India: Draft Company Amendment Rules for conversion into companies

April 10, 2018


The Companies Act, 2013 (hereinafter referred to as “Companies Act”) aims towards effective governing and managing of the affairs of the companies established in India. The Ministry of Corporate Affairs (hereinafter referred to as “MCA”) facilitates the enforcement the said Companies Act by incorporation of the Companies Rules.

The MCA issued draft Companies (Authorized to Register) Second Amendment Rules, 2018 (hereinafter referred to as “draft rules”). The said draft rules discuss about the requirements which requisite to accompany the application for conversion of entities such as limited liability partnerships, societies or trusts to a company in furtherance to the provisions for incorporation of a company according to Section 366 of the Companies Act. Under the said draft rules, following details are obligated for submission for the aforesaid purpose in addition to the application:

  1. List of the names, addresses and occupations of all the members along with their respective shareholding;
  2. Particulars of the persons proposed to be the first directors of the company, Director Identification Number, residential address, interests in other firms, etc. with their consent to act as directors of the company;
  3. Documents such as deeds of partnership, by laws, certification of registration or any other like instrument;
  4. Affidavit of each the persons proposed as the first directors, that such person is not disqualified to be a director as per Section 164(1) of the Companies Act and all the documents and information being filed with the Registrar for company registration are correct and complete;
  5. In case the company is intended to be registered as a company limited by guarantee, copy of the resolution declaring the amount of guarantee;
  6. No Objection Certificate from all secured creditors of the applicant;
  7. Written consent from majority of the members at a general meeting agreeing for registration;
  8. Undertaking of compliance by the proposed directors to the provisions of the Indian Stamp Act, 1899;
  9. Copy of the latest income tax return;
  10. In cases for conversion into company limited by guarantee from a society/ trust, undertaking from the members that upon such conversion no application for conversion into any other kind shall be made till the expiry of a period of 10 years.

The MCA has invited suggestions and comments to the said draft rules vide notice dated March 20, 2018. The draft rules enable the conversion of different entities into companies limited by shares or guarantee. In order to ensure proper compliance to the Companies Act, the rules mandate for the provision of true and complete information about the prospective directors of the company intended to be incorporated. Also, the draft rules safeguard the interests of the creditors of the applicant entities who may misuse such conversion of the entities into companies for any fraud or misrepresentation. Invitation for public suggestions is a pragmatic approach whereby the members of the public can take part by suggesting modification to the said rules with achieving the eventual motive of a favourable and just legislative framework, monitoring the regulation of companies in India.

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