‌A query whether after amendment of Companies Act, 2013 in May 2015 a company be formed purely on the basis of debts is being asked. ‌

Now we have started Publishing the Useful Comments and Discussion  as received on  WhatsApp Group for Future reference of Teachers and Students. A Query answered by V Wason a Known writer  (Accounts of XI and XII Class).

Good Morning Friends,
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‌A query  whether after amendment of Companies Act, 2013 in May 2015 a company be formed purely on the basis of debts is being asked.

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‌Answer:
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‌The Government  through its Official Gazette dated 25 May 2015 has only omitted the chain of words

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‌'of one lakh rupees or such higher paid up share capital' from clause (68)

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‌and 'of five lakh rupees or such higher paid up capital' from (71) of section 2 of the Companies Act, 2013.

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‌After such omission the definition of Private Comany and Public Company stands as under:

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‌Section2(68): "Private Company means a company having a minimum paid up share capital as may be prescribed....."

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‌Section 2(71): "Public Company means a company which is not a private company; has a minimum paid up share capital as may be prescribed....."

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‌Just because of this  omission this does not mean that there is no requirement for share capital.

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‌Correlating this amendment with section 464 of The Companies Act 2013 wherein the limit of maximum no.of persons for forming partnership is 100 though the Central Government has prescribed the maximum no.of persons as 50.

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‌Basically,  the amendment in the Principal Act has omitted the quantification of the amount required yet it  still leaves the words 'share capital as may be prescribed' in the definitions of Private and Public Company.

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‌More importantly for formation of a company  form INC-29 is required to be filed and requires stamp duty to be paid. Presently, a software which requires these forms to be filed with Ministry of Corporate Affairs still requires a stamp duty to be paid on Rs.100000.

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‌Let us imagine a situation, though which is not practical at all,  a company is fully financed through debt.  In this case,  after paying interest to debentureholders, taxes to government the balance i.e. surplus in statement of P/l shall pertain to whom...?????

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‌Doe this imply that ratios like EPS, DPS,ROE and concepts like Trading on Equity for which every business concern is always keen to obtain benefit of lower cost over ROI will have no relevance...?????

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‌Anyways My Heariest Wishes for HAPPY DIWALI to ALL TEAM MEMBERS.

‌Regards

 by V. WASON

(A Known Writer)