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 reinvest 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 bookkeeping 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 IncomeTax Act, companies could benefit from incometax exemptions, or from the provision wherein people
donating money to these companies receive income deductions in their incometax 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.
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 reinvest 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 bookkeeping 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 IncomeTax Act, companies could benefit from incometax exemptions, or from the provision wherein people
donating money to these companies receive income deductions in their incometax 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.
