Making company registration easy

The government introduced a new registration form INC-29 - which combined seven different forms into one - on May 1 this year as part of its effort to ease the process of "starting a business". Professionals who assist entrepreneurs to register companies - advocates, chartered accountants, cost accountants and company secretaries - feel this move will bring down the time taken to register a company from around 30 days to seven. However, experts say there is scope for further streamlining the process and reducing instances of manual interventions.

"Form INC-29 has been a game changer in terms of company incorporation," says Lionel Charles, founder, indiafilings.com. His firm now registers companies in less than a week - a process that used to take 20-30 days - he claims.

What has changed?

Earlier, the procedure started from getting a digital signature, and ended up with getting a commencement certificate for doing business. In between, the entrepreneur had to fill up different forms, such as DIR-3, INC-1, INC-7, DIR-12, INC-8, INC-9, INC-10 and INC-22, each serving a specific purpose (WHEN STARTING A BUSINESS).

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The INC29 form has clubbed all this forms into one, other than INC-22. Now after getting digital signature, an entrepreneur needs to just fill up INC29 in order to register the company. INC-22 - which is for notifying the address of the registered office - can be submitted within 30 days of incorporation.

Experts point out that with a single form, it should not take more than 3-4 days to register a company. "But that is not the case," says Agam Gupta, co-founder, quickcompany.in.

So what is the problem?

Ideally, entrepreneurs should get Director Identification Number (DIN), Permanent Account Number(PAN) and tax-deduction account number (TAN) delivered at their doorstep after filling up INC-29. But company professionals still fill up DIR-3 (for DIN) separately. Even now, a separate application form is registered on nsdl.com - for the company's PAN card. "These three functions are yet to be integrated in INC-29," says Hrishikesh Datar, chief executive, Vakilsearch.com.

Experts say an entrepreneur does not get any acknowledgment receipt after filling up its details in INC29 for PAN card. Without an acknowledgement receipt for PAN application, it is not possible to open a bank account in the company's name. Gupta says they prefer to take the nsdl.com route to get the company's PAN card. There are instances where an entrepreneur who has not applied separately for PAN, has had to wait for a month to receive it. Another big issue which delays the whole registration process is that Registrar of Companies (ROC) frequently asks for a resubmission of documents while rejecting the name proposed by the entrepreneur for his company.

According to Gupta around 50 per cent of the cases he files in a month receive such a name re-submission request. Datar, too, agrees that 75 per cent of the cases for re-submission occur because of name rejection. "It can be very arbitrary. There are times when we are not told the reason for name rejection," says Datar.

Earlier, when there was a separate form for name approval, a company professional was allowed to add six names in order of his preference. In INC-29, only one name could be given for ROC approval.

Such manual interventions in cases of re-submission could easily take additional eight to 10 days for companies to register Not all ROCs have begun accepting INC-29. "The RoCs in Andhra Pradesh and Karnataka are, for example, continuing with the old process, claiming they haven't received official notification," says Datar.

Experts point out that getting a digital signature - the first step for starting a business - has been made unnecessarily complicated. Earlier, self-attested photo identity proof and address proof were sufficient to get a digital signature, the government has now asked entrepreneurs to get these proofs attested by a banker, gazetted officer or a post master.

The way forward

While the government has set the target of appearing among the Top 30 countries for ease of doing business by 2017, India still fares poorly when it comes to "starting of business", going by World Bank's recent reports. For instance, it takes 4.5 days in Liberia - ranked 30 last year by World Bank - to start a business.

The government's efforts to ease the process of company registration may be in the right direction, but there is still some way to go when it comes to experiences on the ground.

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DIRECTORS UNDER COMPANIES ACT- 2013

v  RESIDENT DIRECTOR:

As per Section 149 sub section 3 of Companies Act 2013, Board of Directors of a company, must have at least one resident director i.e. (A person who has lived at least 182 days in India in the previous calendar year)

As per General Circular No. 25/2014 The residence requirement would be reckoned from the date of commencement of section 149 of the Act i.e. 1^st April, 2014, The first previous calendar year, for compliance with these provisions would, therefore, be Calendar year 2014. The period to be taken into account for compliance with these provisions will be the remaining period of calendar year 2014 i.e. 1^st April to 31^st December).

Ø  Therefore, on a proportionate basis, the number of days for which the director(s) would need to be resident in India. During Calendar year.2014, shall exceed 136 days.

Ø  Regarding Newly Incorporated Companies it is clarified that companies incorporated between 01.04.2014 to 30.09.2014 should have a resident director either at the time of incorporation OR within six months of their incorporation.

Ø  Companies incorporated after 30.9.2014 need to have the resident director from the date of incorporation itself.

v  Women Director:

As per Section 149 (1) (a) second proviso requires certain categories of companies to have At Least One Woman director on the board. Such companies are any listed company, and any public company having-

1.  Paid Up Capital of Rs. 100 cr. or more, or

2.  Turnover of Rs. 300 cr. or more.

v  Independent Director:

Independent Director is for the first time introduced in the Companies Act, 2013 under section 149(6)

(I have written article on ID Series- 6 if you want

Mail me at csdiveshgoyal@gmail.com . . . . . . .)

v   Additional Directors: 

Any Individual can be appointed as Additional Directors by a company under section 161 of the New Act.

(Complete Process Of Appointment Of Additional Director Along With Draft Will Be Given In ARTICLE SERIES NO- 32.)

v   Nominee Director:

As per Section 161(3). Subject to AOA of company, the Board May appoint any person as a director nominated by any institution in pursuance of the provisions of any law for the time being in force or of any agreement or by the Central Government or the State Government by virtue of its shareholding in a Government company.( According to term: Subject to AOA of company mean there should be provisions in Articles of Association of Company for appointment of Nominee Director, if there is no provision in Articles of company then alter the provision in AOA).

v    Alternate Directors:

As per Section 161(2) A company May appoint, if the articles confer such power on company or a resolution is passed (if an Director is absent from India for at least three months). 

ü  An alternate Director cannot hold the office longer than the term of the Director in whose place he has been appointed.

ü  Additionally, he will have to vacate the office, if and when the original Director returns to India.

ü  Any alteration in the term of office made during the absence of the original Director will apply to the original Director and not to the Alternate Director.

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Section 168, the Companies Act, 2013: Resignation of directors

Section 168, the Companies Act, 2013: Resignation of directors Corresponding sections of the Companies Act, 1956: None this is a newly introduced section.  

DIRECTORS RESIGNATION UNDER COMPANIES ACT, 2013:-

1. The Director intending to resign shall send notice in writing to the Company. The resignation of a director shall take effect from:

ü The date on which the Notice Is Received by the company or

ü The Date, If Any, Specified by the Director in the notice, whichever is later.

2. The director who has resigned shall be liable even after his resignation for the offences which occurred during his tenure.

3. The law has caste duty upon the Director Resigning, to File Form DIR- 11 (Company shall file form DIR 12) and

üMention therein the Reason for Resigning.

üEnclose the copy of Notice sent to the Company.

üEnclose Proof Of Dispatch.

üFile the said form within 30 days of resignation along with the prescribed filing fees.

There is warning note at the end of the form which states as follows:

Note: Attention is also drawn to provisions of Section 448 and 449 which provide for punishment for false statement and punishment for false evidence respectively. These sections 448 and 449 relate to punishment for committing fraud or giving false evidence and these are non-compoundable offences.

Duty of Company in case of Resignation by Director As per section 168 (1):

A director may resign from his office by giving a notice in writing to the company and the Board. The company shall on receipt of such notice;

ü  Take note of the same by passing a board resolution to that effect and

ü  As per Rule 15 of Companies (Appointment and Qualification of Directors) Rules, 2014 the company shall intimate the Registrar through Filing Of Form Dir.12 Within 30 Days From The Effective Date of Resignation on its website, if any.

ü  Company is also required to Place the Fact of Such Resignation in the Report of Directors laid in the immediately following general meeting by the company.

Duty of Resigning Director in case of Resignation:

A director shall also forward a Copy of his Resignation Along With Detailed Reasons for the resignation to the Registrar within 30 (Thirty) days of resignation through filing of Form DIR.11 under his Digital Signature. It means it will be mandatory for all directors to have Digital Signature under Companies Act-2013.

Effective date of Resignation:

As per section 168 (2), the resignation of a director shall take effect from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, Whichever Is Later.  

SECRETARIAL PRACTICE:

As discussed above E-forms to be filed in case Resignation of Director are form DIR.11 and DIR.12.

ü  Filing of Form DIR.11 is the responsibility of resigning director under his/her digital signature and

ü  Whereas Filing of Form DIR.12 is the responsibility of Company.

Where all the directors of a company resign from their offices, or vacate their offices under section 167, the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in general meeting.

THINGS TO BE MENTIONED IN THE E-FORM DIR – 11: 

ü  Enter the date of appointment of resigning director in the company.

ü  In case of an alternate director, enter the DIN of the director to whom the appointee is alternate and click Pre-fill button. System will automatically display the name of the director to whom the appointee is alternate.

ü  Enter the date of filing of resignation with the company and also effective date of resignation specified in the notice.

ü  The resignation of a director shall take effect from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later. And the same effective date is required to be mentioned above.

ü  The effective date of resignation shall be same as the date of cessation entered in eForm DIR-12 if already filed by the company.

ü  It is mandatory to specify the reasons for resignation from the company. 

Attachments: The following attachments are mandatory:

ü  Notice of resignation filed with the company.

ü  Proof of dispatch-{Attachment section of form DIR-11, asks for proof of dispatch. Now the question is --- Is there any requirement of formal dispatch through post which generates proof of dispatch? My Answer is “NO”.   We can very well use scan copy of “Receiving” of resignation letter given by responsible official of the company in case of personal delivery. Further scan copy of printout of E-mail through which resignation tendered would be enough as proof of dispatch}.

ü  Acknowledgement received from company, if any and is mandatory if yes selected in option at serial no 6. {Point no. 6 in form DIR-11 inquires whether confirmation is received from the company w.r.t. the resignation of Director. As per my understanding if we mention “NO” in the E-form, there will be no issue in future as confirmation of resignation from company is not mandatory u/s 168.  

ü  When a director files eForm DIR-11 for intimating about his resignation before the company files eForm DIR-12, an email will be sent to the company for filing the eForm DIR-12 and the status of the Director in the company will be changed to ‘Resigned’ against the selected designation. Once the company files the relevant eForm DIR-12, the status shall be changed as per the existing system.

We can use Board Resolution for taking note of resignation or Resignation acceptance Letter by the Company as Evidence of Cessation. Further Resignation Letter given by the Director shall act as Notice of Resignation filed with the Company. I sincerely believe that above article would be of some help for understanding.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES is a Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com) Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Though utmost efforts has made to provide authentic information, it is suggested that to have better understanding kindly cross-check the relevant sections, rules under the Companies Act, 2013. The observations of the author are personal view and the authors do not take responsibility of the same and this cannot be quoted before any authority without the written

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PROVISIONS FOR OBJECT CLAUSE UNDER COMPANIES ACT - 1956

1.     PROVISIONS FOR OBJECT CLAUSE UNDER COMPANIES ACT - 1956

As per Section 13 of the Companies Act, 1956 the Object Clause of a company shall be divided into three categories:—

1.    (i) Main Objects;

     (ii) Objects incidental or ancillary to the attainment of the main objects; and

2.         Other objects.

           A Company can carry on the business mentioned in the Main Object Clause and Incidental object clause in general course of business. There is no need to pass any Board Resolution and General Meeting resolution. HOWEVER;

      If a Company want to carry on business mentioned in Other object of Company then; As per provisions of sub section 2A of Section 149 of Companies Act, 1956:-

   A.   An existing PUBLIC LIMITED COMPANY which proposes to take up a new business, which is covered in the "other objects" of the Memorandum, can do so only after the proposal is approved by the members by a special resolution.

PROCEDURE FOR STARTING NEW BUSINESS ACTIVITIES COVERED UNDER THE OTHER OBJECT CLAUSES For the purpose of obtaining approval by way of special resolution the following steps have to be taken by the company:—

(i)  Hold a Board meeting to consider and approving the proposal for carrying specified business activities being mentioned in “Other Objects”.

 (ii) The Board shall also fix the date, time and place for holding a general meeting, approve the notice of the general meeting and explanatory statement and authorize to any director or secretary for issuance of notice to the members as per the requirement of the Act.

(iii) The proposal to start the new business will have to be approved by the members by way of a Special Resolution.

·         Where the special resolution could not be passed at the general meeting, the company is required to be approved the proposal by passing an ordinary resolution and shall require to make an application to the Central Government requesting for according permission to the commencement of new business.

·         In the absence of any Form for such purposes, the company may apply on simple paper stating with full ground and justification along with the fees. After receipt of the approval of the Government, the company is required to file the declaration in e-Form 20A with ROC

 (iv) File e-Form 23 as desired by section 192 with the certified copy of the special resolution with explanatory statement.

(v) File a declaration in e-Form 20A electronically and a stamped copy be submitted simultaneously to the Registrar of Companies on the stamp paper to the effect that the provisions of section 149(2A) sub-clause (i) have been complied with.

B.   **An existing PRIVATE LIMITED COMPANY which proposes to take up a new business, which is covered in the "other objects" of the Memorandum, can do so only after PASSING OF BOARD RESOLUTION in the Board meeting of Company. Because section 149 of Companies Act, 1956 does not apply on Private Limited Company.

As per above discussion:

A Public Limited Company after passing the Special Resolution can carry on the business mentioned in the Other Objects Clause of MOA without addition of Object in the Main Objects Clause of the MOA.

A Private Limited Company after passing of Board Resolution can carry on the business mentioned in the Other Objects Clause of MOA without addition of Object in Main Objects Clause of the MOA.

2.     PROVISIONS FOR OBJECT CLAUSE UNDER COMPANIES ACT – 2013:-

As per Section 4 of the Companies Act, 2013 the Object Clause of a company shall be divided into two categories:—

     1.   Main Objects;

     2.   Objects  considered necessary in furtherance of the main objects; and

There is nothing like “Other Object Clause” in Companies Act, 2013. At present companies can only have above given two types of Objects. One for which company will incorporate and second one are for attaining the main objects.

Sample of objects clause in the MOA under Companies Act, 2013:

III. The objects for which the Company is established are :- 

(A) THE OBJECTS TO BE PURSUED BY THE COMPANY ON ITS INCORPORATION  ARE:-

1.  ------------

 (B)    MATTERS WHICH ARE NECESSARY FOR FURTHERANCE OF THE OBJECTS SPECIFIED IN CLAUSE III (A) ARE:-

For Format of Memorandum of Companies As per Companies Act 2013 mail me at csdiveshgoyal@gmail.com . . . . . . . . . . .. . . .

As per Section 6 of the Companies Act, 2013: Save as otherwise expressly provided in this Act—

(b) any provision contained in the memorandum, articles, agreement or resolution

shall, to the extent to which it is repugnant to the provisions of this Act, become or be void, as the case may be.

Meaning of Repugnant: - Logic Contradictory; inconsistent or incompatible

Therefore, if we read Sectoin-4 along with Section 6 of Companies Act, 2013;

As per Section4 of Companies Act, 2013, there are no provisions of “Other Object Clause” in Memorandum of Company.

As per Section 6 any provision contained in the memorandum to the extent to which it is repugnant to the provisions of this Act, become or be void.

Conclusion: Other Object Clause mentioned in the Memorandum of Association of Company Incorporated under Companies Act, 1956 is repugnant to the provision of Memorandum of Association of Created under Companies Act, 2013. Therefore as per my understanding at present Other object is not in existence even mentioned in the Memorandum of Association of the Company.

Question: If an Existing Company (Company Incorporated before 31^st March, 2014) carrying any business as given in Other Object clause of company as per provisions of Companies Act, 1956 then how can it continue with that object in present situation?

3.     ACTION TO BE TAKEN BY COMPANIES UNDER COMPANIES ACT- 2013:-

Main Object of Memorandum of Association of the Company to be amended to ADD:

    A.   All the business is carried on by company, being adopted from Other Object of MOA.

    B.   Objects to be purposed to be carried in Future.

   A.   To Add Activity of Other Object clause into Main Object clause of company:

To continue with the Activities mentioned under Other Object Clause of Company at present, there is need to follow procedure as per Section- 13 of Companies Act, 2013 to alter the Memorandum of Association of company by ADDITION of other objects into Main objects of company. 

  B.   if Company planning to start new business along with present business in coming future, then company can follow procedure as per Section- 13 of Companies Act, 2013 to alter the Memorandum of Association of company by ADDITION of new objects into Main objects of company. 

Example:

    1.   If a Company have Main Object of Trading of garments and company planning to start business of dealing in paper product along with trading of garments for growth and any other purpose, than company can make ADDITION of objects of dealing in paper along with trading of garments, by following procedure of Section 13 of Companies Act, 2013.

  For Procedure of Alteration in Object Clause of Memorandum As per Companies Act 2013 mail me at csdiveshgoyal@gmail.com . . . . . . . . . . .. . . .

    If a Company going to Alter Main Object Clause of Memorandum of Association as per given above.       Company should do following things also:

   C.   To amend the title of incidental object Clause of the Memorandum Of Association:

   Ø  Clause III (B) of the objects that are incidental or ancillary to the attainment of the main objects of the Memorandum of Association be and hereby replaced with the title “MATTERS WHICH ARE NECESSARY FOR FURTHERANCE OF THE OBJECTS SPECIFIED IN CLAUSE III (A) ARE:-“

    D.   Deletion of the other objects clause of the Memorandum Of Association:

Pursuant to the provisions of Section 4, 13 and all other applicable provisions, if any, of the Companies Act, 2013, (including any amendment thereto or re-enactment thereof), and subject to necessary approval(s) if any, from the competent authorities, the Other Objects Clause of the Memorandum of Association of the Company be removed by completely deleting the clause III (C ).

    E.   Amendment of the liability clause of the Memorandum Of Association:

IV. “The liability of members is limited and this liability is limited to the amount unpaid on shares held by them.”

     ADVISABLE: If a Company going to Alter Memorandum of Association then it is advisable to adopt      new sets of Article of Association also under Companies Act, 2013.

    F.   ADOPTION OF NEW SET OF ARTICLES OF ASSOCIATION

Pursuant to the provisions of Section 14 and other applicable provisions, if any, of the Companies Act, 2013, (including any amendment thereto or re-enactment thereof), the Articles of Association of the Company should be altered hereby replacing all the existing regulations with the new regulations.

For Format of Article of Association of Companies As per Companies Act 2013 mail me at csdiveshgoyal@gmail.com . . . . . . . . . . .. . . .

To be continued. . . . . . .

       

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES is a Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com) Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Though utmost efforts has made to provide authentic information, it is suggested that to have better understanding kindly cross-check the relevant sections, rules under the Companies Act, 2013. The observations of the author are personal view and the authors do not take responsibility of the same and this cannot be quoted before any authority without the writte

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