Section 4 Memorandum

Chapter II Incorporation of a company

Section 4 Memorandum
Rule 2.5 and Rule 2.6
[Section 4 is not yet brought to force. The Companies Rules, 2013 is not yet brought to force.]

Corresponding provisions of the Companies Act, 1956:
Sections 13, 14 and 20.

Corresponding provisions of the English Companies Act, 2006:
Sections 8, 9 and 67

Other laws:
Emblems and Names (Prevention of Improper Use) Act, 1950.

Applicability:
This provision prescribes contents of memorandum of association of a company, standard format thereof and name by which a company may be registered.

The memorandum of a company shall state its:

(a) Name;

(b) Place of registered office;

(c) Objects clause;
(i) objects for which the company is proposed to be incorporated; and
(ii) matters considered necessary in furtherance of objects for which the company is proposed to be incorporated.

(d) Liability clause;

(e) Capital clause and subscription clause; and

(f)  In the case of One Person Company, the name of successor to one member.

 

Name of a company: [Section 4(1)(a)]:
Name of a public limited company shall have the last word ‘Limited’.

Name of a private limited company shall have the last words ‘Private Limited’.

It may be noted that One Person Company shall be a private company [as per Section 3(1)(c)]. And accordingly, name of a One Person Company shall have as last words ‘Private Limited’. Further, under second proviso to clause (d) of sub-section (3) of Section 12, the words ‘‘One Person Company’’ shall be mentioned in brackets below the name of such company, wherever its name is printed, affixed or engraved.

Further, in case of a company registered under section 8 (corresponding section 25 of the Companies Act, 1956), need not use words ‘Limited’ or ‘Private Limited’ as last word(s) as part of its name. [Proviso to Section 4(1)(a)].

Draft Rule 2.5(7) provides that for Section 8 Companies, the name shall include the words foundation, Forum, Association, Council and the like.

There is no provision like under Section 15(1) of the Limited Liability Partnership Act, 2008 which allows use of acronym ‘LLP’ and hence acronym ‘Pvt Ltd’ or ‘Ltd’ cannot be used.

If any person uses words ‘Limited’ or ‘Private Limited’ or any contraction or imitation thereof, as part of name of trade or business without registering a company, then such person is punishable with fine ranging from Rs.500 minimum to Rs.2000/- for every day for which the word(s) were used. [Section 453].

 

Name of a company shall not be identical: [Section 4(2)(a)]:
The name of a company shall not be identical with or too nearly resemble with the name of any other company registered either under the Companies Act 2013 or under any previous company law.

It may be noted that if a name remotely resembles with the name of any other company, then such name may be allowed.

Here, it may be noted that, under section 15(2)(b) of the LLP Act, 2008 name of a LLP shall not be identical or too nearly resemble with, inter alia, body corporate. And the term ‘body corporate’ includes a company registered under the Companies Act. However, there is no such corresponding provision under the Companies Act, 2013 prohibiting companies from using names by which LLP are registered!

However, draft Rule 2.5(2)(b)(i) provides that the proposed name which is identical with or too nearly resembles the name of a LLP, then it shall generally be treated as undesirable under section 4(2)(b)(ii).

Also draft Rule 2.5(2)(b)(iv) provides that where the proposed name resembles closely with the popular or abbreviated description of an existing company or limited liability partnership , then it shall generally be treated as undesirable under section 4(2)(b)(ii).

Further draft Rule 2.5(2)(b)(xii) provides that where the proposed name it is identical with or too nearly resembles the name of a limited liability partnership in liquidation or the name of a limited liability partnership which is struck off up to a period of five years , then it shall generally be treated as undesirable under section 4(2)(b)(ii).

Draft Rule 2.5(1) provides for instances, the use of which in a name, shall be disregarded in determining whether a name is identical with another or not.

 

Name shall not be violating any law: Section 4(2)(b):
The name of a company shall not be such that its use by the company will constitute an offence under any law for the time being in force.
Though the language uses words ‘any law’ it means law applicable in India.
Here the Emblems and Names (Prevention of Improper Use) Act, 1950 is relevant.

Further, the name of a company shall not be such that its use by the company is undesirable in the opinion of the Central Government.
Draft Rule 2.5 (2) contains detailed provision on when a name be treated as undesirable.

 

Use of certain name requires Government approval: [Section 4(3)]:
Just because a name passes test of sub-section (2), it does not mean that name will be made available to a company. Sub-section (3) requires that previous approval of the Central Government (i.e. Ministry of Corporate Affairs) is required for use of any words or expression (as part of name):

(a)  which is likely to give impression that a company is either connected in any way with or is having 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)  Which may be prescribed.

Draft Rule 2.5(6) prescribes word or expressions for use of which previous approval is required.

The Central Government has power to delegate its power under section 458.

 

Application for reservation of name: Section 4(4):
An application for reservation of name, either for the proposed company or for change of name by existing company, shall be made to the Registrar of Companies. Form No. 2.7 is prescribed under the draft Rules.

Draft Rule 2.5(3) provides that 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.

Upon receipt of application, the Registrar of Companies may reserve the name for sixty days, from the date of application. [Section 4(5)].

The name actually may be available for less than sixty days, as there will be some time taken by the Registrar of Companies in approving the name, after it receives the application!

 

Place of registered office: [Section 4(1)(b)]:
Memorandum shall specify the name of the State of India where registered office of the company is to be situated.

The memorandum needs to disclose only the name of the State and not city or address of registered office and its place of registered office can be anywhere within the State stated in its memorandum.

It may be noted that jurisdiction of Registrar of Companies, for registration of a company, is based on the State where registered office of the company is to be situated.

 

Objects clause: [Section 4(1)(c)]:
The memorandum shall state objects for which the company is proposed to be incorporated.

It shall also state matters considered necessary in furtherance of the objects for which the company is being incorporated.

It is similar to ‘main objects’ and ‘incidental or ancillary objects’ under section 13(1)(d)(i) of the Companies Act, 1956.

 

Liability clause: [Section 4(1)(d)]:
Where a company is to be registered with liability limited by shares, the memorandum shall state that the liability of its members is limited to the amount unpaid, if any, on the shares held by them.

Where a company is to be registered with liability limited by guarantee, the memorandum shall state the amount upto which each member undertakes to contribute:

(A) 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

(B) to the costs, charges and expenses of winding-up and for adjustment of the rights of the contributories among themselves.

A company is limited by guarantee and not having a share capital cannot give a right to participate in the divisible profits of the company otherwise than as a member. And if it does so by providing in either memorandum or articles, it shall be void. [Section 4(7)].

 

Capital Clause and Subscription clause: [Section 4(1)(e)(i)]:
Where a company proposed to be incorporated is having a share capital, then it shall state amount of its authorised share capital with which it is to be registered and division of share capital into fixed amount. It shall also state the number of shares which subscribers have agreed to take, which shall not be less than one share.

A subscription clause shall indicate names of each subscribers and opposite thereto number of shares they intend to take.

 

Name of Successor in case of OPC: [Section 4(1)(e)(ii)]:
Where a company to be incorporated is One Person Company, its memorandum shall also state the name of the person who, in the event of death or incapacity to contract of the subscriber, shall become the member of the company. Under first proviso to Section 3(1), prior written consent of such successor is required.

 

Format of Memorandum: [Section 4(6)]:
The memorandum of a company shall be in the form given in Schedule I, i.e.
For a company limited by shares – Table A
For a company limited by guarantee and not having a share capital – Table B
For a company limited by guarantee and having a share capital – Table C
For a unlimited company and not having share capital – Table D
For a unlimited company and having a share capital – Table E

 

Penalty:
Section 4(5)(ii) provides that if after reservation of name, if it is found that the application furnished wrong or incorrect information, then –

(a) In case of incorporation of company for which name was reserved, shall be cancelled and applicant shall be liable to a monetary penalty not exceeding Rs. 100,000/-

(b) In case the company is incorporated, the Registrar of Companies may, after giving opportunity of hearing to applicant company, take any one of the following action:

(i)           Direct the company to change name, within three months of such direction, after obtaining consent of members by ordinary resolution [section 16 is also relevant]; or

(ii)          Strike off the name of the Company from the register of companies [section 248 is relevant]; or

(iii)        Make petition for winding up of the company. It may be noted that under Section 272(1)(e), the Registrar is empowered to make petition for winding up to the National Company Law Tribunal. However, the Registrar is required to obtain previous approval of the Central Government before presenting a petition of winding up (under second proviso to sub-section (4) of Section 272).

 

There is no time prescribed for cancellation of name and thus it can be concluded that:-

(a) Where the name is reserved for incorporation of a company, it can be cancelled at any time before incorporation; and

(b) Where the company is incorporated, the Registrar may (at its discretion) take any one of the three actions, as stated above.

 
Adjudication:
Under Section 454, the officer appointed by the Central Government, not below the rank of Registrar of Companies, may adjudicate and impose monetary penalty for violation of this section. However, before imposing penalty, an opportunity of hearing shall be given to the Company and its officers.

Compounding:
It may be noted that under section 441, where offence is punishable with fine only, the same may be compounded by the National Company Law Tribunal or where the fine does not exceed Rs.5,00,000/- by the Regional Director or any other officer authorised by the Central Government.

Summary of forms and records:

Form No. 2.7 – name application.

As per draft Rule 2.2(2), in case of OPC, the nomination in Form No. 2.1 along with consent of such nominee obtained in Form No. 2.2.

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