Incorporation - Imp provisions in Cos Act 2013

What is entrenchment of articles?

Commencement of business - what has changed?

Increased penalty for wrong Info - for professionals

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Incorporation - Imp provisions in Cos Act 2013
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The Companies Act ,2013 introduces certain new provisions in respect of memorandum and articles of association thereby bringing some radical changes in incorporation related provisions. Let us discuss about some of them.



FORMATION OF COMPANY (SECTION 3):

A company may be formed for any lawful purpose by:

(a) Seven or more persons as public company;

(b) Two or more persons as private company;

(c) One person as One Person Company ( New provision in Companies Act 2013)

Documents needed for Incorporation :

Memorandum of association

i)  Name clause of the company – No change, As per Companies act ,1956

ii)  Situation Clause- No change, As per Companies act ,1956

iii) Object Clause:

The object clause of Memorandum of Association has undergone a major change :

The Companies 2013 Act does not require the objects clause in the memorandum to be classified as main , incidental and other objects as was done earlier. Now, there will be only 3 divisions in objects clause and not three.

iv) Liability of the members of the company

This clause is as same as the one in Companies Act , 1956

v) Capital Clause:

The capital clause is quite similar to the Companies Act 1956 but the words has been re phrased

Example : (As per Companies Act ,1956)

Eg: The authorized share capital of the company is Rs.1,00,000/- (Rupees One Lakh only) divided into 1000 (One Thousand only) equity shares of Rs.100/-(Rupees Hundred only) each

As per Companies Act ,2013

The Authorised Share Capital of the Company is Rs.1,00,000/- (Rupees One Lakhs only) divided into 10,000 (Ten thousand only) Equity Shares of Rs. 10/- (Rupees Ten only) each to be increase or reduced in accordance with the relevant provisions of the Companies Act, 1956



Additional requirements :

(a) The Memorandum and Articles of the company duly signed by all subscribers;

(b) A declaration by

                  1. an advocate or Practicing professional (CA, CS, CA) who is engaged in incorporation, and

                  2. a person named in director as Director, Manager or Secretary,

                    That all requirements related to incorporation has been complied with;

(c) an affidavit from each subscriber and from each person named as first director in the articles that;

            1. he is not convicted if any offence in connection with promotion, formation or management of any
               company,

            2. he is not been found guilty of any fraud or misfeasance or of any breach of duty to any company                  during preceding five years, and

            3. all the documents filed with the Registrar contain correct, complete and true information to the                       best of his knowledge and belief;

4. The Company directors shall not accept deposits unless it is in compliance of provisions of the Act which includes Companies Act, RBI Act, SEBI rules.

ARTICLES OF ASSOCIATION:

The 2013 Act introduces the entrenchment provisions in respect of the articles of association of a company.

What is entrenchment:

An entrenchment provision enables a company to follow a more restrictive procedure than passing a special resolution for altering a specific clause of articles of association. A private company can include entrenchment provisions only if agreed by all its members or, in case of a public company, if a special resolution is passed[section 5 of 2013 Act].

In addition to that the format of Articles of Association has undergone certain changes , notable among them is In 3rd point of AOA there will be a word about Private Limited company it must be changed as follows:

The company is a Private Company as defined in section 2(68) of the Companies Act, 2013

Commencement of business:

The existing provisions of the 1956 Act as set out in section 149 which provide for requirement with respect to the commencement of business for public companies that have a share capital would now be applicable to all companies.

The 2013 Act empowers the ROC to initiate action for removal of the name of a company in case the company’s directors have not filed the declaration related to the payment of the value of shares agreed to be taken by the subscribers to the memorandum and that the paid-up share capital of the company is not less than the prescribed limits as per the 2013 Act, within 180 days of its incorporation and if the ROC has reasonable cause to believe that the company is not carrying on business or operations [section 11 of 2013 Act.

COMPANIES WITH CHARITABLE OBJECTS ETC (SECTION 8):

Where a person or an association of person proposed to be registered as a limited company –

(a) has in its object the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;

(b) intends to apply its profit or other income in promoting its objects; and

(c) Intends to prohibits the payment of any dividend to its members;

The Central government by license issued and on specified condition allows that person or association of person to be registered as a limited company without addition to its name of the word “Limited” or Private Limited. The registrar shall on application, register such person or association of person as a company.

The company registered under this section shall enjoy all the privileges and be subject to all the obligations of limited companies.

A firm may be a member of the company registered under this section.

A company registered under section 8 shall not alter its memorandum or articles except with the previous approval of the Central Government. A company registered under this section may convert itself into company of any other kind only after complying with such conditions as may be prescribed.

An existing limited company may convert to a company registered under this Section.

The Central Government may, by order, revoke the license granted to a company registered under this section if the company contravenes any of the requirements of this section or any of the conditions subject to which a license is issued or the affairs of the company are conducted fraudulently or in a manner violative of the objects of the company or prejudicial to public interest, and without prejudice to any other action against the company under this Act, direct the company to convert its status and change its name to add the word “Limited” or the words “Private Limited”. No such order shall be made unless the company is given a reasonable opportunity of being heard. Sub – section (6) to (9) and (11) has provisions in this matter.

A company registered under this section shall amalgamate only with another company registered under this section and having similar objects.

FALSE AND INCORRECT INFORMATION ETC. AT INCORPORATION (SECTION 7):

If any person furnishes any false or incorrect particulars of any information or suppresses any material information, of which he is aware in any of the documents filed with the Registrar in relation to the registration of a company, he shall be liable for action under section 447.

Also if , it is proved that the company has been got incorporated by furnishing any false or incorrect information or representation or by suppressing any material fact or information in any of the documents or declaration filed or made for incorporating such company, or by any fraudulent action, the promoters, the persons named as the first directors of the company and the persons making declarations shall each be liable for action under section 447. Please note, only first directors and subscribers.

Additionally, the Tribunal may, on an application made to it, on being satisfied that the situation so warrants –

(a) Pass such order as it may think fit including changes in its memorandum and articles; or

(b) Direct the liabilities of the members shall be unlimited; or

(c) Direct removal of its name from the register of companies; or

(d) Pass an order for the winding of the company; or

(e) Pass such other order as it may deem fit.