Companies Act Section 366

Companies Act, Section 366: Companies Capable of Being Registered under the Act

Section 366 of the Companies Act, 2013 outlines the eligibility criteria and procedural framework for registering various types of business entities as companies under the Act. This provision is primarily designed to allow entities that are not originally incorporated under the Companies Act such as partnership firms, limited liability partnerships, cooperative societies, and other entities formed under different laws to transition into companies governed by this Act. The section also stipulates certain restrictions, procedural safeguards, and approval thresholds to ensure the orderly conversion of such entities into companies, while preserving legal consistency and member rights.

1. Definition of “Company” for the Purpose of Registration under This Part

For the purposes of Part XXI of the Companies Act, 2013 (which deals with the registration of existing entities as companies), the term “company” is broadened in scope. It is defined to include a range of business entities or associations, including:

Partnership firms, Limited Liability Partnerships (LLPs), Cooperative societies, Societies, or any other business entity formed under any law that is currently in force in India.
Any such entity that desires to register as a company under the Companies Act can do so under this Part, subject to the conditions laid down herein.

2. Eligibility and Conditions for Registration

Subject to the specific exceptions and conditions laid out in this section, any business entity, whether formed before or after the commencement of the Companies Act, 2013, and which was originally created under:

Any Act of Parliament other than the Companies Act, or Any other applicable law for the time being in force.
Was otherwise lawfully constituted under any existing legal framework, and consisting of two or more members, is permitted to apply for registration under the Companies Act, 2013. Such registration may be undertaken as:

An unlimited company, A company limited by shares, or A company limited by guarantee, as per the prescribed procedure.

3. Restrictions and Special Conditions Applicable to Registration

The section imposes a number of specific conditions and prohibitions to ensure legal clarity and avoid conflicts with past incorporation statutes. These include:

(i) Prohibition on Re-registration of Already Registered Companies:

Entities already registered under any of the following laws are not permitted to register again under this section:

The Indian Companies Act, 1882
The Indian Companies Act, 1913
The Companies Act, 1956
This prevents duplication or confusion concerning the company’s legal identity.

(ii) Prohibition on Conversion to Certain Types of Companies:

If a company’s members have limited liability by virtue of any law other than the Companies Act, it cannot re-register as an unlimited company or as a company limited by guarantee under this provision. This ensures consistency in the nature of liability.

(iii) Specific Capital and Shareholding Structure for Companies Limited by Shares:

A company can only register as a company limited by shares if:

It has a permanent paid-up or nominal share capital of fixed amount, That capital is divided into shares of fixed value (or held as stock, or both), It is formed on the principle that its members are only those who hold such shares or stock, and no other person.
This ensures that the shareholding structure is aligned with the requirements applicable to companies limited by shares.

(iv) Requirement for Majority Assent:

The decision to register under this section must be approved by a majority of the members present in person or by proxy, at a general meeting specifically summoned for this purpose. This ensures democratic participation by the entity's stakeholders.

(v) Special Majority for Limited Liability Transition:

If a company without limited liability wishes to convert to a company limited by shares or guarantee, then a higher approval threshold is required: at least three-fourths (75%) of the members present (either in person or by proxy) at the general meeting must assent to the registration.

(vi) Assent Required for Companies Limited by Guarantee:

To register as a company limited by guarantee, the members must pass a resolution stating that each member agrees to contribute, in the event of the company’s winding up (while still a member or within one year of ceasing to be one), towards:

Payment of the company’s debts and liabilities contracted before their exit, Costs and expenses related to the winding up, and Adjustments of rights among contributories.
The resolution must specify the maximum contribution amount each member undertakes to provide.

(vii) Private Company Status for Small Membership:

If the entity proposing registration has fewer than seven members, it must be registered only as a private company.

4. Determination of Majority on Poll Voting:

In cases where a poll is demanded during the meeting to decide on registration, the majority required for approval shall be determined based on the voting rights of the members as per the existing regulations of the entity. This ensures that voting power reflects the actual influence of members, especially in share-based or weighted-voting arrangements.