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Section 25 Company in India

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 license by the central government recognizing them as such.

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Section 25 companies should intend to apply its profits, if any or other income only in promoting its objects and must also prohibits payment of dividend to its members.

There are three criteria for determining whether a particular company is section 25 company:
  • Its objects should be only to promote commerce, art, science, religion, charity or any other useful object
  • It should intend to apply its profits or other incomes only in promoting its objects
  • Central government should have granted a license to such a company recognizing them as such

Advantage Of Section 25 Company Or Benefits Of Section 25 Company

The section 25 company enjoys all advantages that any other limited company registered under companies act enjoys. But apart from these advantages there are some specific privileges conferred upon them that distinguish them from other companies. These privileges are in nature of exemptions from some provisions of the companies act or apply with some modifications to section 25 company.

  • 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 les than the statutory minimum.
  • 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.
  • Time and Place of AGM: Section 25 Company has been exempted from this provision provided the time place and date of the AGM has been decided before hand by the Board of Directors having regard to the direction given by the company in a General Meeting. As such they are free to determine the date, place and time of its AGM according to their convenience and feasibility
  • Notice of AGM: 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). Therefore they can call an AGM at a short notice of 14 days instead of 21 days
  • 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.
  • Service of Copies of Certain Documents: a Section 25 Company is allowed to send the required documents at least fourteen days before the date of meeting instead of 21 days [vide Notification No. GSR 73 dated 30-12-1965].
  • Right of Persons other that Retiring Director to stand for Directorship: If 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.
  • Increase in Number of Directors: Section 25 Companies are exempted from section 259 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].

Responsibility Of Section 25 Company Or Obligations Of Section 25 Company, Disadvantage Of Section 25 Company
  • A 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.
  • Section 25 Company cannot alter its objects clause in its Memorandum without seeking the written approval of central government
  • If 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.
  • 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.
  • 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.

How to Form Section 25 Company or Procedure to Form Section 25 Company

An application in form 1A is to be made to the Registrar of Companies along with a fee of Rs. 500/- Desired names for the organization in the order of preference are to be mentioned in the application form. Normally, the Registrar inform about the availability of the name within 7 days.

Following documents are required
  • Draft of the Memorandum and Articles of Association. (in triplicate).
  • Details such as name, address, occupation of the promoters. (in triplicate).
  • 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 (in triplicate) should be submitted.
  • A certified copy of the notice to be published in newspapers

Within one week of making an application to the Regional Director a notice is required to be published in one English newspaper and one vernacular newspaper of the local area in which the Registered Office is situated.

Grant of License and Certificate of incorporation

The Regional Director scrutinizes the application received by him. The Registrar of Companies, to whom a copy is sent, also forwards his recommendations to the Regional Director.

The Government by issue of license allow an association be registered as a company with limited liability for the members, without the addition to its name of the word "Limited" or the words "Private Limited".

After receiving the license / approval an application is to be made to the Registrar of Companies (ROC) along with following documents:

  • Printed copy of the Memorandum and Articles of Association.
  • The license granted by the Regional Director.
  • One copy of Form 1
  • One copy of Form 18
  • Two copies of Form 32
  • The requisite amount of fees payable which is Rs. 50 plus Rs. 10 per document; i.e., Form1, Form 18, Form 32.

The Registrar of Companies after scrutinizing the requisite documents shall issue a Certificate of Incorporation.