SECTION 25 COMPANY

1.MEANING

Companies which are formed for the following purpose are known as Section 25 Companies or Association not for Profit

For the purposes of promoting commerce, art, science, religion, charity to any other useful object

With intention to apply its profits or other income for promoting its objects, and • Which prohibits payment of any dividend to its members,

Section 25 Company is a voluntary association of person formed for promotional activities. Besides establishing a Trust and Society, the other alternative to establish a Non – Profit organization is Section 25 Company.

Section 25 Companies are formed as Public or Private Company having a limited liability under the Companies Act 1956. These companies can be formed with or without share capital, in case they are formed without capital, the necessary funds for carrying the business are brought in form of donations , subscriptions from members and general public.

Section 25 Companies can be formed only after obtaining the necessary licence from the Central Government, which imposes certain terms and conditions while granting the approval. In case the company fails to comply with the terms and condition at any point of time, the licence can be cancelled.

Section 25 Companies are not required to add the suffix Limited or Private Limited at the end of their name.

Due to their nature of business, the Government of India has relaxed the application of various provisions of the Companies Act on such companies.

2.PROCEDURE FOR REGISTRATION

Section 25 i.e. a non-profit company may be public or private. If the non-profit company is a private company a minimum of only two

members is required to form it. However, if the non-profit from is for a public purpose, then a minimum of seven are needed.

1. Application for a name applying for availability of name to the Registrar of Companies is the first step towards registration of the non-profit company. Four names are to be suggested to the Registrar in prescribed Form.

2. Memorandum and Articles Memorandum and Articles of the non-profit company are required to be approved by the Regional Director and the ROC. The documents required for submission of application are:

i)             Three printed copies of the memorandum and articles of association of the applicant company, signed by all the promoters with full name, address and occupation (No   stamp duty   is payable on the Memorandum and   Articles of Association )

ii)            A declaration by an advocate or a chartered accountant that the memorandum and articles of association have been drawn up in conformity with the provisions of the Act and that all the requirements of the Act and the rules made there under have been duly complied with, in respect of registration;

iii)           List of the names, addresses and occupation of the promoters, members of board of directors, name of companies, associations and other institutions in which promoters of the applicant company are directors or hold positions, description of the positions held by them (three copies)

iv)          Statement of assets and liabilities (“only existing company)

v)            Source of income of the Applicant Company and estimate of annual expenditure;

vi)           A statement giving a brief description of the work, if any, already done by the association and of the work proposed to be done by it after registration in pursuance of section 25;

vii)         A statement on grounds on which the application is made under section 25 of the Companies Act, 1956;

viii)        A declaration by each of the persons making the application that he/she is of sound mind, not an undischarged solvent, not convicted by a court for any offence and does not stand disqualified under section 203 of the Companies Act, 1956 for appointment as director.

 3. License under section 25 An application for the license under 25 for the company is to be submitted to the Regional Director (Department of Company Affairs). The license essentially permits the word 'Limited' or 'Private Limited' to be deleted from name of the company. It could take upto 12 weeks after application to receive the license under section 25 of the Companies Act 1956. Pursuant to application to the Regional Director (within seven days thereafter), the applicant company has to publish a notice in a newspaper where the registered office is situate and certified copy of the notice to filed with the Regional director.

 4. Registration with ROC Registration certificate is normally granted within one month after filing section 25 licenses; Converting existing company to section 25 companies The Companies Act, 1956 also facilitates the conversion of an existing company to a non-profit company. Foreign Director There is no bar under Indian law for a foreigner to be a Director in a section 25 company, (relevant permissions prescribed under the Foreign Exchange Management Act.).

3.ADVANTAGES OF A SECTION 25 COMPANY

1 .Freedom in choice of nameIndian companies 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. This helps the company to enjoy limited liability without disclosing to the public the nature of liability of its members.

2. Minimum Share Capital

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.

3.Type of a NON PROFIT ORGANISATIONIN INDIA, a NON-PROFIT ORGANISATION can be formed in the following three business structures only:

TrustSocietySection-25 Company.

So, you can form a NGO under section25company form and can enjoy its privileges.

4. Publication of NameA 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. Time and Place of AGMSection 25 Company are free to determine the date, place and time of its AGM according to their convenience and feasibility, provided the time, place and date of the AGM has been decided before hand by the Board of Directors

6. Notice of AGMSection 25 Company can hold an AGM after giving a notice of 14 days length instead of 21 days as required by section 171(1). Therefore they can call an AGM at a short notice of 14 days instead of 21 days.

7.Maintaining of Books of AccountsSection 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.

8.Service of Copies of Certain DocumentA Section 25 Company is allowed to send the required documents at least fourteen days before the date of meeting instead of 21 days.

9.Right of Persons other that Retiring Director to stand for DirectorshipIf the Articles of the Section 25 Company provide for election of the Directors by ballot system then the provisions of section 257 will not apply to such a company and as a result a person who is not a retiring director and is intending to stand for directorship will not have to follow

the procedure laid down by section 257. But if the Articles of the company do not provide for election of director by ballot then section 257 will have to be complied in whole.

10. Increase in Number of DirectorsSection 25 Companies are exempted from section 259 and are thus free to increase the number of its directors without seeking approval of central Government.

11. Admission of partnership firmDespite of the fact that law does not allow partnership firm to become a member of a body corporate as it does not have a legal personality of its own. But, still in case of section25 company, partnership firm is allowed to become its member.

12.Annual Returns of a Company not having Share CapitalEvery company not having a share capital is required by provisions of section 160 to file within 60 days of every Annual General Meeting, a return with the Registrar . 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.

13. Filing of Consent for DirectorshipEvery person who intends to stand for directorship in accordance with section 257 is required by section 264(1) to file with the company his consent to act as a director if he gets appointed as such. But this has been made non-applicable to the Section 25 Company and as such a person seeking appointment as director for first time need not file his consent in advance with the company for working as a director if appointed.

14. Board MeetingsUnder section 285 the meeting of Board of Directors should be held atleast 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 but should have held four meetings in a year.

15. Quorum for MeetingsThe 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 t1otal number of directors on the Board or atleast 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.

 16.Exercise of certain PowersUnder section 292 there are certain specified powers which a Board of Directors of the concerned company can exercise only by passing of resolution at the meeting. The Board can exercise all other powers by passing of resolutions by circulation instead of taking them at meetings by following the procedure specified in section 289 of the Act. However section 25 companies are allowed to decide following three matters by passing a resolution by circulation instead of at meetings:1. the power to borrow moneys other than on debentures,2. the power to invest funds of the company, and3. the power to make loans.

17. Disclosure of InterestSection 25 companies are allowed to conduct trade or business with private companies, firms or persons where some director may be having an interest provided such private company, firm or person regularly does trade or business in such a contract without seeking approval of Board again and again where the cost of such contracts exceeds five thousand rupees in a particular year in which such a contract is entered or seeking approval of central government where share capital of the company exceeds one crore rupees.

18.Maintenance of Registers of ContractsUnder 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.

19. Maintenance of Register of DirectorsUnder section 303 of the companies act every company is required to maintain a register containing particulars of its Directors, Managing Directors, Managers and Secretary in manner prescribed. These companies are further required to send to the Registrar of Company a duplicate in prescribed form containing all particulars of such register

and a notification in duplicate informing the Registrar of nay changes within 30 days of such changes. Section 25 company 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.

20. Qualification for SecretaryshipSection 25 Company is exempt from the provision of Companies (Appointment and Qualifications of Secretary) Rules, 1988 to the extent that the rules regarding the qualification of a Secretary do not apply to them. Thus they are free to appoint any person as its Secretary whom it feels fit and proper for the same.

4.DISADVANTAGES OF A SECTION 25 COMPANY

1.Restriction on profits earnedA Section 25 Company has to ensure that its profits and all other incomes are utilized only for the purpose of promoting its objects and not for any other purpose. It should also ensure that its profits are not distributed as dividend among its members.

2.Restriction on alteration of memorandumSection 25 Company cannot alter its objects clause in its Memorandum without seeking the written approval of central government. If an existing company obtains a license 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.

3.Compulsory compliancesIf the Central Government has imposed some conditions and regulations upon the company for granting a license under section 25 then such a company is bind by such conditions and has to ensure adequate compliance with them.

4,TaxationSection 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.

5.DIFFERENCE AMONG TRUST,SECTION 25 COMPANIES AND SOCIETY

BASIS OF DIFFERENCE

SECTION 25 COMPANY

SOCIETYTRUST

BASIC DOCUMENT Memorandum of AssociationArticles of Association

Memorandum of AssociationArticles of Association with rules & regulations.

Trust Deed – which contains objects of the trust (bye-law)

FORMATION Little Hard Simple Easy

JURISDICTION Registrar of Comapnies

Registrar of Societies

Deputy Registrar / Charity Commisioner

LEGISLATION / STATUTE

Indian Companies Act 1956

Societies Registration Act 1860

Relavent state Trust Act

OBJECTS Nonprofit Activities

Literary, Charitable, Scientific and resource oriented

Social benefits & Charitable

MODIFICATION OF OBJECTS

ComplicatedLegal Procedures

EasyLegal Procedures

Alteration can be undertaken only by the Founder.If the founder is deceased alteration of objects is impossible

REQUIRED MEMBERS

Minimum = 7Maximum = No limit

Minimum = 7Maximum = No limit

Minimum = 2Maximum = No limit

REGISTRATION As per Companies Act under Section 25

As Society with Society Registrar

As Trust with the Registrar.

STAMP DUTY No Stamp paper required for Memorandum of association and articles of association.

No stamp paper required for Memorandum of association, and rules and regulations.

4% of Trust property Value will be executed in non judicial stamp paper with the registrar

NAME Prior approval required from Registrar of Companies.

Very easy to choose

Very easy to choose

MANAGEMENT BOARD

Board of Directors &  Management committee

Governing Body Trustees

SUCCESSION IN MANAGEMENT

By Appointment By Election By Election

MEETINGS Quite Extensive as per the provision of Company Law

Annual Meeting As per Law. Governing Body meeting as per the rules of Society.

No provisions

LEGAL STATUS Full Legal Status Limited Legal Status

Limited Legal Status

STATUTORY REGULATIONS

Exhaustive Limited Nominal

MEMBERSHIP TRANSFER

Free or Control as per desire.

Impossible Impossible

MEMBER ADMISSION

General Body or Board Control through issue of

Governing Body Control

Not applicable

Capital.

DISSOLUTION OR TAKE OVER BY STATE

Very risky and difficult

Possible Possible

PAYMENT TO MEMBERS

As approved by Company & State.

Not restricted As notified in Trust deed