Companies Act 2013

Section 13: Alteration of memorandum.

Chapter II
INCORPORATION OF COMPANY AND MATTERS INCIDENTAL THERETOProvisions of the Companies Act, 2013:
Section 13: Alteration of memorandum.
Rules 2.26 to 2.29 of the Companies Rules, 2013
[Section 13 is not yet brought to force and the Companies Rules, 2013 is not yet brought to force]Corresponding provisions of the Companies Act, 1956:
Sections 16, 17, 18, 19, 21, 23 and 37Corresponding provisions of the English Companies Act, 2006
Sections 37, 77 to 81 (change of name) and 87

Applicability:
This section is applicable to all companies.

Memorandum of association contains following clauses:
(a) Name of the Company,
(b) State of India where registered office of the company is situated,
(c) Main objects of the Company and matters considered necessary in furtherance thereof,
(d) Liability of members of the company; and
(e) Authorised share capital of the company.

Alteration made under section 13 shall have any effect until it has been registered. [section 13 (10)].

Special resolution: [section 13 (1) and (6)]
For alteration of any of the clauses [as aforesaid, except (e)] of memorandum of association, consent of members by way of special resolution is required. However, in case of alteration of authorised share capital (as stated in (e) above), consent of members by way of ordinary resolution as stated in section 61 is required.

The company is required to file special resolution passed by shareholders for alteration of memorandum of association with the Registrar of Companies [section 13(6)].

Change of name clause of memorandum: [section 13 (2) and (3)]
For change of name of the company, which is part of memorandum of association of the company, written approval of the Central Government is required and provisions of section 4 (2) and (3) of the Act shall be complied with.
However, in case of conversion of status of a company from one class to another, procedure prescribed for conversion shall be followed and consequential addition or deletion of word ‘Private’ in name of the company shall not require approval under section 13. [proviso to section 13(2)].

Draft Rule 2.26
As per the sub-rule (1), change of name shall not be allowed by Central Government in following cases:
(a) Company which has defaulted in filing any document or annual return or financial statement, as required to be filed under the Act, with the Registrar of Companies,
(b) Company which has defaulted on repayment of matured deposits, matured debentures or interest due on deposits or debentures.

The company is required to file with the Registrar of Companies, approval of the  Central Government for change of name of the Company.  [section 13(6)].

Change of name shall be take effect only upon Registrar of Companies issuing fresh certificate of incorporation. [section 13 (3)].

Draft Rule 2.26
As per the sub-rule (2), fresh certificate of incorporation shall be in Form no. 2.27.

Change of registered office clause of memorandum: [section 13 (4), (5), (7)]
For shifting of registered office from one State to another State of India, prior approval of Central Government is required. For this purpose application in form no. 2.28 shall be made to the Central Government and a copy thereof shall also be filed with the Chief Secretary of the State [Rule 2.27 (1) and (5)].

The Central Government shall dispose application within a period of 60 days [section 13 (5)].

Shifting of registered office shall not be allowed where any inquiry, inspection or investigation has been initiated under the Act against the company or any prosecution under the Act is pending against the company. [proviso to rule 2.27 (10)].

An application shall be accompanied with several documents including list of creditors and debenture holders, if any. Said list shall be prepared as on latest practical date which shall not be older than 30 days.
Further, an affidavit verifying the said list shall be given by Company Secretary, if any and atleast two of the directors of the Company, one of whom shall be managing director, if any. [rule 2.27(2)].
An affidavit from directors is also required to be submitted, along with the application, stating that no employees shall be retrenched as a consequence of shifting of registered office. [rule 2.27(3)].
To dispose of application, hearing shall take place. The company shall atleast 14 days before the date of hearing, [rule 2.27(6)]:
(i) give advertisement (about date, time and venue of hearing) in newspapers in vernacular and English language, in vernacular and English newspapers, respectively, circulating in the district where registered office of the applicant company is situated at time of application;
(ii) serve notice of hearing  (about date, time and venue of hearing) by registered post acknowledgement due
(a) individually to all creditors and debenture holders,
(b) to Registrar of Companies; and
(c) along with copy of application to SEBI, in case of listed company, and to other regulatory body if the company is regulated by any special law.

Objections, if any, received by the applicant company shall be forwarded to the Central Government on or before the date of hearing. [rule 2.27 (7)].

Where no objections are received, an application may be disposed of without hearing. [rule 2.27 (8)].

The Central Government shall ensure that the applicant company either obtains consent of objecting creditors or satisfies debt or secures the debt of objecting creditors. [rule 2.27 (9) and section 13 (5)].

Central Government may put terms and conditions while granting the approval, including order as to costs. [rule 2.27 (10)].

Within 30 days of receipt of order of the Central Government approving the alteration of registered office clause of memorandum of association, the Company shall file file the certified true copy of the order in Form no. 2.29 with the Registrar of Companies of each of the States. The Registrar of Companies shall register the same.  Further, the Registrar of the State where the registered office is being shifted to, shall issue a fresh certificate of incorporation indicating the alteration. [section 13 (7) and rule 2.28].

Change of object clause of memorandum: [section 13 (8), (9)]
Where money is raised by a company from public by issue of prospectus and still has got those money unutilised then for change of object clause of memorandum of association, the company would require consent of members by way of special resolution with specific prescribed disclosures.

While section 13 (8) speaks generally of change of object clause where money is raised from public by issue of prospectus and remaining unutilised, draft rule 2.29 prescribes procedure only when there is a change in the objects as stated in prospectus, stating which the money was raised.

Postal ballot and contents of notice: [rule 2.29 (1)]
Consent of members by special resolution shall be obtained by way of postal ballot.  The notice to members shall contain the following:
(a) total money received (from public by issue of prospectus which remained untilised at time of seeking consent for change of object);
(b) total money utilized for the objects stated in the prospectus;
(c) unutilized amount out of the money so raised through prospectus,
(d) particulars of the proposed alteration/ change in the objects;
(e) justification for the alteration/change in the objects;
(f) amount proposed to be utilized for the new objects;
(g) estimated financial impact of the proposed alteration on the earnings and cash flow of the company;
(h) other relevant information which is necessary for the members to take an informed decision on the proposed resolution;
(i) place from where any interested person may obtain a copy of the notice of resolution to be passed.

Newspaper advertisement [section 13 (8)(i) and rule 2.29 (2)]
The details 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.
Advertisement shall be in form no. 2.30 which shall be published simultaneously with the dispatch of postal ballot notices to shareholders.

The notice shall also be placed on the website of the company, if any. [rule 2.29 (3)].

Dissenting shareholders [section 13 (8)(ii)]
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 SEBI. SEBI is yet to notify regulation for the same.

While money is received from public by the company, exit opportunity shall be given by promoters and shareholders having control.

Above procedure of postal ballot, newspaper advertisement and exit opportunity to dissenting shareholders shall not apply
(a) where money is raised by a company from public by issue of prospectus and has got those money fully utilised; and
(b) where the company has not raised any money from public.

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. [section 13 (9)].

Change of liability clause of memorandum: [Section 13(11)]

In the case of a company limited by guarantee and not having a share capital, any alteration of the memorandum made in order to give or has effect of giving any person (except member) a right to participate in the divisible profits of the company otherwise than as a member, shall be void.

Penalty:

Since no specific penalty or punishment is prescribed for contravention of section 13, general penalty prescribed under section 450 of the Act is applicable. Accordingly, the company as well as its officer who is in default or such other person shall be punishable with fine upto Rs.10,000/-. For continuing offence, they are punishable with further fine upto Rs.1,000/- for every day after the first during which contravention continues.
 
It may be noted that for second or subsequent contravention of the provision of this section, if made within a period of three years, then the company as well as its officer who is in default shall be punishable under section 451 with twice the amount of fine.

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, where it decides that no prosecution be launched. 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.
Both company and every officer who is in default may apply for compounding for violation of section 12.

Summary of forms and records:
Fresh certificate of incorporation in Form no. 2.27 consequent to change of name.
An application for obtaining approval of the Regional Director is required to be made in Form no. 2.28 along with the fees (Rule 2.27)  for shifting of registered office from one State to another.
An order of the Regional Director approving shifting of registered office from one State to another shall be filed with ROC in form no. 2.29 (rule 2.28).
Format of notice to be given in newspaper in Form no. 2.30 (rule 2.29(2)).
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Companies Act 2013

Section 10: Effect of Memorandum and Articles.

Chapter II
INCORPORATION OF COMPANY AND MATTERS INCIDENTAL THERETO

Provisions of the Companies Act, 2013:
Section 10: Effect of Memorandum and Articles.
[Section 10 is not yet brought to force]

Corresponding provisions of the Companies Act, 1956:
Section 36

Corresponding provisions of the English Companies Act, 2006
Section 33

Applicability:
This provision is applicable to all companies.

This section provides that the provisions contained in the memorandum and articles of association of a company shall be binding on the company and each of the members thereof. It is to be treated in the same manner as if a contract signed by the company and each of its members.
Thus, contents of articles of association shall be observed by members and the company, as if an agreement signed by and between them.

Articles of association does not constitute an agreement between the company and outsiders or third parties.

However, while dealing with or entering into contract with a company, outsiders or third parties shall consider provisions of memorandum and articles of association of the company, as there may be provisions in it relating to the subject matter for which it deals with the company. For example, Articles may provide that where a dispute arises between the company and contractee party, such dispute shall be referred to arbitration. [Ganges Sugar Works Ltd. v. Nuri Miah 28 Ind Cas 384 All; AIR 1915 All 234].  In Kotla Venkataswamy Mukherjee v. Rammurthy,

It further provides that all moneys payable by members to the company shall be debt due from him to the company.

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Companies Act 2013

Section 7: Incorporation of a Company

Chapter II
INCORPORATION OF COMPANY AND MATTERS INCIDENTAL THERETO

Provisions of the Companies Act, 2013:
Section 7: Incorporation of a Company
Rule 2.9 to 2.15 of the Companies Rules, 2013
[Section 7 is not yet brought to force and the Companies Rules, 2013 is not yet brought to force]

Corresponding provisions of the Companies Act, 1956:
Sections 33, 34, 35

Corresponding provisions of the English Companies Act, 2006:
Sections 9 to 15

Applicability:
This provision is applicable to all companies.

Filing documents for incorporation of company [Section 7(1)]:
For registration of a company, following documents and information shall be filed with the Registrar of Companies within whose jurisdiction the registered office of the company is proposed to be situated. Rule 2.9 requires such documents to be filed in Form no. 2.9:

(i) Memorandum and Articles of association of the Company [Section 7(1)(a)]

A. Subscribers:
Memorandum of Association (‘MOA’) and Articles of Association (‘AOA’) shall be duly signed by all its subscribers. Rule 2.10 states that ‘each subscriber’ shall add his name, address, description, occupation, if any, in the presence of at least one witness.

Where the subscriber is a Limited Liability Partnership, the memorandum and articles of association shall be signed by a partner of the Limited Liability Partnership, duly authorized by a resolution approved by all the partners of the Limited Liability Partnership. The partner so authorized shall not, at the same time, be a subscriber to the memorandum and articles of Association in his individual capacity or any other capacity.

Where the subscriber is a body corporate, the memorandum and articles of association shall be signed by director, officer or employee of the body corporate duly authorized in this behalf by a resolution of the board of directors of the body corporate. However such director, officer or employee so authorized shall not, at the same time, be a subscriber to the memorandum and articles of Association in his individual capacity or any other capacity.

Also, the following particulars shall be filed with the Registrar:-
(a) CIN of the Company / Registration No of the body corporate, if any
(b) GLN, if any
(c) Name of the body corporate
(d) Registered office address/ principal place of business
(e) E-mail Id
(f) In case of company, certified true copy of the board resolution specifying inter alia the authorization to subscribe to the memorandum of association of the proposed company and to make investment in the proposed company, the number of shares proposed to be subscribed by the body corporate, and the name, address and designation of the person authorized to subscribe to the Memorandum.
(g) In case of LLP, certified true copy of the resolution agreed to by all the partners specifying inter alia the authorization to subscribe to the memorandum of association of the proposed company and to make investment in the proposed company, the number of shares proposed to be subscribed in the body corporate, and the name of the partner authorized to subscribe to the Memorandum.
(h) In case of foreign bodies corporate, following additional details to be submitted:-

  • copy of certificate of incorporation of the foreign body corporate; and
  • registered office address along with proof.

Where the subscriber is a foreign national residing outside India:
(a) If, a foreign national is on a visit in India and intend to incorporate a company (while in India), in such case the incorporation shall be allowed if, he/she is having a valid Business Visa.
However, in case of a foreign national visited in India is a Person is of Indian Origin or Overseas Citizen of India, requirement of business Visa will not be applicable.

(b) Where the subscriber is a foreign national residing outside India in a country in any part of the Commonwealth, his signatures and address on the memorandum and articles of association and proof of identity shall be notarized by a Notary (Public) in that part of the Commonwealth.

The Commonwealth is a voluntary association of 53 independent countries. More about it can be accessed from http://thecommonwealth.org/about-us.

(c) Where the subscriber is a foreign national residing outside India in a country which is a party to the Hague Apostille Convention, 1961, his signatures and address on the memorandum and articles of association and proof of identity shall be notarized before the Notary (Public) of the country of his origin and be duly apostillised in accordance with the said Hague Convention. More details can be accessed from http://www.hcch.net/index_en.php.

(d) Where the subscriber is a foreign national in a country outside the Commonwealth and which is not a party to the Hague Apostille Convention, 1961, his signatures and address on the memorandum and articles of association and proof of identity, shall be notarized before the Notary (Public) of such country and the certificate of the Notary (Public) shall be authenticated by a Diplomatic or Consular Officer empowered in this behalf under section 3 of the Diplomatic and Consular Officers (Oaths and Fees) Act, 1948 (40 of 1948) or, where there is no such officer by any of the officials mentioned in section 6 of the Commissioners of Oaths Act, 1889 (52 and 53 Vic.C.10), or in any Act amending the same.

(i) Where subscriber is an illiterate person, he can affix his thumb impression or mark.

In such case, the person writing for him shall
(a) read and explain the contents of the memorandum and articles of association to the subscriber and make an endorsement to that effect on the memorandum and articles of association;
(b) also write against the name of the subscriber, the number of shares taken by him;
(c) place the name of the subscriber against or below the thumb impression or mark; and
(d) authenticate it by his own signature.

B. Witness:
The witness shall attest the signatures of subscribers and shall likewise sign and add his name, address, description and occupation, if any.

The witness shall also state (rather confirm) that subscriber/s has/have subscribed and signed in his presence and also state the date and place.

Thus, witness can be only such person in whose presence subscriber has subscribed and signed Memorandum.

Witness is also required, under Rule 2.10 to verify ID of subscriber and satisfy himself that identification particulars filled by subscribers in Memorandum matches with their particulars as stated in Identity Proof of subscribers.

Can witness be a minor?
Section 118 of the Evidence Act, 1872 envisages that all persons shall be competent to testify, unless the Court considers that they are prevented from understanding the questions put to them or from giving rational answers to these questions, because of tender years, extreme old age, disease- whether of mind, or any other cause of the same kind. A child of tender age can be allowed to testify if he has intellectual capacity to understand questions and give rational answers thereto. [Ratansinh Dalsukhbhai Nayak vs State Of Gujarat AIR 2004 SC 23 ].

(ii) Declaration by professionals [Section 7(1)(b)]

Declaration in form no. 2.10 is required from:
(a) by an advocate, a chartered accountant, cost accountant or company secretary in practice, who is engaged in the formation of the company; and
(b) by a person named in the articles as a director, manager or secretary of the company.

It may be noted that a declaration attracts stamp duty. Rate of stamp duty varies from State to State within India.

(iii) Affidavit from subscribers and first directors [Section 7(1)(c)]

Rule 2.12 states that an affidavit from each of the subscribers to the memorandum and from persons named as the first directors, if any, in the articles that he is not convicted of any offence in connection with the promotion, formation or management of any company, or that 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 preceding five years and that all the documents filed with the Registrar for registration of the company contain information that is correct and complete.

It may be noted that an affidavit attracts stamp duty. Rate of stamp duty varies from State to State within India.

(iv) The address for correspondence till its registered office is established [Section 7(1)(d)]

Every company is required to have a registered office. However, for convenience it is provided that at time of incorporation of a company, temporarily it may have a place as a correspondence office.
Section 12 of the Companies Act, 2013 requires every company to have a registered office within 15 days of its incorporation and its particulars shall be filed with the Registrar of Companies within 30 days of its incorporation.

(v) Particulars of every subscriber to be filed with the Registrar at the time of incorporation. [Section 7(1)(e)].

Rule 2.13 states that the particulars of name, including surname or family name, residential address, nationality and other particulars such as father name or spouse name, date and place of birth, occupation, Email id, phone, fax and mobile number of every subscriber to the memorandum along with proof of identity is required to be submitted.
Each subscriber (including first directors of a company) to the MOA and AOA shall furnish the specimen signature in Form no. 2.32 duly verified by their respective banker at the time of incorporation.

(vi) Particulars of first directors of the company and their consent to act as such. [Section 7(1)(f) and (g)]

Rule 2.14 states that the particulars of the persons mentioned in the articles as the first directors of the company, their names, including surnames or family names, the Director Identification Number, residential address, nationality and such other particulars including proof of identity and his interest in other firms or bodies corporate along with his consent to act as director of the company is required to be filed.

Certificate of Incorporation – Section 7(2):
The Registrar of Companies shall register all the above mentioned documents and information and issue a certificate of incorporation stating that the proposed company is incorporated under this Act. Rule 2.15 prescribes format of Certificate of Incorporation to be in Form no. 2.13.

Corporate Identity Number (CIN) – Section 7(3):
The Registrar of Companies shall allot a Corporate Identity Number (CIN) to the company and which shall be also included in the certificate of incorporation.

Preserving incorporation documents till company is dissolved – Section 7(4)
It is the responsibility of the company to maintain and preserve at its registered office copies of all the documents originally filed (at the time of incorporation) until the dissolution of the company.

Penalty – Section 7(5), (6) and (7):
In any document filed with the Registrar of Companies for incorporation of a company, if any information or representation is false or incorrect or material fact or information is suppressed by any person and he is aware of such information, he shall be liable under section 447. [Section 7(5)].

In addition to above, if after incorporation of a company it is proved that the company got incorporated by furnishing any false or incorrect information or representation or by suppressing any material fact or information, in any document or declaration or by any fraudulent action then promoters, first directors and persons making declaration [under section 7(1)(b)] shall be liable under section 447. [Section 7(6)].

The offence under sub-sections (5) and (6) of section 7 is made cognizable offence and person accused of such offence shall not be released on bail or on his own bond without giving opportunity to Public Prosecutor to oppose the application to release the person on bail or personal bond. [Section 212(6)].

Where a company got incorporated by furnishing any false or incorrect information or representation or by suppressing any material fact or information, in any document or declaration or by any fraudulent action then, in addition to action under sub-section (6) of section 7, the Tribunal may, on application made to it under sub-section (7) of section 7, on being satisfied that the situation so warrants:

  1. pass such orders, as it may think, for regulation of the management of the Company including changes, if any, in its memorandum and articles, in public interest or in the interest of the company and its members and creditors; or
  2. direct that liability of the members shall be unlimited; or
  3. direct removal of the name of the company from the register of companies; or
  4. pass an order for the winding up of the company; or
  5. pass such orders as it may deem fit.

Summary of forms and records:
Form No. 2.9 – An Application for incorporation of companies.
Form No. 2.10 for a declaration to be given by an advocate, a Chartered Accountant, Cost accountant or Company Secretary in practice.
Form 2.11 for an affidavit shall be submitted by each subscribers and first directors.
Form No. 2.12 for the particulars of each person mentioned in the articles as first director of the company and his interest in other firms or bodies corporate along with his consent to act as director of the company shall be filed in Form No. 2.13 for Certificate of Incorporation.

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Companies Act 2013

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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Companies Act 2013

Section 3 Formation of company

CHAPTER II
INCORPORATION OF COMPANY AND MATTERS INCIDENTAL THERETO

Provisions of the Companies Act, 2013:
Section 3 Formation of company
Rule 2.1 of the Companies Rules, 2013
[Section 3 is not yet brought to force. The Companies Rules, 2013 is not yet brought to force.]

Corresponding provisions of the Companies Act, 1956:
Section 12.

Corresponding provisions of the English Companies Act, 2006:
Section 7

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

Applicability:
This provision is applicable to public limited, private limited company, One Person Company and unlimited company.

This section deals with objects of the company, who can be and number of subscribers and One Person Company.

A company should have a lawful purpose. It means if some activity is not permitted under law, a company cannot be formed to carry out such activities.

Since any ‘person’ can be subscriber to the Memorandum of Association, it may be an individual or even a body corporate (including company); except in case of a One Person Company (see Rule 2.1).

However, under section 11 of the Contract Act,1972 a person shall be of major age, of sound mind and is not disqualified from contracting in order to enter into a valid contract. And subscribing shares of a company is a contract between a company to be formed and subscriber.

Where a subscriber is not a natural person, then under section 179 (similar to section 292 of the Companies Act, 1956) copy of resolution passed at the meeting of the Board to invest funds of the subscriber company would be required. Such resolution to contain name of any individual / officers nominated to sign and subscribe for and on behalf of the subscriber.

Required number of subscribers to memorandum of association of a company to be incorporated are:
Seven or more, for public company;
two or more, for private company; and
one for One Person Company.

It may be noted that section 149 specifies minimum and maximum number of directors. Accordingly, minimum of 3 directors are required for a public company, 2 directors for a private company and 1 director for an OPC.
Maximum number of 15 directors can be appointed by a company. And with consent of members by special resolution more than 15 number of directors can be appointed by a company.

Every company shall have atleast one director, who has stayed in India for atleast 182 days in the previous calendar year [sec.149(3)].

It may also be noted that where articles of association of a company do not provide for appointment of its first directors, subscribers to the memorandum, who are individuals, shall be the first directors, until directors are duly appointed by members. [sec.152].

ONE PERSON COMPANY
One person company (‘OPC’) shall be a private limited company.
Since OPC can have only one person as its member (‘the sole member’), he shall indicate at the time of incorporation, one other person, who shall in the event of death or incapacity to contract, become the member of the one person company. However, such other person shall give his prior written consent in the prescribed form no. 2.2 (Rule 2.2(2)).
The sole member and other person nominated shall be (Rule 2.1(1))
(a) natural persons (individuals),
(b) Indian Citizen; and
(c) resident in India.

An explanation to Rule 2.1(1), clarifies that the term “resident in India” means a person who has stayed in India for a period of not less than one hundred and eighty two days during the immediately preceding one financial year.
Financial Year means the period ending on the 31st day of March every year. (Section 2(41)).
Stay in India need to be consecutive 182 days.

It may be noted that, in case of an OPC, requirement of ‘stay in India’ is for the member, whereas section 149(3) provides for ‘stay in India’ for atleast one of the directors. Further, draft Rule 2.1 requires that member of OPC shall ‘stay in India’ for consecutive 182 days in previous financial year, whereas section 149(3) requires a director of a company to ‘stay in India’ in aggregate for 182 days in previous calendar year.

Such other person may withdraw his consent at any time. For withdrawing consent, he need to give a notice in writing to the sole member and to the OPC. No specific form is prescribed for withdrawal of the consent.
The sole member is required to nominate another willing individual to become member of the OPC, in the event of death or incapacity to contract of the sole member. Such nomination is required to be made within 15 days of the receipt of notice of withdrawal (Proviso to Rule 2.2 (3)). The Sole member in turn is required to intimate such new nomination in writing to the OPC along with the written consent of such other person so nominated in Form No. 2.2. The OPC in turn is required to file with the Registrar of Companies within thirty days of receipt of the notice of withdrawal of consent, a notice of such withdrawal of consent and the intimation of the name of another person nominated by the sole member in Form No.2.3. (Rule 2.2(4)).

The sole member of the OPC may at any time change the name of such other person for any reason including in case of death or incapacity to contract of nominee and nominate another person after obtaining the prior consent of such another person in Form No. 2.2. (Rule 2.2(5). No format is prescribed for communication, if any, between the sole member and the nominee to be removed. The sole member shall intimate the change to the OPC. Not format is prescribed for intimating to the OPC.  The OPC in turn is required to file with the Registrar of Companies within thirty days of receipt of the notice of change in Form no. 2.4.

In the event of death of or incapacity to contract by the sole member of the OPC, the nominee shall become the member of the OPC and he shall nominate within fifteen days of becoming the member a person who shall in the event of his death or his incapacity to contract become the member of the OPC. The OPC shall file with the Registrar of Companies an intimation of such cessation and nomination in Form No. 2.5.

Rule 2.1 further provides that an individual can incorporate maximum of five OPCs. Thus, an individual cannot be a member of more than five OPCs.
In the event a member of OPC, becomes a member in another OPC by virtue of his being a nominee in that OPC, he shall ensure within 180 days that he is a member of not more than 5 OPCs.

Penalty:
If OPC or any officer of the OPC contravenes the provisions of these rules, OPC or any officer of the OPC shall be punishable with a fine which may extend to INR 5,000/- and with a further fine which may extend to INR 500/- for every day after the first during which such contravention continues.

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 OPC 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. 2.1: nomination form, to be filed at time of incorporation of OPC (with consent in form no.2.2),
Form no. 2.2: consent of nominee
Form no. 2.3: intimation by OPC of withdrawal of consent by previous nominee and new nomination form (with new consent in form no.2.2)
Form no. 2.4: intimation by OPC of change in nominee effected by the sole member and new nomination form (with new consent in form no.2.2)
Form no. 2.5: intimation by OPC of nominee becoming the sole member (due to death or incapacity to contract of the original sole member) and new nomination form (with new consent in form no.2.2)

 

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