Registration and Incorporation of Company in Business World

Mode of forming Incorporated Company:

Any 7 or more persons (2 or more in case of a private company) associates for any lawful purpose may form an incorporated company with or without limited liability.

A company so formed may be:

A company limited by shares, or

A company limited by guarantee, or

An unlimited company

Documents to be filed with the Registrar:

Before a company is registered it is desirable to ascertain from the registrar of companies if the proposed name of the company is approved.

The following documents duly stamped together with the necessary fees are to be filled with the registrar:

The memorandum of association duly signed by the subscribers

The articles of association

Signed by the subscribers to the memorandum of association

The agreement, if any, which the company proposes to, enter into with any individual for appointment as its managing or whole-time director or manager

A list of the directors who have agreed to become the first directors of the company

A declaration stating that all the requirements of the companies act and other formalities relating to registration have been complied with. Such declaration shall be signed by any of the following persons:

An Advocate of the Supreme Court or of a High Court: or

An attorney or a pleader entitled to appear before a high court;

A secretary or a chartered accountant in whole-time practice in India, who is engaged in the formation of the company; or
A person named in the articles as a director, manager, a secretary of the company then within 30days of the date of registrar who shall record the same.

Effects of registration:

Three important consequences of registration:

The company becomes a distinct legal entity. Its life commences from the date mentioned in the certificate of incorporation.

The company acquires a perpetual succession. The members may come and go. But it goes on for ever, unless it is wound up.

The company’s property is not the property of the shareholders. The shareholders have a right to share in the profits of the company when realised and divided.

We already have discussed about kinds of companies in corporate world in the continuation of registration and incorporation of company in the business world.

Memorandum of Association and Contents of Memorandum

Memorandum of association is a fundamental document. It is the charter of the company and defines its reason for existence. It regulates the external affairs of the company in relation to outsiders. Its purpose is to enable shareholders to know what its permitted range of enterprise is. It is the area beyond which the actions of the company cannot go.

Purpose of memorandum:

The prospective shareholders shall know the field in, which their money is going to be used by the company and what risk they are undertaking in making investment. The outsiders dealing with the company shall know the objects of the company.

Printing and signing of memorandum:

The Memorandum of Association of a company shall be-

Printed

Divided into paragraphs numbered consecutively, and

Signed by 7 (2 incase of a private company) subscribers

Each subscriber shall sign (and add his address, description and occupation, if any) in the presence of at least l witness who shall attest the signature and shall likewise add his address, Description and occupation.

Form of Memorandum:

The Memorandum of Association of a company shall be in such one of the Forms in Tables B, C, D and E in Schedule I to the Companies Act, 1956.

Contents of Memorandum:

The Memorandum of every company shall contain the following clauses. The name of the company, with ‘Limited’ as the last word of the name in the case of a public limited company and with ‘private Limited’ as the last words of the name in the case of a private limited company. The state in which the registered office of the company is to be situated.

The objects of the company which shall be classified as-

The main objects of the company to be pursued by the company on its incorporation and objects incidental or ancillary to the attainment of the main objects; and

Other objects of the company not included in (a)

In the case of companies (other than trading corporations) with objects not confined to one state, state to whose territories the objects extend

Limited liability:

The Memorandum of a company limited by shares or by guarantee shall also state that the liability of its members is limited.

Share capital:

In the case of a company having a share capital, each subscriber shall take at least one share and shall write opposite his name the number of shares his lakes. The Memorandum of a company limited by guarantee shall also state that each member undertakes to contribute a certain sum to the assets of the company.

Doctrine of Ultra Vires:

A company has the power to do all such things as are-

Authorized to be done by the Companies Act, 1956;

Essential to the attainment of its objects specified in the Memorandum;

Reasonably and fairly incidental to its objects

Everything else is ultra vires the company

‘Ultra’ means ‘beyond’ and ‘vires’ means ‘powers’

It means that the doing of the act is beyond the legal power and authority of the company.

The purpose of these restrictions is to protect-

Investors in the company so that they may know the objects in which their money is to be employed;

Creditors in the by ensuring that the company’s funds are not wasted in unauthorized activities

Ultra vires act is void

If an act is ultra vires the company, it does not create any legal relationship

It is not necessary that an act to be considered ultra vires must be illegal; it may or may not be

The main feature of the doctrine of ultra vires is that a company being a corporate person should not be (fined or punished) for its own acts or acts of its agents

Whether a particular act on the part of a company is within its powers is a question of fact and is decided on the construction of the terms of the Memorandum

Ultra vires the directors:

If an act transaction is ultra vires the directors (i.e., beyond their powers but within the powers of the company), the shareholders can ratify it by a resolution in a general meeting

If an act is within the powers of the company, any irregularities may be cured by the consent of the shareholders

Ultra vires the articles:

If an act or transaction is ultra vires the articles, the company can ratify it by altering the articles by a special resolution

Shares and Allotment of Shares in Capitalist Market

A share is the interest of a shareholder in a company. The capital of a company is divided into certain indivisible units of a fixed amount. ‘Share’ means share in the share capital of a company. A share is evidenced by a share certificate. A share certificate is issued by a company under its common seal. Each share in a company having share capital is distinguished by its appropriate number.

Types of shares:

Preference shares

Equity shares

Preference shares: Preference shares are those which have 2 characteristics:

They have a preferential right to be paid dividend during the lifetime of the company

They have a preferential right to the return of capital when the company goes into liquidation

Equity shares: Equity shares are standard shares with no special rights or restrictions. They have the potential to give the highest financial gains, but also have the highest risk. Equity shareholders are the last to be paid if the company is wound up.

Application and allotment of shares:

An application for shares is an offer by a prospective shareholder of a company to take shares. ‘Allotment’ is the acceptance by the company of that offer. Allotment results in a binding contract between the company and the applicant. The following provisions of the Act are applicable to ‘application’ for, and allotment of, shares:

Minimum subscription: No allotment shall be made of any share capital of a company offered to the public for subscription unless-

The amount stated in the prospectus as the minimum amount has been subscribed

The sum payable on application for such amount has been paid to and received by the company

Application money: The amount payable on application on each share shall not be less than 5 per cent of the nominal amount of the share. All moneys received from applicants for shares shall be deposited and kept deposited in a scheduled Bank-

Until the certificate to commence business is obtained

Until the entire amount payable on applications for shares in respect of the minimum of

90 per cent subscription has been received by the company.

If any such money is not repaid within 130 days after the issue of the prospectus, the directors of the company shall be jointly repay it with interest at the rate of 6 per annum

Opening of the subscription list:

Allotment can be made only after the beginning of the 5th day from the date of the issue of the prospectus or on such later day as may be specified in the prospectus. This beginning of the 5th day or the later day is known as ‘the opening of the subscription list’.

Shares and debentures to be listed:

Every company, intending to offer shares or debentures to the public for subscription shall make an application to more recognized stock exchanges permission for the listing of its shares or debentures.

Return as to allotments within 30 days of allotment of shares by a company, the company shall file with the Registrar a statement known as ‘return as to allotments’.

Share certificate:

Every person whose name is entered as a member in the register of members of a company has a right to receive a certificate of his shares. A share certificate shall be under the seal of the company, and shall specify-

The shares to which it relates

The amount paid up thereon

The name of the holder of the shares, the share certificate shall be signed by at least 2 directors and the secretary

Limitation of time for issue of share certificates:

The company shall deliver share certificates-

Within 3 months of the allotment of shares

Within 2 month after the application for registration of the transfer of any such shares.

Object of share certificate:

A share certificate under the seal of a company is prima facie evidence of the title of the member to the specified in the certificate.

Lost or defaced certificate: A certificate may be renewed or a duplicate of a certificate may be issued if such certificate-

Is proved to have been lost or destroyed

Having been defaced or torn is surrendered to the company

We already have discussed about article of association. Now, you can read about shares in this chapter.