Companies Act Section 374

Companies Act Section 374: Obligations to Be Fulfilled by Entities Registering as Companies Under Part XXI

Section 374 of the Companies Act, 2013 outlines the specific pre-registration obligations that must be fulfilled by any firm, partnership, limited liability partnership (LLP), cooperative society, or other business entity that seeks to convert and register itself as a company under Part XXI of the Act. Part XXI governs the process by which existing organizations that were originally incorporated under a different law can become companies under the Companies Act.

These obligations are designed to ensure transparency, protect creditors, particularly secured creditors, and provide legal certainty about the transition from the old entity to a newly registered company.

Preconditions for Registration:

Any business entity intending to convert itself into a company under Part XXI of the Companies Act must complete the following mandatory steps before such registration can be approved:

(a) Consent or No-Objection from Secured Creditors:

The company must obtain written consent or a No Objection Certificate (NOC) from all of its secured creditors.
This is crucial to ensure that creditors who have a legal charge over the company’s assets are not adversely affected or caught unaware by the legal transformation of the entity.
The registration process cannot proceed unless such consent or no-objection has been obtained and properly documented.
(b) Public Advertisement and Notice of Registration Intent:

The entity must publish a public advertisement notifying the general public of its intent to register as a company under Part XXI. The advertisement must be published in two newspapers:
One in English, and one in a vernacular (regional) language widely circulated in the district where the entity's registered office is located. The format and manner of this advertisement must conform to the prescribed rules under the Companies Act. The purpose of this advertisement is to:
Inform the public about the proposed conversion, and Invite objections, if any, from concerned parties. Any objections received must be appropriately addressed by the applicant entity before proceeding with registration.
(c) Submission of Notarised Affidavit by All Members or Partners:

All existing members (in the case of a society, LLP, or company) or partners (in the case of a partnership firm) of the applicant entity must collectively submit a duly notarised affidavit. This affidavit must contain a clear and binding declaration that:
Upon registration under this Part as a company, they shall submit all necessary documentation to the authority under which the business entity was previously registered, and they shall undertake all required steps for the legal dissolution of the old entity, whether it was a:
Partnership firm, Limited Liability Partnership (LLP), Cooperative society, Society, or any other type of business entity.
This condition ensures that there is no dual existence of the business entity once it becomes a company under the Companies Act, the old form of the entity must be officially and legally wound up or dissolved.

(d) Compliance with Additional Prescribed Conditions:

The company must comply with any other conditions or procedural requirements as may be prescribed by the Central Government or by rules framed under the Companies Act.
These conditions may relate to documentation, compliance certifications, regulatory filings, or any other procedural safeguard deemed necessary for the registration process.
Special Provision for LLPs:

Automatic Dissolution:

A proviso to Section 374 specifically deals with Limited Liability Partnerships (LLPs) that are registered under the Limited Liability Partnership Act, 2008:

Upon registration as a company under Part XXI, any LLP so converted shall be automatically deemed to have been dissolved under the LLP Act, 2008.

No additional steps, filings, or actions are necessary to formally dissolve such an LLP once it is registered as a company. This automatic dissolution provision ensures a seamless legal transition for LLPs, reducing duplication of legal procedures.