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The Ministry of Corporate Affairs (MCA) vide Notification dated 27.7.2016, The Companies (Incorporation) Third Amendment Rules, 2016. Among all the amendments done, one of the principal changes was made to the Rules. The government inserted Rule 37, which talks about the provisions of conversion of unlimited liability company into a limited liability company by shares or guarantee.
in this article, we’ll be discussing the basics starting from the differences
between Unlimited Liability Company and Limited Liability Company by shares and
guarantee and later on, we’ll go into the procedural details about the
conversion of Unlimited Liability Company into Limited Liability Company by
shares or guarantees.
Table of Contents
The Companies Act, 2013 in section 2(20) state any company which is incorporated under this act is called a company. It does not explicitly define a company by giving proper meaning.
company can be incorporated either as a Limited Liability Company by shares/guarantee
or as an Unlimited Liability Company.
2(21) of the Companies Act, 2013 states, “Company Limited By Guarantee” means a
company having the liability of its members limited by the memorandum to such
amount as the members may respectively undertake to contribute to the assets of
the company in the event of its being wound up.”
a Limited Liability Company by shares, according to sec.2 (22) is, “a company
having the liability of its members limited by the memorandum to the amount, if
any, unpaid on the shares respectively held by them.”
Unlimited liability Company is a registered company having no limited
liability. It has an AOA, directors, members, etc., but unlike the other companies,
in this type of company, the shareholders are liable to add to the company’s
assets without any limits. They have one major advantage over Limited Liability
Company i.e. they are not required to register its accounts but, then also
these companies are not that common.
The newly inserted Rule 37 of The Companies (Incorporation) Third Amendment Rules, 2016 talks about the conversion of Unlimited Liability Company into Limited Liability Company by share/guarantee.
are the relevant provisions under Rule 37-
As per The Companies (Registration offices and Fees) Rules, 2014, an application for conversion needs to be filed within 45 days of passing the special resolution along with fees and the following documents-
A declaration is signed by not less than two directors including the Managing Director declaring that there are no complaints which are pending against the company from the members or the investors and no inquiry, inspection or investigation is pending against the company or its members.
Registrar after receiving the application and objections has to make sure that
they are satisfactory and then he has to decide whether to grant approval to
convert from an Unlimited Liability Company to a Limited Liability Company by
share/guarantee or not.
new certificate of incorporation will be issued upon the grant of approval of
conversion in Form INC-all.
the following conditions, an unlimited liability company shall not be eligible
for conversion into a company limited by shares/ guarantee if-
registrar has to give a decision with respect to the application within 30 days
from the date of receipt of the application and after that issue a certificate.
new rules inserted under Companies
(Incorporation) Third Amendment Rules, 2016, are a welcome move. These rules
will significantly reduce the burden on the unlimited liability companies who
are planning to convert into limited liability companies by shares or guarantee,
by giving them a transparent and easy step by step procedure for conversion.
For more information on company registration, you can contact our team of experts at Enterslice.
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