No. In this post, I am not discussing any existing law. This a proposal I received in form of a query on Quora about registration of a temporary company. I received another query, how India registered so many “paper companies”.
With a pious and positive mind, I cannot assume all these paper companies were incorporated for fraudulent. More than that many of such were clean white paper companies meaning thereby No figure in their Profit and Loss Account, Balance Sheet, and Bank Statement. Are these promoters criminal? Are these promoters Fraud? What was their purpose?
My one-word reply should be: Idea – they have Idea without a preference to execute it over their other engagements. May it be an idea without sufficient willingness.
When our mind generates an exciting idea, we want to execute it immediately without proper planning. We all company secretaries met more than once such promoter who want to have a company without any plan of action in the near future.
We usually guide such promoters to have Proprietorship or Partnership Concern without taking the pressure of compliance. When promoters insist on a company, we opt for a company with dormant company status under Section 455 of the Companies Act, 2013. We have discussed the procedure related to the dormant company earlier here. The notion of dormant companies has been changed in law. Dormant Companies under Section 455 of the Companies Act, 2013 is quite different from Companies declared dormant under the earlier regime of the Companies Act, 1956. Rule 5 of the Companies (Miscellaneous) Rules 2014 require the government to have a Register of Dormant Companies on its website.
Meanwhile, we still need some mechanism for the temporary registration of companies for 2 years validity without permission of doing business except deposit of paid-up capital in an escrow account. Such Company may start a business only after converting it to a normal business company by applying for the certificate of commencement of business failing which it should be stricken off under straight through the process on a predetermined date. To differentiate with other newly incorporated companies, such companies may be listed on the register of temporary companies.
My readers are free to comment -positive or negative.