Group 3, Section B

Aritra Raymukherjee Ajay Kumar Raunak Hisaria Kanika Agarwal Sankhadeep Biswas Vinita Deswal Shashi Joshi

AGENDA
MEMORANDUM OF ASSOCIATION

FORMATION OF A COMPANY

FORMATION OF A COMPANY
THE COMPANIES ACT, 1956

FORMATION OF A COMPANY

Promotion

Incorporation or Registration

Capital Subscription

Commencement of Business

Private Company Public Company (not having share capital) Public Company (having share capital)

STAGE 1: PROMOTION
The discovery of business opportunities and the subsequent organization of funds, property and managerial ability into a business concern for the purpose of making profits therefrom.
Provision of Funds

Discovery of an Idea

Preliminary and Detailed Investigation

Assembling of Business Elements

THE PROMOTER
L.J.Bowen Justice C.Cockburn
General Definition
It is a term not of law but of business, usefully summing up in a single word a number of business operations familiar to the commercial world by which a company is generally brought into existence

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

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

FUNCTIONS OF A PROMOTER

Selection of Signatories to the Memorandum Selection of First Directors

Directs the solicitors to prepare the Memorandum, the Articles and other Documents necessary to be filled with the Registrar of the Companies

Other Worries (Land, Machinery, Plant etc)

Secure the Initial Capital for the Company

Funds for Registration Expenses

Who can be a PROMOTER?

Individual
Association of Persons

Firm

Company

Legal Position of a Promoter

Full Disclosure of Relevant Facts including profits, if any, To the board of Directors OR To the shareholders as a body BY Means of Prospectus.

Promoters Liability

SUE

Sue the promoter Recover the same with interest

SET ASIDE

Set aside the transaction or contract with the promoter i.e. it may restore the property to him and recover its money.

SUE for DAMAGES

Made liable to the original allottee of shares for the misstatements contained in the prospectus(Sec.62) Imprisonment of 2 years, or fine upto `50,000(Sec.63)

Promoters Liability
WINDING UP
On an application made by the official liquidator, the court may make the promoter liable for misfeasance or breach of trust(Sec.543) On allegation of fraud by liquidator, The court may order for promoters public examination.(Sec.478, Sec 579)

In Case of Insolvency Death

Both are Liable His Estate is Liable Can ask for Contribution

Sued

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 CAPITAL No liability of the company to pay promoters remuneration TILL the company has got the certificate to commence business.

PRE-INCORPORATION CONTRACTS

Cannot be ratified

Personal Liability of the Promoter

A New Contract is required

Pre-incorporation Contracts OR Preliminary Contracts

PRE-INCORPORATION CONTRACTS
When the promoters of a company have, before its incorporation, entered into a contract for the purpose of the company and such contract is warranted by the terms of its incorporation , the contract may be specifically enforced by or against the company, if the company has accepted the contract and communicated such acceptance to the other party to the contract. Under this section, the company can validly ratify or adopt only such types of pre-incorporation contracts as are necessary for the incorporation and working of the company, i.e. a contract for printing the Memorandum and Articles of Association or supply of 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.

Provisional Contracts
PRIVATE Company Public Company Without SHARE Capital Pre-incorporation Contracts

With SHARE Capital

Pre-incorporation Contracts

2 STAGES Promotion and Incorporation Valid Contracts Provisional Contracts

LAST 2 STAGES Capital Subscription, Certificate of Commencement of Business Valid Contracts

INCORPORATION or REGISTRATION
STAGE 1: PROMOTION

To ascertain from the Registrar of Company if the Name is available or not

To Fix underwriters, brokers, bankers, solicitors, auditors and signatories to the memorandum

To get Letter of Intent(Industrial License Later) if the companys business comes under the purview of Industrial(Development and Regulation) Act, 1951 To get Memorandum of Association prepared and printed

STAGE 2: REGISTRATION OR INCORPORATION

ACCOMPANIED DOCUMENTS
Memorandum of Association duly stamped, signed and witnessed. Articles of Association properly stamped, duly signed by the signatories of the Memorandum and witnessed.
o OPTIONAL in case of a public company with limited liability, which may adopt Table 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 any individual for appointment as its manager or whole time director or manager. A written consent of the directors to act in that capacity, duly signed by each director, along with a written undertaking by them to take the necessary qualification shares, as provided in the share capital.
o EXCEPTION: The document is not required to be filed in the case of (i) A company without share capital, (ii) A Private Company (iii) A company which was private prior to the becoming a public company.

ACCOMPANIED DOCUMENTS
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 signed
o 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 or secretary of the company.

AFTER PROVIDING DOCUMENTS

Scrutinizing by Registrar

Certificate of Incorporation

Corporate Identity Common Seal(Sec. 34(2)) Number (CIN)

Companies Before
1st November 2000

Companies After
1st November 2000

Birth of Organization

Provided CIN Number within 1 year, i.e by April 2002

All provided CIN Number

CERTIFICATE OF INCORPORATION is CONCLUSIVE

Section 35 states that the certificate, once issued, is conclusive evidence of the fact that the company has been duly registered. Forged Signatures Signatures of the Memorandum Signatories are INFANTS Signatories of Memorandum
Certificate of Incorporation is issued

Seven Signatures not present

Seven subscribers to the Memorandum

Materially Altered after signatures

Memorandum

Still VALID

CAPITAL SUBSCRIPTION
Only for Public Companies with Share Capital

Task of obtaining the necessary capital for the company Conforming to the guidelines for disclosure and investor protection, issued by SEBI 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 the prospectus in circulation. If minimum 90% of the capital issue and other conditions are fulfilled , the directors 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 of underwriters) within 60 days from the date of closure of issue, all moneys will be refunded and no allotment can be done. IF there is no Prospectus , the company has to file with the Registrar a Statement in lieu of Prospectus at least 3 days before the directors proceed to pass the first allotment resolution.

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 to protect 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 making capital issues to the public. SEBI has issued new guidelines for disclosure and investor protection, 2000 These guidelines must be complied with before making a public offer for sale of shares and debentures.

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 and allotment money on his shares in the same proportion as others. (c) Declaration that no money is liable to become refundable to the applicants bu reason of failure to apply for or to obtain permission for shares or debentures to be dealt in on any recognized stock exchange. (d) A statutory declaration in the prescribed form by one of the directors or 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, then documents of (b) and (d) and a copy of statement in lieu of prospectus have to be submitted.

COMMENCEMENT OF BUSINESS
On receiving the trading certificate, if the company decides to start a new business, which is not included in the main objects of the company(i.e. included in the other objects), it shall obtain either the authority of a special resolution of the company or of an ordinary resolution and the approval of the Central Government. A declaration by the secretary or a director that the requirement as to resolution has been complied with, must be filed with the Registrar. For any contravention, every person responsible shall be punishable with fine upto `5000 for every day of contravention.(Sec 149(6)]

MEMORANDUM OF ASSOCIATION
THE COMPANIES ACT, 1956

DEFINITION
Section 2(28) Company Act
Memorandum means the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company laws or of this Act.
The memorandum of association of a company is its charter and defines the limitation of the powers of a company. The purpose of the memorandum is to enable the shareholders, creditors and those who deal with the company, to know what is its permitted range of enterprise.

Lord Cairns

Lord Macmillan

Importance of the Memorandum

1. Delimits the capacity to contract of 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 on payment of a nominal charge. Hence it is regarded as an unalterable charter of a company.

DOCTRINE OF ULTRA VIRES

Ultra Vires =Beyond the powers of
Scope under the Memorandum of Association Ultra Vires NULL and VOID

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.

IMPORTANCE
Company is treated as an artificial person, devoid of
o CONSCIENCE o INTELLIGENCE And therefore cannot look after its own interests

Prohibits the use of corporate capital in Unauthorised Activities

o Protects the interest of the shareholders and creditors.

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, the companys memorandum should contradict the memorandum of the other company.

CONTENTS
Section 13 sets out the contents of a memorandum. The document must 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 word limited 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 to lead 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, the court 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 the address of the registered office In front of every office/place of business in a conspicuous manner in one of the local languages and on all cheques, bills, letters, notices and other official publications etc. of the company.

CONTENTS
2. The registered 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 carry on business or as from the 30th day after the date of incorporation, whichever is earlier.

CONTENTS
3. The Object Clause The 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. b. c. d. e. The objects of the company must not be illegal. They must not be against the provisions of the Companies Act. They must not be against public policy. They must be stated clearly and definitely. They must be elaborate. The main objects, as well as the subsidiary or the incidental objects too should be stated.

CONTENTS
Implied Powers: Apart from the powers expressly provided in the objects clause, a trading company also has certain implied powers: a) To borrow money b) To act by agents c) To compromise disputes d) To mortgage or sell land

CONTENTS
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 member undertakes 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
5. The Capital Clause:

Every limited company having a share capital must state the amount of its share capital with which the company is proposed to be registered and the division thereof into shares of a fixed denomination, in this clause. There is no legal limit on the amount of share capital, but the denomination of each share should be same. An unlimited company having a share capital is not required to have the capital clause in its memorandum.

CONTENTS
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 qualification shares, if any. There must be at least 7 signatories in case of a public company, and 2 in case of a private company.

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

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 vice versa, no need of approval of Central Government is required. If through inadvertence or otherwise, a companys name is wrongly registered, by a name which, in the opinion of the Central Government, is identical with the name of another existing company or inappropriate, it can be changed by passing ordinary resolution, 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 registration or 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 the date of direction, unless the time is extended

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 shifting of office.

Alteration of Registered Office

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) submitted to Registrar of companies within 2 months. Registrar issues certificate of registration within 1 month. Registrar transfers the records to the other Registrar under whose jurisdiction the company is to be shifted. New location of the office is given to Registrar within 30 days of shifting.

Alteration of Registered Office

From one state to another state
Special registration must be passed by the company and a copy thereof 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 + a printed copy of the altered memorandum to be filed with the Registrars of both States within 3 months of the order. Certificates of Registration re obtained from both thr Registrars. Reg. Office shifted to new location. Notice of new address given to the Registrar within 30 days of shifting.

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 the memorandum. To amalgamate the company with another company. To sell or dispose of the whole or any part of the undertaking of the company.

Alteration of Objects Clause

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 of registration.(Sections 17, 18, 19)

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

Alteration of Liability Clause

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 made unlimited by passing a special resolution , if the Articles so permit and if the 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 passed and the Courts sanction has to be approved. A copy of the special resolution is to be filed with the Registrar within 30 days of passing the resolution and the Courts order has to be filed within 3 months. Alteration is effective after the filing with the Registrar. A new liability clause is to be added in the memorandum.

Alteration of Capital Clause

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.
A company can make any of these alterations by passing an ordinary resolution IF it is authorised by its Articles to do so. If the Articles do not provide so, the Articles must be changed by passing a special resolution. Notice, along with the changed Memorandum and a copy of resolution has to be given to the Registrar

Thank you