Incorporation of Companies Under the Companies Act, CA P.Manohara Gupta

Transcription

1 Incorporation of Companies Under the Companies Act, 2013 CA P.Manohara Gupta

2 Synopsis Formation of a Company Sec 3 Directors Identification Number (DIN) Name Search/ Approval Memorandum of Association Articles of Association Commencement of Business Formation of companies with Charitable objects One person company Companies authorized to register under the Act Companies incorporated outside India Nidhis

3 Formation of a Company Sec 3 A company may be formed for any lawful purpose by : 7 or more persons, where the company to be formed is to be a public company; 2 or more persons, where the company to be formed is to be a private company; or 1 person, where the company to be formed is to be One Person Company that is to say, a private company,

4 Provisions relating to Name of a company Sec 4 (2) & (3) imposes restrictions on selection of Name of a company. Name should not be identical with or resemble to the name of an existing company or LLP It should not constitute an offence under the law for the time being in force It should not be undesirable in the opinion of the Central Government. It should not have any word or expression which is likely to give an impression that the company is connected or having patronage of the Central Government, Local Authority or any body corporate constituted by the Central Government or any State Government.

5 Naming Ceremony Guidelines for availability of Name are replaced by Rules Draft Rules 2.5 provide stringent requirements for Name approval Long list of Undesirable Names given in the Rule 2.5 Proposed name shall be in consonance with the principal objects of the company as set out in MOA. It should not resemble closely the popular or abbreviated description of an existing or dead company or LLP. It shall not resemble the name of a company or LLP incorporated outside India and reserved by such company or LLP with ROC. The applicant shall thoroughly go through the provisions of the Emblems and Names (Prevention and Improper Use) Act, 1950; All registered Trade Marks (including applications made for registration?); Regulations of RBI, SEBI, IDRA regulations; apart from MCA. Abbreviations are not allowed. Minor differences like changing the order of the name, space between the names, adding words like New, Shree, Nav, Om, Jai & Sai or Org.Gov.dot.com to the existing name are not allowed

6 Naming Ceremony contd.. In case the keyword used in the name proposed is the name of a person other than the name(s) of the promoters or their close blood relatives, no objection from such other(s) shall be attached with the application for name. In case the name includes the name of relatives, the proof of relation shall be attached. It shall be mandatory to furnish the significance and proof for using coined words made out of the name of the promoters or their relatives. The proposed name should not be a Hindi or English translation or transliteration of the name of any existing company or LLP.

7 Naming Ceremony contd.. If the name is indicative of any existing non-corporate name then NOC from the proprietor or the partner for the proposed name and also a declaration as to whether business of such firm shall be taken over by the proposed company. The names freed on change of name by any company shall remain in data base and shall not be allowed to be taken by any other company including its own group company for a period of three years from the date of change. However the tribunal may give specific direction in the case of merger or reconstruction or demerger.

8 Naming Ceremony contd.. Name should not be identical with the companies dissolved or struck off for a specified period: Dissolved Co Up to 2 years from the date of winding up. Strike off..up to 20 years from the date of striking off Dissolved LLP..Up to 5 years from the date of dissolution.

9 Naming Ceremony contd The words British India are not permitted The name should not imply association or connection with patronage of a National Hero or any person held in high esteem or important personages who occupied or occupying important positions in the Government. The proposed name shall not include the word State. It is intended or likely to produce a misleading impression regarding the scope or scale of activities which would be beyond the resources at its disposal. If the name includes any foreign country or foreign city, it shall be allowed if the applicant produces proof of significance of business relations with such foreign country or there is government to government participation or patronage. No company shall be incorporated using the name of an enemy country.

10 Reservation of Name Section 4 (4) provides that A person may make an application, in such form and manner and accompanied by such fee, as may be prescribed, to the Registrar for the reservation of a name set out in the application as (a) the name of the proposed company; or (b) the name to which the company proposes to change its name. Sub section 5 provides that Upon receipt of application under subsection 4, ROC may on the basis of information and documents furnished reserve the name for a period of sixty days from the date of application.

11 Consequences of wrong information for obtaining Name If name was applied with wrong or incorrect information, ROC may Cancel the reserved name Direct to pass ordinary resolution and change its name Strike off company s name from register File winding up petition Penalty for furnishing wrong or incorrect particulars Rs.100,000/-

12 Change of activities 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 the activities within six months. If the company changes its business frequently should the name also be changed? The issue is whether this rule will apply to all existing companies to be examined.

13 Change of Name In case of change in name the company is required to mention its old name for a period of two years at its registered office and also print on other stationery like letterheads, billheads, publications, etc., There was no such provision in the old Act.

14 Incorporation of Company (Sec. 7) Other documents & Procedures To be Followed Memorandum and articles of the company duly signed by all subscribers Declaration in respect of compliance with registration formalities Every company shall file a declaration in a prescribed form, with the Registrar that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him and the paid-up share capital of the company is not less than Rs.5 lakh in case of a public company and not less than Rs.1 lakh in case of a private company on the date of making of this declaration. Without filing the above declaration the company shall not commence any business nor exercise borrowing powers

15 Directors consent Now consent of the person is mandatory to accept the position of a director even in case of a private limited company.

16 Memorandum Of Association Sec. 4 / Schedule I of New Act Forms of Memorandum shall be as per specified in Schedule I Table A : Company Limited by shares Table B : Company Limited by guarantee not having share capital Table C : Company Limited by guarantee having share capital Table D: Unlimited Company not having Share capital Table E : Unlimited Company having Share capital Sec 13/ Schedule I of old Act Forms of Memorandum shall be as per specified in Schedule I Table B: Company Limited by shares Table C : Company Limited by guarantee not having share capital Table D: Company Limited by guarantee having share capital Table E: Unlimited Company

17 Objects Clause a comparison As per Companies Act 1956 As per Companies Act 2013 The MOA must have objects to be pursued divided in three parts i.e., between Main Objects Incidental/ancillary objects Other objects The MOA will be required to state only the object for which the company is registered & any other matter considered necessary in furtherance thereof.

18 Registered Office Now Registered Office can be identified with in 15 days from the date of incorporation as against previous requirement of at the time of incorporation. A certificate from the Professional as to physical verification of the place indicated in the Form is mandatory. If Registered Office is in a rented premises, NOC from the land lord is mandatory. Following documents shall be attached to the application: Registered document of the title of the premises of the registered office in the name of the company; or Notarized copy of lease / rent agreement in the name of the company along with a copy of rent paid receipt not older than one month; Every company shall print the address of Registered office, CIN, Telephone No, Fax No, ID, Web site address on their letter heads, bill heads, publications and all other documents

19 Liability clause MOA shall provide that liability of the members be limited to the amount unpaid if any on the shares held by them including unpaid amount towards premium contrary to the old Act which limited to the amount unpaid on face value of the shares.

20 Declaration by a professional I declare that all the requirements of Companies Act, 2013 and the rules made there under in respect of registration of the company and matters precedent or incidental thereto have been complied with. However if, it is found later that the information furnished is false or incorrect I shall be liable under section 449 of the Act. I also understand that I am liable for punishment under Section 447 in terms of Section 7(5) and Section 7(6) of the Companies Act, 2013.

21 Alteration of Memorandum (Sec.13) Alteration to be approved by special resolution Approval of Central Govt. is required for alteration except adding or deleting word Private Objects of a company, which has raised money from public through prospectus and still has any unutilized amount out of the money so raised. Such a company shall not change its objects unless Special resolution is passed with detailed justification and Dissenting share holders are given a chance to exit Alteration of memorandum or articles to be noted in every copy (Sec. 14)

22 Alteration of Memorandum In case of shifting of registered office from one State to another State, a time limit of 60 days has been provided for disposal of the application by the central government. A Registered trademark owner has to file an application for rectification of name, which is similar to name of its trademark, within 3 years instead of 5 years of incorporation of company or change of name, as provided under companies act, In case of rectification of name due to similarity with the registered trademark, on the order of central government, rectification shall be done within 6 months instead of 3 months as was provided under the companies act, 1956.

23 Articles of Association (Sec. 5) The articles of a company shall contain the regulations for management of the company. A company may adopt all or any of the regulations contained in the model articles contained in Tables F to J applicable to such company. Companies are free to include any additional matters as may be required for their management.

24 Articles of Association (Sec. 5) Any clause contained in the model Table can be excluded or modified as required by a company by expressly stating the same in the Articles of Association. Sec 5 stipulates that: The articles can have entrenchment to the effect that any specified clauses 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. This entrenchment clause shall be made at the time of incorporation of the company or by passing a special resolution by a public company and by a resolution agreed by all the members in case of a private company. Sec 5 (9) states that: Nothing in this section shall apply to the articles of a company registered under any previous company law unless amended under this Act.

25 Model Articles in Schedule I Different Model Articles in schedule I are given for different types of companies in the New Act. Table F: Company limited by shares Table G: Company limited by guarantee having share capital Table H: Company limited by guarantee not having share capital Table I: Unlimited company having share capital Table J: Unlimited Company not having share capital Only Table A contained regulations for Management of a company limited by shares was given in the old Act.

26 Broad Contents of Articles of Association Interpretation & Definition Transmission of shares General meetings Board of Directors Accounts Share Capital and variation of rights Forfeiture of shares Proceedings of the Board Winding up

27 Broad Contents of Articles of Association Lien Alteration of Capital Adjournment of meeting CEO, Manager, CS or CFO Indemnity Calls on shares Capitalization of profits Voting rights The seal

28 Broad Contents of Articles of Association Transfer of share Buy back of shares Proxy Dividends & Reserve

29 Other Requirements Address for correspondence till its registered office is established; Name, residential address, Nationality and ID proof of subscribers & first directors Interest of first directors in other firms or bodies corporate Certification of incorporation is no more Conclusive evidence It should be ensured that the among the first directors of the company, at least one director shall stay in India for a minimum period of 182 days in a calendar year Section 149 (3) The company shall maintain and preserve at its registered office all the documents and the information originally filed for incorporation as a permanent record till its winding up.

30 Signing of MOA & AOA Memorandum and articles of association of the company shall be signed by each subscriber who shall add his name, address, description and occupation, if any, in the presence of at least one witness Witness shall state that: I witness to subscriber, who has subscribed and signed in my presence (date and place to be given). Further I have verified his ID for his identification and satisfied myself of his identification particulars as filled in. Each subscriber to the MOA and AOA and first directors named in the AOA shall furnish the specimen signature duly verified by their respective banker at the time of incorporation in prescribed form. In case of foreign national visiting India, can sign the documents only if he has Business Visa.

31 Affidavit by subscribers to MOA and first directors; Subscribers & first directors shall declare that they are Not convicted of any offence in connection with the promotion, formation or management of any company, Not been found guilty of any fraud or misfeasance or of any breach of duty to any company during the last 5 years, All incorporation documents filed with the ROC are correct, complete and true Anyone furnishes any false or incorrect particulars for incorporation shall be liable for punishment for fraud under Sec.447 & 448 i.e., Imprisonment for 6 months to 10 years and fine up to 3 times of the amount involved in the fraud

32 Consequences of Incorrect particulars If anything is found incorrect, Tribunal may Pass such orders, as it may think fit, for regulation of the management of the company Direct that the liability of the members shall be unlimited; or Direct removal of the name of the Company from the register of Companies; or Pass an order for the winding up of the company

33 Particulars of subscriber to be filed with ROC Name & Photograph Father s/ Mother s/ Spouse s name Nationality Date of Birth Place of Birth Occupation Income Tax PAN Address proof E- mail ID Mobile No. Phone NO. Fax No.

34 Registered office of Company (Sec.12) Every company shall have registered office for communication within 15 days of its incorporation and file notice with ROC within 30 days from the date of incorporation. The Company shall; Paint or affix its name, and the address of its registered office Have common seal with its name Print the name, address, CIN**, telephone no., fax, if any e- mail and website addresses on letterheads and official publications

35 Shifting of Registered office Outside the local limits of any city, town or village Special Resolution From the jurisdiction of one registrar to another Approval by Regional Director From one state to another to be approved by Central Govt Application in Form 2.28

36 Commencement of Business Declaration to be filed after incorporation (Pvt & Public Co.) that Subscribers have paid the subscription money and Verification of Registered office Pvt or Public companies cannot commence business or exercise borrowing powers without declaration being filed i.e., subscribers to bring in subscription money within 180 days If no declaration is made within 180 days ROC may strike of the companies name. Holding of statutory meeting by Limited companies and obtaining Certificate for Commencement of Business is dispensed with

37 Private Company Companies Act 1956 Companies Act Members 200 Members Nothing is mentioned for acceptance of deposits Prohibits any invitation and acceptance of deposits other than from directors, members and director s relatives [Section 3(1)(iii)] [Section 2(68)(ii)] Private company will be also governed by section 73 for acceptance of deposits.

38 One Person Company As per Companies Act 1956 : No Provision As per Companies Act 2013 : Introduced the concept of One Person Company for the first time. [Section 3(1)(c)] Section 2(62) defines a OPC as a company which has only one person as a member A One Person Company is required to be registered as a Private Limited Company only.

39 One Person Company OPC can incorporated by only a natural person who is an Indian citizen and resident in India. Resident of India means a person who has stayed in India for a period of not less than182 days during the previous financial year. Nominee shall also be an Indian citizen & resident in India One can incorporate not more than 5 OPCs MOA of such a company should indicate the name of the person who shall, in the event of the subscriber s death or incapacity becomes the member of the company. The member of OPC can any time change such nominee. Nominated person s consent is required at the time of incorporation. A nominee can withdraw his consent at any time and in such case the sole member shall nominate another person within fifteen days from receipt of notice of withdrawal

40 One Person Company It is also allowed an exemption from holding AGM. The words One Person Company shall be mentioned in brackets below the name of such company, wherever its name is printed OPC shall maintain Minutes of Board & General Meetings. Conversion of OPC into public or private company is permitted. There is a cap on the activities of OPC

41 Conversion of OPC (as per draft rules) Compulsory Conversion: Where OPC s paid up share capital exceeds Rs.50 L or its average annual turnover in previous three financial years exceeds Rs.2 Cr or at the close of financial year balance sheet total exceeding Rs. 1 Cr, it shall cease to have OPC status and it shall compulsorily convert itself in to a private or public company with in 6 months. Voluntary Conversion: An OPC can also get converted in to a Private or public company voluntarily by increasing the number of members, directors and paid up share capital as required for relevant class of companies.

42 Issues of OPCs What are the consequences when both the Sole promoter and nominee passes away together say in an accident? Whether a sole promoter of the company can transfer his shares or not? If yes, whether these will be taxed as transfer of shares or transfer of assets. How a one person company is taxable? As a company or as an individual?

43 Small Companies Companies Act 1956 : THERE WAS No concept of small company under the companies Act, 1956 but SMC is defined in Companies (Accounting Standard) Rules SMC defined:- 1. It is not listed or in process of listing 2. It is not a bank, FI or Insurance company 3. Turnover not exceeding Rs. 50 crores in preceding year 4. Borrowing not exceeding Rs. 10 crores 5. It should not be a Holding or Subsidiary which is not a SMC During the immediate previous accounting year.

44 Small Companies Companies Act 2013 : Having paid-up share capital of not more than Rs. 50 lakhs or amount prescribed, however the prescribed amount must not exceed Rs. 5 Crores; or As per the last profit and loss account, turnover must not exceed Rs. 2 Crores or amount prescribed, however the prescribed amount must not exceed Rs. 20 Crores.[Section 2 (85)] Certain exemptions are provided to small companies with regard to Annual Accounts, Annual Return, board meetings, and procedure for mergers/amalgamations.

45 Small Companies Contd. Following types of companies can not be small companies: Public limited companies; Holding or Subsidiary companies Section 8 Companies Companies or bodies corporate governed by any special Act.

46 Formation of Companies with charitable objects, etc (Sec.8) A person or an association of persons, if prove to the satisfaction of the central government, can register under the companies Act as a company with charitable objects complying with the following conditions: the objects should be for Promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment etc., The income shall be applied for promoting its objects and Prohibits the payment of any dividend to its members. The powers are delegated to the ROC A firm can be member registered under this section. A copy of the board resolution / members resolution shall be attached to the Application. When the company is not in existence how can Board or Members resolution be passed.

47 Companies with charitable objects contd.. These companies cannot alter the MOA/ AOA without prior approval from central government The word Limited or Pvt Limited need not include in its name Excess money remaining after winding up will be credited to the Rehabilitation & Insolvency Fund MOA shall accompany future annual income specifying along with the source and objects of the expenditure for next 3 financial years Applicant shall publish a notice in news paper within 1 week of application. ROC may require the applicant to furnish approval or concurrence of any appropriate authority. The ROC shall consider any objections received within 30 days from the date of paper publication before granting the license for registration

48 Conversion of section 8 companies into other regular companies A company registered under section 8 can be converted into a regular company by complying with the following conditions: A special resolution shall be passed by members A paper notification shall be given It shall give up or shall not claim any special status, exemptions or privileges enjoyed by virtue of having registered under section 8 If any immovable property was allotted at free of cost or at concessional cost from any government authority the differential cost shall be paid based on the prevailing market price at the day of conversion

49 Conversion contd Any accumulated profits or surplus after meeting all its liabilities shall be transferred to Investors education & protection fund Obtain approval from the regional director Amend memorandum & articles suitably. Comply with any other conditions imposed by the regional director. A company registered under section 8 shall amalgamate only with any other company registered under this section having similar objects. One person company can also be incorporated for charitable purposes.

50 Companies Authorized to Register Under This Act Chapter XXI (Part IX of old Act) Partnership firm Limited Liability Partnership Co-operative Society Society Any other Business entity formed under any other law may apply for registration under this part

51 Obligation of Companies registering under this Chapter (Sec 374) This is a new section prescribing following additional obligations: Prior consent or NOC of all secured creditors Newspaper advertisement seeking any objections File a notarized affidavit from all members or partners that they will seek dissolution of firm/ LLP/ Society File audited statement of accounts of the entity seeking registration not later than six days preceding the date of application. No objection shall be obtained from Registrar of Firms or ROC if it is an LLP. (Rule ) Intimation shall be given to the Registrar of Firms/ ROC with in fifteen days of the registration under this chapter along with necessary documents for its dissolution as partnership firm or LLP. (Rule 21.3)

52 Restrictions on revaluation of assets ( Rule 21.3) All assets of the entity shall be vested with the company registered under this chapter. The entity shall not revalue the assets vesting during immediately preceding one year of registration under this chapter. Surplus out of the revaluation shall not be credited to the capital account.

53 Companies Incorporated Outside India Foreign company carrying on business in India, with Indian s stake (Indian citizen or Indian companies) of 50% or more shall comply with Chapter 22 (Sec.379) Filings of foreign companies (Sec. 380) Copy of charter, statutes, or Memorandum or Articles Address of the registered or principal office of the company List of the directors & secretary Name & address for correspondence in India Address of the business office in India Declaration by the directors for non conviction in India & abroad Financial statement for every calendar year

54 Companies Incorporated Outside India ACCOUNTS OF FOREIGN COMPANY Foreign company to prepare financial statements of its Indian business operation as per Schedule III or near to that (i.e., revised schedule VI as per Companies Act 1956) for each F.Y. Rules prescribed for each financial year where as the Act refers to Calendar year Foreign company shall file following statements along with financial statement Related party transaction Repatriation of profits Transfer of funds (Including dividend) Audit of accounts of foreign company s Indian Business to be done by C.A (Rule 22.3)

55 Incorporation of Nidhi Companies (Sec 406 corresponds to Sec 620A of old Act) Nidhi company means a company with the object of cultivating the habit of thrift and savings among the members, receiving deposits from and lending to members only for their mutual benefit. Nidhi company shall be a public limited company. Every Nidhi Companies shall have Not less than 200 members Net own funds of Rs.10 Lakhs or more Unencumbered term deposits of not less than 10% of the outstanding deposits Ratio of Net owned funds to deposits of not more than 1:20 One year s time given for compliance after publication of the Rules

56 Compliance for Nidhi Companies Minimum paid up equity share capital of Rs.10 Lakhs No preference shares can be issued No other object in MOA except Cultivating habit of thrift and savings amongst its members Receiving deposits from, and Lending to, its members only, for their mutual benefits Name of the company shall end with words Nidhi Ltd

57 General restrictions/ prohibitions on Nidhi Companies No Nidhi company shall- Carry on the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by any body corporate. Issue preference shares, debentures or any other debt instrument by any name or in any form whatsoever Open any current account with its members Acquire another company by purchase of securities or control the composition of BOD of any other company. Solicit deposits through advertisements or accept deposits from non- members. Carry on any business other than borrowing or lending in its own name. May provide locker facilities on rent to its members, however with a cap on rentals up to 20% of gross income. Pledge any assets lodged by its members Enter in to partnership arrangement in its borrowing or lending operations.

58 Thank You