CS Executive Setting up of Business Entities and Closure Syllabus

What is 'lifting of the corporate veil'?

Disregarding the separate legal personality of a company to hold members/directors personally liable — applied in cases of fraud, improper conduct, tax evasion, or where the company is a sham/facade.

What is the first major step in the procedure for incorporation of a company regarding the name?

Reserving the company name through the RUN (Reserve Unique Name) service or via Part A of the SPICe+ form on the MCA portal.

What is the SPICe+ form used for in company incorporation?

SPICe+ (INC-32) is the integrated web-based form for company incorporation, combining name reservation, DIN allotment, PAN, TAN, EPFO, ESIC, GSTIN, bank account, and professional tax registration in one application.

What are the two key constitutional documents filed for incorporating a company?

The Memorandum of Association (MOA) and the Articles of Association (AOA).

What does the Memorandum of Association (MOA) contain (its clauses)?

Name clause, Registered Office (situation) clause, Object clause, Liability clause, Capital clause, and Subscription/Association clause.

What is the function of the Articles of Association (AOA)?

AOA contains the rules and regulations for the internal management and administration of the company; it is subordinate to the MOA.

What document is conclusive evidence that a company has been duly incorporated?

The Certificate of Incorporation issued by the Registrar of Companies (ROC).

What is a Corporate Identity Number (CIN)?

A 21-digit unique alphanumeric identification number allotted to a company by the ROC at the time of incorporation.

What is required before a public company can commence business — the declaration regarding subscription money?

A declaration in Form INC-20A (Commencement of Business) must be filed within 180 days of incorporation, confirming subscribers have paid the value of shares agreed to be taken.

Within how many days must a company hold its first Board Meeting after incorporation?

Within 30 days of the date of incorporation.

What is the timeline for filing Form INC-20A (Declaration of Commencement of Business)?

Within 180 days from the date of incorporation of the company (applicable to companies with share capital incorporated on/after 2 Nov 2018).

Which post-incorporation compliance relates to appointment of the first auditor?

The first auditor must be appointed by the Board within 30 days of incorporation; if the Board fails, members must appoint within 90 days at an EGM. The first auditor holds office till the conclusion of the first AGM.

What is Form INC-22 used for after incorporation?

Filing the notice of situation/verification of the registered office address (if not provided in SPICe+), to be filed within 30 days of incorporation.

What are some common licenses/registrations a new business obtains after incorporation?

PAN, TAN, GST registration, Shops & Establishment registration, EPFO & ESIC registration, Professional Tax, Trade License, and industry-specific licenses (e.g., FSSAI, drug license, import-export code).

What is the IEC (Import Export Code) and who issues it?

A 10-digit code (now linked to PAN) required to undertake import/export of goods or services, issued by the DGFT (Directorate General of Foreign Trade).

What is an FSSAI license and when is it required?

A license/registration issued under the Food Safety and Standards Act, 2006 by the Food Safety and Standards Authority of India, mandatory for businesses involved in manufacturing, processing, storage, distribution, or sale of food.

What is GST registration and when is it mandatory?

Registration under the Goods and Services Tax law; mandatory once aggregate turnover crosses the threshold (generally Rs. 40 lakh for goods, Rs. 20 lakh for services; lower for special category states) or for inter-state suppliers, e-commerce operators, etc.

What are the two broad modes of winding up of a company?

(1) Winding up by the Tribunal (compulsory winding up by NCLT) and (2) Voluntary winding up (now largely governed under the Insolvency and Bankruptcy Code, 2016).

On what grounds can a company be wound up by the Tribunal under Section 271 of the Companies Act, 2013?

(a) Special resolution to wind up by Tribunal; (b) acting against sovereignty/integrity of India or public order; (c) fraudulent/unlawful conduct; (d) default in filing financial statements/annual returns for 5 consecutive years; (e) Tribunal is of opinion it is just and equitable to wind up.

What is the difference between 'winding up' and 'dissolution' of a company?

Winding up is the process of realising assets, paying liabilities, and distributing surplus; the company still exists during it. Dissolution is the final step where the company's name is struck off and it ceases to exist as a legal entity.

What is the role of the 'Company Liquidator' in winding up?

To take custody of the company's assets, realise them, settle the list of contributories, pay creditors as per priority, and distribute the surplus among members, ultimately leading to dissolution.

What is the objective of the Insolvency and Bankruptcy Code, 2016 (IBC)?

To consolidate and amend laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner to maximise asset value and balance interests of all stakeholders.

Who can initiate the Corporate Insolvency Resolution Process (CIRP) under the IBC?

A financial creditor (Sec 7), an operational creditor (Sec 9), or the corporate debtor itself (Sec 10).

What is the minimum default amount to trigger CIRP under the IBC (current threshold)?

Rs. 1 crore (raised from Rs. 1 lakh by notification dated 24 March 2020).

What is the maximum time limit for completion of the Corporate Insolvency Resolution Process (CIRP)?

330 days from the insolvency commencement date, including the initial 180 days plus a one-time extension of up to 90 days and any time taken in legal proceedings.

What is a 'moratorium' under Section 14 of the IBC?

A period (declared on admission of CIRP) during which suits/proceedings against the corporate debtor, transfer of its assets, enforcement of security, and recovery actions are prohibited, providing a calm period for resolution.

What is the role and composition of the Committee of Creditors (CoC) under the IBC?

The CoC comprises the financial creditors of the corporate debtor; it takes key decisions including approving the resolution plan (requiring 66% voting share) and appointing/replacing the resolution professional.

Who regulates insolvency professionals and the insolvency ecosystem under the IBC?

The Insolvency and Bankruptcy Board of India (IBBI).

When does the liquidation process commence under the IBC?

When no resolution plan is received/approved within the CIRP period, the CoC decides to liquidate, the resolution plan is rejected by NCLT, or the resolution plan is contravened — the Adjudicating Authority (NCLT) then passes a liquidation order.

State the 'waterfall mechanism' priority of distribution under Section 53 of the IBC (first three).

(1) Insolvency resolution process costs and liquidation costs; (2) Workmen's dues (up to 24 months) and secured creditors' debts (where security relinquished) ranking equally; (3) Wages/dues of other employees (up to 12 months). Followed by financial debts of unsecured creditors, government dues, remaining debts, preference shareholders, and lastly equity shareholders.

What is the liquidation estate and who manages it under the IBC?

The liquidation estate comprises all assets of the corporate debtor held in trust for the benefit of creditors; it is managed and realised by the Liquidator, who is appointed by the Adjudicating Authority (usually the same Resolution Professional).