Company Formation and Conversion: formula sheet

Key formulas

Minimum members: private company

Minimum 2 members; maximum 200 members (excluding employee-members and ex-employee members who were members while employed)

A private company restricts transfer of shares and prohibits invitation to the public to subscribe to its securities.

Minimum members: public company

Minimum 7 members; no upper limit

Minimum directors are 3. A private company needs at least 2 directors and an OPC needs at least 1.

One person company (OPC)

1 member; incorporated as a private company

The MOA must name a nominee who takes over on the member's death or incapacity. The nominee's prior written consent is required. The member and the nominee must both be natural persons who are Indian citizens and resident in India. Resident in India means having stayed in India for at least 120 days in the preceding financial year.

Resident director

At least 1 director must have stayed in India for not less than 182 days in the previous calendar year

Applies to every company. For a newly incorporated company, the 182-day requirement applies proportionately in the year of incorporation.

Contents of the MOA

Name clause + Registered office (State) clause + Objects clause + Liability clause + Capital clause + Association clause

Use this list to answer 'contents of MOA' questions. Public company names must end in 'Limited'; private company names in 'Private Limited'. A Section 8 company and OPC have their own naming rules.

Alteration of AOA

Special resolution (at least three-fourths of votes cast in favour) + filing with ROC within the prescribed time

Any alteration must not conflict with the Act. Converting a public company into a private company by altering the AOA needs a special resolution and the further approval required by the proviso to Section 14, as amended. This is covered in detail under conversion of companies, so follow the approval and filing procedure given there.

Alteration of MOA: key rules

Name: special resolution + Central Government approval (exercised through the Registrar). Registered office to another State: special resolution + confirmation by the Regional Director (the Central Government's delegate). Objects: special resolution, filed with the ROC

Central Government approval is not required for a change of name only where the change consists of adding or deleting 'Private' on conversion. Where the Central Government directs a company to change a name that was wrongly allowed, the change is made as that direction requires and does not need a special resolution. If a company raised money by prospectus and some proceeds are unutilised, a change of objects must be approved by postal ballot. Shifting the registered office within the same State or city is not a change of State.

Effect of incorporation

Certificate of incorporation = conclusive evidence of valid incorporation

The company becomes a body corporate with perpetual succession and a common seal option.

Private to public or public to private

Special resolution + alteration of articles (Section 14(1))

Section 14 applies subject to the Act and the conditions in the memorandum, if any.

Automatic loss of private status

Articles drop private company restrictions ⇒ ceases to be private from date of alteration

This is the first proviso to Section 14(1).

Public to private validity

Valid only if approved by an order of the Central Government

Second proviso to Section 14(1). The Tribunal no longer approves this.

Filing after alteration

File with Registrar within 15 days: alteration, copy of Central Government order, printed altered articles (Section 14(2))

Registrar registers it. Once registered it is valid as if originally in the articles (Section 14(3)).

Conversion of class

Alter memorandum and articles; Registrar closes old registration and issues a certificate of incorporation (Section 18(1)-(2))

Registrar must first be satisfied that the Chapter's registration provisions are complied with.

Effect on liabilities

Debts, liabilities, obligations and contracts remain enforceable (Section 18(3))

Conversion does not wipe out or change earlier commitments.

Unlimited to limited: reserve capital

Section 65(a) and (b): increase nominal amount of shares, or make part of uncalled capital callable only on winding up

The increased or reserved portion cannot be called up except in winding up and for its purposes.

Section 8 company conversion

Needs prescribed conditions (Section 8(4)(ii)); alteration of memorandum or articles needs previous Central Government approval (Section 8(4)(i))

Name drops Limited or Private Limited only under licence.

Name requirement (s. 378J(3))

Identity word(s) + "Producer Company Limited"

On conversion of an inter-State co-operative society, these words form part of its name.

Who may apply (s. 378J(1))

Inter-State co-operative society, objects not confined to one State → application to Registrar

Applies notwithstanding section 378C(1).

Special resolution (s. 378J(2)(a))

Votes in favour ≥ 2/3 of total members of the society

The base is total members, not members present and voting.

Documents with application (s. 378J(2))

(a) special resolution copy; (b) statement of directors/Chief Executive and member list; (c) statement of objects under s. 378B; (d) declaration by two or more directors

Declaration certifies particulars in clauses (a) to (c) are correct.

Registration time (s. 378J(4))

Registrar certifies within 30 days of receipt of application

On compliance with sub-sections (1) to (3).

Eligible co-operatives (s. 378J(5))

Society, federation or union of producers' co-operatives that has extended objects outside the State → eligible

Directly or through a union or federation.

Directors continue (s. 378N(1))

Existing directors continue for 1 year from the date of transformation

Notwithstanding section 378-O.

Vesting (s. 378L)

Assets, rights, debts, liabilities of society → Producer Company

Pending suits and proceedings do not abate.

Who can apply (s. 378ZS(1))

Erstwhile inter-State co-operative society, now a Producer Company → application to Tribunal

Only such a Producer Company is covered by the section.

Member route

Resolution in general meeting by not less than 2/3 of Members present and voting

Based on members present and voting, not total members.

Creditor route

Request by creditors representing 3/4 value of total creditors

Measured by value of total creditors.

Tribunal meeting (s. 378ZS(2)-(3))

Majority in number representing 3/4 in value of creditors or Members present and voting in person, then Tribunal sanction

Once sanctioned, binds all Members, all creditors and the company.

Disclosure proviso

No sanction unless all material facts disclosed by affidavit or otherwise

Includes latest financial position, latest auditor's report and pending Chapter XIV investigations.

Effect of order (s. 378ZS(4)-(6))

No effect until certified copy filed with Registrar; default fine up to ₹100 per copy

The order must also be annexed to every copy of the memorandum issued afterwards. Company and every officer in default are liable.

Stay of proceedings (s. 378ZS(7))

Tribunal may stay suits or proceedings against the company until application is disposed of

On such terms as the Tribunal thinks fit.

After sanction (s. 378ZS(8))

Apply for registration within 6 months of Tribunal sanction

Under the Multi-State Co-operative Societies Act, 2002 or other law. File a report with the Tribunal, the Registrar of Companies and the Registrar of Co-operative Societies concerned.

Quick revision

• Check the entity type first in any case question; the rule follows from it.
• Incorporation needs a memorandum, articles and the prescribed filings with the Registrar.
• Compare private and public companies on members, directors, share transfer and public invitation.
• A one person company has a single member and needs a nominee.
• Conversion between company types needs a special resolution and the prescribed approvals; verify the exact conditions in the Act.
• Note the name change that goes with each conversion, such as the removal or addition of 'Private'.
• A producer company is for primary producers and is governed by the producer company provisions of the Companies Act, 2013. The inter-State co-operative provisions were inserted by Act 29 of 2020 w.e.f. 11-2-2021.
• Know who can be a member of a producer company and what its objects may include.
• A producer company can be formed by incorporation or by conversion of an inter-State co-operative society under s.378J (this includes co-operatives or federations that have extended their objects outside the State); learn the order of steps for conversion.
• A producer company that is an erstwhile inter-State co-operative society can be re-converted into an inter-State co-operative society under s.378ZS, on application to the Tribunal.
• Write conditions exactly as the Act states them, without adding your own limits.

Common mistakes

• Treating the AOA as superior to the MOA, or thinking either overrides the Act. Fix: Remember the order: Act, then MOA, then AOA. A conflicting clause is void to that extent.
• Writing that a private company can have unlimited members or that a public company needs only 2. Fix: Fix the pairs: private 2 to 200 members; public at least 7 with no maximum.
• Saying the Tribunal approves conversion of a public company into a private company. Fix: Write that the alteration is not valid unless approved by an order of the Central Government, as amended in 2019.
• Saying an ordinary resolution is enough to convert private to public. Fix: State that Section 14 requires a special resolution to alter articles.
• Treating a Producer Company as a co-operative society. Fix: Remember it is a company registered with the Registrar of Companies and governed by Part IXA.
• Applying two-thirds to members present and voting for conversion into a Producer Company. Fix: For section 378J, the special resolution must be of not less than two-thirds of total members.
• Saying any Producer Company can re-convert. Fix: Remember the words 'erstwhile inter-State co-operative society'. Check the history of the company in the facts.
• Writing that the Registrar approves the re-conversion. Fix: In s. 378ZS the Tribunal sanctions. The Registrar only receives the certified copy of the order.

Exam tips

• In MCQs, the usual traps are the numbers. Revise the member and director minimums until you can write them without thinking.
• For case scenarios, name the type of company first and then apply the rule. This gives a clear structure and earns marks for reasoning.
• In written answers, list the MOA clauses in a neat bullet list and add one line on what each states.
• When asked about alteration, always state the resolution type and the extra approval or confirmation, and note any exception. Do not stop at 'special resolution'.
• Keep the small company and dormant company thresholds out of your answer unless the question gives them, because they change by rule.
• Write section numbers only where certain: Section 14 for private and public conversions, Section 18 for class conversion, Section 65 for reserve capital, Section 8(4) for Section 8 companies.
• In a case study, state the authority first: Central Government for public to private, Registrar for filing.
• Always mention special resolution, fifteen days and printed altered articles in procedure answers.