The ‘Section 25 Company’ is in the spotlight as the ED grills Rahul Gandhi, according to the National Herald. What Does It All Mean?

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The Congress has announced that lakhs of party workers across the country will hold peaceful protests against the government’s “vendetta politics” as Rahul Gandhi appears before the Enforcement Directorate (ED) for the fourth day of questioning on Monday in connection with a money-laundering case involving the National Herald-Associated Journals Ltd deal.

While the investigation has sparked a heated debate between the BJP and the Congress, it’s important to understand how the situation developed.

THE INTRODUCTION
In 2013, BJP MP Subramanian Swamy accused Sonia Gandhi and Rahul Gandhi of defrauding and misappropriating cash in the purchase of the National Herald newspaper. He said that the Gandhis acquired properties owned by the National Herald by purchasing its former publishers, AJL, through a Section 25 entity named Young India, in which they own an 86 percent stake. In December 2015, the trial judge granted Sonia and Rahul bail in the case.

Meanwhile, the Congress claims that AJL grew indebted and then converted its debt to equity by assigning its loan to a new business, Young India, and thereby became debt-free.

Young India must be a not-for-profit corporation, according to the Grand Old Party, because it was established under an unique provision of the Companies Act — Section 25 — and no dividends can be paid to its shareholders or directors.

WHAT IS THE DEFINITION OF A SECTION 25 COMPANY?
A Section 25 company is a non-profit charitable corporation formed solely for the purpose of “promoting commerce, art, science, religion, charity, or any other useful object, and intends to apply its profits, if any, or other income in furthering its objects, and to prohibit the payment of any dividend to its members,” according to the Companies Act of 1956.

This is analogous to Section 8 of the Companies Act of 2013, which covers sports, education, research, social welfare, and environmental preservation, among other things.

According to Section 25, the corporation is required/intentional to devote its profits, if any, or other money toward furthering its objectives and is forbidden from paying any dividends to its members under its constitution.

SOME MORE COMPANIES FROM SECTION 25 OR SECTION 8?
Some notable names include the Reliance Foundation, Azim Premji Foundation, Coca-Cola India Foundation, and Amazon Academic Foundation.

WHAT IS THE DIFFERENCE BETWEEN IT AND A TRUST? WHY IS THIS SECTION INCLUDED?
Most international donors prefer to contribute to a company rather than a trust, according to experts, because companies are more transparent and provide more disclosures.