PUBLIC ISSUES

PROJECT REPORT

OF

ANKITA ARORA(Reg. No. 220954986/08/2010)

TOPIC: JOINT VENTURES AND STRATEGIC ALLIANCESTRAINING UNDER:

UMA POLYMERS LTD.1ST

CORPORATE TOWER, PLOT NO 21 &.22

BEHIND BANK OF MAHARASHTRA,

SECOND PULIYA COMMERCIAL CENTRE,

CHOPASNI HOUSING BOARD, JODHPUR

PHONES: 9828534248, 9829134248

SIGNATURE OF TRAINEE SIGNATURE OF EMPLOYER

NAME: ANKITA ARORA NAME: CS IRA BAXI

DATE: 02.05.2014 DATE: 20.03.2014PLACE: JODHPUR PLACE: JODHPUR

UNDERTAKING

I ANKITA ARORA D/O SHRI VIJAY ARORAReg. No. 220954986/08/2010, do solemnly verify & declare that I have prepared project report on JOINT VENTURES AND STRATEGIC ALLIANCES from my own skills & knowledge and have not copied or used any other material, etc. belonging to any other person, institute /organization.NAME: ANKITA ARORA(Reg. No. 220954986/08/2010)COVERAGES. No.TopicPage No.

1.Section 25 companies Introduction4

2.Definitions5

3.Formation Procedures of Section 25 Companies6-7

4.Section 25 power to dispense with limited in name8

5.Privileges and obligations 9-16

6.Benefits and Drawbacks of Section 25 Companies17-19

7.Foreign Contribution Regulation Act20-21

8.Comparison between Society and Section 25 Company22

Under Indian law, 3 legal forms exist for Non-Profit organizations:

Trusts

Societies

Section 25 companiesDue to better laws, Section 25 companies have the most reliable strongest organizational structure. Section 25 companies are those companies which are formed for the sole purpose of promoting commerce, art, science, religion, charity or any other useful object and have been granted a license by the central government recognizing them as such. Thus, there are three criteria for determining whether a particular company is section 25 company or not:

1) Its objects should be only to promote commerce, art, science, religion, charity or any other useful object.

2) It should intend to apply its profits or other incomes only in promoting its objects; and

3) Central government should have granted a license to such a company recognizing them as such, these types of companies can be either public company or private company having a limited liability. The so-called non-profit organizations can alternatively be formed as a Public Trust or a Society under the Societies Registration Act, 1860. The question then arises why to form a company under the Companies Act,1956 and simultaneously obtain license under Section 25 of the Act, which involves enormous paper work and stricter provisions relating to maintenance of accounts and audit? The most obvious answer is provided by the advantages of having an incorporated company, namely, independent corporate entity, limited liability, perpetual succession etc. Section 25 companies enjoy greater privileges in the form of concessions allowed under the Act to such companies.

DEFINITIONS

Section 25 Company is a voluntary association of person formed for promotional activities. Besides establishing a Trust and Society, the other alternative to establish a Non Profit organization is Section 25 Company.

Section 25 Companies are formed as Public or Private Company having a limited liability under the Companies Act 1956. These companies can be formed with or without share capital, in case they are formed without capital, the necessary funds for carrying the business are brought in form of donations , subscriptions from members and general public.

Section 25 Companies can be formed only after obtaining the necessary licence from the Central Government, which imposes certain terms and conditions while granting the approval. In case the company fails to comply with the terms and condition at any point of time, the licence can be cancelled.

Section 25 Companies are not required to add the suffix Limited or Private Limited at the end of their name.

Due to their nature of business, the Government of India has relaxed the application of various provisions of the Companies Act on such companies,

Section-25-CompanyAccording to section 25(1)(a) and (b) of the Indian Companies Act, 1956, a section-25 company can be 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.

Legislation : Section-25 companies are registered under section-25 of the Indian Companies Act. 1956.

Main Instrument : For a section-25 company, the main instrument is a Memorandum and articles of association (no stamp paper required) Trustees : A section-25 Company needs a minimum of three trustees; there is no upper limit to the number of trustees. The Board of Management is in the form of a Board of directors or managing committee.

Application for Registration :

1. An application has to be made for availability of name to the registrar of companies, which must be made in the prescribed form no. 1A, together with a fee of Rs.1000/-. It is advisable to suggest a choice of three other names by which the company will be called, in case the first name which is proposed is not found acceptable by the registrar.

2. Once the availability of name is confirmed, an application should be made in writing to the registrar of companies(vide notification dated 17th March 2011). The application should be accompanied by the following documents: Three printed or typewritten copies of the memorandum and articles of association of the proposed company, duly signed by all the promoters with full name, address and occupation. A declaration by an advocate or a chartered accountant that the memorandum and articles of association have been drawn up in conformity with the provisions of the Act and that all the requirements of the Act and the rules made thereunder have been duly complied with, in respect of registration or matters incidental or supplementary thereto. Three copies of a list of the names, addresses and occupations of the promoters (and where a firm is a promoter, of each partner in the firm), as well as of the members of the proposed board of directors, together with the names of companies, associations and other institutions in which such promoters, partners and members of the proposed board of directors are directors or hold responsible positions, if any, with description of the positions so held. A statement showing in detail the assets (with the estimated values thereof) and the liabilities of the association, as on the date of the application or within seven days of that date. 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, if any, already done by the association and of the work proposed to be done by it after registration, in pursuance of section-25. A statement specifying briefly the grounds on which the application is made.

A declaration by each of the persons making the application that he/she is of sound mind, not an undercharged insolvent, not convicted by a court for any offence and does not stand disqualified under section 203 of the Companies Act 1956, for appointment as a director.

4. The applicants should also, within a week from the date of making the application to registrar of companies, publish a notice in the prescribed manner at least once in a newspaper in a principal language of the district in which the registered office of the proposed company is to be situated or is situated and circulating in that district, and at least once in an English newspaper circulating in that district.

5. The registrar of companies may, after considering the objections, if any, received within 30 days from the date of publication of the notice in the newspapers, and after consulting any authority, department or ministry, as he may, in his discretion, decide, determine whether the licence should or should not be granted.

6. The registrar of companies may also direct the company to insert in its memorandum, or in its articles, or in both, such conditions of the licence as may be specified by him in this behalf.

SECTION 25 POWER TO DISPENSE WITH "LIMITED" IN NAME OF CHARITABLE OR OTHER COMPANY.

(1) Where it is proved to the satisfaction of the Registrar of companies that an association

is about to be formed as a limited company for promoting commerce, art, science, religion, charity or any other useful object, and intends to apply its profits, if any, or other income in promoting its objects, and to prohibit the payment of any dividend to its members, the Registrar of companies may, by licence direct, that the association may be registered as a company with limited liability, without the addition to its name of the word "Limited" or the words "Private Limited".

(2) The association may thereupon be registered accordingly; and on registration shall enjoy all the privileges, and (subject to the provisions of this section) be subject to all the obligations, of limited companies.

(3) Where it is proved to the satisfaction of the Registrar of companies - (a) that the objects of a company registered under this Act as a limited company are restricted to those specified in clause (a) of sub-section (1), and (b) that by its constitution the company is required to apply its profits, if any, or other income in promoting its objects and is prohibited from paying any dividend to its members, the Registrar of companies may, by license, authorise the company by a special resolution to change its name, including or consisting of the omission of the word "Limited" or the words "Private Limited"; and section 23 shall apply to a change of name under this sub-section as it applies to a change of name under section 21.

(4) A firm may be a member of any association or company licensed under this section, but on the dissolution of the firm, its membership of the association or company shall cease.

(5) A license may be granted by the Registrar of companies under this section on such conditions and subject to such regulations as it thinks fit, and those conditions and regulations shall be binding on the body to which the license is granted, and where the grant is under sub-section (1), shall, if the Registrar of companies so directs, be inserted in the memorandum, or in the articles, or partly in the one and partly in the other.

(6) It shall not be necessary for a body to which a license is so granted to use the word "Limited" or the words "Private Limited" as any part of its name and, unless its articles otherwise provide, such body shall, if the Registrar of companies by general or special order so directs and to the extent specified in the directions, be exempt from such of the provisions of this Act as may be specified therein.

PRIVILEGES OF SECTION 25 COMPANIESSection 25 companies can be either public company or private company having a limited liability. The biggest advantage of securing a license from Registrar of companies under section 25 is that such company is allowed to drop the word limited or private limited from their names. So these companies can continue to enjoy their stature as a Limited company without disclosing to the public whether the liability of its members is limited by share or guarantee. As these companies do not have the object of creating profits from its business activities and instead are indulged in activities useful to society the legislature intends to grant them some advantages and privileges on them for ensuring that such companies carry on their activities without undue hassles. Apart from enjoying many privileges and advantages they do have some obligations which they are required to adhere to.PRIVILEGES AND ADVANTAGES

The section 25 company enjoys all advantages that any other limited company registered under companies act enjoys. But apart from these advantages there are some specific privileges conferred upon them that distinguish them from other companies. These privileges are in nature of exemptions from some provisions of the companies act or apply with some modifications to section 25 company.

1) All companies having limited liability are required to use the term limited or private limited as the case may be in their names as required by section 13. But section 25 companies are allowed to dispense with the use of term limited or private limited from their names [sub-sec. (6)]. This helps the company to enjoy limited liability without disclosing to the public the nature of liability of its members.2) A partnership firm is allowed to be a member of the section 25 company [sub-sec (4)] inspite of the fact that the law does not recognizes them as a legal person. The only limitation in this regard is that on dissolution of such a firm its membership of the company ceases.3) Minimum Share Capital: As per the provision of section 3 of the companies act a private company is required to have a minimum share capital of rupees one lakh and public company is required to have minimum share capital of five lakhs rupees. However Section 25 Companies have been exempted from this requirement regarding minimum share capital by insertion of sub-section (6) through Amendment Act of 2000. As such they can be registered even if they have share capital les than the statutory minimum.4)Publication of Name: By provisions of section 147 of the companies act every company registered under the act is required to paint or affix and to keep painted or affixed its name and address of its registered office on the outside of every office or place where its business is carried on in a conspicuous position and in easily legible letters. It is further required to have its name engraved in legible characters on its seal and is required to its name and address of its registered office mentioned in all its business letters, bill heads, letter papers, publications, bills, receipts, etc. However a section 25 company has been exempted from the provisions of this section and as such is not required to mention its name and address as required in case of all other companies.5)Annual Returns of a Company not having Share Capital: Every company not having a share capital is required by provisions of section 160 to file within 60 days of every Annual General Meeting a return with the Registrar containing following particulars: i) address of its registered office; ii) names and address of its members with date on which they became members and names of members who ceased to be so from last AGM with date on which they left the company; and iii) particulars of persons who are Directors, Managers or Secretary of the company on the date of the return. Section 25 Company without a share capital is also required to file returns with the Registrar as required by section 160 but it has been exempted from mentioning the particulars of the members who are presently with the company or have ceased to be members since holding of its last AGM.6)Time and Place of AGM: Every company registered under the companies Act is required by section 166(2) to hold its Annual General Meeting during business hours and on a day that is not a public holiday and has to be held at its registered office or at a place within the limits of city, town or village where its registered office is situated. Section 25 Company has been exempted from this provision provided the time place and date of the AGM has been decided before hand by the Board of Directors having regard to the direction given by the company in a General Meeting. As such they are free to determine the date, place and time of its AGM according to their convenience and feasibility the only condition being that time, place and date of such meeting should have been pre determined by the Board of Directors in accordance with directions of the company if any.7)Notice of AGM: By virtue of section 171(1) a company is required to call AGM by giving not less than 21 days notice in writing to its members. Date on which meeting is to be held and date on which such a notice is served has to be excluded in computing the period of 21 days for purpose of section 171. But Section 25 Company has been given some relief in this regard by allowing them to hold an AGM after giving a notice of 14 days length instead of 21 days as required by section 171(1). Therefore they can call an AGM at a short notice of 14 days instead of 21 days.8)Maintaining of Books of Accounts: Every company is required by section 209(4-A) to maintain books of accounts relating to a period of eight years immediately preceding current year along with its vouchers. However a Section 25 Company is required to maintain books of account relating to a period of only four years instead of eight years immediately preceding the current year.9)Service of Copies of Certain Documents: A company is required to send a copy of every balance sheet (including profit and loss account) and other documents required by law to be laid before a company in the General Meeting to its members, debenture holders and debenture trustees at least 21 days before the date on which such a meeting is to be held in accordance with section 219(1). But a Section 25 Company is allowed to send the required documents atleast fourteen days before the date of meeting instead of 21 days [vide Notification No. GSR 73 dated 30-12-1965].10)Right of Persons other that Retiring Director to stand for Directorship: Section 257 deals with the procedure to be followed in case a person who is not a retiring director intends to stand for directorship of the company. If the Articles of the Section 25 Company provide for election of the Directors by ballot system then the provisions of section 257 will not apply to such a company and as a result a person who is not a retiring director and is intending to stand for directorship will not have to follow the procedure laid down by section 257. But if the Articles of the company do not provide for election of director by ballot then section 257 will have to be complied in whole.11) Increase in Number of Directors: Under section 259 a public company is not allowed to increase the number of it directors beyond the permissible limits under its articles without the approval of Central Government provided such increase results in total number of directors to go beyond twelve. But Section 25 Companies are exempted from this section and are thus free to increase the number of its directors without seeking approval of central government[vide Notification No. 2767, dated 5-8-1964].12)Filing of Consent for Directorship: Every person who intends to stand for directorship in accordance with section 257 is required by section 264(1) to file with the company his consent to act as a director if he gets appointed as such. This section is meant for the persons who are seeking afresh appointment and not for those who are seeking reappointment as director. It ensures that a person does not refuse to act as director after his appointment on ground that his consent was not taken by the company. But sub-section (1) has been made non-applicable to the Section 25 Company and as such a person seeking appointment as director for first time need not file his consent in advance with the company for working as a director if appointed.13)Board Meetings: Under section 285 the meeting of Board of Directors should be held at least once in every three months and four meetings should be held in a year. However section 25 companies are required to hold meetings of Board of Directors/Executive Committee/Governing Committee only once in every six months[vide Notification No. SO 1578 dated 1-7-1968]. The rest of the section 285 will apply to section 25 companies as it is, therefore section 25 companies are allowed to hold Board meetings only once in six months but should have held four meetings in a year.

14)Quorum for Meetings: The required quorum for a board meeting of any company under section 287 is one/third of its total strength which is arrived at after deducting the number of interested directors from the total number of directors on the Board or at least two whichever is higher. But the section 25 company is exempt from this section to the extent that the required quorum for any board meeting is eight members or one/fourth of its total strength whichever is less provided it should not be less than two members in any case.15)Exercise of certain Powers: Under section 292 there are certain specified powers which a Board of Directors of the concerned company can exercise only by passing of resolution at the meeting. The Board can exercise all other powers by passing of resolutions by circulation instead of taking them at meetings by following the procedure specified in section 289 of the Act. However section 25 companies are allowed to decide following three matters by passing a resolution by circulation instead of at meetings:

the power to borrow moneys other than on debentures, the power to invest funds of the company, and

the power to make loans.

The remaining powers specified in section 292 viz., power to make calls on shareholders in respect of money unpaid on their shares; power to authorize by back of shares in accordance with section 77A; and power to issue debentures, can be exercised only by passing of resolutions at duly conducted meeting of Board of Directors of section 25 company [vide Notification No. 2767, dated 5-8-1964].16)Disclosure of Interest: Under section 297 a company is not allowed to enter into contract for (i) purchase, sale or supply of any goods, material or services; or (ii) for underwriting subscription of any shares in or debentures of company, with a director of the company; or his relative; or a firm in which such a director or relative is a partner; or a partner in such a firm; or a private company in which such director is member or director unless consent of the Board of Directors has been obtained before entering into such contract[sub-sec. (1)]. If any of the persons or entity mentioned above regularly trades or does business in the subject matter of contract and such contract is made for cash at prevailing market prices then consent of Board is required only in those cases where cost of such contract exceeds five thousand rupees aggregate in a particular year[sub section (2)]. Consent of Board can be obtained within three months from date on which such contract is entered into if there arises some urgent necessity even if cost or value of such contract exceeds rupees five thousand in a year.[sub-sec. (3)]. Section 299 lays down the circumstances when disclosure of interests by Directors of the company is mandatory and procedure in regard to such disclosure. It directs a director to disclose his interest (direct or indirect) or concern in any contract or arrangement made or proposed by the company at the first meeting of Board when such contract is being considered or at first meeting held after he became interested in a contract already entered into by the company. But in case of section 25 companies section 299 applies only to the matters covered by sub-section (1) and (3) of section 297. It follows that section 25 companies are allowed to enter into contracts or arrangements with all of the persons or entity mentioned earlier if such person or entity regularly does trade or business in the subject matter of such contract or arrangement and cost of such contract is made at prevailing market prices without seeking the consent of the Board of Directors even if the cost of such contract exceeds five thousand rupees aggregate in a year. Hence section 25 companies are allowed to conduct trade or business with private companies, firms or persons where some director may be having an interest provided such private company, firm or person regularly does trade or business in such a contract without seeking approval of Board again and again where the cost of such contracts exceeds five thousand rupees in a particular year in which such a contract is entered or seeking approval of central government where share capital of the company exceeds one crore rupees. 17)Maintenance of Registers of Contracts: Under section 301 a company is required to maintain register of all the contracts to which section 297 or 299 applies. But a section 25 company is exempt to the extent that it allowed to maintain register of only those contracts to which sub-sections (1) and (3) of section 297 apply. Thus they are exempted from maintaining registers of those contracts which are made in pursuance of sub-section (2) of section 297 or are covered by section 299.18) Maintenance of Register of Directors: Under section 303 of the companies act every company is required to maintain a register containing particulars of its Directors, Managing Directors, Managers and Secretary in manner prescribed in sub-section (1). These companies are further required to send to the Registrar of Company a duplicate in prescribed form containing all particulars of such register and a notification in duplicate informing the Registrar of nay changes among its Directors, Managing Directors, Managers or Secretary within 30 days of such changes or appointment of First Directors of the company [sub-sec. (2)]. Section 25 company has been exempted from operation of sub-section (2) of section 303 and as such they are not required to notify changes among its directors, etc to the Registrar. They are only required to maintain Registers of their Directors, Managing Directors, Managers and Secretary in prescribed format containing specified particulars and updating the register by making changes in it as when there is some change among the Directors, Managing Directors, Managers and Secretary of the company.19)Qualification for Secretary ship: Every company registered under the companies act is required to have a Secretary as defined under section 2(45) and having prescribed qualifications as laid down in the companies act itself and in Companies (Appointment and Qualifications of Secretary) Rules, 1988 and is required to be appointed in accordance with Chapter IV (sections 383-A) of the companies act. However a Section 25 Company is exempt from the provision of section to the extent that the rules regarding the qualification of a Secretary do not apply to them [vide Notification NO. F.2/3/76-CLV dated 09-01-1976]. As section 2(45) do not apply to them they are free to appoint any person as its Secretary whom it feels fit and proper for the same.20)Applicability of CARO: Section 25 Companies are exempted from applicability of Companies Auditors Report Order 2003(CARO). CARO has been made applicable to all companies from 1st January 2004. But CARO expressly exempts section 25 companies from its applicability vide Clause 2(iii) of Para I of the Order.21) Payment of Registration Fees: The fees payable by a Section 25 Company at the time of registration and further increase of its share capital has been kept very low in comparison to other companies and is at present fixed at mere Rs. 50/- irrespective of the authorized amount of share capital (Circular No. 6 dated 24-06-1996 and Notification No. SO 3879 dated 22-12-1962)22)Stamping of Memorandum and Articles: The Articles and Memorandum of a Section 25 Company are not required to be stamped in accordance with the Indian Stamp Act, 1899.OBLIGATIONSThough a Section 25 Company has many advantages and enjoys many privileges yet there are some statutory obligations which are required to be complied with and taken care of by such companies.

1) A Section 25 Company has to ensure that its profits and all other incomes are utilised only for the purpose of promoting its objects and not for any other purpose.2)It should also ensure that its profits are not distributed as dividend among its members.3) Section 25 Company cannot alter its objects clause in its Memorandum without seeking the written approval of central government [sub section (8)].4) If the Central Government has imposed some conditions and regulations upon the company for granting a license under section 25 then such a company is bind by such conditions and has to ensure adequate compliance with them. Where such conditions and regulations have been imposed then such conditions and regulations are required to be included in the Articles or/and memorandum of the company as may be directed by the government.5)Section 25 Company is regarded as a company within the meaning of the Income Tax Act, 1961 and as such its income is taxable according to the applicable rates similar to those applying to other companies.

6) If an existing company obtains a license under section 25 it has to ensure that its objects are confined to those mentioned in section 25 itself and if not make proper alteration to its memorandum and articles.

Apart from above mentioned privileges a Section 25 Company enjoys all other advantages that a company registered under the companies act has after incorporation. Similarly it is required to comply with all other provisions of the Act just like any other normal company from which it has not been expressly exempted. As such it will be subject to penalties if there is a default in compliance with any of the provision of the Companies Act. Such a default can also result in revocation of the license granted by the Registrar of companies under section 25.

Benefits of Section 25 Company

Recognition: Section 25 Companies are recognized under various scheme carried on by the Central and State Government for charitable and religious purposes and are given special treatment under the said scheme

Foreign Funds: Section 25 Companies are recognized under Foreign Contribution Regulation Act for receiving foreign contribution and funds for carrying on charitable and religious activities. Since these companies are subject to regulatory control, therefore they are preferred in comparison to other form of organizations.

Liability: A Company exists as a separate legal entity from your personal life. Both company and person who own it are separate entities and both functions separately. Liability for repayment of debts and lawsuits incurred by the Company, lies on it and not the owner. Any business with potential for lawsuits should consider incorporation. Incorporating will offer an added layer of protection

Perpetual Succession: An incorporated company has perpetual succession. Notwithstanding any changes in the members of the Company, the Company will be a same entity with the same privileges, immunities, estates and possessions. The Company shall continue ton exist till its wound up in accordance with the provisions of the relevant law

Easy Transferable Ownership: The shares and other interest of any member in the Company shall be a movable property and can be transferable in the manner provided by the Articles, which is otherwise not easily possible in other business forms. Therefore , it is easier to become or leave the membership of the Company or otherwise it is easier to transfer the ownership

Separate Property: A Company as legal entity is capable of owning its funds and other properties. The Company is the real person in which all the property is vested and by which it is controlled, managed and disposed off. The property of Company is not the property of its shareholders

Raising Money: A Company can sell shares of the Company to the public or can accept deposits from public and can therefore raise money easier than other business structure types. The modes of financing business carried on by company are numerous

Recognized Under Tax Laws: Section 25 Companies are recognized under Income Tax Laws for exemption from payment of tax on income generated from rendering services for charitable and religious purposes. Under the Income Tax Act 1961 (I T Act), charitable organizations (whether trust, society and section 25 of the company) in India are not liable to any income tax, provided certain conditions required under law are fulfilled. As per the section 11(1) (a) to (c) as well as 10(23C) of I T Act the term NPO includes religious organizations such as temples, churches, mosques etc and charitable organizations such as educational institutes, hospitals, NGOs etc. Organization may qualify for tax exempt status. A donor (whether an individual, association, company, etc) is entitled to a deduction (in computing his total income) if he makes a donation to a charitable organization enjoying exemption u/s 80G of the Income Tax Act Capacity to sue: As a juristic legal person, a Company can sue in its name and be sued by others. The managing director and other directors are not liable to be sued for dues against the Company

Better Governed: Companies are governed by Companies Act, 1956 and have to follow various regulatory procedures during the course of its governance, moreover they have to comply with stringent disclosure norms which let to better governed organizations and creation of value for owners. Drawback of Section 25 Company Costly to Form and Run: In comparison to other business forms, it is costly to incorporate and run a Company. Lot of compliances is required to be carried every year and therefore the cost of running is also high in comparison to other forms. Moreover heavy fines and penalties has been prescribed for the non compliance.

Regulated form of Business Company is highly regulated form of business , as lot of compliances like maintenance of various registers , holding of meetings are required to done each year and for undertaking various activities or decision , it is necessary to obtain the permission of specified number of shareholders and in some , of regulatory authorities also. The Companies Act 1956 also prescribes various provisions how the company will be managed and run.

Audit and Financial Disclosure It is necessary for all the companies to get its accounts audited annually and to prepare its balance sheet and profit and loss account in accordance with the prescribed guidelines. Lot of information as to the financial condition of the business is required to be disclosed and moreover, all such documents are available for public inspection, therefore it is not possible to maintain financial secrecy of the business.

Lack of Control In case of companies, the ownership and management is divorced, in order words, it is not necessary the people owning the company are also managing it. The Company is managed by Directors, which are appointed by the shareholders. The Directors are responsible for running and managing the company and taking key business decisions and shareholders dont have any direct control over the company and therefore they are not much aware of whats happening in the company.

Long Closing Proceedings It is generally not easy to close the company as compared to other forms of business, the procedure to close is long and involves compliance of various formalities, at times it takes 1-2 years to completely wind-up the company. Moreover in certain cases, it is necessary to take the permission of the High Court to close the Company.FOREIGN CONTRIBUTION REGULATION ACTUnder Section 6 of FCRA, it is clearly provided that any organisation having a definite cultural/ social/ educational/ religious/ economic object shall only accept foreign contribution after satisfying two conditions :

(i) It must registers itself with the Central Government.(ii) It must agrees to receive foreign contribution only through one specific bank account.For grant of registration, the association should:

(i) be registered under the Societies Registration Act, 1860 or the Indian Trusts Act, 1882 or section 25 of the Companies Act, 1956;(ii) normally be in existence for at least three years and has undertaken reasonable activity in its chosen field for the benefit of the society for which the foreign contribution is proposed to be utilised. For this purpose, the association should have spent at least Rs. 6,00,000 over last three years on its activities, excluding administrative expenditure. Statement of Income & Expenditure duly audited by Chartered Accountant for last three years may be enclosed to substantiate that it meets the financial parameter.

(iii) meet the following conditions:-

(1) The person making an application for registration or grant of prior permission is not fictitious or benami;

(2) has not been prosecuted or convicted for indulging in activities aimed at conversion through inducement or force, either directly or indirectly, from one religious faith to another;

(3) has not been prosecuted or convicted for creating communal tension or disharmony in any specified district or any other part of the country;

(4) has not been found guilty of diversion or mis-utilisation of its funds;

(5) is not engaged or likely to engage in propagation of sedition or advocate violent methods to achieve its ends;

(6) is not likely to use the foreign contribution for personal gains or divert it for undesirable purposes;

(7) has not contravened any of the provisions of this Act;

(8) has not been prohibited from accepting foreign contribution; (9) the person and/or any of its directors or office bearers has neither been convicted under any law for the time being in force nor any prosecution for any offence is pending against him.

(iv) the acceptance of foreign contribution by the association/ person is not likely to affect prejudicially

(1) the sovereignty and integrity of India; or

(2) the security, strategic, scientific or economic interest of the State; or

(3) the public interest; or

(4) freedom or fairness of election to any Legislature; or

(5) friendly relation with any foreign State; or

(6) harmony between religious, racial, social, linguistic, regional groups, castes or communities.

(v) the acceptance of foreign contribution-

(1) shall not lead to incitement of an offence;

(2) shall not endanger the life or physical safety of any person.Audit by Chartered AccountantEvery organisation which receives foreign contributions is required to furnish a certificate from a chartered accountant. Along with this certificate, audited balance sheet and the statement of receipt and payment account should also be submitted

Every organisation which receives foreign contributions shall file an annual return in Form FC-3 under rule 8(2) within 120 days of the closure of the year.

SOCIETY REGISTRATION ACT - INTRODUCTION

Purpose of the Act is to provide for registration of literary, scientific and charitable societies. Societies Registration Act is a Central Act. However, unincorporated literary, scientific, religious and other societies and associations is a State Subject (Entry 32 of List II of Seventh Schedule to Constitution, i.e. State List). Thus, normally, there should have been only State Laws on this subject. However, Societies Registration Act was passed in 1860, i.e. much before bifurcation of power between State and Centre was specified. Though the Act is still in force, it has been specifically repealed in many States and those States have their own Acts. Thus, practically, the Central Act is mainly of academic interest.

Societies to which the Act applies Following societies can be registered under the Act - * Charitable societies * Military orphan funds or societies * Societies established for promotion of science, literature, or for fine arts * Societies established for instruction and diffusion of useful knowledge, diffusion of political education * Societies established for maintenance of libraries or reading rooms for general public * Societies established for Public museums and galleries for paintings or other works of art, collections of natural history, mechanical and philosophical inventions, instruments or designs [section 20]DEFINITIONA society may be defined as a company or an association of persons united together by mutual consent to deliberate, determine and act jointly for same common purpose. Minimum seven persons, eligible to enter into a contract, can form society. When an NGO is constituted as a society, it is required to be registered under the Societies Registration Act, 1860, which is a federal act. In certain states, which have a charity commissioner, the society must not only be registered under the Societies Registration Act, but also, additionally, under the Bombay Public Trusts-Act.

The chief advantage of forming a society are that it gives a corporate appearance to the organization, and provides greater flexibility as it is easier to amend the memorandum and bye laws of the society than in case of trust, terms of which are strictly manifested in the trust deed. However, formation of a society requires more procedural formalities than in case of a trust.

For the purpose of registration, following documents are required to be filed with the registrar of Societies:

a) Covering letter requesting for registration stating in the body of the letter various documents annexed to it. The letter is to be signed by all the subscribers to the memorandum or by a person duly authorized by all of them to sign on their behalf.

b) Memorandum of Association, in duplicate neatly typed and pages serially numbered (no stamp paper required), wherein the aims and objects and mode of management (of the society) should be-enshrined.

c) Rules and Regulations/Bye-Laws, in duplicate, certified by at least three members of the governing body.

d) An affidavit of the president/Secretary of the society, on a non-judicial stamp paper of prescribed value, stating the relationship between the subscribers, duly attested by an oath commissioner, notary public or 1st class magistrate.

e) Documentary proof such as house tax receipt, rent receipt in respect of premises shown as registered office of the society or no objection certificate from the landlord of the premises.

f) An authority duly signed by all members of the managing committee.

g) A declaration by the members of the managing committee that the funds of the society shall be used only for the purpose of furthering the aims and objects of the society.

PRIVILEGES OF FORMING COMPANY UNDER SOCIETY REGISTRATION ACTTrustees- A Society needs a minimum of seven managing committee members; there is no upper limit to the number managing committee members. The Board of Management is in the form of a governing body or council or a managing or executive committee.Annual list of managing body to be filed Annual list of managing body should be filed within 14 days after AGM. [section4]. If there is no provision of AGM, then list should be filed in January every year. [section 4]. - - The governing body may be termed as governors, council, directors, committee, trustees or other body to whom by rules and regulations of society, the management of the affairs of society is entrusted. [section 16].

Society is not a body corporate Society is not a body corporate. This is evident from following (a) Entry 32 in List II of Schedule to Constitution itself uses the words unincorporated (b) As per section 4, property of society vests in governing body, if not vested in trustees. Thus, property does not vest in society as such. (c) Section 6 states that suit by or against society can be only in name of President, Chairman, Principal Secretary or Trustees, as determined by rules of society. Thus, suit cannot be in name of society as such. Office bearers not personally liable Section 8 makes it clear that though suit against society is instituted in name of some person, he is not personally liable, but property of society will be liable. Members of society A member is a person who is admitted according to rules and regulations of society and who pays subscription, or signed the roll or list of members, and who has not resigned from membership. [section 15]. A member can be sued as stranger for arrear in subscription or if he injures or destroys property of society. [section 10]. Member guilty of offence of stealing, embezzlement or wilful destruction of society property can be punished as stranger, i.e. not a member. [section 11]. Alteration, extension of purposes, amlagamation or dissolution Society can alter, extend or abridge is purposes, or amalgamate with other society after approval of general meeting of members. [section 12]. Society can be dissolved if three-fifths of members determine to do so. [section 13]. Upon dissolution, balance amount should be given to other society and not to any member. [section 14].

EFFECT OF REGISTRATION / NON-REGISTRATION OF A SOCIETYThe Societies Registration Act, 1860 lays down procedure for registration of societies for various bonafide purposes.

The registration gives the society a legal status and is essential

1. for opening bank accounts,

2. obtaining registration and approvals under Income Tax Act,

3. lawful vesting properties of societies, and

4. gives recognition to the society at all forums and before all authorities.

When the society is registered, it and its members become bound to the same extent, as if each member had signed the memorandum.

A society, registered under this Act, must confine its activities to the sphere embraced by its objects.

A tax imposed on a society is one imposed on the society and not on its members.

A society registered under the Act enjoys the status of a legal entity apart from the members constituting it. A society so registered is a legal person just as an individual but with no physical existence. As such it can acquire and hold property and can sue and be sued.

The society should be registered under the Act to acquire the status of juridical person.

In the absence of registration, all the trustees in charge of the fund have alone a legal status and the society has no legal status, and, therefore, it cannot sue and be sued. A non-registered society may exist in fact but not in law. It is immaterial under the Act whether the society is registered but where the benefit is claimed, the registration of society under the Act us required. An unregistered society cannot claim benefits under the Income-tax act.ACCOUNTS AND AUDITS

The societies are in possession of funds and properties provided to them by the members or by other persons (by way of donation etc.). The funds and properties are interested for the attainment of objects for which the society has been formed. The members of the governing body are the trustees who apply the funds. It becomes necessary, that the societies maintain regular account books and get them audited and present them to the members at the general meeting and file them with the Registrar for scrutiny. Every society should get its accounts audited once a year by duly qualified auditor and have balance sheet prepared by him. The auditor should submit the report showing the exact date of financial affairs of the society.

LITIGATIONAs every society is a legal entity separate from its members it is capable of filing suits against any person or any member. Similarly, the suits can also be brought against the society.

The registered society can file a suit anywhere in India and in any state although it is not registered in that particular state.

ENFORCEMENT OF JUDGEMENT AGAINST SOCIETYThe judgment of decree passed against any person or officer of the society, who represents the society in the legal proceeding, cannot be enforced against the personal property of such person. The property of the society shall only be liable to pay for the decree passed against a society. This protection has been given to the office bearers of the society under the principal Act

A society is well known as an association of persons united together by mutual consent to deliberate, determine and act jointly for the same common purpose. Minimum seven persons, eligible to enter into a contract, can form society. When an NGO is constituted as a society, it is necessary to be registered under the Societies Registration Act, 1860.

The primary benefits of forming a society are that it gives a corporate appearance to the organization, and provides greater flexibility as it is easier to amend the memorandum and bye laws of the society than in the case of trust, terms of which are strictly manifested in the trust deed. However, formation of a society needs more procedural formalities than in the case of a trust.COMPARISON BETWEEN A SOCIETY AND A SECTION 25 COMPANYSociety

Section 25 Company

Statute/LegislationSocieties Registration Act of 1860Companies Act of 1956

Jurisdiction of the ActConcerned state where registeredConcerned state where registered

AuthorityRegistrar of SocietiesRegistrar of Companies

RegistrationAs Society (and by default also as Trust in Maharashtra and Gujarat)As Section 25 Company

Main DocumentMemorandum of Association and Rules & RegulationsMemorandum and Articles of Association.

Stamp DutyNo stamp paper required for Memorandum of Association and Rules & RegulationsNo stamp paper required for Memorandum and Articles of Association

Number of persons needed to registerMinimum seven, no upper limitMinimum three, no upper limit

Board of ManagementGoverning body or council/managing or executive committeeBoard of Directors/Managing Committee

Mode of succession on board of managementUsually election by members of the general body

Usually election by members of the general body

SECTION 25 COMPANY VIS--VIS COMPANIES ACT, 2013Provisions of the Companies Act, 2013 relating to Section 25 Company are provided under Section 8 of the New Act. The provision is not yet effective. It is expected to become applicable very soon.**END OF REPORT**SIGNATURE OF TRAINEE SIGNATURE OF EMPLOYERSection 25 companies - Introduction

FORMATION PROCEDURES

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