Sec 25

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Nidha (Querist)
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24 March 2014 Dear All Professionals

My query is regarding whether salary and commission to a reasonable extent be given to directors and members of sec 25 companies.Please guide in this matter.

CA Surendra Bhatt (ACA,DISA)

CA Surendra Bhatt (ACA,DISA) (Expert)
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24 March 2014 Members??
No reason why members shall be given salary.
No doubt that, employees of Section 25 company can receive salary from the company , as their services are essential for functioning of the Company. If Director is One of the Employee, then he can also be paid salary.

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Nidha

Nidha (Querist)
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25 March 2014 My contention of asking is also same if director is working for the company in capacity of employee with heart and soul,They should be paid salary and commission to reasonable extent...

Other members views are solicited

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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23 July 2025 Your question pertains to the **salary and commission payments to directors** of a **Section 25 company** (now called **Section 8 company** after the Companies Act, 2013).

### Key Points to Understand:

* **Section 25/Section 8 Companies** are **non-profit organizations** formed for promoting commerce, art, science, religion, charity, etc.
* These companies enjoy **certain exemptions and privileges** under the Companies Act, provided they meet specific conditions, such as:

* They **do not distribute profits** to members.
* They **apply their profits for the promotion of their objectives**.

### Salary and Commission to Directors:

#### Can directors of Section 25 (or Section 8) companies receive salary and commission?

1. **Salary**:

* **Yes**, directors can receive a **salary** if they are working in the capacity of an employee of the company.
* However, the **salary must be reasonable** and **justified based on the work they do** for the company. Since Section 8 companies are non-profit entities, directors’ remuneration should align with the company’s objectives and **should not exceed what is reasonable for the nature of their work**.

2. **Commission**:

* **Commission** can be paid to directors but needs to be carefully scrutinized.
* The commission must be linked to the **performance of the company** or the **individual director’s contribution** and should not be excessive or disproportionate to the company’s financial position.
* Since Section 8 companies are not allowed to distribute profits, **commission** should ideally be based on the company’s goals and activities rather than profit-based incentives.

3. **Legal Considerations**:

* **Approval from members** (shareholders) is generally needed to fix the salary or commission of the directors.
* The **Board of Directors** must approve such payments, and the **company’s objectives** and financial condition should justify them.
* The **Company must comply with provisions of the Companies Act, 2013**, and follow the **limits and procedures** laid out in it, which includes filing with the Registrar of Companies (ROC) if required.

#### Conditions to Keep in Mind:

* **Reasonableness**: The salary and commission paid should be **reasonable** and should not compromise the non-profit status of the company.
* **Charitable Purpose**: Ensure that any payment made does not defeat the **charitable purpose** for which the Section 8 company was formed.
* **Taxability**: Directors will be subject to **income tax** on the salary or commission received, just like any other employee or professional.

---

### Summary Table:

| Payment Type | Can it be Paid? | Notes & Conditions |
| -------------- | -------------------- | ------------------------------------------------------------------------------------- |
| **Salary** | Yes | If the director works as an employee. Should be reasonable and justified. |
| **Commission** | Yes, with conditions | Must be performance-based and reasonable. Cannot be profit-based in Section 8. |
| **Approval** | Yes | Board and members' approval may be required. Should align with charitable objectives. |

---

### My Suggestion:

* **If a director is working in the capacity of an employee**, they should be paid salary and/or commission, but it must be reasonable, with the company's non-profit status in mind.
* **Seek Board approval** for such payments and ensure they are within the **company's financial means** and **objectives**.
* If you're concerned about compliance, it’s always a good idea to consult with a **corporate lawyer** to ensure that the payment terms are in line with the **Companies Act** and the **company's bylaws**.

---

If you need any further help drafting the necessary documentation or if you need clarification on how to calculate reasonable salaries or commissions, feel free to ask!

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