CMA Final Law BCCA PDF

BCCA Paper 13 Corporate and Economic laws CMA SHIVA KUMAR DEC 2023  INDEX Sl.No Chapter name Page No. Part 1 Company Law 1. Introduction to Co...

BCCA Paper 13 Corporate and Economic laws CMA SHIVA KUMAR DEC 2023  INDEX Sl.No Chapter name Page No. Part 1 Company Law 1. Introduction to Companies Act 1 - 35 2. Accounts & Audit 36 - 45 3. Board of Directors & KMP 46 - 65 4. Board meetings 66 - 86 5. Inspection, Inquiry, Investigation 87 - 96 6. Compromises, Arrangements and 97 - 109 Amalgamation 7. Prevention of Oppression & Mismanagement 110 - 114 8. Dividends 115 - 120 9. IBC 121 - 141 10 Corporate governance 142 - 157 Part 2 Economic laws 11. SEBI 158 – 176 12. Competition act 177 – 186 13. FEMA 187 – 194 14. Law and regulations related to 195 – 215 Banking sector 15. Law and regulating related to 216 – 224 Insurance sector 16. Specific provisions related 225 – 236 MSME sector 17. Laws and regulations related to Cyber 237 – 246 security and data privacy 18. Laws and regulations related to Anti Money 247 - 253 laundering Act  Company Formation and Conversion Definition  Company is an artificial, legal and juristic person, separate from its members having perpetual existence.  “In terms of the Companies Act, 2013 ‘company’ means a company incorporated under the Act, or under the previous company law” [Sec. 2(20)].  A company may be an incorporated company or a Corporation, or an unincorporated company. An incorporated company is a single and legal (artificial) person distinct from the individuals constituting it, whereas an unincorporated company, such as a partnership, is a mere collection or aggregation of individuals. Therefore, unlike a partnership, a company is a corporate body and a legal person having status and personality distinct and separate from that of the members constituting it. Features of Company  The outstanding feature of a company is its independent corporate existence. It is a distinct legal person existing independent of its members. By incorporation under the Act, the company is vested with a corporate personality which is distinct from the members who compose it.  A well-known illustration of this principle is the decision of the House of Lords in Salomon v. Salomon & Co. [(1898) AC 22].  It simply saying that company having separate legal entity (i.e., company is different from shareholder) Limited Liability  The privilege of limiting liability for business debts is one of the principal advantages of doing business under the corporate form of organization.  Where the subscribers exercise the choice of registering the company with limited liability, the members’ liability becomes limited or restricted to the nominal value of the shares taken by them or the amount guaranteed by them.  No member is bound to contribute anything more than the nominal value of the shares held by him.  In the normal course, a shareholder is liable to pay for the shares as and when it is called up by the company.  In case of default, the unpaid shares may be forfeited and the shareholder no more remains a shareholder.  To sum up Page |1  LIABILITY OF SHAREHOLDER Limited by shares Limited by guarantee Unlimited company 1. liability of the share 1. Liability of the share holder is upto holder is upto unpaid guarantee value given value of shares held by by the shareholder him 2. company can call such 1. Members liability is 2. such unpaid money amount only at the time unlimited can called by company of winding up at any time (i.e., during (i.e., personally liable) life time of the 3. amount = amount company or winding up required in case of of the company) winding up or guaranteed value WIL Perpetual succession  Perpetual succession, means that the membership of a company may keep changing from time to time, but that does not affect the company’s continuity.  The death or insolvency of individual members does not, in any way affect the corporate existence of the company. [Gopalpur Tea Co. Ltd. v. Penhok Tea Co. Ltd. (1982) 52 Comp. Cas. 238 (Cal.)]  “Members may come and go but the company can go on forever”.  The concept of perpetual succession is exist because of tranfer of shares & transmission of shares Separate property as separate owner  A company, being a legal person, is capable of owning, enjoying and disposing of property in its own name. The company becomes the owner of its capital and assets.  The shareholders are not the several or joint owners of the company’s property. Unless company is wound-up  The company is the real person in which all its property is vested, and by which is controlled, managed and disposed of [Bacha F Guzdar v. C.I.T. AIR 1955 SC 74.]. The property is vested in the company as a body corporate, and no changes of individual membership affect the title.  The property, however much, the shareholders may come and to remains vested in the company, and the company can convey, assign, mortgage, or otherwise deal with it irrespective of these mutations. Page |2 Transferability of Shares  In case of companies, shares should be capable of being easily transferred. Accordingly, the Companies Act, 2013 in Section 44 declares: ‘The shares or debentures or other interest of any member in a company shall be movable property, transferable in the manner provided by the articles of the company’.  Thus incorporation enables a member to sell his shares in the open market and to get back his investment without having to withdraw the money from the company.  This provides liquidity to the investor and stability to the company.  Shares can have transfer of shares & transmission of shares Common seal  Prior to the Companies (Amendment) Act, 2015 the common seal is a seal used by a corporation as the symbol of its incorporation and also a statutory requirement for a company. As a departure from this concept, the Companies (Amendment) Act, 2015 has deleted the requirement of having Common Seal compulsorily now it is optional.  However, where the company has opted to have a common seal, the same shall be used at provided under the Act or the Articles.  After this amendment, in case a company does not have a common seal, the authorization shall be made by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary. Lifting of the ‘Corporate Veil’  The phrase‘ lifting the veil’ is looking behind the company as a legal person,  It simply disregarding the corporate entity and paying regard, instead, to the realities behind the legal facade.  Where the law ignores the company and concern themselves directly with the members or managers, the corporate veil may be said to have been lifted.  Only in appropriate circumstances, the Courts are willing to lift the corporate veil and that too, when questions of control are involved rather than merely a question of ownership. The following are the cases where company law disregards the principle of corporate personality or the principle that the company is a legal entity distinct and separate from its shareholders or members: (a) In the law relating to trading with the enemy where the test of control is adopted. (b) In certain matters concerning the law of taxes, duties and stamps particularly where question of the controlling interest is in issue. (c) Where companies form other companies as their subsidiaries to act as their agent. The application of the doctrine may operate in favour of such companies depending upon the facts of a particular case. Suppose, a company acquires a partnership concern and registers it as a company, which becomes subsidiary of the acquiring company. In an action Page |3  for compulsory acquisition of the business premises of the subsidiary, it was held that the parent company (which through itself and nominees held all the shares) was entitled to compensation, maintain action for the same [Smith, Stone and Knight Ltd. vs. Lord Mayor, etc., of Birmingham 4, All. 116]. (d) Where the courts find that there is avoidance of welfare legislation, it will be free to lift the corporate veil. (Workmen of Associated Rubber Industry Ltd. v. Associated Rubber Industry Ltd; AIR 1986 SC 1). (e) The Courts invariably lift the corporate veil or disregard the corporate personality of a company to protect the public policy and prevent transactions contrary to public policy. [Connors v. Connors Ltd; (1939) S.C.R. 162]. (f) Under the law relating to exchange control. The courts pierce the corporate veil in quasi- criminal cases in order to look behind the legal person and punish the real persons who have violated the law. (g) Where the use of an incorporated company is being made to avoid legal obligations, the Court may disregard the legal personality of the company and proceed on the assumption as if no company existed. (h) In a latest judgment, the Hon’ble Supreme Court of India in the case of Estate Officer UT Chandigarh v. Esys Information Technologies Limited 136 SCL 513 held that lifting of corporate veil could be done in the case of transfer of shares of company which actually was sale of land which the original allottee (company) was prohibited to do so. Nature of Business Organization in India  There are various types of organization doing business in India.  Profit may not be motive or objective where there is substantial Govt. investment. This sector is also called social sector as it caters to the needs of the society.  We may categorize Public Sector as follows on the basis of Government ownership. (i) Public Sector: This sector comprises of the following. (a) Govt. Departments like Railways, Ordinance Factories, Postal services etc. (b) statutory corporations set up and run by the Govt. i.e. Reserve Bank of India created by Reserve Bank of India Act, 1934. (c) companies with majority holding by Central Government/State Government having independent management by Board of directors. (ii) Joint Sector: where Govt. have investment between 26 to 50%.  Companies may be classified  on the basis of their incorporation,  number of members,  size,  basis of control and  motive. Page |4 On the basis of incorporation of the companies, it may be classified into Charter Companies, Statutory Companies and Registered Companies. On the basis of liability, it may be Companies limited by shares/guarantee and unlimited liability companies. Further, on the basis of number of members, they may be classified into One Person Company, private company and public company. On the basis of size, they may be divided into small companies and other companies. On the basis of control, they may be classified into holding company, subsidiary company and associate company. Companies may also under other categories like non profit companies licensed under Section 8, Government companies, foreign companies, Dormant Company and Nidhi Companies, investment companies, producer companies etc. Classification of Companies Companies may be classified into various classes on the following basis: On the Basis of Incorporation (a) Statutory Companies  These are the companies which are created by a special Act of the Legislature,  e.g., the Reserve Bank of India, the State Bank of India, the Life Insurance Corporation, the Industrial Finance Corporation, the Unit trust of India and State Financial Corporations  These are mostly concerned with public utilities, e.g. railways, tramways, gas and electricity companies and enterprises of national importance.  The provisions of the Companies Act, 2013 do not apply to them unless the special act specifies such application. Banking Regulation Act, 1949 is a special legislation concerning banking companies. (b) Registered companies  These are the companies which are formed and registered under the Companies Act, 2013, or were registered under any of the earlier Companies Acts.  Many statutory companies has converted into companies when they public issue On the basis of liability (a) Company limited by shares Section 2 (22) of the Companies Act, 2013, defines that when the liability of the members of a company is limited by its memorandum of association to the amount (if any) unpaid on the shares held by them, it is known as a company limited by shares. The shareholder may be called upon to contribute only to the extent of the amount, which remains unpaid on his shareholdings. His separate property cannot be encompassed to meet the company’s debts unlike proprietorship or partnership. (b) Company limited by guarantee Page |5 Section 2 (21) of the Companies Act, 2013 defines it as the company having the liability of its members limited by the memorandum to such amount as the members may respectively undertake by the memorandum to contribute to the assets of the company in the event of its being wound up. Thus, the liability of the member of a guarantee company is limited up to a stipulated sum mentioned in the memorandum. Members cannot be called upon to contribute beyond that stipulated sum. This is similar to LLP (c) Unlimited company Section 2 (92) of the Companies Act, 2013 defines unlimited company as a company not having any limit on the liability of its members. In such a company the liability of a member ceases when he ceases to be a member. The liability of each member extends to the whole amount of the company’s debts and liabilities but he will be entitled to claim contribution from other members. On the basis of members (A) One Person Company (OPC) (1) The Concept of One Person Company (OPC) The concept of One Person Company (OPC) has now been introduced in India, through Section 2 (62) of Companies Act, 2013 thereby enabling Entrepreneur(s) carrying on the business in the Sole Proprietor form of business to enter into a Corporate Framework. Though this concept is new in India but it is already a part of many other countries like China, Australia, Pakistan and UK etc. According to Section 2 (62) of the Companies Act, 2013 ‘One Person Company’ means a company which has only one person as a member. A company formed under one person company may be either: a) A company limited by shares, or b) company limited by guarantee, or c) An unlimited company. One Person Company is a hybrid of Sole-Proprietor and Company form of business, and has been provided with concessional/relaxed requirements under the Act. (2)Features of One Person Company (OPC) (a) Only One Shareholder: Only a natural person, who is an Indian citizen and resident in India, shall be eligible to incorporate a One Person Company. (b) Nominee for the Shareholder: The Shareholder shall nominate another person who shall become the shareholders in case of death/incapacity of the original shareholder. Such nominee shall give his/ her consent and such consent for being appointed as the Nominee for the sole Shareholder. Only a natural person, who is an Indian citizen and resident in India, shall be a nominee for the sole member of a One Person Company. (c) Director: Must have a minimum of One Director, the Sole Shareholder can himself be the Sole Director. The Company may have a maximum number of 15 directors. Page |6  (d) A Given that the liability is limited, the OPC is meant for solo entrepreneurs. There must be a nominee, it enabled perpetual existence of the OPC. Various exemptions has been given by the Central Government to OPC such as: exemption from holding the Annual General Meeting of the company, financial statement and Board’s report can be signed only by one director, it does not need to include Cash Flow Statement as part of its financial statement etc. There are some industry-specific advantages. But taxes are to be paid at a flat rate on profits. (B) Private Company [Section 2 (68)] According to Section 2 (68) of Companies Act, 2013 a ‘private company’ means a company having a minimum paid-up share capital as may be prescribed, and which by its articles: R - restricts the right to transfer its shares. L- Limited members except in case of One Person Company, limits the number of its members to two hundred: Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member; Provided further that: (a) persons who are in the employment of the company, and (b) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased, shall not be included in the number of members, and P- prohibits any invitation to the public to subscribe for any securities of the company. Exception to limited liability: Section 3A provides that if the number of members of a private company is reduced below two, and the business is carried on for more than six months, while the number of members is so reduced, every person who is a member of the company during this period shall be severally liable for the payment of the whole debts of the company contracted during that time, and may be severally sued therefor (C) Public Company [Section 2 (71)] Means which is not pvt company and having min puc as prescribed by aoa Public co A pvt co which is subsidiary of non-pvt company IMPORTANT POINTS Page |7  1. Minimum members = 7 2. Minimum directors = 3 3. Maximum members = no restriction 4. Maximum directors = Maximum Directors GR ER 15 By passing sr then >15 For detalied discussion refer directors chapter 5 NAME ENDS WITH “LTD” Serial Points of Private Public No. difference 1 Shareholders Min-2,-Max-200 Min 7- no Max. 2 Directors Min-2-Max.-15 Min.-3, Max.-15 (may be increased with special resolution) 3 Finance Cannot raise from Can raise public 4 Transfer of May be restricted Cannot be restricted shares 5. Name Use the Suffix “Pvt. Use suffix “ Ltd”. Ltd”. Page |8 SMALL COMPANY MEANS a company other than public company < 50 LAKHS OR higher SMALL COMPANY PUC amount as per AOA (10CR) 2 CRORE OR HIGHER TURNOVER prescribed amount as per AOA(100 CR) On the basis of control Holding company and Subsidiary company  According to Section 2 (46) of the Companies Act, 2013 ‘holding company’, in relation to one or more other companies, means a body corporate of which such companies are subsidiary companies.  According to Section 2 (87) of the Companies Act, 2013 ‘subsidiary company’ or ‘subsidiary’, in relation to any other body corporate (that is to say the holding company), means a body corporate in which the holding company: a) controls the composition of the Board of Directors, Or b) exercises or controls more than one-half of the total voting power either at its own or together with one or more of its subsidiary companies: Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed. On the basis of listing in the recognized stock Exchange ON THE BASIS OF LISTING LISTED COMPANY UN LISTED COMPANY listed company’ means a company which Unlisted Company means company other has any of its securities listed on any than listed company. They are also recognised stock exchange. called closely held companies. Page |9 Other Types of Companies Government Company According to Section 2 (45) of the Companies Act, 2013, a ‘Government company’ means any company in which not less than 51% of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary company of such a Government company. Example: Coal India Limited is Govt. company, whereas Coal India has many subsidiaries, which are also Govt. companies. Foreign Company According to Section 2 (42) of the Companies Act, 2013, ‘foreign company’ means any company or body corporate incorporated outside India which: has a place of business in India whether by itself or through an agent, physically or through electronic mode. And conducts any business activity in India in any other manner. Associate Company According to Section 2 (6) of the Companies Act, 2013, ‘associate company’ in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company. As per the Explanation given under the Section, the clause, ‘significant influence’ means control of at least twenty per cent of total share capital, or of business decisions under an agreement. Dormant Company Where a company is formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the Registrar in such manner as may be prescribed for obtaining the status of a dormant company. Nidhi Companies Company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift (cost cutting) and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefits and which complies with such rules as are prescribed by the Central Government for regulation of such class of companies. [Section 406 of the Companies Act, 2013] Public Financial Institutions According to Section 2 (72) of the Companies Act, 2013 the following institutions are to be regarded as public financial institutions: P a g e | 10  (1) The Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956. (2) The Infrastructure Development Finance Company Limited, (3) Specified company referred to in the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002. (4) Institutions notified by the Central Government under Section 4A (2) of the Companies Act, 1956 so repealed under Section 465 of this Act. (5) Such other institution as may be notified by the Central Government in consultation with the Reserve Bank of India: Provided that no institution shall be so notified unless: a) it has been established or constituted by or under any Central or State Act. Or b) not less than 51% of the paid-up share capital is held or controlled by the Central Government or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments. Joint Venture Company: The term “joint venture” has also been defined to mean “joint arrangement” where the parties who have joint control of the arrangements have rights to the net assets or the arrangement. It is formed on the basis of a JV agreement between two or more companies and registered as a company with the JV partners share the responsibilities and involvement. There may be an arrangement of venturing a business jointly without forming a company. This is called “ non corporate joint venture” or” contractual joint venture” Nonprofit Company: Section 8 company is a company established for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object’, provided the profits, if any, or other income is applied for promoting only the objects of the company and no dividend is paid to its members Section 8 Companies are registered under the Companies Act, 2013. Sectoral Companies Sectorial companies are companies registered under the Companies act but specialising in particular sector which is regulated by a registry authority of the Govt.. These are the companies which are required to follow the provisions of Companies Act, as because they are registered companies and have to follow sectoral legislation, a law applies to the sector. Threfore , we have banking company, which has to follow Banking Regulation Act as well as Companies Act and are also subject to RBI directives, RBI being the reagulator. Same is the case in case for companies dealing in Insurance , electricity, etc. Non-Banking Financial Company (NBFC): With the growth in financial sector during last three decades, NBFCs have been recognised a large sector of business. A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, It engaged in the business of loans and advances, acquisition of shares/ stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is P a g e | 11 that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or A non-banking institution is a company and has principal business of receiving deposits. Banking Companies: A company registered under Companies Act and engaged in banking business as stipulated under banking Regulation Act. In India, no company can commence banking operation without having a banking licence to be issued by Reserve Bank of India. Banking companies to have a name where the “banking” word shall feature so that public in general know it is bank. Insurance Company: A company registered under Companies Act and engaged in insurance business as stipulated under the Insurance Act. In India, no company can commence insurance business without having a licence to be issued by Insurance Regulatory and Development Authority (IRDA). Insurance companies to have a name where the “insurance” word shall feature so that public in general know it is bank. Details are available elsewhere in this study material. Conversion of a Public Company into Private Company or vice-versa (a) Conversion of public company into private company A public company can be converted into a private company by passing a special resolution, after altering its articles so as to include therein the restrictions contained in Section 2(68) of the Act. A special resolution passed to convert a public company into a private company is binding on dissenting shareholders provided it is bona fide, is in the interest of the company as a whole, and is consistent with the objects in the Memorandum of Association. Under Section 14 (1), any alteration made in the articles to convert a public company into a private company shall take effect only with the approval of the Tribunal which shall make such order as it may deem fit. (b) Conversion of private company into public company Similarly, where a private company alters its articles by passing special resolution in such a manner that they no longer includes the restrictions and limitations which are required to be included in the articles of a private company, then such company shall cease to be a private company from the date of such alteration. (c) Filing with the Registrar Every alteration of the articles and a copy of the order of the Tribunal approving the alteration of articles in respect of conversion of public company into private company or private company into public company shall be filed with the Registrar, together with a printed copy of the altered articles, within a period of fifteen days in such manner as may be prescribed, who shall register the same. Any alteration of the articles registered as above shall, subject to the provisions of this Act, be valid as if it were originally in the articles. P a g e | 12  INCORPORATION OF COMPANY (A) Procedural aspects of incorporation of Company Section 7 of the Companies Act, 2013 provides for the procedure to be followed for incorporation of a company. These provision are to be read with Companies(Incorporation) Rules as amended. (1) Filing of the documents and information with the registrar: For the registration of the company following documents and information are required to be filed with the registrar within whose jurisdiction the registered office of the company is proposed to be situated: a) the memorandum and articles of the company duly signed by all the subscribers to the memorandum. b) a declaration by person who is engaged in the formation of the company (an advocate, a chartered accountant, cost accountant or company secretary in practice), and by a person named in the articles (director, manager or secretary of the company), that all the requirements of this Act and the rules made there under in respect of registration and matters precedent or incidental thereto have been complied with. c) a declaration from each of the subscribers to the memorandum and from persons named as the first directors, if any, in the articles stating that: 1) he is not convicted of any offence in connection with the promotion, formation or management of any company, or 2) he has not been found guilty of any fraud or misfeasance or of any breach of duty to any company under this Act or any previous company law during the last five years, 3) and that all the documents filed with the Registrar for registration of the company contain information that is correct and complete and true to the best of his knowledge and belief. d) the address for correspondence till its registered office is established. e) the particulars (names, including surnames or family names, residential address, nationality) of every subscriber to the memorandum along with proof of identity, and in the case of a subscriber being a body corporate, such particulars as may be prescribed. f) the particulars (names, including surnames or family names, the Director Identification Number, residential address, nationality) of the persons mentioned in the articles as the first directors of the company and such other particulars including proof of identity as may be prescribed, and g) the particulars of the interests of the persons mentioned in the articles as the first directors of the company in other firms or bodies corporate along with their consent P a g e | 13  to act as directors of the company in such form and manner as may be prescribed. Particulars provided in this provision shall be of the individual subscriber and not of the professional engaged in the incorporation of the company [The Companies (Incorporation) Rules, 2014]. (1) Issue of certificate of incorporation on registration: The Registrar on the basis of documents and information filed, shall register all the documents and information in the register and issue a certificate of incorporation in the prescribed form to the effect that the proposed company is incorporated under this Act. (2) Allotment of corporate identity number (CIN): On and from the date mentioned in the certificate of incorporation, the Registrar shall allot to the company a corporate identity number, which shall be a distinct identity for the company and which shall also be included in the certificate. (3) Maintenance of copies of all documents and information: The company shall maintain and preserve at its registered office copies of all documents and information as originally filed, till its dissolution under this Act. Furnishing of false or incorrect information or suppression of material fact: If any person furnishes any false or incorrect particulars of any information or suppresses any material information, of which he is aware in any of the documents filed with the Registrar in relation to the registration of a company, he shall be liable for action under Section 447. Same provision also applicable for promoter and first director in this regard. Steps for formation of Company The Companies (Incorporation) Amendment Rules, 2020 w.e.f 23rd February, 2020 introduced new web form SPICe+ for incorporation of the Companies replacing the old e-form SPICe. SPICe+ is an integrated Web form offering 11 services by various concerned Central Government Departments. and three State Government (Maharashtra, Karnataka & West Bengal), thereby saving as many procedures, time and cost for Starting a Business in India. As per Rule 38 of the Companies (Incorporation) Rules, 2014, the Application for incorporation of a company shall be made in SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus: INC-32) along with e-Memorandum of Association (e-MOA) in Form No. INC-33 and e-Articles of association (e-AOA) in Form no. INC-34. The application under shall be accompanied by form AGILE-PRO-S (INC-35) containing an application for registration of the following numbers, namely:- (a) GSTIN with effect from 31st March, 2019 (b) EPFO with effect from 8th April, 2019 (c) ESIC with effect from 15th April, 2019 (d) Profession Tax Registration with effect from the 23rd February, 2020 (e) Opening of Bank Account with effect from 23rd February, 2020. (f) Shops and Establishment Registration. Spice is an online service platform. Service Services offered through SPICe+ are: Name P a g e | 14 Reservation, Incorporation, DIN allotment, Mandatory issue of PAN, Mandatory issue of TAN, Mandatory issue of EPFO registration, Mandatory issue of ESIC registration, Mandatory issue of Profession Tax registration(Maharashtra, Karnataka & West Bengal), Mandatory Opening of Bank Account for the Company and Allotment of GSTIN (if so applied for), Shops and Establishment Registration. After deployment of SPICe+ web form, RUN is applicable only for change of name of existing companies Formation of One Person Company (OPC) a) The memorandum of OPC shall indicate the name of the other person, who shall, in the event of the subscriber’s death or his incapacity to contract, become the member of the company. b) The other person whose name is given in the memorandum shall give his prior written consent in prescribed form and the same shall be filed with Registrar of companies at the time of incorporation. c) Such other person may be given the right to withdraw his consent d) The member of OPC may at any time change the name of such other person by giving notice to the company and the company shall intimate the same to the Registrar e) Any such change in the name of the person shall not be deemed to be an alteration of the memorandum. f) No person shall be eligible to incorporate more than one OPC or become nominee in more than one such company. g) No minor shall become member or nominee of the OPC or can hold share with beneficial interest. Such Company cannot be incorporated or converted into a company under Section 8 of the Act. Though it may be converted to private or public companies in certain cases. The procedure of conversion is given in the Rules 6 & 7 of the Companies (Incorporation) Rules, 2014. h) Such Company cannot carry out Non-Banking Financial Investment activities including investment in securities of anybody corporate. i) OPC cannot convert voluntarily into any kind of company unless 2 years have expired from the date of incorporation, except where the paid up share capital is increased beyond `50 lakh or its average annual turnover during the relevant period exceeds `2 crore. j) If One Person Company or any officer of such company contravenes the provisions, they shall be punishable with fine which may extend to `10,000 and with a further fine which may extend to `1,000 for every day after the first during which such contravention continues. Rule 3 of the Companies (Incorporation) Rules 2014 says, only a natural person who is an Indian citizen whether resident in India or otherwise:-  shall be eligible to incorporate a One Person Company;  shall be a nominee for the sole member of a One Person Company. Where a natural person, being member in One Person Company accordance with this rule becomes a member in another such Company by virtue of his being a nominee in that One Person Company, such person shall meet the eligibility criteria specified in rule 3(2) within a period of 180 days. Where a natural person, being member in One Person Company in P a g e | 15  accordance with this rule becomes a member in another such Company by virtue of his being a nominee in that One Person Company, such person shall meet the eligibility criteria specified in rule 3(2) within a period of 180 days Effect of registration On incorporation, the company, shall be a body corporate by the name contained in the memorandum. Such a registered Company shall be capable of exercising all the functions of an incorporated company under this Act and having perpetual succession and a common seal with power to acquire, hold and dispose of property, both movable and immovable, tangible and intangible, to contract and to sue and be sued, by the said name. It will be an artificial juristic person. Certificate as Conclusive Evidence Section 35 of the 1956 Act, provided for a Certificate of Incorporation given by the Registrar on registration.Tough 2013 Act do not have a section to replace the earlier section, Certificate of incorporation is accepted as conclusive evidence of existence of the company, by all judicial and administrative authorities. Effect of Memorandum and Articles As per Section 10 of the Companies Act, 2013, where the memorandum and articles when registered, shall bind the company and the members thereof to the same extent as if they respectively had been signed by the company and by each member, and an agreement to observe all the provisions of the memorandum and of the articles. All monies payable by any member to the company under the memorandum or articles shall be a debt due from him to the company. As a result, a number of legal relationships are formed between different parties and the company which are described below: (1) Between the members and company: The memorandum and articles constitute a contract between the members and the company. In consequence, the members are bound to the company under a statutory covenant. (2) Between member inter se: In the case of Wood vs. Odessa Water Works Co. 42 Ch. D. 363, Sterling J. Observed: The articles of Association constitute a contract not merely between the shareholders and the company but between each individual shareholder and every other. (3) Between the company and the outsiders: The memorandum and the articles do not constitute a contract between the company and outsiders. Neither the company nor the members are bound by the articles to outsiders, since these constitute a contract between members, inter se, and the outsider is not a party to the articles although he may be named therein. Nonetheless, an outsider is entitled to assume that in respect of contract entered into with him all the formalities required to be carried out under the articles or memorandum have been duly complied with [Royal British Bank vs. Turquand (1956) 6 E.B. 327]. P a g e | 16 Doctrine of ultra vires Directors of the company cannot perform something which is beyond the scope of the Memorandum. A transaction may be good in law but may not be within the powers of the company and hence ultra vires , the company. Shareholders, while drafting the Memorandum , have already decided the outer boundaries both for themselves and also for the Board of Directors. Shareholders can decide to change or modify the objects and other clauses of the memorandum but as long as it is not done, they cannot overshoot the existing memorandum provisions with which the company is registered. There may be an action taken by Board of Directors but is permissible by the company. In such situation, company may ratify the action of the Board, However, ultra vires action by the company cannot be ratified even when all members agree to do that. Commencement of business, etc. As per Section 10A read with Rule 23A of the Companies (Incorporation) Rules, 2014, every company incorporated after the commencement of the Companies (Amendment) Act, 2019 and having a share capital shall not commence any business or exercise any borrowing powers unless: (a) a declaration in form INC-20A is filed by a director within a period of one hundred and eighty days of the date of incorporation of the company in such form and verified by a Company Secretary or a Chartered Accountant or a Cost Accountant. in practice, with the Registrar that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him on the date of making of such declaration; (b) The company has filed with the Registrar a verification of its registered office in form INC-22 as provided in sub-section (2) of section 12 of the Companies Act, 2013; (c) If case of default the company shall be liable to a penalty of `50,000 and every officer who is in default shall be liable to a penalty of one thousand rupees for each day during which such default continues but not exceeding an amount of `1 lakh; and (d) Where no declaration has been filed with the Registrar under clause (a) of sub-section (1) within a period of one hundred and eighty days of the date of incorporation of the company and the Registrar has reasonable cause to believe that the company is not carrying on any business or operations, he may, without prejudice to the provisions of sub-section (2), initiate action for the removal of the name of the company from the register of companies under Chapter XVIII. Registered office of a company Section 12 of the Companies Act, 2013 seeks to provide for the registered office of the company for the communication and serving of necessary documents, notices letters etc. The domicile and the nationality of a company are determined by the place of its registered office. This is also important for determining the jurisdiction of the court. (1) Registered office: From the 15th day of its incorporation and at all times thereafter a company shall have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it. P a g e | 17 (2) Verification of registered office: The Company shall furnish to the Registrar verification of its registered office within a period of thirty days of its incorporation. The form to be filed in INC-22. Authorities can ask for any documents which gives right to possession of the office space. (3) Labelling of company: Every company shall: a) paint or affix its name, and the address of its registered office, and keep the same painted or affixed, on the outside of every office or place in which its business is carried on, in a conspicuous position, in legible letters, and if the characters employed are not those of the language/s in general use in that locality, then also in the characters of that language/s. b) have its name engraved in legible characters on its seal (the Companies (Amendment) Act, 2015 has deleted the requirement of having Common Seal compulsorily). c) get its name, address of its registered office and the Corporate Identity Number along with telephone number, fax number, if any, e-mail and website addresses, if any, printed in all its business letters, billheads, letter papers and in all its notices and other official publications, and d) have its name printed on hundies, promissory notes, bills of exchange and such other documents as may be prescribed. (4) Name change by the company: Where a company has changed its name/s during the last two years, it shall paint or affix or print, along with its name, the former name or names so changed during the last two years. (5) In case of OPC: The words ‘‘One Person Company’’ shall be mentioned in brackets below the name of such company, wherever its name is printed, affixed or engraved. (6) Notice of change to registrar: Notice of every change of the situation of the registered office, verified in the manner prescribed, after the date of incorporation of the company, shall be given to the Registrar within 15 days of the change, who shall record the same. This is applicable to change in the registered address of the company within the local limits of the village, town or city and remaining within the jurisdiction of the same Registrar of Companies. (7) Change by passing of special resolution: The registered office of the company shall be changed only by passing of special resolution by a company: a) in the case of an existing company, outside the local limits of any city, town or village where such office is situated at the commencement of this Act or where it may be situated later by virtue of a special resolution passed by the company, and b) in the case of any other company, outside the local limits of any city, town or village where such office is first situated or where it may be situated later by virtue of a special resolution passed by the company. (8) Change of registered office outside the jurisdiction of registrar: Where a company changes the place of its registered office from the jurisdiction of one Registrar to the jurisdiction of another Registrar within the same State, there such change is to confirmed by the Regional Director on an application made by the company. P a g e | 18  (9) Communication and filing of confirmation: The confirmation of change of registered office from jurisdiction of one registrar to another registrar within the same state, shall be: a) communicated within 30 days from the date of receipt of application by the Regional Director to the company, and b) the company shall file the confirmation with the Registrar within a period of 60 days of the date of confirmation who shall register the same, and The Registrar of Companies of the new jurisdiction shall certify the registration within a period of thirty days from the date of filing of such confirmation. As of now, Tamil Nadu and Maharashtra are the two states where there are two Registrars of Companies are operating. The jurisdictions of the respective Registrars of Companies are notified. (10) Certificate, a conclusive evidence of compliance of requirements of this Act: The certificate shall be conclusive evidence that all the requirements of this Act with respect to change of registered office have been complied with and the change shall take effect from the date of the certificate. (11) In case of default: If any default is made in complying with the requirements of this Section, the company and every officer who is in default shall be liable to a penalty of `1,000 for every day during which the default continues but not exceeding `1 lakh. In case, the Registrar is convinced with evidence that company is not carrying on any business, he may initiate action to strike off the name of the company. Act to override Memorandum, Articles, etc. According to Section 6 of the Companies Act, 2013, the provisions of this Act shall have overriding effect on provisions contained in memorandum or articles or in an agreement or in resolution passed by the company in the general meeting or by its board of directors, whether they are registered, executed or passed before or after the commencement of this Act. Any provision contained in any of the above mentioned document, shall be void, to the extent to which it is inconsistent to the provisions of this Act. Memorandum of Association The Memorandum of Association of company is in fact its charter. It defines its constitution and the scope of the powers of the company with which it has been established under the Act. A memorandum is a public document under Section 399 of the Companies Act, 2013. Consequently, every person entering into a contract with the company is presumed to have the knowledge of the conditions contained therein. Section 4 of the Companies Act, 2013 seeks to provide for the requirements with respect to memorandum of a company. Contents of Memorandum of Association The memorandum of a company shall state: (1) the name of the company with the last word ‘Limited’ in the case of a public limited company, or the last words ‘Private Limited’ in the case of a private limited company. (2) the State in which the registered office of the company is to be situated. P a g e | 19  (3) the objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof. If any company has changed its activities which are not reflected in its name, it shall change its name in line with its activities within a period of six months from the change of activities after complying with all the provisions as applicable to change of name. (4) the liability of members of the company, whether limited or unlimited, and also state: a) in the case of a company limited by shares, that the liability of its members is limited to the amount unpaid, if any, on the shares held by them. And b) in the case of a company limited by guarantee, the amount up to which each member undertakes to contribute:  To the assets of the company in the event of its being wound-up while he is a member or within one year after he ceases to be a member, for payment of the debts and liabilities of the company or of such debts and liabilities as may have been contracted before he ceases to be a member, as the case may be, and  to the costs, charges and expenses of winding-up and for adjustment of the rights of the contributories among themselves. (5) in the case of a company having a share capital: a) the amount of share capital with which the company is to be registered and the division thereof into shares of a fixed amount and the number of shares which the subscribers to the memorandum agree to subscribe which shall not be less than one share, and b) the number of shares each subscriber to the memorandum intends to take, indicated opposite his name. (6) in the case of OPC, the name of the person who, in the event of death of the subscriber, shall become the member of the company. Applying for the name of the Company The name stated in the memorandum shall not: (a) be identical with or resemble too nearly to the name of an existing company registered under this Act or any previous company law. or (b) be such that its use by the company: (1) will constitute an offence under any law for the time being in force, or (2) is undesirable in the opinion of the Central Government. (3) Registration of name of the company: Without effecting the above provisions, a company shall not be registered with a name which contains: a) any word or expression which is likely to give the impression that the company is in any way connected with, or having the patronage of, the Central Government, any State Government, or any local authority, corporation or body constituted by the Central Government or any State Government under any law for the time being in force, or b) such word or expression, as may be prescribed, unless the previous approval of the Central Government has been obtained for the use of any such word or expression. P a g e | 20  Various guidelines have been issued on viability and use if names and are stipulated in Companies (incorporation) Rules. (4) Requirement for the reservation of the name of the company: a) A person may make an application, for reservation of name through web service to the Registrar, Central Registration Centre, which may either be approved or rejected for - 1) the name of the proposed company. or 2) the name to which the company proposes to change its name. b) The name shall be registered for 20 days from the date of approval incase of new company and sixty days in case of existing company. c) Where after reservation of name it is found that name was applied by furnishing wrong or incorrect information, then: 1) if the company has not been incorporated, the reserved name shall be cancelled and the person making application shall be liable to a penalty extending to one lakh rupees. 2) if the company has been incorporated, the Registrar may, after giving the company an opportunity of being heard: i. either direct the company to change its name within a period of 3 months, after passing an ordinary resolution. ii. take action for striking off the name of the company from the register of companies, or iii. make a petition for winding up of the company. Extension of Reservation of name in certain cases Upon payment of fees provided below through the web service available at www.mca.gov.in, the Registrar shall extend the period of a name reserved under rule 9 by using web service SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus: INC-32), upto: (a) 40 days from the date of approval under rule 9, on payment of fees of rupees of one thousand rupees made before the expiry of twenty days from the date of approval under rule 9; (b) 60 days from the date of approval under rule 9 on payment of fees of `2,000 made before the expiry of forty days referred to in clause (a) above; (c) 60 days from the date of approval under rule 9 on payment of fees of `3,000 made before the expiry of twenty days from the date of approval under rule 9: However, the Registrar shall have the power to cancel the reserved name in accordance with sub-section (5) of section 4 of the Companies Act. 2013. Alteration of the Memorandum It is likely that with the passage of time, the company will grow or diversify. Shareholders, therefore, have the right to modify nay issues which they cloud not foresee initially. This is done by alternation of the Memorandum and Articles, as and when needed. Section 13 of the P a g e | 21 Companies Act, 2013 provides the provisions that deal with the alteration of the memorandum. The provision says that: (1) Company may alter the provisions of its memorandum with the approval of the members by a special resolution. (2) Any change in the name of a company shall be effected only with the approval of the Central Government in writing: However, no such approval shall be necessary where the change in the name of the company is only the deletion there from, or addition thereto, of the word ‘Private’, on the conversion of any one class of companies to another class. The change of name shall not be allowed to a company which has defaulted in filing its annual returns or financial statements or any document due for filing with the Registrar or which has defaulted in repayment of matured deposits or debentures or interest on deposits or debentures. (3) On any change in the name of a company, the Registrar shall enter the new name in the register of companies in place of the old name and issue a fresh certificate of incorporation with the new name and the change in the name shall be complete and effective only on the issue of such a certificate. (4) The alteration of the memorandum changing the place of the registered office from one State to another shall not have any effect unless it is approved by the Central Government. (5) The Central Government shall dispose of the above shifting within 60 days, satisfying itself that: a) the alteration has the consent of the creditors, debenture-holders and other persons concerned with the company, or b) the sufficient provision has been made by the company either for the due discharge of all its debts and obligations, (6) A company shall file with the Registrar such orders of CG, along with the shareholders’ resolution. (7) Where an alteration of the memorandum results in the transfer of the registered office of a company from one State to another, a certified copy of the order of the Central Government approving the alteration shall be filed by the company with the Registrar of each of the States within such time and in such manner as may be prescribed, who shall register the same. (8) The Registrar of the State where the registered office is being shifted to, shall issue a fresh certificate of incorporation indicating the alteration. (9) Change in the object of the company: A company, which has raised money from public through prospectus and still has any unutilised amount out of the money so raised, shall not change its objects for which it raised the money through prospectus unless a special resolution through postal ballot is passed by the company and: P a g e | 22  a) the details, in respect of such resolution shall also be published in the newspapers (one in English and one in vernacular language) which is in circulation at the place where the registered office of the company is situated and shall also be placed on the website of the company, if any, indicating therein the justification for such change. b) the dissenting shareholders shall be given an opportunity to exit by the promoters and shareholders having control in accordance with regulations to be specified by the Securities and Exchange Board. (10) The Registrar shall register any alteration of the memorandum with respect to the objects of the company and certify the registration within a period of thirty days from the date of filing of the special resolution. (11) No alteration made under this Section shall have any effect until it has been registered in accordance with the provisions of this Section. (12) Only member have a right to participate in the divisible profits of the company: Any alteration of the memorandum, in the case of a company limited by guarantee and not having a share capital, intending to give any person a right to participate in the divisible profits of the company otherwise than as a member, shall be void. Rectification of name of memorandum (1) Central government to issue direction According to Section 16 of the Companies Act, 2013, the Central Government is empowered to give direction to the company to rectify its name (Where the name is identical with or too nearly resembles the name by which a company in existence had been previously registered, or the name is identical with or too nearly resembling to a registered trade mark) within a period of 3 months from the issue of such direction by passing an ordinary resolution. (2) Notice of change to the Registrar Where a company changes its name or obtains a new name, it shall within a period of 15 days from the date of such change, give notice of the change to the Registrar along with the order of the Central Government, who shall carry out necessary changes in the certificate of incorporation and the memorandum. Articles of Association Definition of AoA The articles of association are the bye-laws of the company according to which director and other officers are required to perform their functions as regards the management of the company. Section 5 of the Companies Act, 2013 seeks to provide the contents and model of articles of association as follows: (a) Regulations for management:The articles of a company shall contain the regulations for management of the company. (b) Inclusion of matters: The articles shall also contain such matters, as are prescribed under the rules. However, a company may also include such additional matters in its articles as may be P a g e | 23  considered necessary for its management. Contain provisions for entrenchment: The articles may contain provisions for entrenchment (to protect something) to the effect that specified provisions of the articles may be altered only if conditions or procedures as that are more restrictive than those applicable in the case of a special resolution, are met or complied with. (c) Manner of inclusion of the entrenchment provision: The provisions for entrenchment shall only be made either on formation of a company, or by an amendment in the articles agreed to by all the members of the company in the case of a private company and by a special resolution in the case of a public company. (d) Notice to the registrar of the entrenchment provision: Where the articles contain provisions for entrenchment, whether made on formation or by amendment, the company shall give notice to the Registrar of such provisions in such form and manner as may be prescribed. (e) Model articles: A company may adopt all or any of the regulations contained in the model articles applicable to such company. (f) Company registered after the commencement of this Act: In case of any company, which is registered after the commencement of this Act, in so far as the registered articles of such company do not exclude or modify the regulations contained in the model articles applicable to such company, those regulations shall, so far as applicable, be the regulations of that company in the same manner and to the extent as if they were contained in the duly registered articles of the company. (g) Section not apply on company registered under any previous company law: Nothing in this Section shall apply to the articles of a company registered under any previous company law, unless amended under this Act. Alteration of Articles Section 14 of the Companies Act, 2013 vests companies with power to alter or add to its articles. The law with respect to alteration of articles is as follows: (a) Alteration by special resolution: Subject to the provisions of this Act and the conditions contained in its memorandum, if any, a company may, by a special resolution alter its articles. (b) Alteration to include conversion of companies: Alteration of articles include alterations having the effect of conversion of: (1) a private company into a public company, or (2) a public company into a private company: Even where a company being a private company alters its articles in such a manner that they no longer include the restrictions and limitations which are required to be included in the articles of a private company under this Act, then such company shall, as from the date of such alteration, cease to be a private company: However, any such alteration having the effect of conversion of a public company into a private company, then such conversion shall not take effect except with the approval of P a g e | 24  the Central Government on an application. (c) Every alteration of the articles and a copy of the order of the CG approving the alteration, shall be filed with the Registrar, together with a printed copy of the altered articles, within a period of fifteen days in such manner as may be prescribed, who shall register the same. (d) Any alteration of the articles registered as above shall, subject to the provisions of this Act, be valid as if it were originally contained in the articles. (e) Every alteration made in articles of a company shall be noted in every copy of the articles, as the case may be. If a company makes any default in complying with the stated provisions, the company and every officer who is in default shall be liable to a penalty of `1,000 for every copy of the articles issued without such alteration. [Section 15] Copies of memorandum, articles, etc., to be given to members Copies of memorandum and articles of association, every agreement and every resolution referred in Section 117 shall, on being so requested by a member, be sent within 7 days of the request on the payment of fees: (a) the memorandum. (b) the articles, and (c) every agreement and every resolution referred in Section 117 (Resolutions and agreements to be filed), if and in so far as they have not been embodied in the memorandum or articles. In case of default, the company and every officer who is in default shall be liable for each default, to a penalty of one thousand rupees for each day during which such default continues or one lakh rupees, whichever is less. Privacy in management of companies Doctrines of constructive notice In consequences of the registration of the memorandum and articles of association of the company with the Registrar of Companies, a person dealing with the company is deemed to have constructive notice of their contents. This is because these documents are construed as ‘public document’ under Section 399 of the Companies Act, 2013. Accordingly, if a person deals with a company in a manner incompatible with the provisions of the aforesaid documents or enters into transaction, which is ultra vires to these documents, he must do so at his peril. Where the articles provide that a bill of exchange must be signed by two directors, if the bill is actually signed by one director only the holder thereof cannot claim payment thereon. However, the doctrine of constructive notice is not a positive one but a negative one like that of estoppel of which it forms parts. It operates only against the person who has been dealing with the company but not against the company itself. Persons in charge of management cannot be prevented from wrong doing on the pretext that he did not know that the constitution of the company rendered a particular act or a particular delegation of authority ultra vires. Thus, the doctrine is a ‘cloud’ for the strangers. The doctrine of indoor management has been recognized in the case of Royal British Bank v. Turquand (1856)6 E&B 327 All ER Rep (435), While an ordinary person dealing with a company is bound to assume that the requisite compliance or P a g e | 25 delegation of powers to the person dealing on behalf of the company has been made, he need not probe beyond what is ostensible and evident from the actions. Doctrine of Indoor Management The aforesaid doctrine of constructive notice do not assume that outsiders are deemed to have notice of the internal affairs of the company. For instance, if an act is authorised by the articles or memorandum, an outsider is entitled to assume that all the detailed formalities for doing that act have been observed. For example, the directors of the Royal British Bank Ltd. (R.B.B) gave a bond to Turquand (T). The articles empowered the directors to issue such bonds under the authority of a proper resolution. In fact, no such resolution was passed. Notwithstanding that, it was held that T could sue on the bonds on the ground that he was entitled to assume that the resolution had been duly passed [The Royal British Bank vs. Turquand (1956) 6E & B 327.] This is the doctrine of indoor management, which is the only limitation to the doctrine of constructive notice discussed above. Exceptions to Doctrine of Indoor Management: The aforementioned rule of Indoor Management is important to persons dealing with a company through its directors or other persons. They are entitled to assume that the acts of the directors or other officers of the company are validly performed, if they are within the scope of their apparent authority. So long as an act is valid under the articles, if done in a particular manner, an outsider dealing with the company is entitled to assume that it has been done in the manner required. The above mentioned doctrine of Indoor Management has limitations of its own. The law will assume that those information which an outsider has reasonable access to and should have known with minimal efforts before dealing, cannot be a basis of indoor management case in his favour. Conversion of companies already registered According to Section 18 of the Companies Act, 2013, a company may convert itself in some other class of company by altering its memorandum and articles of association. Following is the law with respect to the conversion of the companies already registered. (a) By alteration of memorandum and articles: A company of any class registered under this Act may convert itself as a company of other class under this Act by alteration of memorandum and articles of the company in accordance with the provisions of this Chapter. (b) File an application to the Registrar: Wherever such conversion of companies is required to be done, the company shall file an application to the Registrar, who shall after satisfying himself that the provisions applicable for registration of companies have been complied with, close the former registration of the company. (c) Issue a certificate of incorporation: After registering the required documents, issue a certificate of incorporation in the same manner as its first registration. (d) No effect on the debts, liabilities etc. incurred before conversion: The registration of a company under this Section shall not affect any debts, liabilities, obligations or contracts incurred or entered into, by or on behalf of the company before conversion and such debts, liabilities, obligations and contracts may be enforced in the manner as if such registration had not been done. P a g e | 26 Formation of Not-for-Profit making Companies For various reasons and objectives, people form companies not for profit. The surplus generated in the company, if any, is used for the fulfilment of the objectives of the company and no profit is distributed to the shareholders. A not-for-Profit organization also known as a non-business entity or social enterprise. In economic terms, a Not-for- Profit organization uses its surplus revenues to further achieve its purpose or mission, rather than distributing its surplus income to the organization’s shareholders (or equivalents) as profit or dividends. Such company- (a) has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object. (b) intends to apply its profits, if any, or other income in promoting its objects, and (c) prohibit the payment of any dividend to its members. The Central Government may, by licence on such conditions as it deems fit, allow that association of persons to be registered as a limited company under this Section without the addition to its name of the word ‘Limited’, or as the case may be, the words ‘Private Limited’, and thereupon the Registrar shall, on application, in the prescribed form, register such association of persons as a company under Section 8 of the Act, with following features. (1) The company shall enjoy all the privileges and be subject to all the obligations of limited companies. (2) A firm may be a member of the company registered under this Section. (3) A company shall not alter the provisions of its memorandum or articles except with the previous approval of the Central Government. (4) A company may convert itself into company of any other kind only after complying with such conditions as may be prescribed. (5) where the Central Government is convinced that a limited company registered under this Act or under any previous company law has been formed with any of the objects specified in clause (a) of Sub-Section (1) and with the restrictions and prohibitions as mentioned respectively in clauses (b) and (c) of that Sub-Section, it may, by license, allow the company to be registered under this Section subject to such conditions and to change its name by omitting the word ‘Limited’, or as the case may be, the words ‘Private Limited’ from its name and thereupon the Registrar shall, on application, in the prescribed form, register such company. (6) The Central Government may, by order, revoke such licence on being convinced the affairs of the company are conducted fraudulently or in a manner violative of the objects of the company or prejudicial to public interest, direct the company to convert its status and change its name to add the word ‘Limited’ or the words ‘Private Limited’, as the case may be. (7) Where a licence is revoked under Sub-Section (6), the Central Government may, by order, if it is satisfied that it is essential in the public interest, direct that the company be wound up under this Act or amalgamated with another company registered under this Section. (8) order, provide for such amalgamation to form a single company with such constitution, P a g e | 27  properties, powers, rights, interest, authorities and privileges and with such liabilities, duties and obligations as may be specified in the order. (9) If on the winding up or dissolution of a company registered under this Section, there remains, after the satisfaction of its debts and liabilities, any asset, they may be transferred to another company registered under this Section and having similar objects, subject to such conditions as the Tribunal may impose, or may be sold and proceeds thereof credited to the Rehabilitation and Insolvency Fund formed under Section 269 of the Companies Act, 2013. (10) A company registered under this Section shall amalgamate only with another company registered under this Section and having similar objects. Certificate of incorporation under this section shall mention permanent account number. (11) If a company makes any default in complying with any of the requirements laidown in this Section, the company shall, without prejudice to any other action under the provisions of this Section, be punishable with fine which shall not be less than ten lakh rupees but which may extend to one crore rupees and the directors and every officer of the company who is in default shall be punishable with fine which shall not be less than `25,000 but which may extend to `25 lakh. Provided that when it is proved that the affairs of the company were conducted fraudulently, every officer in default shall be liable for action under Section 447. License Under Section 8 for Existing Companies Persons desirous of getting a licence under section 8, shall make an application in form INC- 12. The MOA shall be in form INC 13 and declaration by professionals shall in in INC-14. An estimated income and expenditure statement for next 3 years, shall also have to be furnished. An existing company can also be converted into a non profit company. Application can be made in INC-12 with. MOA and AA. Declaration. Financial stamen and audit report of previous years. Procedure relating to Foreign Companies carrying on Business in India According to Section 2 (42) ‘foreign company’ means any company or body corporate incorporated outside India and which: (a) has a place of business in India whether by itself or through an agent, physically or through electronic mode, and (b) conducts any business activity in India in any other manner. The Companies Act, 2013 provides detailed provisions for compliance by the foreign companies carrying on business in India. Section 379 provides that provisions of section 380 to 386, 392 and 393 shall apply to foreign companies with or without exemption. Inspection, Inquiry or Investigation [Section 228] The provisions as to inspection, inquiry or investigation under Chapter XIV of the Act shall apply ‘mutatis mutandis’ to foreign companies. P a g e | 28 Merger into a company registered under this Act or vice versa [Section 234(2)] Subject to the provisions of any other law for the time being in force, a foreign company, may with the prior approval of the Reserve Bank of India, merge into a company registered under this Act or vice versa and the terms and conditions of the scheme of merger may provide, among other things, for the payment of consideration to the shareholders of the merging company in cash, or in Depository Receipts, or partly in cash and partly in Depository Receipts, as the case may be, as per the scheme to be drawn up for the purpose. Explanation: For the purposes of sub-section (2), the expression “foreign company” means any company or body corporate incorporated outside India whether having a place of business in India or not. Winding up as an unregistered company [Section 376] Where a body corporate incorporated outside India which has been carrying on business in India, ceases to carry on business in India, it may be wound up as an unregistered company under this Part, notwithstanding that the body corporate has been dissolved or otherwise ceased to exist as such under or by virtue of the laws of the country under which it was incorporated. Foreign Company shall be deemed to be an Indian Company for this purpose [Section 379] Where not less than fifty per cent of the paid-up share capital, equity or preference, or combination thereof, of a foreign company is held by one or more citizens of India or by one or more companies or bodies corporate incorporated in India, or by one or more citizens of India and one or more companies or bodies corporate incorporated in India, whether singly or in the aggregate, such company shall comply with the provisions of Chapter XXII of the Act and such other provisions of the Act as may be prescribed with regard to the business carried on by it in India as if it were a company incorporated in India. Registration with the Registrar of Companies [Section 380(1)] (a) Every foreign company shall, within thirty days of the establishment of its place of business in India, deliver to the Registrar for registration: (1) a certified copy of the charter, statutes or memorandum and articles, of the company or other instrument constituting or defining the constitution of the company and, if the instrument is not in the English language, a certified translation thereof in the English language. (2) the full address of the registered or principal office of the company. (3) a list of the directors and secretary of the company containing such particulars as may be prescribed. (4) the name and address or the names and addresses of one or more persons resident in India authorised to accept on behalf of the company service of process and any notices or other documents required to be served on the company. (5) the full address of the office of the company in India which is deemed to be its P a g e | 29  principal place of business in India. (6) particulars of opening and closing of a place of business in India on earlier occasion or occasions. (7) declaration that none of the directors of the company or the authorized representative in India has ever been convicted or debarred from formation of companies and management in India or abroad, and (8) any other information as may be prescribed. Any alteration of the above documents shall be informed to Registrar within 30 days of alteration. Balance sheet and profit and loss account [Section 381(1)] (a) Every foreign company shall, in every calendar year: (1) make out a balance sheet and profit and loss account in such form, containing such particulars and including or having annexed or attached thereto such documents as may be prescribed, and (2) deliver a copy of those documents to the Registrar, unless exempted. Provided that the Central Government may, by notification, direct that, in the case of any foreign company or class of foreign companies, the requirements of clause (a) shall not apply, or shall apply subject to such exceptions and modifications as may be specified in that notification. (b) If any such document as is mentioned in sub-section (1) is not in the English language, there shall be annexed to it a certified translation thereof in the English language. (c) Every foreign company shall send to the Registrar along with the documents required to be delivered to him under sub-section (1), a copy of a list in the prescribed form of all places of business established by the company in India as at the date with reference to which the balance sheet referred to in sub- section (1) is made out. Display of Name of Foreign Company [Section 382] Every foreign company shall: (a) conspicuously exhibit on the outside of every office or place where it carries on business in India, the name of the company and the country in which it is incorporated, in letters easily legible in English characters, and also in the characters of the language or one of the languages in general use in the locality in which the office or place is situate. (b) cause the name of the company and of the country in which the company is incorporated, to be stated in legible English characters in all business letters, billheads and letter paper, and in all notices, and other official publications of the company, and (c) if the liability of the members of the company is limited, cause notice of that fact: P a g e | 30  (1) to be stated in every such prospectus issued and in all business letters, bill-heads, letter paper, notices, advertisements and other official publications of the company, in legible English characters; and (2) to be conspicuously exhibited on the outside of every office or place where it carries on business in India, in legible English characters and also in legible characters of the language or one of the languages in general use in the locality in which the office or place is situate. Service of documents [Section 383] Any process, notice, or other document required to be served on a foreign company shall be deemed to be sufficiently served, if addressed to any person whose name and address have been delivered to the Registrar under Section 380 and left at, or sent by post to, the address which has been so delivered to the Registrar or by electronic mode. (a) The provisions of section 71 shall apply mutatis mutandis to a foreign company [Section 384(1)]. (b) The provisions of section 92 shall, subject to such exceptions, modifications and adaptations as may be made therein by rules made under this Act, apply to a foreign company as they apply to a company incorporated in India. (c) The provisions of section 128 shall apply to a foreign company to the extent of requiring it to keep at its principal place of business in India, the books of account referred to in that section, with respect to monies received and spent, sales and purchases made, and assets and liabilities, in the course of or in relation to its business in India. (d) The provisions of Chapter VI shall apply mutatis mutandis to charges on properties which are created or acquired by any foreign company. (e) The provisions of Chapter XIV shall apply mutatis mutandis to the Indian business of a foreign company as they apply to a company incorporated in India. Conversion of LLPs into Private Limited Companies and vice versa. Choosing form of business is voluntary for the entrepreneur subject to restrictions of law. The provisions of the Companies Act, 2013 read with rules made thereunder provides for the conversions of companies from one type of company to other another type of Company. The company can convert in to following type of companies: Conversion of a private company into a public company Conversion of a public company into a private company Conversion of one person company to private company/ public company Conversion of private company to one person company Conversion of section 8 company into any other kind of company Conversion of LLP into company Conversion from private company into limited liability partnership Conversion from unlisted P a g e | 31 public company into limited liability partnership we will discuss only two types of conversion i.e. from LLP tp company and vice versa. Conversion of LLP into Company. An LLP can be converted into a Pvt. Ltd. company as per the provisions contained in Section 366 of the Companies Act, 2013 and the Companies (Authorised to Registered) Rules, 2014. This step can be initiated in 2 ways as enumerated below: (i) Incorporation of a new corporate entity. (ii) Conversion of existing entity (e.g. LLP/ Partnership Firm) into a Company. The process of conversion is a step by step procedure, which is a technical process but if handled with expert knowledge may be time and cost saving, as well. Ministry of Corporate Affairs has passed a notification on 31st May, 2016 in such notification its allowed conversion of LLP into Company. These rules called as “the Companies Authorized to register Amendment Rules, 2016. However, there are various requirements which need to be satisfied for converting an LLP into a Private Limited Company, for instance, an LLP must have at least 7 partners (however as per Companies Amendment Act, 2017 LLP with 2 partners can be convert into Company), approval from all the partners is required, advertisement in newspaper is to be done in a local and a national newspaper, a No Objection Certificate (NOC) is required from the ROC where such LLP is registered and then all the incorporation process has to be undertaken which includes: The following process is to be followed: Approval of Name Hold a meeting of the partners to decide the name of the company summoned for the purpose of registering the LLP under Section 366 of the Companies Act, 2013.To authorize partners to take all steps necessary and to execute all papers, deeds, documents etc. pursuant to registration of the LLP as a Company. One of the major advantages is that the business can be run under the same name as that of the LLP except that in addition to the name of the LLP the words ‘limited’ or ‘private limited’ has to be added. The name once accepted by the authority will be valid for 60 days. Securing DSC and DIN In case all 2 or 7 members, as the case may be, who are future directors of the company after conversion, do not have the Digital Signature Certificate (DSC) and Director Identification Number (DIN) for all the future directors of the company must be obtained. For obtaining the DIN, an application form must be filed on MCA portal. DIN application is processed & approved by central government via the office of regional director, the ministry of corporate affairs. Filing form no. URC – 1 For the purposes of sub-section (2) of section 366 of the Companies Act, 2013, the provision of Chapter II of the Act relating to incorporation of company and matters incidental thereto P a g e | 32 shall be applicable mutatis mutandis for such registration: Provided that there shall be two or more members for the purposes of registration of a company under this sub-rule: Provided further that a company with less than seven members shall register as a private company. A company shall attach and provide the required documents and information to the Registrar along with Form No. URC. 1 in the following manner, namely:- (a) In case of an application by a Limited Liability Partnership or firm for registration as a company limited by shares- (i) a list showing the names, addresses, and occupations of all persons named therein as partners with details of shares held by them respectively, showing separately shares allotted for consideration in cash and for consideration other than cash along-with the source of consideration and distinguishing, in cases where the shares are numbered, each share by its number, who on a day, not being more than six clear days before the day of seeking registration, were partners of the Limited Liability Partnership or firm as the case may be; (ii) a list showing the particulars of persons proposed as the first directors of the company, along with Director Identification Number (DIN), passport number, if any, with expiry date, residential addresses and their interests in other firm or body corporate along with their consent to act as directors of the company; (iii) in case of a firm, deed of partnership, bye-laws or other instrument constituting or regulating the firm and in case the deed of partnership was revised at any time in the past, copies of the principal and all subsequent deeds including the latest deed, along with the certificate of the registration issued by the Registrar of Firms, in case the firm is registered; (iv) written consent or No Objection Certificate from all the secured creditors of the applicant; (v) written consent, from the majority of members whether present in person or by proxy at a general meeting, agreeing for such registration, provided that there shall be two or more members for the purposes of registration of a company under this sub-rule: Provided further that a company with less than seven members shall register as a private company. (b) Conversion of company into LLP Any existing private company or existing unlisted public company can be converted into LLP by complying with the Provisions of clause 58 and Schedule III and IV of the LLP Act. Board Meeting Pass Resolution for Conversion of Company into LLP and to authorize any director to file all the necessary forms with MCA. Take the written consent of all the shareholders for P a g e | 33 conversion of Company into LLP. Name Availability approval File web based Form RUN-LLP with ROC. Board Resolution Board resolution passed by the Company approving the conversion into LLP shall be attached with the aforesaid form. Agreement Limited liability partnership agreement shall have the following issues: Name of LLP 🟀 Name of Partners & Designated Partners 🟀 Form of contribution 🟀 Profit Sharing ratio 🟀 Rights & Duties of Partners 🟀 Proposed Business 🟀 Rules for governing the LLP It is not necessary to have the LLP Agreement signed at the time of incorporation, as the details of the same needs to field in e-form 3 within 30 days of incorporation but in order to avoid any dispute between the partners as to the terms & conditions of the agreement after the conversion into LLP, it is required to be drafted various documents to authenticate registered office and other statements etc. are to be filed. Filling of application for conversion: File E-FORM- 18 with ROC along with following Attachments: Statement of shareholders. It is the document given by each shareholders giving their consent and statement. Statement of Assets and Liabilities of the company duly certified as true and correct by the auditor. In case all 2 or 7 members, as the case may be, who are future directors of the company after conversion, do not have the Digital Signature Certificate (DSC) and Director Identification Number (DIN) for all the future directors of the company must be obtained. For obtaining the DIN, an application form must be filed on MCA portal. DIN application is processed & approved by central government via the office of regional director, the ministry of corporate affairs. Filing form no. URC – 1 For the purposes of sub-section (2) of section 366 of the Companies Act, 2013, the provision of Chapter II of the Act relating to incorporation of company and matters incidental thereto shall be applicable mutatis mutandis for such registration: Provided that there shall be two or more members for the purposes of registration of a company under this sub-rule: Provided further that a company with less than seven members shall register as a private company. A company shall attach the following manner, namely:- P a g e | 34 (a) In case of an application by a Limited Liability Partnership or firm for registration as a company limited by shares- (i) a list showing the names, addresses, and occupations of all persons named therein as partners with details of shares held by them respectively, showing separately shares allotted for consideration in cash and for consideration other than cash along-with the source of considerati