Companies Authorised to Register

19.1 Section 366 of the Act provides for entities such as partnership firms, limited liability partnerships, cooperative societies, or other business entities formed under any other law, to be registered as a company under the Act, provided, inter alia, that such an entity has seven or more members. It was suggested to the Committee 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 above referred restriction for the entities to consist of seven or more members would need to be reviewed to allow registration of such entities, consisting of two or more members. Comparable provisions were also found in the English Companies Act, 2006, allowing for the formation of companies with less than seven members. The Committee recommended for amending Section 366(2) of the Act, to allow for such conversions to companies from partnership firms, etc. with ‘two or more members’, provided that in case of less than seven members, the conversion would be to a private company.

19.2 It was also pointed out that the existing Rules framed under Section 366 do not allow registration of partnership firms (registered under Partnership Act, 1932) as companies. It was pointed out that this was permitted under the earlier Act and should be allowed under new Act also. The Committee recommended for changes to be made in the Rules to allow for registration of partnership firms (dealt with in Part II of this report), as no change in the Act was needed.

Company conversion eligibility expanded so small business entities may register as companies, with small groups limited to private company status. The proposal reduces the membership threshold for entities formed under other laws to convert into companies, allowing entities with fewer members to register while providing that entities below the traditional seven member threshold must convert to a private company; the Committee recommended amending the statute accordingly. The Committee also recommended amendments to the Rules to permit registration of partnership firms governed by the Partnership Act as companies, noting this can be accomplished by rule change rather than by altering the Act.