CHAPTER

1 CHOICE OF BUSINESSORGANIZATION

Synopsis1. Choice of a Business Organization 12. Factors governing the decisions for suitable form of organization 33. Conclusion 15

1. Choice of a Business Organization Business organization refers to all necessary arrangements required to conduct a business in an

optimized manner. It refers to all those steps that need to be undertaken for establishing and maintaining relationship

between men, material, and machinery to carry on the business efficiently for earning profits. This may be called the process of planning and organising which are the integral part of the

business management.

Quick Recap

Types of Business Entities Sole Proprietorship

Partnership

Hindu Undivided Family (HUF) Business

Co-operative Society

Objective of Business Organization

To carry on business efficiently for earning profits

Business ManagementBusiness organization

Meaning of Business Organization

Arrangements required toconduct businesses in

optimized manner

Sequential series of steps toestablish relationship among

factors of production

Business Organization is anintegral part of Business

management

2 Choice of Business Organization Chap. 1

Company

Limited Liability Partnership

Trust

Choosing a form of business entity is crucial to a successful organization because it determines thepower, control, risk and responsibility of the entrepreneur as well as the division of profits and losses.

The choice of a business entity will depend on an object, nature and size of the business of such entitywhich will be varied from case-to-case.

A business enterprise can be owned and organized in several forms. Each form of organization has itsown merits and demerits. The ultimate choice of the form of business depends upon the balancing of theadvantages and disadvantages of the various forms of business.

Once a form of business organization is chosen, it is very difficult to switch over to another formbecause it needs the winding up, dissolution of the existing organization.

Therefore, a thoughtful consideration should be given to this aspect of planning and only that form oforganization most suited to the style of business should be chosen.

Quick Recap

Partnership Firm

SoleProprietorship

Hindu UndividedFamily (HUF)

orJoint Family

Business (JFB)

Limited LiabilityPartnership (LLP)

Company

Different kinds of Business Organization or Entities or Forms

One Person Company Private Company Public Company

Chap. 1 Choice of Business Organization 3

2. Factors governing the decisions for suitable form of organizationFor a new or proposed business, the selection of a suitable form of a business organization is generally

governed by the following factors:

Quick Recap

1. Nature of a Business ActivityThis is an important factor having a direct bearing on the choice of a form of ownership. In smalltrading businesses, professions, and rendering of personal services, sole-proprietorship ispredominant.

Sole Proprietorship is suitable to the following businesses: Beauty Parlours

Repair shops

Consulting agencies

Small retail stores

Medicine stores

Dentist

Accounting concerns

Restaurants

Specialty shops

Decorators

Bakers and Confectioners

Tailoring shops

Small scale shoe repairers and manufacturers

Factors to be considered while deciding suitable form of Business Organization

Nature of business activity

Scale of operations

Capital requirements

Degree of control & management

Managerial Ability

Degree of risk & liability

Stability of businessFlexibility of administration

Division of profit

Tax implication

Transferability of ownership

Secrecy

Costs, Procedure & Government regulation

Geographical mobility

Managerial needs

CHAPTER

2DIFFERENT FORMS OF

BUSINESS ORGANIZATIONS &ITS REGISTRATION

Synopsis1. Sole Proprietorship 162. Partnership 193. Types of Partners 224. Hindu Undivided Family (HUF) 315. Multi State Co-Operative Society 40Questions as per ICSI Module 44

Quick Recap

1. Sole ProprietorshipThe vast majority of small businesses start out as sole proprietorships. The sole proprietorship is a form

of business that is owned, managed and controlled by an individual. He has day-to-day responsibility forrunning the business. He has to arrange capital for the business and he alone is responsible for itsmanagement. He is therefore, entitled to the profits and has to bear the loss of business. Soleproprietorships own all the assets of the business. He also assumes complete responsibility for any of itsliabilities or debts. In the eyes of the law and the public, the sole proprietor and the business are one andthe same.

It is the simplest and most easily formed business organization. This is because not much legalformality is required to establish it.

For instance

1. To start a factory, the permission of the local authorities is sufficient.

2. To start a restaurant, it is only necessary to get the permission of local health authorities

3. To run a grocery store, the proprietor has only to follow the rules laid down by local administration.

Features

Merits

Demerits

Registration Procedures

Outline

Sole Proprietorship+

HUF+

Partnership+

Multi State Co-operative Societies

Chap. 2 Different Forms of Business Organizations & its Registration 17

Quick Recap

Merits of Sole ProprietorshipA sole proprietary organization has the following advantages:

1. Easy formationA sole proprietorship business is easy to form where no legal formality involved in setting up thistype of organization. It is not governed by any specific law. It is simply required that the businessactivity should be lawful and should comply with the rules and regulations laid down by localauthorities.

2. Better ControlIn sole proprietary organization, all the decisions relating to business operations are taken by oneperson, which makes functioning of business simple and easy. The sole proprietor can also bringabout changes in the size and nature of activity. This gives better control to business.

3. Sole beneficiary of profitsThe sole proprietor is the only person to whom the profits belong. There is a direct relation betweeneffort and reward. This motivates him to work hard and bear the risks of business.

4. Benefits of small-scale operationsThe sole proprietorship is generally organized for small-scale business. This helps the proprietor’sfamily members to be employed in business. At the same time such a business is also entitled tocertain concessions from the government.For example, small industrial organizations can get electricity and water supply at concessionalrates on a priority basis.

5. Inexpensive ManagementThe sole proprietor does not appoint any specialists for various functions. He personally supervisesvarious activities and can avoid wastage in the business.

Limitations of Sole ProprietorshipA sole proprietor generally suffers from the following limitations:

1. Limitation of management skillsA sole proprietor may not be able to manage the business efficiently as he is not likely to havenecessary skills regarding all aspects of the business. This poses difficulties in the growth of businessalso.

2. Limitation of ResourcesThe sole proprietor of a business is generally at a disadvantage in raising sufficient capital. His owncapital may be limited and his personal assets may also be insufficient for raising loans againsttheir security. This reduces the scope of business growth.

Sole ProprietorshipIs a concern in which entire capital, management, decision making profitability & risk is vested in the single

person named owner or proprietor(+)

“Sole proprietor has to report to his boss, the one who is under his own hat”

Sole Proprietorship

Proprietorship

Ownership

Sole

Single

18 Different Forms of Business Organizations & its Registration Chap. 2

3. Unlimited liabilityThe sole proprietor is personally liable for all business obligations. For payment of business debts, hispersonal property can also be used if the business assets are insufficient.

4. Lack of ContinuityA sole proprietary organization suffers from lack of continuity. If the proprietor is ill, this may causetemporary closure of business. If he dies, the business may be permanently closed.

From the above account of the merits and limitations , it becomes clear that it is only personal serviceslike repair work, tailoring etc. small factories, retail shops and professional activities which can be set up assole proprietary organizations. In India, sole proprietorship is quite popular and accounts for the largestnumber of business units.

Quick Recap

Quick Recap

Features of Sole Proprietor

Small scale

Easy formation (Not much legal formalities)

Individual control

Sole responsibility

Sole Profit & Loss

Demerits

Limitation of managementskills

Limitation of resources Unlimited liability Lack of continuity

Sole Proprietorship

Merits

Easy formation (Not muchlegal formalities)

Better control Sole beneficiary of profits Benefits of small scale

operations Inexpensive management Secrecy No conflicts (Sole Planner)

CHAPTER

3FINANCIAL SERVICESORGANIZATION AND

ITS REGISTRATION PROCESS

Synopsis1. Introduction 452. Non Banking Financial Company 463. Types or Categories of NBFC’s 494. Incorporation of NBFC’s 565. Registration Process of NBFC with Reserve Bank of India 566. Procedure for Filing Application with Reserve Bank of India 577. Benefits of Incorporating an NBFC 588. Housing Finance Companies (HFC) 609. Benefits of Incorporating a Housing Finance Company 6210. Registration Process of Housing Finance Company 6211. Meaning of Net Owned Funds 6412. Micro Finance Institutions (MFI) 6413. Characteristics of a Micro Finance Institution 6514. Incorporation of MFI 6515. Asset Reconstruction Company (ARC) 6816. Benefits of Incorporating an Asset Reconstruction Company (ARC) 7017. Procedure for Registration of ARC 7118. Payment Banks (Ex-Paytm Payment Bank) 73

Quick Recap

1. IntroductionIndia has a diversified financial sector undergoing rapid expansion, both in terms of strong growth of

existing financial services firms and new entities entering the market.

The sector comprises

Commercial banks

Insurance companies

Non-banking financial companies

Co-operatives

Pension funds

Mutual funds

Other smaller financial entities

However, the financial sector in India is predominantly a banking sector with commercial banksaccounting for more than 64 per cent of the total assets held by the financial system.

Financial Services Organization

6 Forms of FSOs to becovered in this chapter

Main objective

To deal with financialaspects

46 Financial Services Organization and its Registration Process Chap. 3

The Government and Reserve Bank of India have taken various measures to facilitate easy access tofinance including

Different categories of Non Banking Finance Companies (NBFC’s) Asset Reconstruction Companies

Housing Finance Company

Micro Finance Institutions

Nidhi Companies

Payment Banks

Quick Recap

2. Non Banking Financial CompanyA Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 2013

engaged in the business of

Loans and advances

Acquisition of shares and stocks or bonds or debentures or securities issued by Government or localauthority or other marketable securities of a like nature

Leasing

Hire-purchase

Insurance business

Chit business

NBFC

Payment Banks

Nidhi Company

Non-BankingFinancial

Corporation

Financial Services Organization

HFC

Housing FinanceCorporation

MFI

Micro FinanceInstitutions

AssetReconstruction

Company(ARC)

Chap. 3 Financial Services Organization and its Registration Process 47

Quick Recap

but does not include any institution whose principal business is that of Agriculture activity

Industrial activity

Purchase or sale of any goods (other than securities)

Providing any services

Sale, purchase and construction of immovable property.

Quick Recap

(+)

Loan & Advances(+)

Lease(+)

Hire-Purchase(+)

Insurance Company(+)

Chit funds

Investment Companies

Business of Financing

SecuritiesInvestment

Dividend

Acquisition of shares orstock or debenture or bonds

and securities issued byGovernment or Local

Authority

Municipal bonds

AVInvestment

Ltd

RIL(+)

Tata

Other marketablesecurities

Exclusions

Agricultural activity

Industrial activity

Trading in goods

Deals in Immovableproperty

Company(+)

Registered under Company Act, 2013(+)

MOA

In object clause

Financing

Non-Bank

Introduction & Meaning of NBFC

CHAPTER

4JOINT VENTURES

COLLABORATION ANDSPECIAL PURPOSE VEHICLES

Synopsis1. Meaning of Joint Venture 772. Definition of Joint Venture 783. Stages and Documents for Joint Ventures 854. Factors to be considered while drafting JVA or SHA or LLPA 865. Essential components of a Joint Venture Agreement 886. LLP Firm as a Joint Venture or Special Purpose Vehicle 897. Strategies of Joint Venture 918. Formation of Joint Ventures 949. Restrictions under FDI Policy of Government of India 9810. Meaning of Special Purpose Vehicle (SPV) 10011. Benefits of Special Purpose Vehicle 10112. Purpose of Special Purpose Vehicle 103

1. Meaning of Joint VentureA simply dictionary meaning of the word ‘Joint Venture’ is a commercial enterprise undertaken jointly

by two or more parties which otherwise retain their distinct identities.It is an entity formed between two or more parties to undertake economic activity together. The parties

agree to create a new entity to share in the

Revenues

Expenses

Control of the enterprise.

Joint Ventures are generally created for a single activity or project, and may have a limited time span.

Quick Recap

Meaning & definition of J.V

Merger

A Ltd. (+) B Ltd.=

AB Ltd.

Amalgamation

A Ltd. + B Ltd. =AB Ltd.Or

A + B = B Ltd.

Merger in the form ofabsorption

Joint Venture

A Ltd. + B Ltd. = AB Ltd.Or

A + B = AB Ltd.

Maruti, Suzuki, MS

78 Joint Ventures Collaboration and Special Purpose Vehicles Chap. 4

Quick Recap

2. Definition of Joint VentureJoint ventures can be defined as "an enterprise in which two or more investors share ownership and

control over property rights and operation".Alternatively, we can define a joint venture is an association of two or more individuals or business

entities who combine and pool their respective Expertise Financial resources Skills Experience Knowledge

in the furtherance of a particular project or undertaking.Small business entities, which do not individually have the capacity, in terms of resources, finances and

technical know-how can benefit with by forming Joint Venture for pooling of resources, sharing technicalknow-how and exploring larger markets for their goods and services.

JVs are also common in the manufacturing, mining, and service industries.Examples of Joint Venture Companies (PSUs) in India Indian Oil Skytanking Ltd.( between Holders -Ruchi Soya and Indian Oil) Ratnagiri Gas & Power Private Limited ( between NTPC Ltd and GAIL India Ltd.) Mahanagar Gas Ltd.{ BG Group of U.K. and GAIL India Ltd.) Petronet LNG Ltd.( between PSU’s, namely, BPCL, GAIL India Ltd., ONGC and IOCL)

Meaning of JV

Commercial enterprise undertaken jointly by 2 or moreparties

Company + FirmsWhich otherwise retain their distinct identities.

It is an entity formed between 2 or moreparties to undertake economic activity together

by sharing

In other words

Revenue Expenditure Control

of a newly formed enterprise

Chap. 4 Joint Ventures Collaboration and Special Purpose Vehicles 79

Quick Recap

Before 2015

JV in the form of Companies only

Faltu ka gyan

(+)

LLPs may invite foreigninvestment

FDI in LLP

2015 Onwards

JV

Company LLP

JV Specific Purpose

Project

Manufacturing ServiceMining

Indian Premier League is a Joint Venture

(Joint Venture is an association of 2 or more individuals or business entities whoCombine & pool their respective resources & expertise)

Resources

Human + Marketing +Finance

Objective

Furtherance of a particular project

Expertise Skills Knowledge

CHAPTER

5 STARTUPS AND THEIRREGISTRATIONSynopsis

1. Introduction to Startups 1062. Evolution of Start-ups 1073. Startup Eco-system 1084. Startup India Policy 1085. Process of Recognition of Startup 1106. Key Points 1127. Indian States with startup Policies 1138. Exemptions for Startups 1149. Tax Exemptions for the Startups, Effective from 2017-18 11810. Benefits or Exemptions to Start-ups under Companies Act, 2013 11911. Following are the Important Points for a Start Up 12012. Financing Options Available For Startup Companies 12713. Different financing options 12714. Mudra Banks (Micro Units Development and Refinance Agency Bank) 14115. Procedure for loan from MUDRA Bank 14316. MUDRA Card 144

Quick Recap

1. Introduction to Startups A startup company is an entrepreneurial venture which is typically an emerging, fast- growing

business that aims to solve an unmet need by developing a viable business model around aninnovative product, service, processor a platform.

A startup is usually a company designed to effectively develop and validate a scalable businessmodel.

Knowledge+

Time+

No Funding

Knowledge+

Funding+

No Time

“Make in India” (2014)

2015 = Start-up Policy

A B C

Funding+

Time+

No knowledge

Start up Business

Chap. 5 Startups and their Registration 107

Start-ups may have high rates of failure, but the minority of successes includes companies that havebecome large and influential.

Quick Recap

2. Evolution of Start-ups Startup companies can come in all forms and sizes. Typically, a startup will begin by building a first minimum viable product (MVP), a prototype, to

validate, assess and develop the new ideas or business concepts.

In addition, startups founders do research to deepen their understanding of the ideas, technologies orbusiness concepts and their commercial potential.

A Shareholders’ Agreement (SHA) is entered into between the founders and investors to confirminvestment terms, rights of investors, exit clauses and any other important agreement terms.

A company may cease to be a startup as it passes various mile stones, such as becoming publiclytraded on the stock market in an Initial Public Offering (IPO), or ceasing to exist as an independententity via a merger or acquisition.

Given that startups operate in high-risk sectors, it can also be hard to attract investors to supportthe product or service development or attract buyers.

Quick Recap

Entrepreneurial ventureIntroduction to Start-ups

Innovation

Very few

Successful

Large & Influential

Emerging goods & services(Business)

Result

Maximum are failure

Co-founder

Tasks

Share Holding Agreement

Amount+

Rights+

Exit clause

Evolution

Av(Idea)

All forms&

Sizes

(+)

AVClasses

OyoRooms

Like minded

Complimentary skills

Finance

Technical Know how

Generally

Minimum ViableProduct

Product with justenough features to

satisfy earlyconsumers

&To provide

feedback for futuredevelopments

Financer(Angel Investor

108 Startups and their Registration Chap. 5

3. Startup Eco-systemStartup ecosystems generally encompass the network of interactions among people, organizations, and

their environment. Any particular start-up ecosystem is defined by its collection of specific cities or onlinecommunities. In addition, resources like skills, time and money are also essential components of a start-up ecosystem. The resources that flow through ecosystems are obtained primarily from the meetings betweenpeople and organizations that are an active part of those startup ecosystems. These interactions help to createnew potential startups and to strengthen the already existing ones.

Quick Recap

4. Startup India Policy1. Start-ups Campaign2. Government initiatives3. Exemptions for Start-ups4. Tax benefits5. Cooling period for start upsStartup India campaign is based on an action plan aimed at promoting bank financing for start-up

ventures to boost entrepreneurship and encourage start ups with jobs creation. The campaign was firstannounced by Prime Minister Narendra Modi in his 15 August 2015 address from the Red Fort.

The Government of India has announced 'Startup India' initiative for creating a conducive environment(Environment of Certainity) for startups in India. The various Ministries of the Government of India haveinitiated a number of activities for the purpose.Quick Recap

Start up Policy

“Start up policy is an action plan aimed at PromotingBank Financing” to boost

Start-up Campaign

15th August, 2015

PM Modi Ji

At Red Fort

(+)Entrepreneurship Jobs Creation

(+)

Money+

Time+

Skills

Networking

Start-up ECO System

Physical

Both

Online

CHAPTER

6SETTING UP OF BUSINESS

OUTSIDE INDIA ANDISSUES RELATING THERETO

Synopsis

1. Structure and the process involved in setting up of business outside India 1452. Routes under which Overseas Investment can be made 1453. Eligibility 1464. Prohibitions 1465. Automatic Route 1466. Method of Funding 1477. Investments not under Automatic Route and which require approval of Reserve Bank of India

(Approval Route) 1478. Issues in Choosing Location outside India 148

1. Structure and the process involved in setting up of business outside IndiaIntroduction

According to the Reserve Bank of India, Overseas Direct Investment meansInvestments, either under the Automatic Route or the Approval Route: By way of contribution to the capital

or

Subscription to the Memorandum of a foreign entity

or

By way of purchase of existing shares of a foreign entity either by market purchase or privateplacement or through stock exchange signifying a long-term interest in the foreign entity (JointVenture or Wholly Owned Subsidiary).

The year 1991 was the golden year for Indian Economy. The foreign investment policies of thecountry changed and opened gates for foreign investments to enter Indian territory. This also made Indianseligible to set up business abroad or make an investment abroad, as the case may be.

The policy on Indian investments overseas was first liberalised in 1992. Then introduction of ForeignExchange Management Act, 1999 (FEMA) changed the entire perspective on foreign exchangeparticularly those relating to investment abroad. This new change brought in more of management ofForeign Exchange and not "Regulation" unlike the earlier Act. This Act made sweeping changes in relaxingthe norms for most of the policies including the overseas investments. It aimed to facilitate external trade andpayments as well as to promote an orderly development and maintenance of foreign exchange market inIndia.

2. Routes under which Overseas Investment can be madeAs per Foreign Exchange Management Act, 1999, Overseas Investment (or financial commitment) can be

made under two routes:

Quick RecapOverseas Investment

Automatic Route Approval Route

146 Setting Up of Business outside India and issues relating thereto Chap. 6

3. EligibilityLegal Entities permitted to make overseas investments:

Company incorporated in India or a body created under an Act of Parliament. Limited Liability Partnership (LLP), registered under the LLP Act, 2008.

Partnership Firm registered under the Indian Partnership Act, 1932.

Any other entity in India as may be notified by the Reserve Bank.4. Prohibitions

1. Indian Parties are prohibited from making investment in a foreign entity engaged in real estate(meaning buying and selling of real estate or trading in Transferable Development Rights (TDRs)but does not include development of townships, construction of residential or commercialpremises, roads or bridges) or banking business, without the prior approval of the Reserve Bank.

2. An overseas entity, having direct or indirect equity participation by an Indian Party, shall notoffer financial products linked to Indian Rupee (e.g. non-deliverable trades involving foreigncurrency, rupee exchange rates, stock indices linked to Indian Market, etc.) without the specificapproval of the Reserve Bank.

5. Automatic Route1. With effect from July 03, 2014, any financial commitment (FC) upto USD 1 (one) billion shall only

come under the automatic approval'. The eligible limit of investment under the automatic route is400% of the net worth of the Indian Party as per the last audited balance sheet.

2. Further, any financial commitment (FC) exceeding USD 1 billion (or its equivalent) in a financialyear would require prior approval of the Reserve Bank even when the total FC of the Indian Partyis within the eligible limit under the automatic route (i.e., within 400% of the net worth as per thelast audited balance sheet).

3. For the purpose of making investment or undertaking financial commitment in overseas Joint Venture(JV) or Wholly Owned Subsidiaries (WOS), the Indian Party should approach an AuthorisedDealer Category – I bank with an application in Form OD for effecting such remittances.

4. The investments or financial commitments are subject to the following conditions :(a) The Indian entity may extend loan or guarantee only to an overseas JV or WOS in which it

has equity participation. Proposals from the Indian Party for undertaking financial commitmentwithout equity contribution in JV or WOS may be considered by the Reserve Bank under theapproval route.

(b) The Indian Party should not be on the Reserve Bank's Exporters caution list or list ofdefaulters to the banking system circulated by the Reserve Bank or Credit Information Bureau(India) Ltd. (CIBIL).

(c) All transactions relating to a JV or WOS should be routed through one branch of anAuthorised Dealer bank to be designated by the Indian Party.

(d) In case of partial or full acquisition of an existing foreign company, where the investment ismore than USD 5 million, valuation of the shares of the company shall be made by aCategory I Merchant Banker registered with SEBI or an Investment Banker or MerchantBanker outside India registered with the appropriate regulatory authority in the hostcountry; and, in all other cases by a Chartered Accountant or a Certified PublicAccountant.

(e) In cases of investment by way of swap of shares, irrespective of the amount, valuation of theshares will have to be made by a Category I Merchant Banker registered with SEBI or anInvestment Banker outside India registered with the appropriate regulatory authority in the hostcountry.

(f) In case of investment in overseas JV or WOS abroad by a registered Partnership firm, wherethe entire funding for such investment is done by the firm, it will be in order for individual

CHAPTER

7 CLASSIFICATION OFCOMPANIES

SYNOPSIS1. Private Company [Section 2(68)] 149

(1) Definition and Meaning of Private Company 149(2) Consequences of Alteration of the Articles of Private Companies 149

2. One Person Company [Section 2(62)] 150(1) Definition and Meaning of ‘One Person Company’ (OPC) 150(2) Benefits of OPC 150(3) Difference between a Sole Proprietorship and an OPC 151

3. Small Company [Section 2(85)] 154(1) Definition and Meaning of Small Company 154

4. Public Company [Section 2(71)] 1555. Members severally liable in certain cases 1566. Classification of Companies on the basis of Liability of Members 1567. Company not for Profit [Section 8] 1578. Government Company [Section 2(45)] 158

(1) Definition and Meaning of Government Company [(Section 2(45)] 158(2) Annual Report of Government Companies 158

9. Holding and Subsidiary Company 16010. Associate Company [Section 2(6)] 16111. Public Financial Institution [Section 2(72)] 16212. Conversions of One Type of Company into another type of Company 163

1. Private Company [Section 2(68)]

(1) Definition and Meaning of Private Company

The term ‘private company’ has been defined under Section 2(68) of Companies Act, 2013. A privatecompany means a company, which such minimum paid-up share capital as may be prescribed and whichby its articles provides the following:—

(i) Restricts the right to transfer its shares;

(ii) Except in the case of one person company (OPC), limits the number of its members to two hundred(200) excluding present and past employees who continue to be the members of the company (herejoint members shall be counted as one); and

(iii) Prohibits any invitation to the public to subscribe for any securities of the company

There should be at least two persons to form a private company i.e. the minimum no. of members in aprivate company is two. A private company should have at least two directors. The name of a privatelimited company must end with the words “Private Limited”.(2) Consequences of Alteration of the Articles of Private Companies

As per proviso to section 14(1), where a company being a private company alters its articles in such amanner that they no longer include the restrictions and limitations which are required to be included in thearticles of a private company under section 2(68), the company shall, as from the date of such alteration,cease to be a private company. In such a case, it shall be treated as a public company from the date ofalteration of its articles.

150 Classification of Companies Chap. 7

Quick Recap

2. One Person Company [Section 2(62)](1) Definition and Meaning of ‘One Person Company’ (OPC)

The term ‘one person company’ has been defined under Section 2(62) of Companies Act, 2013. As perthis, One Person Company’ means a company which has only one person as a member.

It is basically a private company with some unique features.

As regards the name of a one person company, the act provides that the words “one person company” orOPC” shall be mentioned in brackets below the name of such company, wherever its name is printed,affixed or engraved.

The concept of OPC provides a more flexible structure and less compliance requirements of acompany.(2) Benefits of OPC

To encourage unorganized proprietorship business to enter into organized corporate world, the concept of“one person company” (‘OPC’) was recommended by JJ Irani Committee. As the name suggests, it meansa company which has only one person as member.

The concept is widely accepted in countries like China, Pakistan, Singapore, US. In the case of India, ifyou wish to set up a private company, minimum two shareholders are required. In many cases, because of thislegal requirement a second shareholder is forcefully roped in. This second shareholder at times takesadvantage of his position. Having recognized this problem the concept of OPC has been introduced.

Because much public interest is not involved, many relaxations have been granted to OPC in compliancesand procedural aspect. Some of salient features of an OPC and the privileges it enjoys are as follows:

(a) An OPC is primarily a private company.

(b) OPC is not required to hold annual general meeting.

[Sec – 2(68)] Private Company

Transferof shares

Minimum-paid up capital as may be prescribed from time to time(+)

Articles of Association

Restrictions

Primaryoffer toexistingholders

Approvalof BOD

Past Present

Employees

Prohibition on Publicissue of Securities

Max 200 members

Exclude

Joint Members as 1 member(+)

Debenture holders infinite (without public offer)

Chap. 7 Classification of Companies 151

(c) Information to be provided in the directors’ report has been significantly reduced (as compared toa private company).

(d) Annual return in other companies shall be signed by director and company secretary and in case of nocompany secretary by a practicing company secretary whereas in the case of OPC annual returnshall be signed by company secretary and in case of his absence it will be signed by director ofthe company.

(e) The requirement of a minimum number of Board meetings to be convened shall not apply to anOPC having one director. However, in case of OPC having more than one director, the OPC shallhold at least one meeting of the board of directors in each half of calendar year and the gap betweentwo meetings is not less than ninety day.

(3) Difference between a Sole Proprietorship and an OPCThe 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 otherhand, in sole proprietorships, the liability is not restricted and extends to the individual and his or her entireassets.

Quick Recap

Basis Sole Proprietorship OPC

1. Governing law No such governing law Companies Act, 2013

2. Entity No separate legal entity Separate legal entity

3. Liability Unlimited Limited liability of member

4. Perpetual Succession Not applicable Applicable

5. Empowerment to CG No empowerment Inspection and investigation

6. Periodical meeting No such requirement Atleast 2 Board meeting if more than 1 director

7. Audit Not compulsory Mandatory

1. Nomination by the Subscriber or Member of One Person CompanyThe subscriber to the memorandum of a one person company shall nominate a person, afterobtaining prior written consent of such person, who shall, in the event of the subscriber’s death orhis incapacity to contract, become the member of that one person company.

The name of the person nominated shall be mentioned in the memorandum of one personcompany and such nomination in Form No. INC.2 along with consent of such nominee obtained inForm No. INC.3 and fee as provided in the Companies (Registration offices and fees) Rules, 2014shall be filed with the Registrar at the time of incorporation of the company along with itsmemorandum and articles.

It may be noted that only a natural person who is an Indian citizen and resident in India-

o Shall be eligible to incorporate a one person company;

o Shall be a nominee for the sole member of a one person company.

Here, the term “resident in India” means a person who has stayed in India for a period of not less thanone hundred and eighty two days during the immediately preceding one calendar year.

Difference between Sole Proprietorship and OPC

CHAPTER

8 PROCEDURE OF CONVERSIONOF BUSINESS ENTITIES

SYNOPSIS1. Introduction 1672. Conversion of a Private Company into a Public Company 1673. Procedure for Conversion of a Private Limited Company into a Public Limited 1684. Scrutiny of documents by ROC 1695. Conversion of a Public Company into a Private Limited 1696. Procedure for Conversion of a Public Limited Company into a Private Limited 169

(1) First Step: Holding of Meetings 169(2) Second Step: Preparation of Petition 169(3) Third Step: Preparation of Documents to be filed with Petition in NCLT-1 170(4) Fourth Step: Publication and Service of application 171(5) Fifth Step: Hearing by Tribunal 171(6) Sixth Step: Filing of Form with ROC 171(7) Seventh Step: New Certificate of Incorporation from ROC 172

7. Rule 21 of Companies (Incorporation) Rules, 2014 1728. Rule 22 of Companies (Incorporation) Rules, 2014 1729. Conversion of Company into LLP 17410. Certificate of incorporation as LLP form ROC 17511. Process for Conversion 17612. Memorandum of Association & Articles of Association 17613. Conversion of One Person Company to Private Company 17714. Process for conversion is given in as Rule 6 of the Companies (Incorporation) Rules, 2014 17815. Penalty for default 17916. Conversion of Private Company into One Person Company 17917. Procedure or Steps for Conversion of Private Company into One Person Company 18018. Incorporation of Part XXI Companies 18119. Conversion of Companies 182

1. IntroductionCompanies Act, 2013 allows conversions of companies from one form to other. A company or LLP can

be converted from one type to another.

Section 18 of the Companies Act, 2013 deals with conversion of companies already registered.

A company already registered in a class may convert itself as a company of another class by alteration ofmemorandum and articles of the company. An application in this regard is required to be made to Registrar.The Registrar after being satisfied that all provisions have been complied with, shall close the formerregistration of the company. After registering the documents relating to conversion, the Registrar shall issue acertificate of incorporation. The conversion of a company shall not affect any debt, liabilities and obligations.Such debt, liabilities, obligation and contracts may be enforced as if there is no such conversion.

2. Conversion of a Private Company into a Public CompanyLegal Provisions related to Conversion of Private Company into Public Company are given in Section 18

and 14 of the Companies Act, 2013 read with Rule 33 of Companies (Incorporation) Rules, 2014.

Section 14 of Companies Act, 2013 plays an important role during conversion of a Private company intoa Public company. Conversion of a Private company into a Public company involves alteration of article ofassociation of Private Company u/s 14 which cannot be done without passing special resolution ofShareholders in the General Meeting.

168 Procedure of Conversion of Business Entities Chap. 8

3. Procedure for Conversion of a Private Limited Company into a Public Limited1. Calling of Board Meeting: Issue notice in accordance with the provisions of section 173(3) of the

Companies Act, 2013, for convening a meeting of the Board of Directors. Main agenda for this Boardmeeting would be:

Pass a board resolution to get in-principal approval of Directors for conversion of a Privatecompany into a public company by altering the AOA.

Fix date, time and place for holding Extra-ordinary General meeting (EGM) to get approval ofshareholders, by way of Special Resolution, for conversion of a Private company into a Publiccompany.

To approve notice of EGM along with Agenda and Explanatory Statement to be annexed to thenotice of General Meeting as per section 102(1) of the Companies Act, 2013;

To authorize the Director or Company Secretary to issue Notice of the Extra-ordinary Generalmeeting (EGM) as approved by the board under clause 1(c) mentioned above.

Pass Board resolution for increase in No. of Directors upto 3, if director are less than 3.

2. Issue of EGM Notice: Issue Notice of the Extra-ordinary General meeting (EGM) to all Members,Directors and the Auditors of the company in accordance with the provisions of Section 101 of theCompanies Act, 2013;

3. Holding of Extra Ordinary General Meeting: Hold the Extra-ordinary General meeting (EGM) ondue date and pass the necessary Special Resolution, to get shareholders’ approval for Conversion ofPrivate Company into a Public company along with alteration in articles of association under section14 for such conversion.

4. ROC Form filing: For alteration in Article of Association for conversion of Private Company into aPublic company under section 14, few E-forms will be filed with concerned Registrar of Companiesat different stages as per the details given below:

1. E-form MGT.14 – For filing special resolution with ROC, passed for conversion of Private Companyinto a Public company.

In case of alteration in Article of Association for conversion of Private Company into a Public CompanySpecial resolution is required to be passed under section 14. Accordingly as per section 117(3)(a), a copyof this special resolution is required to be filed with concerned ROC through filing of form MGT.14within 30 days of passing special resolution in the EGM.

Attachments of E-form MGT.14: Notice of EGM along with copy of explanatory statement under section 102;

Certified True copy of Special Resolution;

Altered memorandum of association;

Altered Articles of association

Certified True copy of Board Resolution may be attached as an optional attachment.

2. E-form INC.27 – Application for conversion of a private company into a public company

As per Rule 33 of Companies (Incorporation) Rules, 2014, for effecting the conversion of a privatecompany into a public company or vice versa, the application shall be filed in Form No. INC-27 withfee. Accordingly an Application for conversion of a Private company into a Public company is required tobe filed in e-Form INC.27 to the ROC concerned, with all the necessary annexures and with prescribedfee.

Attachments of E-form INC. 27: It is mandatory to attach Minutes of the member’s meeting where approval was given for conversion

and altered articles of association.

Altered Articles of Association.

Certified True copy of Board Resolution may be attached as an optional attachment.

Other information if any can be provided as an optional attachment.

Chap. 8 Procedure of Conversion of Business Entities 169

4. Scrutiny of documents by ROCAs per Section 18, after receiving the documents for conversion of a Private Company into a Public

Company, ROC shall satisfy itself that the Company has complied with the requisite provisions forregistration of company. If so satisfied, ROC shall close the former registration and issue fresh certificate ofincorporation, after registering the documents submitted for change in class of company.

5. Conversion of a Public Company into a Private LimitedConversion of status of company from public to private would become effective form the date of receipt

of the approval of the Registrar by means of issuing a new certificate of Incorporation. Section 13, 14, 15 &18 of Companies Act, 2013, Rule 33(2) Companies (Incorporation) Rules, 2014 and Rule 68-NationalCompany Law Tribunal Rules, 2016 regulate the conversion of public Company into Private LimitedCompany.

As per Section 13 and Section 14 of the Companies Act 2013 read with Rule 33 of Companies(Incorporation) Rules, 2014. A public company can be converted into the private company only afterobtaining its shareholders’ approval by way of passing of special resolution in general meeting.

For Conversion of Public Company into Private Limited Company foremost requirement is Alteration inArticle of Association of Company. According to the Act any alteration having the effect of conversion of apublic company into a private company shall not take effect except with the approval of the 1Tribunal(NCLT) which shall make such order as it may deem fit. [As per Second Proviso of Section 14(1)]

At the time of Conversion Company have to make several alterations. Some of them are mentionedbelow:

6. Procedure for Conversion of a Public Limited Company into a Private Limited(1) First Step: Holding of MeetingsHolding of Board Meeting

Company will convey a Board Meeting as per provisions of Section 173 and Secretarial Standard 1 tomeet with primary requirement for such conversion. General matters for discussion in board meeting are like:

Approval of Conversion of Company subject to approval of Tribunal

Authorize any Director, Company Secretary of the Company for completing the necessarycompliances, formalities, Issue of Notice of General Meeting (As per SS 2) etc.

Authorizing professional or legal practitioner/ advocate to appear before Tribunal

To fix date, time and place for holding Extraordinary General meeting (EGM) to get approval ofshareholders, by way of Special Resolution, for conversion of a public company into a privatecompany

Holding of General MeetingCompany will convey the General meeting to pass special resolution for alteration in AOA & MOA of

the Company for the purpose of conversion of the Company.

Filing of MGT-14 with ROCAs per Section 117(3) Copy of this special resolution is required to be filed with concerned ROC through

filing of form MGT.14 within 30 days of passing special resolution in the EGM.

(2) Second Step: Preparation of Petition

Preparation of PetitionThe petition under second provision of Section 14(1) for the approval of conversion of public company

into a

1. Till 1st June, 2016 power of tribunal was assign to ROC, As per General Circular No. 18/2014 dated June11, 2014. “For Conversion of Public Company into Private Limited Company the correspondingprovisions of Companies Act, 1956 shall remain in force till corresponding provisions of Companies Act,2013 are notified. Power of Central Government will be vest into the ROC.” private company shall befiled with the Tribunal (NCLT). The petition shall be filed in form No. NCLT-1.

CHAPTER

9 PROMOTION &FORMATION OF COMPANIES

SYNOPSIS

1. List of Sections under Chapter Formation of Company 1832. Introduction 1843. Promoter 1844. Legal position of Promoter 1855. Is a Director or Officer or Employee of the Issuer a Promoter? 1866. Duties of Promoter 1867. Remedies available to the Company against Promoter 1868. Liabilities of Promoters 1879. Remuneration of Promoters 18810. Formation of Company [Section 7 read with Companies (Incorporation) Rules 2014] 18811. Step by Step formalities for formation of a New Company 18912. Incorporation of Companies [Section 7] 18913. Punishment for furnishing false or incorrect information at the time of incorporation 19214. Incorporation through SPICE 19415. Provisions specifically relating to incorporation of Companies with Charitable objects under

Section 8 19516. Filing of the Notice for situation of the Registered office with the ROC 19517. Pre-incorporation or Preliminary or Promoters Contract 19618. Conclusiveness of Certificate of Incorporation 20019. Service of Documents [Section 20] 209

(1) Service of documents to Company 209(2) Service of documents to registrar or member 209

20. Authentication of Documents, Proceedings & Contracts [Section 21] 21021. Execution of Bills of exchange etc [Section 22] 210

(1) Acceptance, endorsement etc. of Bill of exchange, hundi etc. 210(2) Authorization by Company 210(3) Binding nature of authorization given by Company 210

1. List of Sections under Chapter Formation of Company

Section Particular of Section

Section 2(69) Definition of Promoter

Section 7 Incorporation of Company

Section 8 Formation of Company with Charitable Objects

Section 9 Effect of Registration

Section 20 Service of Documents

Section 21 Authentication of document, proceedings and contracts

Section 22 Execution of Bills of Exchange, etc.

184 Promotion & Formation of Companies Chap. 9

2. IntroductionA company comes into existence is generally by a process referred to as incorporation. Once a company

has been legally incorporated, it becomes a distinct entity from those who invest their capital and labour torun the company.

Usually the first step to form a company is the process known as ‘promotion’ where a personpersuades others to contribute capital to a proposed company before it is incorporated. Such a person iscalled the promoter of the company.

Promoters also can enter into a contract on behalf of a company before or after it has been granted acertificate of incorporation, and arrange share issues in the name of the company.

Section 3 to 22 of the Companies Act, 2013 (hereinafter called the Act) read with Companies(Incorporation) Rules, 2014 made under Chapter II of the Act (hereinafter called ‘the Rules’) cover theprovisions with regard to incorporation of companies and matters incidental.

3. Promoter

1. Definition of the word promoterSection 2 (69) of the Companies Act, 2013 defines the term ‘promoter’ as under:“Promoter” means a person—(a) who has been named as such in a prospectus or is identified by the company in the annual

return referred to in section 92; or

(b) who has control over the affairs of the company, directly or indirectly whether as ashareholder, director or otherwise; or

(c) in accordance with whose advice, directions or instructions the Board of Directors of thecompany is accustomed to act.

Provided that sub-clause (c) shall not apply to a person who is acting merely in a professionalcapacity.Further, according to SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009,“promoter” includes:

(i) the person or persons who are in control of the issuer;

(ii) the person or persons who are instrumental in the formulation of a plan or programme pursuantto which specified securities are offered to public;;

(iii) the person or persons named in the offer document as promoters.

2. Meaning of PromoterA promoter is a one (i.e. individual firm, company etc.) who performs the preliminary dutiesnecessary to bring the company into being and float it, i.e. who brings the company into existence.He conceives the ideas, develops it and induces others to join the enterprise. Thus, promoter isneither a term of law nor of act; but of business. The promoter originates the scheme for theformation of a company gets together the subscribers to the memorandum; gets the memorandumand articles prepared, executed and registered; finds the bankers, brokers and legal advisers,finds the first directors, settles the terms of preliminary contracts with vendors and makesarrangement for preparation, advertisement and circulation of the prospectus and placement ofthe capital.The question whether a person is or is not a promoter is a question of fact depending upon the roleperformed by him in the formation of the company.

Case Law Lydney and Wigpool Iron Ore Co. Ltd. v Bird

But a person who merely acts in a professional capacity on behalf of the promoter such as a solicitor oran accountant and who is paid by him is not a promoter.

Chap. 9 Promotion & Formation of Companies 185

4. Legal position of PromoterThe company not being in existence a promoter is neither an agent of, nor a trustee for, the company.

But he occupies a fiduciary position (i.e., position of trust & confidence) in relation to the company hepromotes. The fiduciary relation means full disclosure of the relevant facts, including any profits made.

Quick Recap

Case Study 1 Sec 2(69)

Who shall be considered as promoter according to the definition given in the Companies Act, 2013?Explain.AnswerPromoter- According to section 2 (69) of the Companies Act, 2013, Promoter means a person –(a) who has been named as such in a prospectus or is identified by the company in the annual return

referred to in section 92; or

(b) who has control over the affairs of the company, directly or indirectly whether as a shareholder,director or otherwise; or

Named

Individualor

Firmor

Company

orAs such inProspectus

AnnualReturn

Meaning

Sec – 2(69) → Promoters

oror Direct or

IndirectControl over

Company

Board of Directors isaccustomed to act onhis advice (other than

professionalcapacity)

Brings theCompany

intoexistence

Conceives&

Develops idea&

Induces othersto join

Originate Scheme+

Arrange Subscribers+

MOA & AOA+

Bankers+

First Directors+

Preliminary Contracts

Legal Position

Fiduciary Relation

Agent Trustee

Definition

Person

Sec 92To ROC within 60 days of AGM MGT-7

Company was notin existence at thetime of promotions

Relations of Trust& confidence

Lydney &Wigpool Iron Ore

Co. Ltdv

Bird

Promoter musthave personal

business interest

Property ofCompany

is notvested inthe name

ofpromoter

CHAPTER

11LIMITED LIABILITY

PARTNERSHIPACT, 2008

Synopsis1. Introduction 2632. Salient Features 2643. Distinction between LLP and Partnership 2654. Distinction between LLP and Company 2665. Contribution of Capital 2676. Statement of Solvency and Accounts 2677. Limited Liability 2688. Members and Designated Members 2689. Roles and Responsibilities of Designated Partners 26910. LLP Agreement 27011. LLP for the Professionals 27112. Making a Choice 27113. Winding up and dissolution 27214. Incorporation of Limited Liability Partnership 27415. Name of LLP 27716. Registered Office of LLP 27717. LLP Agreement 27818. Responsibilities of Designated Partner - Where the LLP has contravened the provisions of LLP

Act 27919. Partners’ Obligations 27920. Maintenance of Books and Account (Rule 24 of LLP Rules) 28021. Audit of Limited Liability Partnership Accounts (Rule 24 of LLP Rules) 28122. Filing of Annual Return (Rule 25 of LLP Rules) 28123. Investigation of the Affairs of Limited Liability Partnership (Section 43) 28224. Foreign Limited Liability Partnership 28225. Draft LLP Agreement 283

1. IntroductionLimited liability partnership (LLP) is an incorporated partnership formed and registered under the limited

liability partnership Act, 2008 with limited liability and perpetual succession.

The Act came into force, for most part, on 31st March 2009 followed by its Rules on 1st April 2009 andthe registration of the first LLP on 2nd April 2009.

The arrival of the much-desired and long-awaited LLP marked the culmination of the efforts of severalexpert committees (given below) which recommended its introduction.

Bhatt Committee of 1972

Naik Committee of 1992

AbidHussain Committee of 1997

Gupta Committee of 2001

Naresh Chandra Committee of 2003

JJ lrani Committee of 2005.

264 Limited Liability Partnership Act, 2008 Chap. 11LLP is viewed as an alternative corporate business vehicle that provides the benefits of limited liability

but allows its partners the flexibility of organizing their internal structure as a partnership based on a mutuallyarrived agreement (LLPA).

The LLP would also be a suitable vehicle for small and medium enterprises and for investment by venturecapitalists.

Quick Recap

2. Salient FeaturesThe salient features of the Limited Liability Partnership are as follows:-

1. The LLP is a body corporate and a legal entity separate from its partners.

2. Any two or more persons associated for carrying on a lawful business with a view toearn profit canform LLP.

3. The LLP has a perpetual succession.

4. The mutual rights and duties of partners of an LLP and its partners shall be governed by an agreementbetween partners or between the LLP and the partners subject to the provisions of the proposedlegislation.

5. A LLP is a separate legal entity, liable to the full extent of its assets, with the liability of the partnersbeing limited to their agreed contribution in the LLP.

6. No partner would be liable on account of the independent or un-authorized acts of other partners ortheir misconduct.

First LLP in Indiaon 2nd April 2009

BackgroundBhatt Committee 1972Naik Committee 1992

AbidHussain Committee 1997Gupta Committee 2001

Naresh Chandra Committee 2003JJIrani Committee 2005

Introduction

Partnership firm incorporated Under LLP Act 2008 31st March 2009onwards applicable

LimitedLiability

LLPA

Agreement

Alternative Corporate Businessvehicle

LLP

Chap. 11 Limited Liability Partnership Act, 2008 265

7. Every LLP shall have at least two partners and shall also have at least two individuals as designatedPartners, of whom at least one shall be resident in India.

8. A statement of accounts and solvency shall be filed by every LLP with the Registrar every year.

9. The Central government has power to investigate the affairs of an LLP, if required, by appointment ofcompetent inspector for the purpose.

10. The Indian Partnership Act, 1932 shall not be applicable to LLPs.

Quick Recap

3. Distinction between LLP and PartnershipThe principle points of difference between the LLP and a partnership are as follows:-

1. LLP is a separate legal entity and therefore, can be sued or it can sue other without involving thepartners. A partnership firm is not distinct from the several persons who compose it.

2. The partners of a LLP would have limited liability i.e., they would not be liable beyond the moneycontributed by them. Whereas, partners of a firm would have unlimited liability.

3. In a partnership, the property of the firm is the property of the partners comprising it. In a LLP, itbelongs to the LLP and not to the individuals comprising it.

4. Whereas a partnership can be formed either orally or by a deed of agreement whether registered ornot, LLP is formed by an incorporation document and an LLP agreement, thus giving it a legality.

5. Whereas a registered or unregistered partnership cannot have more than 50 partners, LLP can havemore than that number since no upper limit has been laid down by the Act.

6. A LLP has perpetual succession, i.e., the death or insolvency of a shareholder or all of them does notaffect the life of the LLP, whereas the death or insolvency of a partner dissolves the firm, unlessotherwise provided.

7. HUF can become partner in Partnership firm but HUF cannot become partner in LLP

Quick Recap

S. No Partnership LLP

1. No Separate Legal Entity Separate Legal Entity

2. Unlimited liability Limited Liability.

3. May be oral and unregistered Written and Registered.

4. Property of firm is property ofpartners

Property of LLP is property of LLP only

Salient Features

Body Corporate andSeparate Legal

Entity

Min 2 persons [atleast 1 resident of India]

PerpetualSuccession

LLPA

Partner notliable for act ofother partner

LimitedLiability

Empowerment toCentral Government

Indian PartnershipAct, 1932 is not

applicable to LLP

Difference between LLP and Partnership

CHAPTER

12 FORMATION ANDREGISTRATION OF NGOS

Synopsis1. Section 8 Company 2882. Features of a Section 8 Company 2883. Exemptions available to Section 8 Company 2894. Procedure for Registration of Section 8 Company 2905. Procedure for Obtaining of Licence under Section 8 read with Rule 20 2906. Trust 2917. Public Trust and Private Trust 2918. Persons who can create a Trust 2919. Persons who can be a Trustee 29210. Exemptions available to trusts 29211. Formation of Trust 29312. Society 294

An NGO may be in the form of Section 8 Company, Trust and Society.

1. Section 8 CompanyIntroduction

A company incorporated under Section 8 of the Companies Act, 2013 is incorporated for promoting :

Commerce

Art

Science

Sports

Education

Research

Social welfare

Religion

Charity

Protection of environment

Any such other object

provided the profits, if any, or other income is applied for promoting only the objects of the company.

Such a company is a non-profit body and is akin (similar) to a NGO.

In some respects, they are similar to a Trust or Society, except that such companies are incorporatedunder the Companies Act, whereas a Trust or Society is registered under the regulations of the respectiveState Government where it is located.

2. Features of a Section 8 CompanyCertain features of a section 8 company can be summarized as under:

It is formed for promoting commerce, art, science, sports, education, research, social welfare,religion, charity, protection of environment or any such other object.

The profits, if any, are applied in promoting its objects.

It prohibits the payment of dividends to its members.

Chap. 12 Formation and Registration of NGOs 289

Section 8 Company may be incorporated without using the word "Limited” or “Private Limited",as the case may be.

There is no requirement of any minimum paid up capital. It is exempted from stamp duty registration. A one Person company cannot function as a Section 8 company. Many privileges and exemptions are available to such a company.

3. Exemptions available to Section 8 CompanyBy Notification dated June 5, 2015, the Central Government has granted various exemptions, either in

full or in part from the provisions of the Companies Act, 2013. The key exemptions are summarized below:1. Company Secretaries no longer mandatory

Section 8 companies are no longer required to appoint a company secretary to ensure compliancewith the provisions of the Companies Act 2013. This exemption will result in cost reduction for thesection 8 companies.

2. No need for minimum share capitalIn line with the relaxation announced for companies, section 8 companies too are no longerrequired to maintain a minimum share capital.

3. Shorter notice period for AGMsBy amendment to section 101, it is proposed that only 14 days' notice, in lieu of 21 days, shall berequired to convene an annual general meeting of a section 8 company

4. No necessity to record minutes of meetings, unless required, etc.Section 118 which requires recording of minutes of proceedings of general meetings, board meetingsand other resolutions including those passed by way of postal ballot, shall now no longer apply tonon-profit enterprises, unless the articles provide otherwise.

5. Dispatch of financial statements and other documents [Section 136(1)]Instead of twenty one days prescribed under the section, Section 8 companies are allowed to dispatchthe said documents not less than 14 days before the date of the meeting.

6. Only two directors requiredSection 149(1) shall no longer apply to section 8 companies implying that such companies shall notbe required to have a minimum number of directors on its board. However quorum for boardmeetings has been fixed at 2.

7. Independent Directors not requiredClauses requiring and governing appointment of independent directors have been waived and section8 company is not required to appoint independent directors.

8. Exemption regarding first meeting and board meetingsFurther, section 8 companies shall no longer be required to hold the first meeting of the boardwithin 30 days of incorporation of the company. A meeting of the directors shall however still berequired once every six months.

9. Right of persons other than retiring directors to stand for directorship (Section 160)This right shall no longer be enforceable in section 8 companies, similar to an exemption provided toprivate limited companies. However this exemption shall not apply to companies whose articlesprovide for election of directors by ballot.

10. Directorship in more than 20 companiesThe bar on taking up directorship in more than twenty companies [Section 165] has been relaxed inthe case of section 8 companies. Therefore an individual, if he is eligible, can be a director in morethan 20 section 8 companies.

11. Relaxation in formation of certain Committees referred to in Section 178 of the ActSection 8 companies shall not be required to form the Nomination and Remuneration Committee andthe Stakeholders Relationship Committee as provided in Section 178 of the Act.

290 Formation and Registration of NGOs Chap. 12

12. Disclosure of interest in related party transactions in some cases only [Section 184]A director shall be required to disclose his interest in any firm with which the company is making atransactions, and the company shall be required to maintain a register of all such transactions inwhich its director are interested only and only if with reference to section 188 (related partytransactions), the contract or arrangement exceeds one lakh rupees in value.

4. Procedure for Registration of Section 8 CompanyThe procedure for registration of a Section 8 company is slightly different than incorporation of a private

or public company. It involves two steps, namely:

Obtaining of licence under Section 8 (1) of the Companies Act, 2013; and

Obtaining certificate of incorporation [Already covered in the chapter named Promotion andFormation of Company]

5. Procedure for Obtaining of Licence under Section 8 read with Rule 201. A limited company registered under this Act or under any previous company law and which is

desirous of being registered under section 8, without the addition to its name of the word "Limited" oras the case may be, the words "Private Limited", shall make an application in Form No. INC. 12along with the fee as provided in the Companies (Registration offices and fees) Rules, 2014 to theCentral Government (Power delegated to ROC) for a licence under section 8.

The application shall be accompanied by the following documents, namely:- The memorandum and articles of association of the company;

The declaration as given in Form No. INC.I4 by

o An Advocate

o A Chartered accountant

o A Cost Accountant

o A Company Secretary in Practice

that the memorandum and articles of association have been drawn up in conformity with theprovisions of section 8 and rules made there under and that all the requirements of the Act andthe rules made there under relating to registration of the company under section 8 and mattersincidental or supplemental thereto have been complied with;

For each of the two financial years immediately preceding the date of the applicationo The financial statements

o The Board's reports

o The audit reports

A statement showing in detail the assets (with the values thereof), and the liabilities of thecompany, as on the date of the application or within thirty 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.

The certified copy of the resolutions passed in general or board meetings approvingregistration of the company under section 8.

A declaration by each of the persons making the application in Form No. INC.15.

2. The company shall, within a week from the date of making the application to the Registrar,publish a notice at his own expense, and a copy of the notice, as published, shall be sentforthwith to the Registrar and the said notice shall be in Form No. INC.26 and shall be published-

At least once in a vernacular newspaper in the principal vernacular language of the district inwhich the registered office of the proposed company is to be situated or is situated and circulatingin that district, and at least once in English language in an English newspaper circulating in thatdistrict; and

On the websites as may be notified by the Central Government.

CHAPTER

13VARIOUS INITIAL

REGISTRATIONS ANDLICENSES

Synopsis1. Introduction 2972. Registration under Shops & Establishments 2973. FSSAI 3014. Drug License 3045. PAN 3076. TAN 3097. GST 3108. IE Code 3129. Telecom 31410. Information & Broadcasting 31811. Banking 32812. IRDA Introduction 33013. Functions and Duties of IRDAI 33014. Industrial Entrepreneurs Memorandum (IEM) 33415. Categories of Polluting Industries 336

1. IntroductionA business entity is required to secure various registrations and licenses in order to set up its businesses

in India.

2. Registration under Shops & EstablishmentsOne of the important regulation to which most businesses in India are subject to is the Shop and

Establishment Act, enacted by every state in India.The Act is designed to regulate

Payment of wages

Hours of work

Leave

Holidays

Terms of service

Other work conditions

of people employed in shop and commercial establishments.

298 Various Initial Registrations and Licenses Chap. 13

Quick Recap

Purpose of Shop and Establishment ActThe Shop and Establishment Act in India is promulgated by the state and may slightly differ from state

to state.However, as per the Act, all shops and commercial establishments operating within each state are

governed by the respective Shop & Establishments Act.

Quick Recap

Definition and Meaning of Shop and EstablishmentShops are defined as: Premises

Where goods are sold

Either by retail or wholesale

Or

Where services are rendered to customers

And includes

An office

A store-room

Godown

Warehouse

Workhouse or work place.

Shop & Establishment Act

Registration under Shop & Establishment Act

Every state has its [Shop & Establishment] Act

(+)

As proprietorship, or firm or LLP or Company.

Variation

Bombay S & E Act, 1948

Delhi S & E Act, 1954

Wages(+) Hours (+) Leaves (+) Holiday (+) Terms of Services

Matter

Purpose & objective of S & E Act

Central Govt. State Govt.

Objective to regulate

Chap. 13 Various Initial Registrations and Licenses 299

Establishments are defined as:

Shop

A commercial establishment

Residential hotel

Restaurant

Eating-house

Theatre

Other places of public amusement or entertainment

Such other establishments as defined by the Government by notification in the Official Gazette.

Note - Factories are not covered by the shops & establishments act and are regulated by the Factories Act,1948.

Quick Recap

Commercial Establishments+

Malls+

Residential hotels+

Amusement Parks+

Establishment notified by State

Notification in Official Gazzate of State

Office

(+)

Shop Establishment

Whether in same premise or otherwise

Meaning of Shop & Establishment Act

(or)

Premises where

Goods are sold Services are rendered

Includes

GodownsStores Warehouse

CHAPTER

14 MAINTENANCE OF REGISTERSAND RECORDS

Synopsis1. Registers & Returns 338

(1) Registers 338(2) Returns 338

2. Statutory Books and Optional Books or Registers 339(1) Statutory Books 339(2) Optional Books or Registers 339

3. Register of Members or Debenture Holders or Other Security Holders 3404. [Section 94] Place of Keeping registers and its inspection 3415. Financial Records required to be maintained by Enterprises 343

1. Registers & Returns(1) Registers The Companies Act, 2013 lays down that every company incorporated under this Act must maintain

and keep at its registered office certain books, registers and copies of certain returns, documents etc.These books are known as Statutory Books.

And To give certain notices, file certain returns, forms, reports, documents etc. with the Registrar of

Companies within certain specified time limits and with the prescribed filing fees, such returns arecalled Casual and Periodic Returns.

Some of the statutory registers are required to be kept open by the company for inspection bydirectors, members, creditors of the company and by other persons.

The company is also required to allow extracts to be taken from certain documents, registers,returns etc. and furnish copies of certain documents on demand by a member or by any other personon payment of specified fees.

All the books or registers may be broadly divided into two categories:-

Statutory Books or Registers

Optional or Statistical Books or Registers

(2) ReturnsThe returns can be classified into two categories namely:—

Casual Returns and Periodical Returns

Casual ReturnsCasual returns are those returns, which are required to be filed as, and when contingency arises. The

important casual returns are the creation of charge, return of allotment, change of directors, change in theregistered office, special resolution, etc.

Periodical ReturnsPeriodical returns are those returns, which are required to be filed after a specified period. There are

these important periodical returns. These are :-

(i) Annual Return under Section 92.(ii) Balance Sheet and Profit and Loss Account under Section 137.

Chap. 14 Maintenance of Registers and Records 339

Quick Recap

2. Statutory Books and Optional Books or Registers(1) Statutory Books

Every company incorporated under the Act is required to keep at its registered office inter-alia, thefollowing statutory books and registers –

1. [Sec 54] Register of Sweat Equity Shares.2. [Sec 68] Register of Securities bought back.3. [Sec 73] Register of deposits.4. [Sec 85] Register of charges.5. [Sec 88] Register of members6. [Sec 88read with Rule 6] Index of members.7. [Sec 88] Register of debenture holders [Form No. MGT.2]8. [Sec 88] Index of debenture holders.9. [Sec 88] Register and index of beneficial owners.10. [Sec 88 read with Rule 7] Foreign register of security holders.11. [Sec 110] Register of Postal Ballot.12. [Sec 118] Minutes of General Meetings and Board Meetings.13. [Sec 128] Books of accounts.14. [Sec 170] Register of Directors and Key Managerial Personnel.15. [Sec 186] Register of Loans, Guarantee, Security Investment .16. [Sec 187] Register of Investment in securities not held in Company’s name.17. [Sec 189] Register of Contracts with companies or firms in which directors are interested.

(2) Optional Books or RegistersWith a view of keeping proper records, companies invariably maintain some other books in addition to

statutory books. These are called optional books. These are :-1. Register of transfer of shares.2. Register of documents sealed.3. Register of share application and allotment.4. Director’s Attendance Books.5. Register of attendance of shareholders, etc.6. Register of proxies for general meeting.

Registers & Returns

Registers → Books to maintained by Company Returns → Returns to be filed by Company with ROCor other Government Authorities

Periodically to be filed toROC

B/SP&L

Sec - 137

AnnualReturn

Sec - 92

Statutory

Mandatory

17 Registers

Non-Statutory

Optional

5 Registers

Casual

As per nature oftransaction

Ex – SR – MGT – 14Charge create = CHG - 1

340 Maintenance of Registers and Records Chap. 14

Quick Recap

3. Register of Members or Debenture Holders or Other Security Holders[Section 88] Register of Members, etc1. Every company shall keep and maintain the following registers in such form and in such manner as may

be prescribed, namely:-

(a) Register of members, indicating separately for each class of equity and preference sharesheld by each member residing in or outside India;

(b) Register of debenture – holders; and

(c) Register of any other security holders.

[Rules 3(1) of Companies (Management and Administration) Rules, 2014.Every company shall, from the date of its registration, keep and maintain a register of its members inone or more books in Form No. MGT.1.

[Rules 4 of Companies (Management and Administration) Rules, 2014.Every company shall, from the date of its registration, keep and maintain a register of its Debentureholders or other security holders in one or more books in in Form No. MGT.2.

2. [Rules 6 of Companies (Management and Administration) Rules, 2014.Every register maintained as mentioned above, shall include an index of the names included therein.However, the maintenance of index is not necessary in case the number of security holder is less than50.

3. Note:- The register and index of beneficial owners maintained by a depository under section 11 of theDepositories Act, 1996, shall be deemed to be the corresponding register and index for the purposes ofthis Act.

Registers

Statutory Optional(1) Sec – 54 Sweat equity share (1) Register of share Application and Allotment

(2) Sec – 68 Buy Back

(3) Sec – 73 Registers of Depositor

(4) Sec – 85 Registers of Charges (2) Register of transfer of shares

(5) Sec – 88 Registers of Members

(6) Sec – 88 Index of Members (3) Register of Documents sealed

(7) Sec – 88 Register of Debenture holder

(8) Sec – 88 Index of Debenture holder (4) Register of Directors Attendance (Mandatory

under SS-1)

(9) Sec – 88 Foreign Register of Member

(10) Sec – 88 Registered an index of Beneficial owner

(11) Sec – 110 Register of Postal Ballot (5) Register of proxies of G.M

(12) Sec – 118 Register of minutes of B.M & G.M

(13) Sec – 128 Books of Accounts

(14) Sec – 170 Register of Director and KMP

(15) Sec – 186 Register of Loan/Guarantee/Security and Investment

(16) Sec – 187 Register of Investment in Securities not held in Co’s name(17) Sec – 189 Register of Contract in which Director are interested

CHAPTER

15IDENTIFYING LAWS

APPLICABLE TO VARIOUSINDUSTRIES

Synopsis1. Industry Specific Laws 3462. Beverages (Non-Alcoholic) 3473. Real Estate Sector 3474. Automobile 3475. The Motor Transport Workers Act, 1961 3476. Aviation Sector 3477. The Building & Other Construction Workers (Regulation of Employment & Conditions of Service) Act,

1996 3488. Labour Welfare Funds for Social Assistance to Workers 3489. Plantation Labour Act, 1951 34810. The Mines Act, 1952 34911. The Inter-State Migrant Workmen (Regulation of employment and conditions of service) Act, 1979 34912. Pharmaceutical Sector 35013. Computer Programming, Consultancy and Related Services 35014. Gas Industry 35015. Oil & Petroleum Sector 35016. Power 35017. Sugar Industry 35018. Tobacco Industry 35119. Insurance 35120. Commercial Banks 35121. Human Health Sector 35122. Mining of Metal Ores 35223. Edible Oils 35224. Road Transport 35225. Ensuring Effective Contract Management 352

1. Industry Specific LawsThe Shops and Establishments Act, 1953

1. The Shops and Establishments Act, 1953 was enacted to provide statutory obligation and rights toemployees and employers in the unorganized sector of employment, i.e. shops and establishments.

2. It is applicable to all persons employed in an establishment with or without wages, except themembers of the employer's family.

3. It is a State legislation and each State has framed its own rules for the Act. The State Governmentcan exempt, either permanently or for a specified period, any establishments from all or anyprovisions of this Act.

4. The Act provides for compulsory registration of shop or establishment within 30 days ofcommencement of work and all communications of closure of an establishment within 15 daysfrom its closing.

5. It also lays down the hours of work per day and week as well as the guidelines for spread-over, restinterval, opening and closing hours, closed days, national and religious holidays, overtime work, etc.

Chap. 15 Identifying Laws applicable to Various Industries 347

2. Beverages (Non-Alcoholic)1. Food Safety and Standards Act, 2006

2. The Insecticide Act, 1968

3. Export (Quality Control and Inspection) Act, 1963

4. Inflammable Substances Act,1952

5. Agricultural and Processed Food Products Export Cess Act, 1986

6. Agricultural Produce ( Grading and Marking ) Act, 1937

3. Real Estate Sector1. Housing Board Act, 1965

2. Transfer of Property Act, 1882

3. Building and Other Construction Workers’ (Regulation of Employment and Conditions of Services)Act, 1996

4. Real Estate Regulatory Act, 2016

4. Automobile1. Motor Vehicles Act, 1988

2. Motor Transport Workers Act, 1961

3. The Explosive Act, 1884

4. Petroleum Act, 1934

5. Environment (Protection) Act, 1986

6. Water( Prevention and Control of Pollution) Act, 1974

7. Air (Prevention and Control of Pollution) Act, 1981

5. The Motor Transport Workers Act, 19611. The Act was enacted to provide for the welfare of motor transport workers and to regulate the

conditions of their work.

2. It applies to every motor transport undertaking employing 5 or more motor transport workers. TheState Government may, after giving notification in the Official Gazette, apply all or any of theprovisions of this Act to any motor transport undertaking employing less than 5 motor transportworkers. According to the Act, 'motor transport undertaking' means "an undertaking engaged incarrying passengers or goods or both by road for hire or reward and includes a private carrier".

3. Every employer of a motor transport undertaking to which this Act applies shall have the undertakingregistered under this Act.

4. No adult motor transport worker shall be required or allowed to work for more than eight hours inany day and forty-eight hours in any week. Also, no adolescent shall be employed or required towork as a motor transport worker in any motor transport undertaking for more than six hours a dayincluding rest interval of half-an-hour and between the hours of 10 P.M. and 6 A.M.

6. Aviation Sector1. Aircraft Act, 1934

2. Airports Authority of India Act, 1994

3. Carriage by Air Act, 1972

4. Tokyo Convention Act, 1975

5. Anti-Hijacking Act, 1982

6. Suppression of Unlawful Acts against Safety of Civil Aviation Act, 1982

7. Airports Economic Regulatory Authority of India Act,2008

348 Identifying Laws applicable to Various Industries Chap. 15

7. The Building & Other Construction Workers (Regulation of Employment & Conditions of Service)Act, 1996

1. This law was enacted to regulate the employment and conditions of service of building and otherconstruction workers and to provide for their safety, health and welfare measures.

2. The Act is applicable to :

Every establishment which employs 10 or more workers in any building or other construction work

and

To the projects costing more than ` 10 lakh.

3. The Act contains provision for immediate assistance to the workers in case of :

Accidents

Old age pension

Loans for construction of house

Premium for group insurance

Financial assistance for education

Medical expenses

Maternity benefits etc.

8. Labour Welfare Funds for Social Assistance to WorkersTo extend a measure of social assistance to workers in the unorganized sector, the concept of 'Labour

Welfare Fund' was evolved and five welfare funds were set up under the Ministry of Labour andEmployment.

These funds are aimed to provide housing, medical care, educational and recreational facilities to workersemployed in beedi industry, certain non-coal mines and cine workers. Such funds are financed out of theproceeds of cess levied under respective Cess/Fund Acts. The various legislation so enacted include:—

1. The Mica Mines Labour Welfare Fund Act, 1946It was enacted to provide for constitution of a fund for financing the activities which promote welfareof labour employed in the mica mining industry.

2. The Limestone and Dolomite Mines Labour Welfare Fund Act, 1972It was enacted to provide for the levy and collection of a cess on limestone and dolomite forfinancing the activities which promote the welfare of persons employed in the limestone anddolomite mines.

3. The Iron Ore Mines, Manganese Ore Mines & Chrome Ore Mines Labour Welfare Fund Act,1976It was enacted to provide for financing the activities which promote the welfare of persons employedin the iron ore mines, manganese ore mines and chrome ore mines.

4. The Beedi Workers Welfare Fund Act, 1976It was enacted to provide for financing the measures which promote the welfare of persons engagedin beedi establishments.

5. The Cine Workers Welfare Fund Act, 1981 - was enacted to provide for financing the activitieswhich promote the welfare of certain cine-workers.

9. Plantation Labour Act, 19511. This Act is enacted to provide for the welfare of plantation labour and regulates the conditions of

work in plantations.

2. According to the Act, the term 'plantation' means "any plantation to which this Act, whetherwholly or in part, applies and includes offices, hospitals, dispensaries, schools, and any otherpremises used for any purpose connected with such plantation, but does not include any factoryon the premises to which the provisions of the Factories Act,1948 apply".

CHAPTER

16 INTELLECTUAL PROPERTYLAWS

Synopsis1. Meaning of Intellectual Property 3532. Intellectual Property Vis-A-Vis Business: A Rationale of Relativity 3533. Introduction 3544. Trademarks 3545. Points to Consider While Adopting a Trademark 3556. Classification of Goods & Services under Trademarks Act, 1999 3557. Enforcement of Trademark Rights 3568. Copyrights 3569. Classes of Work for Which Copyright Protection is Available 35610. Protection to Authors (Rights of Authors to be Protected) 35611. Term of Copyright 35712. Registration of Copyright 35713. Owners of copyrights 35714. Assignment of Copyright 35815. Exceptions to the Infringement of Copyright 35816. Rights (Powers) of the Registrar of Copyrights (DAPIS) 35817. Administration of Copyright Law 35818. Infringement of Copyright 35919. Penalty for Infringement and the Status of the Infringing Copies 35920. Patents 35921. What can be patented 35922. What cannot be patented 36023. Tenure of Patents 36024. Enforcement of Patent Rights 36025. Geographical Indication of Goods (Registration and Protection) Act, 1999 36026. Meaning of Geographical Indication 36127. Salient Features of Geographical Indication Act 36128. Designs Act, 2000 36129. Salient Features of the Design Act 2000 362

1. Meaning of Intellectual Property The term 'intellectual property' related to the creation of human mind and human intellect.

A trademark, copyright or a patent right are the important IPRs. They are known as IncorporealAssets.

As patents, copyrights and trademarks represent title to property, they can be sold or assigned by theowner or holder thereof to another person in accordance with law.

The most important objective of IPR is to serve as a powerful incentive for entrepreneurs to investresources into, creating ideas and inventions. In this way research and development is encouraged.

It encourages the dissemination of useful information for further research for the benefit of society.

2. Intellectual Property Vis-A-Vis Business: A Rationale of Relativity In today's world, the abundant supply of goods and services on the markets has made life very

challenging for any business, big or small.

354 Intellectual Property Laws Chap. 16

In its on-going quest to remain ahead of competitors in this environment, every business strives tocreate new and improved products (goods and services) that will deliver greater value to users andcustomers than the products offered by competitors.

To differentiate their products - a prerequisite for success in today's markets - businesses rely oninnovations that reduce production costs and/or improve product quality.

In the current knowledge-driven, private sector oriented economic development paradigm, thedifferent types of intangible assets of a business are often more important and valuable than itstangible assets.

A key subset of intangible assets is protected by what are labeled collectively as intellectual propertyrights (IPRs).

These include trade secrets protection, copyright, design and trademark rights, and patents, as well asother types of rights. IPRs create tradable assets gut of products of human intellect, and provide alarge array of IPR tools on which businesses can rely to help drive their success through innovativebusiness models.

Business leaders and managers, therefore, require a much better understanding of the tools of the IPsystem to protect and exploit the IP assets they own, or wish to use, for their business models andcompetitive strategies in domestic and international markets,

3. IntroductionIntellectual property (IP) refers to the creations of the human mind like inventions, literary and artistic

works, and symbols, names, images and designs used in commerce.

Intellectual property is divided into two categories :1. Industrial property, which includes inventions (patents), trademarks, industrial designs, and

geographic indications of source.

2. Copyright, which includes literary and artistic works such as novels, poems and plays, films, musicalworks, artistic works such as drawings, paintings, photographs and sculptures, and architecturaldesigns.

Rights related to copyright include those of performing artists in their performances, producers ofphonograms in their recordings, and those of broadcasters in their radio and television programs. Intellectualproperty rights protect the interests of creators by giving them property rights over their creations.

The most noticeable difference between intellectual property and other forms of property, however, isthat intellectual property is intangible, that is, it cannot be defined or identified by its own physicalparameters. It must be expressed in some discernible way to be protectable. Generally, it encompasses fourseparate and distinct types of intangible property namely patents, trademarks, copyrights, and trade secrets,which collectively are referred to as “intellectual property.”4. Trademarks A trademark is any

o Word

o Symbol

o Phrase

o Logo

o Design

adopted and placed on a product offered for sale or on a container to identify its source.

In this way, the connection between the product and the manufacturer or trader is brought to thenotice of the public at large.

Trademarks are an integral part of a firm's strategy to differentiate its products and services fromother competitors and to establish consumer brand loyalty. For example, the Nike "swoosh" designidentifies athletic footwear made by Nike.

Chap. 16 Intellectual Property Laws 355

Although rights in trademarks are acquired by use, registration with the Trademark Office underthe Trademark Act, 1999 allows you to more easily enforce those rights.

As per the definition provided under Section 2(zb) of the Trademarks Act. "Trademark" means amark capable of being represented graphically and which is capable of distinguishing the goodsor services of one person from those of others and may include shape of goods, their packaging,and combination of colors.

5. Points to Consider While Adopting a TrademarkAny startup needs to be cautious in selecting its trade name, brands, logos, packaging for products,

domain names and any other mark which it proposes to use. You must do a proper due diligence beforeadopting a trademark.The trademarks can be broadly classified into following 5 categories:

1. GenericGeneric marks means using the name of the product for the product, like "Salt" for salt.

2. DescriptiveDescriptive marks mean the mark describing the characteristic of the products, like using the mark"Fair" for the fairness creams.

3. SuggestiveSuggestive marks mean the mark suggesting the characteristic of the products, like "Habitat" forhome furnishings products.

4. ArbitraryArbitrary marks means mark which exist in popular vocabulary, but have no logical relationship tothe goods or services for which they are used, like "Blackberry" for phones.

5. Invented or CoinedThe invented or coined marks means coining a new word which has no dictionary meaning, like"Adidas".

The strongest marks, and thus the easiest to protect, are invented or arbitrary marks. The weaker marksare descriptive or suggestive marks which are very hard to protect. The weakest marks are generic markswhich can never function as trademarks.6. Classification of Goods & Services under Trademarks Act, 1999

India follows the NICE Classification of Goods and Services for the purpose of registration oftrademarks.

The NICE Classification groups products into 45 classes. Classes 1 to 34 include goods Classes 35 to 45 include servicesThe NICE Classification is recognized in majority of the countries and makes applying for trademarks

internationally a streamlined process. Every startup, seeking to trademark a good or service, has tochoose from the appropriate classes, out of the 45 classes.

Thus, registration of trademark is given for particular class of goods or services. Hence, it is possiblethat same brand name may be used by different proprietors for different classes of goods. For instance,VIP bags and VIP undergarments are manufactured by entirely different and unconnected manufacturers.

Generally, on dissimilar goods, i.e., goods belonging to different classes, identical or similar trademark isallowed but there is an exception. When a person (who has already got his trademark registered) objects onhis similar trademark being allowed to another person and he proves two things that he has got reputation &the other person is trying to take undue benefit of him, then identical trademark may not be allowed even ondissimilar goods.

Case Law Sony Kabashiki v Shamrao

In Sony Kabashiki v Shamrao, the name Sony in respect of nail polish was allowed, as it is not likely tocause confusion or deception in the minds of consumers of electronic goods

CHAPTER

17 COMPLIANCES UNDERLABOUR LAWS

Synopsis1. Payment of Gratuity Act, 1972 3632. Payment of Bonus Act, 1965 3673. Factories Act, 1948 3704. Industrial Disputes Act 3785. Minimum Wages Act, 1948 3856. Payment of Wages Act, 1936 3907. Contract Labour Regulation and Abolition Act, 1970 3938. Trade Union Act, 1926 3979. Maternity Benefit Act, 1961 40010. Child and Adolescent Labour Prohibition and Regulation Act 1986 40211. Prevention of Sexual Harassment of Women at Workplace Prevention Prohibition and Redressal Act, 2013 40412. Employees Compensation Act, 1923 40613. Employees State Insurance Act, 1948 41014. Important Case Laws 412

1. Payment of Gratuity Act, 1972Introduction

Gratuity is a lump sum payment to an employee when he retires or leaves the service. It is basically aretirement benefit to employees so that they can live comfortably after retirement.

Quick Recap

ExcludingJammu andKashmir forPlantation

Gratuity Act, 1972

Introduction of Gratuity Act, 1972

Applicableto whole of

India

Gratuity is the one of the amount paid by the employer to his employees at the time of termination ofservice. Gratuity is purely employer’s payment for which no contribution is made by employees

(Sec 1) Extent and applicability

Once applicableshall remain

applicable evenif no. of

employeessubsequentlyfalls below 10

1. Shop2. Factory3. Establishment4. Plantation5. Port6. Railways7. Mine8. Oil fields(Oct, 2011)

In whichatleast 10 or

moreemployees

364 Compliances under Labour Laws Chap. 17

Applicability of the ActThe Act applies to every factory, mining, plantation, port, and railway company, It also applies to every

shop and establishments where 10 or more persons are employed or were employed on any day of thepreceding 12 months.

Eligibility for GratuityGratuity is payable to a person in the following situations:

Resignation;

Retirement;

Termination on account of disablement;

Death.

It may be noted that gratuity is payable only after a employee completes five continuous years of service.However in the case of death or disablement, the condition of minimum 5 years of continuous service is notapplicable.

Case Study 1A

Comment on the applicability of Gratuity Act, 1972

1) Plantation in Srinagar with 12 employees (Not applicable)2) Establishment in Mumbai with 8 employees (Not applicable)3) Shop in Delhi with 15 employees (Applicable)

Case Study 1B

In the year 2009-10, there are 8 employees in an establishment, whereas during next year, number ofemployees increased to 12 and in next financial year it has been reduced to 6 employees Comment on the

applicability of Gratuity Act, 1972

According to Section

As per Sec 1 of gratuity Act, 1972, This act is applicable to the establishment in which there are atleast 10employees and once applicable shall remain applicable even if number of employees subsequently falls

below 10

Facts of the problem

In the first financial year i.e. 2009-10 there were 8 employees in an establishment and subsequently increasedto 12 employees in year 2010-11, and in third year i.e. 2001-12, number of employees reduced to 6.

Conclusion

During 2009-10, there are only 8 employees and hence Gratuity Act is not applicable. But in the year 2010-11, Gratuity Act shall be applicable as number of employees is 12. In the year 11-12, though there are 6

employees but Gratuity Act will continue to apply because subsequent reduction in no. of employees shallnot affect the applicability of Gratuity Act if applicable number.

Chap. 17 Compliances under Labour Laws 365

Amount of Gratuity PayableGratuity is payable at the rate of fifteen days wages (basic salary + dearness allowance, as per the latest

salary/wages drawn) for every completed year of service. In the last year of service if the employee hascompleted more than 6 months, it will be treated as full year for the purpose of gratuity. In case of seasonalestablishments, gratuity is payable at the rate of 7 days' wages for each season.

It may be noted that here per day wages is calculated by dividing the monthly salary/wages by 26 days.

Maximum gratuity payable under this Act is ` 20 lakhs.

Partial Forfeiture of Gratuity & Total Forfeiture of GratuitySection 4(6)(a) of the Payment of Gratuity Act, 1972 provides that the gratuity of an employee whose

services have been terminated for any act, willful omission or negligence causing any damage or less to, ordestruction of, property belonging to the employer, shall be forfeited to the extent of the damage or loss socaused. The right of forfeiture is limited to the extent of damage or loss caused.

Section 4(6)(b) deals with a case where the services of an employee have been terminated:

For riotous and disorderly conduct or any other act of violence on his part, or

For any act which constitutes an offence involving moral turpitude provided that such offence iscommitted by him in the course of his employment

Case Law Bharat Gold Mines Ltd. v Regional Labour Commissioner

In such cases, the gratuity payable to the employee may be wholly or partially forfeited. It has been held inthe case of Bharat Gold Mines Ltd. v Regional Labour Commissioner that when an offence of theft underlaw involves moral turpitude, gratuity stands wholly forfeited in view of section 4(6) of the Act.

Protection of GratuityGratuity payable cannot be attached in execution of any decree or order of any Civil, Revenue or

Criminal Court.

Check List - Payment of Gratuity Act, 1972

S.No Type &Nature ofDocument

Descriptionof the Form

RelevantClause

Schedule ofSubmission/Maintenance

SubmittingAuthority

Remarks

1 Form A Notice ofOpening

Rule 3(1) Within 30 daysfrom which therules becomeapplicable

Concernedcontrollingauthority of the area

2 Form B Notice ofChange

Rule 3(2) Within 30 days ofany change in theparticulars of theestablishment likename, address ornature of business

Concernedcontrollingauthority of the area

3 Form C Notice ofClosure

Rule 3(3) Atleast 60 daysbefore the intendedclosure of thebusiness

Concernedcontrollingauthority of the area

4 Form D Notice forexcludinghusbandfrom family

Rule 5(1) To be submitted by the employee to the employer intriplicate. The employer after receipt forwards a copy tothe concerned controlling authority of the area.

416 Compliances under Labour Laws Chap. 17

34 Form 27 Declaration &Certificate forDependant's

Benefit

Regulation107-A

To be submitted by every person whose claim fordependant's benefit has been admitted at sixmonthly intervals , duly attested by such authority asmay be specified by the director general

35 Form 28 AbstentionVerification

Regulation52-A

To be furnished by every employer to theappropriate office, such particulars & information inrespect of abstention of an insured person fromwork for which sickness benefit or disablementbenefit for temporary disablement have beenclaimed or paid

36 Form 28-A AbstentionVerification

Regulation52-A

To be furnished by every employer to theappropriate office, such particulars & information inrespect of abstention of an insured woman fromwork for which maternity benefit has been claimedor paid

CHAPTER

18 ENVIRONMENTAL LAWS

Synopsis1. Introduction 4172. Water (Prevention and Control of Pollution) Act, 1974 4183. Provision for prevention of water pollution or measures to prevent and control water pollution 4184. Powers of State Board under the Act 4205. [Section 33] Power to make application to courts 4216. Checklist under Water (Prevention and Control of Pollution) Act, 1974 and the Rules therein 4227. Air (Prevention and Control of Pollution) Act, 1981 4228. Relevant provisions of the Act 4229. Powers of the State Board under the Act 42410. Checklist under Air (Prevention and Control of Pollution) Act 1981 and Rules thereunder 42511. Environment Protection Act, 1986 42512. Measures to Control Environmental Pollution or Responsibilities of Persons under the Act 42613. Powers of Central Government under the Act 42714. Environmental Laboratory 42715. Environmental Audit 42816. Environmental Impact Assessment Notification [EIAN] 42817. Checklist under Environment Protection Act, 1986 and Rules thereunder 42818. Public Liability Insurance Act, 1991 42919. Relevant Provisions of the Act 42920. National Green Tribunal Act, 2010 43021. Objectives of National Green Tribunal 43022. Power of National Green Tribunal 430

1. IntroductionRapid industrialization and uncontrolled increase in population with little control over its adverse aspects

is degrading environment at an alarming rate. This is becoming a big health hazard. If the pollution isunchecked, quality of life will deteriorate and earth may soon become uninhabitable. This has beeninternationally recognized and decisions to protect and improve environment were taken at number ofinternational forum.

Thus, number of environment legislations has been enacted in order to control pollution and protectenvironment so as to improve quality of life and health of inhabitants.

Following are the important legislations relating to pollution control and environment production:

1. Water (Prevention and Control Pollution) Act, 1974

2. Air (Prevention and Control of Pollution) Act, 1981

3. Environment (Protection) Act, 1986

4. Public Liability Insurance Act, 1991

5. National Environment Tribunal Act, 1995

All these laws are administered by the Ministry of Environment and Forests. The Pollution Control Boards atthe Central and State levels functions under the said Ministry.

418 Environmental Laws Chap. 18

Quick Recap

2. Water (Prevention and Control of Pollution) Act, 1974Objective or purpose of the ActThe Water (Prevention and Control of Pollution) Act, 1974 provides for the following:1. Prevention and control of water pollution.2. Maintenance or restoring the wholesomeness of water.3. Establishment of Boards for prevention and control of water pollution.

Quick Recap

3. Provision for prevention of water pollution or measures to prevent and control water pollution[Section 24] Prohibition on use of stream or well for disposal of polluting matter and obstructionthereto

A person is prohibited from knowingly using any stream or well for disposal of any poisonous, noxious,or polluting matter.

Further, a person is also prohibited from knowingly putting any matter in stream, which may obstruct itsflow due to which pollution may be aggravated. This restriction is not applicable in the following cases:

1. Constructing across or on the bank of river any building, bridge, dam etc. which he has right toconstruct.

2. Depositing any material on the land for reclining the land for supporting the bed of stream, if suchmaterial do not pollute the stream.

3. Putting into any stream any sand or natural deposit which has flown from such current of stream.

4. Deposit material in stream with the consent of the State Board.

5 Legislations

Air Act,1981

Public LiabilityInsurance Act, 1991

National EnvironmentTribunal Act, 1995

Water Act,1974

EnvironmentAct, 1986

IntroductionIndustrialization has led to degradation of environment. There is an emergent need

to improve quality of life

To control Waterpollution

Restorewholesomeness of

water

Establish board

Water Act, 1974

Objective

CHAPTER

19 DORMANT COMPANY

Synopsis1. Introduction 4322. Important Provisions 4333. Methods of Obtaining Dormant Status 4344. Legal Framework for Dormant Companies 4345. Pre-Requisites for Obtaining the Status of Dormant Company 4356. Benefits or Exemptions Provided to a Dormant Company 4367. Compliance Requirements by Dormant Company 4368. Procedure to Obtain the Status of a Dormant Company 436

1. Introduction

Section 455 of the Companies Act 2013 read with Companies (Miscellaneous) Rules, 2014stipulatethe provisions pertaining to "Dormant Company".

In simple words, dormant company means a company which is

An inactive company in the records of the Registrar of Companies

and

Which is not carrying out any business activity

and

Has applied to the Registrar of Companies to change its status in the Register of Companiesmaintained by the Registrar of Companies from "Active Company” to "Dormant Company”.

A Dormant Company offers excellent advantage to the promoters who want to hold an asset orintellectual property under the corporate shield for its usage at a last stage.

Quick Recap

(+)

Inactive Company

Dormant Company [Section 455]

Not carrying its business Not made any significantaccounting transaction

In the last 2 financial years

(or)

Chap. 19 Dormant Company 433

2. Important Provisions

The Companies Act, 2013 has recognized a new set of companies called as Dormant Companies.

As per section 455(1) where a company is formed and registered under this Act for a future project or tohold an asset or intellectual property and has no significant accounting transaction, such a company or aninactive company may make an application to the Registrar in such manner as may be prescribed forobtaining the status of a dormant company.

Explanation appended to section 455(1) says that for the purposes of this section,-

1. “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

Has not filed financial statements and annual returns during the last two financial years.

2. "Significant accounting transaction" means any transaction other than-

Payment of fees by a company to the Registrar.

Payments made by it to fulfill the requirements of this Act or any other law.

Allotment of shares to fulfill the requirements of this Act.

Payments for maintenance of its office and records.

As per section 455(2), the Registrar on consideration of the application shall allow the status of a dormantcompany to the applicant and issue a certificate in such form as may be prescribed to that effect. Section455(3) provides that the Registrar shall maintain a register of dormant companies in such form as maybe prescribed.

According to section 455(4), in case of a company which has not filed financial statements or annualreturns for two financial years consecutively, the Registrar shall issue a notice to that company andenter the name of such company in the register maintained for dormant companies.

Further, a dormant company shall have such minimum number of directors, file such documents andpay such annual fee as may be prescribed to the Registrar to retain its dormant status in the register and maybecome an active company on an application made in this behalf accompanied by such documents and feeas may be prescribed.

The Registrar shall strike off the name of a dormant company from the register of dormantcompanies, which has failed to comply with the requirements of this section. [Section 455(6)]

434 Dormant Company Chap. 19

Quick Recap

3. Methods of Obtaining Dormant StatusA Company can obtain status as Dormant company either suo moto or Roc can declare a company as

Dormant.

Suo-Moto ApplicationA company which meets the criteria specified under apply Section 455(1) can apply suo-moto to

Registrar of companies (ROC) for the status of a Dormant company in Form MSC-1 along with such fee asprovided in the Companies (Registration offices and Fees) Rules, 2014 after complying with the provision ofRule 3 of The companies (Miscellaneous)Rules, 2014.

Dormant by ROCIn case of a company which has not filed financial statements or annual returns two financial years

consecutively, the Registrar may issue a notice to such company and enter the name of such company in theregister maintained for dormant companies.

4. Legal Framework for Dormant CompaniesSection 455 of the companies Act 2013 read with Companies (Miscellaneous) Rules, 2014lays down the

law for a company which wishes to acquire status of dormant company.

Maximum period for which the company can be in the dormant status is five consecutive years. Acompany cannot be in the dormant status for more than five years. Before completion of 5 years as dormantCompany, such company have to apply for activation or strike off.

MSC-1 application

(+)Certificate confirming no dispute in

mat- for ownership

MSC-2 Status of Inactive Company

Company ROC

Registration of DC

ABC Ltd.

Note:- IF DC violated Section 455, ROC may strike off its name under Section 248(1).

Transaction Other than

Not filed AOC-4or MGT-7 forlast 2 financial

years

(or)(or)

Inactive Company

Nobusiness

operations

Meaning

Significant AccountingTransaction

No significant transaction duringthe last 2 financial years

Fees toROC

Payment tocomply Act

Allotment ofshares to

subscribers

Payment formaintainingoffice and

records

CHAPTER

20REMOVAL OF NAMES OFCOMPANIES FROM THE

REGISTER OF COMPANIES

Synopsis1. Introduction 4382. [Section 248] Power of Registrar to remove name of the company from the Register of company 4383. [Section 249] Restriction on making application under section 248 in certain situations 4424. [Section 250] Effect of company notified as dissolved 4425. [Section 251] Fraudulent application for removal of name 4436. [Section 252] Appeal to Tribunal 4437. [Section 248 read with Rule 3] List of the Companies which shall not be removed from the Register of

Companies 4448. Striking off the Name of Limited Liability Partnership LLP from the Register of Limited Liability

Partnerships 4469. Legal Framework Dealing with the Provision of Striking Off 44610. Procedure of Striking off of the Name of the LLP by way of an Application to ROC 44611. Procedure to be Followed by ROC for Striking off the Name of the LLP on Suo Motu Basic 44712. Liabilities of Partners to Continue after Striking off 44813. Restoration of the LLP 448

1. IntroductionChapter XVIII (Section 248 - 252) of the Companies Act, 2013 read with the Companies (Removal of

Name of Companies from the Register of Companies) Rules, 2016 contains provisions regarding theremoval of the names of the Companies from the register maintained with the Registrar of Companies. Thesaid section and the rule have been notified on and w.e.f 26th December. 2016.

Quick Recap

2. [Section 248] Power of Registrar to remove name of the company from the Register of company[Section 248(1)] Removal of Names of a Company by Registrar on his own motion

(a) The Registrar may by notice in writing (in Form STK 1) to the company and to all the directors of thecompany, convey his intention to removal the name of the Company, from the register of companiesin the following cases:

(i) Failure of the company to commence business within 1 year of its incorporation;

(ii) A company is not carrying on any business or operation for a period of 2 immediatelypreceding financial years and has not made any application within such period for obtaining thestatus of a dormant company under section 455.

Chapter XVIII Technical Member

Introduction

Section 248-252 Co (Removal of Nameof Companies from

Register ofCompanies) Rules,

2016

Chap. 20 Removal of Names of Companies from the Register of Companies 439

Further, ROC shall request the company and their director them to send their representations, if any,within 30 days from the date of notice.

(iii) the subscribers to the memorandum have not paid the subscription which they had undertakento pay at the time of incorporation of a company and a declaration to this effect has not beenfiled within one hundred and eighty days of its incorporation under subsection (1) of section 10A.

(iv) the company is not carrying on any business or operations, as revealed after the physicalverification carried out under sub-section (9) of section 12.

Quick Recap

(2) Representation in 30 days

Form STK-1 (1)

[Section 248(2)] Removal of Names on Company’s application(b) Without prejudice to the provisions of sub-section (1), a Company may, Suo motu:

By a special resolution; or

With the consent of 75% of members in terms of paid-up share capital,

File an application (in Form STK 2) to the Registrar for removing the name of the company from theregister of companies on all or any of the grounds specified in sub- section (1) and the Registrar shall,on receipt of such application, cause a public notice to be issued in the prescribed manner.

Section 248(1) & Sec 248(3) to sec 248(8) – Removal of Nameof Company by ROC at his own motion

ROC Company

DirectorsNCLT mayorder Wind Up

(8)

ContinuedLiability

Company shallstand dissolved in

STK - 7

(7)

(6)

(3)

Notice to Public in STK - 5

MCA website

(+)

English & VernacularNewspaper

ROCintimate

ROC shall satisfyhimself regarding

sufficient finances tocompany

(+)

Govt.Authorities

(5)

If

No businesswithin one

year ofincorporation

No status ofDormantCompany

No business inimmediatelypreceding 2

financial years

(+)

(+)

(4)

Intimate

Declaration forCommencementof business not

filed

No businessbeing carried byCo. as revealed

by physicalverification

440 Removal of Names of Companies from the Register of Companies Chap. 20

Such an application may be filed by the company after extinguishing all its liabilities.

In the case of a company regulated under a special Act, approval no objection certificate of theregulatory body established under that Act shall also be obtained and enclosed with the application.

The application shall be accompanied with the following documents.

Indemnity bond in Form STK-3;

Affidavit in Form STK-4 by every director of the Company;

Statement of accounts (duly certified by a Chartered Accountant) containing assets andliabilities of the company made up to a day not more than 30 day before the date of application;

Copy of the resolution or consent, as the case may be.

Statement regarding pending litigations, if any, involving the Company.

(c) It may be noted that a Section 8 Company cannot apply under Sub-section (2)

Common provisions regarding the Removal of Names of a Company in both the CaseA notice issued under sub-section (1) or sub-section (2) shall be:

Published in the Form STK-5, in the case of sub-section (1) application, or STK-6, in the case ofsub-section (2) application, and also in the official gazette; and

Placed on the website of MCA; and

Published in Form STK- 5A in English language in a leading English Newspaper and at least oncein a Vernacular language in a leading vernacular newspaper, both having wide circulation in thestate in which the registered office of the company is situated.

In case where the application has been made by the Company, it shall also place the application on itswebsite till the time the application is disposed off.

The Registrar shall also intimate the concerned regulatory authorities (such as Income Tax Authorities,Central Excise Authorities etc) of the proposed removal and seek their objections, if any.

(a) At the expiry of the time mentioned in the notice, the Registrar may, unless cause to the contrary isshown by the company, strike off its name from the register of companies and shall publish noticethereof in the Official Gazette (Form STK-7), and the company shall stand dissolved. Notice shallalso be placed on MCA website.

(b) The Registrar, before passing an order under sub-section (5), shall satisfy himself that sufficientprovision has been made:

(i) For the realization of all amount due to the company; and

(ii) For the payment or discharge of liabilities and obligation by the company within a reasonabletime; and, if necessary, obtain necessary undertakings from the managing director, director orother persons in charge of the management of the company.

Provided that not with standing the undertaking referred to in this sub-section, the assets of the companyshall be made available for the payment or discharge of all its liabilities and obligations even after thedate of the order removing the name of the company from the register of companies.

(a) The liability, if any, of every director, manager or other officer who was exercising any power ofmanagement, and of every member of the company dissolved, shall continue and may be enforced asif the company had not been dissolved.

(b) Nothing in this section shall affect the power of the Tribunal to wind up a company the name ofwhich has been struck off from the register of companies.

Note: Company shall also place the application on its website unless disposed off.

CHAPTER

22 INSOLVENCY &BANKRUPTCY CODE, 2016

Synopsis

1. Introduction 4572. Purpose and Vision of the Code 4583. Applicability of the Code 4594. Scheme of the Code 4605. Powers of IBBI 4606. Insolvency Professional Agency [“Agencies”] 4617. [Section 3(19)] Insolvency Professional 4628. [Section 3(21)] Information Utility 4639. Adjudicating Authorities 46410. [Chapter II of Part II – Sections 6 to 11] Initiation of Corporate Insolvency Resolution Process [CIRP] 46411. [Section 7] Initiation of Corporate Insolvency Resolution Process by Financial Creditor 46412. [Section 8 & 9] Initiation of Corporate Insolvency Resolution Process by Operational Creditor 46513. [Section 10] Initiation of Corporate Insolvency Resolution Process by Corporate Applicant 46514. [Section 11] Persons not entitled to make an application to Initiation of Corporate Insolvency Resolution

Process 46715. [Section 12 to 32] Conducting Corporate Insolvency Resolution Process (CIRP) [Chapter II of Part II] 46716. [Section 14] Order declaring Moratorium 46817. [Section 15] Public Announcement of Corporate Insolvency Resolution Process 46818. [Sections 16-18] Interim Resolution Professional 46919. [Section 21] Committee of Creditors 47020. [Sections 22-23] Appointment of Resolution Professional 47121. [Section 28] Prior approval of Committee of Creditors for certain action by Resolution Professional 47122. [Section 29-30] Resolution Plan 47223. [Section 30-31] Approval of Resolution Plan 47424. [Chapter III of Part II] Liquidation of Corporate Person 47525. [Chapter IV or Part II] Fast Track Corporate Insolvency Resolution Process 476

1. IntroductionThe Insolvency & Bankruptcy Code, 2016 (Code) was introduced in India recently to bring all matters

relating to insolvency, liquidation, voluntary liquidation or bankruptcy of companies, LLPs, partnership firmsand individuals under a single legislation.

The Insolvency & Bankruptcy Code, 2016 was published in the official Gazette on 28 May, 2016. Itscertain provisions came into effect on the 5th August and 19th August.This Code has repealed the following enactments: The Presidency Towns Insolvency Act, 1909 The Provincial Insolvency Act, 1920 Sick Industrial Companies (Special Provisions) Act, 1985

This Code has amended the following enactments: Indian Partnership Act, 1932 Central Excise Act, 1944 Customs Act, 1962 Finance Act 1994 Companies Act, 2013 Limited Liability Partnership Act, 2008 Recovery of Debts due to Banks and Financial Institution Act, 1993

458 Insolvency & Bankruptcy Code, 2016 Chap. 22

Securitization and Reconstruction of Financial Assets and enforcement of Security Interest Act, 2002(SARFAESI Act)

Income- tax Act, 1961 Payment and Settlement Systems Act, 2007

Quick Recap

Quick Recap

2. Purpose and Vision of the Code This Code aims to consolidate and amend the laws relating to the reorganization and insolvency

resolution of these entities in India with time being of essence and to promote entrepreneurship,availability of credit and balance the interests of all the stakeholders.

The vision of this code is to encourage entrepreneurship and innovation. Some business ventureswill always fail, but they will be handled rapidly and swiftly.

Insolvency Bankruptcy Liquidation

Of

Individuals Firms LLPs Companies

Introduction

Insolvency & Bankruptcy Code, 2016

Published on 28th may, 2016 in NIOG

Indian Partnership Act, 1932 LLP Act, 2008 Companies Act, 2013 Recovery of Debt Due to Banks & FI

Act, 1993 SARFAESI Act, 2002 Payment & Settlement Systems Act,

2007 Finance Act, 1994 Income Tax Act, 1961 Central Excise Act, 1944 Customs Act, 1962.

Effect of IBC on Various Legislations

RepealedEnactments

AmendedEnactment

Presidency Towns Insolvency Act,1909

Provincial Insolvency Act, 1920 Sick Industrial Companies (Special

Provisions) Act, 1985

Chap. 22 Insolvency & Bankruptcy Code, 2016 459

Entrepreneurs and Lenders will always be able to move on, instead of being bogged down withunintentional wrong business decisions taken in the past.

Quick Recap

3. Applicability of the CodeThe provisions of this Code apply to:

Any company incorporated under the Companies Act, 2013 or under any previous company law.

Any other company governed by any special Act for the time being in force, except in so far as thesaid provisions are inconsistent with the provisions of such special Act.

Limited Liability Partnership.

Such other body incorporated under any law for the time being in force, as the CentralGovernment may, by notification, specify in this behalf.

Partnership firms IndividualsThis Code is applicable all over India with some exceptions relating to Jammu & Kashmir.It may be noted that as per section 238, Insolvency & Bankruptcy Code, 2016 has overriding effect over

other laws.

Quick Recap

Note IBC, 2016 has overriding effect on inconsistent laws.

Applicability of Code

Individuals Firms LLPs Companies Bodies Notified

by CG

Companiesgoverned byspecial Act.

(+)

Purpose & Vision of the IBC, 2016

AmendConsolidate

To

Laws of Insolvency

To Promote

Vision = Entrepreneurship (+) Innovation

Entrepreneurship Availability of credit Balancing interest of stakeholders