Formation of a Company and Memorandum of Association

7/29/2019 Formation of a Company and Memorandum of Association

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Group 3, Section B Aritra Raymukherjee

Ajay Kumar

Raunak Hisaria

Kanika Agarwal

Sankhadeep Biswas

Vinita Deswal

Shashi Joshi


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AGENDA

FORMATION OFA COMPANY

MEMORANDUMOF

ASSOCIATION


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FORMATION OF A

COMPANY

THE COMPANIES ACT, 1956


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FORMATION OF A COMPANY

PromotionIncorporation or

RegistrationCapital

SubscriptionCommencement

of Business

Public Company(having share capital)

Private Company

Public Company(not having share capital)


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STAGE 1: PROMOTIONThe discovery of business opportunities and the subsequent

organization of funds, property and managerial ability into abusiness concern for the purpose of making profits therefrom.

Discovery ofan Idea

Preliminaryand DetailedInvestigation

Assembling

of BusinessElements

Provision ofFunds


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THE PROMOTER

It is a term not of law but of business, usefullysumming up in a single word a number of businessoperations familiar to the commercial world by whicha company is generally brought into existence

L.J.Bowen

One who undertakes to form a company withreference to a given project and to set it going, andwho takes the necessary steps to accomplish that task

JusticeC.Cockburn

An industrial expert who, with the help of a big teamof experts, does all the preliminary work necessarybefore a company can be brought into existence.

GeneralDefinition


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FUNCTIONS OF A PROMOTER

Selection of Signatories to theMemorandum

Selection of First Directors

Directs the solicitors to preparethe Memorandum, the Articles

and other Documents necessaryto be filled with the Registrar ofthe Companies

Funds for RegistrationExpensesSecure the Initial Capital

for the Company

Other Worries(Land, Machinery, Plant etc)


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Who can be a PROMOTER?

Individual Firm

Association

of PersonsCompany


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Legal Position of a Promoter

Full Disclosure of Relevant Facts

including profits, if any,To the board of Directors ORTo the shareholders as a bodyBY Means of Prospectus.


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Promoters Liability

SUE

Sue the promoter

Recover the same with interest

SET ASIDE

Set aside the transaction or contract with thepromoter i.e. it may restore the property to him andrecover its money.

SUE forDAMAGES

Made liable to the original allottee of shares for themisstatements contained in the prospectus(Sec.62)

Imprisonment of 2 years, or fine upto `50,000(Sec.63)


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WINDINGUP

On an application made by the official liquidator, the court may make thepromoter liable for misfeasance or breach of trust(Sec.543)

On allegation of fraud by liquidator, The court may order for promoters publicexamination.(Sec.478, Sec 579)

Promoters Liability

Both are Liable

Sued

Can ask for Contribution

In Case ofDeath His Estate is LiableIn Case ofInsolvency


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PROMOTERS REMUNERATION Remuneration

o Cash

o Partly in Cash and Partly in Shares and Debentures of the company

No agreement with company after incorporation =Promoter cannot file a suit for recovery of remuneration

and other preliminary expenses incurred by him Why? Because he acted for a person(or company in this

case) who is yet to take birth.

IN CASE OF PUBLIC COMPANY having a SHARE

CAPITALNo liability of the company to pay promotersremuneration TILL the company has got the certificate tocommence business.


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PRE-INCORPORATION CONTRACTS

Pre-incorporation ContractsOR Preliminary Contracts

Personal Liability ofthe Promoter

Cannot be ratified

A New Contract is required


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When the promoters of a company have, before its incorporation,entered into a contract for the purpose of the companyand suchcontract is warranted by the terms of its incorporation, thecontract may be specifically enforced by or against the company, ifthe company has accepted the contract and communicated suchacceptance to the other party to the contract.

Under this section, the company can validly ratify or adopt onlysuch types of pre-incorporation contracts as are necessary for theincorporation and working of the company, i.e. a contract forprinting the Memorandum and Articles of Association or supplyof machinery indispensable for the functioning of the company.

Private Company becomes legally bound , the moment it enters into

a fresh contract or ratifies a contract Public Company having a share capital, is not legally bound TILL it

gets the certificate for commencement of the business.

PRE-INCORPORATION CONTRACTS


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Provisional Contracts

PRIVATE CompanyPublic Company

LAST 2 STAGESCapital Subscription, Certificate of Commencement of Business

WithoutSHARE Capital

2 STAGESPromotion and Incorporation

WithSHARE Capital

Pre-incorporation ContractsPre-incorporation Contracts

Valid Contracts Provisional Contracts

Valid Contracts


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INCORPORATION or REGISTRATION

STAGE 1: PROMOTION

STAGE 2: REGISTRATION OR INCORPORATION

To ascertain from the Registrarof Company if the Name is

available or not

To get Letter of Intent(IndustrialLicense Later) if the companys

business comes under thepurview of

Industrial(Development andRegulation) Act, 1951

To Fix underwriters, brokers,bankers, solicitors, auditors and

signatories to the memorandum

To get Memorandum of

Association prepared andprinted


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ACCOMPANIED DOCUMENTS Memorandum of Association duly stamped, signed and witnessed.

Articles of Association properly stamped, duly signed by thesignatories of the Memorandum and witnessed.

o OPTIONAL in case of a public company with limited liability, which may adoptTable A in its entirety.

o If such a case, then the same should be mentioned in the Memorandum i.e.Registered without Articles

The Agreement, if any, which company proposes to enter with anyindividual for appointment as its manager or whole time director ormanager.

A written consent of the directors to act in that capacity, dulysigned by each director, along with a written undertaking by themto take the necessary qualification shares, as provided in the sharecapital.

o EXCEPTION: The document is not required to be filed in the case of (i) Acompany without share capital, (ii) A Private Company (iii) A company whichwas private prior to the becoming a public company.


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Notice of Address of the registered office of the company,within 30 days of incorporation.

A statutory declaration, stating that all the legal requirements

of the Act before to the incorporation have been complied

with. It must be signedo Advocate of the Supreme Court or of a High Court

o Attorney or pleader entitled to appear before a High Court

o A secretary or Chartered Accountant, in whole time practice in India, engaged

in the formation of the company.

o

Person named in the Articles as a director, Managing Director, Manager orsecretary of the company.

ACCOMPANIED DOCUMENTS


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AFTER PROVIDING DOCUMENTS

Scrutinizingby Registrar

Certificate ofIncorporation

CommonSeal(Sec. 34(2))

CorporateIdentity

Number (CIN)

Birth of Organization

CompaniesAfter

1st November2000

CompaniesBefore

1st November2000

All providedCIN Number

ProvidedCIN Numberwithin 1year, i.e byApril 2002


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CERTIFICATE OF

INCORPORATION is CONCLUSIVESection 35 states that the certificate, once issued, is conclusive evidenceof the fact that the company has been duly registered.

Certificate ofIncorporation

is issued

Signatories ofMemorandum

Signatures ofthe

Memorandum

Sevensubscribers to

theMemorandum

Memorandum

Signatories are INFANTS

Forged Signatures Seven Signatures not present

Materially Alteredafter signatures

Still VALID


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CAPITAL SUBSCRIPTION

Task of obtaining the necessary capital for the company

Conforming to the guidelines for disclosure and investor protection, issued bySEBI regarding public issues of capital

The Directors file a copy of the prospectus with the Registar.

Invite public to subscribe to the shares of the company by putting theprospectus in circulation.

If minimum 90% of the capital issue and other conditions are fulfilled , thedirectors pass a formal resolution of allotment.

Allotment letters are posted, return of allotment is filed with the Registrar

Share certificates are issued to the allotees in exchange of allotment letters

IF the subscribed capital is less than minimum subscription or the company

could not obtain the minimum subscription(including devolvement ofunderwriters) within 60 days from the date of closure of issue, all moneys willbe refunded and no allotment can be done.

IF there is no Prospectus , the company has to file with the Registrar aStatement in lieu of Prospectus at least 3 days before the directors proceedto pass the first allotment resolution.

Only for Public Companies with Share Capital


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SECURITIES AND EXCHANGE

BOARD OF INDIA(SEBI) Established in terms of SEBI Act, 1992

It regulates the issue of capital to the public.

Conferred wide powers to make rules and regulations toprotect the interests of investors in securities and to regulate

the securities market. Issued Guidelines of Disclosure and investor Protection, on

11th June 1992 for compliance by the companies makingcapital issues to the public.

SEBI has issued new guidelines for disclosure and investorprotection, 2000

These guidelines must be complied with before making apublic offer for sale of shares and debentures.


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COMMENCEMENT OF BUSINESS Documents to be filed with the Registrar to secure the

certificate of commencement of business(a) Declaration that shares payable in cash have been alloted up to the

amount of minimum subscription

(b) Declaration that every director has paid in cash the application andallotment money on his shares in the same proportion as others.

(c) Declaration that no money is liable to become refundable to theapplicants bu reason of failure to apply for or to obtain permissionfor shares or debentures to be dealt in on any recognized stockexchange.

(d) A statutory declaration in the prescribed form by one of the directorsor the secretary or a secretary in whole time practice that the above

requirements have been complied with.

In case company not issuing a prospectus to the public, thendocuments of (b) and (d) and a copy of statement in lieu ofprospectus have to be submitted.


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On receiving the trading certificate, if the company decides tostart a new business, which is not included in the mainobjects of the company(i.e. included in the other objects), itshall obtain either the authority of a special resolution of the

company or of an ordinary resolution and the approval of theCentral Government.

A declaration by the secretary or a director that therequirement as to resolution has been complied with, must befiled with the Registrar.

For any contravention, every person responsible shall bepunishable with fine upto `5000 for every day ofcontravention.(Sec 149(6)]

COMMENCEMENT OF BUSINESS


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MEMORANDUM OFASSOCIATION

THE COMPANIES ACT, 1956


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DEFINITION

Memorandum means the memorandum of

association of a company as originally framed or asaltered from time to time in pursuance of anyprevious company laws or of this Act.

Section 2(28)CompanyAct

The memorandum of association of a company isits charter and defines the limitation of the powersof a company.

LordCairns

The purpose of the memorandum is to enable theshareholders, creditors and those who deal withthe company, to know what is its permitted rangeof enterprise.

LordMacmillan


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Importance of the Memorandum

1. Delimits the capacity to contractof a company.A company cannot undertake operations that are not mentioned in the memorandum.

2. Constitution of a company in relation to the outside world.

It is a public document and persons dealing with the company may ask for its copies onpayment of a nominal charge. Hence it is regarded as an unalterable charterof a company.


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DOCTRINE OF ULTRA VIRESUltra Vires=Beyond the powers of

According to this Doctrine, all such acts or transactions of a

company which are ultra vires the object clause of its

Memorandum of Association shall be wholly null and void and

can never be successfully ratified and validated, even though all

the shareholders consent or purport to ratify such transactions.

Scope under theMemorandumof Association

Ultra ViresNULL

andVOID


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IMPORTANCE

Company is treated as an artificial person, devoid ofo CONSCIENCE

o INTELLIGENCE

And therefore cannot look after its own interests

Prohibits the use of corporate capital in Unauthorised

Activitieso Protects the interest of the shareholders and creditors.


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Points to be Taken into Account

Directors and other officers of the company should ensure

that the companys action remains in the ambit of object

clause in the Memorandum of Association.

If the contract is entered with another company, thecompanys memorandum should contradict the memorandum

of the other company.


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CONTENTSSection 13 sets out the contents of a memorandum. The documentmust contain the following clauses:

1. The name clause:

The corporate name of the company is stated.a. In case of companies limited by shares or limited by guarantee, the word

Limited or Private Limited must be the last word in the name.

Exception:

Section 25: Charitable companies (formed to promote art, commerce, science,religion, etc.) are permitted to register with limited liability but without the wordlimited in their name.

b. The name chosen must not be undesirable in the opinion of the Central Govt.

i. Too identical/similar to the name of another existing company/firm so as tolead to confusion.

ii. Misleading, i.e. suggesting that the company is connected to a Govt.department or any municipality or any local authority.

If through inadvertence, a company is registered by an almost identical name, thecourt will grant an injunction restraining it from using the name.

Once a company is registered with a name, the name is required to appear with theaddress of the registered office In front of every office/place of business in aconspicuous manner in one of the local languages and on all cheques, bills, letters,

notices and other official publications etc. of the company.


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2. Theregistered office clause:The second clause of the memorandum must mention he name of

the State in which the registered office of the company is to be

situated.

Domicile: Place of registration.Residence: Place of management and control.

Actual address of the registered office is not required to be stated in

the memorandum, but every company must have specified premises

in a town fixed as its registered office from the day it begins to carryon business or as from the 30th day after the date of incorporation,

whichever is earlier.

CONTENTS


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3. TheObject ClauseThe objects clause of the memorandum sets out the

objects or vires of the company. A company is not

legally entitled to do any business other that specified

in the objects clause.

The objects must satisfy the following:a. The objects of the company must not be illegal.

b. They must not be against the provisions of the Companies Act.

c. They must not be against public policy.

d. They must be stated clearly and definitely.

e. They must be elaborate. The main objects, as well as the subsidiaryor theincidental objects too should be stated.

CONTENTS


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Implied Powers:

Apart from the powers expressly provided in the objects clause,

a trading company also has certain implied powers:

a) To borrow moneyb) To act by agents

c) To compromise disputes

d) To mortgage or sell land

CONTENTS


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4. The liability clause:This clause states that the liability of members is limited to the

amount, if any, unpaid on their shares.

If it is proposed to register a company limited by guarantee,

this clause will state the amount which every memberundertakes to contribute to the assets of the company in the

event of its winding up.

A company registered with unlimited liability need not give this

clause in its Memorandum of Association.

CONTENTS


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5. The Capital Clause:

Every limited company having a share capital must statethe amount of its share capital with which the company isproposed to be registered and the division thereof intoshares of a fixed denomination, in this clause.

There is no legal limit on the amount of share capital, butthe denomination of each share should be same.

An unlimited company having a share capital is notrequired to have the capital clause in its memorandum.

CONTENTS


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6. The Association or subscription clause:Declaration of association is made by the signatories of

the memorandum under their signatures duly attested by

witness, that they desire to be formed into a company

and that they agree to the purchase of qualificationshares, if any.

There must be at least 7 signatories in case of a public

company, and 2 in case of a private company.

CONTENTS


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ALTERATION OF MEMORANDUM As per Section 16, a company shall not alter the conditions

contained in its memorandum, except in the cases, in the

mode, and to the extent, for which express provision is made

in the Companies Act.

Alteration of Name Clause

Alteration of registered office clause

Alteration of objects clause

Alteration of Liability clause

Alteration of Capital Clause


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Alteration of Name Clause

A company may, by passing special resolution, and with approval

of Central Government in writing, change its name In case where the only change in name is the addition thereto or

deletion therefrom, like the word private consequent on the

conversion of a public company into a private company or viceversa, no need of approval of Central Government is required.

If through inadvertence or otherwise, a companys name is wronglyregistered, by a name which, in the opinion of the CentralGovernment, is identical with the name of another existingcompany or inappropriate, it can be changed by passing ordinaryresolution, and obtaining the approval of Central Government in

writing.o The central Government can ask to change the name within 12 months of the first registrationor registration under a changed name, direct the company to change the name

o If a direction is issued, the company must change the name within three months, from thedate of direction, unless the time is extended


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Alteration of Registered Office

Within the same city

Passing a Boards resolution only to that effect

Notice to Registrar within 30 days of the change.

Within different city in the same State Passing a special resolution authorising the

change

File its copy with the Registrar within 30 days.

Notice to Registar within 30 days of the shiftingof office.


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From jurisdiction of one Registrar to another in same state

Passing of a special resolution

Application to Regional Director

Confirmation of the Regional Director.

Memorandum (altered)+ Confirmation (Regional Director) submittedto Registrar of companies within 2 months.

Registrar issues certificate of registration within 1 month.

Registrar transfers the records to the other Registrar under whosejurisdiction the company is to be shifted.

New location of the office is given to Registrar within 30 days ofshifting.



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From one state to another state

Special registration must be passed by the company and a copythereof to be filed with the Registrar within 30 days

Sanction of the Company Law Board is to be obtained.

A certified copy of the Company Law Boards confirmation + aprinted copy of the altered memorandum to be filed with theRegistrars of both States within 3 months of the order.

Certificates of Registration re obtained from both thrRegistrars.

Reg. Office shifted to new location.

Notice of new address given to the Registrar within 30 days ofshifting.


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Alteration of Objects Clause

to carry on its business more economically or more efficiently.

To attain its main purpose by new and improved means

To enlarge or change its local area of operations To carry on some business which can be suitably combined

with the present business of the company.

To restrict or abandon any of its objects specified in thememorandum.

To amalgamate the company with another company.

To sell or dispose of the whole or any part of the undertakingof the company.


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Passing a special resolution only. Filing of copy of special resolution authorising the alteration together with

the printed copy of the memorandum as altered to the Registrar within 30

days of passing of resolution.

Issue of certificate of Registration by the Registrar within one month

The alteration is effective only on getting this certificate ofregistration.(Sections 17, 18, 19)

Alteration of Objects Clause

A entirely new resolution, in addition to the above resolution, has to be passed atthe same general meeting.The copy of the second resolution is to be filed with the Registrar within 30 daysof passing the resolution


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Limited Company, or Company Limited by Liability

The same has to be agreed to by each and every member concerned.(Sec.38)

The liability of Directors, Managing Directors or Managers can be madeunlimited by passing a special resolution , if the Articles so permit and ifthe office concerned has accorded his consent to the liability become

unlimited(Sec 323)

Unlimited Liability Company

To make it a limited liability company, a special resolution has to be passedand the Courts sanction has to be approved.

A copy of the special resolution is to be filed with the Registrar within 30days of passing the resolution and the Courts order has to be filed within 3months.

Alteration is effective after the filing with the Registrar.

A new liability clause is to be added in the memorandum.

Alteration of Liability Clause


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Increase its authorised share capital

Consolidate or subdivide the whole or any part of its existing shares into

shares of larger or smaller denominations.

Convert its fully paid up shares into stock or vice versa. Cancel its unissued shares i.e. the shares not subscribed for by any person

and diminish the amount of its authorised share capital by the amount of

the shares so cancelled.

Alteration of Capital Clause

A company can make any of these alterations by passing an ordinaryresolution IF it is authorised by its Articles to do so.

If the Articles do not provide so, the Articles must be changed by passing aspecial resolution.

Notice, along with the changed Memorandum and a copy of resolution has tobe given to the Registrar


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Thank you