Forming A Non-Profit/Section 25 Company

Forming A Non-Profit/Section 25 Company

Companies that are established for promotion of religion, commerce, art, science, charity or for any other useful objective are characterized as Section 25 or Non-profit organizations. It is vital that the profits if any is used only for the objectives of the company and is not paid as dividend to its members or shareholders.

Known as Non-profit or Non-government organizations, these companies are formed to promote some useful objectives like education, research or sports; no profit meaning that they cannot generate income or profits for distribution to promoters or shareholders, but only for applying it for furthering their objectives.

It is beneficial to start such companies. The key benefits are

• Privileges and exemption under the Company Law; exemption from the requirement of minimum paid-up capital and stamp duty for registration.
• The Companies Auditor's Report Order (CARO) 2003 is not applicable.
• Is Smart Lock required for instant apps?
• A registered partnership firm can be a member of such companies in their own capacity.
• Tax deductions under Section 80G of the Income Tax Act for donors

Some of the key conditions include

• Profits and income would only be used to further promote the main objective of the company.
• Declaring and distributing profits/dividends to promoters/shareholders is not allowed.
• No benefit in the form of remuneration will be paid to any member, except reasonable pocket expenses, interest on money borrowed or rent for premises.
• Any subsequent alteration of Memorandum and Articles Of Association requires the approval of the Regional Director of Central government.

The key requirements of Non-Profit or Section 25 companies are:

A minimum of 2 shareholders and 2 directors in case of private limited companies and a minimum of 7 shareholders and 3 directors in case of public limited companies; director and shareholder can be the same person.

A DIN or Director Identification Number is necessary for all directors.

A DSC or Digital Signature Certificate is necessary for 2 directors.

Steps involved in forming Non-Profit or Section 25 companies:

The first step is applying for the DSC that would involve submission of self-attested proof of address and identity of the directors. It takes about 2 working days.

Next is getting the approval of DIN that is necessary for the for the company's incorporation; it takes 5 working days and would require certification/attestation of the personal details of the directors and its submission to the DIN cell for approval.

The pre-name application search is the third step and involves making an online search of the available names and submission of 6 minimum names by the promoters.

The next step is the application for name that should be accompanied by 6 names and the Object Main Clause of the Company; drafting of Object Clause is imperative before it.

The fifth step is the representations made on behalf of the promoters before the Registrar Of Companies; the name is changed according to the suggestions made by the Registrar Of Companies.

Next is the application to the Regional Director for issue of license; involving filing of form 24A and attachments like photocopy of name approval, 3 Printed Copies of MOA & AOA, list of Directors, declaration from a practicing Company Secretary, declaration from promoters, consent to act as directors of the company, statement of assets and liabilities, statement of proposed work and also of estimated income and expenditure, Power of Attorney, and copy of advertisement and public notice are to be submitted.

The seventh step is the representations made to the Regional Director and changes if any that are suggested are made; it could take about 5 days.

The next step is the advertisement and public notice; it is to be given within 7 days from the application to the Regional Director. It is to be published in the principal language of the district of the company and also at least in one English daily.

The ninth step is the printing of the altered Memorandum and Articles of Association, stamping of the Letter of Authority/Letter Of Authorization and other forms.

The final step is the filing of all the documents before the Registrar Of Companies, payment of registration fees and collecting the Certificate of Incorporation; this could take even 10 days and requires follow up at the office of Registrar of Companies.

In addition public limited companies would require a Certificate of Commencement Of Business; requiring preparation of Statement in lieu of Prospectus, Ca's certificate of SLP, preparation of Form 20, consent letter of Auditor, preparation of statement of preliminary expenses and online filing of Form 20.