Section 25 Company, An Overview

Kautilya Legal SolutionsThe recent amendments of this decade in the Companies Act 1956, together with the amendments in Income Tax Laws and RBI regulations have been much adored and is in vogue among the social entities like trusts, societies and other NPO’s. Section 25 Company or a Non-Profit organization (NPO) is a Company established for promoting commerce, art, science, religion, charity or any other useful object, provided the profits, if any, or other income is applied for promoting only the objects of the company and no dividend is paid to its members.

The norms regarding incorporation and regulation of Section 25 Company has been diluted by the Government, in order to regularize the grey area of income being generated by the trusts and the Societies, and also to centralize the existing social organisations and NPO’S.

This dilution in norms have made the path easier for the Donors, and passive owners of  NPO’s to receive foreign funds, to provide better alternatives to regulate the assets and liabilities existing under the trusts or societies , in proper and more efficient way, and above all to enjoy the status of being a legal Person in form of a company which immunes them from personal liabilities.

A Company NPO/NGO can be formed for promotion of any useful object like sports, education, research activities etc. The term No Profit does not mean that the Company cannot generate profit or income, but it essentially means applying the income for further promotion of the object and not for distributing it to the promoters. It means that the Company can earn profits but the promoters cannot be benefited out of those profits.

Moreover recently CBSE has given affiliation to the Section 25 Company.

To Apply for registration, following procedure can be followed:

1. An application has to be made for availability of name to the registrar of companies, which must be made in the prescribed form no. 1A, together with a fee of Rs.500/-. It is advisable to suggest a choice of three other names by which the company will be called, in case the first name which is proposed is not found acceptable by the registrar.

2. Once the availability of name is confirmed, an application should be made in writing to the regional director of the company law board. The application should be accompanied by the following documents:

Three printed or typewritten copies of the memorandum and articles of association of the proposed company, duly signed by all the promoters with full name, address and occupation.
A declaration by an advocate or a chartered accountant (Or practicing company secretary or cost 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 thereunder have been duly complied with, in respect of registration or matters incidental or supplementary thereto.
Three copies of a list of the names, addresses and occupations of the promoters (and where a firm is a promoter, of each partner in the firm), as well as of the members of the proposed board of directors, together with the names of companies, associations and other institutions in which such promoters, partners and members of the proposed board of directors are directors or hold responsible positions, if any, with description of the positions so held.
A statement showing in detail the assets (with the estimated values thereof) and the liabilities of the association, as on the date of the application or within seven days of that date.
An estimate of the future annual income and expenditure of the proposed company, specifying the sources of the income and the objects of the expenditure.
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.
A statement specifying briefly the grounds on which the application is made.
A declaration by each of the persons making the application that he/she is of sound mind, not an undischarged insolvent, not convicted by a court for any offence and does not stand disqualified under section 203 of the Companies Act 1956, for appointment as a director.

3. The applicants should also, within a week from the date of making the application to the registrar of the companies, publish a notice in the prescribed manner at least once in a newspaper in a principal 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, and at least once in an English newspaper circulating in that district.

4. The registrar of companies may, after considering the objections, if any, received within 30 days from the date of publication of the notice in the newspapers, and after consulting any authority, department or ministry, as he may, in his discretion, decide, determine whether the licence should or should not be granted.

5. The registrar of companies 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.

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