SECTION 25 COMPANIES

ByShelley Anandhavalli. E

Advocate

Altacit GlobalEmail: info@altacit.com Website: www.altacit.com

INTRODUCTION

• Section 25(1)(a) and (b) of the Indian Companies Act, 1956 are

– formed for the sole purpose of promoting commerce, art, science, religion, charity

– any other useful object

– that have been granted a license by the central government recognizing them as such.

CRITERIA

• 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,

REQUISITES

• Section 25 Companies should apply its profits, if any, or other income

– only in promoting its objects

– must also prohibit payment of dividend to its members.

SECTION 25 COMPANIES

• can be either public company or private company having a limited liability.

• a license from Central Govt. under section 25 enables them to drop the word ‘limited’ or ‘private limited’ from their names.

WHY SEC 25 COMPANY?

• Section 25 companies have the most reliable, strongest organisational structure:

– Indian Trusts have no central law.

– Indian Societies have different legal and institutional frameworks from state to state.

– Indian Companies (incl. Sec 25 companies), have one uniform law across the country - Companies Act 1956.

  SECTION 25 COMPANY SOCIETY TRUST

Objects Non-profit activitiesCharitable, Literary,

Scientific, etcCharitable, Socially

beneficial

Statute/LawIndian Companies Act

1956Societies Registration Act

1860Indian Trust Act, 1882

Alternation of objects Complex legal procedure Simple procedureNormally only Settlor can

modify

ManagementFormalities of Company

law have to be observed.Few restrictions imposed

under the ActVery few restrictions

imposed under the Act

MeetingsTo be held as per

provisions of law which are quite extensive.

Annual meeting as per law and Rules of the

societyNo provisions laid down

PenaltiesVarious offences and lapses attract severe

penalties.

Few offences and penalties have been

prescribedVery negligible

Legal Status Full legal statusLegal status with certain

limitationsLegal status with

limitations

Statutory Regulation Exhaustive but mature Very limited Nominal

Removal of membersNot possible without

consentPossible without consent Not applicable

Dissolution or takeover by state

Very difficult Possible Possible

PRIVILEGES AND ADVANTAGES

• Enjoy Limited company stature without disclosing to the public whether the liability of its members is limited by share or guarantee.

• A partnership firm is allowed to be a member [inspite of the fact that the law does not recognises them as a legal person]

• Minimum Share Capital (can be registered even if they have share capital lesS than the statutory minimum

CNTD..

• Publication of Name not necessary

• Annual Returns of a Company not having Share Capital [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.]

• Time and Place of Annual General Meeting– free to determine the date, place and time of its AGM,

• Condition should have been pre determined by the Board of Directors in accordance with directions of the company if any.

CNTD..

• Notice of AGMAGM at a short notice of 14 days instead of 21 days

• Maintaining of Books of Accounts– 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– atleast fourteen days before the date of meeting

instead of 21 days

CNTD..

• 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.

• Increase in Number of Directors– Can increase the number of its directors without seeking

approval of central government

CNTD..

• Filing of Consent for Directorship• Number of Board meetings• Quorum for Meetings• Disclosure of Interest• Maintenance of Registers of Contracts• Maintenance of Register of Directors• Qualification for Secretaryship• Applicability of Companies Auditor’s Report Order• Payment of Registration Fees- at present fixed at mere

Rs. 50/- irrespective of the authorized amount of share capital

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

– the power to make loans.

OBLIGATIONS

• ensure that its profits and all other incomes are utilised only for the purpose of promoting its objects and not for any other purpose.

• ensure that its profits are not distributed as dividend among its members.

• cannot alter its objects clause in its Memorandum without seeking the written approval of central government

CNTD..

• ensure adequate compliance with the Central Government’s imposed conditions and regulations upon the company for granting a license under section 25.

• 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.

CNTD..

• Section 25 Company is regarded as a ‘company’ within the meaning of the Income Tax Act, 1961 – 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 – ensure that its objects are confined to those mentioned in section 25

itself and if not make proper alteration to its memorandum and articles.

• required to comply with all other provisions of the Act– just like any other normal company from which it has not been

expressly exempted.

• THANK YOU