ILLEGAL ASSOCIATION


Section 464 of Companies Act, 2013 defines that no association or partnership consisting of more than 50 persons [fixed vide rule 10 of Misc Rules 2017] shall be formed to carry on any business for gains unless it is registered under the companies Act 2013.


But, there are certain exceptions to the above statement:

1. Entities legally registered under other a law such as  LLP or HUF.

2.Not for profit Organisation formed for promoting Literary, scientific, or other charitable association.

Consequences of Illegal association:

1. No legal existence.

2. Unlimited Personal liability of members

3. Fine. May extend up to 1 lakh [section 464(3).

However, such illegal association is liable to income tax on profit earned by it. (Gopal Ji & Co vs Commr. Of Income Tax, 1931)

Further, it remains illegal in spite of subsequent reduction of members till it gets registered (Madanlal vs. Jankiprashad) and subsequent registration will not alter the position of past act (Gujarat Trading Co. Vs Tricumji)

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