Conferring of corporate personality to associations that promote cultural and charitable objects, but exempting them from the operation of some cumbersome requirements (which are essential only for regulation of business bodies but are difficult for compliance by non-profit companies), are the noteworthy features that are provided under the Companies Act, 1956. According to section 25(1), “Where it is proved to the satisfaction of the Central Government that an association:
Is about to be formed as a limited company for promoting commerce, art, science, religion, charity or any other useful object,
Intends to apply its profits, if any, or other income in promoting its objects, and to prohibit the payment of any dividend to its members,
the Central Government may, by license, direct that the association may be registered as a company with limited liability, without addition to its name of the word “Limited” or the words ‘Private Limited’.”
Existing companies complying with the above requirements may also be given such license by the Central Government (Sec 25{1}). The License system presupposes imposition of conditions and compulsion to comply with them (sec {5}). It insists on duty not to alter the object clauses of its memorandum. It provides for revocation of licenses after due hearing in case of deviance from statutory requirement (Sec 25 {7} and {8}).
The Central Government by notification under section 25(6) has provided for several exemptions and privileges to non-profit companies. Prominent among them include exemptions from publication of name (sec147); exemption from filing of annual return about membership [sec166 (2)]; liberty to hold general body meeting on public holidays or outside the business hours [sec166 (2)]; reduction of time length of meeting notice to 14 days instead of 21 (sec 171(1)); requirement to keep books of account of past four years instead of eight years (sec 209(4a)); exemption from the requirement of Central Government’s permission for enhancing the number of directors (sec 259); relaxation in holding Board meeting (once in six months instead of three months)(sec 285) and its quorum (sec 287); competence of the Board to decide about borrowing of money, investing of funds or making of loan by circulation instead of by holding meeting (sec292);exemption from the requirements of intimating to the registrar the particulars about change in the composition of the Board (sec 303); relaxation in the matters of quantum loan or purchase of shares that can be made by the company without central government prior approval (sec 370 & 372). Finally, registration under section 25 is a prima facie proof that the body is not for profit and there is no element of sale when a club serves refreshments to the members and hence, Sales Tax is not applicable.
Documents required for company under section 25
- Draft of the Memorandum and Articles of Association.
- Details such as name, address, occupation of the promoters.
- List of companies, associations in which the promoters are directors or hold responsible position with the description of the position held.
- List of the proposed members of the Board of Directors.
- Declaration signed by an Advocate / Chartered Accountant / Company Secretary on non-judicial stamp paper of appropriate value.
- The proposed sources of income and the expenditures thereof.
- A note on the proposed activities and also the past activities, if any.
- A statement of the grounds for making an application under section 25. In this statement a reference to the relevant clause in the Memorandum of Association regarding the Vision and Mission of the proposed company should be made.
- Declaration signed by all the promoters on non-judicial Stamp Paper of appropriate value.
- In case of an existing society applying for conversion into a section 25 company, audited statement of accounts and annual report of the society for the past two years should be submitted.
- A certified copy of the notice to be published in newspapers.
To form a Company under Section-25 in India just fill this form: