Memorandum of Association and Articles of Association are constitutional documents for companies. No company can amend these constitutional documents except the procedure in Section 13 and Section 14 of the Companies Act 2013.
Section 8 companies, popularly known as Not-for-profit companies, require additional compliance for amending their constitutional documents. Subsection 4(i) of Section 8 mandates prior approval for the alteration of constitutional documents of Section 8 companies.
“A company registered under this section shall not alter the provisions of its memorandum or articles except with the previous approval of the Central Government”.
The term “alter” or “alteration” includes making additions, omissions and substitutions in the documents.
The Central Government by its Notification S.O. 1353 (E) dated 21 May 2014, delegated its power and functions under Section 8(4)(i) to the Registrar of Companies.
For making such an application before the Registrar of Companies, the board shall pass a resolution proposing the alteration, consent to filing the application, and authorise one or more directors to apply with the Registrar of Companies.
The application shall be filed in Form GNL – 1.
For alteration of Articles of Association, after receiving approval from the Registrar of Companies, the board shall call a general meeting for approval of the alteration. Members may approve the alteration by way of special resolution only.
Every alteration of the articles and a copy of the order of the Government approving the alteration shall be filed with the Registrar, together with a printed copy of the altered articles, within fifteen days who shall register the same. After the approval by shareholders, the company shall file Form MGT-14 with the Registrar of Companies under Section 117 of the Act within fourteen days.
Every alteration made in a company’s articles shall be noted in every copy of the articles. Suppose a Section 8 company amends its articles without prior approval of the Registrar of Companies. In that case, the company shall be punishable with a fine which shall not be less than ten lakh rupees which may be up to one crore rupees. Every Director and every officer of the company who is in default shall be punishable with a fine which shall not be less than twenty-five thousand rupees but may extend to twenty-five lakh rupees.
In the last post here, we discussed the Companies (Incorporation) Third Amendment Rules, 2022, which inserted Rule 25B with effect from 20 August 2022 (issued on 18 August 2022).
Failure in Physical Verification
In terms of Rule 25B sub-rule (5), based on the physical verification report, the Registrar shall form an opinion on whether the office is capable of receiving and acknowledging all communications and notices. If the Registrar finds the office incapable of receiving and acknowledging all communications and notices, it will send a notice to the company and all the directors:
of his intention to remove the name of the company from the register of companies; and
requesting them to send their representations along with copies of relevant documents, if any, within thirty days from the date of the notice.
The Registrar may take action under Section 248 of the Act based on the physical verification report and the representations made by the company and its directors.
Notice for Removal of Name
The Ministry of Corporate Affairs, on 26 August 2022, published the Companies (Removal of Names of Companies from the Register of Companies) Second Amendment Rules, 2022 by Notification GSR 658(E) dated 24 August 2022.
This amendment effectively amends the notice for Notice by Registrar for removal of the name of a company from the register of companies in Form STK – 1.
Additional ground for removal of the name of a company from the register of the companies maintained by the Registrar of Companies. Till the amendment following three grounds were there:
The company has failed to commence its business within one year of its incorporation;
The company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under section 455; and
The subscribers to the memorandum have not paid the subscription which they had undertaken to pay at the time of incorporation of a company, and a declaration to this effect has not been filed within one hundred and eighty days of its incorporation under sub-section (1) of section 10A.
Now, a fourth ground is added to the list: “the company is not carrying on any business or operations, as revealed after the physical verification carried out under sub-section (9) of section 12”.
Public Notice of proposed removal of the name of the company from the register of companies under Section 248(1) and 248(2), namely Form STK – 5A and Form STK – 5 are also amended to similar effect.
“Inspector Raj”, in its whatsoever name and whichever form, is a necessary evil in India.
The Companies (Amendment) Ordinance, 2018, with its 2019 version and final avatar, the Companies (Amendment) Act, 2019, inserted Section 12(9) with effect from 2 November 2018, sown the seed of Physical verification of the Registered Office of a Company.
Despite the Legislative Powers, the Ministry of Corporate Affairs thankfully restrained itself for a long time and tried a self-certification mode. Ministry of Corporate Affairs (MCA) initially notified Rule 25A by way of the Company (Incorporation) Amendment Rules 2019 with effect from 25 February 2019. Surprisingly, this was a one-time exercise in Form INC-22A (Active). The Form Active captured two-dimensional data of the registered office with documents and a photo of one of the directors showing Latitude and Longitude. However, the form might not satisfy the intended purpose of the government. No day-to-day technology presently captures the third dimension of the office – the floor of the building or vertical location of the office from sea level.
While writing on Rule 25A and Form INC-22A (Active) here, I hoped and still wish Form INC-22A (Active) to be an annual exercise as it solves other issues like a failure on the part of management to update the Registered Office Address on Record.
“Fun Fact: Distance between two latitudes is about 111 KM. Distance between two Longitude at the equator is 111 KM while at Poles it is Zero.”
Now, the Ministry of Corporate Affairs, with effect from 20 August 2022 (issued on 18 August 2022) notified the Companies (Incorporation) Third Amendment Rules, 2022 and inserted Rule 25B. (Notification at the official site here)
For physical verification, under Section 12(9), the Registrar of Companies should have reasonable cause to believe that the company is not carrying on any business or operations; he may cause a physical verification of the registered office of the company. The belief that the company is not carrying on any business or operation from the Registered office does not form a cause for physical verification. This belief should base upon the information or documents made available on MCA 21. His opinion shall not be based on any complaint, media report or other information.
The newly inserted Rule has a vital reference to Section 248, “Power of Registrar to Remove Name of Company from Register of Companies”. We expect notification of a supplementary rule in the Companies (Removal of Name of Companies from the Register of Companies) Rules, 2016. [Note: it is notified and published on 26 August 2022].
Process of Verification
The Registrar shall form a reasoned opinion that the company is not carrying on any business or operations;
The Registrar shall issue an authorisation letter for physical verification;
The Registrar shall visit at the address of the registered office of the company;
The Registrar shall ensure the presence of two witnesses of the locality in which the registered office is situated;
If required, the Registrar may also seek the assistance of the local police for the verification;
The Registrar shall carry the documents filed in support of the address of the registered office of the company;
The Registrar shall collect supporting documents of the address duly authenticated from the occupant of the property (self-attested);
The Registrar shall check the authenticity of the documents filed on MCA21 by cross verification with documents so collected;
The Registrar shall take a photograph of the Registered office while causing the verification (it is not clear if he will collect geo-coordinates also);
The Registrar shall note the date and time of the visit and collect self-attested identity proof of the person available at the property; and
The Registrar shall prepare a physical verification report in the given format.
The consequence of the Physical Verification Report
On the basis of the report of the physical verification, the Registrar shall form an opinion on whether the office is capable of receiving and acknowledging all communications and notices. If the Registrar finds the office incapable of receiving and acknowledging all communications and notices, it will send a notice to the company and all the directors:
of his intention to remove the name of the company from the register of companies; and
requesting them to send their representations along with copies of relevant documents, if any, within thirty days from the date of the notice.
The Registrar may take action under Section 248 of the Act based on the physical verification report and the representations made by the company and its directors.
To be a good founder, promoter or subscriber of a company to be incorporated, one should at least have a well-documented identity and good financial health. I always suggest an excellent biodata with all supporting documents. There is a functional requirement for well-prepared bio-data. Your list of documents should include:
Particular
Supporting Document
Name
PAN Card – Permanent Account Number of Income Tax Department
Father/ Mother Name
PAN Card – Permanent Account Number of Income Tax Department
Date of Birth
PAN Card – Permanent Account Number of Income Tax Department
Place of Birth
Passport or Birth Certificate
PAN Card – Permanent Account Number
PAN Card – Permanent Account Number of Income Tax Department
UID – Unique Identification Number, if any
Aadhar Number
DIN – Director Identification Number, if any
DIR Allotment Letter issued by Ministry of Corporate Affairs
Other Identity Numbers
Any one of Passport, Driving Licence, Voter Identity Card,
Present Address
Electricity Bill/Telephone Bill/Mobile Bill/Bank Passbook (not more than two months earlier)
Permanent Address
UID/Passport/or other address proof as applicable for present address
Educational Qualification
A document showing the highest education obtained
Email Address (personal not provided by employer)
To be verified by One Time Password (OTP)
Mobile Number (personal not provided by employer)
To be verified by One Time Password (OTP)
Passport size Photograph
Not more than two months earlier
Digital Signature Certificate
DSC is an algorithm issued by a certificating authority (CA) licenced by the controller of certifying authorities (CCA) under the Ministry of Information Technology. DSC is based on your documentary proof and issued in pen drive like signature tokens.
Bank Balance
The subscriber undertakes to have a certain number of shares. If a subscriber could not pay for these subscription shares of the company so incorporated, the company may not commence its business.
List of companies in which you are director
MCA website may be helpful
List of companies in which you have more than 2% shareholders
One should always have a detail of investments made. Otherwise, Income Tax Annual Information System may have some details
Every person should ensure all these documents have updated address and marital status information.
One common issue in these documents is spelling differences and style differences on different documents. To avoid inconvenience, always check your documents carefully and update them regularly.
Would you like if the name of your company is not of your choice? Would you like if the name of your company is alphanumeric beyond your control?
New Rule 33A of the Companies (Incorporation) Rules, 2014 may create such a possibility. The root of the new rule is under Section 16 of the Companies Act, 2013.
Section 16, till this notification, was one of the marginalized provisions of the Companies Act, 2013 ignored by consultants and companies alike.
My law teacher told me in law class, human is a social animal. Yesterday I found, modern human is social media animal. Last two days, we received a flood of social media messages claiming change in definition of small and medium enterprises. Only a fine reader can point out misunderstanding caused by this statement.
We need to understand interplay of the Companies Act, 2013, Micro, Small and Medium Enterprises Development Act, 2006 and newly notified the Companies (Accounting Standards) Rules, 2021.
No Government can change even a single alphabet in an Act of Parliament by way of notification of a Rule unless power is given specifically. Definition of the small companies is given in the definition clause Section 2(85) of the Companies Act, 2013:
“Small company” means a company, other than a public company, —
(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees; and
(ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees:
Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under Section 8; or
(C) a company or body corporate governed by any special Act.
The definition under this definition clause is applicable wherever word “small company” in the Companies Act, 2013. This definition may be amended by the Companies (Specification of definitions Details) Rules, 2014 or any amendment therein. No amendment in this general definition may be made by the Companies (Accounting Standards) Rules, 2021 or its earlier version.
Rule 2(1)(t) of the Companies (Specification of definitions Details) Rules, 2014 with effect from 1 April 2021 amends the definition of Small Company saying that For the purposes of sub-clause (i) and sub-clause (ii) of clause (85) of section 2 of the Act, paid up capital and turnover of the small company shall not exceed rupees two crores and rupees twenty crores respectively.
The final definition of small company under Section 2(85) read with Rule 2(1)(t) of the Companies (Specification of definitions Details) Rules, 2014 with effect from 1 April 2021 is hereunder:
“Small company” means a company, other than a public company, — (i) paid-up share capital of which does not exceed two crores rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees; and (ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed twenty crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees: Provided that nothing in this clause shall apply to— (A) a holding company or a subsidiary company; (B) a company registered under Section 8; or (C) a company or body corporate governed by any special Act.
Any change in the definition of small company, more than ten crore and one hundred crore respectively for paid up capital and turnover shall require an amendment to the Companies Act, 2013.
This definition in the Companies Act, 2013 is applicable for all purposes of the Companies except (a) the accounting practices therein and (b) benefits provided by the Government to MSMEs.
The Companies (Accounting Standards) 2021 deals with the presentation of company accounts.
The term enterprises mentioned in Accounting Standards and the Companies (Accounting Standards) Rules is specific and restricted only to companies not any other form of enterprises. It is not applicable to all industrial undertaking, business concerns or other establishments except companies.
The Companies (Accounting Standards) 2021 defines Enterprises in Rule 2(d):
“Enterprise” means a ‘company’ as defined in clause (20) of section 2 of the Act.
Thereafter the Companies (Accounting Standards) Rules 2021 defines “Small and Medium Sized Company (SMC)” not small and medium enterprises (SME). Definition of small enterprises and medium enterprises is given in the Micro, small and Medium Enterprises Development Act, 2006 as amended time to time. We have already discussed this definition in details here earlier.
The definition of “Small and Medium Sized Company (SMC)” in Rule 2(e) of the Companies (Accounting Standards) Rules 2021 is hereunder:
“Small and Medium Sized Company” (SMC) means, a company-
whose equity or debt securities are not listed or are not in the process of listing on any stock exchange, whether in India or outside India;
which is not a bank, financial institution or an insurance company;
whose turnover (excluding other income) does not exceed two hundred and fifty crore rupees in the immediately preceding accounting year;
which does not have borrowings (including public deposits) in excess of fifty crore rupees at any time during the immediately preceding accounting year; and
which is not a holding or subsidiary company of a company which is not a small and medium-sized company.
Explanation. – For the purposes of this clause, a company shall qualify as a Small and Medium Sized Company, if the conditions mentioned therein are satisfied as at the end of the relevant accounting period.
For different purposes a company may either be:
Small Company or not;
Small and medium sized company or not;
Micro enterprises or small enterprises or medium Enterprises or none of these three.
It all depends upon relevant definition for the time being in force. One company may fall in one or more or none of these categories. Simple check points are:
Small Company
Small and Medium Sized Company
Micro Small and Medium Enterprise
Paid up Capital
Turnover
Investment in Plant and Machinery
Turnover
Borrowing
—
The companies (Accounting Standards) Rules 2021 has limited applicability with respect to applicability of accounting standards in relation to books of account of companies. These rules come into effect from the date of publication which is 25 June 2021 not on its issue date which is 23 June 2021. Further Rule 3(2) made it clear that accounting standards notified under these rules comes into effect retrospectively from 1 April 2021.
A company website is not a simple affair of contents, design, SEO and brand building. It is more about compliance. A company may choose not to have a website. Once, a company decide to have a website; it should comply essential requirement of laws.
Ministry of Corporate Affairs has issued many amendment rules and circulars during the month of September 2020 for the ease of doing business. Though one thing always remains – chaos. In this brief post, we will discuss these ease and remaining chaos briefly.
During a call with a startup client, we heard the term investor Nth time. “What is a need for investor or investment? It is a self-sufficient business plan.” These days no promoters of startup interested in sales and services but on investment pouring in. They even do not have a plan of servicing of investment which may pour in. Continue reading →
The Concept of Wholly Owned Subsidiary is an anti-thesis of the concept of the company. At least two persons are required to form a company which is true for wholly-owned subsidiary – but in case of wholly-owned companies one or more registered shareholder declare that one or more beneficial interests in their shares are with a particular company or body corporate.
Corporate world every holding company having a wholly-owned subsidiary have one or more person as “nominee” shareholders to on record as a registered shareholder holding a nominal number shares in a wholly-owned subsidiary company to satisfy the requirement of the minimum number of members. Treating these registered shareholders as “nominee” is not the perspective of the Company Law but of the Contract Law as applicable to the contract between the company and these shareholders. Let us discuss.
The concept of the wholly-owned subsidiary is best understood by layman than a young student of law – particularly of corporate law. The concept practically understood by professional dealing with a wholly-owned subsidiary. A student called me to understand this: “how possible?” I replied, “No, It is not possible in true sense.” Unless one understands it clearly that it is not possible in a true legal sense, only then, you can understand it. Once understood, you will never believe that a wholly-owned subsidiary is not possible in a true legal sense.
Subscribers of a company, particularly of a startup are ignorant tribe as far as company law is concerned. They need proper handholding. A subscriber to the memorandum of association and articles of association of a company is a neglected person though otherwise celebrated as member shareholder of a company.
Digital Signature nowadays a most important but highly unprotected personal property of an individual just next to his figure prints and unprotected payment instruments – UPIs, credit or debit cards or cheque books. If no fraud has been committed misusing a Digital Signature in last 10 days it is because no fraudster know the true power of a Digital Signature or you have placed your digital signature certificate in a hand of a person of integrity.
We firstly ignore negative news going to effects us. Secondly, we undermine the impact. Third, we start fighting. Humanity since 2017 knew and ignored about 73 corona viruses waiting to affect humanity. It is changing our life and law. I wrote a post on initial restrictions going to impact corporate compliances on 13th March 2020 which I considered now outdated. Here are measures the Ministry of Corporate Affairs announced:
The era of simple incorporation has already been over. We have SPICe since long which claimed to facilitate additional registrations at the option of the applicant. Now, This is over. The Government is now at the final stage of serving added SPICe. The menu name “SPICe+”
Foundations of all great buildings are usually a neglected construction but ensuring long life of the building. Subscription Sheet is one of the neglected areas of our discussions in corporate laws. With the introduction of eMemorandum of Association (SPICe MoA) and eArticles of Association (SPICe AoA), we usually consider it obsolete. No, it is actually not.
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”.
I received an interesting query on Quora earlier this month. Another day, another reader asked on WhatsApp why Registrar of Companies or Serious Fraud Investigation Office is not taking action against “PMC Bank Limited”. The reader was ignorant of the word “co-operative” in the name of scam-hit banks. Last year, one member/shareholder of the State Bank of India queried about compliance by the bank under the Companies Act, 2013.
The founder is not a legal term in relation to a company. General Public usually uses this term to refer to the original promoters of any company.
Interestingly, the definition of the term “promoter” also do not indicate directly to “founders” as the definition is drafted with the perspective of an existing company.
Now, I must subscribers to the Memorandum of Association (MoA), the founding or constituting documents of a company are first promoters. They satisfy two conditions of the definition of promoters also.
Subscribers of the MoA took initiatives to form a company and give a legal birth to it. Sometimes one of them actually leads and recognised by other subscribers as founder subscriber.
In short, the mind has a seed of the company in it may be called the founder of the company.
Writer of this blog, Aishwarya Mohan Gahrana is Practicing Company Secretary and Insolvency Professional working with M/s Aishwarya M Gahrana & Associates, a New Delhi based peer reviewed firm of company secretaries having pan India presence through friends and associates. This blog is a knowledge sharing initiative. Views expressed here is of writer; not of the organization(s) he is working with.
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