An association having objects to promote commerce, art, science, religion, charity or any other useful purpose and not having any profit motive can be registered as nonprofit Company under Section 25 of the Companies Act, 1956. This section empowers the Central Government to grant a license directing that such an association may be registered as a company with limited liability, without the addition of the Words `Limited’ or `Private Limited’ to its name. Important Features of Section 25 Company
Section 25 empowers the Central Government to issue a license to a company which is proposed to be incorporated provided it complies with conditions, as to its objects,
Application of its profits/income and distribution of its profits, enumerated as under: -
- It is being formed for promotion of commerce, art, science, religion, charity
or any other useful object;
- It intends to apply its profits or other income in promotion of its objects;
- It intends to prohibit payment of dividend to its members.
Basic Setup Requirements for Section 25 Company
- Minimum 2 Shareholders + 2 Directors
- A registered office address
- Director Identification Number (DIN) and Digital Signature Certificate (DSC)
Tax and Section 25 Company
Income earned by section 25 company is taxable under the provisions of Income tax Act, 1961. Income tax return of such companis must be filed inform 3A before 31st October every year.
- A section 25 company can get itself registered u/s 12A of the Income tax Act
and get the benefit of accumulation of its income to some extent for
utilization in future years.
- Registration under section 80G can benefit the donor to claim 50% exemption
of the amount donated from their income.
Section 12A(b) provides for mandatory audit of the accounts of these companies.
Audit report must be submitted in Form 10B and must be signed by CA in practice.
Few Exemptions and Special Privileges on Grant of license
- The Companies registered under Section 25 of the Act, have been exempted
from the requirement of the minimum paid up capital
- Section 25 Companies are recognized under various scheme carried on by
the Central and State Government for charitable and religious purposes
and are given special treatment under the said scheme
- Taxed at a lower rate and are provided with better taxable benefits as
compared to other forms of business organization
- A Company can sell shares of the Company to the public or can accept
deposits from public and can therefore raise money easier than other
business structure types.
- As a juristic legal person, a Company can sue in its name and be sued by others