The Companies Act, 1956 provided for registration of charitable organizations under section 25 of the Act but the same is now contained under Section 8 of the Companies Act 2013, if two basic requirements are fulfilled, namely:
- The main object of the company is promotion of commerce, art, science, religion, charity or any other useful object, and
- It 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.
Section 25 Companies Act 1956: If Central Government thinks fit, it may grant a licence to an association to be formed under this section without the words “Limited” or “Private Limited”. Such companies, when registered as Section 25 companies, enjoy many privileges not available to other companies registered under the Act.
The main advantages available to these companies include:
- Dispensed with use of words ‘Limited’ or ‘Private Limited’.
- No need to comply with statutory requirement of minimum share capital.
- Partnership firm is allowed to be member of such a Company.
- Further, various procedural exemptions have been provided under various other provisions of Companies Act like Annual Return, Annual General Meeting, Board Meetings, Maintaining of Books of Accounts, etc.
The procedure for registration under this section begins with filing of Form 1A with the Registrar of Companies. After the name is approved, an application has to be made to Regional Director, Company Law Board for licence under this section, along with copies of Memorandum of Association and Articles of Association and related documents.
Once registration is granted under these provisions, the company can also apply for registration under Section 80G of the Income Tax Act, 1961, which will allow donating persons to get 50% deduction from his taxable income.
Section 8 of the Companies Act, 2013: Formation of companies with charitable objects, etc:
(1) Where it is proved to the satisfaction of the Central Government that a person or an association of persons proposed to be registered under this Act as a limited company–
(a) has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
(b) intends to apply its profits, if any, or other income in promoting its objects; and
(c) intends to prohibit the payment of any dividend to its members, the Central Government may, by licence issued in such manner as may be prescribed, and on such conditions as it deems fit, allow that person or association of persons to be registered as a limited company under this section without the addition to its name of the word “Limited”, or as the case may be, the words “Private Limited”, and thereupon the Registrar shall, on application, in the prescribed form, register such person or association of persons as a company under this section.
(2) The company registered under this section shall enjoy all the privileges and be subject to all the obligations of limited companies.
(3) A firm may be a member of the company registered under this section.
(4) (i) A company registered under this section shall not alter the provisions of its memorandum or articles except with the previous approval of the Central Government.
(ii) A company registered under this section may convert itself into company of any other kind only after complying with such conditions as may be prescribed.
(5) Where it is proved to the satisfaction of the Central Government that a limited company registered under this Act or under any previous company law has been formed with any of the objects specified in clause (a) of sub-section (1) and with the restrictions and prohibitions as mentioned respectively in clauses (b) and (c) of that sub-section, it may, by licence, allow the company to be registered under this section subject to such conditions as the Central Government deems fit and to change its name by omitting the word “Limited”, or as the case may be, the words “Private Limited” from its name and thereupon the Registrar shall, on application, in the prescribed form, register such company under this section and all the provisions of this section shall apply to that company.
(6) The Central Government may, by order, revoke the licence granted to a company registered under this section if the company contravenes any of the requirements of this section or any of the conditions subject to which a licence is issued or the affairs of the company are conducted fraudulently or in a manner violative of the objects of the company or prejudicial to public interest, and without prejudice to any other action against the company under this Act, direct the company to convert its status and change its name to add the word “Limited” or the words “Private Limited”, as the case may be, to its name and thereupon the Registrar shall, without prejudice to any action that may be taken under sub-section (7), on application, in the prescribed form, register the company accordingly:
Provided that no such order shall be made unless the company is given a reasonable opportunity of being heard:
Provided further that a copy of every such order shall be given to the Registrar.
(7) Where a licence is revoked under sub-section (6), the Central Government may, by order, if it is satisfied that it is essential in the public interest, direct that the company be wound up under this Act or amalgamated with another company registered under this section:
Provided that no such order shall be made unless the company is given a reasonable opportunity of being heard.
(8) Where a licence is revoked under sub-section (6) and where the Central Government is satisfied that it is essential in the public interest that the company registered under this section should be amalgamated with another company registered under this section and having similar objects, then, notwithstanding anything to the contrary contained in this Act, the Central Government may, by order, provide for such amalgamation to form a single company with such constitution, properties, powers, rights, interest, authorities and privileges and with such liabilities, duties and obligations as may be specified in the order.
(9) If on the winding up or dissolution of a company registered under this section, there remains, after the satisfaction of its debts and liabilities, any asset, they may be transferred to another company registered under this section and having similar objects, subject to such conditions as the Tribunal may impose, or may be sold and proceeds thereof credited to the Rehabilitation and Insolvency Fund formed under section 269.
(10) A company registered under this section shall amalgamate only with another company registered under this section and having similar objects.
(11) If a company makes any default in complying with any of the requirements laid down in this section, the company shall, without prejudice to any other action under the provisions of this section, be punishable with fine which shall not be less than ten lakh rupees but which may extend to one crore rupees and the directors and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than twenty-five thousand rupees but which may extend to twenty-five lakh rupees, or with both:
Provided that when it is proved that the affairs of the company were conducted fraudulently, every officer in default shall be liable for action under section 447.
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