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A Company has to undergo various stages before it comes into
existence. These stages may be categorized as:
Promotion is the process of organizing and planning of a business enterprise under the
corporate form. It refers to the entire process of discovery of business opportunities and
subsequent organization of funds, property and managerial ability into a business concern for
the purpose of making profits therefrom.
U/S 12 any two or seven persons associated for a lawful purpose by subscribing their names
to the memorandum and complying with the requirements of this act in respect of registration
may form a incorporated company. Such a company may be limited by shares, limited by
guarantee or an unlimited company.
To obtain the registration certificate and applications has to be submitted to
the ROC with the following details:
!? A copy of memorandum and AOA
!? A copy of the agreement entered into with parties willing to work as directors
!? A statuary declaration by a CA on CS stating thereby that all formalities regarding
registration have been followed
!? Copy of the consent of directors
!? Complete address of the registered office of the company
If the ROC is satisfied with the information provided, he will issue a
certificate of incorporation to the company. This document is the birth certificate of the
company and is proof of the existence of the company. Once this certificate is issued, the
company cannot cease its existence unless it is dissolved by the order of the court.
A private company may commence its business immediately
on receiving the certificate of incorporation but a public company cannot start working until
it has obtained a certificate of commencement of business.
If a company has made a public issue, it cannot commence business until:
!? Allotment has been made to the extent of minimum subscription.
!? very director has paid the amount of the shares
!? po money is liable to be repaid to the applicants
!? the company did not get permission to deal its shares on a recognized stock
exchange
!? A statuary declaration by a company secretary that all the provisions have been duly
complied with.
On satisfaction of the above, the ROC will issue certificate of
commencement after which the company may proceed to do the business. If a company
commences business in contravention of any of the above rules, it shall be punishable to a
fine of Rs.5000 for each day of default.
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Ans: Introduction:
On issue of certificate of incorporation, the company shall be a body corporate by the name
contained in the memorandum. From the date of incorporation the company become a legal
person separate from its members, capable of exercising all functions of an incorporated
company having perpetual succession and a common seal.
The certificate of incorporation shall be a conclusive evidence that:
!? All the requirements of the act have been complied with in respect of registration.
!? The company is duly registered
!? The company came into existence on the state mentioned in the certificate.
Where the object of the company is unlawful the certificate of incorporation is
not a conclusive evidence for the purpose.
The validity of a certificate of incorporation cannot be disputed on any
grounds. Whatsoever when the registrar registers the company with the knowledge of defects
in a document, no subsequent plea can be put up that the certificate is not a conclusive
evidence.
The certificate would be conclusive that the company was duly
registered even if the signatures to a memorandum was written by one person or all forced.
Similarly, if the signatories are all minors, the certificate would still conclusive.
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The certificate is also conclusive that the company came into existence on the date of
the certificate. Moreover the certificate is not conclusive of the legality of the objects.
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Ans. A promoter is a person who originates a scheme for the formation of a company, has the
memorandum and articles prepared, executed and registered and finds the first directors,
settles the terms of preliminary contracts and prospectus and mix arrangement for circulating
the prospectus and placing the capital. He performs the following functions related to
formation of a company.
FUpCTIOpS:
!? He does all the basic planning for the company.
!? He decides the name of the company.
!? He arranges the basic facilities like land, building, machinery etc.
!? The MOA and AOA are prepared by he promoters.
!? He undertakes all necessary documentation formalities regarding registration of the
company.
Thus from the above we see that the promoters have a hand in creating and moulding the
company but still they are regarded as merely fiduciary agents of the company. This fiduciary
position can be explained will be help of the following points:
He must not make either directly or indirectly any profit at the expense of the proposed
company. If any secret profit is made the company may recover the same.
The benefits of any contracts into which the promoter enters has to be submitted to the
company except in the following circumstances:
!? Where the nature or form of the property has been altered.
!? Where third parties have acquired valuable rights.
!? The promoter has to disclose all relevant facts in a transaction to the independent
BOD¶s
!? He must take care to avoid unreasonable use of his position.
The above discussion rings out the fact that although the promoter does all the basic acts
related to setting up of the company yet cannot take any undue advantage of his position.
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Memorandum of Association is a master document / charter which defines the relationship of
the company with the outsiders.
!? Company cannot go beyond what is mentioned in the MOA
!? It tells the scope / objects of formation.
!? Describes the relations with the outside world.
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&4-/,-0,0With what name the company will be set up registered.
It gives a distinct identity to the company.po two companies can have the same name but
words of common usage can be the same.But Company cannot use names and emblems of
organizations like UpO, WTO etc.Words Ltd./Pvt. Ltd. has to be suffixed according to the
kind of the company.pame as to be displayed outside the registrar office and on all official
public documents.
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&4-/,-0, 0Where will the registrar office be set up so that q/s can
comm. with the company.Company should have registrar office at the time of incorp. Or if
the company does not have, it should set up its registered office within 30 days of incorp.
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&4-/,-067, 0Objects- purpose for which the company is to be set up i.e.
it lays down what all the companies can do and what all the companies cannot do.
Main objects.
Secondary objects.
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&4 -/,70pature of liability of members.Whether it will be limited /
unlimited.
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&4-/,80,0With what amount and kind of company the company will be set
up.
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The MOA is a master document, which defines the working of the company and its
relationship with the outside world. pormally, it cannot be altered, except in certain cases and
according to the manner and extent provided in the act. The procedure for alteration is as
follows:
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The name clause provides an identity t the company as to how the company will be known to
the outside world. The name clause can be altered by a special resolution and ordinary
resolution depending upon the circumstances.
If the company wants to change its name clause itself, it shall pass a special resolution and
obtain approval of central govt. in writing such approval is not required in cases of
conversion of company.
In case the name by which the company is register, does not appeal to the Central Govt.
The Central Govt. may direct the company to change its name. In such a case the company
may pass an ordinary resolution and obtain approval of the Central Govt. If a company fails
to comply with the directions of the Central Govt., it shall be punished with fine that may
extend to Rs. 1000 for every day during which the default continues.
The registrar of company shall notify the change and issue a fresh certificate of incorporation
to the company.
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The ROC signifies the place of business from where the administrative work of the company
will be carried out. The registered office may be changed:
!? From one place to another within the same city.
!? From one town to another town within the same state.
!? Change of registered office from one state to another.
In case of change of place within the same city, the BOD¶s will pass a resolution and inform
the ROC of the change within 30 days.
In case of change of one town to another but within the same state, a special resolution as to
be passed and confirmation by the regional director of ROC has to be obtained. The copy of
the resolution has to be submitted within 30 days where as a copy of the confirmation by the
regional director has to be submitted within 4 weeks of receipt of confirmation.
In case of change of registered office from one state to the another a special resolution should
be passed and submitted to the ROC within 30 days. The confirmation of the Central Govt. is
also required in this case. The copy of the Central Govt.¶s confirmation along with the altered
memorandum should be submitted to the ROC within 3 months of the date of confirmation.
The ROC shall issue a fresh certificate of registration within 1 month of filing the documents.
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A Company cannot alter the object clause because altering the object clause
may affect the interest of the shareholders and creditors. Thus, these alterations are subject to
two limits:
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'It means solid limits like any change in the working conditions of the
company or in the procedure of the company.
U/S 17 (1) a company may alter its object clause only for the following purpose: -
!? To carry on the existing business more economically or more efficiently.
!? To attain its main purpose by new or improved means.
!? To carry on some business which can be conveniently and advantageously combined
with the existing company.
!? To enlarge or change the local area of its operations.
!? To restrict or abandon any of the objects mentioned in the memorandum.
!? To dispose off the whole or any part of the undertaking.
!? To amalgamate with any other company.
!'The process of altering the object clause has been made tedious so that
the alteration cannot be normally bought about.
The company shall pass a special resolution and submit a copy of it to the ROC. It is to be
noted that this alteration should be only for the purpose mentioned in Section 17(1) of the
Act. Any alteration beyond this range will amount to violation of the Act.
On satisfaction, the ROC will issue a new certificate of incorpn.
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Ordinarily, the liability clause cannot be altered to make the
liability of the members unlimited. But U/S 36 if the consent of the memberships been
obtained this clause shall not apply.U/S 32 however an unlimited company can be registered
as a limited company.U/S 323 a limited company can make the liability of its directors or
managers as unlimited.
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A limited company having a share capital may alter its capital
clause subject to the provisions of its articles by a resolution in the general meeting. The
confirmation of the court is not required if alteration is made for any of the following
purposes:-
!? To increase its share capital.
!? To consolidate and divide its capital into shares of larger amount.
!? To convert its fully paid hares into stock and reconvert stock into fully paid up shares.
!? To sub divide its shares into shares of smaller amount.
!? To cancel its shares
CAS: R CYCLISTS TOURIpG CLUB (1907)
It is for the shareholders to decide what business should be carried on by the company. Along
with its existing business and in what manner. Where the proposed alteration is in respect of
new business sought to be made under clause (a) of Section 17 (1), the business of the
company with which the new business is intended to be conveniently or advantageously
combined with, must be in existence at the time of proposed alteration. If the company is not
carrying on any business at all on such date, obviously, there is no business with which the
proposed new business could be combined with and the proposed alteration cannot, as such,
be sanctioned.
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Ans: IpTRODUCTIOp:The object clause in the memorandum limits the power of activities
of the company. Hence, any act that is not authorized by the memorandum are ultra vires the
company and act is said to be ULTRA VIRS when it is performed, though legal in itself is
not authorized by the object clause in the memorandum. Such an act is void and cannot be
rectified later on.
The Doctrine of Ultra Vires intends to protect the interest of the
shareholders and creditors of the company. This has been aptly brought about in the
following case:
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The acts which are ultra vires may be either ultra vires the company or ultra
vires the directors but ultra vires the company. If the act is ultra vires the directors, it can be
rectified by passing special resolution.
The position relating to doctrine of ultra vires can be summed up as follows:
If the act is beyond the authorized objectives, though legal in itself, it is ultra vires the
company.
Such transactions do not bind the company and a third party cannot sue the company to
enforce such transactions.
!? An ultra vires transaction cannot be rectified.
!? If a person lend money for a ultra vires purpose, he cannot recover the money but he
may recover the goods purchased out of that money.
!? If an act is ultra vires the directors but intra vires the company, it can be rectified.
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The effect of ultra vires transactions can be summarized as follows:
@& i.e. the company can be stopped form doing an act which ultra vires the
company.
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The directors are the agents of the
company and hence if they pursuade a third party to enter into a transaction which is ultra
vires the company and action may lie against them for breach of warranty of authority.
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compensate the company for any loss an a/c of ultra vires transcations.
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A company can protect its property acquired
by ultra vires expenditures.
&' ()* ?%Where a person lends money to the company and such
money is either beyond the borrowing powers or for an ultra vires purpose, the contract is
void and the third party cannot recover the money lend. However the lender may recover his
money by the following methods:
SUBROGATIOp TRACIpG OF MOpY
Where the company has used Here lender can identify his money
The loan to pay intra vires debts, or any property purchased with it.
The lender is subrogated to the The company in such a case is
rights of the creditors so paid regarded as holding the money lent
to it on for the lender.
&* % Where there company has used the loan to pay of intra vires debts, the
lender is subrogated to the rights of the creditors so paid.
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Here lender can identify his money or any property purchased
with it. The company in such a case is required as holding the money lent to it on used for the
lender.
6)&'() A company will be liable for torts or crimes committed in the
pursuit of its stated objects. But a tort or crime committed in course of activity, which is ultra
vires the company will not be liable in respect of it. However, the servant or office of the
company who commits the act will be personally liable in such a case.
