share holder ( residents ) however we want to get registerd as per west bengal flat owners association act 1998 what is the procedure to be followed we want o take over the maintainece from promoter what is the legal hindrence we will face in this process

    Reply
  6. Tashu

    how can i get notification material which implies that a sec25 co. need not hold the board meeting inevery quarter…..
    plz ans its urgent

    Reply
  7. Dipak

    Can a Section 25 Company own shares in other comopanies or Section 25 companies/trust/society?

    Reply
  8. Divya

    Now theRD dont have any role in incorporation, the concerned ROC has the powers in granting licence and approving the incorporation of Section 25 Company.

    Reply
  9. Shruthi Shankar

    Is there any role of RD to incorporate Section 25 Company or not. I have got mixed opinions and thus need a proper clarification.

    Reply
  10. Sandip Gajipara

    We want to increase authorize capital of section 25 Company. and the MOA, Restricted without approval of RD.
    Whats procedure for increase autho. capital u/s 25 Companies. step wise.

    Reply
  11. NEEL S. DOSHI

    Hi all,

    Is a Private Educational University considered to be a Sec 25 Co.

    If Yes the eligible Funds in which it can invest its liquid funds for time being ?

    Plz reply

    Reply
  12. saurabh mishra

    is it possible to any company registered under sec-25, can recd.money from any one and give to them with interest (like insurance company or capital company) please suggest me As soon as possible…

    Reply
  13. Ashok

    Is there any difference in Accounting procedures for reimbursement of expenses(Travel, Boarding and Lodging etc.) of the employees of an NGO registered under Section 25 in contrast to an NGO registered as Society/Trust ?
    Specifically, is it so that all expenses have to be supported by valid vouchers/receipts for a section 25 company whereas in case of Society/Trust , it is not so ?

    Reply
  14. Somnath

    Can a NGO registered under societies act can apply for registration under companies act u/s 25

    Reply
  15. Jaspreet Singh

    Hi,

    I am looking forward to initiate an NGO. Is there a consultation company through which we can get it done at a pace?

    Regards,
    Jaspreet Singh

    Reply
  16. Jaspreet Singh

    Hi,

    I am looking forward to begin an NGO. Is there any consultant through whom we can get it registered in Delhi conveniently?

    Regards,
    Jaspreet

    Reply
  17. sanjiv Mathur

    what shall be the procedure for converting a Cooperative society, registered under Multi-State Cooperative Societies Act 2002, into a Sec 25 company.

    Reply
  18. Shivam verma

    Ur answer is one by passing a ordinary resolution in board meeting
    then a seperate special resolution in general meeting for every alteration

    Reply
  19. dipika

    can nybody tell me the format of various resolutions and documents filed for the conversion of private company into a section 25 company

    Reply
  20. Manish

    i think you are closing procedure is quite easy for section 25 companies. you have make an application for surrender of licence to Respective ROC. ROC have delegated power to revoke the licence and in same application ask ROC to declare its company status as defunct.then follow normal procedure to strike off the name of company.

    Reply
  21. K Pradeep

    can any one provide the procedure for 1.conversion of section 25 company into pvt ltd? 2. procedure for alteration of objects of section 25 company? 3. procedure for closure of section 25 company?
    it would be greatful if u provide documentation or checklist if any.

    thank u in advance.

    Reply
  22. Rachana Chhabra

    I am a Special Educator by Profession. I have started a sheltered workshop for the mentally challenged adults, where these individuals come and work and the proceedings collected from the articles they make is distributed among these individuals.
    I now want to make a trust or company for the benefit of the mentally challenged..
    My questions are:
    1)Which is a better option Trust or Company?
    2) As a teacher teaching there and a trustee or director, can i take a remuneration for teaching there?
    3)How long will it take for the proceedings to form a trust or Company and get 80G?

    Thank You

    Reply
  23. Parvinder

    If we are a one section of Govt. organization can we apply for company under section 25 act.

    Reply
  24. Prashant agale

    The project affected women wants to register a organisation under company act 1956 for providing development services to the women. can you please help us to register organisation.
    We belive that each one us has social responsibility to help the underpreviliged to bring them into mainstream of the society.I request you to kindly help us to register the organisation.
    Prashant agale,
    Mumbai,

    Reply
  25. BS BHADAURIYA

    Just chanced upon your name during searching material for 25 companies.

    Would like to be in touch with you for professional and personal contacts, I also being Bhadauriya.

    My particulars are as follows;

    B.S.BHADAURIYA
    VICE PRESIDENT ( LEGAL) & COMPANY SECRETARY
    LUMAX INDUSTRIES LTD.
    09810850577
    bsbhadauriya@lumaxmail.com

    Reply
    • BS BHADAURIYA

      Dear Parul,

      I have gone through various articles on this and would like share with all members for inforamtion but I am unable to attach here as the same when attached is not properly readable.

      Please advise how can I send attachment for information of all of you.

      I am trying to find more on this subject about the Income tax implications, which at present I find that the same are adverse in the case of 25 Companies. But I am not aware of such implications in case of Trust ( public Trust) or Society.

      B.S.BHADAURIYA
      bsbhadauriya@lumaxmail.com

      Reply
  26. CS Bhavin Mehta

    Kindly note that w.e.f. 31 December, 2007, Section 25 company has to pay registration fees as per rates applicable to normal companies. (refer to Notification No.F No 3/2/2007/CL.V dated 28 December, 2007)

    Reply
  27. Shyam

    Realy a good article containing use full information about the Section 25 company, which helps the people in incorporationg the Section 25 company & know the privilages and drawbacks as well.

    Reply
  28. P. Haramohan

    Very informative article on a burning topic. Social activist often take wrong decision in deciding the proper type of organisation to float to carry on developmental activities of different scale in a smooth & convenient manner. The present article serves as a Guide to lead them the way in a befitting manner.

    Reply
  29. balaji B. Somvanshi

    i wnat to registration company act 1956 sec. 25 to work multiple with people development through social activity, economic, education, can i?
    please inform me and help me to registration in maharshtra.

    Reply

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