CA Rachna Parakh Dubey

Chapter-2
Incorporation Of Company And Matters
Incidental Thereto
Section 3: Minimum Members
Section 3A: Redemption in Membership below minimum
Section 4: MOA
Section 5: AOA
Section 6: Act to override MOA/AOA
Section 7 : Incorporation plus Forms
Section 9: Effect of Incorporation
Section 10: Effect of MOA/AOA
Section 10 A: Commencement of business
Section 12: Registered office
Section 13: Voluntary change in MOA
Section 14: Change of AOA
1. Introduction to Incorporation of Companies
 A company is a separate legal entity with perpetual succession for lawful purpose.
 Persons who initiate promotion of a company are known as Promoters.
 “Promoter” Sec 2(69)
Promoter means a person –
(a) who has been named as such in prospectus or is identified by the company in the annual return
(section 92): or
(b) who has control over the affairs of the company, directly or indirectly whether as a shareholder,
director or otherwise; or
(c) In accordance with whose advice, directions or instructions the BOD of the company is
familiarized to act.
However a person who is acting merely in a professional capacity, shall not be regarded as promoter
[under (c)], e.g., the solicitor, banker, accountant etc. are not regarded as promoters.
2. Formation of Company [Section 3]
Section 3 of the Companies Act, 2013 deals with the basic requirement with respect to the constitution
of the company.
OPC Private Public
Minimum no. of Members 1 Member 2 Members 7 Members
Minimum no. of Directors 1 Director 2 Directors 3 Directors
Maintain minimum number of members [Section 3A] If at any time the number of members of a
company is reduced below the minimum no. of members specified under section 3 then all those

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members who continued the business knowingly beyond six months shall be jointly and severally
liable for the whole debts of the company contracted during that time (after six months).
3. Incorporation of Company [Section 7]
(a) Steps for Incorporation
(i) Apply for DSC - Digital Signature Certificate
(ii) Apply for DIN – Compulsory for directors
(iii) Apply for name –
• INC (1) \ fee \ 3 names
• Not similar to existing company
• Not derogatory
• Not misleading
• Emblems & Names Act has been followed.
• CG \ SG \ LG (Not involve)
• Use in 20 days \ lapsed
(iv) Application for incorporation along with MOA + AOA - signed by subscribers 7\ 2\1
(v) Declaration by professional + directors - All provisions of Companies Act, 2013 and rules
made thereunder in respect of registration have been complied with.
(vi) Affidavit: A declaration from each of the subscribers to the memorandum and from
persons named as the first directors in the articles stating that -
• he is not convicted of any offence in connection with the promotion, formation or
management of any company; or
• he has not been found guilty of any fraud or breach of duty to any company
during last 5 years and that
• All the Particulars or documents filed with the ROC for registration of the
company contain information that is correct and complete and true.
(vii) Address for correspondence – it may be submitted within 15 days of incorporation.
(viii) Particulars of subscribers – Names, including surnames or family names, age, residential
address, nationality, qualification, occupation along with proof of identity.
(ix) Particulars + interest (share) + consent of directors
(x) Power of attorney on Non-judicial stamp paper.
(xi) Company must compulsory obtained COC [Certificate of Commencement] within 180
days from incorporation. (Amendment)
(b) Certificate of incorporation - It is the conclusive evidence of formation of company.
(c) Conclusiveness of COI – Once registrar issued the certificate it is deemed that all provision of
companies act is complied with & company is validly formed. The formation of company can’t be
challenged in any court in India.
Case law –
 Moosa Goola arif vs. Ibrahim Goola arif:
Company registered on the basis of MOA & AOA singed by two persons and a guardian on
behalf of 5 minor members. Guardian signed separately for each of 5 members. The ROC
registered the company and issued a certificate of incorporation.
 Jubilee cotton mills vs. Lewis.

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The ROC issued a COI on Jan 8th but dated it Jan 6th which was the date he received
application. On Jan 6th the company made an allotment of shares. The allotment of shares
is valid.
(d) Pre-incorporation contracts
Pre-incorporation contracts are the contracts done by the promoters on behalf of the company
before its formation. They related to preliminary activities like engaging a lawyer &
professional, printing of MOA & AOA, taking an office on rent, purchase of basic furniture, and
purchase of other assets.
If the company adopts these contracts after its formation, through narration only, then the
company shall liable. Also such contracts must be related to objects of company listed in MOA.
However if the company doesn’t adopt them, Promoters shall be jointly & severally liable
under sec. 15 & 19 of specific relief act.
(e) Furnishing incorrect particular during company formation-
If a company is formed by furnishing false or incorrect information or by suppressing any
material fact.
The tribunal may on application file to it-
• Pass order to change management of company or in public interest change MOA or AOA.
• It may make the liability unlimited.
• It may remove the name of company from the registers of companies.
• It may pass order for winding up.
• Such other order as it may deem fit.
However company shall be given opportunity of being heard before passing such order. If fraud
is involved sec. 447 shall be attracted.
Sec. 447-
• Imprisonment (6 months – 10 years).
• Fine up to 3 times of amount involved.
• If public interest is involved. (Minimum imprisonment 3 years)
(f) Formation of sec. 8 company –
Permission of central government is needed. However the power of CG to register a section 8
company has been delegated to ROC.
(g) SPICe [Simplified Proforma for Incorporating Company Electronically]
The MCA has taken various initiatives for ease of business. In a step towards easy setting up of
business, MCA simplified the process of filing of forms for incorporation of a company through
SPICe.
4. Effect of incorporation (sec.9)
a) Company become an artificial person and acquires separate legal entity.
b) Company gets perpetual succession.
b) It gets the right to acquire property on its own name including the right to Sue or to be sued
upon.
5. Memorandum of association [Section 4]
• MOA is the chartered or the constitution of company that defines the powers & confines the
powers of company.

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• It elaborates the objects of the company.
• It is the foundation on which the structure of company is built. It serves 2 important purposes:
a) Investors- It guides him regarding the information and operation related business risk.
b) Transactions- It guides the outsider who entered into contractual relation with the
company. Whether the contract is covered in the objects of company

MOA

1. 2. 3. 4. 5. 6.
Name Situation Object Liability Subscription Capital
Clause Clause Clause Clause Clause Clause

Name Clause:
• Private Company – Pvt. Ltd.
• Public Company - Ltd.
• OPC – OPC
• Sec. 8 - NPO
• Emblems and Names (Prevention of Improper use) Act, 1950 has to be followed.
• Name shouldn’t be derogatory.
• It shouldn’t be misleading
• Shouldn’t be similar to any existing co.
• Not contain words – CG/ SG/LG
• It shouldn’t be undesirable
• 3 Names / INC (I)
• Shouldn’t be completely unrelated to companies Business.

NAME CHANGE

Sec 13 Sec 16
Voluntary Change Compulsory Change

Voluntary Change [Sec 13]

• BOD / BM / BR / Notice to shareholders
• GM /SR (75%)
• CG Permission [Name change is not allowed if default in payment of loans etc.]
• Form 1A / ROC [To check availability of name with prescribed fees]
• Alter MOA / AOA

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Submit Documents

Copy of Copy of SR CG Form (+) fee

altered MOA altered AOA permission (+) Time

• ROC will issue new COI within 30 days.

• Co. shall use both old & New Name [2 Year]
Compulsory Name Change [Sec 16] or Rectification
If inadvertently Similar Name or trade Mark is allotted then the New Company is order to change its
name within the required time.
• CG’s order shall be complied with in 3 Months in case of change of name or 6 Months in case of
Trade Mark.
• General Meeting/Ordinary Resolution (> 50%)
• Form 1A / ROC – New NAME with 3 Names
• Alter MOA / AOA
• Submit copy of documents to ROC within 15 days along with the CG order
• ROC will issue Fresh COI within 30 days.
• If a company make default in complying with any condition-
Liable person Penalty/punishment
Company Fine of Rs. 1000 for every day during such
default continues
Every officer who is in Default Fine varying from Rs. 5000 to Rs. 1 lakh.

Registered Office Clause:

Change in registered office

Change wit in Change within same state , same Change from one
same city Under ROC / Same City, Different ROC State to another
section 12 Under section 12 under section 13

1. Change within same city Under Section 12

• Company should convene Board meeting and board resolution must be pass.
• Prescribed Form, Fee & copy of board resolution must be submitted to ROC.
• ROC shall certify the same.
It doesn’t involve change of MOA therefore Shareholder’s meeting need not to be called.
2. (a) Change of City , Same State & Same ROC (Under Section 12)
• Company should convene Board meeting, board resolution must be pass & notice of
general meeting must be dispatched to shareholders.

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• In general meeting special resolution must be passed with 75% of majority of
shareholder’s.
• Inform ROC through prescribed form & fee along with the copy of Special resolution &
Board resolution.
• ROC shall certify the same.
(b) Change of City, Same state & Change ROC (Under Section 12)
• Company should convene Board meeting, board resolution must be pass & notice of
general meeting must be dispatched to shareholders.
• In general meeting special resolution must be passed with 75% of majority of
shareholder’s.
• Apply for permission to regional director.
• After getting approval from regional director inform both the ROCs through prescribed
form, fee & with in time limit.
• New ROC shall certify the same.
No alteration in MOA.
3. Change from one state to another Under Section 13
• Company should convene Board meeting, board resolution must be pass & notice of
general meeting must be dispatched to shareholders.
• In general meeting special resolution must be passed with 75% of majority of
shareholder’s.
• File petition to Central Government to Central Government for confirmation and give
advertisement in two newspapers one English & another local /language/vernacular.
(Circulating near registered office).
• Central government will give notice to affected parties like creditors, State Government &
old ROC and call meeting. Once consent is received from all parties. Central government
will pass order within 60 days else petition will be rejected.
• File certified copy of above order within 3 months to Both the ROCs along with the copy
of altered MOA Central government approval and Special resolution
• ROC shall certify the same
CASE 1: ORIENT PAPER MILL vs. State of Orissa
OBJECT CLAUSE:
It lays down the purpose for which the company is form, any act done with in inside MOA called intra
vires hence consider VAILD. Act done outside MOA is called Ultra vires (Beyond power) hence consider
VOID.

OBJECT CLAUSE

MAIN OBJECT OTHER OBJECT

Change in object clause divided into two parts:

(A) Public company who has raised money through prospectus & some portion is unutilized.
• Company should convene Board meeting , board resolution must be pass & notice must
be circulated (POSTAL BALLOT under section 110)
• Special Resolution must be passed with 75% majority in Postal Ballot.
• Dissenting Shareholders money should be refunded by company.
• Alter MOA
• Sent copy of all documents to ROC.

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(B) Other changes
• Company should convene Board meeting, board resolution must be pass & notice of
general meeting must be dispatched to shareholders.
• In general meeting special resolution must be passed with 75% of majority of
shareholder’s.
• Alter MOA
• Sent copy of all documents (MOA, SR, BR, Prescribed fee form & time) to ROC.
• ROC shall certify the same within one month.
Liability Clause:
State types of company with respect to liability of members.

Limited by Guarantee Limited by Shares Unlimited

• With share capital • With share capital
• Without share capital • Without share capital
Every company must state type of liability in MOA.
Liability can be decreased. MOA/ AOA cannot alter to increase the liability of members and put
additional burden. However unlimited company can convert itself into limited company.
CAPITAL CLAUSE: Contain Authorized, Nominal, & registered capital of company. Maximum capital
which company can raise from public.
SUBSCRIPTION CLAUSE: It contains name of Subscribers to MOA. Public company 7, Private Company
2 & OPC one.

6. Articles of Associations-AOA [Section 5]

As per section 2(5) Articles are the by-laws or the rules for the internal management of Company. AOA
contains internal rules and regulations of the company.
*Articles are subsidiary to a Memorandum.
*They don’t confer any right on outsiders.
CASE LAW:
(A) Ashbury Railway Co. vs. Riche
(B) Lord Justice CAIRN Lays that articles are made for internal management governs the
relationship between Company & its members.
This section lays the following:
(a) It contains by-laws for management of the company.
(b) It contains matters prescribed under the rules plus additional matters which are considered
as necessary for the management.
(c) Entrenchment means making something more difficult to change (protective), Articles may
contain such provision either on formation of company or by an amendment. For inserting
entrenchment provision in case of private company consent of ALL MEMBERS required & in case
of public company SEPECIAL RESOLUTION must be pass.
Company shall give notice to the registrar of such provision in prescribed form & manner.
Example: Mr. Tarun promoted an education start up and got it registered as a private limited
company. Initially he and his family are holding all shares in the company. In the article of
association of company it is written that Mr. Tarun will remain director of the company for
lifetime. But he has a fear that tomorrow if 75% or more shares in the company are held by non-

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family members then by passing a special resolution article may be changed and he may be
removed from the post of director.
Therefore, it was also written in the article that he can be removed from the post of director only
if 95% votes are cast in favor of the resolution. This is entrenchment.
* It may contain entrenchment for protection of right of minority share considers.
Example: If PQR Company subscribes 20% shares of XYZ, a Private Ltd. company. Remaining
80% shares are held by promoters and family. Tomorrow if XYZ private limited approaches any
Bank for a loan, the bank officials would read the Articles & would ask to get the consent of PQR
Company. Now, if there is no entrenchment provision, then ‘XYZ’ may, after passing a special
resolution remove the minority right and can borrow beyond the limit.
In order to control it, the entrenchment provisions are usually compelled by the minority to
make the majority responsible and the minority in these provisions can get incorporated a
clause saying that borrowing beyond a particular limit or issuances of shares is to be done only
after the requisite consent of minority has been obtained.
(d) Articles have follows forms:-
Table F: Co. Limited by share.
Table G: Co. Limited by share with guarantee
Table H: Limited by Guarantee without share capital Table I: Limited co. with Share capital
Table J: Unlimited Co. without Share capital
Table I :Unlimited plus share Capital
(e) A company may contain any of the by-laws of model articles applicable to such company.
(f) Company registered after commencement of Companies act 2013, can refer these model articles
if regulations are not exclude or modify.
(g) Nothing in this section shall apply to the articles of a company registered under any previous
company law, unless amended under this Act.

Extra point if you write to note down any please do –

7. ACT TO OVERRIDE MEMORANDUM, ARTICLES, ETC. [SECTION 6]

Section 6 of the act - lays down that Act shall override MOA / AOA also MOA is superior to AOA. But
keep in mind that this section starts with “Save as otherwise ….” It means that if any other section of the
Act says that article is superior then we will treat it accordingly.
8. ALTERATION OF ARTICLES [SECTION 14]
(a) Board shall convene in which board resolution must be pass & notice must be served to
Shareholders.
(b) In general meeting special resolution must be passed by shareholders. (c)Submit copy of Altered
AOA, special resolution & board resolution to ROC. (d)With prescribed fees, form & in prescribed
time.

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(e) ROC shall certify the same within 30 days.
Rules for ALTERATION
• It Shouldn’t be against any ACT MOA & AOA Other acts. Like - SCRA, FEMA, SFBI, RBI etc.
• It shouldn’t be illegal.
• It shouldn’t increase the liability of Members.
• It shouldn’t have retrospective effect.
• Shouldn’t be against public policy.
• It shouldn’t suppress Minority shareholder.
• If it involves conversion of Public co. into private company Tribunals Permission is needed.
9. CONVERSION OF COMPANY ALREADY REGISTERED Section 18 ALLOWS CHANGES & SECTION
14 LAYS DOWN PROCEDUE.
(a) Conversion of Private into Public
Conversion can be done voluntary or where a company being a private company alters its
articles in such a manner that they no longer include the restrictions and limitations which are
required to be included in the articles of a private company under this Act, then such company
shall, as from the date of such alteration, cease to be a private company:
(1) Board shall convene in which board resolution must be pass & notice must be served to
Shareholders.
(2) In general meeting special resolution must be passed by shareholders (3)Take Basic steps
–
(a) Increase upto [7] members
(b) Increase upto [3] directors
(4) Alter MOA-Name clause {Remove the word Pvt. From Name}
(5) Alter AOA / Remove Provision Of section2 (68) & insert provision of section 2(71)
(6) Send Altered AOA & MOA, Copy of special resolution, board resolution to ROC With
prescribed fees, form & in prescribed time.
(7) ROC shall certify the same 30 days
(8) ROC will issue certificate of incorporation in the same manner as its first registration.
(9) No effect on the debts, liabilities etc. incurred.
(b) Conversion of Public into Private
• Board shall convene in which board resolution must be pass & notice must be served to
Shareholders.
• In general meeting special resolution must be passed by shareholders.
• Apply for tribunal permission
• Alter MOA – [Name Clause]
• Alter AOA insert Provision Of section2(68) & remove provision of section 2(71)
• Ensure membership within 200
• Every alteration of the articles and a copy of the order of the Central Government
approving the alteration & copy of special resolution, shall be filed with the Registrar,
together with a printed copy of the altered articles, within a period of 15 Days.
• ROC With prescribed fees, form & in prescribed time.

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• ROC Certify the same within 30 days.
Dissenting Shareholders
• As long as SR is Bona fide, it shall be binding on dissenting SH.
• It must be in the interest of the company plus Consistent with provisions of MOA.
Section (15)
Every alteration made in articles of a company shall be noted in every copy of the articles.
If a company doesn't comply with the stated provisions, the company and every officer who is in
default shall be liable to a penalty of one thousand rupees for every copy of the articles issued
without such alteration.
10. INCORPORATION OF ONE PERSON COMPANY
1. Memorandum of OPC must contain name of nominee who shall become member in the case of
death & incapacity to do contract.
2. Nominee whose name is given in the memorandum shall give his prior written consent in
prescribed form and the same shall be filed with Registrar of companies at the time of
incorporation along with its MOA and AOA.
3. Nominee has right to withdrawal.
4. At the time of change in name of nominee company shall intimate the same to the Registrar.
5. Any such change in the name of the nominee shall not be deemed to be an alteration of the
memorandum.
6. Only a natural person who is an Indian citizen and resident in India is eligible to incorporate
an OPC & to be a nominee of a One Person Company.
* resident in India" means a person who has stayed in India for a period of not less than
182 days during the immediately preceding financial year.
7. One person can make only 1 OPC and can be nominee of only 1 OPC at a given time.
8. Where a natural person being member in OPC becomes member in another such company by
virtue of his being a nominee in that OPC, such person shall meet eligibility criteria (as given in
point above) within a period of 182 days.
9. No minor shall become member or nominee of the OPC.
10. OPC cannot be converted into Section 8 Company but it can became Private & public company
11. Such Company cannot carry out Non-Banking Financial & Investment activities.

12. OPC cannot convert voluntarily into any kind of company unless 2 years have expired from
the date of incorporation, except where the paid up share capital is increased beyond 50 lakh
rupees or its average annual turnover during the current year exceeds 2 cr. rupees.
11. INCORPORATION OF SECTION 8 COMPANY
1. Section 8 company is one whose basic objective is to promote charitable activities of commerce,
art, science, sports, education, research, social welfare, religion, charity, protection of
environment etc.
2. It prohibits to distribution dividend to its members & applies its profit only to promote
charitable objects.
3. Power of Central government to issue the license:
(a) They enjoy limited liability without adding word limited or private limited to its name by
issuing license
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(b) In exercise of powers conferred by Section 458 of the Companies Act, 2013 the Central
Government hereby delegates to the ROC the power & functions.
4. Privileges of Limited Company: On registration the company shall enjoy same privileges and
obligations as of a limited company.
5. A firm may be a member of the company registered under section 8.
6. Section 8 company shall not alter the provisions of its MOA & AOA except with the prior
approval of the Central Government.
7. Section 8 company can be converted into any kind of company only after complying with such
conditions as may be prescribed & also special resolution must be passed in general meeting.
8. Revocation of license:
i. If any of the condition revoked Central government may pass order to cancel license & all
exemptions shall be withdrawn company has add 'Limited' or ‘private limited’ in its
name.
ii. Before revocation central government must give written notice & opportunity to be heard
iii. If opportunity to be heard is unreasonable than central government may pass direct
order to wound up or amalgamated with other company registered under this section
having similar objective.
iv. If on the winding up or dissolution of a company registered under this section, there
remains, after the satisfaction of its debts and liabilities, any asset, they may be
transferred to another company registered under this section and having similar objects,
subject to such conditions as the Tribunal may impose, or may be sold and proceeds
thereof credited to the Insolvency and Bankruptcy Fund formed under section 224 of
the Insolvency and Bankruptcy Code, 2016.
9. Penalty/ punishment in contravention: If a company makes any default in complying with
any of the requirements laid down in this section, the company shall, be punishable with:
• Fine varying from ten lakh rupees to one crore rupees and
• The directors and every officer of the company who is in default shall be punishable with
imprisonment for a term which may extend to three years or with fine varying from
twenty-five thousand rupees to twenty- five lakh rupees, or with both.
• And where it is proved that the affairs of the company were conducted fraudulently,
every officer in default shall be liable for action under section 447.
10. Exceptions:
• Can call its general meeting by giving a clear 14 days' notice instead of 21 days.
• Requirement of minimum number of directors, independent directors etc. does not apply.
• Need not constitute Nomination and Remuneration Committee and Shareholders
Relationship Committee.
12. Doctrine of Indoor Management
Royal British Bank vs. Turquand
It is also called the turquand rule. It lays down that outsider can’t be expected to have knowledge about
the internal management of co. he is entitled to assumed that all provisions of articles have been
complied with this is opposite of doctrine of constructive notice. As it seeks to protect the outsider
against the Co. – Even the Transaction outside the AOA.
However there are some exceptions to the rule where outsider shall not be protected:-
Exceptions

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(1) If outsider has actual knowledge of irregularity within the company
(2) Negligence – Outsider could have detected the irregularity with ordinary produce yet he
behaved negligently. The benefit under this rule shouldn’t be available.
(3) Forgery & Nullity – Forgery is a nullity. A co. Can’t be held responsible for the forgery Committed
by his ordinary officer. Therefore any document is forged by an officer of co. then there will be
no liability for the company.
However if forgery is committed by an officer with authority (Managing director) than co. shall be liable
& outsider shall be protected.
13. Doctrine of Constructive Notice
After incorporation & Submission of document to ROC. MOA & AOA are deemed Public documents
under Sec 399.
Any person entering into contract with company is deemed to have knowledge of the objects
mentioned in the MOA.
If outsiders deal with the co. in transaction outside the MOA {Ultra – Vires} them he can’t sue the co.
This doctrine protects the company against the outside.
14. Doctrine of ultra vires
Ultra vires means outside the rules.
There are 4 kinds of ultra vires transaction.

Outside the Outside the Outside the Outside the

BOD AOA MOA Act

Can be ratified by shareholders in Altogether VOID

general meeting ratified even by can’t be entire
shareholders

15. EFFECT OF ULTRA VIRES TRANSACTION

1. The transaction is VOID-AB-INTIO.
Case Law: - Ashbury Railway Co. vs. Riche
2. Directors become joining & severally liable for the debts of the company.
3. The privileges of Limited liability & separate legal entity are lost.
4. Outsider can get injunction order from the court if the money is not yet been spent.
Case Law: - German date coffee Ltd.
Case Law: - Egyptian Salt Co.
16. SUBSIDIARY COMPANY NOT TO HOLD SHARES IN ITS Holding COMPANY [SECTION 19]
No Company shall either by itself or through its nominees, hold any share in its holding company & no
holding company shall allot or transfer its share to any of its subsidiary co (s) & any such allotment or
transfer of Shares Of Co. to its subsidiary company shall be void.
Provided that nothing in this sub-section shall apply to a case—

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i) Subsidiary Holds such share :
(a) As the legal representative of a decreased member of holding co.
(b) As trusts
(c) Where the subsidiary co. is an S/H even before it become a subsidiary co. of the holding
co.
ii) The reference in this section to the shares of a holding company which is a company limited by
guarantee or an unlimited company, not having a share capital, shall be construed as a
reference to the interest of its members, whatever is the form of interest.
Example: RPIP Ltd. has invested 51% in the shares of SSP Pvt. Ltd. on 31 March 2017. SSP Pvt. Ltd. has
been holding 2% equity of RPIP Ltd since 2011. SSP Pvt. Ltd. Cannot increase its equity beyond that
2% on or after 31 March 2017. However, it could continue to hold or reduce its initial 2% stake.
17.SERVICE OF DOCUMENTS [SECTION 20]
Section 20 of the Companies Act, 2013, provides the mode in which documents may be served on the
company, on the members and also on the registrars.
(i) Serving of document to company: A document may be served on a company or an officer
thereof by sending it to the company or the officer at the registered office of the company by-
Registered post, or
Speed post, or
Courier service, or
Leaving it at its registered office, or
Means of such electronic or other mode as may be prescribed
(ii) Serving of document to registrar or member: Save as provided in this Act or the rules made
there under for filing of documents with the Registrar in electronic mode, a document may be
served on Registrar or any member by sending it to him by—
Post, or Registered post, or Speed post, or Courier, or
By delivering at his office or address, or
By such electronic or other mode as may be prescribed.
[Electronic means includes fax, email etc.]
[However, a member may request for delivery of any document through a particular mode, for which he
shall pay such fees as may be determined by the company in its annual general meeting.]
[Delivery by post, such service shall be deemed to have been effected for notice of a meeting, at the
fixed duration of 48 hours after the posted & in any other case, at the time at which the letter would be
delivered in the ordinary course of post.]
18. COMMENCEMENT OF BUSINESS ETC. [SECTION 10A]
As per Sec 10A of Companies Act, 2013
(1) A company incorporated after the commencement of the Companies (Amendment) Ordinance,
2019 and having a share capital shall not commence any business or exercise any borrowing
powers unless—
(a) A declaration is filed by a director within 180 days of the date of incorporation of the
company in prescribed form & must be verified with the Registrar that every subscriber
to the MOA has paid the value of the shares agreed to be taken by him on the date of
making of such declaration

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Faculty : CA Rachna Parakh Dubey
(b) The company has filed with the Registrar a verification of its registered office as provided
in sub-section (2) of section 12.
If any default is made in complying with the requirements of this section, the company shall be liable to
a penalty.

Extra point if you write to note down any please do –

Important Question Bank

Q.1 XY Ltd. has its registered office at Mumbai in the State of Maharashtra. For better administrative
conveniences the company wants to shift its registered office from Mumbai to Pune (Within the
State of Maharashtra, but from Mumbai ROC to Pune ROC). What formalities the company has to
comply with under the provisions of the Companies Act, 2013 for shifting its registered office as
stated above ? Explain. (MODULE)
[Hint : Company will have to seek approval of Regional director under section 12, It doesn’t
result in the alteration in MOA because state is same. Copy of Board resolution, Special
resolution & Approval of regional director must be sent to both the ROCs.]
Q.2 The persons (not being members) dealing with the company are always protected by the
doctrine of indoor management. Explain. Also, explain when doctrine of Constructive Notice will
apply. (MODULE)
[Hint : Explain Doctrine of Indoor management & Doctrine of constructive notice. Doctrine of
constructive notice protects company against the outsider, Whereas Doctrine of indoor
management protects protect external member from company]
Q.3 Alfa school started imparting education on 1.4.2010, with the sole objective of providing
education to children of weaker society either free of cost or at a very nominal fee depending
upon the financial condition of their parents. However, on 30th March 2018, it came to
knowledge of the Central Government that the said school was operation by violation the objects
of its objective clause due to which it was granted the status of a section 8 company under the

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Faculty : CA Rachna Parakh Dubey
Companies Act, 2013. Describe what powers can be exercised by the Central Government against
the Alfa School, in such a case ? (MODULE)
[Hint : Section 8 company is one whose basic objective is to promote charitable activities of
commerce, art, science, sports, education, research, social welfare, religion, charity, protection of
environment etc. If any of the condition revoked Central government may pass order to cancel
license & all exemptions shall be withdrawn company has add 'Limited' or ‘private limited’ in its
name. Before revocation central government must give written notice & opportunity to be
heard]
Q.4 The object clause of the Memorandum of Vivek Industries Ltd. empowers it to carry on real -
estate business and any other business that is allied to it. Due to a downward trend in real-
estate business the management of the company has decided t take up the business of Food
processing activity. The company wants to alter its Memorandum, so as to include the Food
Processing Business in its objects clause. Examine whether the company can make such change
as per the provisions of the Companies Act, 2013 ? (MODULE)
[Hint : yes company can make changes in object clause of MOA ]
Q.5 Explain in the light of the provisions of the Companies Act, 2013, the circumstances under which
a subsidiary company can become a member of its holding company. (MODULE)
[Hint : The subsidiary company hold share such as trustees, or as legal representative of
deceased member of holding company or Subsidiary was shareholder in holding company
before becoming its subsidiary. ]
Q.6 Explain the provisions of the Companies Act, 2013 relating to the company even Documents’ on
a company and the members of the company. (MODULE)
[Hint : Section 20 of Companies Act 2013service of documents]
Q.7 Yadav dairy products Private limited has registered its articles along with memorandum at the
time of registration of company in December, 2014. Now directors of the company are of the
view that provisions of articles regarding forfeiture of shares should not be changed except by a
resolution of 90% majority. While as per section 14 of the Companies Act, 2013 articles may be
changed by passing a special resolution only. One of the directors said that they cannot make a
provision against the Companies Act. You are required to advise the company on this matter.
(MODULE)
[Hint : Explain Section 5, Where the articles contain provision of entrenchment , whether made
before formation or by amendment the company shall give notice to ROC in prescribed manner]
Q.8 Anushka security equipments limited is a manufacturer of CCTV cameras. It has raised Rs. 100
crore through public issue of its equity shares for starting one more unit of CCTV camera
manufacturing. It has utilized 10 crores rupees and then it realized that its existing business has
no potential for expansion because government has reduced customs duty on import of CCTV
camera hence imported cameras from china are cheaper than its own manufacturing. Now it
wants to utilize remaining amount in mobile app development business by adding a new object
in its memorandum of association.
Does the Companies Act allow such change of object. If not then what advise will you give to
company. If yes, then give steps to be followed. (MODULE)
[Hint : Yes, but by following provisions covered under section 13 of companies act 2013]
Q.9 Manglu and friends got registered a company in the name of Taxman advisory private limited.
Taxman is a registered trade mark. After 5 years When the owner of trade mark came to know
about the same, it filed an application with relevant authority. Can the company be compelled to
change its name by the owner of trade mark? Can the owner of registered trade mark request
the company and then company changes its name at its discretion? (MODULE)

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Faculty : CA Rachna Parakh Dubey
[Hint : Yes, compile provisions of Compulsory Name Change [Sec 16] or Rectification.]
Q.10 Shri Laxmi Electricals Ltd. (S) is a company is which Hanumaan power suppliers Limited (H) is
holding 60% of its paid up share capital. One of the shareholder of H made a charitable trust and
donated his 1`0% shares in H and Rs. 50 crores to the trust. He appoint 5 as the trustee. All the
assets of the trust are held in the name of S. Can a subsidiary hold shares in its holding company
in this way ? (MODULE)
[Hint : The subsidiary company hold share such as trustees, or as legal representative of
deceased member of holding company or Subsidiary was shareholder in holding company
before becoming its subsidiary. S can hold shares in H in the capacity of a trustee.]
Q.11 Parag Constructions Limited is a leading infrastructure company. One of the directors of the
company Mr. Parag has been singing all construction contracts on behalf of company for many
years. All the parties who ever deal with the company know Mr. Parag very well. Company has
got a very important construction contract from a renowned software company. Parag
constructions will do construction for this site in partnership with a local contractor Firoz bhai.
Mr. Parag signed partnership deed with Firoz bhai on behalf of company because he has an
implied authority. Later in a dispute company denied to accept liability as a partner. Can the
company deny its liability as a partner? (MODULE)
[Hint : deeds executed by him are not binding on the company. Therefore, company can deny its
liability as a partner.]
Q.12 The Board of Directors of Sindhu Limited wants to make some changes and to alter some Clauses
of the Articles of Association which are to be urgently carried out, which include the increase in
Authorized Capital of the company, issue of shares, increase in borrowing limits and increase in
the number of directors. Discuss about the provisions of the Companies Act, 2013 to be followed
for alteration of Articles of Association. RTP NOV 18
(HINT: Company has the power to alter its articles)
Q.13 Vinay and sanjay made a name reservation application accompanied by requisite fee to the
registrar for forming a new private company. The registrar accorded its approval for reservation
of most preferred name vinanjay software private ltd. On 7thJuly, 2018. By which date necessary
documents for incorporation of the company must be submitted to the registrar so that the
reserved name does not get lapsed.
(a) Latest by 20thJuly, 2018
(b) Latest by 27thJuly, 2018
(c) Latest by 4thAugust, 2018
(d) Latest by 4thSeptember, 2018 RTP MAY 19
[Hint: (b)]
Q.14 Vintage security equipment limited is a manufacturer of CCTV cameras. It has raised ₹ 100
crores through public issue of its equity shares for starting one more unit of CCTV camera
manufacturing. It has utilized 10 crores rupees and then it realized that its existing business has
no potential for expansion because government has reduced customs duty on import of CCTV
camera hence imported cameras from china are cheaper than its own manufacturing. Now it
wants to utilize remaining amount in mobile app development business by adding a new object
in its memorandum of association. Does the Companies Act, 2013 allow such change of object. If
not then what advise will you give to company. If yes, then give steps to be followed.RTP NOV 19
(HINT:-Company shall not change its objects for which it raised the money through prospectus
unless a special resolution has been passed)
Q.15 Yadav Dairy Products Private limited has registered its articles along with memorandum at the
time of registration of company in December, 2014. Now directors of the company are of the

Best Classes for XI,XII,CA & CS || Call us on : 9755557307 APT|BHOPAL

Faculty : CA Rachna Parakh Dubey
view that provisions of articles regarding forfeiture of shares should not be changed except by a
resolution of 90% majority. While as per section 14 of the Companies Act, 2013 articles may be
changed by passing a special resolution only. Hence, one of the directors is of the view that they
cannot make a provision against the Companies Act, 2013. You are required to advise the
company on this matter. RTP MAY 20
(HINT: - Company will have to pass a resolution by taking permission of all members and should
give a notice to ROC.)
Q.16 The persons (not being members) dealing with the company are always protected by the
doctrine of indoor management. Explain. Also explain when doctrine of constructive notice will
apply. QP NOV 18
(HINT:- Provision of Doctrine of Indoor Management and exceptions)
Q.17 XY Ltd. has its registered office at Mumbai in the State of Maharashtra. For better administrative
conveniences the company wants to shift its registered office from Mumbai to Pune (within the
State of Maharashtra). What formalities the company has to comply with under the provisions of
the Companies Act, 2013 for shifting its registered office as stated above? Explain. MTP NOV 19
(HINT: - A change in registered office from Mumbai to Pune does not result in the alteration of
AOA and there will be no need for the company to seek the confirmation from the Regional
Director. Presuming that the Registrar will remain the same for the whole state of Maharashtra)

Case Laws
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1. Ashbury Railway Carnage & Iron Company Ltd. v Richie

The object clause of an industrial company contained the following objects besides some other objects:

(a) To make, sell or lend on hire, railway carriages and wagons.

(b) To carry on the business of mechanical engineers and general contractors.

(c) To purchase, lease, work and sell mine, minerals, land and buildings.

The company entered into a contract with Richie, for the financing of a construction of a railway line in
Belgium. The Court held that the word 'general contractors' had to be given a restricted meaning.

Only such contracts could be covered in the term 'general contractors' as are in some way related or
connected with mechanical engineering.

Therefore, the company could not finance the construction of a railway line by alleging that such a business
falls under the business of general contractors.

2. Royal British Bank v Turquand

The articles of a company stated that the directors could borrow money on behalf of the company, if they are
so authorised by a resolution passed by the shareholders in GM.

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Faculty : CA Rachna Parakh Dubey
The directors borrowed money from R without obtaining any authorisation from shareh
the money to the company assuming that the shareholders had authorised the directors to borrow money as
per the requirement of the articles.

It was held that borrowing of money by the directors without any authorisation from the shareholders
amounted to a mere internal irregularity, and since R had no knowledge of such internal irregularity, he would
not be prejudiced by such internal irregularity.

Conclusion

The benefit of doctrine of indoor, management can be availed only if the person dealing with the company –

has the knowledge of the memorandum and articles;

has no knowledge of internal irregularity

3. Howard v Patent Ivory Manufacturing Company

The directors of a company could borrow upto £1,000 without the sanction of members in GM.

The consent of the shareholders was required to borrow in excess of £1,000.

The directors themselves lent £3,500 to the company.

It was held that the directors had the notice of the internal irregularity and therefore the company was liable
to them only for £1,000.

4. Anand Bihari Lal v Dinshaw & company

An accountant of the company entered into a contract on behalf of the company with a third parry to sell the
property of the company.

It was held that the third party could not assume that the accountant was authorised by the company to sell
the property of the company.

Therefore, the third party could not enforce such a contract against the company even though the third party
had acted bonafide. Underwood v Bank of Liverpool

that the bank could not claim the benefit of Turquand's rule, as it ought to have made an inquiry to see
whether the director concerned had the power to do so.

5. Ruben v Great Fingall Consolidated Company

A share certificate was issued under the common seal of the company.

The secretary of the company had signed on the share certificate.

However, the signatures of two directors were also required on it, which were forged by the secretary.

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Faculty : CA Rachna Parakh Dubey

possible for him to determine whether the signatures were genuine or forged and therefore, the certificate
issued to him should be held as valid.

therefore the certificate issued by way of forgery is void. Thus, the certificate was held to be invalid.

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Best Classes for XI,XII,CA & CS || Call us on : 9755557307 APT|BHOPAL

Faculty : CA Rachna Parakh Dubey

Best Classes for XI,XII,CA & CS || Call us on : 9755557307 APT|BHOPAL

Faculty : CA Rachna Parakh Dubey

Best Classes for XI,XII,CA & CS || Call us on : 9755557307 APT|BHOPAL