Business between two company with same body

1. the companies are seperate legal entities as per companies act. therefore it has seperate existance from its member.

2. if AOA and memorandum of companies is allowing such businesses then tthe companies can conduct and there is no relevence of members of company with whome it is conducting business.

3. under certain circumstances, the courts has taken objection on such businees with view of public interest, malafide and illegal activities, evasion on taxes etc is purpose or result of such business.

4. it is very much depend upon circumstances. therefore priliminary companies can conduct such businesses within the scop of MOU and AOA.

Your point is right that company is seperate from its member but the facts you have pointed out in point 3 is the matter of concern.

What kind of safeguard can be taken to avoid the facts what you have mentioned in point 3

 

Yes two companies can be formed with same members and directors. But from the companies act angle you shold be very careful that there is no malafide intention to form two separate companies. and from the income tax angle you should be careful that the transactions shold be done only at the fair market velue basis.

You have to comply with provisions of Sections 297, 299, 301 etc. for related party transactions. 

 

 Please review the provisions as highlighted by Mr. Agarwal - Company Secretary. As long as the two companies are distinct entity and the transactions between them are transparent - proper disclosures made and are fair having two companies with same directors as such cannot be

construed as mala-fide or wrong. For instance one could be doing service or support service to another. Or one could be expertise in manufacturing and other could be in marketing/distribution etc.

vasudevan

Mr. Agrawal has given the best practical reply possible...

Section 295 and 297 is very important to view as its require CG approval. Moreover, it has to disclose inter party related transactionas per notified Accounting Standards.

In case either company is shadow one, principle of corproate veil may be invoked and safeguard of seprate legal entity may be withdrawn by the Court.

Suresh