Types, Classification and registration of companies

  1. The Companies Act, 1956 broadly categorizes companies into private and public companies and provides a regulatory environment based on such classification. However, with the growth of the economy and the complexity of business operations, corporate organizations continue to change. Keeping in mind the requirements of various types of companies, there is a need for legislation that can exist and want to provide common principles, which all types of companies can refer to when preparing their corporate governance structure. Rigorous structures, unnecessary control, and rules put the entrepreneurs’ initiative in jeopardy. Private companies and small companies, which generally do not go for public issues or deposits for their financial requirements but use their personal or home resources, require flexibility and flexibility of operating and compliance at low cost. it occurs. Equally, public companies, which use public capital, should be subject to a more stringent rule of corporate governance. In order to enable a broad framework for corporate organizations to different forms, the company law should ensure many classifications of companies. It should be able to change from one type to other types of companies smoothly.

Classification of companies

  1. Corporate forms can take many sizes to respond effectively to the environment. Therefore, company law must recognize many classifications of companies. The committee today points out the criteria for classification based on the explanatory forms but assumes that such classification can never end.
  2. i) On the basis of size: a) Small companies b) Other companies
  3. ii) Based on the number of members: a) One person company b) Private companies c) Public companies

iii) Based on control: a) Holding companies b) subsidiary companies c) affiliates

  1. iv) On the basis of liability: A) Limited (i) Share (II) with a guarantee (with or without share capital) Unlimited
  2. v) Based on the method of access to capital: a) listed companies b) Unlisted companies
  3. The law should recognize the potential for diversity in the forms of companies, and instead of seeking to regulate specific aspects of each form, it should be provided for the principles which are based on clearly and widely accepted principles, Enable economic inter-action for.

Small companies

4.1 The Committee does not see any reason that small companies should suffer the consequences of regulation, which can be designed to ensure the balance of the interests of stakeholders of large, widely organized Corporates. Company law should be able to simplify the decision-making process by providing relief to such companies with selective internal administrative procedures. Such companies should be subject to less financial reporting and audit requirements and simplified capital maintenance regulations. Essentially the rule for small companies should enable them to achieve transparency at low cost through simple requirements. This type of structure can be applied to small companies through exemption, which is consolidated in the form of the schedule of the act.

4.2 The law may also consider an integrated approach under which a framework can be provided for private companies, which can also be applied to smaller companies. However, to enable such an arrangement, the definition of small companies can be considered. Are bound to problems associated with setting the shape. In our view, the size can be evaluated on the basis of gross assets, in which real assets, current assets, and investments do not occur with a turnover beyond a particular limit. Since the definition of “small” can change over time, it can be done through the rules.

4.3 In order to qualify for an exemption, a small company should neither hold nor be a subsidiary of another company. However, the committee does not feel the need to provide small companies with a special internal administration and constitutional rule. It is likely to come in the way of their future development. Instead, the committee recommends enabling new vehicles for trade as a limited liability through different laws, if necessary.

4.4 Associations, charitable companies, etc. The U / S 25 licensee of the existing Company Act should not be considered as small companies in spite of their gross assets.

4.5 Laws should provide a framework for the development of small corporate institutions. Although relaxation should be facilitated by small companies in an easy and cost-effective manner. These should not be encouraged by any organization to hide the actual size or obstruct the development of small companies.

Private companies

  1. Private companies represent a different set of relationships in terms of ownership, risk, and reward compared to public companies. Since private companies do not reach the capital markets, they require less harsh protection for their shareholders. Although they represent an important organizational form for business operations. Therefore, there is a case for light regulators on private companies. Current law provides for private companies to give some exemption on the basis of their nature. Our view is that this approach should be continued and appropriate. While good corporate governance is equally important for the success of such private companies, liability for the dissemination of corporate process information should be structured so that such enterprises do not lose flexibility in operating their business. In particular, the law should enable a private company to take any decision, which is otherwise the right to take, if the members of the company agree with unanimous consent, without following the formalities of the Act. A simplified circular resolution process should also be considered where consensus is not possible. Since there can be disputes between members of such companies, the cost of which can ruin the company, there should be dispute resolution procedures in the government for private companies, which are simplified to the extent possible.

One person company (OPC)

  1. With the increasing use of information technology and computers, the rise of the service sector, it is time that entrepreneurship of people is given an outlet for participation in economic activity. Such economic activity can be done as a company through the construction of an economic person. Nevertheless, it is not fair to expect that every entrepreneur who is capable of developing his ideas and participating in the market should do it through the association of individuals. We believe it is possible for individuals to work in an economic domain and to contribute effectively. To facilitate this, the Committee recommends that the law should recognize the formation of a single person economic entity in the form of a ‘single person’ company. Such a unit can be given a simple rule through exemption so that a single entrepreneur is not forced to remove his time, energy, and resources in procedural matters. The concept of ‘Person One Person Company’ can be presented in the Act with the following characteristics: – A) OPC can be registered with a member as a private company and may have at least one director in it; B) Sufficient safeguards in the case of death/disability of the sole person should be appointed as a nominee to any other person. Upon the demise of the original director, the designated director will manage the affairs of the company till he does not till the date of the transmission of shares to the legal heirs of the member. C) The letter ‘OPC’ will be prefixed with the name of one Person Company to separate from other companies;

Government companies

7.1 In general, there is very little justification for giving government companies a rebate in compliance with the company law. If such companies are listed then it is even less. Not only should such government companies be competent to compete with other companies on the same terms in the market economy, it will not be suitable for investors or creditors if such institutions are allowed to present their performance on the basis of unequal criteria.

7.2 Government companies may be subject to non-commercial / commercially unequal social responsibilities. However, the cost of such responsibilities should be transparently evaluated and provided by the government in the form of subsidies through the budget. It is not fair to relax the application of laws or standards to allow such costs to be implemented in a non-transparent manner.

7.3 There may be circumstances where such companies may require special treatment in state-related activities. For such companies, there may be a competent provision to relax the operation of the company act. Other companies, competing in commercial activity, should compete on the basis of transparency and playgrounds. Preferential treatment for such companies would be detrimental to the capability of Indian companies to survive in a competitive market.

7.4 A government company should be clearly defined in law. This should be one where the state has a clear majority share – that is the center and / or the state government (S). There is no justification for the definition of companies being set up by government companies by government companies during their business activities.

Holding and subsidiary companies

8.1 The Company Act should not take pre-decision about the structure which is suitable for controlling the businesses. Such prescriptions will make the environment harsh and put Indian companies at risk of their competitors internationally. Such restrictions will not even facilitate sound corporate planning, the formation of joint ventures, international operations, or the restructuring of companies.

8.2 Therefore, we are of the view that there can be no restriction for the number of any subsidiary, or for such subsidiaries that have subsidiaries. However, the Act should provide a clear definition of the corporation as well as the supporting body with both the holdings. To do so, a holding company should be taken into account through the control, direct or indirectly, or through one or more subsidiaries, keeping in mind the international practices.

8.3 Need to provide for transparency and the need to control the misuse of funds through the transfer of subsidiaries, from one company to another, should be recognized. However, it is necessary to get the recognition that the exemption of funds cannot be due only to the holding-subsidiary structure. Companies can use other routes/structures/affiliates to close the funds. Separate examples of misuse of the holding-assisted structure should not result in the removal of investment and corporate plans with this very important business model. Rather than banning the formation of subsidiary companies, follow the adequate disclosure obligations as the use of funds or the use of advances given by the company to other institutions. Strict disclosure and compliance norms should be provided regarding holding and supporting company structures.

8.4 The Committee is of the opinion that with the compulsory consolidation of financial statements, the concerned person should be addressed by the appropriate disclosures regarding the lack of transparency in holding-assisted structure.

8.5 Other provisions may be that between the holding and the subsidiary, the transaction can be treated as a related party transaction and can be placed in front of the board through the audit committee, where such a committee exists. In the general course of business between the holding and the subsidiary company and / or not on the length of the hand, the management of the transaction should be disclosed in the annual report with justification.

8.6 In its investigation of this issue, the committee also considered the recommendations made by the JPC to ban the layers of companies of subsidiaries on the stock market scam. The committee said that these recommendations were in reference to the stock market/banking scandals seen in India over the last decade. At the same time, it was argued that the construction of subsidiary companies for different manufacturing entities, the joint ventures was a reality and there was no restriction on internationally operated foreign companies. Even banks may have to set up subsidiaries for their non-banking / joint venture companies engaged in insurance, asset management, etc. In the present situation, when Indian companies were seeking to invest abroad, such restrictions would adversely affect their opportunities. During the deliberations, it was felt that special carving would be done as a result of preserving legitimate business activity under a regime for the establishment of subsidiary companies and monitoring of activities of such companies would become an administrative nightmare. For these reasons, the committee considered that it was not possible to limit layers of subsidiary investment companies. Instead, to prevent misuse of this system, a regime should be prepared on the basis of transparency board processes and disclosures based on the supervision of the regulator for the listed companies.

Producer Companies

9.1 The Producer Company is not in conformity with the normal framework for companies with limited liabilities by manufacturers and management shares/guarantees. Shareholding of Producer Company has banned its transferability so that shareholders can be prevented from using their exhaust options through a market-determined structure. It was not possible to make this structure responsive to the competitive market for corporate control.

9.2 If it is felt that manufacturing companies are unable to work within the structure and liability structure of limited liability companies. The corporate governance regime applied to companies cannot be implemented properly in this form. The government may consider bringing a separate act to deal with the regulation of such ‘producer companies’. Part IX-A in the present Company Act, which has hardly any support, is more likely to create a controversy of interpretation, and therefore, the company can be excluded from the Act.

Joint venture/shareholders consent

10.1 In the modern world, capital and technology enter into companies through joint venture opportunities. The ability to access technology, know-how, trade, trademarks, and other intellectual property or service rights is seriously associated with the law on joint ventures.

In 10.2 years, many court judgments have been heard in India on the issue of the validity of the Joint Venture’s covenant. According to the judicial approach, recognition of such covenants is possible only through corporate action when they are made part of the Articles of Association of any company. However, in this form, they are subject to the superficial effect of section 9 of the Companies Act, 1956. Thus, while joint venture agreements can be made and joint venture partners may provide some exclusion related to intervention or for extra-normal sections. , Such exclusions are not usually consistent with the current company act. However, they are accredited under contract law. The effect of this framework is that in relation to Joint Venture provisions, the dispute resolution becomes subject to the provisions of the contract laws and is subject to long mediation. However, companies prefer that such aspects should be addressed more quickly through corporate processes.

10.3 Joint venture has an inherent discrepancy with the provision of Section 111A of the Companies Act, 1956, which will require the facility of corporate-based redistribution mechanism to be made available to joint ventures. It was noted that Joint Venture Agreements contain many sections related to voting rights, additional quorum requirements, and mediation measures, pre-emptive rights, or restrictions on the transfer of shares.

10.4 It was represented before the Committee that under Section 9 of the Companies Act, there should be an appropriate exception to the principle of ultra-wires and the parties should have “autonomy of party of contract” in their joint venture documentation. However, this would mean that any third party working with any or any of the designated shareholders would have the obligation, and as a result, the disclosure would be the right, and before dealing with the shares, through shareholders’ agreements, joint venture partners the completion of the contract and the terms and conditions must be verified.  Equally, the committee has noticed that the company law should not include such provisions that provide “Fly Out” to the companies who want to eliminate its provisions. Nor can the company law remove the shortcomings of other legal systems, the costs associated with arbitration and litigation will need to be reduced to enforce the contracts.

10.5 The Committee considers various aspects after considering that in the current context, it would be appropriate to provide a framework that enabled Indian institutions to reach greater opportunities through joint ventures while improving the legal system difficulties Have to face the Administration of civil law should continue. In order to recognize agreements between joint venture partners for corporate action, a transparent method should be worked in company law, keeping in mind the concern that such a system should be used to circumvent the necessary provisions of law. The window should not be made.

10.6 The Committee thinks that this struggle needs to be resolved because, under the Companies Act, such restrictions will adversely affect the free flow of capital and technology in the country at the time of coming. Therefore, a suitable provision should be included under the new company law, which recognizes such arrangements between two or more substantial shareholders or joint venture partners.

Public Finance Institute (PFI)

11.1 Through the amendment in 1974, a new Section 4A {“Public Financial Institution (PFIs)}” was inserted in the Companies Act, 1956. This section has issued some institutions to notify the PFI and the powerful Central Government from time to time. Under this section 46 institutions have been declared PFIs by MCA, although this term is defined under the Companies Act, 1956, the term Defense has been used in many acts are available such PFI under multiple benefits (economic as well) of the Companies Act and other Acts / delegated legislation.

11.2 In view of the changing economic environment and the continuous improvement in the financial sector, a need has been felt to review the concept of PFI. In some quarters it is being felt that this concept should be removed with appropriate fleeting provisions regarding current PFI. The appropriate steps to take care of the provisions in other Acts / Delegated legislation, which are using this term should also be taken. Apart from this, there is no logic in the Companies Act to address such concepts (related to financial institutions). Therefore, the company bill, in 1997, was proposed to transfer this concept to PFI (Indirectly in the Integrity and Privacy) Act, 1983, which is administered by the Finance Ministry.

11.3 They should be subject to the same regulatory provisions. There is no reason that such institutions should be given a framework in relation to corporate governance through exemptions in the provisions of the Companies Act. Such institutions should be kept through financial and management discretion requirements like other financial institutions. Therefore, the Committee does not see any reason why a special regime should continue for public financial institutions provided under the Companies Act, 1956.

Incorporation

12.1 The process of incorporation through registration should be based on the correct information so that the promoters of the company can be fully disclosed with full responsibility. The information required for registration can be determined through the rules. However, the contents of the Memorandum of Association should be part of the original law, not in the rules The process of registration should be prompt and in line with the e-governance initiative taken by the government.

12.2 Companies should be required to make detailed disclosures and certifications about promoters, directors, at the time of incorporation. These disclosures should be done in a manner that allows the addition/change in keeping with the developments in the company.

12.3 Promoters and directors should disclose information that establishes/certifies their proof of residence and identity through such supporting documents such as photo, PAN number, passport, affidavit, etc.

12.4 Each company should be bound to appear correctly with a registered office and proof of address, in such a way that it can access the service physically and postal. Companies should also be made to enter their website and e-mail addresses.

12.5 The primary responsibility of the authenticity of statements should be made by the promoters / first directors. If rights are given to agents or professionals, then it should be on the basis of the appropriate power of attorney and they should not provide relief to the principals of their responsibility. For any professional, strict penalties should be made, if engaged, who do not exercise properly during incorporation.

12.6 Directing by promoters/directors in other companies should be declared at the time of incorporation. The words ‘promoter’ and ‘control’ must be clearly defined to avoid any suspicion.

12.7 Strong results should be followed if it is found that incorporation has been done under false or misleading information.

Transfer of registered office

  1. For the order of CLB in the current process, the registration of a company’s registered office is required to be transferred to another state. The committee expressed its concern over the delays involved in the process and the costs. Apart from this, if available in different parts of the country, the corporate should be given an opportunity for a beneficial business environment. One approach was expressed that this decision should be left to the shareholders. However, the committee also agreed that the interests of other stakeholders would be included. The Committee felt that without reference to the tribunal/court, there was an urgent need to make this process simple, fast, and easy, ensuring that the new registered office is accessible to stakeholders for legal support where it is necessary.

Vanishing companies

14.1 The Committee is seriously worried about the incidents of companies that disappeared after collecting money from the public, causing investors to be cheated. This has reduced the credibility of not only the companies but also the institutional framework regulating such institutions and enforcement agencies. We understand that the Central Government is now taking action against such companies through a coordinated mechanism that includes corporate affairs and SEBI ministry. However, a lot should be done to prevent such an event. We believe that such preventive action should start with self-registration and should be done through a rule that requires the regular and compulsory filing of legal documents. With the introduction of electronic filing, this process will be convenient for stakeholders as well as stakeholders. Behaviors should be dealt with strictly as a result of non-filing or wrong disclosure of documents.

14.2 The information provided at the time of registration should also be determined by the company’s address as well as its directors. It must be the duty of the company to intimate any change in the address within a certain time period.

14.3 There should also be arrangements for random investigations of the filing of corporations with heavy penalties for the companies found to be inadequate in their disclosures and filing by the registration authorities.

14.4 Interagency coordination should be able to track the persons behind such companies so that they can book them. The law should be amended to lift the corporate veil and disrupt its inept advantage.

Incorporation – Related Issues

E-governance

15.1 The committee focuses on the e-governance initiatives initiated by MCA and recommends that it be implemented rapidly. This program recognized the vast potential of this program to ease compliance at a lower cost. However, the committee believes that e-Governance should be cost-effective for companies, which include small and one individual company, which are easy to use and accessible to all stakeholders and the general public, and to disclose and retrieve data Enables registration and filing process for and at low cost. Apart from this, the system should have sufficient capacity to handle potential development in the coming years in the corporate sector in India, as well as an increase in disclosure requirements which can be compulsory by the legal and regulatory framework.

15.2 All statutory filings should be tailored to e-filing by preparing suitable e-forms. Such filing should be kept securely and should be identifiable through digital signatures.

15.3 The e-governance system should enable the quick disposal of registration and incorporation procedures with the use of self-operating E-Systems, reducing physical interface, and using discretionary statutory powers by registering the e-governance system.

15.4 All companies must be required to authorize authorized signatories and to digitally certify filing.

15.5 Payment of on-line filing and fees etc. should be made easy. Once the system has established its effectiveness, it can be made mandatory for all companies.

15.6 Attempts should be made to resolve the stamp duty issues between the Central and State Governments so that the law can recognize the concept of the single national registry in the coming time.

15.7 The Company Act should provide an appropriate legislative framework for charging user fees. Such fees should be appropriate to enable the operation of the e-governance initiative permanently.

Name allocation

16.1 Other incorporation procedures such as name allocation etc. should be made simple and responsive to complete through an automated e-system. The Committee considers that the process of incorporation and registration should be competitive with the developed economies of the world.

16.2 The use of certain names may be appropriate prohibition under the Act. The government should have powers to stop the names of those companies which give the impression that the company is in any way related to the central / state government or local authority.

16.3 There should be power in the law to leave the misleading names or to require a company to do business under a misleading name.

16.4 The name change system should be carefully reviewed. When giving a company the freedom to change their name, the change of name should often be stopped to prevent stakeholders/investors from cheating / confusing.

Restrictions on starting a business:

17.1 The Company Act, 1956 provides for public companies to start a business or exercise the exercise of any borrowing powers unless the company’s numbers have met the requirements of capital membership. In addition, the need to issue a Business Certificate by the Registrar of Companies (ROC).

17.2 It appears that at present, after issuing the amount of capital to be paid immediately after registration by the Companies Act, it will not be necessary to issue a certificate of commencement of business. It should be sufficient to establish the company’s borrowing power. Looking at it, there is a delay in avoiding the need to get different certificates of business and it can be overcome.

Limited Liability Partnership (LLP)

18.1 In view of the capacity to increase the service sector, small enterprises need to provide flexibility to participate in joint ventures and agreements which enable them to use technology and to coordinate trade and enable them through the World Trade Organization. We are able to face growing global competition, etc. The formation of a limited liability partnership (LLP) should be encouraged.

18.2 It will be a suitable vehicle for partnership between professionals who are already regulated, such as company secretary, chartered accountant, cost accountant, lawyers, architects, engineers, and doctors, etc. However, this can be considered for small enterprises that are not seeking access. Capital market through listing in the stock market.

18.3 We recommend that a separate act be brought to facilitate limited liability partnership. This concept is not required to be addressed in the Companies Act.

Limit on the number of partners specified in the Company Act

19.1 The Committee assumes that there are several forms of association that will facilitate business operations. It recognizes the relevance of ownership and partnership firms in this regard. However, the corporate form of the organization will provide greater clarity to organizations that negotiate with stakeholders and business firms, while the Companies Act does not require obligation for other types of organizations. It should be left to be specified or regulated through related legislation related to such forms. Therefore, a review of the partnership act may be required. However, the Company Act does not require any prescription in this regard.

19.2 Therefore, the provisions limiting the number of partners provided in section 11 of the Companies Act should be removed. Essential provisions in this regard can be included in the partnership act or other related Acts.

Simplification of the regime for the exit of companies from the register of companies

Special Regime for Charities and Other Companies (Sec.25)

20.1 Transparency is required in the functioning of such companies. The objects of such companies must be clearly defined.

20.2 The framework for the remuneration should be such that, as a result, the funds of the company will not be benefitted.

Simplification of the regime for the exit of companies from the register of companies

21.1 The Committee mentioned that the Register of Companies comprises a large number of Defect companies. There is a cost attached to the information of such companies on the public register. This cost can be avoided.

21.2 There is a need to simplify the process for the company that exits the company’s register. There should not be any need to operate the special plans to exit the companies through exemptions in the rules. This should be possible through the normal operation of the law. In the law, the registrars of companies should be able to use the Su Moto powers to strike on the names of effective companies (effectively the business or company not operating any operation). They should have the right to remove the names of companies from the register of companies on the application for the purpose of the company’s directors or most of them. The application form to be set should be simple. Upon receipt of such an application, the registrar should issue a public notice about his intention to use the power to strike the company’s name, and public comments should be invited why he should not do this, in a timely manner. To indicate, after which consent can be made.

21.3 Such applications may not, however, be made at any time during the last 6 months, the company has changed its name, carried out business, or otherwise moved to any business. The order of the registrar to remove the company’s name from the register should be issued again as a public notice and should take effect automatically at the end of the stipulated period. The public notice can be given on the notice board/website of the registration authorities and the company can be sent by registered post to its last known directors.

Tags: registration of companies, limited liability partnership registration, llp registration, one person company registration, opc registration, private limited company registration, producer company registration, public limited company registration, pvt ltd company registration, registration of companies, types of company in india



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