Amendment to Incorporation Rules

As a step towards decreasing procedural compliance hassles, the ministry of corporate affairs last month notified amendments to the incorporation rules pertaining to the name that a new company may adopt. (We are listing out the key changes in the amendment and attached the notification for your reference.)

Among others, the incorporation rules lists out the criteria to name a company and provides a list of undesirable names. For example, it would be considered undesirable to use the Indian national flag as part of the name, or the name or emblem of the United Nations Organization, the World Health Organization, or that of the President, and the Governor.

Additionally, the rules set out that the name is to be in consonance with the principle objects of the company although the exception to this provision reads that every name needn’t be ‘necessarily indicative’ of the objects.

(I would think that this makes the rule itself redundant as the proviso contradicts the rule.) Further, the amendment rule prescribes that any change in the activity of the company would need to reflect in the name of the company and therefore, allows a period of 6 months for a conversion.

The amendments have also deleted provisions that stipulated that abbreviations could not be used as the company name. Where before, if a new subsidiary could not be named using only the abbreviation of the parent company, this provision has now been deleted. It is no more the case that a name would be considered undesirable if the intention behind the name is to create a wrongful impression or the scope or scale of the activities beyond resources at the disposal of the company.

An additional opportunity is also being given to the company to correct any errors in its application.

We believe these changes would be most helpful to entrepreneurs seeking to incorporate. Incorporation Amendment Rules (January 22, 2016)

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