The Ministry of Corporate Affairs (“MCA”) has vide its notification dated February 1, 2021, notified the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2021 (“Amalgamation Amendment Rules”) to amend the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (“Amalgamation Rules”); the Companies (Specification of Definitions Details) Amendment Rules, 2021 (“Definitions Amendment Rules”) to amend the Companies (Specification of Definitions Details) Rules, 2014 (“Definitions Rules”) and the Companies (Incorporation) Second Amendment Rules, 2021 (“Incorporation Amendment Rules”) to amend the Companies (Incorporation) Rules, 2014 (“Incorporation Rules”). 

The key changes introduced by the aforementioned amendment rules, are as follow:

A) Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2021

Pursuant to the Amalgamation Amendment Rules, an amendment has been made to rule 25 of the Amalgamation Rules to provide that two or more start-up companies; or one or more start-up company with one or more small company can enter into a scheme of merger or amalgamation under section 233 (fast track merger/ amalgamation) of the Companies Act, 2013 (“Act”).

The Amalgamation Amendment Rules also provide that the term ‘start-up company’ shall mean a private company incorporated under the Act or the Companies Act, 1956 and recognised as such in accordance with notification number G.S.R. 127 (E), dated the February 19, 2019 issued by the Department for Promotion of Industry and Internal Trade. 

B) Companies (Specification of Definitions Details) Amendment Rules, 2021

Pursuant to the Definitions Amendment Rules, an amendment has been made to rule 2 of the Definitions Rules to state that for the purposes of section 2(85) (small company) of the Act, the paid up capital of the company shall not exceed Rs. 2 crore and the turnover shall not exceed Rs. 20 crore.

C) Companies (Incorporation) Second Amendment Rules, 2021

Pursuant to the Incorporation Amendment Rules, the following amendments have been made to the Incorporation Rules:

1. Earlier, rule 3 of the Incorporation Rules provided that one person companies (“OPCs”) could only be incorporated by an Indian citizen who is resident in India. The same has been amended to provide that an Indian citizen, whether resident in India or otherwise can incorporate an OPC. Further, the timeline for determining whether a person is ‘resident in India’ has been reduced from 182 days to 120 days during the immediately preceding financial year;
2. Rule 6 of the Incorporation Rules has been amended to provide the following process of conversion of an OPC into a public company or a private company:

a) It shall alter its memorandum of association and articles association by passing a resolution in accordance with section 122(3) of the Act to give effect to such conversion;

b) It may be converted into a private company or a public company, other than companies registered under Section 8 (companies with charitable objects, etc.) of the Act, after (i) increasing the minimum number of members to two or seven, as the case may be; (ii) increasing the minimum number of directors to two or three, as the case may be; (iii) maintaining the minimum paid-up capital as per the requirements under the Act; and (iv) making due compliance of section 18 (conversion of companies already registered) of the Act;

c) It shall file an application in e-form no. INC-6 for conversion along with such fees as provided under the Companies (Registration offices and fees) Rules, 2014 by attaching, (i) altered memorandum of association and articles of association; (ii) copy of resolution; (iii) list of proposed members and directors along with consent; (iv) list of creditors; and (v) latest audited balance sheet and profit and loss statement; and

d) Upon being satisfied with the compliance of requirements, the registrar of companies shall approve the form and issue the certificate.

This update has been contributed by Aastha (Partner) and Kartik Jigyasi (Associate).