Section 464 of the Companies Act: Prohibition of association or partnership of persons
(1) No association or partnership consisting of more than such number of persons as may be prescribed shall be formed for the purpose of carrying on any business that has for its object the acquisition of gain by the association or partnership or by the individual members thereof, unless it is registered as a company under this Act or is formed under any other law for the time being in force: Provided that the number of persons which may be prescribed under this sub-section shall not exceed one hundred.
(2) Nothing in sub-section (1) shall apply to— (a) a Hindu undivided family carrying on any business; or (b) an association or partnership, if it is formed by professionals who are governed by special Acts.
(3) Every member of an association or partnership carrying on business in contravention of subsection (1) shall be punishable with fine which may extend to one lakh rupees and shall also be personally liable for all liabilities incurred in such business.
Applicable rule:
Rule 10 of Companies (Miscellaneous) Rules, 2014:
It states that no association/partnership, can be formed of more than 50 persons for carrying on any business that engaged in profit generating business provided it is registered as a company under the Act or is formed under any other law.
Moreover, section 464 of the Act prescribes that Central Government has the power to raise such number of persons, maximum to 100.
Non-applicability of the section:
- An association or partnership if it’s formed by professionals governed under Special Acts. For instance- members of ICAI and ICSI starting a partnership firm comprising of persons as may have prescribed under this section, then such a partnership firm is not illegal.
- Chit funds, stock exchanges and Non-Profit Organizations.
- A Hindu Undivided Family comprising of more than such number of persons prescribed under law and carrying on business for generating profit will not be termed as an illegal association.
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