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Funding Compliance, Secretarial Compliance

Credit goes to Companies (Amendment) Act, 2015 issued by the Ministry of Corporate Affairs (MCA) that made borrowing funds in form of loans from directors, shareholders, subsidiaries etc., easy. Addressing the fact that raising external funds, especially for early-stage startups, is like moving mountains, we at Wazzeer decided to write this blog on how private limited companies in India can accept loans from its stakeholders, with a view to help those in need of one.



Firstly, to borrow loan from any stakeholder of any amount, board resolution must be passed.



Secondly, let’s look at the different stakeholders that can loan a private limited company:



#1: Directors

Directors of the company can loan the private limited company. The director has to provide a declaration that the amount has not been given out of funds acquired by him borrowing or accepting loans or deposits from others.



#2: Shareholders

  • If the money accepted from members exceeds 100% of the paid-up capital and free reserves, then such shareholders cannot loan.
  • If the money accepted from members does not exceed 100% of paid up capital and free reserve, then the shareholder can loan.


#3: Director cum Shareholder

This person can loan, he/she has to provide a declaration that the amount has not been given out of funds acquired by him by borrowing or accepting loans or deposits from others.



#4: Subsidiary or Any other company

  • Not allowed if any director of the lending company is a director or member of the borrowing company
  • Not allowed if, the director of the lending company, individually, or along with one or more of its directors, exercises or controls not less than 25% of voting rights of the borrowing company
  • Not allowed, if the board of directors, MD or manager of the borrowing company is accustomed to act in accordance with the directions or instructions of the board, or any director or directors of the lending company.
  • If the lending and borrowing company are both private limited companies, then it can give loan irrespective of common directors if in the lending company no other body corporate has invested any money
  • If the lending and borrowing company are both private limited companies, then it can give loan irrespective of common directors if the borrowing of the lending company from banks or financial institutions or anybody corporate is less than twice its paid-up capital or INR 50C
  • If the lending and borrowing company are both private limited companies, then it can give loan irrespective of common directors if the lending company is not in default in repayment of such borrowings subsisting at the time of giving such loan.


#5: Employee

Yes, allowed to lend loan, the amount borrowed must not exceed the employee’s annual salary in the nature of interest-free security deposit.








Winding up of Company

When over 3L directors faced directorship suspension (which means they cannot be directors in any company for 5 years), entrepreneurs or directors who were lucky enough to have not brought under that radar, are now taking some serious decisions on filings and existence. In this blog, with an attempt help those directors who are considering winding up, we will look into things one must keep in mind in order to windup a Company.

Any company (Private Limited Company or One Person Company) continues to be in existence until it is dissolved according to the law.

#1. Dissolution can be done in following ways:

  1. By Removal of the company’s name from the register by the registrar without winding up order.
  2. By order of the Court
  3. By order of the central government.
  4. By winding up

#2. Dissolution and winding up are two different things:

  • Winding up procedure requires that liquidators acts of realizing and collecting the assets of the company, satisfying its debts and obligations, distributing its capital and surplus assets among the members of the company.
  • Dissolution comes after the liquidators have done all this in the winding up and tag the company as non-active.

#3. Winding can be done in following ways:

  1. Compulsory winding ordered by a court.
  2. Voluntary winding
  3. Subject to the supervision of the court

#4. While clearing out debts, assets from the members will be accounted in the following ways:

  • Every person liable to contribute to the assets of a company in the event of its being wound up, and includes holders of shares.
  • Past members will not be required to contribute in the following circumstance:
    • If he had ceased to be a member for a period of one year or more before the commencement of winding up
    • If the debt or liability of the company was contracted or incurred after he ceased to be a member
    • If the present members are able to satisfy the contributors required to be made by them under the Act.
  • In a company limited by shares, any past or present member is not required to contribute in excess of the amount, if any, unpaid on the shares in respect of which he is liable as such member.
  • In a company limited by guarantee, a past or present member is not required to contribute an amount which is in excess of the amount undertaken to be contributed by him to the assets of the company in the event of its being wound up.

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Accounting, Secretarial Compliance, Start up Lessons

We all know startups, except for sole proprietorship firms and partnership firms, are considered separate legal entities, distinct and independent from the members who represent it. So, how can courts punish these startups which commit crimes? Common law has various theories which determine the liability of the corporations and the most prominent one would be the doctrine of vicarious liability which states that corporations can be held liable for the torts committed by its employees. But can corporations be charged with the crimes they have committed? Or more importantly, should they be held liable, especially since a company itself is not capable of thinking or of creating any intention of its own. In this blog, we will figure out answers.


Under the Indian Penal Code (IPC), corporations can be prosecuted for the crimes they have committed. Section 11of the Act defines that the ‘person’ would include “any Company or Association or body of persons, whether incorporated or not”. Incidentally, the IPC also protect companies. For instance, Section 499 (Explanation 2) makes defaming a company a criminal offense.


What does corporate crime involve?

According to R.C. Kramer, the corporate crime involves “criminal acts which are the result of deliberate decision making or culpable negligence by persons who occupy structural positions within the organization as corporate executives or managers. These decisions are organizational in that they are organizationally based – made in accordance with the operative goals (primarily corporate profit), standard operating procedures, and cultural norms of the organization – and are intended to benefit the corporation itself.”


What do theories say on Corporate criminal liability?


  1. Doctrine of Attribution

A corporation can be convicted of a criminal offense involving mens rea by applying the Doctrine of Attribution. According to the doctrine, criminal intention of the “alter ego” of the company, i.e., the person/ group of person in charge of the business/affairs of the company can be attributed to the corporation as well to make it liable. In other words, corporates can be held responsible for offenses committed by the persons in control of its affairs, if such are perpetrated in relation to the business of the corporation.


However, the question then arises whether the reverse will also hold true, i.e., whether the officials of the company can be held responsible for acts of the company? This question was recently answered by the Supreme Court of India in Sunil Bharti Mittal vs. Central Bureau of Investigation. The Apex Court, in no uncertain terms, held that the principle of attribution cannot be applied in the reverse scenario to make the directors liable for offenses committed by the company. However, the Court thereafter observed that in the following circumstances a director/person in charge of the affairs of the company can also be prosecuted, along with the company as an accused:


  • If there is sufficient evidence of his active role coupled with criminal intent;
  • Where the statute specifically imposes liability.



  1. Vicarious Liability


Originally developed in the context of tortious liability, the doctrine of vicarious liability holds a person liable to answer for the acts of another. For instance: In the case of companies, the company may be held liable for the acts of its employees, agents, or any person for whom it is responsible.


The concept of vicarious liability of corporate officials has evolved substantially in the recent times so much so that it has become a trend to implead the officials of the company along with the company to exert pressure on the company to settle. However, it is important to note that there is no vicarious liability unless the statute specifically provides for it. Therefore, when the company is the offender, vicarious liability of the directors cannot be imputed automatically in the absence of any statutory provision to that effect.


Essentials for the doctrine of vicarious liability, therefore, are as follows:

  • There must be a crime committed by the agent of the company.
  • He must commit it within the scope of his employment.
  • The act must be carried out with intent to benefit the company.


  1. Theory of identification


The theory of identification recognizes that the acts and state of mind of certain senior officials in a company are the directing minds of the corporation and thus deemed to be the acts and state of mind of the corporation. The corporation is considered to be directly liable, rather than vicariously liable under this theory. In other words, this theory contemplates an identity between the corporation and the persons who constitute its directing mind. The commission of an offense by such person constitutes an offense by the corporation as well. If a corporate employee is virtually the directing mind and will of the corporation, the employee’s action and intent are the action and intent of the company itself, provided the employee is acting within the scope of his/her authority, either express or implied. Under the doctrine of identification, the company is personally liable. It is not liable vicariously. It is deemed to have committed the offense by itself.


The concept of corporate criminal liability is still in its emerging stage in India. However, attempts have been made in the Companies Act, 2013 to control and reduce corporate crime, and at the same time improve corporate governance practices, making companies more responsible and answerable. With the advent of globalization, imposing criminal liability on corporations makes sense; because they are immensely powerful actors whose conduct often causes very significant harm both individuals and society as a whole. Clearly, a lot is still required to be done in this area but the steps taken so far should not be undermined. How effectively laws and regulations will be able to control corporate behavior, only time will tell.

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Secretarial Compliance

The Insolvency and Bankruptcy Code (IBC), based upon the recommendations of the Bankruptcy Law Reform Committee, provides for a single Code to resolve insolvency for all companies, limited liability partnerships, partnership firms and individuals. Initially, India had enacted numerous statutes to punish the defaulters like the Indian Contract Act, the Recovery of debts due to Banks and Financial Institution Act 1993, the Securitizations and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), etc. However, a need was felt for new laws which would take care of the existing defaulters in a time-bound manner.

A good insolvency and bankruptcy code balances three interests:

  • It effectively rehabilitates the company and help promote its interest;
  • It protect the interests of the creditors;
  • It invites future creditors to participate in the business.

To quote the Finance Minister Mr. Arun Jaitley “This code will provide a specialized resolution mechanism to deal with bankruptcy situations in banks, insurance firms and financial sector entities. This code will provide a comprehensive resolution mechanism for our economy.”

This article focuses on the procedure prescribed under the IBC for Corporate Insolvency Resolution Process & Liquidation. When a corporate enters into an insolvency proceeding, there are two possible outcomes – the continuation or sale of the existing business as a going concern (known as insolvency resolution) or the winding up and liquidation of the company. The IBC is a single consolidated law that provides for both insolvency resolution and, in the case where a business cannot be saved, their winding up and liquidation.

Insolvency Resolution Process (IRP): A step by step guide:


  • Who can initiate the process?In case of default, any financial creditor, operational creditor or the corporate debtor itself may file an application for insolvency resolution under the IBC.


  • What constitutes default?Default means failure or non-payment of a debt by the corporate. To initiate the process, this default must be of an amount of not less than Rs. 1, 00,000 (One Lakh).


  • How to initiate the process?

Filing of Application by Financial Creditors: A financial creditor either by itself or jointly with other financial creditors may file an application (Form 1) for initiating IRP with the National Company Law Tribunal. The application must be accompanied by evidence proving default and the name of a person who will act as the Interim Resolution Professional.


Filing of Application by Operational Creditors: An operational creditor has to first deliver a Demand Notice (Form 3) to the corporate debtor. If the debtor fails to either pay the unpaid dues or prove the existence of a dispute in relation to the payment of said debt within 10 days of the demand notice, the operational creditor may file an application (Form 5) for IRP with the National Company Law Tribunal. The application must include the Demand Notice & Invoices against which payments are pending. The Operational Creditor will also require a certificate from the Financial Institution maintaining its accounts confirming that there is no payment of unpaid operational debt by the corporate debtor.


Filing of Application by Corporate Debtor: The corporate debtor can itself initiate IRP by filing an application (Form 6) with the National Company Law Tribunal (NCLT). The application will include the books of account of the company and the name of a person who will act as the Interim Resolution Professional.


NCLT shall have 14 days to either admit or reject the application made to it.


  • Declaration of Moratorium After the application is admitted by NCLT, a 180-day moratorium comes into effect. During this period, all pending suits against the debtor stay and no new actions can be initiated. Furthermore, the debtor is prevented from transferring, encumbering or disposing of its assets. The idea behind this moratorium is to provide a calm period for the debtor and creditors to discuss their future course of action.


  • Public Announcement After the admission of the application, NCLT will also make a Public Announcement of the initiation of corporate insolvency resolution process and call for the submission of claims by the creditors.


  • Insolvency Resolution Professional It is the responsibility of the Resolution Professional to administer the resolution process. He is in charge of the management of the affairs of the corporate debtor and runs the company as a going concern with all the employees and other stakeholders reporting to him. Powers of the Board of Directors all vest in him. Plus, he shall also prepare the information Memorandum of the corporate debtor.


  • Formation of the Committee of CreditorsThe committee of creditors (COC) shall be constituted by the Interim Resolution Professional, who will either confirm him as the Resolution Professional or replace him. COC will consist of financial creditors only and their first meeting shall take place within a period of 7 days of its constitution. Any decision made by the COC will have to have 75% majority of the total voting share.


  • Resolution Plan A Resolution Plan can be proposed by any person and shall be submitted to the resolution professional. For this purpose, the person submitting the plan shall be called “Resolution Applicant”. The plan must not be against any provisions of the law for the time being in force & must necessarily provide for the following:
  • Payment of insolvency resolution process costs
  • Repayment of the debts of operational creditors
  • Management of the affairs of the Corporate debtor
  • Implementation and supervision of the resolution plan

The Resolution Professional shall present all the resolution plans before the COC for their approval/confirmation with a 75% vote. The approved plan will then be sent to NCLT.


  • Timeframe for completion of IRP The corporate resolution process shall be completed within 180 days from the date on which the application is admitted. However, on request by the COC, this period can be extended, but not for more than 90 days and no other extension can be granted thereafter.


  • How does the IRP end? IBC is a time bound process. Therefore, it needs to end within 180 days, subject to a one time 90-day extension in exceptional cases. The process comes to an end on the approval and acceptance of the Resolution Plan by the COC and the NCLT. Thereafter, it becomes binding on the corporate debtor, creditors, employees and all other stakeholders. If the Resolution Plan is not accepted and approved then an Order of Liquidation is passed against the corporate debtor.


The liquidation proceedings may be commenced under the following circumstances:

  • If no insolvency resolution plan is submitted to the NCLT/DRT within the prescribed period;
  • If the insolvency resolution plan is rejected by the NCLT/DRT;
  • Upon an application by the party affected in case of contravention of the insolvency resolution plan approved by the NCLT/DRT by the debtor; or
  • If the committee of creditors resolves to liquidate the debtor.

On passing of an order for liquidation by NCLT, the resolution professional will automatically start performing the duties of the liquidator, if not replaced. The liquidator shall form the Liquidation estate, take control of the assets of the company, collect and consolidate the creditors’ claims and to the extent required, carry out the business of the company for the benefit of the liquidation.

Distribution of Assets upon Liquidation: Priority of Claims

The priority of distribution (in order of precedence) amongst different classes of creditors is as follows:

  1. Insolvency Resolution Process Cost
  2. Secured creditors and workmen dues for upto 24 months
  3. Other employee dues for upto 12 months
  4. Unsecured creditors
  5. Government dues & unpaid secured creditors
  6. Remaining dues (including those against operational creditors)
  7. Preference shareholders
  8. Equity shareholders

Federal Income Tax Returns Filing

In this blog, we will look into tax rules that affect every person who may have to file a federal income tax return in the US. It answers some basic questions:  Who should file for returns? And what forms to be used to file returns.


Who needs to file for returns?


If you are a U.S. citizen or resident alien, whether you must file a federal income tax return depends on your gross income, your filing status, your age, and whether you are a dependent.


As a brief, there are three major categories:

  1. For Individual – Form 1040 / 1040EZ is required to be filed for 2018 by April 15.  For earlier years, 1040X has to be filed
  2. For Partnership firms – Form 1065 by March 15, 2018
  3. For Corporations – Form 1120 or 1120S by March 15, 2018 (for those fiscal ending Dec 31, 2017). Else it is 2 1/2 months from the date of the financial year ending.
  4. Filing of extensions for submitting the tax returns
      1. For Individuals – Form 4868
      2. For Partnership firms – Form 8736
      3. For S Corp – Form 7004


Standard criteria based on which you may choose the forms:


Form 1040EZ: This form may be filed if


  • Your filing status is single or married filing jointly
  • You claim no dependents
  • You don’t claim any adjustments to income
  • You don’t claim any credits other than the earned income credit
  • You, and your spouse if filing a joint return was under age 65 on January 1, 2018, and not blind at the end of 2017
  • Your taxable income is less than $100,000
  • You had only wages, salaries, tips, taxable scholarship and fellowship grants, unemployment compensation, or Alaska Permanent Fund dividends, and your taxable interest wasn’t over $1,500
  • Your earned tips, if any, are included in boxes 5 and 7 of your Form W-2
  • You don’t owe any household employment taxes on wages you paid to a household employee
  • You’re not a debtor in a Chapter 11 bankruptcy case filed after October 16, 2005
  • Advance payments of the premium tax credit weren’t made for you, your spouse, or any individual you enrolled in health insurance coverage for whom no one else is claiming the personal exemption


Form 1040A: This form may be filed if


  • Your income is only from wages, salaries, tips, interest, ordinary dividends, capital gain distributions, taxable scholarships and fellowship grants, pensions, annuities, IRAs, unemployment compensation, Alaska Permanent Fund dividends, and taxable social security or railroad retirement benefits
  • The only adjustments to income you can claim are the IRA deduction, the student loan interest deduction, and the educator expenses deduction
  • You don’t itemize deductions
  • Your taxable income is less than $100,000
  • The only tax credits you can claim are the credit for child and dependent care expenses, the credit for the elderly or the disabled, education credits, the retirement savings contributions credit, the child tax credit, the additional child tax credit, the earned income credit, and/or the premium tax credit, and
  • You didn’t have an alternative minimum tax adjustment on stock you acquired from the exercise of an incentive stock option


Form 1040: This form may be filed if


  • Your taxable income is $100,000 or more
  • You have certain types of income, such as business or farm self-employment income; unreported tips; dividends on insurance policies that exceed the total of all net premiums you paid for the contract; or income received as a partner, a shareholder in an S corporation, or a beneficiary of an estate or trust
  • You itemize deductions or claim certain tax credits or adjustments to income, or
  • You owe household employment taxes


Form 1065: This form may be filed if


Form 1065 is an information return used to report the income, gains, losses, deductions, credits, and other information from the operation of a partnership. A partnership doesn’t pay tax on its income but passes through any profits or losses to its partners.

Partners must include partnership items on their tax or information returns. The term “partnership” includes a limited partnership, syndicate, group, pool, joint venture, or other unincorporated organization, through or by which any business, financial operation, or venture is carried on, that is not, within the meaning of the regulations under section 7701, a corporation, trust, estate, or sole proprietorship.


  • Partnerships with more than 100 partners (Schedules K-1)
  • You and your spouse jointly own and operate an unincorporated business and share in the profits and losses, you are partners in a partnership and you must file Form 1065.
  • A domestic LLC with at least two members that do not file Form 8832 is classified as a partnership for federal income tax purposes
  • A religious or apostolic organization exempt from income tax under section 501(d) must file Form 1065
  • A qualifying syndicate, pool, joint venture, or similar organization that fails to be elected under section 761(a) that may be treated as a partnership for federal income tax purposes
  • An electing large partnership (as defined in section 775) must file Form 1065-B, U.S. Return of Income for Electing Large Partnerships.
  • A foreign partnership with effectively connected income (ECI) during its tax year
  • A foreign partnership had U.S. source income of $20,000 or less during its tax year
  • More than 1% of any partnership item of income, gain, loss, deduction, or credit was allocable in the aggregate to direct U.S. partners at any time during its tax year
  • A Foreign partnership is withholding foreign partnership as defined in Regulations section 1.1441-5T(c)(2)(i).
  • A Foreign partnership had U.S. partners at any time during its tax year
  • A Foreign partnership is withholding foreign partnership as defined in Regulations section 1.1441-5T(c)(2)(i).
  • If an entity with more than one owner was formed as an LLC under state law, it generally is treated as a partnership for federal income tax purposes and files Form 1065


Form 1120 and series: This form may be filed if


Form 1120 is used by U.S. Corporation to report the income, gains, losses, deductions, credits, and to figure the income tax liability of a corporation.


  • S corporation (section 1361) should file form 1120S
  • Unless exempt under section 501, all domestic corporations (including corporations in bankruptcy) must file an income tax return whether or not they have taxable income should file form 1120
  • Domestic corporations must file Form 1120, unless they are required, or elect to file a special return.
  • A domestic entity electing to be classified as an association taxable as a corporation must file Form 1120 unless it is required to or elects to file a special return
  • The LLC can file a Form 1120 only if it has filed Form 8832 to elect to be treated as an association taxable as a corporation.
  • A corporation (other than a corporation that is a subchapter T cooperative) that engages in farming should file form 1120
  • Subchapter T cooperative association (including a farmers’ cooperative) will file form 1120C
  • Foreign corporation (other than life or property and casualty insurance company filing Form 1120-L or Form 1120-PC) should file form 1120F
  • Foreign sales corporation (section 922) should file form 1120FSC
  • Condominium management, residential real estate management, or timeshare association that elects to be treated as a homeowners association under section 528 should file 1120H
  • Life insurance company (section 801) should file 1120L
  • Fund set up to pay for nuclear-decommissioning costs (section 468A) should file form 1120ND
  • Property and casualty insurance company (section 831) should file form 1120PC
  • Political organization (section 527) should file form 1120PL
  • Real estate investment trust (section 856) should file form 1120REIT
  • Regulated investment company (section 851) should file form 1120RIC
  • Settlement fund (section 468B) should file form 1120SF


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DSC, Secretarial Compliance

As you know Digital Signature Certificate is a very important document which facilitates one to sign documents digitally and the signature is considered valid under the law. All filings done by the companies/LLPs under MCA21 e-Governance programme are required to be filed using DSC. Apart from these, to create login credentials for companies in IT portal we need DSC of any one of the Directors. To obtain GST Registration and IEC Registration we will need DSC. 


Thanks to the Information Technology Act, 2000 which has established a provision for use of Digital Signatures on the documents submitted in an electronic form that ensures the security and authenticity of the documents filed electronically. This is a secure and authentic way to submit a document electronically. Though there are different classes of DSC’s available, most Govt. Offices have approved Class 2 DSC for Individuals and Class 3 DSC for Companies. As far as the validity is concerned – Validity of Class – 2 DSC is 2 years and validity of Class 3 DSC is 1 year.

In case you lose your DSC, one of the three options can be implemented:

Option 1: Apply for a new one; do Roll Check of the same on the MCA website. The old DSC will be automatically blocked.

Option 2: Revoke the DSC, in case you have DSC serial number.

Option 3: If at all the DSC is used in a fraudulent way, file an FIR complaint with the cyber crime department.


Note: In case you have registered the DSC once with PAN using the ‘Associate DSC’ service on MCA website, then new DSC can be updated with the same service. If you are having your DIN issued, then update the DSC under director role using same ‘Associate DSC’ service on the above website.


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Business Formation, Secretarial Compliance

OPC an entity dedicated to single entrepreneurs with an objective to facilitate a viable ecosystem such that single entrepreneurs can start their own business having a separate legal entity. OPC is chosen when: entrepreneur does not find the right co-founder; entrepreneur decides to own the business wholly; entrepreneur decides to incorporate this company form for a short period – the early stage of startup journey. As the company scales up, plans of expansion come into play, and fundraising plans come into the picture, especially external investors come into play, the general scenario is the investor would want himself or his connect to be a member of the board of directors, all for the vision of the startup. That is when entrepreneurs decide to convert the OPC into other favorable entity options.  On the same note, this blog intends to answer – How to convert OPC into other entity forms?

Convert OPC to Private Limited Company:

– OPC is automatically converted if:

  • Paid up capital exceeds INR 50L, or
  • Turnover for 3 previous years is > INR 2C

– OPC can be converted if:

  • Age of company is more at least 2 years

Procedure to convert:

  • Obtain ‘No Objection’ in writing from creditors
  • Pass a resolution
  • Affidavit Sign
  • File Copy of resolution with RoC within 30 days
  • File Form No.INC.6

Documents required:

  • MOA and AOA
  • Copy of latest audited balance sheet
  • Copy of board resolution
  • Copy of no objection letter

Convert OPC to LLP:

OPC cannot be converted into LLP, but you can incorporate Private Limited Company and then convert the Private Limited Company into LLP. When you decide to so, the shareholders will become the partners of the LLP.

Procedure to convert:

  • Board meeting
  • Apply for name availability
  • LLP Agreement
  • Filing of Forms
  • Apply for incorporation
  • Obtain certificate of incorporation of LLP
  • Filing Form No.14 to intimate RoC

Documents required:

  • DSC and DIN of directors
  • Incorporation certificate of Private Limited entity

Convert OPC to Sole Proprietorship:

As such there are no legal formalities. You need to wind up the OPC and start a new venture as a Sole proprietorship. But the sole proprietorship can be in the name of OPC. Generally, entrepreneurs do not prefer this entity type, the reason being the defeats the main objective of enjoying limited liability.

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Secretarial Compliance, Share Certificate, Transfer of Shares

Shares, like any other property, is an investment in a business which can be sold out, when something like that happens the process is called transfer of shares. Shares held by an investor are presumed to be capable of transfer unless the company has restricted the right to transfer them by a provision in its articles, or the shareholder has entered into a contract, such as a shareholders’ agreement, not to transfer the shares. This article is structured to help shareholders understand the methodology of Transfer of shares – What, Why, and How may it be done.

Statutory provisions:

  1. Section 56 of Companies Act, 2013
  2. Rule 11 of Companies (Share Capital & Debentures) Rules 2014
  3. Provisions are given in model articles of association given in Table ‘F’ of Schedule-I

Procedure for Transfer of Share in a Private Company:


Generally, articles contain the detailed provisions as regards to the procedure for transfer of shares. Usually following steps shall be followed by a private company to give effect to the transfer of shares:—


  1. Transferor should give a notice in writing for his intention to transfer his share to the company.


  1. The company, in turn, should notify to other members as regards the availability of shares and the price at which such share would be available to them.


  1. Such price is generally determined by the directors or the auditors of the company.


  1. The company should also intimate to the members, the time limit within which they should communicate their option to purchase shares on transfer.


  1. If none of the members comes forward to purchase shares then the shares can be transferred to an outsider and the company will have no option, other than to accept the transfer.


  1. Get the Share transfer deed in form SH-4 duly executed both by the transferor and the transferee.


  1. The transfer deed should bear stamps according to the Indian Stamp Act and Stamp Duty Notification in force in the State concerned. The present rate of transfer of shares is 25 Paise for every one hundred rupees of the value of shares or part thereof. Do not forget to cancel the stamps affixed at the time or before the signing of the transfer deed.


  1. The signatures of the transferor and the transferee in the share transfer deed must be witnessed by a person giving his signature, name, and address.


  1. Attach the relevant share certificate or allotment letter with the share transfer deed and deliver the same to the company. The share transfer deed should be deposited with the company within sixty (60) days from the date of such execution by or on behalf of the transferor and by or on behalf of the transferee.


  1. After receipt of share transfer deed, the board shall consider the same. If the documentation for transfer of share is in order, the board shall register the transfer by passing a resolution.



Procedure for Transfer of Share in a Public Company:


Section 58(2) provides that the shares or debentures and any interest therein of a public company shall be freely transferable. Usually following steps shall be followed by a private company to give effect to the transfer of shares:—


  1. Get the Share transfer deed in form SH-4 duly executed both by the transferor and the transferee.


  1. The transfer deed should bear stamps according to the Indian Stamp Act and Stamp Duty Notification in force in the State concerned. The present rate of transfer of shares is 25 Paise for every one hundred rupees of the value of shares or part thereof. Do not forget to cancel the stamps affixed at the time or before the signing of the transfer deed.


  1. The signatures of the transferor and the transferee in the share transfer deed must be witnessed by a person giving his signature, name, and address.


  1. Attach the relevant share certificate or allotment letter with the share transfer deed and deliver the same to the company. The share transfer deed should be deposited with the company within sixty (60) days from the date of such execution by or on behalf of the transferor and by or on behalf of the transferee.


  1. After receipt of share transfer deed, the board shall consider the same. If the documentation for transfer of share is in order, the board shall register the transfer by passing a resolution.


 Main Provisions related to Transfer of Share:


  1. Instrument for Transfer of Share is compulsory: Section 56 provides that a company shall not register a transfer of shares of, the company, unless a proper transfer deed in Form SH.4 as given in Rule 11 of Companies (Share Capital & Debentures) Rules 2014 duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee and specifying the name, address and occupation, if any, of the transferee, has been delivered to the company, along with the certificate relating to the shares, or if no such certificate is in existence, along with the letter of allotment of the shares.


  1. Time Period for deposit of Instrument for Transfer: An instrument of transfer of shares i.e. Form SH.4 with the date of its execution specified thereon shall be delivered to the company within sixty (60) days from the date of such execution by or on behalf of the transferor and by or on behalf of the transferee.


  1. Value of share transfer stamps to be affixed on the transfer deed: Stamp duty for transfer of shares is 25 paise for every Rs. 100 or part thereof of the value of shares as per Notification No. SO 130(E), dated 28-01-2004 issued by the Ministry of Finance, Department of Revenue, New Delhi.


  1. Time limit for issue of certificate on transfer (Section-56(4)): Every company, unless prohibited by any provision of law or of any order of any Court, Tribunal or other authority, shall, within One month deliver, the certificates of all shares transferred after the application for the registration of the transfer of any such shares, debentures or debenture stock received.


  1. Private company shall restrict right to transfer its shares: Entire shareholding of a private company may be owned by a family or other private group. Section 2(58)(i) of the Companies Act, 2013 provides that the Articles of a private company shall restrict the right to transfer the company’s shares.


  1. Restriction on transfer in Private Company not applicable in certain cases: Restriction upon transfer of shares is in private company are not applicable in the following cases:


(i) on the right of a member to transfer his/her shares cannot be applicable in a case where the shares are to be transferred to his/her representative(s).


(ii) in the event of the death of a shareholder, legal representatives may require the registration of share in the names of heirs, on whom the shares have been devolved.


Note: Restriction should not be in the form of prohibition and Restriction can only be by the Articles of Association.


  1. Time Limit for Refusal of registration of Transfer: Provisions related to Refusal of registration and appeal against refusal is given in Section 58 of the Companies Act, 2013. Power of refusal to register transfer of shares is to be exercised by the company within thirty (30) days from the date on which the instrument of transfer or the intimation of transfer, as the case may be is delivered to the company.


  1. Time Limit for appeal against refusal to register Transfer by Private Company: As per section 58(3), a transferee of shares may appeal to the Tribunal against the refusal within a period of thirty (30) days from the date of receipt of the notice from the Company or in case no notice has been sent by the company, within a period of sixty (60) days from the date on which the instrument of transfer or the intimation of transmission, as the case may be, was delivered to the company.


  1. Time Limit for appeal against refusal to register Transfer by Public Company: As per section 58(4), a transferee of shares may, within a period of sixty (60) days of such refusal or where no intimation has been received from the company, within ninety (90) days of the delivery of the instrument of transfer or intimation of transmission, appeal to the Tribunal.


  1. The penalty for Non-compliance: Where any default is made in complying with the provisions related to transfer of shares, the company shall be punishable by a fine which shall not be less than Rs. 25,000/- but which may extend to Rs. 5,00,000/- and every officer of the company who is in default shall be punishable with fine which shall not be less than Rs. 10,000/- but which may extend to Rs. 1,00,000/-.


Start-up process entails complex procedures and many bureaucratic hurdles, entrepreneurs are better off using professional services. Hiring a virtual lawyer and virtual accountant can save time and help ensure that the process goes smoothly. For any Legal and Accounting support, Happy to help you, let us talk!


Secretarial Compliance, Share Certificate

What are ‘Shares’? Shares are units of ownership interest in a company that provides for an equal distribution of any profits, if any are declared, in the form of dividends. This blog typically is going to walk you through the stuff that is Just the right things to know about Shares.


Two major types of shares are


(1) Ordinary shares (common stock), which entitle the shareholder to share in the earnings of the company as and when they occur, and to vote at the company’s annual general meetings and other official meetings.


(2) Preference shares (preferred stock) which entitle the shareholder to a fixed periodic income (interest) but generally do not give him or her voting rights.



Different Kind of shares


  1. Equity share


Equity shares will get dividend and repayment of capital after meeting the claims of preference shareholders. There will be no fixed rate of dividend to be paid to the equity shareholders and this rate may vary from year to year. This rate of dividend is determined by directors and in case of larger profits, it may even be more than the rate attached to preference shares. Such shareholders may go without any dividend if no profit is made. The investors of equity shareholder are the risk taker. Equity shareholder has stake in the company and control in terms of voting power in their hand, they can change the decision of the management if they think that the decision will not give benefit to them in long term.


  1. Preference share


Preference shares, more commonly referred to as preferred stock, are shares of a company’s stock with dividends that are paid out to shareholders before common stock dividends are issued. If the company enters bankruptcy, the shareholders with preferred stock are entitled to be paid from company assets first. Most preference shares have a fixed dividend, while common stocks generally do not. Preferred stock shareholders also typically do not hold any voting rights, although under some agreements these rights may revert to shareholders that have not received their dividend. Preferred shares have less potential to appreciate in price than common stock.


Some preferred stock is convertible, means it can be exchanged for a given number of common shares under certain circumstances. The board of directors might vote to convert the stock, the investor might have the option to convert, or the stock might have a specified date at which it automatically converts. Whether this is advantageous to the investor depends on the market price of the common stock. Preference shareholder enjoys the preferential rights as to dividend and repayment of capital in the event of winding up of the company over the equity shares are called preference shares. The holder of preference shares will get a fixed rate of dividend.


There are four types of preference shares:


(a) Cumulative Preference Share


If the company does no earn an adequate profit in any year, dividends on preference shares may not be paid for that year. But if the preference shares are cumulative such unpaid dividends on these shares go on accumulating and become payable out of the profits of the company, in subsequent years. Only after such arrears have been paid off, any dividend can be paid to the holder of quality shares. Thus a cumulative preference shareholder is sure to receive the dividend on his shares for all the years out of the earnings of the company.


(b) Non-cumulative Preference Shares


The holders of non-cumulative preference share no doubt will get a preferential right in getting a fixed dividend it is distributed to quality shareholders. The fixed dividend is to be paid only out of the divisible profits but if in a particular year there is no profit as to distribute it among the shareholders, the non-cumulative preference shareholders, will not get any dividend for that year and they cannot claim it in the next year during which period there might be profits. If it is not paid, it cannot be carried forward. These shares will be treated on the same footing as other preference shareholders as regards the payment of capital is concerned.


(c) Redeemable Preference Shares


Capital raised by issuing shares, is not to be repaid to the shareholders (except buyback of shares in certain conditions) but capital raised through the issue of redeemable preference shares is to be paid back to the company to such shareholders after the expiry of a stipulated period, whether the company is wound up or not. A company cannot issue any preference shares which are irredeemable or redeemable after the expiry of a period of 10 years from the date of its issue. It means a company can issue redeemable preference share which is redeemable within 10 years from the date of their issue.


(d) Participating or Non-participating Preference Shares


The preference shares which are entitled to a share in the surplus profit of the company in addition to the fixed rate of preference dividend are known as participating preference shares. After the payment of the dividend, a part of surplus is distributed as dividend among the quality shareholders at a particulate rate. The balance may be shared both by equity shareholders at a particular rate. The balance may be shared both by equity and participating preference shares. Thus participating preference shareholders obtain the return on their capital in two forms (i) fixed dividend (ii) share in excess of profits. Those preference shares which do not carry the right of share in excess profits are known as non-participating preference shares.


  1. Bonus share


Bonus shares are additional shares given to the current shareholders without any additional cost, based upon the number of shares that a shareholder owns. These are company’s accumulated earnings which are not given out in the form of dividends but are converted into free shares.


The basic principle behind bonus shares is that the total number of shares increases with a constant ratio of a number of shares held to the number of shares outstanding. Companies issue bonus shares to encourage retail participation and increase their equity base. When the price per share of a company is high, it becomes difficult for new investors to buy shares of that particular company. Increase in the number of shares reduces the price per share. But the overall capital remains the same even if bonus shares are declared. A bonus issue is usually based upon the number of shares that shareholders already own. Bonus shares are issued:-


  • to capitalize a part of the company’s retained earnings


  • for conversion of its share premium account, or


  • distribution of treasury shares.


  1. Sweat Equity share


Sweat equity shares refer to equity shares given to the company’s employees on favorable terms, in recognition of their work. It is one of the modes of making share-based payments to employees of the company. The issue of sweat equity allows the company to retain the employees by rewarding them for their services. Sweat equity rewards the beneficiaries by giving them incentives in lieu of their contribution towards the development of the company. Further, it enables greater employee stake and interest in the growth of an organization as it encourages the employees to contribute more towards the company in which they feel they have a stake.


  1. Employee stock option


An employee stock option (ESO) is a stock option granted to specified employees of a company. ESOs offer the options holder the right to buy a certain amount of company shares at a predetermined price for a specific period of time. An employee stock option is slightly different from an exchange-traded option because it is not traded between investors on an exchange.


Ways to issue shares:


Some of the major methods of issuing corporate securities are as follows:


  1. Public Issue or Initial Public Offer (IPO):

Under this method, the company issues a prospectus to the public inviting offers for a subscription. The investors who are interested in the securities apply for the securities they are willing to buy. Advertisements are also issued in the leading newspapers. Under the Company Act, it is obligatory for a public limited company to issue a prospectus or file a statement in lieu of prospectus with the Registrar of Companies.


Once subscriptions are received, the company makes allotment of securities keeping in view the prescribed requirements. The prospectus must be drafted and issued in accordance with the provisions of the Companies Act and the guidelines of SEBI. Otherwise, it may lead to civil and criminal liabilities.


Public issue or direct selling of securities is the most common method of selling new issues of securities. This method enables a company to raise funds from a large number of investors widely scattered throughout the country. This method ensures a wider distribution of securities thereby leading to diffusion of ownership and avoids concentration of economic power in a few hands.


However, this method is quite cumbersome involving a large number of administrative problems. Moreover, this method does not guarantee the raising of adequate funds unless the issue is underwritten. In short, this method is suitable for reputed companies which want to raise large capital and can bear the large costs of a public issue.


  1. Private Placement:

In this method, the issuing company sells its securities privately to one or more institutional brokers who in turn sell them to their clients and associates. This method is quite convenient and economical. Moreover, the company gets the money quickly and there is no risk of non-receipt of minimum subscription.


The private placement, however, suffers from certain drawbacks. The financial institution may insist on a huge discount or other conditions for the private purchase of securities. Secondly, it may not sell the securities in the market but keep them with it.


This deprives the public a chance to purchase securities of a flourishing company and there may be a concentration of the company’s ownership in a few hands. The private placement is very suitable for small issues, particularly during a depression.


  1. Offer for Sale:

Under this method, the issuing company allots or agrees to allow the security to an issue house at an agreed price. The issuing house or financial institution publishes a document called an ‘offer for sale’. It offers to the public shares or debentures for sale at a higher price. The application form is attached to the offer document. After receiving applications, the issue house renounces the allotment in favor of the applicants who become direct allottees of the shares or debentures.


This method saves the company from the cost and trouble of selling securities directly to the investing public. It ensures that the whole issue is sold and stamp duty payable on the transfer of shares is saved. But the entire premium received is retained by the offerer and not the issuing company.


  1. Sale through Intermediaries:

In this method, a company appoints intermediaries like stock brokers, commercial banks, and financial institutions to assist in finding the market for the new securities on a commission basis. The company supplies blank application forms to each intermediary who affixes his seal on them and distributes it among prospective investors. Each intermediary gets the commission on a number of security applications bearing his seal. However, intermediaries do not guarantee the sale of securities.


This method is useful when a company has already offered 49 percent of the issue to the general public which is essential for a listing of securities. The pace of sale of securities may be very slow and there is uncertainty about the sale of a whole lot of securities offered through intermediaries. But this method saves the administrative problems and expenses involved in direct selling of securities to the public.


  1. Sale to Inside Coterie:

A company may resort to subscription by promoters and directors. This method helps to save the expenses of a public issue. Generally, a percentage of the new issue of securities is reserved for subscription by the inside coterie who can in this way share the future prosperity of the company.


  1. Sale through Managing Brokers:

Sale of securities through managing brokers is becoming popular particularly among new companies. Managing brokers advise companies about the proper timing and terms of the issue of securities. They assist companies in pre-issue publicity, drafting and issue of the prospectus and getting stock exchange listing. They also enlist the support and cooperation of share brokers.


  1. Privileged Subscriptions:

When an existing company wants to issue further securities, it is required to offer them to existing shareholders on prorate basis. This is known as ‘Rights Issue’. Sale of shares by rights issues is simpler and cheaper as compared to sale through the prospectus.


But the existing shareholders will subscribe to the new issues only when the past performance and future prospects of the company are good. An existing company may also issue Bonus Shares free of charge to the existing shareholders by capitalizing its reserves and surplus.



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Restoration of Company, Secretarial Compliance

The news of over 2 lakh directors being barred from the board and suspension of directorship for 5 years has created a turmoil in the Startup and SMEs segment. Yesterday we at Wazzeer had covered an exclusive blog on what really happened. We received requests from 20+ founders asking ‘How to restore companies that have been stricken off?’. This blog is for you guys, talks about the procedure for restoration of companies’ name dissolved under section 248 of the Companies Act, 2013.

1. Which is the concerned authority for restoration of companies dissolved under section 248 of the Act?

A company dissolved under section 248 can be restored on the Register of Companies by National Company Law Tribunal (“Tribunal”) order.

2.Who can apply?

The Company, Member or Creditor, Workmen.

3. Is there any time limit for making an application for restoration?

Such an application must be made before the expiry of 20 years from the publication in the Official Gazette of the notice of the striking-off.

4. What is the procedure for making application to the Tribunal under section 252 of the Act?

S. No.


Remarks, if any


Application to the Tribunal under Section 252 (3) of the Act

Form No. NCLT-9


Filing of application to the concerned Registrar of Companies

Not less than 14 days before the date fixed for the hearing of the application.


Documents required to be attached with NCLT-9:

  1. Affidavit verifying application;

  2. Payment receipt of Rs. 2,500

  3. Memorandum of Appearance with copy of Board resolution;

  4. Any other documents in support of the case.


Form NCLT-6


Form NCLT-12


Hearing at the Tribunal and Tribunal may pass order for restoring the name of the company in the Register of Companies



A copy of the order passed by the Tribunal shall be filed by the company with the Registrar

File Form INC-28 within 30 days from the date of order.


Publication of order in official Gazette by ROC.


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