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Shell companies and its directors - new guidelines

All heard about shell companies and binami investments. What really a shell company? A shell company is a company or corporation that only exists in paper and has no office and no employees, but they may have bank account or may hold passive investment or be the registered owner of assets. Now it is clear that these companies may include fictitious companies to part black money.

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  1. No or negligible business operations.

  2. No or nominal assets which also mostly in liquid form. The Government has taken many steps to control the generation and circulation of black money as this is one of the dangerous problem of the economy and growth. One of such step was to tag and verify the registered office, director or key personnel of the companies. This was done to find the ghost directors, linking Aadhar with PAN and Director Identification Number, other mandatory disclosures and also to tag the company geographically.

It is not intended to mean that all shell companies are bad, but most of them are. Most of the shell companies are created to either avoid taxes or even promote startups. Most of them are registered in tax havens, where there is no or low tax.

Central Government has required each and every company which were incorporated on or before 31st Dec, 2017 to file an e-form ACTIVE (Active Company Tagging Identities and Verification) by making the Companies (Incorporation) Amendment Rule, 2019 within 60 days from the date of passing such order, i.e. on or before 25th April, 2019. This is a great step by the Ministry of Corporate Affairs to find the list all companies in two form, like compliant and non compliant companies, so that illegal shell companies can erased out. It is necessitated by the fact that, on legal proceedings against such companies the directors take stand that they are not aware of such companies, in spite of the fact that they are the signatories. Some of the companies not even exists, they does not have address or registered office or the address is incorrect. One example is that just after the demonitisation in November 2016 various authorities noticed that a surge in cash deposit by the shell companies possibly an attempt to hide the real owner of the wealth. Subsequently more than 2000 companies were asked to shut down their operations and aroud 200 listed companies were imposed with restrictions by Securities Exchange Board of India (SEBI) for trading. The more tragedy was coming, when an investigation was carried out, there were hundreds of such companies were registered in few buildings in one street of Kolkata and most of them locked for years.

Action followed To regulate and control such companies, Ministry of Corporate Affairs made it mandatory for the companies to file form ACTIVE within the prescribed period. It also made for attaching the photograph of the registered office of the company displaying the building from outside as well inside, and also the presence of the concerned director or Key Management Personnel in the inside photo. The form need to filed with prescribed fees. A company which is not up to date with its financial statement filing can not file the form and the form shall be certified by CA,CS or CMA by seeing the original office and papers. The consequences of non filing will be bad and if the company is not able file the e-form on or before the deadline, the same can be filed by paying a fine of Rs 10000/-. The company will be marked as ACTIVE-NON COMPLIANT in the MCA website which can be used as a reason for removing the name of the company from the register by Registrar of Companies, if there is sufficient grounds to believe that the company is not carrying on any business or operations and is not having a genuine registered office. This is one of the major step by the government to weed out fake and fallacious companies which will help the generation and utilisation of black money so that the economy will grow further.

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