Opening of Sec 25 Company

A Section 25 Company (now referred to as a Section 8 Company under the Companies Act, 2013) is a type of non-profit organization formed for charitable purposes. It is primarily set up for promoting art, science, commerce, religion, education, charity, or any other useful object. The key feature of a Section 8 company is that it does not distribute profits to its members or shareholders, and the profits earned are used for the promotion of its objectives.

 

Key Features of Section 25 Company:

 

  1. Non-profit Purpose:
    A Section 25 company must be formed for charitable, religious, educational, or any other socially beneficial purpose. The primary objective is not to make a profit, but to contribute to society.

  2. Profit Distribution:
    A Section 25 company is prohibited from distributing profits to its members. Any profit made by the company is reinvested to further the objectives of the company.

  3. Limited Liability:
    Members of a Section 25 company have limited liability, meaning their personal assets are protected from the company’s debts.

  4. License from the Central Government:
    To operate as a Section 25 company, you must obtain a license from the Central Government. This is necessary for starting a non-profit company under Section 8 of the Companies Act, 2013.

  5. No Share Capital Requirement:
    Unlike other companies, a Section 25 company does not require a minimum capital to be invested by its members.

Steps to Open a Section 25 Company (Section 8 Company):

 

Choose a Name for the Company

 

Obtain Digital Signature Certificate (DSC)

 

Obtain Director Identification Number (DIN)

 

Draft the Memorandum of Association (MOA) and Articles of Association (AOA)

 

Apply for License Under Section 8 of the Companies Act, 2013

 

Apply for License Under Section 8 of the Companies Act, 2013

 

File the Incorporation Documents

 

Incorporation Certificate

 

Post-Incorporation Compliance

 

 

Section 25 Company Membership

A partnership business may not be a separate legal entity, but under specific circumstances, it may join a Section 25 corporation. In their separate roles, the firm’s partners may also remain members.

Though the partners may maintain their participation on an individual basis, the membership may end in the event that the business dissolves.

Capital of Shares in a Section 25 Company


Section 25 corporations are exempt from the minimum share capital requirements of ordinary companies, which are Rs. 1 lakh for private firms and Rs. 5 lakh for public companies. Because of this clause, Section 25 businesses are a very flexible and accessible choice for nonprofits.

Application for License and Formation

 

To form a Section 25 Company, the company must apply for a license from the Registrar of Companies (ROC). The following steps are involved:

Procedure for Granting License:

  • Obtain a License from ROC: The application for the license is submitted to the ROC, which evaluates the application and grants the license after ensuring the company meets the necessary conditions.

  • Documents Required for Application: The application must be accompanied by the Memorandum of Association (MOA) and Articles of Association (AOA), as well as other documents like:

    • Assets and liabilities statement

    • Future income and expenditure estimates

    • Advocate or CA certification confirming conformity to the Act

    • List of proposed directors and promoters

Licensing Process:

  • The ROC assesses the application and may consult various government departments to ensure the company’s objectives are aligned with the public interest.

  • After approval from the ROC, the company is granted the license, and it is registered under Section 8 of the Companies Act, which officially allows the company to operate.

Effects of Registration

 

Once the Section 25 Company is registered and licensed, the company is entitled to enjoy several privileges and exemptions under the Companies Act. The major benefits include:

  • Exemption from Limited or Private Limited Suffix: The company does not have to use the terms “Limited” or “Private Limited” in its name, which makes it appear less like a commercial entity and more like a socially-focused organization.

  • Limited Liability: As with other types of companies, Section 25 companies enjoy limited liability, meaning that the personal assets of members are protected in case of legal claims against the company.

Required Documents for Section 25 Company

 

When applying for the license and registration of a Section 25 company, the following documents are required:

  1. Future annual income and expenditure estimates

  2. Assets and liabilities statement as of the application date

  3. Declaration from an advocate or CA confirming compliance with the Companies Act

  4. Details of promoters and proposed directors

  5. Brief description of the work already done and proposed activities

  6. A list of names, addresses, and occupations of proposed directors

  7. Statement of grounds for forming the non-profit company

Section 25 Company offers a valuable opportunity to contribute to social causes while enjoying legal privileges, tax exemptions, and limited liability. While the process requires careful attention to legal and procedural details, with expert assistance from professionals like Global CA, the process becomes smooth and efficient. Our team ensures that your company is fully compliant and able to focus on its charitable mission without the burden of complex formalities.