CONTRACTS AND

CONVERSIONS
Slide 14
CONTRACTS
◦ Company being an artificial person can contract only through its
agents
◦ There are two situations in which contracts are made:
1. Contracts made on behalf of the company before its incorporation
—preliminary or pre-incorporation contracts.
2. Contracts made after the incorporation.
Pre-incorporation Contracts
◦ Preliminary contracts are contracts purported to be made on behalf of a company before its
incorporation.
◦ Nobody can contract as agent on its behalf because an act which cannot be done by the
principal himself cannot be done by him through an agent.
◦ Company takes some benefit from a contract purported to have been made before its
formation, the contract is not binding on the company.
◦ A company cannot ratify a pre-incorporation contract, but it is open to it to enter into a new
contract after its incorporation to give effect to a contract made before its formation
Contracts made after incorporation of
business
◦ A company can do all such acts, as by its Memorandum.
◦ Where a contract is intra vires the company but ultra vires the
directors, the company may be liable and may even ratify it.
COMMENCEMENT OF NEW BUSINESS
BY AN EXISTING COMPANY
◦ A company cannot commence any business other than those stated under “objects” clause of memorandum
without obtaining the prior approval of the shareholders in general meeting by a special resolution.

◦ Section 4(1)(c) requires all companies to state in their memorandum the objects for which the company is
proposed to be incorporated

◦ Section 13(1), a company may, by a special resolution and after complying with the procedure specified in
this section.

◦ No business other than those given in the “objects clause” can be commenced without obtaining prior
approval of the shareholders by way of special resolution
COMMON SEAL
◦ Section 12(3)(b) provides that every company shall
have its name engraved in legible characters on its
seal
CONVERSION OF COMPANIES
ALREADY REGISTERED
◦ Section 18(1) of the Companies Act, 2013 provides that a company of any
class registered under this Act.
◦ Where the conversion is required to be done under this section, the Registrar
shall on an application made by the company, after satisfying himself that the
provisions of this Chapter applicable for registration
◦ The registration of a company under section 18 shall not affect any debts,
liabilities, obligations or contracts incurred
CONVERSION OF A PRIVATE COMPANY INTO
A PUBLIC COMPANY AND VICE VERSA
◦ Section 14 (1) states that subject to the provisions of this Act and the conditions contained in its
memorandum
◦ By a special resolution, alter its articles including alterations the effect of conversion of—
1. A private company into a public company; or
2. A public company into a private company
Conversion of a Public company into a Private company-
requires approval of National
Company Law Tribunal
◦ The second proviso to Section 14(1) states that any alteration having the effect of conversion of a public
company into a private company shall not take effect except with the approval of the Tribunal
◦ Section 14(2) states that every alteration of the articles under this section and a copy of the order of the
Tribunal approving the alteration
◦ The company shall accordingly change its name and no approval of Central Government is required for
the name change as per the proviso to section 13(2).
PRIVATE COMPANY (WHICH IS A SUBSIDIARY
OF PUBLIC COMPANY) DEEMED TO BE A
PUBLIC COMPANY
◦ Section 2(71) of the Companies Act, 2013, a company which is a subsidiary of a company, not being a
private company
◦ Shall be deemed to be public company for the purposes of this Act even where such subsidiary company
continues to be a private company
◦ ‘Private company’ at the same level as that of a public company and thereby demarcates between a
private company and a private company which is not a subsidiary of a public company.
CONVERSION OF SECTION 8 COMPANY INTO
A COMPANY OF ANY OTHER KIND
◦ Section 8(4)(ii) provides that a company registered under section 8 i.e. companies with charitable objects may convert itself into company
◦ Certain Condition:
1. Conversion requires Special Resolution
2. Explanatory Statement as per Section 102 of the Act to be annexed to the notice
3. Certified copy of Special Resolution to be filed in Form No MGT-14
4. Application to Regional Director
5. A copy to be filed with the Registrar
6. Publication of notice
7. Declaration to the effect that no dividend /bonus shares
8. No objection certificate from relevant authorities, in case of special status
9. No failure in filing financial statements/Annual Return
10. Attach certificate of compliance for conversion
11. Company to give up concessions enjoyed or being enjoyed
12. On receipt of Approval of Regional Director
CONVERSION OF ONE PERSON COMPANY INTO A
PUBLIC COMPANY OR PRIVATE
COMPANY
◦ Rule 3 of Companies (Incorporation) Rules, 2014
1. An OPC cannot convert itself into a company under Section 8 of the Act, i.e. charitable company
2. Two years have expired from the date of incorporation of such OPC.

◦ Rule 6 of Companies (Incorporation) Rules, 2014

1. Paid up capital/turn over of one person company not to exceed prescribed limits
2. One Person Company to compulsorily convert itself on exceeding the above limits
3. Alteration of Memorandum and Articles
4. Notice to Registrar
5. Penalty for default
6. Minimum number of members/directors/ capital to be complied on conversation
RULE 7- CONVERSION OF PRIVATE COMPANY INTO
ONE PERSON COMPANY
◦ A private company other than a company registered under section 8 of the Act having paid up share
capital of fifty lakhs rupees or less and average annual turnover during the relevant period is two crore
rupees
◦ The one person company shall file copy of the special resolution with the Registrar of Companies within
thirty days from the date of passing such resolution in Form No. MGT.14.
◦ The company shall file an application in Form No.INC-6
1. The directors of the company shall give a declaration by way of affidavit duly sworn in confirming the list of
members and list of creditors;
2. The latest Audited Balance Sheet and the Profit and Loss Account; and
3. The copy of No Objection letter of secured creditors.