Section 25 Presentation by Mitesh Agrawal

Sarva Sakshar Foundation
– A Section 25 Company

Eradicating illiteracy through innovative solutions
Mitesh Agrawal
Chief Literacy Officer
Sarva Sakshar Foundation, Pune
www.sakshar.in
Email: contact@sakshar.in

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What is Section 25? – just another section in Companies Act, 1956 [Act No. 1 OF 1956]

Copyright © 2012 Sarva Sakshar Foundation -2-

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What is What? And Who is Who?

Item Meaning Title Meaning

The Companies Governs the constitution/ formation of a Shareholder/ member Who owns a share in the company
Act company
Who has founded/ established the
Founder
company. Mostly own shares too
A legal entity, can be prosecuted under the
Company
law of the land
Promoter Who promotes a company, can change

License to dispense with word ‘Limited’ as a Director Agent of shareholders
Section 25 recognition/ acknowledgment of not-for-profit
status Board of Directors Committee of Directors Supervising the
(BOD) Management

Shares/ Equity Share in the ownership of the company
Management/ Running the Day-to-Day operations of the
Employees company
Represents % ownership; calculated by
Stake
dividing your # of shares by total # of shares Company

Details the objective and means of
Memorandum of
conducting the business, i.e. primary and
Association
secondary activities

Articles of Details how the business to be run, Power of
Association Board, General Meeting etc.
Shareholders BOD Management Employees


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Why section 25? - benefits

If you are making impact 365 days a year, then section 25 registration is for you

With higher compliance (i.e. cost of doing business) as compared to other structures, section 25 offers you:

 More transparency with higher compliance, annual filling of information which is publically avaialble

 Easier to induct (and remove) influential personalities as board members without loosing control

 Control is based on equity percentage unike trustee have equal powers

 Concentrated control or shared control Exemptions over a normal For-Profit
 Lower registration fees and exemption from stamp duty
 Raise funds from Banks
 Maintain book of accounts only for 4 years Vs 8 years
 Social fund – investments
 Company secretary's qualifications are not mandatory
 Relaxed norms compared to a for-profit comany
 No need to extensively publish name and reg. address
 15% of your income is exempt from income tax
 Flexibility with respect to date, time and venue of an AGM
 Donors get 50% or 100% exemption from tax
 No need to notify change in directors

 No prior permission required to increase number of directors

 Only 2 mandatory board meetings Vs 4 meetings

 Exempt from CARO 2003


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What it takes away from you?

I, the Regional Director at Bombay/Calcutta/Kanpur/Madras, hereby grant this license, directing that the said
association be registered as a company with limited liability without the addition of the word "Limited" or the words "Private
Limited" to its name, subject to the following conditions, namely :-
 Prohibit the payment of any dividend to its members

 No remuneration shall be given by the company to persons who at any time are or have been members

 No alteration shall be made to the MoA or to the AoA without prior written approval

 Other insertions in MoA and AoA as the ROC/ RD deem fit

 With foreign nationals as shareholders, additional considerations like FIPB/ FDI/ FEMA compliance will be required

What’s allowed

 Remuneration only after previous approval of Central Government – granted only in exceptional cases

 Payment of out-of pocket expenses

 Reasonable and proper interest on money lent

 Reasonable and proper rent on premises let to the company

Income tax act requirements
− Market salary for a defined set of relatives of members

− Other market value based payments for all the buy-sell-lease transactions with members and relatives

Note: Central Government in this context means the Registrar of Companies (ROC) or Regional Director (RD) who has jurisdiction over your company

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Time –line, documents and steps required to form a new company u/s 25
Application for license

1 Month 1 Month 1.5 Months

 Identify right experts and  Plan a suitable structure  Submit the documents to get the section 25
advisors  Apply for Name approval license
 Research and understand the − Takes 3-5 days  With-in a week, publish advertisement
laws − Valid only for 60 days − 2 news papers – one English and one regional
 Digital Signature Certificate  Finalise shareholding − Wait for any objections for next 30 days
(DSC)  Preparing legal documents  No objection, then
 Director Identification Number required for registration  Apply for Corporate Identity Number (CIN)
(DIN)  Takes another 5 days

 MoA and AoA

 A declaration by a practicing Company Secretary

 An estimate of the future annual income and expenditure of the proposed
company, specifying the sources of the income and the objects of the expenditure

 A statement giving a brief description of the work proposed to be done

 A statement specifying briefly the grounds on which the application is made

 A declaration by each person making the application in the form


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Section 25 Vs Trust Vs Society

Section 25 Company (Pvt Ltd) Public Trust Society
Public Trust Act like Bombay Public Trust
Statute/Legislation Companies Act of 1956 Societies Registration Act of 1860
Act, 1950
Ease of Formation Relatively complicated, 2-3 months Very simple, 2-3 weeks Relatively simple, 1-2 weeks
Cost of registration Rs. 35,000 Rs. 10,000 Rs. 5,000
Separate application, strict
Name Approval Not required No separate application
guidelines for names approval
Jurisdiction of the Act Concerned state where registered Concerned state where registered Concerned state where registered
Authority Registrar of Companies Charity Commissioner/Deputy Registrar Registrar of Societies
As Society (and by default also as Trust
Registration As Section 25 Company As Trust
in Maharashtra and Gujarat)
Memorandum and Articles of Memorandum of Association and Rules &
Main Document Trust deed/ Indenture
Association. Regulations (Bye laws)
Number of persons Minimum two members and two
Minimum two trustees; no upper limit Minimum seven, no upper limit
needed to register directors; less than 50 members
2 tier: 2 tier:
One tier
Governing structure -General Body -General Body
-Trustees
-Board of Directors -Executive committee
Voting Rights Based on shareholding All trustees have equal rights All members have equal rights
Annual filing Annual return and audited accounts No filing List of managing body, varies by state
General & board
One and two every year No provision, as per deed/ indenture As per bye laws
meeting
Transfer of membership Yes No No

Recurring expenditure Some Nil Minimal
Area of operation Throughout India Throughout India Throughout India


Contact details: contact@sakshar.in

Thank You

Sarva Sakshar Foundation (SSF) is a not-for-profit organisation established by IIT Alumni
www.sakshar.in

Section 25 Presentation by Mitesh Agrawal

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