When Companies must be registered? :
According to section 464 of the Companies Act, 2013, no association or partnership consisting of more than such number of persons (i.e. not exceeding 100) 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:
Above stated provision shall not 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.
Every member of an association or partnership carrying on business in contravention of above law, 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.
Where an association is formed, which has membership in excess of the number aforementioned, will be an illegal association. Such a body will have no legal existence and it cannot be wound up under the Act, or even as an unregistered company. Neither a member of it would be able to sue it, nor would it be able to sue the member. Nevertheless, a member who has paid any money to the association would be able to recover it from the director or agents or the association before the money so paid has been applied to an illegal purpose [Greeberg vs. Cooperstein [1965] Ch. 657 followed in Ram Das vs. Kunut Dhari AIR 1925]. Every person who is, or continues to be a member of an association in the circumstance described above, is personally culpable for all liabilities incurred in such business and every member is in addition punishable for any person or persons to trade or carry on business under any name or title of which ‘limited’ is the last word, without being fully incorporated.
The purpose of prohibiting formation of large unincorporated business association is to “prevent the mischief arising from large trading undertakings being carried on by large fluctuating bodies so that persons dealing with them did not know with whom they were contracting and so might be put to great difficulty and expenses” [Smith vs. Anderson [1980] 15 Ch. D 247].
Illegality or invalidity in the constitution of an association does not affect its liability to tax or its chargeability as a unit of assessment [Kumarswamy Chettiar vs. ITO [1957] ITR 457].