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Section 25 Company in India

Section 25 Company in India

Section 25 Company in India -For the promotion of commerce, art, science, sports, religion, charity or any other discipline, Section 25 companies prove to be the most reliable & strongest organizational structure. Section 25 companies are formed with the intention of promoting such activities. Such companies are required to receive the approval of the Central Government for their formation. They are not required to affix the “limited” word after their name and are usually formed as a nonprofit organization. The company should meet certain criteria to be formed as a non-profit organization which has been discussed below:

  1. It should be formed with the objective of promoting commerce, art, science, religion, charity or any other useful object.
  2. Its main intention should be to apply its profits or other incomes for in promoting its objectives; and
  3. It should have been granted a license from the Central Government recognizing them as such, these types of companies can be either public company or private company having a limited liability.
Section 25 Company in India

Section 25 Company in India

Benefits of incorporation under a Section 25 Company:

  • Exemption from Statutory Minimum share capital: Section 25 companies are exempted from the requirement of maintaining statutory minimum share capital as is required in case of other companies incorporated under the Companies Act.
  • Taxation: Section 25 companies enjoy certain benefits with regards to taxation. They are often taxed at lower rates and are provided better taxation benefits than other forms of companies or business organizations.
  • Exemption from certain provisions of Companies Act: Section 25 Companies enjoy exemption from certain provision which is required in case of other companies such as maintaining books of accounts for four years which is eight years in other forms of business, period for notice of AGM, time and place of AGM, exemption from CARO etc.

Obligations when forming a Section 25 Company:

  • A Company formed under Section 25 of Companies Act has to ensure that all the income or profit which it accumulates should be utilized for the sole purpose for which it has been formed.
  • The profits accumulated  should not be in anyway utilized to be shared/distributed among its members
  • Section 25 companies needs prior approval of Central Government  for any change in any of its clause in its Memorandum
  • 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.

Steps for Registering a Section 25 Company in India-

To register a section 25 company, applicant is required to file Form 1A for name availability. Once the name is approved/made available, there is a further requirement of obtaining a license for a Section 25 Company, for which Form 24 A is to be filed in order to obtain a license for such company. After obtaining license number, applicant can precede further to incorporate a company by filing e forms 1, 18 and 32.

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