Section 3 of Companies Act, 2013 – Formation of Company

  • Updated Till : February 26, 2017

SECTION 3. FORMATION OF COMPANY

[Effective from 1st April, 2014]

(1) A company may be formed for any lawful purpose by—

(a) seven or more persons, where the company to be formed is to be a public company;

(b) two or more persons, where the company to be formed is to be a private company; or

(c) one person, where the company to be formed is to be One Person Company that is to say, a private company,

by subscribing their names or his name to a memorandum and complying with the requirements of this Act in respect of registration:

Provided that the memorandum of One Person Company shall indicate the name of the other person, with his prior written consent in the prescribed form, who shall, in the event of the subscriber’s death or his incapacity to contract become the member of the company and the written consent of such person shall also be filed with the Registrar at the time of incorporation of the One Person Company along with its memorandum and articles:

Provided further that such other person may withdraw his consent in such manner as may be prescribed:

Provided also that the member of One Person Company may at any time change the name of such other person by giving notice in such manner as may be prescribed:

Provided also that it shall be the duty of the member of One Person Company to intimate the company the change, if any, in the name of the other person nominated by him by indicating in the memorandum or otherwise within such time and in such manner as may be prescribed, and the company shall intimate the Registrar any such change within such time and in such manner as may be prescribed:

Provided also that any such change in the name of the person shall not be deemed to be an alteration of the memorandum.

(2) A company formed under sub-section (1) may be either—

(a) a company limited by shares; or

(b) a company limited by guarantee; or

(c) an unlimited company.

[7] [Provided that a Specified IFSC private company shall be formed only as a company limited by shares.]

[8] [Provided that a Specified IFSC public company shall be formed only as a company limited by shares.]

Companies (Incorporation) Rules, 2014

[Effective from 1st April, 2014]

Rule 2. Definitions.—(1) In these rules, unless the context otherwise requires,—

(a) “Act” means the Companies Act, 2013 (18 of 2013);

(b) “Annexure” means the Annexure to these rules;

(c) “Form” or “e-Form” means a form in the electronic form or non-electronic form as specified under the Act or Rules made there under and notified by the Central Government under the Act;

(d) “Fees” means fees as specified in the Companies (Registration offices and fees) Rules, 2014;

(e) “Regional Director” means the person appointed by the Central Government in the Ministry of Corporate Affairs as a Regional Director;

(f) “Section” means the section of the Act;

(2) Words and expressions used in these rules but not defined and defined in the Act or in Companies (Specification of definitions details) Rules, 2014 shall have the meanings respectively assigned to them in the Act and said rules.

Rule 3. One Person Company.—(1) Only a natural person who is an Indian citizen and resident in India-

(a) shall be eligible to incorporate a One Person Company;

(b) shall be a nominee for the sole member of a One Person Company.

Explanation.—For the purposes of this rule, the term resident in India” means a person who has stayed in India for a period of not less than one hundred and eighty two days during the immediately preceding one calendar year.

[(2) A natural person shall not be member of more than a One Person Company at any point of time and the said person shall not be a nominee of more than a One Person Company.][5]

(3) Where a natural person, being member in One Person Company in accordance with this rule becomes a member in another such Company by virtue of his being a nominee in that One Person Company, such person shall meet the eligibility criteria specified in sub rule (2) within a period of one hundred and eighty days.

(4) No minor shall become member or nominee of the One Person Company or can hold share with beneficial interest.

(5) Such Company cannot be incorporated or converted into a company under section 8 of the Act.

(6) Such Company cannot carry out Non-Banking Financial Investment activities including investment in securities of any body corporate.

(7) No such company can convert voluntarily into any kind of company unless two years have expired from the date of incorporation of One Person Company, except threshold limit (paid up share capital) is increased beyond fifty lakh rupees or its average annual turnover during the relevant period exceeds two crore rupees.

Rule 4. Nomination by the subscriber or member of One Person Company.—For the purposes of first proviso to sub-section (1) of section 3—

(1) The subscriber to the memorandum of a One Person Company shall nominate a person, after obtaining prior written consent of such person, who shall, in the event of the subscriber’s death or his incapacity to contract, become the member of that One Person Company.

(2) The name of the person nominated under sub-rule (1) shall be mentioned in the memorandum of One Person Company and [such nomination in Form No. INC.32 (SPICe) along with consent of such nominee obtained in Form No INC.3][6] and fee as provided in the Companies (Registration offices and fees) Rules, 2014 shall be filed with the Registrar at the time of incorporation of the company along with its memorandum and articles.

(3) The person nominated by the subscriber or member of a One Person Company may, withdraw his consent by giving a notice in writing to such sole member and to the One Person Company:

Provided that the sole member shall nominate another person as nominee within fifteen days of the receipt of the notice of withdrawal and shall send an intimation of such nomination in writing to the Company, along with the written consent of such other person so nominated in Form No. INC.3.

(4) The company shall within thirty days of receipt of the notice of withdrawal of consent under sub-rule (3) file with the Registrar, a notice of such withdrawal of consent and the intimation of the name of another person nominated by the sole member in Form No INC.4 along with fee as provided in the Companies (Registration offices and fees) Rules, 2014 and the written consent of such another person so nominated in Form No. INC.3.

(5) The subscriber or member of a One Person Company may, by intimation in writing to the company, change the name of the person nominated by him at any time for any reason including in case of death or incapacity to contract of nominee and nominate another person after obtaining the prior consent of such another person in Form No. INC.3:

Provided that the company shall, on the receipt of such intimation, file with the Registrar, a notice of such change in Form No INC.4 along with fee as provided in the Companies (Registration offices and fees) Rules, 2014 and with the written consent of the new nominee in Form No. INC.3 within thirty days of receipt of intimation of the change.

(6) Where the sole member of One Person Company ceases to be the member in the event of death or incapacity to contract and his nominee becomes the member of such One Person Company, such new member shall nominate within fifteen days of becoming member, a person who shall in the event of his death or his incapacity to contract become the member of such company, and the company shall file with the Registrar an intimation of such cessation and nomination in Form No INC.4 along with the fee as provided in the Companies (Registration offices and fees) Rules, 2014 within thirty days of the change in membership and with the prior written consent of the person so nominated in Form No. INC.3.

[***][1]

Rule 6. One Person Company to convert itself into a public company or a private company in certain cases.—(1) Where the paid up share capital of an One Person Company exceeds fifty lakh rupees [or less and][2] its average annual turnover during the relevant period exceeds two crore rupees, it shall cease to be entitled to continue as a One Person Company.

(2) Such One Person Company shall be required to convert itself, within six months of the date on which its paid up share capital is increased beyond fifty lakh rupees or the last day of the relevant period during which its average annual turnover exceeds two crore rupees as the case may be, into either a private company with minimum of two members and two directors or a public company with at least of seven members and three directors in accordance with the provisions of section 18 of the Act.

(3) The One Person Company shall alter its memorandum and articles by passing a resolution in accordance with sub-section (3) of section 122 of the Act to give effect to the conversion and to make necessary changes incidental thereto.

(4) The One Person Company shall within period of sixty days from the date of applicability of sub-rule (1), give a notice to the Registrar in Form No. INC.5 informing that it has ceased to be a One Person Company and that it is now required to convert itself into a private company or a public company by virtue of its paid up share capital or average annual turnover, having exceeded the threshold limit laid down in sub-rule (1).

Explanation.—For the purposes of this rule,- “relevant period” means the period of immediately preceding three consecutive financial years;

(5) If One Person Company or any officer of the One Person Company contravenes the provisions of these rules, One Person Company or any officer of the One Person Company shall be punishable with fine which may extend to ten thousand rupees and with a further fine which may extend to one thousand rupees for every day after the first during which such contravention continues.

(6) A One Person company can get itself converted into a Private or Public company after increasing the minimum number of members and directors to two or minimum of seven members and two or three directors as the case may be, and by maintaining the minimum paid-up capital as per requirements of the Act for such class of company and by making due compliance of section 18 of the Act for conversion.

Rule 7. Conversion of private company into One Person Company.—(1) A private company other than a company registered under section 8 of the Act [having paid up share capital of fifty lakhs rupees or less and average annual turnover during the relevant period][3] is two crore rupees or less may convert itself into one person company by passing a special resolution in the general meeting.

(2) Before passing such resolution, the company shall obtain No objection in writing from members and creditors.

(3) The one person company shall file copy of the special resolution with the Registrar of Companies within thirty days from the date of passing such resolution in Form No. MGT. 14.

(4) The company shall file an application in Form No. INC.6 for its conversion into One Person Company along with fees as provided in in the Companies (Registration offices and fees) Rules, 2014, by attaching the following documents, namely:—

(i) The directors of the company shall give a declaration by way of affidavit duly sworn in confirming that all members and creditors of the company have given their consent for conversion, the paid up share capital company is fifty lakhs rupees or less or average annual turnover is less than two crores rupees, as the case may be;

(ii) the list of members and list of creditors;

(iii) the latest Audited Balance Sheet and the Profit and Loss Account; and

(iv) the copy of No Objection letter of secured creditors.

(5) On being satisfied and complied with requirements stated herein the Registrar shall issue the Certificate.

[Rule 7A. Penalty—If a One Person Company or any officer of such company contravenes any of the provisions of these rules, the One Person Company or any officer of the such Company shall be punishable with fine which may extend to five thousand rupees and with a further fine which may extend to five hundred rupees for every day after the first offence during which such contravention continues.][4]

 

FAQs on SPICe

  1. How many names can be applied for in SPICe (INC-32)?

Only one. However, for reservation of a name prior to filing SPICe (INC-32), you may use INC-1 (in which up to 6 names can be proposed) and then input the SRN of approved INC-1 into SPICe.

  1. What is the mode of grievance redressal?

In case of technical problems i.e., form upload, pre-scrutiny errors, DSC related, payment related queries, please raise a ticket on www.mca.gov.in/myservices….. and await a resolution. You may also call up Corporate Seva Kendra at 01244832500 after 48 hours if ticket is not resolved.In case of resubmission / rejection remarks, please contact 01244832500 and select option 1 for CRC. For escalation you may send a mail to crc.escalation@mca.gov.in

  1. Is INC-22 still required to be filed with SPICe?

It is not required to be filed with SPICe (INC-32) if a company is registered with address for correspondence only (in INC-32). INC-22, is required to be filed within 30 days of its incorporation, for intimating the registered office address.

  1. What is the process for obtaining approved e-MOA (INC-33) and e- AOA (INC-34)?

The users may obtain approved e-MOA (INC-33) and e- AOA (INC-34) through certified copies facility available on MCA.

  1. Is, PAN and AADHAAR mandatory?

Yes. The companies (incorporation) rules notified has liberalized many requirements in respect of Proof of Identity and Proof of residence in respect of Subscribers and Directors. The Companies (Incorporation) third Amendment Rules dated 27th July 2016 has relaxed the mandatory attachment of proof of identity and residence in respect of a subscriber having a valid DIN.

  1. Which attachments are removed in SPICe form?

Attachment no. 7 (Proof of relation) and 9 (NOC from any other person) are deleted.

  1. Is it mandatory to use eMoA and eAoA? Can physical copies of MoA/AoA be signed and attached with SPICe forms?

Yes. It is mandatory in all cases of Indian subscribers, foreign individual subscribers (having a valid DIN) and where the number of such subscribers is not more than seven. No physical copies of MoA/AoA are required to be attached.

  1. Can SPICe be used for incorporation of producer companies?

No. For incorporation of producer companies, unregistered companies and companies being formed with more than 7 subscribers, new version of INC-7 shall be used.

  1. If a body corporate is one of the subscribers/promoters, can DSC of anauthorised Director be affixed?

Yes.

  • Can, foreign subscribers file SPICe (INC-32) or are they required to file in INC-7?

Yes, foreign subscribers having valid DIN can file SPICe(INC-32) with eMoA(INC-33) and eAoA(INC-34) as linked forms. However, in case of foreign individual subscribers without a valid DIN, form INC-7 shall be used with physical MoA and AoA.

  1. In SPICe AoA (INC-34) if additional Article is required, how to enter the same?

SPICe AoA (INC-34) has facility for adding, modifying, deleting and entrenching Articles.

  1. Can we enter the conditions ofprivatecompany as required under Section 5 of the Companies, Act, 2013 in SPICe AoA(INC-34)?

Yes, SPICe AoA (INC-34) has facility for adding, modifying, deleting and entrenching Articles.

  1. Can we enter the names of first directors as required under Companies Act, 2013, in SPICe AoA (INC-34)?

Yes, SPICe AoA has facility for adding, modifying, deleting and entrenching Articles.

  1. What if there are more than seven subscribers to MoA and AoA?

INC-7 shall be used.

  1. Incaseof subscriber to the memorandum is a foreign national residing outside India, his signatures and address etc. shall be witnessed by a Notary Public/Embassy/Consulate offices of Embassies as per the Rule 13 of the Companies (Incorporation) Rules, 2014. In such cases, how the DSC of such a witness be affixed?

In such cases, SPICe (INC-32) shall be filed with manually signed and duly attested MoA and AoA.

  1. Is DSC mandatory for Subscribers?

Yes, DSC is mandatory for all subscribers and witnesses in eMoA(INC-33) and eAoA(INC-34). eMoA and eAoA shall be used only where the maximum number of subscribers do not exceed 7. In case the number of subscribers are more than 7, INC-7 shall be used and DSC is not mandatory in such cases.

  1. Can we use SPICe form now for resubmitting incorporation applications filed in form INC-2 /7 earlier?

No. SPICe cannot be used in such cases. However, form INC-2/7 shall be available for resubmission cases only for a period of 15 days from the date the form was sent for resubmission by CRC.

  • Whether subscribers’ photo is required in SPICe forms?

No. Subscribers’ photo is not required.

  1. How many resubmissions are permitted for SPICe forms?

Two.

  1. Can OPCs be incorporated using SPICe forms?

Yes. Form INC-2 will no longer be available for filing.

  1. Can LLPs be incorporated using SPICe forms?

No.

  1. What is the word limit for writing objects in eMoA?

For main Objects (Field 3(a)), character limit is 20,000 and for furtherance of objects (Field 3(b)), it is 1,00,000 characters.

  1. Please clarify on attestation requirements in respect of foreign companies wanting to form a subsidiary in India?

Attestation requirements will be as per Rule 13 of the Companies (Incorporation) Rules, 2014.

  1. Is SPICe eMoA (INC-33) and SPICe eAoA (INC-34) to be uploaded separately?

SPICe eMoA and eAoA have to be uploaded as ‘Linked Forms’ to SPICe (INC-32).

  1. What if the subscribers to eMoA and eAOA are at different places as only one witness is provided?

eMoA and eAOA would be witnessed after all subscribers have signed as is happening presently.

  1. Is refund applicable if SPICe forms get rejected?

Yes.

  1. What is the maximum upload size of SPICe forms?

6 MB.

  1. Can NIDHI Company be incorporated using SPICe forms?

Yes.

  1. Is filing of SPICe forms optional or mandatory for the incorporation of companies?

Presently it is optional. However in the next few weeks, SPICe form would be the only form available for incorporation of any company except for a Producer Public Company or a Part I Company or in cases where there are more than seven subscribers.

[1] Omitted by the Companies (Incorporation) Amendment Rules 2015 vide Notification F. No. 01/13/2013 CL-V (Part-I) dated 1st May 2015.Prior to omission it read as under:

Rule 5. Penalty.—If One Person Company or any officer of such company contravenes the provisions of these rules, One Person Company or any officer of the One Person Company shall be punishable with fine which may extend to ten thousand rupees and with a further fine which may extend to one thousand rupees for every day after the first during which such contravention continues.

[2] Substituted vide Notification dated 1st May 2015 — Companies (Incorporation) Amendment Rules 2015

[3] Substituted for “having paid up share capital of fifty lakhs rupees or less or average annual turnover during the relevant period” by the Companies (Incorporation) Amendment Rules 2015 vide Notification F .No. 01/13/2013 CL-V (Part-I) dated 1st May 2015.

[4] Inserted by the Companies (Incorporation) Amendment Rules 2015 vide Notification F .No. 01/13/2013 CL-V (Part-I) dated 1st May 2015.

[5] Substituted by the Companies (Incorporation)  Third Amendment Rules 2016 vide Notification 743(E) dated 27th July 2016. Prior to substitution it read as under:

“(2) No person shall be eligible to incorporate more than a One Person Company or become nominee in more than one such company.”

[6] Substituted for the words “such nomination in Form No INC.2 along with consent of such nominee obtained in Form No INC.3″ by the Companies (Incorporation) Fifth amendment Rules 2016 vide Notification no. F. No. 1/13/2013 CL -V dated 29th December 2016 effective from 1 st January 2017

[7] Inserted vide Notification no. G.S.R. 9(E).dated 04th January, 2017.

[8] Inserted vide Notification no. G.S.R. 9(E).dated 04th January, 2017.

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