Section 25 of the Indian Companies Act, 1956 (Section 8 of the 2013 Act)

In India, many organisations work tirelessly to promote social welfare, education, art, and other charitable causes. To provide these organisations with a structured and legally recognised framework, Section 25 of the Indian Companies Act, 1956 was introduced. This section, now known as Section 8 under the Companies Act, 2013, allows the formation of companies aimed at promoting commerce, art, science, religion, charity, or any other socially beneficial purpose.

Unlike traditional companies, Section 25 (or Section 8) companies are not profit-driven. Instead, they focus on using their income and resources solely for the promotion of their objectives. If you are planning to start a not-for-profit organisation, understanding the nuances of Section 25/8 companies is essential.

A Section 25 (under the 1956 Act) or Section 8 (under the 2013 Act) company is a legal entity formed with the primary objective of promoting activities that benefit society. These companies are distinct from trusts and societies as they are governed by the Companies Act and enjoy greater credibility due to their structured compliance requirements.

Key activities undertaken by Section 25/8 companies:

• Promoting education and literacy.
• Supporting scientific research and development.
• Encouraging art and culture.
• Providing healthcare and charitable services.
• Advancing environmental sustainability initiatives.

For instance, an organisation working to provide free education to underprivileged children or one aiming to promote renewable energy adoption can register as a Section 8 company.

Section 25/8 companies come with distinct features that make them ideal for organisations with not-for-profit objectives.

Key features include:

1. Non-profit distribution:
   • These companies are prohibited from distributing profits or dividends to their members. Any income generated must be reinvested in the company’s objectives.
2. License requirement:
   • A license from the Central Government is mandatory to register as a Section 25/8 company.
3. Legal recognition:
   • These companies enjoy the same legal status as other companies registered under the Companies Act, ensuring credibility and transparency.
4. Limited liability:
   • Members of the company have limited liability, providing financial security.
5. Governance and compliance:
   • Section 25/8 companies are required to adhere to stringent compliance norms under the Companies Act, ensuring accountability.

Registering as a Section 25/8 company offers several advantages, making it an attractive option for organisations with charitable objectives.

Advantages include:

1. Tax exemptions:
   • Section 25/8 companies are eligible for tax exemptions under the Income Tax Act, reducing the financial burden.
2. Credibility and trust:
   • These companies are perceived as more credible compared to trusts or societies due to their structured governance.
3. Legal protection:
   • Registration under the Companies Act provides legal protection and a clear framework for operations.
4. Access to funding:
   • Section 25/8 companies can access grants, donations, and other funding opportunities more easily.

Empower your impactful work with structured support—registering as a Section 8 company ensures your organisation is well-positioned to achieve its social goals.

To register as a Section 25/8 company, your organisation must meet specific eligibility criteria.

Eligibility requirements:

1. Purpose:
   • The organisation must be formed for promoting commerce, art, science, religion, charity, or other socially beneficial objectives.
2. Profit distribution:
   • The organisation must agree to reinvest its profits in achieving its objectives rather than distributing them to members.
3. Members:
   • A minimum of two members is required for a private company and seven for a public company.
4. License application:
   • A license must be obtained from the Central Government to operate as a Section 25/8 company.

Registering a Section 25/8 company involves a systematic process. Here is a step-by-step guide:

1. Draft the Memorandum and Articles of Association (MoA and AoA):
   • Clearly outline the objectives and operational framework of the company.
2. Apply for a name reservation:
   • Submit an application to the Registrar of Companies (RoC) for name approval.
3. Prepare the required documents:
   • Gather essential documents such as ID proofs, address proofs, and the MoA and AoA.
4. Submit the application:
   • File the incorporation application along with the license application to the Central Government.
5. Obtain the license and certificate of incorporation:
   • Once approved, the RoC will issue a certificate of incorporation and the license to operate as a Section 25/8 company.

Submit documents digitally to streamline approval—modern registration processes make it easier than ever to start your journey.

While Section 25/8 companies, trusts, and societies all aim to promote social welfare, they differ significantly in governance, compliance, and legal structure.

Section 25/8 companies enjoy several tax benefits, making them financially viable for social initiatives.

Tax benefits:

1. Income Tax exemptions:
   • Section 8 companies can avail exemptions under Section 12A and Section 80G of the Income Tax Act.
2. GST exemptions:
   • Certain activities may also qualify for GST exemptions.

Compliance requirements:

• Annual filing of financial statements and returns with the RoC.
• Maintaining transparency in financial transactions.
• Adhering to the objectives outlined in the MoA.

Failure to comply with these requirements can result in penalties, including fines and revocation of the company’s license.

Several Section 25/8 companies have made remarkable contributions to society.

1. Teach For India:
   • A Section 8 company working to eliminate educational inequity in India.
2. Goonj:
   • A Section 8 company focusing on disaster relief, sustainable development, and community welfare.

These organisations demonstrate the transformative power of structured governance in achieving social impact.

Section 25/8 companies provide an ideal framework for organisations committed to social welfare. By offering legal recognition, tax benefits, and enhanced credibility, these companies empower individuals and groups to make a meaningful impact.

Take the first step toward impactful work today—explore Section 8 registration benefits!

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