CS EXECUTIVE CS DHEERAJ TYAGI

Nidhi shall not appoint or re-appoint an individual as auditor for more than one term of five
consecutive years and Nidhi shall not appoint or re-appoint an audit firm as auditor for more
than two terms of five consecutive years.

Filing of half yearly return

As per Rule 21 of the Nidhi Rules, 2014, every Nidhi company required file half yearly return
with the Registrar in Form NDH-3 within thirty days from the conclusion of each half year duly
certified by a company secretary in practice.

NON- PROFIT MAKING ORGANIZATION OR SECTION – 8 COMPANY

(a) CG may grant a license u/s 8, if a company with limited liability is

License to proposed to be incorporated satisfying all the conditions specified u/s
whom? 8.
(b) CG may grant a license u/s 8, if a company, after incorporation under
the Companies Act, 1956 complies with all the conditions specified u/s
8.
(a) The objects of the company are to promote commerce, art, science,
religion, charity or any other useful object.
Condition for Key :-SAARCC
obtaining (b) The company shall apply its income in promoting the objects of the
license u/s 8 company.
(c) The company shall prohibit payment of dividend to its members.
Effects of A company license u/s 8 is not required to use the word(s) ‘Limited’ or
license ‘private’ Limited’ at the end of its name.

Alteration of Alteration of objects clause of memorandum require approval of

objects shareholder as Special resolution for alteration of object.
Privileges of a  A firm may become a member of a license company
licensed  However, on dissolution of the firm, it shall cease to be member
company of the company.
Grounds for (a) Alteration of objects – without obtaining
Revocation the previous approval of CG; or
Revocation of (b) Violation of any terms and conditions
license by CG subject to which the license u/s 8 was
issued.
Conditions for Opportunity of being heard – shall be given to
revocation the company.

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Effects of revocation (a) ‘Limited’ / Private Limited’-inserted at the

end of name.
(b) Exemptions by CG—Cease to be available.

Rule 21:- Conditions for conversation of a company registered under section 8 into company
of any other kind
(1) A Company registered under section 8 which intends to convert itself into a company of any
other kind shall pass a special resolution at a general meeting for approving such
conversion.

Rule 23:- Intimation to Registrar of revocation of license issued under section 8

Where the license granted to a company registered under section 8 has been revoked the
company shall apply to the Registrar in Form No.INC.20 along with the fee to convert as status
and change of name accordingly.

SMALL COMPANY SEC.2 (85)

Small company means a company other than public company,

 Paid-up share capital of which does not exceed Rs. 50 lac or such higher amount as may
be prescribed which shall not be more than Rs.5 crore. “AND”
 Turnover of which does not exceed Rs. 2 crore or such higher amount as may be
prescribed which shall not be more than Rs. 20 crore.

Note:-Small company is new form of private company under companies act, 2013
Privileges of a Small Company

Section Nature of exemptions/privileges

2(40) The financial statement, with respect to Small Company may not include
the cash flow statement
121(1) Need not prepare a report on Annual General Meeting
149(1) Small company need not have more than two directors in its Board.
149(4) Need not appoint Independent directors on its Board

ONE PERSON COMPANY SEC.2 (62)

OPC is private company in which there is only 1 member.

OPC shall have a minimum of one director.
Read rule- 3,5,6,7 of Companies(incorporation)rules,2014 in companies rule, 2014. For OPC
RULE-3

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(1) Only a natural person who is an Indian citizen and resident in India:-
(a) Shall be eligible to incorporate a one Person Company:
(b) Shall be a nominee for the sole member of a one Person Company.

 “Resident in india” means a person who has stayed in India for a period of not
less than 180 days during immediately preceding calendar year.

(2) No person shall be eligible to incorporate more than a One Person Company or become
nominee in more than one such company.
(3) No minor shall become member or nominee of the One Person Company or hold-share
with beneficial interest.
(4) Such company cannot be incorporated or converted into a (NPO) under Section 8 of the
act.
(5) Such company cannot carry out Non-Banking Financial Investment activities including
investment in securities of anybody corporate.
(6) No such company can convert voluntarily into any kind of company unless two years
have expired from the date of the incorporation One Person Company, expect threshold
limit (paid up share capital) is increases beyond fifty lakh rupees or its average annual
turnover during the relevant period exceeds two crore rupees.

RULE-5 Penalty

1. If one Person company or any officer of such company contravenes the provisions of
these rules. One Person Company or any officer of the One Person Company shall be
punishable with fine which may extend to ten thousand rupees and with a further
fine which may extend to one thousand rupees for every day.

Note:-As per section 152 (1), in case of a One Person Company an individual being its member
shall be deemed to be its first director until a director or directors are duly appointed by the
member in accordance with the provisions of that section.

Privileges of a One Person Company

The privileges enjoyed by an OPC over other companies are as follows:

Section Nature of Privileges

2(40) The financial statement, with respect to One Person Company, may
not include the cash flow statement;

67(2) Financial assistance can be taken by the member from the OPC for

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purchase of or subscribing to its own shares

92(1) The annual return shall be signed by the company secretary, or where
there is no company secretary, by the director of the company. In other
words it need not be signed by a company secretary in practice.
96(1) Need not hold annual general meeting

121(1) Need not prepare a report on Annual General Meeting

134(1) Financial statement and Board’s report can be signed only by one director
149(1) One person company need not to have more than one director on its
Board.
149(4) Need not to appoint Independent directors on its Board

Difference between a Sole Proprietorship and an OPC

The fundamental difference between a sole proprietorship and an OPC is the way liability is
treated in the latter.
A one-person company is different from a sole proprietorship because it is a separate legal
entity that distinguishes between the promoter and the company.

The promoter’s liability is limited in an OPC in the event of a default or legal issues. On the
other hand, in sole proprietorships, the liability is not restricted and extends to the individual
and his or her entire assets.

PROVISIONS OF COMPANIES ACT 2013 RELATING TO DORMANT COMPANIES

MEANING OF DORMANT COMPANY

Section 455(1) of the Act defines that when a company is formed and registered under this act
for
 a future project or
 to hold an asset or intellectual property
 and has no significant accounting transaction,

such a company or an inactive company may make an application to the Registrar in such
manner as may be prescribed in form no. MSC. 1

a) Meaning of inactive company - means a company which has not been

 carrying on any business or operation , or
 has not made any significant accounting transaction during the last two financial
years, or

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 has not filed financial statements and annual returns during the last two financial
years
b) Significant Accounting Transaction -means any transaction other than
(i) Payment of fees by a company to the Registrar;
(ii) Payment made by it to fulfill the requirements of this Act
(iii) Allotment of shares to fulfill the requirements of this Act;
(iv) Payments for maintenance of its office and records

Section and Nature of exemptions/privileges

 Sec 2(40) The financial statement, with respect to a dormant company, may not include
the cash flow statement;
 Sec 173 (5) It is required to hold at least one meeting of the Board of Directors in each
half of a calendar year and the gap between the two meetings should not be less than
ninety days.

STATUTORY CORPORATIONS

 A Company formed under an Act of Parliament or State Legislature is called a Statutory

Company/ Corporation.
 Change in its structure is possible only by a legislative amendment.
 Such companies do not use the word “limited” as part of their names, e.g., Reserve Bank
of India, LIC, etc.
Principal Characteristics of Statutory Corporations

 It is owned by the State.

 It is created by a special law of Parliament or State Legislature defining its objects,
powers and Privileges.

 Immunity from Parliamentary Scrutiny: A basic and fundamental characteristic of a

statutory corporation is its immunity from Parliamentary enquiry into its day-to-day
working, as distinct from matters of policy.
 Freedom in regard to personnel: Another distinguishing characteristic of a public
corporation is that excluding the officers taken from the Government department on
deputation.
 A body corporate: Each statutory corporation is a body corporate and can sue and be
sued, enter into contracts and acquire property in its own name.
 Distinct relation with the Government: The most important provision which regulate the
relationship of public corporation and Government is the latter’s power to issue
directions.

Q. WHETHER CORPORATIONS ARE “STATE”?

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The Courts in India until Raman Dayaram Shetty v. International Airport Authority, considered
the statutory character of the corporation as a definitive criterion to identify it with “STATE”
within the meaning of Article 12 of the Constitution of India.

Some of the test which will identify corporation as a ‘’STATE’’ are given below:-

 The source of the share capital,

 The extent of state control over the corporation,
 Whether the corporation has monopoly status,
 Whether functions of the corporation are of public importance and closely related to
Governmental functions, and
 Whether what belonged to a department of government formerly was transferred to
the corporation.
Neither of these is a conclusive test, nor is an exhaustive list of operational indices.

PRACTICE QUESTION AND ANSWER

Q1.“A body corporate cannot be a member of a company which is its holding company and
any allotment or transfer of shares in a company to its subsidiary shall be void.”
Explain the statement and comment on the exception to the said general clause.
(4 marks)
Answer:
Subsidiary company not to hold shares in its holding company [section 19]: subsidiary company
shall not either by itself or through its nominees hold shares in its holding company and no
holding company shall allot or transfer its shares to any of its subsidiary companies and any
such allotment or transfer of shares of a company to its subsidiary company shall be void.
Therefore, no company shall hold any interest in its holding company.
Exceptions: in following circumstances, a subsidiary can hold the shares of its holding company:
(a) Where the subsidiary company holds such shares as the legal representative of a
deceased member of the holding company.
(b) Where the subsidiary company holds such shares as a trustee.
(c) Where the subsidiary company is a shareholder even before it became a subsidiary
company of the holding company
(d) However, the subsidiary company referred above shall have voting right only in respect
of the shares held by it as a legal representative or as a trustee.

Q2. To consider a body corporate as a foreign company, a place of business in India is to be

established. State the activities that do not constitute carrying of business in India. (4 marks)
Answer:
Foreign company means a company which is incorporated outside India under the law of that
other country and has a place of business in India.
The following activities are held as not constituting “carrying on of business”:

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(a) Carrying small transactions

(b) Conducting meetings of shareholders or even directors
(c) Operating bank accounts
(d) Transferring of shares or other securities
(e) Operating through independent contractors
(f) Procuring orders
(g) Creating or financing of debts, charges, etc. on property
(h) Securing or collecting debts or enforcing claims to property of any kind.

Q3. Grow more ltd. is a government company in which the central government and many
state governments in India are members. The company has recently convened its annual
general meeting at its registered office. Does the legislature have any access to the annual
reports of such a company? Give your advice. (4 marks)
Answer:
As per sections 394 & 395, in case of government companies, the central government must
place before both the houses of parliament an annual general meeting together with a copy of
the audit report and any comments upon or supplement to such report made by the
comptroller and auditor general of India. Where a state government is a member of a
government company, the annual report is likewise to be placed before the state legislature.

Q4. Mahesh is a creditor of an unlimited company. The company was wound-up. Mahesh,
therefore, wants to sue the members of the company to recover the dues. Advise Mahesh
regarding the remedy available to him. (4 marks)
Answer:
Unlimited company [section 2(92)]: unlimited company means a company not having any limit
on the liability of its members. Thus, the maximum liability of the member of such a company,
in the event of its being wound up, might stretch up to the full extent of their assets to meet
the obligations of the company by contributing to its assets.
The members of an unlimited company are not liable directly to the creditors of the company.
The liability of the members is only towards the company and in the event of its being wound
up only the liquidator can ask the members to contribute to the assets of the company which
will be used in the discharge of the debts of the company.
Thus, Mahesh cannot directly sue the members of the company for recovery of his dues. He can
file a claim to the liquidator of the company.

Q5. Masons Pvt. Ltd. is a private limited company as per the article of association of the
company. However, a public company acquired shares in masons Pvt. Ltd. thereby making the
masons Pvt. Ltd., a subsidiary of that public company. State the impact of such acquisition of
shares by the public company on masons Pvt. Ltd. (4 marks)
Answer:
As per section 3(1)(iv), a company which is a subsidiary of a company, not being a private
company, shall be deemed to be public company even where such subsidiary company

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continues to be a private company in its articles. This means, if private company is subsidiary of
public company then it will be treated as public company.
Thus, if a public company acquires shares in masons Pvt. Ltd making it subsidiary of that public
company, the masons Pvt. Ltd. will be treated as public company under the companies act,
2013 even though masons Pvt. Ltd continues to be a private company in its articles.

Q6. ABC Ltd. is a company incorporated under the companies act, 2013. The paid-up share
capital of the company is held as under:
- Government of India 20%
- Government of Andhra Pradesh 20%
- Government of Tamil Nadu 10%
- Government of Maharashtra 10%

Explaining the provisions of the companies act, 2013, state whether the said company be
called a ‘government company’ and also state whether the employees of a government
company can claim their salaries from the government of India. (4 marks)
Answer:
As per section 2(45), government company means any company in which not less than 51% of
the paid-up share capital is held by the central government, or by and state government or
governments, or partly by the central government and partly by one or more state
governments and includes a company which is a subsidiary company of such a government
company.
As per the facts given in case, more than 51% capital is held in ABC ltd. by the central
government and state government; hence it is a government company.
Claiming of salary by the government employee from the government : employees of
government companies are not government servants, they have no legal right to claim that the
government should pay their salary or that the additional expenditure incurred on account of
revision of their pay scales should be met by the government. It is the responsibility of the
company to pay them the salaries.

Q7. Referring to the provisions of the companies act, 2013, state as to when shall a company
incorporated outside India be considered as a ‘foreign company’ within the meaning of the
companies act, 2103. Also examining the provisions of the act, state whether in the following
cases, the company shall be considered as a ‘foreign company’: (4 marks)
(i) A company incorporated outside India has a representative in India, who on behalf of
the company merely receives orders from the customers.
(j) A company incorporated outside India holds its board meetings and general meetings
in India.

Answer:
As per section 2(42), foreign company means any company or body corporate incorporated
outside India which-

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(a) Has a place of business in India whether by itself or through an agent, physically or
through electronic mode and
(b) Conducts any business activity in India in any other manner.

In simple words, foreign company means a company which is incorporated outside India under
the law of that other country and has a place of business in India. A foreign company has to
comply the provision of sections 379 to 393 of the companies act, 2013.
If a representative of a foreign company in India merely receives the orders from customers it
cannot be said that it has ‘place of business’ in India. Hence, sections 379 to 393 of the
companies act, 2013 relating to foreign companies are not applicable and need not be
complied.
Similarly, conducting board meeting and general meeting in India by a foreign company has
held to be not “carrying on of business”.

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MEMORANDUM OF ASSOCIATION AND

ARTICLES OF ASSOCIATION

MEMORANDUM OF ASSOCIATION

The memorandum of association is a document which sets out the constitution of a company it
defines the scope of the company’s activities and its relations with the outside world.

According to Section 2(56) of the Companies Act, 2013 “memorandum” means the
memorandum of association of a company as originally framed and altered from time to time in
pursuance of any previous company law or this Act.

FORM OF MEMORANDUM OF ASSOCIATION

Section 4(6) of the Companies Act, 2013 Provides that the memorandum of Association should
be in any one of the forms specified in tables A,B,C,D, or E of schedule I to the Act.

CONTENTS OF MEMORANDUM

The above clause are compulsory and are designated as designated as “conditions” prescribed
by the Act, on the basis of which a company is incorporated.

NAME CLAUSE

A Company being a legal entity must have a name of its own to establish its separate identity.
The name of the company is a symbol of its independent corporate existence. The company
may adopt any suitable name provided it is not undesirable.

According to section 4(2), the name stated in the memorandum shall not—
 Be identical with or resemble too nearly to the name of an existing company registered
under this Act.
 Be such that its use by the company:-
 Is undesirable in the opinion of the Central Government.

The Registrar must make preliminary enquiries to ensure that the name is not misleading with
reference to the Objects Clause of the memorandum.
The Registrar is not, however, required to carry out any elaborate investigation at the time of
registration of the company.

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CASE LAW
Ewing v. Buttercup Margarine Co. Ltd. the plaintiff, who carried on business underthe name of
the Buttercup Dairy Co., obtained an injunction against the defendant (Buttercup Margarine Co.
Ltd.), on the grounds that the public might think that the two businesses were connected, the
word “Buttercup” being a fancy one.
The rule will apply also to foreign companies or traders, whose goods are imported into the
country.

CASE LAW
Atlas Cycles (Haryana) Ltd. v. Atlas Products Pvt. Ltd. use of the brand name as corporate
name was settled. Both the plaintiff and the defendant companies belong to the same family.
The Appellant-plaintiff was the proprietor of the trade mark in the name “Atlas”. The
Respondent-defendant company containing the name “Atlas” in its corporate name started
dealing in
bicycles. The plaintiff objected to the use of the name “Atlas” by the defendant company. Were
restrained from using the word ‘Atlas’ in their corporate/trade name in respect of bicycles and
bicycle parts.

But mere similarity of name is not in itself enough to give a right to an injunction. the law does
not give a person a right to prevent the use of a name by another person. In the case of
companies, however, registration will be refused only if there is likelihood of deception or
confusion.
A person cannot be permitted to name a company even after his personal name if that name
resembles the name of an existing company.

PUBLICATION OF NAME

The name of the company and the address of its registered office must be painted or displayed
outside every office or place at which its business is carried on, in a conspicuous position and in
legible letters in English and in the language in general use in that locality. The name must also
be engraved on the company’s common seal.

However, where a company has changed its name during the last two years, it shall paint or
display or print, as the case may be, along with its name, the former name so changed during
the last two years as required above.

Further in case of One Person Company, the words ‘‘One Person Company’’ shall be mentioned
in brackets below the name of such company.

SITUATION CLAUSE

The name of the State in which the registered office of the company is to be situated must be
given in the memorandum. But the exact address of the registered office is not required to be

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