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Company Formation

COMPANY FORMATION AND INCORPORATION- INDIA

The four intrinsic stages involved in the formation of a Company are:

  • Promotion of a Company
  • Incorporation of a Company
  • Subscription of capital
  • Commencement of the business

A brief overview, giving an insight of these stages are as under:

Promotion of a Company

In India, the first stage towards formation of a Company is its Promotion. Promotion refers to a process wherein a Company comes into existence. Basically, it begins with the birth of a Company followed by determination of the object or purpose for which it is formed. A promoter is a person who undertakes the formation of a Company by investing initial funds required to start a business.

Following are the documents required to be submitted during formation of a Company:-

  1. Memorandum of Association- MOA explains the objective behind formation of a Company. It contains various clauses such as Name clause, Registered Office clause, Object Clause, Liability clause, etc.  
  2. Articles of Association- AOA are rules & regulations in respect of the internal management Company. These rules shall not exceed anything mentioned in MOA as they are subsidiary to the MOA. 
  3. Consent of the Directors- Apart from MOA & AOA, the directors are required to give written consent in respect of buying or paying for qualification shares which is mentioned in the AOA.     
  4. Agreement- The Agreement, if any, entered between the Company and any individual for appointment as a whole time Director/Managing Director, is required to be filed with the Registrar of Companies w.r.t formation of Company.
  5. Fee Payment- Along with the above mentioned documents, payment of fees is necessary for registration of the Company.   

Incorporation of a Company

After complying with the abovementioned formalities, promoters are required to make an application to the Registrar of Companies of the state (where they wish to establish their registered office) for incorporation of the Company. Once Certificate of Incorporation is issued to the Company, it becomes a conclusive proof of existence/formation of the Company.      

Subscription of Capital

A public company, by means of issue of shares & debentures, can raise funds from the general public. For doing so, a public company is required to issue prospectus inviting the general public to subscribe to the share capital of the Company.    

Commencement of business

A private company, having no subscription of share capital can immediately commence its business just after receiving certificate of incorporation. However, a public company can commence its business only after raising minimum subscription by way of issue of new shares/debentures followed by issuance of Certificate of Commencement of business. 

Benefits of Company Formation India

Company Formation has many advantages for the business;

  1. The company can buy, sell and hold property in its own name.
  2. The company can sue and get sued in the law of court without personal involvement of directors.
  3. Ownership of the company is easily transferable.
  4. There is no liability of its member as it is a separate entity.
  5. The company has a common seal
  6. It provides perpetual succession to the company. This means it continues in the long run and death of any director does not affect the running of the business.
  7. It provides benefit on the taxation front as individuals pay income tax and companies avail the benefit of corporate taxes.

Registration of a Company Name in India

For the purpose of registration of a company, the company has to first obtain a registered name for which they have to submit the application to the registrar for checking the availability or similarity to a previously registered name.  With the application they also have to submit alternative names in the order of priority in case of the rejection of the proposed name. Once the registrar is satisfied then the name is registered.

According to the MCA guidelines these are the few things on the basis of which a name falling in the categories mentioned below will not generally be made available:

  • If it is not in consonance with the principal objects of the company as set out in its memorandum of association. This does not necessarily mean that every name should be indicative of its objects. But when there is some indication of business in the name then it should be in conformity with its objects.
  • If the Company / Companies main business is finance unless the name is indicative of that particular financial activities. Viz. Chit Funds / Investments / Loan, etc.
  • If it includes any word or words which are offensive to any section of the people.
  • If the proposed name is the exact Hindi translation of the name of an existing company in English especially an existing company with a reputation.
  • If the proposed name has a close phonetic resemblance to the name of the company in existence for example, J.K Industries Ltd., Jay Kay Industries Limited.
  • If the name is only a general one like Cotton Textile Mills Ltd., or Silk Manufacturing Ltd., and not specific like Calcutta Cotton Textiles Mills Limited or Lakshmi Silk Manufacturing Company Limited.
  • If it includes, the word “Co-operative”, Sahakari or the equivalent of word “Co-operative” in the regional languages of the country.
  • If it attracts the provisions of the Emblems and Names (Prevention of Improper Use) Act, 1950 as amended from time to time, i.e. use of improper names prohibited under this Act.

Procedure for Company Formation- India

The procedure for company registration in India or incorporation of a company in India involves several steps as provided under the Indian Companies Act and they are:

  1. Application for obtaining Director Identification Number (DIN) from the Ministry of Corporate Affairs.
  2. Search for a company name- This step requires search for company name and the availability of names can be checked at the website of the Ministry of Corporate Affairs (MCA). Availability of company names can be checked for company registration online at http://www.mca.gov.in/DCAPortalWeb/dca/MyMCALogin.do?method=setDefaultProperty&mode=16 .
  3. Application of proposed name- An application for proposed company name is to be filed with the Registrar of Companies (ROC).
  4. Drafting of Memorandum of Association (MOA) and Articles of Association (AOA)- Some of the most critical documents involved in company formation in India is MOA and AOA.  MOA covers the fundamental provisions involved in the company’s formation and an AOA covers the rules and regulations governing the internal management of a company.
  5. Filing of Forms with the ROC- The procedure for incorporation of the company requires the filing of some essential Forms with the ROC, like Form INC-7 (form for incorporation of company), Form INC-22 (form for notice of situation of registered office),  Form DIR- 12 (providing information about particulars of appointment of Directors).
  6. ROC fees and Stamp Duty payment
  7. Thereafter, documents filed for incorporation of company will be verified by ROC
  8. Pursuant to verification of documents, the ROC will issue a “Certificate of Incorporation” to the company. Thereafter, the company can commence functioning.

Certificate of Incorporation and Certificate of Commencement

A certificate of Incorporation is a certificate that sanctions the existence of the companies once the registrar has scrutinized all the documents and has made necessary changes in MOA and AOA. A certificate of Incorporation is given to both Public and Private Companies. Certificate of Commencement is given after obtaining the Certificate of Incorporation and a Public Company having share capital cannot commence its business without this certificate. Whereas this is not necessary for commencement for Private Companies which can commence their business after receiving the Certificate of Incorporation.

Compliance for Companies in India

An investor, investing in India may choose from various types of entities depending on their own requirements. After deciding the type of entity, they want to invest in, the next step is to perform the required compliance according to the rules and regulations laid down by the respective Acts. Below mentioned are few of the compliances that an investor has to perform in order to get its business incorporated in India;

  • Formation and Incorporation of the Company; company registration
  • Checking the Foreign Direct Investment (FDI) allowed with respect to a foreign investor’s business operations.
  • Requirement of various licenses and approvals from concerned central and state governmental authorities.
  • Performing Intellectual Property Audit
  • Tax compliances
  • Appointment of auditors.

10 important terminologies- Company Formation India

Digital Signature & Digital Signature Certificate (DSC)

A Digital Signature is a digital code created for the purpose of affixing them on digital documents and proving equal authority as of the handwritten signature. A Digital Signature Certificate is a prima facie evidence of the signature which validates the authenticity of the signature. The Office of Controller of Certifying Authorities (CCA), issues the DSC only to Certifying Authorities which are the trusted entities who are responsible to issue Digital Signature Certificate to end-user.

Director Identification Number (DIN)

According to the MCA website DIN is a unique Identification Number allotted to an individual who is appointed as director of a company and it is compulsory for every director to have this number so as to create a database of the incorporated companies before they can get a company registered according to section 153 & 154 of the Companies Act, 2013. It can be obtained by filing the requisite form and prescribed fees with the Ministry of Corporate Affairs India (MCA).

Permanent Account Number (PAN)

PAN or Permanent Account Number is a mandatory document that an individual has to obtain for taxation purposes. It may be obtained through e-filing on the website of the Department of Income Tax.

Tax Deduction Account Number (TAN)

TAN or Tax Deduction Account Number is to be obtained by the person responsible to deduct tax, that is, the deductor.  Application for new Tax Deduction Account Number can be done through online Form 49B by Income Tax Department.

Memorandum of Association

Memorandum of Association (MOA) is considered as the supreme document of the company and is submitted to registrar at the time of company formation. The purpose of this is to lay down clear objectives of the company and the business that they tend to carry out under this company. It is advisable for a company to take legal help while drafting the Memorandum of Association. It has the following clauses:

  1. Name clause
  2. Registered Office Clause
  3. Object Clause
  4. Association Clause
  5. Capital Clause
  6. Liability Clause

Articles of Association

Articles of Association is a document containing all the rules and regulations that govern a company. This document has to be submitted to Registrar at the time of company formation in India.

Share Capital

When the total capital of a company is divided into shares, then it is called share capital. In other words, the capital for the running of the business collected by the company is known as share capital. Share capital is the total amount of capital collected from its subscribers or shareholders for the purpose of achieving the objectives of the company.          

Authorized Capital

According to Section 2(8), it is the capital as authorized by the memorandum of a company to be the maximum amount of share capital of the company.

Paid-Up Capital

According to Section 2(64) it means such aggregate amount of money credited as paid-up as is equivalent to the amount received as paid-up in respect of shares issued and also includes any amount credited as paid-up in respect of shares of the company, but does not include any other amount received in respect of such shares, by whatever name called. Minimum paid-up capital for Private Companies is INR 1 lakh and Public Companies is INR 5 lakhs.

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Company Law in India

For more information on Companies Act and company formation or incorporation in India or new company registration in India and abroad please write to us at info@ssrana.com or submit a query.

MSME Registration India- How to register MSME in India?

India being a developing county is a home to numerous small and medium sized businesses. Therefore, there exists numerous Micro, Small and Medium Enterprises (hereinafter referred to as ‘MSME’) in India which plays huge role in the economic development of the country and also employment. The MSME sector majorly contributes to the industrial growth of India including the exports made by India. The Indian Government provides exemptions and relaxations from legal compliances to MSMEs in India, however to avail those exemptions and relaxations, MSME registration process becomes imperative.

MSMEs are enterprises are classified into micro, small and medium based on their turnover. Enterprises falling within the ranges ascertained by Government of India can register as Micro, small or medium enterprise.

MSME Law in India

The various laws regulating MSMEs in India are:

  1. Micro, Small and Medium Enterprises Development Act, 2006
  2. The Khadi and Village Industries Commission Act, 1956
  3. The Coir Industry Act, 1953

However, the MSMEs in India are primarily governed by the Micro, Small and Medium Enterprises Development Act, 2006. The said Act promotes the development of MSMEs in India and regulates their mode of conduct.

MSME Registration India- Eligibility

Presently the MSME industries are divided into two categories: Manufacturing and services. The classification of these industries are based on the amount of investment made into the enterprise. However, an amendment is proposed to be made in this regard which would remove the difference between manufacturing and service sector. This amendment would also include an additional criteria of turnover of the enterprises.

Below is the current classification of MSMEs[1]:

MSME Registration
ClassificationTurnoverInvestment in Plant and Machinery
MicroLess than INR 5 CroresLess than INR 1 Crore
SmallLess than INR 50 CroresLess than INR 5 Crores
MediumLess than INR 250 CroresLess than INR 50 Crores

MSME Registration India- Benefits

The various benefits of MSME registration in India are:

  • Collateral free loans or credit facility can be easily made available to the MSMEs.
  • Reduced Trademark and Patent Filing fee– The Trademark Rules in India provide for reduced official trademark filing fee for MSMEs in India and the Patent Rules also enumerate reduced official patent filing fee for MSMEs or small entities in India.
  • MSMEs can claim various tax benefits and tax deductions as applicable depending on their classification.
  • Bank loans can be availed for these benefits at very low interest rates compared to other category of loans.
  • Special government tenders are exclusively made available only to MSMEs.
  • Preference to women enterprises as they are provided with different trainings and counselling related to business operations.

For more information on MSME registration, write to us at info@ssrana.com

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New Definition of MSME- Reserve Bank of India

The minimum number of partners required for formation of a Limited Liability Partnership (LLP) in India are 2 (two). Out of the total partners, at least one partner should be an Indian resident in a LLP in India. Indian resident is an individual who can be considered to be a tax resident and is present in India for 182 days or more in a fiscal year.

Ministry of Corporate Affairs (MCA) is the administrative authority for registration of LLP in India.

The relationship between the partners as well as the profit and loss sharing ratio is governed by Limited Liability Partnership deed.

Requirements for incorporation

  • Minimum 2 partners out of which one partner must be an Indian resident
  • The partners must have at least attained the age of 18 years
  • None of the partners should be disqualified under the laws in force to form a LLP
  • The proposed name of the LLP should not be identical or similar to an existing company/ LLP name
  • The proposed name of the LLP should not be similar to an existing pending or registered trademark

Procedure for LLP incorporation

The procedure for LLP incorporation in India involves the following steps:

  • LLP name approval
  • Preparation and signing of Limited Liability Partnership (LLP) deed
  • Filing of relevant forms along with LLP deed with the MCA

Time frame for formation of partnership firm: The estimated time frame for LLP incorporation in India is approximately 10-15 days. However, this time frame may vary depending upon the availability of the proposed LLP name as well as backlog at the office of the Registrar of Companies (ROC).

Licenses to operate: The estimated time frame for LLP incorporation in India is approximately 10-15 days. However, this time frame may vary depending upon the availability of the proposed LLP name as well as backlog at the office of the Registrar of Companies (ROC).

Introduction of New Partner: A new partner in the Limited Liability Partnership (LLP) in India can be added by way of amendment of existing partnership and submission of the relevant form along with the supplementary Limited Liability Partnership (LLP) deed with the Ministry of Corporate Affairs (MCA).

Survival of Limited Liability Partnership (LLP) with a single partner: Yes, a Limited Liability Partnership (LLP) can survive with a single partner. If at any time, the number of partners of the Limited Liability Partnership (LLP) falls below the required minimum of 2, the only partner of the Limited Liability Partnership (LLP) during the time such Limited Liability Partnership (LLP) shall be liable personally for the obligations of the Limited Liability Partnership (LLP) if such Limited Liability Partnership (LLP) caries on the for more than 6 months till the time the number of partners of the Limited Liability Partnership (LLP) is increased to 2.

Dissolution of LLP: A Limited Liability Partnership (LLP) in India may be voluntarily wound up upon filing of a copy of the resolution with the Registrar which was approved by at least three-fourths of the total number of its partners.

Benefit of Limited Liability Partnership (LLP) over a partnership firm

The liability of the partners in a Limited Liability Partnership (LLP) is limited that is only the amount contributed by the partners to the Limited Liability Partnership (LLP). However, in case of partnership there is unlimited liability of the partners wherein personal assets of the partner may be attached by a competent court in order to meet the liabilities.

For more information on Limited Liability Partnership in India please write to us at info@ssrana.com or submit a query.

To know more about incorporation of company in India, Read below

Company Law in India

Company Formation in India

Understanding “Partnership” for the purpose of ‘Partnership Firm’ in India

According to Section 4 of The Indian Partnerships Act, 1932 “Partnership” is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Registration of partnership is not compulsory but registering it gives advantages to the partnership.

Pre-requisites for registration

  • Minimum 2 partners out of which one partner must be an Indian resident
  • The partners must have at least attained the age of 18 years
  • None of the partners should be disqualified under the laws in force to form a partnership firm
  • The proposed name of the partnership firm should not be identical or similar to an existing company/ LLP name/ partnership
  • The proposed name of the partnership firm should not be similar to an existing pending or registered trademark

Registration

A minimum number of partners required for a partnership firm in India are 2 (two). It is registered under the said act by giving details of all the partners as necessary the partners of the firm will be held personally and severally liable for any losses incurred. The Registrar of Firms of the State is the administrative authority for registration of partnership firms in India.

The relationship between the partners as well as the profit and loss sharing ratio is governed by the Partnership deed entered into by the partners of the partnership firm. The partnership deed in India is required to be signed by all the partners before a notary public.

Addition of New Partner: A new partner in a partnership firm in India can be added by way of amendment of existing partnership deed and submission of the relevant form along with the supplementary partnership deed with the Ministry of Corporate Affairs (MCA).

Removal of a Partner: A partner may be removed in India by way of passing a resolution for excluding the partner from the partnership firm and amendment of existing partnership deed to the said effect.

Time frame: The estimated time frame for formation of partnership firm in India is approximately 10-15 days. However, this time frame may vary depending upon the backlog at the office of the Registrar of Firms of the relevant state.

Licenses to operate: A partnership firm is required to obtain respective central, state and municipal licenses/ registrations to operate its desired business in India. However, the nature and the type of licenses/ registrations will vary from business to business.

Dissolving a partnership: A partnership in India may be voluntarily dissolved in accordance with an agreement entered between the partners for the same.

For more information on Registration of Partnership Firm in India please write to us at info@ssrana.com or submit a query.

To know more about incorporation of company in India, Read below

Company Law in India

Company Formation in India

Understanding establishment of Branch Office

A branch office can be established in India subject to approval from the Reserve Bank of India (RBI).
The parent company is required to obtain permission for establishing branch office in India from the Reserve Bank of India (RBI). Apart from registering itself with the Reserve Bank of India the branch office to be established in India shall also required to be registered with the Ministry of Corporate Affairs (MCA). The application to seek approval for establishment of branch office in India from Reserve bank of India (RBI) should be submitted through an Authorised Dealer Category-I bank.

If it is not opened within six months from the date of approval letter, the approval for establishing the office in India shall be cancelled unless a permission is obtained from the concerned Authorised Dealer Category-I bank for extension of time for setting up the office by a further period of six months. If any further extension of time is required for opening the branch office, prior approval of the Reserve Bank of India (RBI) should be obtained in respect of the same.

A branch office established in India is required to have the same name as that of its parent company.

Top of Form

Subject to payment of applicable taxes, the profits earned by the branch offices can be remitted from India in accordance with RBI guidelines.

Activities that can be carried out by a branch office

  • A branch office may be established by foreign manufacturing or trading companies with specific approval of Reserve Bank of India (RBI) to carry out the same activity in which the parent company is engaged which may be the following:
  • Export / Import of goods
  • Rendering professional or consultancy services
  • Carrying out research work, in areas in which the parent company is engaged
  • Promoting technical or financial collaborations between Indian companies and parent or overseas group company
  • Representing the parent company in India and acting as buying / selling agent in India
  • Rendering services in information technology and development of software in India
  • Rendering technical support to the products supplied by parent/group companies
  • Foreign airline / shipping company

Further, it is restricted from entering into the following activities:

  • Retail trading activities of any nature
  • Manufacturing or processing activities in India, directly or indirectly.

Registrations required to provide services

The following additional registrations will have to be obtained in case of willingness to provide services in India

  • Permanent Account Number (PAN)
  • Tax Deduction and Collection Account Number (TAN)
  • Shop & establishments registration
  • GST Registration

Annual Compliances

The following annual compliances are required to be met by the branch office:

  • Maintenance and auditing of books of accounts
  • Filling of Annual Activity Certificate with RBI
  • Filling of Annual Return and Balance sheet with Registrar of Companies

Changing the details of the branch office

An intimation will be required to be given to the Reserve Bank of India as well as the Registrar of Companies in the following circumstances:

  • Any change in constitution of Foreign Company
  • Any change in Directors of Foreign Company to RBI & RO
  • Intimating each and every change in the BRANCH office to RBI & ROC

For more information on Establishment of Branch Office in India, please write to us at info@ssrana.com or submit a query.

To know more about incorporation of company in India, Read below

Company Law in India

Company Formation in India

A foreign entity can establish a liaison office in India if it has a profit-making track record during the immediately preceding three financial years in its home country and net worth of not less than USD 50,000 or its equivalent as per the latest audited balance sheet.

The parent company is required to obtain permission for establishing liaison office in India from the Reserve Bank of India (RBI). The application to seek approval from Reserve bank of India (RBI) should be submitted though an Authorised Dealer Category-I bank. The approval for establishment is granted for an initial period of 3 years.

It is required to have the same name as that of its parent company and is not considered as an entity separate from the parent company. Apart from registering itself with the Reserve Bank of India (RBI), it is also required to be registered with the Ministry of Corporate Affairs (MCA). Yes, a liaison office established in India is required to file Annual Activity Certificate with the Reserve Bank of India.

Activities that can be carried out by a liaison office

A liaison office can undertake the following activities:

  • Act as a channel of communication between the parent company and the parties in India
  • Collecting information
  • Informing parent company about opportunities in the Indian market
  • Providing information about the company and its products to the prospective Indian customers

A liaison office cannot carry out the following activities:

  • Undertake any business activity in India
  • Earn any income in India.

For more information on establishment of Liason Office in India, please write to us at info@ssrana.com or submit a query.

To know more about incorporation of company in India, Read below

Company Law in India

Company Formation in India

Company Incorporation In Singapore

The types of Companies which can be incorporated in Singapore are as follows:

  • Private Limited Company
  • Exempt Private Limited Company
  • Gazetted Private Limited Company
  • Company Limited by Share
  • Company Limited by Guarantee

The government authority which governs company incorporation in Singapore is Accounting and Corporate Regulatory Authority of Singapore.

Requirements For Company Incorporation In Singapore

Following are the pre-requisites to incorporating a company in Singapore

  • Shareholder(s): at least on – Maximum no of shareholders 50 for a private limited company.
  • Paid-up capital: Minimum S$1
  • Local registered address
  • Local resident director: at least one

Any person above the age of 18 years can be appointed as a director of a company. The minimum number of directors required for incorporation a company in Singapore is 1 (one). At least 1 shareholder is required for the purpose of incorporating a private limited company in Singapore. A private limited company in Singapore can have a maximum of 50 shareholders.

Foreign shareholder can act as a director of the Company. A shareholder is not required to be physically present in order to incorporate a company in Singapore. A company can be completely owned by foreign shareholders as long as the requirement of local Singaporean director is adhered to. It is not mandatory for shareholders to be physically present in order to incorporate a company in Singapore.

The proposed name of the company is required to be reserved with Accounting and Corporate Regulatory Authority, Singapore before incorporation of the company. The name reservation once approved remains valid for a period of 120 days and if the requisite documents/ information is not furnished within this period then the proposed name becomes available for public and the name approval is required to be obtained again before incorporating a company.

A license may be required from the relevant government authority to commence business operations in Singapore depending on the nature of the business. For example, restaurant operators, companies involved in financial services etc. are required to be registered with relevant govt. authorities.

Not For Profit Companies in India

The concept of not for profit companies is not new in India. The Companies Act provides for registration of Not for Profit companies in India. Any person or an association of persons intending to incorporate a company with a non-profit making object can register a company. Earlier, since the non-profit companies were governed by the provision of section 25 of Companies Act 1956, they were widely referred to as Section 25 company. After the recent repeal and replacement of the Companies Act, the provisions mentioned in Section 8 of Companies Act 2013 read with provisions of Companies’ Incorporation Rules, 2014 shall apply. Therefore, now the Not for Profit companies registered under section 8 of the Companies Act, 2013 are also referred to as Section 8 companies.

Objectives of Section 8 Company

As per the provisions of the Companies Act, 2013, a Section 8 company may be incorporated with an intent to carry on a business with a charitable objective. It is pertinent to note that the distribution of profits or dividends among its members is per se prohibited and all the profits so generated shall only be used in order to achieve the ultimate objective of the company. A section 8 company may be incorporated with an object to promote;

  • commerce
  • art
  • science
  • sports
  • education
  • research
  • social welfare
  • religion
  • charity
  •  protection of environment
  • any other object

Essentials features of Not for Profit Companies

  • These companies enjoy all the privileges and are subject to all the obligations of limited companies.
  • A Partnership firm may become a member of Not for Profit companies.
  • MOA and AOA of such company once accepted cannot be altered except with the previous approval of the Central Government.
  • A Section 8 company may be converted into company of any other kind.
  • The Central Government if satisfied that it is essential in the public interest, may direct the company to be wound up or amalgamated with another company registered under section 8.
  •  

Procedure for obtaining License of Registration for Section 8 Company

A person or an association of persons desirous of incorporating a not for profit company shall make an application in Form INC 12 along with the prescribed fee to the Registrar of Companies. The application shall be accompanied with the following documents;

  • Memorandum of Association (MOA) and Article of Association (AOA) of the proposed company;
  • A declaration by A Chartered Accountant, Cost Accountant, Company Secretary in practice or an Advocate stating that the MOA and AOA have been drawn up in conformity with the provisions of Section 8 and rules thereof and that all the statutory requirements have been complied therewith;
  • An estimate of the future annual income and expenditure of the company for the next 3 years specifying the sources of income and the objects of the expenditure; and
  • Declaration by each of the person making the application in Form INC 15.

Penalty in case of Non-Compliance with the statutory laws

  • In case of contravention of any provisions of the Companies Act, Central Government may by order, after giving the company a reasonable opportunity of being heard, revoke the license granted to a company.
  • In case a company makes any default in complying with any of the requirements laid down in Section 8 of the Companies Act 2013, the company shall be punishable with fine which shall not be less than ten lakh rupees but which may extend to one crore rupees. The directors and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than twenty-five thousand rupees but which may extend to twenty-five lakh rupees, or with both.

Procedure for Conversion Of A Company To A Not For Profit (Section 8) Company

Like other jurisdictions of the world, the Indian Companies Act 2013 read with its Companies (Incorporation) Rules, 2014 (hereinafter referred to as “Act”) contains provisions for conversion of a Limited Company (Private/Public) into a Not for Profit (Section 8) Company. To undertake the process of conversion of a Limited Company (Private/Public), following procedures shall entail – 

Step 1 – Application to the Registrar

  • A limited company registered in India which is desirous of being registered as Section 8 company shall make an application in the prescribed form to the Registrar.
  • The application shall be accompanied by the following documents;
  • The memorandum and articles of association of the company;
  •  Declaration by a Professional, that the memorandum and articles of association have been drawn up in conformity with the provisions of section 8 and rules made thereunder and that all the requirements of the Act and the rules made thereunder have been complied with;
  • Financial Statement, the Boards’ Reports and Auditors’ Report for each of the last 2 financial years;
  • A statement showing in detail the assets and the liabilities of the Company as on the date of application or within 30 days preceding that date;
  • An estimate of the future annual income and expenditure of the company for next three years, specifying the sources of the income and the objects of the expenditure;
  • Certified copy of the resolutions passed in general/ board meetings approving registration of the company as section 8 Company;
  • Declaration by each person making the application in the prescribed form.

Step 2 – Compliance after filing the Application with the Registrar

  • Within a week from the date of filing the application with the Registrar, Company shall in the prescribed form publish a Public Notice in;
  • A vernacular newspaper in the principal vernacular language of the district in which the registered office of the proposed company is to be situated or is situated;
  • English newspaper;
  • On the websites, as may be notified by the Central Government.

The Registrar shall, after considering the objections, if any, received by it within thirty days from the date of publication of notice, and after consulting any authority, regulatory body, Department or Ministry of the Central Government or the State Government(s), as it may, in its discretion, decide whether the license should or should not be granted.

Non for Profit Companies- Revocation of License

Revocation of License- Under Section 8(6) of the Companies Act, 2013 the Central Government has the power to revoke the licence granted to a company registered as Non-profit company , after giving the company a reasonable opportunity of being heard.

Non- Profit Company in India- Incorporation and Procedure

Grounds on which License can be revoked

If a non- profit company violates or contravenes any of the requirements of Section 8 of the Companies Act, 2013 or any of the conditions subject to which a licence is issued or the affairs of the company are conducted:

  • fraudulently, or
  • in a manner violative of the objectives of the company, or
  • prejudicial to public interest

Then the Central Government may direct the company to convert its status and change its name to add the word “Limited” or the words “Private Limited”, as the case may be.

On revocation, if the Central Government deems it fit in public interest, then the Government can direct the company to wind up under provisions of the Companies Act, 2013 or be amalgamated with another company registered under Section 8 and having similar objects.

Penalty for contravention of Provisions- Section 8

The following penalties will be imposed if a company makes any default in complying with any of the provisions laid down under section 8:

NOT FOR PROFIT – Section 8
  For CompanyFine not less than INR 10,00,000 but may extend to INR 1,00,00,000.
  For each director and officer of the CompanyImprisonment for a term which may extend to three years or with fine not less than INR 25,000 but may extend to INR 25,00,000, or with both.  

For more information on Not For Profit Companies in India, please write to us at info@ssrana.com or submit a query.

To know more about incorporation of company in India, Read below

Company Law in India

Company Formation in India

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