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Formation of Non Profit/Section 25 company

Section 25 Company or a Non-Profit organization (NPO) is a Company established for promoting commerce, art, science, religion, charity or any other useful object, provided the profits, if any, or other income is applied for promoting only the objects of the company and no dividend is paid to its members.

An NPO/NGO can be formed for promotion of any useful object like sports, education, research activities etc. The term No Profit does not mean that the Company cannot generate profit or income, but it essentially means applying the income for further promotion of the object and not for distributing it to the promoters. It means that the Company can earn profits but the promoters cannot be benefited out of those profits.

Key Benefits:

  • Many privileges and exemptions under Company Law.
  • Exemption from requirement of Minimum Paid-up capital.
  • Exemption of Stamp duty for registration.
  • Non-application of Companies Auditor’s Report Order (CARO) 2003.
  • Registered partnership firm can be a member in its own capacity.
  • Tax deductions to the donors of the Company u/s.80G of the Income Tax Act.

Key Conditions:

  • Profit or Income of the Company shall be applied for the promotion of the mainobject
  • Declaration of dividend or distribution of profit to the promoters is not allowed
  • No member shall be appointed as a remunerated officer
  • No remuneration / benefit shall be paid to a member being a servant / officer of the Company (except reimbursement of out of pocket expenses, reasonable interest on money lent or reasonable rent on the premises)
  • Subsequent alteration of MoA & AoA requires prior approval of Central Govt. (i.e. Regional Director)

Key Requirements:

  • Minimum 2 Shareholders (for Private Limited Co.) and 7 Shareholders (for Public Limited Co.)
  • Minimum 2 Directors (for Private Limited Co.) and 3 Directors (for Public Limited Co.)
  • The directors and shareholders can be same person
  • DIN (Director Identification Number) for all the Directors
  • DSC (Digital Signature Certificate) for two of the Directors

Steps involved in formation of Section 25 Company/ Non-Profit organization

Step No. Steps
DIN Approved DIN is a pre-requisite for incorporation process
3 Pre- Name Application Search
4 Application for Name Availability
  • 6 names for the proposed Company
  • Main Object Clause
5 Representations before RoC on behalf of Promoters
6 Application to Regional director (RD) for issue of License
7 Representations before RD in case of any objections
8 Public Notice/Advertisement
9 Documents required (after issue of license by RD)
  • Printing of Altered Memorandum and Articles of Association (MOA / AOA)
Other Forms like:
  • Form 32
  • Form 18
  • Form1
  • Letter of Authority/PoA
10 Final Process:
  • Filing all the above documents with the ROC
  • Follow up with the ROC office
In case of NPO being a Public Limited Company
11 Application for Certificate of Commencent of Business
  • A Public Limited Company, in addition to Certificate of Incorporation, must obtain a Certificate of Commencement of Business before its operation