Impact of Number of Member falling below Minimum Requirement as per Companies (Amendment) Act, 2017

Companies (Amendment) Act, 2017 has inserted a new “Section 3A” after Section 3 in the Act (Companies Act) which is in an addition in the law and states about the “Liability of Members in certain Cases”.

Section 3A  is very small section which describes about the liability of the members if the number of members in a company which are mandatory under law falls below that prescribed limit.

Section 3A: MEMBERS SEVERALLY LIABLE IN CERTAIN CASES

If at any time the number of members of a company is reduced, in the case of a public company, below seven, in the case of a private company, below two, and the company carries on business for more than six months while the number of members is so reduced, every person who is a member of the company during the time that it so carries on business after those six months and is cognisant of the fact that it is carrying on business with less than seven members or two members, as the case may be, shall be severally liable for the payment of the whole debts of the company contracted during that time, and may be severally sued therefor.

IMPLICATION OF NEW SECTION 3A ON MEMBERS

Section 3(1) of the Act provides for the minimum number of persons required for formation of a company.

 A company, if at any time whose number of members are reduced below the minimum prescribed limit and the company carries on business for more than six months while the number of members is so reduced, and any member who after knowing the fact that the minimum number of members of a company  were or are below the minimum prescribed limit under law and continued with a company as a member, then every person who is a member of the company during that time, shall be severally liable for the payment of the whole debts of the company contracted during that time, and may be severally sued therefor.

This new provision will act as a strict compliance which will be must for every company to be followed as it provides  about the liability of members and Companies will consider the requirement of maintaining limit of minimum number of members as prescribed in law seriously.

Thanks for reading.

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Tags : Companies Act (2408) Companies Act 2013 (2181)

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