Q Why is it in News ?
A The Enforcement Directorate (ED) has summoned Rahul Gandhi and Sonia Gandhi following a trial court order in a tax assessment case of his not-for-profit company.
Q What is the case?
A
- A case alleged cheating and misappropriation of funds on part of the leaders in acquiring the newspaper.
- The alleged persons acquired it through a Section 25 company — in which they have 86% stake.
Q What is a Section 25 company?
A
- It is defined under the Companies Act, 1956.
- It is a not-for-profit charitable company.
- It is formed with the sole object of promoting commerce, art, science, religion, charity, or any other useful object.
- It 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
- Section 8 of the Companies Act, 2013 includes other objects such as sports, education, research, social welfare and protection of the environment among others.
Q What are the Fiscal activities allowed ?
A
- While it could be a public or a private company, a Section 25 company is prohibited from payment of any dividend to its members.
- Section 25 states that by its constitution the company is required/ intends to apply its profits, if any, or other income in promoting its objects and is prohibited from paying any dividend to its members.
Q What are prominent examples of such companies?
A
- According to details available with the Ministry of Corporate Affairs, a large number of companies have been formed under the Section.
- Among these are Reliance Foundation, Reliance Research Institute, Azim Premji Foundation, Coca Cola India Foundation, and Amazon Academic Foundation.
Q Why are such companies formed?
A
- Most people looking to form a charitable entity go for forming a company under Section 25, now Section 8, rather than a Trust structure.
- This is because most foreign donors like to contribute to a company rather than Trust because they are more transparent and provide more disclosures.
- If a company has to be converted into a not-for-profit company, they can’t be converted into a Trust, however, they can be converted into a Section 25/ Section 8 company.
