Formation of section 25

Note on Formation of ‘Section 25 Company’ under Companies Act, 1956



“Section 25 companies are those companies set up for promoting commerce, art, science, religion, charity or any other useful object. Section 25 company is a ‘Trust Corporation’. “ The incorporation of a Section 25 company is regulated by The Companies Regulation, 1956.



Requirements



1. Minimum of 2 members for Private Company and 7 members for Public Company.

2. Minimum of 2 directors for Private Company and 3 directors for Public Company.

3. The Company may or may not have share capital.

4. Company having share capital requires Paid-up Capital of not less than Re.1.

5. Directors to have DIN No. and one director to have DSC.

6. Main Objects of the Company should be “promoting commerce, art, science, religion, charity or any other useful object.” and to

7. Apply its profit for promoting its object and prohibit payment of dividend to its members.



Procedure



1. Make Application to Registrar of Companies for Name Availability.(eForm 1A)

2. On approval of Name, to make an Application to Regional Director (eForm 24A) for grant of License under Section 25 in order to delete the words “Private Limited” from the Company’s Name.

3. Application to be accompanied by the following set of documents.

a. Memorandum and Articles of association

b. Declaration by the proposed directors (in Non-judicial Stamp paper) as per annexure V of Companies Regulation Act 1956.

c. Declaration by advocate of Supreme Court or High Court, attorney or pleader entitled to appear before a High Court or a company secretary or chartered accountant in whole time practice (in Non-judicial Stamp paper) that the MoA and AoA have been drawn in conformity with provisions of the Act.

d. Details of the promoters and of the proposed directors of the company

e. List of the names, descripttttions, 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 or 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 descripttttions of the positions so held.

f. 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.

g. 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.

h. A statement giving a brief descripttttion 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.

i. Statement of the grounds on which application is made.

j. Notice in newspaper (in English and Tamil newspaper circulating in the district).

k. A copy of the application along with full set of documents attached to be sent to the Registrar of Companies.

l. A letter of authority favouring a person to represent the Promoters application before the Regional Director and Registrar of Companies to be given by the Promoters.



4. On satisfaction the regional Director will issue Licence in a standard format with subject to certain conditions.

5. The Licence No. granted by the Regional Director should be entered in the Application to Registrar of Companies in eForm 1 for the registration of the Companies along with eForm 18 (Address of Registered Office) and eForm 32 (Director appointment details).

6. Stamp Duty of Rs. 20 to be paid online for eForm 1. (Nil duty for MoA & AoA).

7. Power of Attorney signed by all the subscribers of MOA authorizing one of the subscribers or any other person to act on their behalf for the purpose of incorporation and accepting the certificate of incorporation.

8. Obtain Certificate of Incorporation from Registrar of Companies.

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PRIVILEGES AND OBLIGATIONS OF SEC. 25 COMPANY

Privileges

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 companies.

1. Exemption from use of term ‘Private Limited’ from the name of Company.

2. Partnership Firm can be a member of this Company.

3. No statutory limit of1 Lac minimum paid-up capital; can have lesser also.

4. Not required to mention name and address on Board before office premises and also on Letter heads and Seals.

5. Time and place of AGM can be pre-determined by Board; it can be held on holidays and also outside business hours.

6. 14 days Notice for AGM is enough. Also Balance Sheet and Profit & Loss A/c copies can be sent 14 days before AGM instead of 21 days.

7. Maintain books of account relating to a period of only four years instead of eight years immediately preceding the current year.

8. Free to increase the number of its directors (beyond 12 directors) without seeking approval of central government.

9. 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.

10. Companies are allowed to hold Board meetings only once in six months but should have held four meetings in a year.

11. 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.

12. Allowed to decide following three matters by passing a resolution by circulation instead of at meetings: 1. Borrow moneys other than on debentures, 2. Invest funds of the company and 3. Make loans.

13. 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.

14. Not required to notify changes among its directors, etc to the Registrar. 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.

15. Free to appoint any person as its Secretary (not necessary that he should be member of ICSI) whom it feels fit and proper for the same.

16. CARO expressly exempts section 25 companies from its applicability vide Clause 2(iii) of Para I of the Order.

17. Fees payable by a Section 25 Company at the time of registration and further increase of its share capital are kept very low.

18. Nil stamp duty on Memorandum and Articles of Association.

Obligations

Though a Section 25 Company has many advantages and enjoys many privileges yet there are some statutory obligations which are required to be complied with and taken care of by such companies.

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

2. Ensure that its profits are not distributed as dividend among its members.

3. Cannot alter its objects clause in its Memorandum without seeking the written approval of central government.

4. If the Central Government has imposed some conditions and regulations upon the company for granting a licence under section 25 then such a company is bind by such conditions and has to ensure adequate compliance with them. Where such conditions and regulations have been imposed then 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.

5. 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.

6. If an existing company obtains a licence 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.

7. Apart from above mentioned privileges a Section 25 Company enjoys all other advantages that a company registered under the companies act has after incorporation. Similarly it is required to comply with all other provisions of the Act just like any other normal company from which it has not been expressly exempted. As such it will be subject to penalties if there is a default in compliance with any of the provision of the Companies Act. Such a default can also result in revocation of the licence granted by the central government under section 25.

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For draft MOA & AOA do inspection of any sec 25 company in MCA website. SUZLON has one sec 25 com.

For Exp. use MCA 21 website fee calculator.



Regards,