What is the Need for URC-1 Explained in Detail By CS Arundhuthi Bose


Mamta Binani & Associates, Company Secretaries     
                                   
Background
 
The Companies (Authorised to Register) Second Amendment Rules, 2018 were made effective from the 15th August 2018[1](Amendment Rules). URC-1 notified vide these Amendment Rules have been made available for filing purposes with effect from 9th October 2018
 
The eForm URC-1 is a form that is required to be filed pursuant to Section 366 of the Companies Act, 2013 (the Act) and Rule 3(2) of the Companies (Authorised to Registered) Rules, 2014 (the Rules) which deal with companies capable of being registered under the Act.
 
To understand the purpose of filing the eform URC-1, we must understand the section pursuant to which it is required to be filed.
 
What is Section 366 of the Act?

Section 366 had been brought into force from the 1st of April, 2014. This section deals with the Companies capable of being registered under the Act. This section corresponds to section 565 of the Companies Act, 1956, but with a much broader definition. But, there were certain recommendations put forth by the Company Law Committee to enhance the section and provide its benefit to a wider range of entities.
 
It was suggested vide the Report of the Company Law Committee[2] (the CLC Report) that since various entities referred to in the Section, which can be registered under the Act, could be formed even with less than seven persons, the restriction for the entities to consist of seven or more members for the purpose of section 366 would need to be reviewed to allow registration of such entities, consisting of two or more members.
 
It was also pointed out in the CLC Report that the erstwhile Rules framed under Section 366 did not allow registration of partnership firms (registered under Partnership Act, 1932) as companies though it was permitted under the earlier Act and hence should be allowed under the Act as well.
 
Another issue was that though the section 366 of the Act enabled conversion of a partnership firm, LLP, co-operative society, society or any other business entity formed under any other law for the time being in force into companies under the Act, the Rules provided for registration/conversion of only LLPs into companies through references to other entities are there in Forms URC-1 and URC-2. Hence, the Committee recommended prescribing necessary changes in the Rules to enable other forms of business organizations also to convert into companies.
 
The above recommendations were taken into consideration and there were significant amendments in the provisions of section 366 of the Act vide the Companies (Amendment) Act, 2017. Pursuant to which the Rules were amended vide the Companies (Authorised to Register) Amendments Rules, 2016 and the Companies (Authorised to Register) Second Amendment Rules, 2018 to strengthen and widen the scope of the section as well as to serve the purpose of the framing of this section in a better way.
 
The amendment broadened the scope of entities capable of being registered under the Act further, as the requirement of the minimum number of members was lowered from “seven or more” to “two or more”. It was also provided that in the case of less than seven members, a company shall be registered as a private company.
 
Companies that can be registered under section 366:-
 
Any company formed, whether before or after the commencement of this Act, in pursuance of any Act of Parliament other than this Act or of any other law for the time being in force or being otherwise duly constituted according to law, and consisting of two or more members, may at any time register under this Act as an unlimited company, or as a company limited by shares, or as a company limited by guarantee.
 
The word “company” includes any partnership firm, limited liability partnership, cooperative society, society or any other business entity formed under any other law for the time being in force which applies for registration under Part I of Chapter XXI of the Act
 
The entities that cannot register under this Part are as follows:-
 
  • A company registered under the Indian Companies Act, 1882 or under the Indian Companies Act, 1913 or the Companies Act, 1956, shall not register in pursuance of this section;
  • A company having the liability of its members limited by any Act of Parliament other than this Act or by any other law for the time being in force, shall not register in pursuance of this section as an unlimited company or as a company limited by guarantee;
Pre-requisites to be adhered to in certain cases:-
 
  • A company shall be registered in pursuance of this section as a company limited by shares only if it has a permanent paid-up or nominal share capital of fixed amount divided into shares, also of fixed amount, or held and transferable as stock, or divided and held partly in the one way and partly in the other, and formed on the principle of having for its members the holders of those shares or that stock, and no other persons;
  • A company shall not register in pursuance of this section without the assent of a majority of such of its members as are present in person, or where proxies are allowed, by proxy, at a general meeting summoned for the purpose;
  • Where a company not having the liability of its members limited by any act of parliament or any other law for the time being in force is about to register as a limited company, the majority required to assent as aforesaid shall consist of not less than three-fourths of the members present in person, or where proxies are allowed, by proxy, at the meeting;
  • Where a company is about to register as a company limited by guarantee, the assent to its being so registered shall be accompanied by a resolution declaring that each member undertakes to contribute to the assets of the company, in the event of its being wound up while he is a member, or within one year after he ceases to be a member, for payment of the debts and liabilities of the company or of such debts and liabilities as may have been contracted before he ceases to be a member, and of the costs, charges and expenses of winding up, and for the adjustment of the rights of the contributories among themselves, such amount as may be required, not exceeding a specified amount.
Purpose of the URC – 1 Form
 
Any partnership firm, limited liability partnership, society, trust or any other business entity formed under any other law for the time being in force consisting of two or more members, may at any time register itself under Companies Act, 2013 as a Part I Company. For this purpose, eForm URC-1 shall be filed along with eForm SPICe.
 
Documents required to file the URC-1 Form
 

Serial No.

Type of Entity

Documents Required

1.      

Limited Liability Partnership or firm for registration as a company limited by shares

      i.         a list showing the names, addresses, and occupations of all persons named therein as partners with details of shares held by them respectively, showing separately shares allotted for consideration in cash and for consideration other than cash along with the source of consideration and distinguishing, in cases where the shares are numbered, each share by its number, who on a day, not being more than six clear days before the day of seeking registration, were partners of the Limited Liability Partnership or firm as the case may be;

    ii.         a list showing the particulars of persons proposed as the first directors of the company, along with Director Identification Number (DIN), passport number, if any, with an expiry date, residential addresses and their interests in other firm or body corporate along with their consent to act as directors of the company;

   iii.         in case of a firm, deed of partnership, bye-laws or other instrument constituting or regulating the firm and in case the deed of partnership was revised at any time in the past, copies of the principal and all subsequent deeds including the latest deed, along with the certificate of the registration issued by the Registrar of Firms, in case the firm is registered;

   iv.         the written consent or No Objection Certificate from all the secured creditors of the applicant;

     v.         written consent, from the majority of members whether present in person or by proxy at a general meeting, agreeing for such registration;

   vi.         an undertaking that the proposed directors shall comply with the requirements of the Indian Stamp Act, 1899 (2 of 1899) as applicable;

 vii.         a copy of the latest income tax return of the Limited Liability Partnership or firm, as the case may be.

2.      

Limited Liability Partnership or firm for registration as a company limited by guarantee or as an unlimited company

      i.         a list showing the names, addresses, and occupations of all persons, who on a day, not being more than six clear days before the day of seeking registration, were partners of the Limited Liability Partnership or firm, as the case may be with proof of membership;

    ii.         a list showing the particulars of persons proposed as the first directors of the company, along with DIN, passport number, if any, with an expiry date, residential addresses and their interests in other firm or body corporate along with their consent to act as directors of the company;

   iii.         in case of a firm, deed of partnership, bye-laws or other instrument constituting or regulating the company and in case the deed of partnership was revised at any time in the past, copies of the principal and all subsequent deeds including the latest deed, along with the certificate of the registration issued by the Registrar of Firms, in case the firm is registered;

   iv.         in the case of a company intended to be registered as a company limited by guarantee, a copy of the resolution declaring the amount of guarantee;

     v.         written consent or No Objection Certificate from all the secured creditors of the applicant;

   vi.         written consent from the majority of members whether present in person or by proxy at a general meeting agreeing for such registration;

 vii.         an undertaking that the proposed directors shall comply with the requirements of the Indian Stamp Act, 1899 (2 of 1899), as applicable;

viii.         a copy of the latest income tax return of the Limited Liability Partnership or firm, as the case may be.

3.      

Society for registration as a company limited by guarantee under section 8

      i.         a list showing the names, addresses, and occupations of all persons, who on a day, not being more than six clear days before the day of seeking registration, were members of the society with proof of membership;

    ii.         a list showing the particulars of persons proposed as the first directors of the company, along with DIN, passport number, if any, with an expiry date, residential addresses and their interests in other firms or bodies corporate along with their consent to act as directors of the company;

   iii.         a list containing the names and addresses of the members of the governing body of the society;

   iv.         a certified copy of the certificate of registration of the society;

     v.         written consent or No Objection Certificate from all the secured creditors of the applicant;

   vi.         written consent .from the majority of members whether present in person or by proxy at a general meeting agreeing for such registration, and the resolution shall also provide for declaration of the amount of guarantee;

 vii.         an undertaking that the proposed directors shall comply with the requirements of the Indian Stamp Act, 1899 (2 of 1899) as applicable;

viii.          a copy of the latest income tax return of the society;

   ix.         details of the objects of the company along with a declaration from all the members that the restrictions and prohibitions as mentioned in clause (b) and clause (c) of sub-section (1) of section 8 of the Act shall be compiled.

4.      

Trust for registration as a company limited by guarantee under section 8

(i)             a list showing the names, addresses, and occupations of all persons, who on a day, not being more than six clear days before the day of seeking registration, were trustees of the trust with proof thereof;

(ii)           a list showing the particulars of persons proposed as the first directors of the company, along with DIN, passport number, if any, with an expiry date, residential addresses and their interests in other firm or body corporate along with their consent to act as directors of the company;

(iii)         a certified copy of the certificate of registration of the trust and the trust deed;

(iv)           the written consent or No Objection Certificate from all the secured creditors of the applicant;

(v)           written consent from the majority of members whether present in person or by proxy at a general meeting agreeing or such registration, and the resolution shall also provide for declaration of the amount of guarantee;

(vi)          an undertaking that the proposed directors shall comply with the requirements of the Indian Stamp Act, 1899 (2 of 1899) as applicable;

(vii)        a copy of the latest income tax return of the trust;

(viii)      details of the objects of the company along with a declaration from all the members that the restrictions and prohibitions as mentioned in clause (b) and clause (c) of sub-section (1) of section 8 of the Act shall be complied.

 
Change in the revised URC-1 Form
 
A change has been brought in the revised URC-1 Form in the attachments section which now requires a declaration from all the members regarding compliance as per section 8(1) (b) and section 8(1)(c) of the Act and detailed objects of the company which is mandatory in case the type of company is ‘Part I Section 8’ company. This attachment was not required earlier.[3]
 
This may have been brought in order to ensure that the objects of the Company are in consonance with its name and that no ambiguity is created later. Also, it will help in ensuring that the objects are aligned with the Act and that there is no violation of the law in any sort in terms of categorizing the entity in the appropriate manner.

Relevance with SPICe and RUN forms in the context of URC – 1 Form
 
URC-1 has to be filed 20 days from the date of approval of RUN. In case 20 days expired from the date of approval of RUN, this form cannot be filed.
 
Since the types of companies/entities that may be registered under this Act have been widened, the RUN and SPICe Forms have been suitably amended to incorporate further options with reference to the Type of Entity (RUN Form)/ Types of Company (SPICe Form).
 
The option of ‘Type of Company’/’Type of Entity’ in both the RUN and the SPICe forms now include Part I Section 8 Company, Part I LLP to Company, Part I Firm to Company and Part I Others. Part I category refers to entities converted or intended to be converted under section 366 which were already in existence but were registered under some other Act.
 
Below is the screenshot of the new forms illustrating the changes:-
 
RUN Form
 

 
 
SPICe Form



Implications of conversion under Part I of Chapter XXI of the Act:-

Section 371 states the effects of an entity getting registered as a company under Part I of Chapter XII of the Act.

Section 371 has been summarized as follows:-

1.     All provisions contained in any Act of Parliament or any other law for the time being in force, or other instrument constituting or regulating the company, including, in the case of a company registered as a company limited by guarantee, the resolution declaring the amount of the guarantee, shall be deemed to be conditions and regulations of the company under the Act.

2.     All the provisions of this Act shall apply to the company and the members, contributories, and creditors thereof, in the same manner in all respects as if it had been formed under this Act, subject as follows:—

a)     Table F in Schedule I shall not apply unless and except in so far as it is adopted by special resolution;

b)    the provisions of this Act relating to the numbering of shares shall not apply to any company whose shares are not numbered;

c)     in the event of the company being wound up, every person shall be a contributory, in respect of the debts and liabilities of the company contracted before registration, who is liable to pay or contribute to the payment of any debt or liability of the company contracted before registration, or to pay or contribute to the payment of any sum for the adjustment of the rights of the members among themselves in respect of any such debt or liability, or to pay or contribute to the payment of the costs, charges and expenses of winding up the company, so far as relates to such debts or liabilities as aforesaid;

d)    in the event of the company being wound up, every contributory shall be liable to contribute to the assets of the company, in the course of the winding up, all sums due from him in respect of any such liability as aforesaid; and in the event of the death or insolvency of any contributory, the provisions of this Act with respect to the legal representatives of deceased contributories, or with respect to the assignees of insolvent contributories, as the case may be, shall apply.

3.     The provisions of this Act with respect to—

a)     the registration of an unlimited company as a limited company;

b)    the powers of an unlimited company on registration as a limited company, to increase the nominal amount of its share capital and to provide that a portion of its share capital shall not be capable of being called up except in the event of winding up;

c)     the power of a limited company to determine that a portion of its share capital shall not be capable of being called up except in the event of winding up,

shall apply, notwithstanding anything in any Act of Parliament or any other law for the time being in force, or other instrument constituting or regulating the company.

4.     This section shall not authorize the company to alter any such provisions contained in any instrument constituting or regulating the company which is not allowed under the Act.

5.     None of the provisions of this Act (apart from those of section 242) shall derogate from any power of altering its constitution or regulations which may be vested in the company, by virtue of any Act of Parliament or any other law for the time being in force, or other instrument constituting or regulating the company.

 
Conclusion
 
The amendment enables entities (as prescribed) having two or more members to get themselves registered under the Act which will enable them to reap the benefits that any company registered under the Act avails. It is also to be noted that the aforementioned conversion is not to be construed as a transfer and is merely a conversion of an entity to a company under the Act.

Moreover, as clearly mentioned in section 368 of the Act -

“All property, movable and immovable (including actionable claims), belonging to or vested in a company at the date of its registration in pursuance of this Part, shall, on such registration, pass to and vest in the company as incorporated under this Act for all the estate and interest of the company therein.”

Hence, the question of any instrument of transfer does not arise. This is facilitative provision towards corporatization without getting into any hassles of transfer instruments and the legalities behind it.

The decrease in the requirement of minimum members from seven to two relieves the entity from undergoing the trouble of inducing more members in the case it did not have the said minimum requirement of seven members earlier.

Also, converting to a company has various benefits for any entity in terms of having the option of listing themselves in the Stock Exchanges or generating capital from the public. The trustees in case of a Trust or the members of a Registered Society may become a part of the Board of Directors. There is also the continuation of brand value associated with that entity. Also, the unabsorbed losses and depreciation can be carried forward. Hence numerous benefits are associated with the conversion and the only limitation being the adherence and compliance of plentiful laws.
 

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