STATUS OF S.25 COMPANIES UNDER NEW COMPANIES ACT 2013

Dear Sir:

I have a two-fold query regarding Sec 25 Companies under the Companies Act of 1956 (now presented as Sec 8 Companies under the Companies Act 2013):

1. Do existing Sec 25 Companies have to re-register under Sec 8, or are they subsumed under the new law, and treated as Sec 8 Companies by extension? I ask, because the existing licenses clearly note that the company is registered under Sec 25 of the Companies Act). Do Sec 25 Companies now automatically stand converted to Sec 8 Companies – and if yes, what is the documentary evidence of this that the Company needs to produce or quote?

2. How does the changed wording regarding remuneration to members impact Sec 25 companies?

Compare Clause 6 of the Sec 25 license which says:”Noting in Clauses (3), (4) and (5) shall prevent the payment by the company in good faith, with the previous approval of the Central Government, of reasonable and proper remuneration to any of its members in return for any services (not being services of a kind which are required to be rendered by a member), actually rendered to the company;” and Clause 5 of the new Sec 8 license, which reads: “that nothing in clauses (3) and (4) shall prevent the payment by the company in good faith of prudent remuneration to any of its members in return for services (not being services of a kind which are required to be rendered by a member), actually rendered to the company.”

I especially note the crucial dropping of “with the previous approval of the Central Government” and the substitution of “reasonable and proper remuneration” by “prudent remuneration”.
Any comments would be deeply appreciated!

(5) that nothing in clauses (3) and (4) shall prevent the payment by the company in good faith of prudent remuneration to any of its members in return for any services (not being services of a kind which are required to be rendered by a member), actually rendered to the company;

Warm regards,
Ramakrishnan

N.Ramakrishnan
Ideosync Media Combine
H.No.1381, Sector 37
Faridabad – 121 003
Haryana – India

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3 Responses to STATUS OF S.25 COMPANIES UNDER NEW COMPANIES ACT 2013

  1. Ramakrishnan says:

    Avineesh, thank you for the comment. To respond:
    Nothing is required to be done by an existing company incorporated as section 25 company to take the benefit of section 8 in the new Act.
    So one just starts referring to the organization as a not for profit under Section 8 from here on? And continue to submit the Sec 25 license where required?

    I feel it is welcome and pragmatic change.
    Absolutely.

  2. Avineesh Matta says:

    1. With the enactment of Companies Act 2013 all previously incorporated companies shall get subsumed in the new law. Section 465 of the new Act of 2013 repeals the old Act of 1956, while section 1 subsection (4) prescribes its application to all companies incorporated in any of the previous company legislation. Nothing is required to be done by an existing company incorporated as section 25 company to take the benefit of section 8 in the new Act.

    2. I feel it is welcome and pragmatic change. Now the Not-for-Profit companies can pay prudent remuneration to its members for the services rendered by such member(s) to the Company and for the objects of the Company. Prudent shall simply mean that it is just and reasonable and not exorbitant, which any person with reasonable understanding can think the payment as justifiable under the given facts and circumstances. The payments must be bonafide payments for which services have in fact been rendered by the payee member.
    However, if the members of the Company are expected to do certain acts and render certain services to the Company by virtue of their membership of the Company, no remuneration can be paid for such services rendered as members. No need now to go to the Central Government for approvals for payment to members, if the specified conditions are met.

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