Amendment in Incorporation Rules – incorporation related

Ministry of Corporate Affairs came out with 3^rd amendment of the year to the Companies (Incorporation) Rules, 2013. The Companies (Incorporation) 3^rd Amendment Rules, 2016 published in Official Gazette on 27^th July 2016 and came into force from that date, is available online now. In this first blog post of 3 post series, we will discuss these amendments in rules 3, 8, 13, 16 and 26.

At a time one – One Person Company

This is not a big change but a restatement of intention. Earlier sub – rule (2) of Rule 3, read as under –

“No person shall be eligible to incorporate more than a One Person Company or become nominee in more than one such company.”

There were confusions – 1. A person can be incorporate only one – one person company in his lifetime; 2. Once, a person incorporated a one person company he may not transfer it (means its shareholdings) to any other person.

Now substituted sub – rule 3(2) read as under –

“A natural person shall not be member of more than a One Person Company at any point of time and the said person shall not be a nominee of more than a One Person Company.”

Here, word “natural” is just an interpretation came out from (first) proviso to Section 3(1) where word “death or incapacity to contract” was used. We discussed it earlier here. Now reference of incorporation has been correctly removed to clear that a “natural” person can incorporate any number of one person companies in his life time. Here is a twist. Irrespective of fact how many one person companies a “natural” person incorporated, he may be a member in only a One Person Company at a time. He should either sold (total shareholdings in) OPCs incorporated earlier or such OPCs must have been wind – up before incorporation of new OPC.

There is still no bar on a “natural person” to be a member in a OPC and nominee on another, at same point of time. This is advisable now, a “natural person” should not be a nominee in an OPC if he is member in another OPC as it may give rise to violation to this sub – rule at any point of time. We raised this flag here earlier also.

Trade name related

This amendment is restatement of what is provided earlier in these rules to clarify it more clearly. Earlier, clause (ii) to rule 8(2) as discussed earlier here read as under –

“The name shall be considered undesirable, if – it includes the name of a registered trade mark or a trade mark which is subject of an application for registration, unless the consent of the owner or applicant for registration, of the trade mark, as the case may be, has been obtained and produced by the promoters;”

After amendment, it will read –

“The name shall be considered undesirable, if – it includes the name of a trade mark registered or a trade mark which is subject of an application for registration under the Trade Marks Act, 1999 and the rules framed thereunder unless the consent of the owner or applicant for registration, of the trade mark, as the case may be, has been obtained and produced by the promoters;”

In clause (n) of sub – rule (6) of rule 8, none actually read the comma but a welcome correction of trademark typographic error.

Printed subscriber sheet

This is a welcome change. Due to different practices in different Registration Offices, some accepts printed sheets with signatures but others not. Now, by way of welcome explanation, a universal practice of accepting printed sheet is being established. Present clause (1) and (2) of Rule 13 discussed earlier here read as under –

“The Memorandum and Articles of Association of the company shall be signed in the following manner, namely:-

(1) The memorandum and articles of association of the company shall be signed by each subscriber to the memorandum, who shall add his name, address, description and occupation, if any, in the presence of at least one witness who shall attest the signature and shall likewise sign and add his name, address, description and occupation, if any and the witness shall state that “I witness to subscriber/subscriber(s), who has/have subscribed and signed in my presence (date and place to be given); further I have verified his or their Identity Details (ID) for their identification and satisfied myself of his/her/their identification particulars as filled in”

(2) Where a subscriber to the memorandum is illiterate, he shall affix his thumb impression or mark which shall be described as such by the person, writing for him, who shall place the name of the subscriber against or below the mark and authenticate it by his own signature and he shall also write against the name of the subscriber, the number of shares taken by him.”

Now the explanation, as inserted by present amendment rules –

“Explanation.- For the purposes of sub-rule(1) and sub-rule (2), the type written or printed particulars of the subscribers and witnesses shall be allowed as if it is written by the subscriber and witness respectively so long as the subscriber and the witness as the case may be appends his or her signature or thumb impression, as the case may be.”

I think, it should be clause (1) and (2), though it does not make much difference.

Less hurdles for subscribers

Presently, rule 16(1) in clause (m) require that a subscriber shall give proof of identity and in clause (q) require self attested verification of signature in form INC -10. First requirement was useless in case of a subscriber who has Director Identification Number and in that way already provided his identification documents. Second requirement was a repetition as a witness attest signature of subscriber in subscriber – sheet.

Now, clause (q) is omitted.

Now, clause (m) has an explanation –

Explanation.- In case the subscriber is already holding a valid DIN, and the particulars provided therein have been updated as on the date of application, and the declaration to this effect is given in the application, the proof of identity and residence need not be attached.”

Partnership firm cannot be a subscriber

Under scheme of the Partnership Act, 1932 a partnership is not a person or body corporate. Therefore, it cannot be a member in a company. However, all partners of a partnership firm may be a member in a company or a partner may hold shares for benefit of the firm with required compliances.

In clause (g) of sub – rule (2) of rules 16 of the companies (incorporation) Rules, 2013 due to some reason, partnership firm was permitted to be a subscriber. Now by presentment this anomaly has been removed as under –

“if the body corporate is a limited liability partnership or partnership firm, 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;”

Publication of name by Company

Earlier, rule 26 just enable government to notify documents on which name of company should be published in addition to what is required in Section 12(3) of the Act. Presently rule 26 read as under –

“The Central Government may as and when required, notify the other documents on which the name of the company shall be printed.”

Now, after this amendment –

“(1) Every company which has a website for conducting online business or otherwise, shall disclose/publish its name, address of its registered office, the Corporate Identity Number, Telephone number, fax number if any, email and the name of the person who may be contacted in case of any queries or grievances on the landing/home page of the said website.

(2) The Central Government may as and when required, notify the other documents on which the name of the company shall be printed.”

This rule requires for a company that on its landing/home page details of company should be published.

Presently, this is a practice to put such details on corporate information or contact us or any other page. This practice need to be corrected now.

Please note: This blog invite readers to share their comments, suggestions, hardship, queries and everything in comment section. This blog post is not a professional advice but just a knowledge sharing initiative for mutual discussion.