Companies formed with charitable objects

A company is usually formed with the object of making a profit. We often come across high-profile deals among companies, a tough competition among two or more business entities or startups turning into big successful businesses. The primary reason for these things to happen is the intent of such entities to become highly profitable. Investors right from institutional investors to retail investors always keep the profit earned by the company as a major parameter for investing their money into that company. A profitable business also proves to be beneficial for the Government as it generates tax revenue and also benefits the economy of the country whether directly or indirectly. Every stakeholder thus likes to be connected with a profitable business entity as it is capable of satisfying their respective business interests in the company.  

It shall be interesting to know that there are also companies which are not formed for the purpose of making profits. In fact, their primary purpose is the fulfilment of objects for which they are formed which are basically concerned with the welfare of the society. They are formed to benefit society by providing services in such areas that are required to be adequately uplifted and improved for achieving their end goal of a society’s welfare and hence leading to a nation’s welfare.

Indian Company law also contains provisions for non-profit-making companies. The provisions relating to the objects of such company, their formation, winding up, and amalgamation shall be discussed hereafter.

 Companies formed with charitable objects- Legal Provisions:

1) Where a person or an association of persons intends to form a registered company for the promotion of objects, some of them being a religion, charity, commerce, art, education, science, social welfare, environmental protection, etc.,

- and applies its profit or surplus if any for the promotion of the objects of that company as stated above,

- and does not intend to pay a dividend to its members on the profits or surplus earned,

the Central Government on being satisfied may grant a license and allow such person or association of persons to be registered as a limited company without adding the words ‘limited’ or ‘private limited’ to its name on fulfilment of the certain conditions as prescribed by law.  

2) Such person or association of persons shall make an application along with other necessary documents for the registered company to be formed with charitable objects in Form-SPICe+ INC-32 along with the prescribed fees.  

3) Once formed, such type of companies shall enjoy all the privileges which are ordinarily available to limited companies.

4) A partnership firm may also become a member of such a company.

5) Such a company shall not alter the provisions of its memorandum or articles of the association unless approval for the same is obtained from the Central Government.

6) Converting such a company into any other type of company shall be allowed only after complying with the prescribed conditions.

7) Existing companies desirous of being registered as companies with charitable objects without adding the words ‘limited’ or ‘private limited’ to their names shall make an application for a license to the Registrar of Companies (ROC) in the prescribed form (i.e INC.12) along with such fees as may be prescribed.

All the prescribed documents apart from the application shall also be submitted along with the above application.

8) If such a company acts in contravention of the applicable legal requirements or works in violation of the objects for which it is formed or acts fraudulently, the Central Government may revoke the license of such company, by order and add the words ‘limited’ or ‘private limited’ to it after giving a reasonable opportunity of being heard.  

The order of revocation shall be filed with the Registrar of Companies

9) The Central Government on the revocation of the license may order the amalgamation of such company with another company having similar objects if it is necessary to do so in the public interest.

10) In the event of winding up of such a company, the surplus assets if any remaining after the settlement of its debts and liabilities shall be sold and the proceeds of the assets shall be credited to the Insolvency and Bankruptcy Fund formed under the IBC 2016 subject to such conditions as imposed by NCLT.

11) Amalgamation of such a company shall be done only with a similar type of company.

Penalty for contravention:

On contravening the relevant legal provisions, the company formed with charitable objects shall be punishable with a minimum fine of 10 lakhs and with a maximum fine of 1 crore

Also, every officer in default of such a company shall be punishable with a fine of not less than 25,000/- and which shall not be more than 25 lakhs.

If it is discovered that the affairs of such company were carried fraudulently then every officer of such company shall be punishable for fraud under Section 447 of the Indian Company law.

India being a developing country needs to encourage such companies that shall be actively involved in sharing the benefit to the needy by working on its objects. All these activities shall however be carried by complying with the legal provisions as aforesaid.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Legal and Tax shall not be responsible for any errors caused due to human error or otherwise.