Govt to reject variations of existing names for new companies
18 Sep 2013 10:10 PM GMT
Companies that are being set up need to have names that are new in letter and spirit, not just phonetic or spelling variations of existing names or similar-sounding words, according to government norms.
The guidelines, which are part of the draft rules under the new Companies Act, 2013, come in the backdrop of attempts by some entities to cash in on the brand value of companies by setting up firms with names that sound similar or are spelt differently.
There have been instances of companies being set up with names resembling those of long-established entities, including foreign giants such as Ikea, Walmart and Starbucks.
The new rules bar the use of abbreviations and country and state names, except for some government units. Terms such as 'British India' and names of 'enemy' countries will not be allowed.
The government has suggested an indicative list of dos and don'ts to be followed while incorporating a company in the country to ensure that names of companies reflect the nature of their businesses, to the extent possible. The draft rules prepared by the Corporate Affairs Ministry have delved extensively into names that can be used for companies.
'... abbreviated name based on the name of the promoters will not be allowed,' according to the draft rules.
Providing an example, the ministry said if BMCD Ltd represents the first letters of the names of promoters Bharat, Mahesh, Chandan and David, it would be disallowed.
Vague or abbreviated names such as 'ABC Ltd or 23K Ltd or DJMO Ltd' won't be registered.An existing company can use its abbreviated name when it forms a new entity such as a subsidiary, joint venture or associate company.
'Such joint venture or associated company shall not have an abbreviated name only,' the rules noted.
Companies that are known more by their abbreviations than by their full names can switch over to the shorter form after following the requirements of the Companies Act.
Besides, the ministry has drawn up a list of words and combinations such as Board, Commission, Authority and Rashtrapati that can't be used without prior approval of the central government.Other words on the list include Undertaking, National, Union, Central, Federal, Republic, President, Small Scale Industries, Khadi and Village Industries Corporation and Development Authority.This would be applicable for the name of a company in English or any language. Expanding the canvas, the draft rules require applicants to provide declarations that they are in compliance with regulations if they plan to use words such as Insurance, Bank, Stock Exchange, Venture Capital, Asset Management, Nidhi and Mutual Fund in company names.
The word 'state' will be allowed for use only by government companies.Names containing only the name of a continent, country, state or city, such as 'Asia Limited' or 'Haryana Limited' will not be allowed.
The draft norms restrain entities from using 'any word or words which are offensive to any section of the people.'
The ministry said a company's name should not be in dissonance with its principal objects as stated in the memorandum of association.
If the name of a foreign nation is included, it would not be allowed to be incorporated unless the applicant provides proof of significant business relations with the country. The proof includes documents such as the Memorandum of Understanding (MoU) with a company of such a country.
'...the name combining the name of a foreign country with the use of India like India Japan or Japan India shall be allowed if, there is a government-to-government participation or patronage.
'No company shall be incorporated using the name of an enemy country. (Enemy country means so declared by the central government from time to time),' as per the draft norms.
General names like 'Cotton Textile Mills Ltd or Silk Manufacturing Ltd' won't be allowed as they are likely to produce a misleading impression regarding the scope or scale of their activities beyond resources at their disposal.
Names that include or imply 'association or connection with or patronage of a national hero or any person held in high esteem or important personages who occupied or are occupying important positions in government' won't be allowed.
Names freed after a change of name by a company will not be used by any entity for three years.
'The names freed on change of name by any company shall remain in data base and shall not be allowed to be taken by any other company including the group company of the company who has changed the name for a period of three years from the date of change,' the ministry said.
However, this rule will be relaxed on a specific direction from a tribunal in the course of a merger, reconstruction or demerger of a company.
The guidelines, which are part of the draft rules under the new Companies Act, 2013, come in the backdrop of attempts by some entities to cash in on the brand value of companies by setting up firms with names that sound similar or are spelt differently.
There have been instances of companies being set up with names resembling those of long-established entities, including foreign giants such as Ikea, Walmart and Starbucks.
The new rules bar the use of abbreviations and country and state names, except for some government units. Terms such as 'British India' and names of 'enemy' countries will not be allowed.
The government has suggested an indicative list of dos and don'ts to be followed while incorporating a company in the country to ensure that names of companies reflect the nature of their businesses, to the extent possible. The draft rules prepared by the Corporate Affairs Ministry have delved extensively into names that can be used for companies.
'... abbreviated name based on the name of the promoters will not be allowed,' according to the draft rules.
Providing an example, the ministry said if BMCD Ltd represents the first letters of the names of promoters Bharat, Mahesh, Chandan and David, it would be disallowed.
Vague or abbreviated names such as 'ABC Ltd or 23K Ltd or DJMO Ltd' won't be registered.An existing company can use its abbreviated name when it forms a new entity such as a subsidiary, joint venture or associate company.
'Such joint venture or associated company shall not have an abbreviated name only,' the rules noted.
Companies that are known more by their abbreviations than by their full names can switch over to the shorter form after following the requirements of the Companies Act.
Besides, the ministry has drawn up a list of words and combinations such as Board, Commission, Authority and Rashtrapati that can't be used without prior approval of the central government.Other words on the list include Undertaking, National, Union, Central, Federal, Republic, President, Small Scale Industries, Khadi and Village Industries Corporation and Development Authority.This would be applicable for the name of a company in English or any language. Expanding the canvas, the draft rules require applicants to provide declarations that they are in compliance with regulations if they plan to use words such as Insurance, Bank, Stock Exchange, Venture Capital, Asset Management, Nidhi and Mutual Fund in company names.
The word 'state' will be allowed for use only by government companies.Names containing only the name of a continent, country, state or city, such as 'Asia Limited' or 'Haryana Limited' will not be allowed.
The draft norms restrain entities from using 'any word or words which are offensive to any section of the people.'
The ministry said a company's name should not be in dissonance with its principal objects as stated in the memorandum of association.
If the name of a foreign nation is included, it would not be allowed to be incorporated unless the applicant provides proof of significant business relations with the country. The proof includes documents such as the Memorandum of Understanding (MoU) with a company of such a country.
'...the name combining the name of a foreign country with the use of India like India Japan or Japan India shall be allowed if, there is a government-to-government participation or patronage.
'No company shall be incorporated using the name of an enemy country. (Enemy country means so declared by the central government from time to time),' as per the draft norms.
General names like 'Cotton Textile Mills Ltd or Silk Manufacturing Ltd' won't be allowed as they are likely to produce a misleading impression regarding the scope or scale of their activities beyond resources at their disposal.
Names that include or imply 'association or connection with or patronage of a national hero or any person held in high esteem or important personages who occupied or are occupying important positions in government' won't be allowed.
Names freed after a change of name by a company will not be used by any entity for three years.
'The names freed on change of name by any company shall remain in data base and shall not be allowed to be taken by any other company including the group company of the company who has changed the name for a period of three years from the date of change,' the ministry said.
However, this rule will be relaxed on a specific direction from a tribunal in the course of a merger, reconstruction or demerger of a company.
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