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 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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