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Stages in formation
Promotion stage
Promoter
Fiduciary position
Duties of promoter
Liabilities of Promoter
Promoters Remuneration
Pre-incorporation contracts
Legal position of pre-incorporation contracts
Ratification under Specific Relief Act
Provisional Contracts
Discovery of an idea
company
A promoter directs the solicitors to prepare the memorandum & other
necessary documents for filing with the Registrar, chooses a name for
the company, raises necessary funds, decides about the location of
registered office, selects the persons who would be directors and so
on
to be formed
A fiduciary position signifies a position of trust and confidence and
Secret Profits:
Company may rescind the contract and recover the price paid
Company may recover profits without claiming rescission
Company may sue for damages for breach of fiduciary duty
Expect in case of express contract to that effect, promoter has no right to claim
remuneration
Paid a lumpsum either in cash or in form of shares or debentures of the company
Given commission on the purchase price of business taken over by the company
Inducted to the Board of Directors
Sell his own property to the company at an inflated price provided full disclosure is
made thereof
Given an option to buy shares of company at par value when market price is higher
incorporation.
These agreements made as agents or trustees of the company
Before incorporation, company is a non-entity and lacks contractual
capacity
Company is not liable for the acts of promoters done before its
incoporation
Under Section 15(h) and Section 19(e) of the Specific Relief Act, a pre-incorporation
contract can be specifically performed by or against the company provided:
The contract is made for and on behalf of the company
other party
Private Company becomes legally bound the moment it makes a fresh contract or
ratifies a contract immediately after its incorporation.
A public Company becomes legally bound only after getting the certificate for
commencement of business
These are contracts made by a company after its incorporation but before
Pre-incorporation Contracts
Provisional Contracts
Preliminary Steps:
Ascertain the availability of proposed name from the Registrar of Companies by
33(1)(a)]
The Articles of Association, if any, duly signed by the subscribers to the
memorandum [Section 33(1)(a)]
The agreement which the company proposes to make with an individual for
appointment as its managing or whole-time director [Section 33(1)(c)]
The written consent of the directors to act as such and to take up qualification
shares
incorporation
Scrutiny of documents: The Registrar scrutinizes the documents filed with him. If
they are found to be in order, he registers the company and issues a certificate of
incorporation.
Conclusiveness of certificate of incorporation: depends on following:
That the company is duly registered and it has fulfilled all the requirements
relating to registration
That the date borne on the certificate is the date of birth of the company
The certificate is conclusive even if it was legally impossible that the company
could have been properly registered such as when all the signatories to the
memorandum are minors. But the certificate would not validate the objects
which are illegal.
Effect of Registration:
The company becomes a distinct legal entity from the date mentioned in the
certificate
Acquires perpetual succession
The Memorandum and Articles become binding on the members
The liability of members of a limited company becomes limited
that:
The directors have taken up and paid for the qualification shares in cash an amount
company that every director has taken up and paid for the shares an amount
equal to what is payable on application and allotment by other subscibers
object other than that included in its objects clause, it must pass a
special resolution in the general meeting
A special resolution is also needed when it wants to start a business
On compliance with all the above formalities, the Registrar issues a certificate that
the approval of the Central Government has been obtained for the same