Formation of Company
Formation of Company
Formation of Company
The followings steps are essential for the formation of a Company. They are
1. Name of a Company & Location of the registered address of the said
Company.
2. The amount and forms of its capital
3. Preparation of Memorandum of Association (MOA) u/s 4 and Article of
Association(AOA) u/s 5.
4. Registration of the Company according to the provision of the Act, 2007.
(Sec. 7) .
5. The capital subscription must be raised and thereafter the allotment of
shares must be made.
6. The prospectus must be issued and registered with the Registrar.
7. To arrange for loans and other financial assistance from various financial
institutions.
8. To obtain certificate of Incorporation (FORM NO. INC 11) of the business
from the Registrar.
PROMOTERS:
KINDS OF PROMOTER:
(a) Professional Promoters are those who are specialized in the job of
promotion of a Company.
(c) Financial Promoters are those who financially promotes the Company,
such as Industrial Development bank of India, ICICI Ltd, Commercial Bank etc.
(d) Entrepreneurial Promoters are those who conceive business ideas, takes
all necessary steps for bringing a Company into existence and really brings it into
existence.
FUNCTIONS OF PROMOTERS
The various functions of Promoter are:
(b) After conceiving the ideas of the business, the promoters will thoroughly
investigate into the soundness of the proposition. The investigation is for
discovering the hidden plan and psychology of the investors and customers and
the real reason for investing in the company.
(c) The promoters will organize resources for the Company. For this, the
following steps are required:
(i) Securing the active co-operation of the required number of person willing
to associate themselves in the said project. (in case of Public Company
atleast 7 persons are required; for private company, 2 persons are required
& in case of One person Company, one person is required).
(e) It is the duty of the Promoters to seek the permission from the Registrar of
Companies for selecting the name of the Company. He should ensure that the name
of the Company should be identical or should not be resemble with another existing
companies name.
(f) The promoters usually decides the address of the registered office of the
Company.
(h) The promoters are required to file necessary documents and requisite fees with
the Registrar of the Companies for registration of the Company.
(a) He may sell his own property to the Company for cash or against fully paid
shares in the Company at an over valuation after making full disclosure to an
independent Board of Directors or to the intending share holders.
(b) He may be given an option to buy further shares in the Company at par.
The Companies Act, 2013, lays down the following rules for the
incorporation of both the public as well as private Company. As per section 3 of
the Companies Act, 2013, in case of Private Company atleast 2 members are
required, whereas in Public Company, 7 persons are required and in case of One
person Company, 1 person is required.
Step-1
Step -2
Obtaining Director Identification Number
Step- 3
The Company must have to select the name of persons who will act as
Director.
Step-4
Step- 5
Step-6
Registered Office
Step- 7
Step-8
The Registrar, on the basis of the documents and information filed, shall
register the name of the Company and issue a certificate of incorporation in the
prescribed form (FORM no. INC-11) to the effect that the proposed Company is
incorporated under this Act.
MEMORANDUM OF ASSOCIATION
PURPOSE OF MEMORANDUM
The second purpose is that the outsiders dealing with the Company know
with the certainty as to what the objects of the Company are and as to whether
the contractual relation into which they contemplate to enter with the Company
is within the objects of the Company.
CONTENTS OF MEMORANDUM
(a) Basic Documents: It is the basic documents for the existence of the
Company. As a matter of fact, the preparation of this documents is the
first step in formation of a Company.
(b) Contents: It contains the fundamental conditions upon which alone
the Company is allowed to be incorporated.
(c) Binding Contract: The various terms and conditions in MOA
constitutes a binding contract between the Company and each of its
members All moneys payable by members to the Company shall be debt
due from him to the Company.
(d) Public Documents: It is a public document open for inspection by
every person dealing with the Company. Thus, every person who deals
with the Company is presumed to have the sufficient knowledge of the
contents.
(e) Power of the Company: It lays down that the power and object of the
Company, and the scope of operation of the Company beyond which its
action cannot go. In other words, the Company is bound to act according
to the objects and powers as contained in its memorandum.
(f) Ultra Vires to Memorandum of Association: If the Company enters into
Contract which is beyond the power conferred on it by the
Memorandum, such contract will be ultra-vires of the Company and
hence void. It cannot rectify even by the unanimous consent of all the
members.
(g) Alteration of Ultra-Vires: The memorandum cannot be so easily
altered. The company has to follow the strict procedure for the alteration
of its clause . In some cases, the alteration requires the approval of the
Tribunal.
Sec. 13(1) of the Act provides that subject to the provision of section 61,
a Company may by special Resolution and after complying with the
procedure may alter the clauses of the Memorandum of Association of
the Company.
As per section 13(2) of the Act, the name clause of the MOA can be altered by
adopting the following procedure:
(a) Special Resolution: A company may change its name by passing a special
resolution at a general meeting of the share holders (sec. 13(1).
(b) Approval of Central Govt. Sec.13(2): Approval of Central Govt. is needed in
writing in addition to special resolution.
(c) Approval of Central Got. Not needed : Sec. 13(2): When a Company is
changing from public to private or vice verse, then deletion of the word
“Limited” or “Private Limited” does not required the Central Govt. approval.
(d) Filling of Central Govt’s. order with ROC: A copy of approval order of Central
Govt. must be filed with the Registrar of the Companies.
(e) Entry of new name by ROC : Sec. 13(3): the Registrar shall enter the
Company’s new name in place of old name.
(f) Issue of Fresh Certificate of Incorporation by ROC: Sec. 13(3) : The Registrar
shall issue a fresh certificate with the new name.
(g) Effectiveness : Sec. 13(3) : The change of name shall be complete and
effective only on issue of such certificate.
The Company can change its registered office from one State to another
by:
(c) Confirmation of Central Govt : Sec. 13(5):- The Central Govt. shall dispose f
the application for change of registration office within 60 days from the date of
the application.
(d) Consent of the Affected parties : Sec. 13(5):- The Central Govt. shall satisfy
that the alteration has the consent of the creditors, debenture holders and other
persons concerned with the Company or that the sufficient provision has been
made by the Company either for adequate security has been provided for such
discharge.
(e) Filling of Central Govt. order with ROC: Sec. 13(7):- A certified copy of the
order of the Central Govt. should be filed with the ROC of each state with a time
as may be prescribed.
(f) Entry of New location of the Registered office by ROC : Sec. 13(7):- The
Registrar shall enter the new location on the register of the company.
(g) Issue of fresh certificate of Incorporation by ROC: Sec. 13(7) :- The Registrar
of the State from which such office is transferred shall issue of certificate
regarding change of State.
(a) Condition of Alteration : Sec. 13(8):- If a Company has raised money from the
public through prospectus and has still any unutilized amount out of the money
raised, then it shall not change the object fro which the fund was raised unless
and until :
(i) a special resolution as passed by the Company.
(ii) the details, as may be prescribed in respect of such resolution shall be
published in the newspaper.
(iii) such details are placed on the website of the company if any,,
(iv) The dissenting shareholders are given an opportunity to exist by the
promoters and share holders having control in accordance with the
regulation as specified by the Securities and Exchange Board.
(b) Entry of Alteration by ROC: Sec. 13(9):- The Register shall register any
alteration of the Memorandum in respect of the objects of the Company.
(c) Issue certificate of Registration by ROC : Sec. 13(9):- The Registrar shall certify
the registration within a period of 30 days from the date of filling of the special
resolution as per sec. 13(6)(a).
(b) The cancellation of shares under sub section (1) shall not
be deemed to be the reduction of share capital.
ARTICLE OF ASSOCIATION
As per sec. 2(5) of the Act, Article of Association (AOA) are the
regulations and bye laws for governing the internal affairs of the Company. Its is
called as the secondary documents of th company. They may be described as
the internal regulations of the Company governing its management and
embodying the powers of the Directors and officers of the Company as well as
the powers of the share holders. They are framed with the object of carrying out
the aims and objects by MOA.
(c) Voting rights of the members and rules regarding methods of voting.
(k) Rules regarding borrowing powers of the Company and the mode of
exercise of those powers.
ALTERATION OF ARTICLES
The word “ultra” means beyond and “vires” means power. So ultra-vires
means beyond power i.e. an act done by the Company beyond its legal power
and authority.
It had been observed that a Company has an independent legal existence
and is a separate body corporate, distinct from its members. The Company can
therefore perform act on its own. The acts which the Company performs are
authorized by (a) the objects specified in the MOA of the Company with which it
is registered. And (b) The Companies Act.
Any act done by the Company which is neither authorized by the
object nor by the Companies Act, that Act is called “ultra vires” the powers and
authority of the Company. Any Act which is ultra vires to the Company is void
and cannot bind the Company.