WHAT IS A NON-PROFIT MAKING COMPANY
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 Registrar of Companies (formerly Central Government) recognizing them as such. Such 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. Thus there are three criteria for determining whether a particular company is section 25 company or not:
The object for which the company is proposed to be formed or already formed is to promote commerce, art, science, religion, charity or any other useful object;
Profits, if any, earned in carrying out the object and other income are proposed to be applied only for promoting its objects; and
The company intends to prohibit the payment of dividend to its members.
OBJECTIVE OF SECTION 25
The objective of section 25 of the Companies Act, 1956 is to provide special benefits and privilege to such companies, which are formed for the purpose of:
- Promoting commerce, art, science, religion, charity or any other useful object, and
- Apply its profits and incomes for promotion of its objects and prohibit distributing them as dividends.
Such associations enjoy their standing as a company and at the same time are not required to suffix the words “Private Limited” or the word “Limited” as required under section 13(1)(a).
MEMBERSHIP IN SECTION 25
Though a partnership firm is not a legal person like a body corporate, section 25(4) of this section enable the firm to become member of any association registered under this section such as chamber of commerce or club or charitable institution and enjoy all such privileges as are enjoyed by bodies corporate which become members of such associations. Membership of such firm shall cease upon dissolution of the firm. However, the partners of the firm may continue to be the members of such company in their individual capacity. It is advisable that the firm should obtain membership in the individual name of the partners as they may agree.
As per the provision of section 3 of the Companies Act, 1956, a private company is required to have a minimum paid-up capital of Rs. 1Lakh and Public Company is required to have minimum share capital of Rs. 5Lakh. However section 25 companies have been exempted from this requirement regarding minimum share capital by virtue of sub-section (6) inserted by Companies Amendment Act of 2000. As such they can be registered even if they have share capital less than the statutory minimum.
APPLICATION FOR ISSUE OF LICENCE
The procedure for forming a section 25 company and for conversion of an existing company in to section 25 company are provided in the Companies Regulation, 1956 and annexure thereto. The power under section 25 has been delegated to the ROC.
GRANTING OF LICENCE
The Registrar of Companies (formerly Regional Director) shall, after considering the objections, if any, received by it within a time fixed thereof in the notice aforesaid, and after consulting any authority, department or Ministry, as it may, in its discretion, decide, determine, whether the licence should or should not be granted.
EFFECT OF REGISTRATION
After receipt of the licence from the Registrar of Companies (formerly Regional Director), the association may thereupon be registered u/s 25 of the companies Act, 1956. On registration of a company accordingly with limited liability, it shall enjoy all the privilege and exemption under the Act and the word “Limited” or the words “Private Limited” will not be included in the name of such company.
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3. NEEDED DOCUMENTS
- Future annual income and expenditure estimates
- Assets and liabilities statement with their estimated value as on seven days before making the application
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 that the MoA and AoA have been drawn in conformity with provisions of the Act.
- Details of the promoters and of the proposed directors of the company
A list of the names, addresses, descriptions and occupations of its directors and of its manager or secretary, if any, together with the names of companies, associations and other institutions, in which the directors of the applicant company are directors or hold responsible positions, if any with the descriptions of the positions so held.
- Statement of brief description of the work, if already done by the association and the work proposed to be done
- Statement of the grounds on which application is made.