Formation of a Company 3

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BY SAHIL KATOCH

FORMATION OFA COMPANY

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COMPANY :-

Section 25(1) (a) and (b) of the Indian companies act,

1956 deals with the Formation of the Company Company is artificial person created by law.

Company means an association of person for some

common purpose.

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IMPORTANT DOCUMENTSBEFORE APPROACHING THE

REGISTRAR :- An industrialist license if the proposed business is

covered by industries act 1951

An important license is required if machinery is imported

Approval of govt. in case of foreign collaboration

Approval of govt. under monopolies and restrictive tradepractice act 1961, if necessary

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DOCUMENTS NEEDED

MEMORANDUM OF ASSOCIATION

ARTICLES OF ASSOCIATION

LIST OF THE DIRECTORS

CONSENT LETTER FROM DIRECTORS

STATEMENT OF CAPITAL

STATUTORY DECLARATION

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MEMORANDUM

OF

ASSOCIATION

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MEMORANDUM OF

ASSOCIATIONMemorandum of association comes under section 2(28) of

Indian company act 1956

It is an important document which defines -

Objectives,

Powers,

Scopes and

Relations with outsiders

Some of the important clauses of memorandum of

association are as follows6


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NAME CLAUSE:- Section 13(1)(a)

Company should not use any objectionable or identical

according to emblems and names act 1950.

The words Private Limited in case of private and Limited in case of public company at the end.

Companies which are formed for the arts, culture, religion

commerce etc , the word limited or private limited is

not compulsory with the permission of the centralgovernment.

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SITUATION CLAUSE :- Section 13(1)(b)

Every company will have registrar office.

It is compulsory to mention the place and state of registraroffice.

If place is not confirmed , then it should communicate theregistrar within 30 days of its incorporation.

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OBJECTIVE CLAUSE :- Section 13(1)(c)&(d)

Here the company should mention its

Main objectives,

Subsidiary objectives and

Other objectives.

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LIABILITY CLAUSE :- Section 3(2)

The extent and nature of the liability of

shareholders should be stated like

limited liability

limited by guarantee

unlimited

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CAPITAL CLAUSE :- Section 13(4)(a)

Division of capital into shares of different dominations.

The extent of each capital should be specified.

The authorized capital should be mentioned. A company is not authorized to issue above authorized

capital.

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ASSOCIATION CLAUSE:- Section 13(4)(c)

This clause contains declaration of members.

The names, addresses and occupations of the

subscribers should be mentioned.

The signatures are to be attested by proper witness.

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ALTERATION OF A

MEMORENDUM With regard to change the name,

- government permission and

- special resolution. In case of change in registrar office

- permission of the company law board is required.

In case of change in objective clause

- special resolution with company law boardpermission.

A copy should pass to registrar with in 30 days.


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In case of capital increase ordinary resolution and

In case of decrease in capital, special resolution alongwith court permission is required.

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ARTICLE OFASSOCIATION

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ARTICLES OF

ASSOCIATION :- Section 2(2) of the Indian company act 1956 explains

about the articles of association.

Certain rules and regulations that are necessary for themanagement of the company are listed in the articles of

association.

Every company has to prepare its own articles.

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CONTENTS OF AOA :- Different kinds of shares to issue.

Mode of allotment of shares and calls on shares.

Procedure of issuing share certificates. Procedure for transfer of shares and re-issue of shares.

Payment of commission on underwriting and brokerageon shares and debentures.

Declaration of dividend and issue of bonus. Method to appropriation of profits.

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Continue

Division, consolidation and re-organistion of share capital.

Rules for adoption of primary contracts.

Use of common seal.

Rules for conducting meetings.

Procedure for passing resolutions.

Method of accounting adopted by the company.

Method of maintaining bank accounts. Winding procedure of the company etc.

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ALTRATION OF AOA :- Permission of court is not necessary.

Special resolution and approval of government is

required.

But in some cases they should follow companies act as

well as memorandum.

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PROMOTER

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WHO IS A PROMOTER ?

The word promoter is not been defined

anywhere in the Companies Act., Onlysection 62 refers to the liabilities of a

promoter.

Promoter is one who have an intention to

form a company and who take the necessarysteps, to carry that intention into operation?

The promoter is a person who brings a

company into existence.21


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The promoter of a company decides the scope of

its business activities.

They negotiate, if necessary, for the purchase of

an existing business.

They also make arrangements for advertising and

circulating the prospectus, and placing thecapital.

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DUTIES AND

LIABILILITIES OFTHE PROMOTER

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Section 56 lays down matters to be stated and reports to

be set out in the prospectus. He may be held liable for the

non-compliance of the provisions of the section. Beside civil liability, the promoters are criminally liable

under section 63 for the issue of prospectus containing

untrue statements. Section 63 imposes severe penalty on

promoters who make untrue and deceptive statements ina prospectus with a view to obtain capital.

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A promoter may be liable to public examination like any

other director or officer of the company if the tribunal so

directs on a liquidators report alleging fraud in thepromotion or formation of the company. (Section 478).

A company may proceed against a promoter for deceit or

breach of the duty under section 543, where the promoterhas misapplied or retained any property of the company

or is guilty of breach of trust in relation to the company.

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PRE-INCARPORATION

CONTRACTS Preliminary contract are contracts purported to be

made on behalf of a company before its

incorporation.

Before its incorporation a company has no

capacity to contract.

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THANK YOU

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Formation of a Company 3