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advantages of a sec 25 compay

Advantages of a section 25 company

Posted By admin on December 25, 2013 No Comments

1.Freedom in choice of name

Indian companies are required to use the term ‘limited’ or ‘private limited’ as the case may be in their names as required by section 13. But section 25 companies are allowed to dispense with the use of term ‘limited’ or ‘private limited’ from their names. This helps the company to enjoy limited liability without disclosing to the public the nature of liability of its members.

2.Minimum Share Capital

Section 25 Companies have been exempted from this requirement regarding minimum share capital by insertion of sub-section (6) through Amendment Act of 2000. As such they can be registered even if they have share capital less than the statutory minimum.

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3.Type of a NON PROFIT ORGANISATION

IN INDIA, a NON-PROFIT ORGANISATION can be formed in the following three business structures only:

Trust
Society

Section-25 Company .

So, you can form a NGO under section25company form and can enjoy its privileges.

4.Publication of Name

A section 25 company has been exempted from the provisions of section 147 and as such is not required to mention its name and address as required in case of all other companies.

5.Time and Place of AGM

Section 25 Company has been exempted from this provision provided the time, place and date of the AGM has been decided before hand by the Board of Directors having regard to the direction given by the company in a General Meeting. As such they are free to determine the date, place and time of its AGM according to their convenience and feasibility.

6.Notice of AGM

Section 25 Company has been given some relief in this regard by allowing them to hold an AGM after giving a notice of 14 days length instead of 21 days as required by section 171(1). Therefore they can call an AGM at a short notice of 14 days instead of 21 days.

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7.Maintaining of Books of Accounts

Every company is required by section 209(4-A) to maintain books of accounts relating to a period of eight years immediately preceding current year along with its vouchers. However a Section 25 Company is required to maintain books of account relating to a period of only four years instead of eight years immediately preceding the current year.

8.Service of Copies of Certain Document

A Section 25 Company is allowed to send the required documents at least fourteen days before the date of meeting instead of 21 days.

9.Right of Persons other that Retiring Director to stand for Directorship

If the Articles of the Section 25 Company provide for election of the Directors by ballot system then the provisions of section 257 will not apply to such a company and as a result a person who is not a retiring director and is intending to stand for directorship will not have to follow the procedure laid down by section 257. But if the Articles of the company do not provide for election of director by ballot then section 257 will have to be complied in whole.

10.Increase in Number of Directors

Section 25 Companies are exempted from section 259 and are thus free to increase the number of its directors without seeking approval of central Government.

11.Admission of partnership firm

Despite of the fact that law does not allow partnership firm to become a member of a body corporate as it does not have a legal personality of its own. But, still in case of section25 company, partnership firm is allowed to become its member.

12.Non-application of Companies Auditor’s Report Order (CARO)2003

Section 25 Companies are exempted from applicability of Companies Auditor’s Report Order 2003(CARO). CARO has been made applicable to all companies from 1st January 2004. But CARO expressly exempts section 25 companies from its applicability vide Clause 2(iii) of Para I of the Order.

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13.Annual Returns of a Company not having Share Capital

Every company not having a share capital is required by provisions of section 160 to file within 60 days of every Annual General Meeting, a return with the Registrar . Section 25 Company without a share capital is also required to file returns with the Registrar as required by section 160 but it has been exempted from mentioning the particulars of the members who are presently with the company or have ceased to be members since holding of its last AGM.

14.Maintaining of Books of Account

Every company is required by section 209(4-A) to maintain books of accounts relating to a period of eight years immediately preceding current year alongwith its vouchers. However a Section 25 Company is required to maintain books of account relating to a period of only four years immediately preceding the current year.

15.Filing of Consent for Directorship

Every person who intends to stand for directorship in accordance with section 257 is required by section 264(1) to file with the company his consent to act as a director if he gets appointed as such. This section is meant for the persons who are seeking afresh appointment and not for those who are seeking reappointment as director. It ensures that a person does not refuse to act as director after his appointment on ground that his consent was not taken by the company. But sub-section (1) has been made non-applicable to the Section 25 Company and as such 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.

16.Board Meetings

Under section 285 the meeting of Board of Directors should be held atleast once in every three months and four meetings should be held in a year. However section 25 companies are required to hold meetings of Board of Directors/Executive Committee/Governing Committee only once in every six months but should have held four meetings in a year.

17.Quorum for Meetings

The required quorum for a board meeting of any company under section 287 is one/third of its total strength which is arrived at after deducting the number of interested directors from the t1otal number of directors on the Board or atleast two whichever is higher. But the section 25 company is exempt from this section to the extent that the 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.

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18.Exercise of certain Powers

Under section 292 there are certain specified powers which a Board of Directors of the concerned company can exercise only by passing of resolution at the meeting. The Board can exercise all other powers by passing of resolutions by circulation instead of taking them at meetings by following the procedure specified in section 289 of the Act. However section 25 companies are allowed to decide following three matters by passing a resolution by circulation instead of at meetings:

  1. the power to borrow moneys other than on debentures,
  2. the power to invest funds of the company, and
  3. the power to make loans.

19.Disclosure of Interest

Under section 297 a company is not allowed to enter into contract for

  1. purchase, sale or supply of any goods, material or services; or
  2. for underwriting subscription of any shares in or debentures of company, with a director of the company; or his relative; or a firm in which such a director or relative is a partner; or a partner in such a firm; or a private company in which such director is member or director unless consent of the Board of Directors has been obtained before entering into such contract[sub-sec. (1)].

If any of the persons or entity mentioned above regularly trades or does business in the subject matter of contract and such contract is made for cash at prevailing market prices then consent of Board is required only in those cases where cost of such contract exceeds five thousand rupees aggregate in a particular year[sub section (2)].

Consent of Board can be obtained within three months from date on which such contract is entered into if there arises some urgent necessity even if cost or value of such contract exceeds rupees five thousand in a year.[sub-sec. (3)].

Section 299 lays down the circumstances when disclosure of interests by Directors of the company is mandatory and procedure in regard to such disclosure. It directs a director to disclose his interest (direct or indirect) or concern in any contract or arrangement made or proposed by the company at the first meeting of Board when such contract is being considered or at first meeting held after he became interested in a contract already entered into by the company.

But in case of section 25 companies section 299 applies only to the matters covered by sub-section (1) and (3) of section 297. It follows that section 25 companies are allowed to enter into contracts or arrangements with all of the persons or entity mentioned earlier if such person or entity regularly does trade or business in the subject matter of such contract or arrangement and cost of such contract is made at prevailing market prices without seeking the consent of the Board of Directors even if the cost of such contract exceeds five thousand rupees aggregate in a year. Hence section 25 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.

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20.Maintenance of Registers of Contracts

Under section 301 a company is required to maintain register of all the contracts to which section 297 or 299 applies. But a section 25 company is exempt to the extent that it allowed to maintain register of only those contracts to which sub-sections (1) and (3) of section 297 apply. Thus they are exempted from maintaining registers of those contracts which are made in pursuance of sub-section (2) of section 297 or are covered by section 299.

21. Maintenance of Register of Directors

Under section 303 of the companies act every company is required to maintain a register containing particulars of its Directors, Managing Directors, Managers and Secretary in manner prescribed in sub-section (1). These companies are further required to send to the Registrar of Company a duplicate in prescribed form containing all particulars of such register and a notification in duplicate informing the Registrar of nay changes among its Directors, Managing Directors, Managers or Secretary within 30 days of such changes or appointment of First Directors of the company [sub-sec. (2)]. Section 25 company has been exempted from operation of sub-section (2) of section 303 and as such they are not required to notify changes among its directors, etc to the Registrar. They are 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.

22.Qualification for Secretaryship

Every company registered under the companies act is required to have a Secretary as defined under section 2(45) and having prescribed qualifications as laid down in the companies act itself and in Companies (Appointment and Qualifications of Secretary) Rules, 1988 and is required to be appointed in accordance with Chapter IV (sections 383-A) of the companies act. However a Section 25 Company is exempt from the provision of section to the extent that the rules regarding the qualification of a Secretary do not apply to them [vide Notification NO. F.2/3/76-CLV dated 09-01-1976]. As section 2(45) do not apply to them they are free to appoint any person as its Secretary whom it feels fit and proper for the same.

In case you need any further information

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