Statutory Requirements and Nomenclature for a Company

The company itself is a separate form of business that has various types in it. The unique character such as the separate legal entity and others makes it function under a separate statute formed by the government. A company that is to be started has to undergo various legal formalities for its sustainability. Such legal requirements and other procedures are listed under the Companies Act which has undergone an amendment in the year 2020 regarding the punishment and other provisions. This article discusses all statutory requirements that are mentioned in the above-mentioned Act and the naming procedure of a company.  Though the process of naming seems to be silly, in order to avoid confusion the Act also deals with the conditions to be followed regarding the process of naming. 

Introduction

Speaking in the business field, a company always stands on a different track when compared with other forms of business. When viewing all the aspects, it holds a unique position, such as in the field of formation, agreements, etc. Due to its uniqueness, the requirement of some special law is a must, because all other forms of business will be governed in either of the laws, but due to the unique character called the “separate legal entity” special laws are a must. Such an aspect led to the emergence of the Companies Act, 2013 which deals with all aspects, such as the statutory requirement, judicial control, duty of the company, purpose of formation, etc. Though the registration stands compulsory there are some more requirements for a company to run its daily life. Such requirements are discussed under the Companies Act.

The Act, 2013

The Companies Act, 2013 was notified as a huge monster due to the content present in it. It defines all sorts of business terms, procedures that take place in the daily running of the business. Similar to all other laws, it has its arm wide open to the whole of India. The procedure to incorporate a company is dealt with under Section 7 of the Act, wherein it mentions the requirement of various formalities to be followed for valid incorporation. Registration is a must for a company to sustain. Thus registering with the Registrar who has his power of jurisdiction over the area in which the company is proposed to start its business is mandatory. For the purpose of registration, the following documents are required:

Memorandum and the Articles of Association signed by the subscribers

The Memorandum is a document that contains certain points that differentiates the public limited company and the private limited company by mentioning the term Limited for the first case and Private Limited for the second case. The territory where the registered office of the company is to be present along with the purpose of its existence is also mentioned.

The above discussed is related to the company, but the next coming discussion is related to the running of the company, that is:

  • it contains the extent of every member’s liability towards the company. This extent of liability differs with the type of formation if the company, either the company is limited by shares or guarantee, etc.
  • it mentions the name of the company as incorporated and such a name must not be similar or resemble a company that has its existence already and is registered previously. This condition is to help the customers by avoiding confusion regarding the name. At the same time, the name must not contain any words that create an impression to the public regarding the relation of the company with the state or central government or any other authority, if it is to be mentioned, prior approval must be obtained by the authority or the central government.   

The Articles of Association which contains the rules to be practiced for efficient management of the company along with the main condition, the provision to add or alter a new method of management or the prevailing method of management for the benefit of the company. These changes can be engaged only by the approval of all members for a private company and by passing a special resolution in case of a public company. In case of such alteration, the registrar must be intimidated and the Article submitted must also be updated.

  1. Generally starting a company is not as easy as starting any other form of business. Experts in all fields such as advocate, accountants, company secretary, etc are required for its starting. Thus, an approval by means of a declaration that ensures the presence of all necessary procedures and documents is a must. Along with such declaration, an affidavit from all members that ensures that the members are not previously convicted in any cases is also a must.
  2. As known to all for the purpose of communication the address of the company, the details of the members/ directors regarding their address, nationality, proof of identification is to be mentioned.

If the memorandum and the Articles contain all these necessary proofs the Registrar accepts and issues a Certificate of Incorporation to the company. Similar to that of the Registrar, the company is also duty-bound to maintain all these submitted documents in its office to avoid confusion. The same Act mentions a clause which warns the company to not submit any fake or wrong information regarding the above-mentioned documents under the Memorandum and Articles. If it engages in such practices the same Act provides the punishment under Section 447, and the right to pass such order is given from the level of a tribunal. As of now, we have discussed the presence of memorandum and the articles, but why such documents are required with the registrar, why does the statute compels the registrar to maintain the documents?  Section 10 of the Act deals with the answer to this question. According to the provisions both the documents bind the company and members to the same extent.

Meetings

The Act also governs the procedures to be held in the company for its effective transparency to the public. The company is under compulsion to conduct an annual general meeting without any lapse of a maximum of 15 months and the 1st meeting must be conducted within 9 months of its incorporation. If the company fails in conducting such meetings the Tribunal is given the power to direct the company to conduct the meeting. If the company fails to conduct the meeting even after the order of the Tribunal, the company and every officer of the company who is in default shall be liable to pay a fine of Rs. 1 lakh, and if the situation persists an amount of Rs. 5,000 is charged for every day that is delayed.

Companies outside India

Till now the discussion was related to companies that were incorporated in India, of which the main office of functioning is in India. But now the track leads to companies incorporated outside India, which means the foreign companies either through an agent or physically has its place of business in India. Yes, there are some rules to be followed by foreign companies to continue their business within the Indian Territory.  They are,

  • The certified copy of the charter, statutes or memorandum and articles of the company or any other documents in the English language that explains the framework of the company. Along with that the address of the main office of the company and the office in India and the address of directors who are resident in India is required for the purpose of communication.
  • The list of directors and other officials who work under the company in India, and a declaration by them mentioning their status of non-conviction before both in India and abroad.
  • The company must prepare an account statement for every financial year and submit a copy to the registrar.

Nomenclature

Till now the discussion was about the legal requirements that the statute mentions in order to run a company, but now there are some guidelines that are to be followed regarding the naming of the company. Being it incorporated in India or abroad, the process of naming stands a must to prevent the confusion that will prevail among the consumers/ the customers. The company runs its day by issuing its shares and debentures if a similar name exists the person interested to buy a share in one company by confusion buys a share in another company. This affects the right to gain knowledge by the customer and leads to various other problems. Thus, according to the statute, the process of naming has some rules to be governed which are clearly stated under Section 4(2). Section 382 deals with the naming procedure of a foreign company in India. According to the law, the company must mention its name, and the country of its incorporation must be mentioned in its office in India, the bills, letter, and other official publications it issues.

Conclusion

In short, we can conclude that the law by itself requires some legal requirements for the effective running of the company, and those statutory requirements can be listed as the incorporation, documents to be submitted to the registrar, conducting an annual meeting, the requirement of audit and accounts. Either the company is incorporated in India or abroad there remain only minute differences in legal requirements. Thus, registering a company is not as easy as other forms of business, and the running of a company is also not as easy as other forms. Such a unique character of a company makes it to hold a unique form among the other forms of business entities.

FAQ

  1. Is it compulsory to register a company?
  2. What is the difference between a company incorporated in India and abroad?
  3. Should the company incorporated abroad abide by the rules in India?
  4. Why are there some conditions prevailing for framing a name to the company?
  5. What is Memorandum and Articles of Association?

References

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