New Delhi: Companies that are being set up need to have names that are new in letter and spirit, not just phonetic or spelling variations of existing names or similar-sounding words, according to government norms.
The guidelines, which are part of the draft rules under the new Companies Act, 2013, come in the backdrop of attempts by some entities to cash in on the brand value of companies by setting up firms with names that sound similar or are spelt differently.
There have been instances of companies being set up with names resembling those of long-established entities, including foreign giants such as Ikea, Walmart and Starbucks.
The new rules bar the use of abbreviations and country and state names, except for some government units. Terms such as 'British India' and names of 'enemy' countries will not be allowed.
The government has suggested an indicative list of dos and don'ts to be followed while incorporating a company in the country to ensure that names of companies reflect the nature of their businesses, to the extent possible.
The draft rules prepared by the Corporate Affairs Ministry have delved extensively into names that can be used for companies.
"... Abbreviated name based on the name of the promoters will not be allowed," according to the draft rules.
Providing an example, the ministry said if BMCD Ltd represents the first letters of the names of promoters Bharat, Mahesh, Chandan and David, it would be disallowed.
Vague or abbreviated names such as "ABC Ltd or 23K Ltd or DJMO Ltd" won't be registered.
An existing company can use its abbreviated name when it forms a new entity such as a subsidiary, joint venture or associate company.
"Such joint venture or associated company shall not have an abbreviated name only," the rules noted.
Companies that are known more by their abbreviations than by their full names can switch over to the shorter form after following the requirements of the Companies Act.
Besides, the ministry has drawn up a list of words and combinations such as Board, Commission, Authority and Rashtrapati that can't be used without prior approval of the central government.
Other words on the list include Undertaking, National, Union, Central, Federal, Republic, President, Small Scale Industries, Khadi and Village Industries Corporation and Development Authority.
This would be applicable for the name of a company in English or any language.