Meaning of Section 25 company

  • A “Section 25” company is registered under Section 25 of the Companies Act, 1956.
  • This section provides an alternative to those who want to promote charity without creating a Trust or a Society for the purpose.
  • It allows the formation of a company, which will exist as a legal entity in its own right, separate from the person promoting it.
  • The crucial bit, however, is that any company under this section must necessarily re-invest any and all income towards promoting the said object or charity.
  • In essence, unlike a regular company, where owners and shareholders can make profits or receive dividends, no money gets out of a Section 25 company.
  • A Section 25 company is often preferred because it is easier to start — being exempt from statutory requirements of minimum paid-up capital.
  • They are much easier to run than Trusts and Societies, as board meetings require a smaller quorum and requirements for calling such meetings are less rigid.
  • It is easier to increase the number of directors, it is easier for people donating money to join or leave or transfer shares to others, and such a company is obliged to fulfill far less stringent book-keeping and auditing requirements as against a regular company.
  • Lastly, a Section 25 company enjoys significant tax benefits. Depending on how it is registered under the Income-Tax Act, companies could benefit from income-tax exemptions, or from the provision wherein people donating money to these companies receive income deductions in their income-tax liability. Such companies are also exempt from stamp duty payments.
  • Section 25 is preferred by several businessmen because they are conversant with the company structure, while benefits from several exemptions make it easy for philanthropy.
  • Setting up of a Special Purpose Vehicle to be called Government e-Marketplace (GeM SPV) as the National Public Procurement Portal as Section 8 Company registered under the Companies Act, 2013, for providing procurement of goods & services required by Central & State Government organizations.
  • GeM SPV shall provide an end-to-end online Marketplace for Central and State Government Ministries / Departments, Central & State Public Sector Undertakings (CPSUs & SPSUs), Autonomous institutions and Local bodies, for procurement of common use goods & services in a transparent and efficient manner.

Source: PIB & IE

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