Section 25 of the Companies Act has a dual reputation. On one hand, it is remembered from the Companies Act, 1956 as the provision that allowed non-profit, charitable companies to operate without using “Limited” or “Private Limited” in their names. On the other hand, under the Companies Act, 2013, the subject matter of Section 25 has been entirely reshaped.
Today, charitable companies are governed by Section 8, while Section 25 of the Companies Act, 2013 primarily deals with documents offering securities for public sale and treats them as prospectuses for investor protection. Understanding this shift is essential because misinterpretation can lead to serious compliance gaps—especially during fundraising or registration.
Why Section 25 Still Causes Confusion
Old habits die hard.
Many professionals, NGOs, and even government forms still casually use the term “Section 25 company”, even though legally it has been replaced. This legacy usage creates confusion between:
- Non-profit companies, and
- Documents offering securities for sale to the public
Both are important, but legally distinct concepts.
Section 25 Under the Companies Act, 2013: The Real Meaning
Under the Companies Act, 2013, Section 25 focuses on investor protection.
It states that:
- Any document containing offer of securities for sale
- Issued to the public
- Shall be deemed to be a prospectus
In simple terms, documents offering securities for sale are regulated just like prospectuses to prevent misleading claims.
Document Containing Offer of Securities for Sale to Be Deemed Prospectus
This is the heart of Section 25.
If a company circulates a document containing an offer of securities for sale, the law treats it as a prospectus, even if the company claims otherwise.
Why this matters:
- Prospectus laws impose strict disclosure obligations
- False statements attract civil and criminal liability
- Investors are protected from half-truths
This provision ensures transparency when capital is raised indirectly.
What Is a Prospectus and Why Section 25 Matters
A prospectus is not just a formality. It’s a promise.
Section 25 ensures that:
- No company escapes disclosure obligations
- Documents offering securities for sale are scrutinised
- Investors receive complete and truthful information
This is especially relevant during public offers and structured fundraising.
The Famous “Section 25 Company” – Where Did It Go?
Here’s the important clarification.
Section 25 of the Companies Act, 1956
Earlier, Section 25 dealt with:
- Charitable and non-profit companies
- Power to dispense with “Limited” in name of charitable or other company
- Promotion of commerce, art, science, sports, education, charity, etc.
These companies:
- Could not distribute profits to members
- Enjoyed higher credibility
Section 8: The New Home of Old Section 25 Companies
Under the Companies Act, 2013:
- Section 8 replaces old Section 25
- It governs non-profit companies
So today:
- “Section 25 company” = popular term
- Legally correct term = Section 8 company
Understanding this distinction avoids incorrect filings and rejected applications.
Restriction on Profit Distribution
Whether old Section 25 or new Section 8, the philosophy remains the same.
Such companies:
- Exist for charitable or social objects
- Must reinvest profits
- Cannot pay dividends to members
This restriction builds public trust.
Practical Example from Real Life
I once worked with a founder registering an NGO. He kept insisting on forming a “Section 25 company.” Everything from the MOA to funding proposals used the old term. We corrected this early—and it saved weeks of follow-up with authorities.
Knowing what Section 25 means today avoids such delays.
Key Differences You Should Remember
- Section 25 (2013) → Documents offering securities for sale deemed prospectus
- Old Section 25 (1956) → Non-profit companies
- Section 8 (2013) → Current law for charitable companies
Mixing these up can affect registrations, fundraising, and compliance.
Why Investor Protection Is Central to Section 25
Section 25 under the 2013 Act reinforces:
- Full disclosure
- Fair representation
- Accountability of issuers
In an era of complex financial instruments, this safeguard is crucial.
Conclusion
Section 25 of the Companies Act, 2013 is not about NGOs anymore—it’s about investor protection.
The charitable legacy of Section 25 lives on through Section 8, while the modern Section 25 ensures that documents offering securities for sale are treated seriously and transparently.
Understanding this legal evolution protects both founders and investors—and keeps your compliance clean.
👉 Confused between Section 25, Section 8, or prospectus rules? Get clarity and compliance support at callmyca.com.
