5 changes to the Companies Incorporation Rules that startups need to know

Many publications have highlighted in abundance as to how the introduction of the Form Inc. 29 earlier this month through the Companies Incorporation (Amendment) Rules, 2015, has the potential to make business incorporations easier.

Filing of the integrated e-form should hopefully reduce the time taken to incorporate a company. Comparatively, the original step-by-step procedure involves first an allotment of a Director Identification Number (DIN), followed by an application to change name and approval of the incorporation documents, the new form Inc. 29 provides for all of these details in one form. There appears to be no mention of the digital signature requirement so one can presume that the process to get the digital signature in place is still a mandatory step before filing this new form.

The integrated process was introduced through the introduction of Rule 36 to the Companies (Incorporation) Rules, 2014. Rule 36 is only an option to the step-by-step process. The new form requires details relating to allotment of the DIN, name reservation, company incorporation and directors’ appointment.

The amendment has also introduced other changes as highlighted in this article. There are a total of 6 changes under the following 4 sub-heads to the existing Companies (Incorporation) Rules, 2014 as follows:

1. Penalty

Rule 5 that earlier dealt with the penalty provision, has been omitted and instead, a new rule 7A has been inserted. The maximum penalty has been halved to INR 5000 for any offence committed by a one person company or any of its officers. Further, the maximum fine for each day of contravention after the first offence has been halved to INR 500.

2. Conversion from private company into one-person company

MCA has now stipulated a two-fold requirement now for conversion. Earlier, the requirement to convert was for the company to have either a paid up share capital of a maximum of INR 50 lakh or an average annual turnover of a maximum of INR 2 crore. The amendment has changed this requirement by substituting the ‘or’ provision with ‘and’. Thereby, the conversion requirement now necessitates the private company have a paid up share capital of a maximum of INR 50 lakh and an average annual turnover in the relevant period of a maximum of INR 2 crore.

This restricts access to conversion for many companies that may not essentially work best on a one-person company model.

3. Subscriber particulars

Where the Rule earlier required a specimen signature and a latest photography to be verified by the banker or a notary under Form Inc.10, this requirement has been done away with. Instead, there is only a need to self-attest this form.

4. Introduction of Rule 36

Prior to this amendment, there were only 35 rules.

The new Rule 36 that also introduces the single integrated e-form process also introduces minute exclusions.

• There is a requirement to specify only one name for the proposed company whilst in the other process, the under Form INC 1, a maximum of six names can be provided for the proposed company.
• Filing of e-form INC 28 as otherwise prescribed is not necessary if the registered office is the same as the correspondence address for the proposed company. The form is normally filed in the prescribed manner for the alteration of the memorandum for transfer of registered office from one state to another.
•  The new Rule 36 provides that those opting for the new incorporation process shall not be subject to the provisions of Section 4(5)(i) and Rule 9 of the Companies Act, 2013 and corresponding Rules, respectively. This section pertains to reservation of the name for a period of 60 days by the registrar when he receives the application with the Memorandum of Association.

5. Others

An interesting provision provided to those opting for the filing of Form INC 29 is the provision of a maximum of 30 days to rectify any defects or incompleteness in the forms submitted with the Registrar of Companies.

The changes to the four forms are relatively minor and some in the form of typographical corrections. Lastly, the amendment rules have also tried to amend Rule 6(11) but there appears to be no such rule but the MCA is yet to provide a clarification on this.