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Impact of Change in Constitution of Firm on Your Licenses

Are you worried about the impact of a change in the constitution of your firm on your regulatory licenses? This concern is well-founded, as changes in a firm's constitution can significantly affect its compliance status under the Drugs and Cosmetics (D&C) Act and Medical Device Rules. In fact, such changes often influence regulatory and compliance approvals across various sectors. This article explains how these changes affect licenses and explores mitigation strategies and justifications to minimize compliance impacts.

What Constitutes a Change in Constitution?

A change in the constitution of a firm refers to modifications in its legal structure, ownership, or partnership arrangements. Technically as defined under the Companies Act, 2013 is when the company's structure is altered. This can include changes to the company's articles, memorandum, or name.

Changes to articles
  • A private company that changes its articles to remove restrictions required by the Act is no longer considered a private company
  • A public company that changes its articles to become a private company must get approval from the Central Government and the Tribunal
  • All changes to articles must be filed with the Registrar within 15 days
Changes to memorandum
  • A company can change its memorandum through a special resolution
  • A company can change its object clause by passing a resolution and filing eForm MGT-14 with the Ministry of Corporate Affairs
Changes to name 
  • A company can change its name, but it requires approval from the Central Government
  • The Registrar will update the company's name in the register of companies and issue a new certificate of incorporation

Common examples include:

  • Conversion of a partnership firm into a private limited company.
  • Addition or removal of partners in a partnership firm.
  • Change in the shareholding pattern of a private limited company.
  • Mergers, acquisitions, or demergers.
Such changes, while often strategic or necessary for business growth, can trigger significant regulatory implications that need careful management.

In lieu of the terms set out in the Drugs and Cosmetics Act and Medical Device Rules, the licenses granted under these rules are strictly non-transferable. However, a transition period of 60 to 90 days is provided, subject to the latest notifications under these rules.


Regulatory Implications Under the D&C Act and Medical Device Rules

Regulatory authorities, including those overseeing the D&C Act and Medical Device Rules, mandate that any change in constitution be reported and approvals updated accordingly. Failure to comply can result in:

  • Suspension or Cancellation of Licenses: Authorities may revoke licenses that are no longer valid under the new constitution.
  • Operational Delays: Processing amendments can take time, potentially delaying business operations.
  • Penalties and Fines: Non-compliance with reporting obligations may attract financial penalties.
  • Fresh License Requirements: In some cases, a fresh license is required.

As per the D&C Act and Medical Device Rules - The Licenses are non-transferable

In lieu of the terms set out in the Drugs and Cosmetics Act and Medical Device Rules, the licenses granted under these rules are strictly non-transferable. However, a transition period of 60 to 90 days is provided, subject to the latest notifications under these rules.

Since licenses are non-transferable, any details or changes reflected on the license can significantly affect its validity. Below are case examples and justifications to better understand the implications:

Case Examples and Justifications

1. A Private Limited or Limited Firm

  • Name Change: If a firm's name is changed as granted or formed under the Companies Act of India, the organization must obtain a new license under the new name.
  • No Change in Name with Share Adjustments: If the name of the company remains the same despite dissolution of shares and the appointment of a new director or chairman, no change is needed.
    • Justification: Since the board and resolutions remain unchanged, the company name and details stay the same. The authorized signatory will be re-appointed or elected by passing a new board resolution, so the existing licenses remain valid as no fundamental change occurs in the license.
  • Conversion from PVT LTD to LTD or Vice Versa: A fresh license is required.

2. A Limited Liability Partnership (LLP) Firm

  • Name Change: If the firm’s name changes as granted or formed under the Companies Act of India, the organization must obtain a new license under the new name.
  • Conversion to PVT LTD/LTD or Proprietor: A fresh license is required.
  • Incorporation of a New Partner: Such changes must be notified to the regulatory authority along with a Power of Attorney and supporting documents.

3. An Individual or Proprietor Firm

  • These firms are formed based on the sole responsibility of an individual, referred to as the "Proprietor," and their identification relies on the Permanent Account Number issued by the Income Tax Department of India.
  • Non-Transferable Nature: Since these firms are non-transferable and non-shareable, changes in constitution do not apply.

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