Author Name:   SharmaSaumya

Section 25 companies rae non-profit companies granted license under the Companies Act; having limited laibility and intended for charitable purposes...

Section 25 Companies

Under the Companies Act (“Act”), 1956, Section 25 company can be defined as a limited company formed for the sole object of “promoting commerce, art, science, religion, charity, or any other useful object, and intends to apply its profits, if any, or other income in promoting its objects, and to prohibit the payment of any dividend to its members.” So, Section 25 companies are meant, formed and intended for achieving charitable purposes and per se incorporated not with a profit motive and for profit making, but to further certain philanthropic purposes; and on satisfaction {of the Central Government (powers now delegated to Registrar of Companies)} of the stipulation mentioned under sub-section 1 of Section 25, such company may be registered as a company with limited liability upon direction of Central Government. So, Section 25 companies are also termed as ‘non- profit companies.’ The section “provides for the incorporation of associations which are not formed for the purpose of making any profit in the sense in which it is commercially understood.” It may be a public company or a private company, or a company limited by guarantee or share capital or both. Also, vide sub- section 6 of Section 3, Section 25 companies are exempted from maintaining minimum paid –up capital required to be maintained by other companies.

B. License:
Further, on such directions of the Central Government, essentially issuance of license by such authority, such an association is dispensed from adding either “Limited” or “Private Limited” in its name, though such an association upon registration enjoys all privileges of a private company. “The registration process for a Section 25 company is lengthy, complex and time consuming because it involves two procedures, namely granting of license and registration of the company.”

Further, such a company or association shall be bound by the conditions and regulations subject to which the license has been granted; and the non profit company shall be required to enter the same in its memorandum of association or articles of association, or partly in one and partly in another, as directed by the Central Government.

A body or company to which such license is granted, would require prior approval from the Central Government in case such company intends to make alterations in its objects as mentioned in the memorandum of association; and the Central Government is empowered to revoke the license so granted upon any alterations in the Objects clause without prior approval from the Central Government. Further, when prior approval is sought from the Central Government, it may be granted subject to certain conditions, which would be mandatory on the Company pursuant to Section 25 (8) (c) read with Section 25 (5).

C. Firm as a member:
Pursuant to Sub-section 4 of the Section 25, a partnership firm is enabled to become member of a non- profit company but membership of such a firm lapses upon dissolution of such firm. But trade unions cannot get license under Section 25 of the Act.

D. Revocation of License
The Central Government is empowered under the Act to revoke the license at any time. But the provision incorporates the requirement of principles of natural justice, because the Central Government as the Central Government is required to give a notice in writing of such intention of revoking the license so granted and an opportunity of being heard in opposition before such revocation. The consequences of such a revocation remains that such a body (non-profit company) would not enjoy the exemption under this Section and upon revocation, the Registrar would be required to enter “Limited” or ” Private Limited” to the name of such company upon the register of such body. Further, vide sub-section 9 of Section 25, such body has to remove the words “Chamber of Commerce” if contained in its name within three months from date of revocation or “such longer period as the Central Government may think fit to allow.” Further, in case of default as to herein mentioned conditions, body shall be “punishable with fine which may extend to five thousand rupees for every day during which the default continues.”

E. Conclusion
Section 25 companies are ‘non- profit’ companies are granted license and registered as any other company and may be a public or private company. Though the purposes for which such a company is formed is clearly laid down in Sub section 1 of Section 25 and are majorly charitable purposes. Further, Section 25 companies also enjoy certain exemptions and privileges under the Act and possess limited liability.
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# M. Gomathinarayagam Pillai v Sri Manthramurthi High School, AIR 1963 Mad 387: (1963) 1 MLJ 56, http://indiankanoon.org/doc/1757001/
# “A Review of Charities Administration in India”, http://planningcommission.nic.in/reports/sereport/ser/stdy_cai.pdf (last visited on March 23, 2012)
# D S R KRISHNAMURTI, COMPANY LAW (Taxmann Allied Services (P.) Ltd.) (109).

The  author can be reached at: SharmaSaumya@legalserviceindia.com

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