Section 25 companies

Section 25 Companies under Companies Act 1956:-

 Under Indian law, 3 legal forms exist for Non-Profit organizations:

1. Trusts
2. Societies
3. Section 25 companies

 Due to better laws, Section 25 companies have the most reliable strongest organizational structure. 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 licence by the central government recognizing them as such. Thus, there are three criteria for determining whether a particular company is section 25 company or not:

1) Its objects should be only to promote commerce, art, science, religion, charity or any other useful object.

2) It should intend to apply its profits or other incomes only in promoting its objects; and

3) Central government should have granted a licence to such a company recognizing them as such, these types of companies can be either public company or private company having a limited liability.

FORMATION PROCEDURE OF SECTION 25 COMPANIES:

Step – 1 Form 1A: Name approval: An application in E-Form 1A has to be made for availability of name to the registrar of companies, with a fee of Rs. 500/-. It can be filed electronically. Six name in preferential order need to be proposed

Step-2 Application to Regional Director: After the availability of name is confirmed, an application should be made in writing to the regional director of the company law board for granting license under this section. The application must include copies of the memorandum and articles of association of the proposed company, as well as a number of other documents, including a statement of assets and a brief descripttion of the work proposed to be done upon registration. 

Step – 3 Filing of Application copy to the RoC: The applicants must also furnish to the registrar of companies (of the state in which the registered office of the proposed company is to be, or is situate) a copy of the application and each of the other documents that had been filed before the regional director of the company law board.

 Step – 4 Publication of Notice: Within a week from the date of making the application to the regional director of the company law board, the applicants are required to publish a notice in the prescribed manner at least once in at least two news papers. One notice should be in an English newspaper circulating in that district and in a  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.

 Step – 5 Grant of Approval: If the registrar satisfies that the application is complete in all respects and in the best interest of the country, regional director can grant the licence under this section with or without conditions and 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

Step – 6 Other Incorporation formalities: After obtaining licence under section 25 the company shall be formed as a normal company and the other formalities of incorporation shall be complied with.

Step – 7 Registration under Section 80G: If a section 25 company gets itself registered under section 80G then the person or the organization making a donation to the NGO will get a deduction of 50% from his/its taxable income. The company has to apply in Form No. 10G to the Commissioner of Income Tax for such registration. Normally this approval is granted for 2-3 years but can be granted earlier depending upon the situations.

Grant of licence to an existing company:

An existing company should pass special resolution to restrict its object for non-profit making purposes and also obtain approval of the Company Law Board for the same. Name of the company should be changed (including deletion of the word ‘limited’ or ‘private limited’ ) with the permission of the Central Government .