In this blog post, Devanshu Kalani, a third-year BA LLB student at BVivekananda Institute of Professional Studies, New Delhi (Affiliated to Guru Govind Singh Indraprastha University, New Delhi) and pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, and a Chartered Accountant Course guides the reader on how to choose a name for your business. 

“If people believe they share values with a company, they will stay loyal to the brand.”
                                                                                                              – Howard Schultz

Introduction

An important step in the formation of the company is to prepare a document called memorandum of association. Section 2(56) defines it as the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or the present act. This contains various other clauses in which name clause is one of them.

Name Clause

The first clause of the memorandum is required to state the name of the proposed company. A company, being a legal person must have a name to establish its identity. The name of a corporation is a symbol of its personal existence. Any suitable name may be selected subject but however, to the following. The name should not be such as, in the opinion of the Central Government, is undesirable. Generally, a name is undesirable when it is identical with, or too nearly resembles the name of another company. The name should not be such that its use by the company will be an offence under any law. If the company is with ‘limited liability’ the last word of the company name should be ‘limited’ and in the case of a private company ‘private limited’. This informs persons contracting the company that the liabilities of its member are limited. The Central Government may, however, permit a company to drop the word ‘limited’ from its name if it is a charitable company within the meaning of Section 8.

The name of the company must be painted on the outside of every place where the company carried on business and printed on every business document and official letter. Misdescription of name entails personal liability. [S.12]

Further prohibition has been imposed on the use of names by which a company contain such word or expression which gives an impression that the company is connected with the Central Government/State Government or any local authority unless such use of words and expressions in the name has been approved by the Central Government.

Unlike the 1956 Act, Rule 8(3) of the Companies (Incorporation) Rules, 2014 framed under the 2013 Act mandates that if a company has changed its activities, which are not reflected in its name, it shall change its name in line with its activities.

Reservation of name [Section 4(4) and (5) of Companies Act, 2013]. Section 4(4) of the 2013 Act provides that a person may make an application to the Registrar for reservation of a name stated in the application as proposed name in case of a new company or the name to which the company proposes to change its name in case of existing company.

Sub-section (5) of S. 4 of the 2013 Act confers the power to reserve the name as stated in the application under S. 4(4) of the 2013 Act for a period of six months from the date of application.

Section 4(5) of the 2013 Act makes the applicant in case of a company which has not been incorporated liable to a penalty which may extend to one lakh where it is found that the name was applied for by a providing incorrect information. Where the company is already incorporated and application made for s.4(4) of the 2013 Act by furnishing wrong information, the Registrar has the power to either a direct change in the name of a company or to take action for striking off the name of a company from the register or to petition for winding up.

Relevant Rules issued under Companies Act, 2013

The provisions relating to s.4 of the 2013 Act in terms of its implementation are covered in the Companies (Incorporation) Rules, 2014. Section 4 of the 2013 Act is to be read with Rules 8 and 9 of Companies (Incorporation) Rules, 2014, which deal with undesirable names and reservation of names respectively. Rule 8 of the said Rules deals with undesirable names and provides for the following:

• Sub-rule (1) provides for a list of differences that may be disregarded in determining whether a proposed name is identical with another.
• Sub-rule (2) provides a list of situations or factors that shall make a name undesirable.
• Sub-rule (3) deals with the change of name as a consequence of a change in activities of the company.
• Sub-rule (4) provides for the requirements to be fulfilled in case the name proposed for the company is the name of a person.
• Sub-rule (5) provides that a declaration will be required from the applicant affirming or denying whether the name applied for incorporation has been used or in use for other business constitution.
• Sub-rule (6) provides a list of words which cannot be used in the name of the company unless previous approval of the Central Government has been obtained.
• Sub-rule (7) deals with the words that may be used in the names released on change of the name by a company.

Rule 9 of the Companies (Incorporation) Rules, 2014 deals with the form and fee applicable for making an application to the Registrar for reservation of name. The Registrar can refuse to register a company’s memorandum if the proposed name carries scandalous or obscene words.[R. v. R.O.C., Ex Parte Bowen, (1914) 3 KB 1161 at 1167 (DC)]

Changes made by the Trade Marks Act, 1999

Section 20(2) of the 1956 Act had been amended by s. 158 of Trade Marks Act, 1999 to provide that a name which is identical with, or too nearly resembles, the registered trademark or trademark which is the subject matter of an application pending for registration, may be deemed to be undesirable. The newly inserted subsection (3) of the same Act also provides that before deeming a name undesirable, the Central Government (power delegated to Registrars) may consult the Registrar of Trade Marks, in this behalf.

This amendment sought to prohibit the use of someone else’s trademark as part of corporate name or name of the business concern. This amendment involved close interaction by the Registrar of Companies with the Registrar of Trade Marks. This was particularly to ensure that a name of any proposed new company is not identical with or too nearly resembles a third party’s registered trademark or trademark of a pending application for registered as a trademark.

It may be noted that if the proposed name of a company includes the name of a registered trade mark, such a name should not be made available unless the consent of the owner of a trademark has been produced by promoters.

Sub-section (3) of s. 20 of the 1956 Act, as worded, provided that the Central Government (Power Delegated to Registrar of Companies) may consult Registrar of Trade Marks before deeming a name as undesirable.

Objects and name of a company

The name of a company may be relevant in construing its memorandum and to see what its main object is and whether its substratum is gone. In this context, it may be pointed out that one of the guidelines relating to availability of names lay down that if the proposed name of a company is not in consonance with its principle objects as set out in the memorandum, the name may not be made available, particularly when there is some indication of business in the name itself. If consequent upon alteration of its objects the name of the company becomes misleading, a condition may be imposed that the name should also be changed so as to convey the enlarged field of operation by virtue of the alteration.[ Rule 8(3) of the Companies (Incorporation) Rules 2014 framed under the 2013 Act; Cotman v. Brougham, (1918) AC 514 (HL); Indian Iron & Steel Co. Ltd. Case, (1957) 27 Com Cases 361 (Cal)]

Intention to deceive not necessary. it is not necessary to prove that the deception was intended. In such cases the courts act either on that ground that a fraud is likely to be practiced or that some other party has acquired a property in the name and that the use of a name similar to the one in which another party carries on business is calculated to deceive or cause confusion between the two businesses and is likely to affect the other man’s property by diverting customers, and credit and goodwill of other’s man business. [British Diabetic Association v. Diabetic Society Ltd., (1995)  4 All ER 812; British Bata Shoe Co. Ltd. v. Czechoslovakia Bata Co. Ltd. (1946) 64 RPC 72]

Propriety right and Monopoly. But the mere similarity of names is not sufficient to give the right to an injunction or another remedy as there is no right of property in a name. As pointed out in In Re D. W. Boulay v. D. W. Boulay, (1868) LR 2 (PC) the law does not recognise the absolute right of a person to a particular name to the extent of entailing him to prevent the use of the name by another person. The court shod be satisfied that the name in which the company seeks to register itself is “likely to mislead” or is “calculated to deceive” irrespective of the intention of promoters. [ National Bank of India Ltd. v. National Bank of Indore, AIR 1923 Bom 110; U. Sriniwas Malliah v. Krishna Kumar Chattarjee, AIR 1952 Cal 804]

Word in ordinary use. A company having a word in ordinary use as part of its name cannot prevent another company from using the same word. In some cases the court may make the restraint purely local, and if the locality of operation or intended operation, or if the type of business is such that there is no real danger of confusion, the court will not grant an injunction. [Lee v. Haley, LR 5 Ch 155.]

Field of business activity. Two important factors to be taken in view in naming a company are the nature of the name and the type of business. If the type of the business is same and the name similar to an existing company, an objection will naturally arise since it is likely to mislead the public. [Aerators Co. v. Tollit, (1902) 2 Ch 319; Lloyds Bank v. Lloyds Investment Co., (1912) 28 TLR 379]

Availability of names

As the s. 20 of the 1956 Act [Now section 4(2)  of the 2013 Act] provides that no company shall be registered by a name which, in opinion of Central Government, is undesirable and that a name identical with or closely resembling the name of existing company is not to be permitted, the Department of Company Affairs has provided for ascertaining by making an application beforehand whether a proposed name is acceptable for registration.

Searching of names on MCA Website

• Company Directory: This facilitates search on companies (over 5.8 lacs) registered at the offices of the Registrar of Companies (ROC). Search provides filtering in the category of the company and State where the company is registered. The result of the search is displayed as registration number, the state of registration and name of the company.

• Name approved for Registration: This facilitates search on the names approved by ROCs and is in the pipeline for registration of the company.

• ROC fee computation: This facilitates computation fee charged for various services such as name approval, incorporation of new company, filing of statutory documents, etc. rendered by ROCs

Common reasons for rejection of proposed names:

• The proposed name is not according to the activities described in Main Objects.
• The proposed name is not available in view of the existence of identical or closely resembling companies.
• The proposed name is too general without any distinct word or identity.
• Keywords like Industry/Udhyog, Enterprises, Products, Business, manufacturing may be considered when the company proposes to deal in various business activities/ the company is already carrying on various business activities (in the case of change of name). As your business activity is in particular trade said keywords cannot be allowed.
• The proposed name does not include the suitable prefix.
• Words like International, Hindustan, India, Bharat, Continental, Asiatic, Corporation will not be allowed unless the scope and scale of business of the proposed company justify the use of words.
• The proposed name includes a word like National, Central, Union, Federal, etc. which are considered as undesirable.
• Please furnish No Objection by way of Resolution of the Board of the Group of Companies.
• Proposed name indicates the partnership or patronage of any National Leader or of Government. Please furnish necessary evidence in this regard for that matter further.
• In the case of a company taking over the business of partnership firm, please furnish a copy of the partnership deed, latest Assessment order, Balance Sheet of past two years and Profit and Loss Account. An affidavit signed by all the partners showing that the main objects of the Company will be to take over the business of the present firm and thereafter the firm will be dissolved. [ Source – mca.gov.in]

Conclusion

It is essential to fulfilling the legal requirements while choosing or registering a name for one’s company or business. But apart from these legal provisions, one should also keep general things in mind while choosing a name of his company because ultimately it represents the very purpose and identity of the company. General things such as name must be more creative rather than general, it must not resemble your competitors, it must be connected directly to the customers, must not be too short or too long or too difficult to be pronounced or too ambiguous to make any confusion in the minds of customers, must be related to the objects or activities of the business.