UNIT – II

FORMATION OF A COMPANY

Formation of a Company – Promoter –Incorporation Documents e-filing –

Memorandum of Association – Contents – Alteration – Legal Effects – Articles of
Association - Certificate of Incorporation – Prospectus – Contents - Kinds –
Liabilities – Share Capital – Kinds – Issue – Alteration – Dividend – Debentures.

FORMATION OF A COMPANY:

The formation of a company involves several key steps and processes to

establish a legal business entity. The specific steps can vary depending on the
jurisdiction and type of company being formed, but the general process can be
outlined as follows:

1. Preliminary Steps

A. Business Idea and Feasibility Study

• Business Idea: Develop a clear and viable business idea.

• Feasibility Study: Conduct market research, financial analysis, and risk
assessment to evaluate the potential success of the business.

B. Business Plan

• Detailed Plan: Create a comprehensive business plan outlining the

business objectives, strategies, financial projections, marketing plan, and
operational details.

2. Choosing the Business Structure

• Types of Structures: Decide on the appropriate legal structure (e.g., sole

proprietorship, partnership, limited liability company (LLC), corporation).
• Considerations: Factors include the level of control, liability, taxation,
and compliance requirements.

3. Legal Requirements and Documentation

A. Company Name

• Selection: Choose a unique and appropriate name for the company.

 • Availability Check: Check the availability of the name with the relevant
business registry.
• Reservation: Reserve the company name, if necessary.

B. Memorandum and Articles of Association

• Memorandum of Association (MoA): Defines the company's scope of

activities, objectives, and relationship with the external world.
• Articles of Association (AoA): Sets out the company's internal rules,
governance, and the rights and responsibilities of directors and
shareholders.

4. Registration Process

A. Filing with the Registrar of Companies

• Required Documents: Prepare and file the necessary documents,

including the MoA, AoA, and other forms as required by the local laws.
• Application: Submit the application for incorporation to the Registrar of
Companies (RoC) or equivalent authority.

B. Fees and Duties

• Payment: Pay the required registration fees and stamp duties.

5. Post-Incorporation Compliance

A. Certificate of Incorporation

• Issuance: Receive the Certificate of Incorporation from the RoC, which

signifies the company's legal existence.

B. Corporate Identity

• Company Seal: Obtain a company seal, if required.

• PAN and TAN: Apply for a Permanent Account Number (PAN) and Tax
Deduction and Collection Account Number (TAN) for tax purposes
(specific to some countries like India).
6. Initial Setup and Operations

A. Bank Account

• Opening: Open a corporate bank account for the company's financial

transactions.

B. Licenses and Permits

• Industry-Specific Licenses: Obtain necessary licenses and permits

specific to the industry and location of the business.

C. Office Setup

• Physical Location: Set up the company’s office, infrastructure, and

technology systems.

7. Raising Capital

A. Initial Funding

• Capital Requirement: Determine the initial capital requirements and

sources of funding.
• Equity and Debt: Arrange for equity financing (e.g., issuing shares) or
debt financing (e.g., loans).

8. Organizational Structure

A. Directors and Officers

• Appointment: Appoint directors, company secretary, and other key

officers as required by the company’s AoA and legal requirements.

B. Employee Hiring

• Recruitment: Hire employees and establish HR policies and procedures.

9. Commencing Business Operations

A. Operational Readiness

• Processes and Systems: Implement operational systems, processes, and

controls to ensure smooth business operations.

B. Marketing and Sales

• Market Entry: Launch marketing and sales initiatives to promote the

company’s products or services.

10. Ongoing Compliance and Governance

A. Annual Filings

• Compliance: Ensure regular compliance with legal requirements,

including annual filings, tax returns, and financial audits.

B. Corporate Governance

• Board Meetings: Conduct regular board meetings and maintain minutes

as required.
• Shareholder Meetings: Hold annual general meetings (AGMs) and other
necessary shareholder meetings.

Conclusion

Forming a company involves a comprehensive process that includes

preliminary planning, legal formalities, and initial setup. By following these
steps, entrepreneurs can establish a legally recognized entity capable of
conducting business and achieving its objectives. Ensuring compliance with
legal requirements and maintaining good corporate governance are essential for
the long-term success of the company.

PROMOTER

A company promoter plays a crucial role in the formation of a company. They

undertake the necessary steps to bring a company into existence and ensure
that it is set up properly. The following steps outline the process of forming a
company promoter:

Steps in the Formation of a Company Promoter

1. Idea Generation and Feasibility Study:

o The promoter comes up with a business idea and conducts a
feasibility study to evaluate the viability of the proposed business.
This includes market research, financial analysis, and risk
assessment.
2. Formation of Business Plan:
o A detailed business plan is developed, outlining the business
objectives, strategies, financial projections, and operational plans.
This plan serves as a roadmap for the company’s future activities.
3. Identifying Key People and Resources:
o The promoter identifies and recruits key personnel, such as
directors, key executives, and other essential staff. They also
arrange the necessary resources, including capital, technology,
and infrastructure.
4. Legal Compliance and Documentation:
o The promoter ensures compliance with all legal requirements for
company formation. This includes choosing an appropriate
business structure (e.g., corporation, limited liability company),
and preparing essential documents such as the Memorandum of
Association (MoA) and Articles of Association (AoA).
o Memorandum of Association (MoA): This document defines the
company’s scope of activities, its relationship with the external
world, and its objectives.
o Articles of Association (AoA): This document outlines the
company’s internal rules and regulations, including the rights and
responsibilities of directors and shareholders.
5. Incorporation Process:
o The promoter files the necessary documents with the relevant
government authorities to formally incorporate the company. This
typically involves submitting the MoA, AoA, and other required
forms to the Registrar of Companies (RoC) in the respective
jurisdiction.
o The promoter pays the required registration fees and stamp duties
during this process.
6. Raising Capital:
 o The promoter arranges for the initial capital required to start the
business. This may involve securing funding from investors,
applying for loans, or arranging for other forms of financing.
7. Registration and Compliance:
o Once the company is incorporated, the promoter ensures that the
company is registered with various authorities such as tax
departments, labor departments, and industry-specific regulatory
bodies.
o They ensure compliance with ongoing legal and regulatory
requirements, such as filing annual returns, maintaining statutory
records, and adhering to tax regulations.
8. Initial Operations Setup:
o The promoter oversees the establishment of initial operations,
including setting up the office, hiring employees, and implementing
operational systems and processes.
9. Handing Over to the Management:
o Once the company is up and running, the promoter may step back
from active involvement in day-to-day operations, handing over the
reins to the appointed management team.
o The promoter may retain a strategic role, such as serving on the
board of directors or as an advisor.

Types of Promoters

• Professional Promoters: These are individuals or firms that specialize in

promoting companies. They may work for a fee or a stake in the
company.
• Occasional Promoters: These are individuals who promote a company
only occasionally and not as a regular profession.
• Financial Promoters: These are financial institutions or banks that
promote companies by providing the necessary financial support.
• Entrepreneur Promoters: These are individuals who come up with the
business idea and take the initiative to start the company.

Role and Duties of a Promoter

• Conceptualization: Coming up with the idea for the company and

developing a viable business model.
• Fundraising: Arranging the necessary capital to start and run the
business.
 • Legal Formalities: Ensuring all legal requirements are met and proper
documentation is filed.
• Recruitment: Identifying and hiring key personnel.
• Initial Management: Overseeing the initial setup and operations of the
company.
• Transparency and Accountability: Acting in good faith and in the best
interests of the company, disclosing any personal interest in transactions
involving the company.

Conclusion

The role of a promoter is multifaceted and crucial for the successful formation
and initial operation of a company. Their efforts lay the foundation for the
company's future growth and development. By following the steps outlined
above, a promoter ensures that the company is legally compliant, financially
sound, and well-prepared to commence operations.

INCORPORATION DOCUMENTS E-FILLING

Incorporation of a company involves preparing and filing various documents

with the relevant government authorities to legally establish the company. The
specific documents and forms required can vary depending on the jurisdiction,
but generally include the following key documents:

Key Incorporation Documents

10. Memorandum of Association (MoA)

o Defines the company’s purpose, scope of activities, and its
relationship with the external world.
o Includes the company name, registered office address, liability of
members, share capital, and the objectives of the company.
11. Articles of Association (AoA)
o Outlines the company's internal management and governance
rules.
o Includes regulations for company operations, duties of directors,
and procedures for meetings and voting.
12. Incorporation Form
 o The specific form varies by jurisdiction (e.g., Form INC-32 in India,
Form 1 in Canada).
o Includes basic details about the company such as name, address,
directors, shareholders, and share capital.
13. Declaration of Compliance
o A statement confirming that all legal requirements for
incorporation have been complied with.
o Typically signed by a director, company secretary, or a professional
such as a lawyer or accountant.
14. Consent to Act as Director
o A written consent from each director confirming their willingness
to act as a director of the company.
o Often required to be submitted as a separate form or included
within the incorporation form.
15. Registered Office Address
o The official address of the company where legal documents can be
served.
o Proof of address may be required, such as a lease agreement or
utility bill.
16. Directors and Shareholders Information
o Detailed information about the initial directors and shareholders,
including their names, addresses, and identification.
17. Statement of Capital
o Details about the company's share capital, including the number
of shares, types of shares, nominal value, and details of
shareholders.
18. Identification and Address Proof of Directors and Shareholders
o Copies of identification documents (e.g., passport, driver’s license)
and address proof for each director and shareholder.
19. Fee Payment
o Payment of the required incorporation fees and stamp duties.

E-Filing Process

Most jurisdictions now support electronic filing (e-filing) of incorporation

documents through online portals. Here's a general overview of the e-filing
process:

20. Create an Account

o Register for an account on the relevant government e-filing portal
(e.g., Companies House in the UK, MCA21 in India).
 21. Fill Out Online Forms
o Complete the required forms online, providing all necessary details
about the company, directors, and shareholders.
22. Upload Documents
o Upload scanned copies of the required documents, such as MoA,
AoA, identification proofs, and consent forms.
23. Payment of Fees
o Pay the incorporation fees online using the available payment
methods.
24. Review and Submit
o Review all the information and documents for accuracy.
o Submit the application for incorporation.
25. Acknowledgment and Tracking
o Receive an acknowledgment of the submission.
o Track the status of the application through the e-filing portal.
26. Issuance of Certificate of Incorporation
o Once the application is approved, receive the Certificate of
Incorporation, which confirms the legal existence of the company.

Jurisdiction-Specific Forms

United States (Delaware Example)

• Certificate of Incorporation: Main document filed with the Delaware

Division of Corporations.
• Cover Letter: Sometimes required for filing instructions.
• Filing Fee: Payment made to the Delaware Division of Corporations.

United Kingdom

• Form IN01: Application to register a company, including company

details, director and shareholder information.
• Memorandum of Association
• Articles of Association
• Fee Payment: Done online via Companies House.

India

• Form SPICe (INC-32): Simplified Proforma for Incorporating Company

Electronically.
 • Form DIR-2: Consent to act as a director.
• Form INC-9: Declaration by subscribers and directors.
• MoA and AoA: In prescribed electronic format.

Conclusion

Filing incorporation documents electronically streamlines the company

formation process, making it more efficient and accessible. It's essential to
ensure that all required documents are accurately completed and submitted to
avoid delays in the incorporation process. Consulting with legal or professional
advisors can help ensure compliance with all jurisdiction-specific
requirements.

MEMORANDUM OF ASSOCIATION

The Memorandum of Association (MoA) is a critical document in the formation

of a company. It serves as the company’s charter, outlining its scope,
objectives, and the relationship with its shareholders and the external
environment. Here is a detailed look at the components and significance of the
MoA:

Components of the Memorandum of Association

27. Name Clause:

o Specifies the legal name of the company.
o The name must be unique and not misleading or too similar to
existing company names.
o The suffix “Limited” or “Ltd.” must be included for limited
companies, and “Private Limited” or “Pvt. Ltd.” for private limited
companies.
28. Registered Office Clause:
o States the physical location of the company's registered office.
o This address is where all official correspondence and legal notices
are sent.
o The jurisdiction of the company's registration is also determined by
this address.
29. Object Clause:
o Describes the primary objectives and activities the company
intends to pursue.
o Includes both main objects (the principal activities) and ancillary
objects (activities supporting the main objectives).
 o Companies are restricted to activities within these stated objectives
unless they amend the MoA.
30. Liability Clause:
o Defines the liability of the company's members.
o In the case of a limited liability company, this clause specifies that
the members' liability is limited to the amount unpaid on their
shares.
31. Capital Clause:
o Specifies the company’s authorized share capital, the total capital
with which the company is registered.
o Details the number and types of shares, along with their nominal
value.
32. Association or Subscription Clause:
o Includes a declaration by the initial subscribers (founding
members) of the company.
o Each subscriber agrees to take at least one share in the company
and must sign the memorandum.

Importance of the Memorandum of Association

• Defines Scope: The MoA clearly outlines the scope of activities the
company can undertake, providing a framework within which the
company operates.
• Legal Foundation: It serves as a legal document that governs the
company's external activities and relationships.
• Investor Confidence: Potential investors and stakeholders can
understand the company's purpose and limitations, fostering
transparency and trust.
• Regulatory Compliance: The MoA ensures that the company adheres to
the regulations and laws applicable in its jurisdiction.

Drafting the Memorandum of Association

When drafting the MoA, it is essential to ensure accuracy, completeness, and

compliance with the legal requirements of the jurisdiction. Here is a step-by-
step guide to drafting the MoA:

33. Choose a Unique Name:

o Conduct a name search to ensure the proposed name is available
and complies with naming regulations.
34. Define the Registered Office:
 o Provide a precise address for the company's registered office.
35. State the Objects Clearly:
o Draft the object clause with clear and specific language, covering
both main and ancillary objectives.
o Ensure the objects are lawful and within the regulatory framework.
36. Detail the Liability:
o Clearly specify the type and extent of liability for the company’s
members.
37. Specify the Capital:
o Define the authorized share capital, including the number and
types of shares, and their nominal value.
38. Prepare the Subscription Clause:
o List the names, addresses, and signatures of the initial
subscribers, along with the number of shares each subscriber
agrees to take.

Example of a Memorandum of Association

Here is a simplified example of an MoA for a hypothetical private limited

company:

MEMORANDUM OF ASSOCIATION

1. Name Clause: The name of the company is "ABC Private Limited."

2. Registered Office Clause: The registered office of the company will be

situated in the State of [State Name], at [Complete Address].

3. Object Clause:

• Main Objects:
a. To carry on the business of manufacturing, importing, exporting,
and trading of electronic gadgets and accessories.
• Ancillary Objects:
b. To acquire, establish, and operate warehouses and distribution
centers for the storage and dispatch of electronic gadgets.
c. To undertake market research and promotional activities for the
sale of electronic gadgets.
4. Liability Clause: The liability of the members is limited to the amount
unpaid, if any, on the shares held by them.

5. Capital Clause: The authorized share capital of the company is $1,000,000,

divided into 100,000 equity shares of $10 each.

6. Association Clause: We, the several persons whose names, addresses, and
descriptions are subscribed below, are desirous of being formed into a company
in pursuance of this Memorandum of Association, and we respectively agree to
take the number of shares in the capital of the company set opposite our
respective names.

Descriptio Number of Shares

Name Address
n Taken
123 Street, City, Businessm
John Doe 10,000
State an
Jane 456 Avenue, City, Entreprene
10,000
Smith State ur

Conclusion

The Memorandum of Association is a foundational document that defines the

company's constitution, its purpose, and its relationship with shareholders and
the outside world. It must be carefully drafted to ensure clarity, legality, and
compliance with jurisdictional requirements.

ALTERATION OF MEMORANDUM OF ASSOCIATION

The alteration of the Memorandum of Association (MoA) and its legal effects in
company law are significant aspects of corporate governance. Changes to the
MoA can impact a company's operations, objectives, and its interactions with
shareholders and regulatory authorities. Below are the details regarding the
process and legal implications of altering the MoA.

Alteration of the Memorandum of Association

Reasons for Alteration

Companies may need to alter their MoA for various reasons, including:
 39. Change in Business Activities: Expanding or altering the scope of
the company’s objectives.
40. Change of Name: Updating the company’s name.
41. Change of Registered Office: Moving the registered office to a
different jurisdiction or location.
42. Increase in Share Capital: Raising the authorized share capital to
issue more shares.
43. Change in Liability: Modifying the extent of liability of the
members.

Legal Provisions and Process

The process for altering the MoA varies by jurisdiction, but generally includes
the following steps:

44. Board Resolution:

o The Board of Directors must pass a resolution proposing the
alteration.
o A board meeting is convened to discuss and approve the proposed
changes.
45. Special Resolution:
o The proposed alteration must be approved by the shareholders
through a special resolution.
o A special resolution typically requires a supermajority (e.g., 75% of
the votes) at a general meeting of shareholders.
o Proper notice of the meeting and the proposed changes must be
given to all shareholders.
46. Filing with Regulatory Authorities:
o After approval by the shareholders, the company must file the
amended MoA with the relevant regulatory authority (e.g., the
Registrar of Companies).
o Necessary forms, documents, and filing fees must be submitted.
47. Approval and Registration:
o The regulatory authority reviews the submitted documents.
o Upon approval, the changes are registered, and the altered MoA
becomes effective.
Specific Jurisdiction Examples

United Kingdom

• Companies Act 2006: Governs the alteration of the MoA.

• Special Resolution: Required for most alterations, particularly for
changing the company name, objects, or share capital.
• Form Submission: Relevant forms (e.g., Form NM01 for name change)
must be filed with Companies House.

India

• Companies Act 2013: Provides the legal framework for altering the MoA.
• Special Resolution: Necessary for changes in the company’s name,
registered office, objects, and share capital.
• Forms: Forms such as MGT-14 (filing resolutions) and INC-24 (name
change) must be filed with the Ministry of Corporate Affairs.

Legal Effects of Altering the MoA

Impact on Company Operations

48. Change in Scope of Activities:

o Altering the object clause can expand or restrict the activities a
company can legally engage in.
o This can open new business opportunities or focus the company
on specific areas.
49. Impact on Shareholders:
o Changes such as increasing share capital can dilute existing
shareholders' equity.
o Alterations may affect shareholder rights and obligations.
50. Legal Compliance:
o Companies must ensure that the alterations comply with
applicable laws and regulations.
o Non-compliance can lead to legal penalties or invalidation of the
changes.
51. Public Disclosure:
o Alterations must be publicly disclosed, maintaining transparency
with stakeholders, including investors, creditors, and regulatory
bodies.
 52. Contractual Obligations:
o Contracts and agreements based on the original MoA may need to
be reviewed and potentially renegotiated to reflect the changes.
o This is particularly relevant for long-term contracts where the
scope of business activities is specified.

Conclusion

Altering the Memorandum of Association is a significant legal action that

requires careful consideration, adherence to legal requirements, and
appropriate approvals. The process ensures that changes are transparent,
approved by shareholders, and compliant with regulatory standards. The legal
effects of such alterations can have broad implications for the company’s
operations, governance, and relationships with stakeholders. Therefore,
companies must approach MoA alterations with diligence and legal expertise.

ARTICLE OF ASSOCIATION

The Articles of Association (AoA) is a crucial document that outlines the

internal governance, management, and administrative procedures of a
company. It complements the Memorandum of Association (MoA) and is
essential for the smooth operation and regulation of a company's affairs.

Key Components of the Articles of Association

53. Preliminary
o Definitions and interpretations of terms used in the Articles.
o Company's name and registered office.
54. Share Capital and Variation of Rights
o Details of the company's share capital structure.
o Procedures for issuing, allotting, and transferring shares.
o Rights attached to different classes of shares.
o Process for altering share rights and dealing with share
certificates.
55. Lien on Shares
o Company’s rights to retain possession of shares if the shareholder
owes the company money.
56. Calls on Shares
o Procedures for making calls on unpaid share capital.
o Consequences of non-payment of calls.
57. Forfeiture of Shares
 o Circumstances and procedures under which shares can be
forfeited for non-payment of calls or other dues.
58. Transfer and Transmission of Shares
o Rules governing the transfer of shares between shareholders.
o Procedures for the transmission of shares due to death,
bankruptcy, or incapacity of a shareholder.
59. Alteration of Share Capital
o Procedures for increasing, consolidating, subdividing, or cancelling
share capital.
o Regulations for buying back shares.
60. General Meetings
o Procedures for calling and conducting annual general meetings
(AGMs) and extraordinary general meetings (EGMs).
o Notice requirements, quorum, voting procedures, and minutes.
61. Proceedings at General Meetings
o Detailed rules for conducting business at general meetings.
o Appointment and duties of the chairman, proxies, and voting
rights.
62. Directors
o Appointment, qualifications, remuneration, and removal of
directors.
o Powers, duties, and proceedings of the board of directors.
o Delegation of powers and committees.
63. Meetings of the Board of Directors
o Procedures for convening and conducting board meetings.
o Quorum, voting, and minutes of board meetings.
64. Dividends and Reserves
o Declaration and payment of dividends.
o Creation and utilization of reserves.
65. Accounts and Audits
o Maintenance of books of accounts.
o Preparation and distribution of financial statements.
o Appointment and duties of auditors.
66. Borrowing Powers
o Powers of the board to raise or borrow money.
o Issuance of debentures and other securities.
67. Winding Up
o Procedures for the voluntary or compulsory winding up of the
company.
o Distribution of remaining assets among shareholders.
 68. Indemnity and Insurance
o Indemnification of directors and officers against liabilities.
o Provision for insurance.

Importance of the Articles of Association

69. Internal Governance: The AoA outlines the rules for managing the
company, ensuring that there is a clear framework for decision-making
and governance.
70. Rights and Responsibilities: Defines the rights, responsibilities,
and powers of directors, officers, and shareholders, thereby preventing
conflicts and misunderstandings.
71. Operational Efficiency: Provides detailed procedures for the
company's operations, from conducting meetings to issuing shares, thus
facilitating smooth and efficient management.
72. Legal Compliance: Helps ensure that the company complies with
applicable laws and regulations by providing a structured framework for
governance and operations.
73. Stakeholder Confidence: Enhances transparency and builds
confidence among investors, creditors, and other stakeholders by clearly
outlining the company's governance

policies and procedures.

Drafting the Articles of Association

When drafting the Articles of Association, it is essential to tailor the document

to the specific needs and circumstances of the company while ensuring
compliance with legal requirements. Here is a general guide to drafting the
AoA:

74. Legal Compliance: Ensure that the Articles comply with the
jurisdiction’s corporate laws and regulations. It is advisable to consult
legal professionals to draft or review the AoA.
75. Customization: While many jurisdictions provide model Articles of
Association, it is important to customize them to reflect the company’s
specific needs, objectives, and operational procedures.
76. Clarity and Precision: Use clear and precise language to avoid
ambiguities. Clearly define all terms and conditions to prevent
misunderstandings.
 77. Flexibility: Incorporate provisions that allow flexibility in
management and operations, such as the ability to amend the AoA with
shareholder approval.
78. Detailed Provisions: Include detailed provisions for all critical
aspects of the company's governance and operations, covering share
capital, meetings, directorial powers, and financial management.

Example of Articles of Association

Below is a simplified example of Articles of Association for a hypothetical

private limited company:

ARTICLES OF ASSOCIATION

of

XYZ Private Limited

1. Preliminary

1.1 The regulations contained in Table A in the First Schedule to the

Companies Act, [Year], shall not apply to the company except as expressly
incorporated herein. 1.2 In these Articles:

• "Act" means the Companies Act, [Year], and any statutory modification
thereof.
• "Articles" means these Articles of Association or as amended from time to
time by special resolution.

2. Share Capital and Variation of Rights

2.1 The authorized share capital of the company is $1,000,000 divided into
100,000 equity shares of $10 each. 2.2 Subject to the provisions of the Act, the
company may increase, consolidate, subdivide, or cancel its share capital by
ordinary resolution.

3. Transfer of Shares

3.1 Shares of the company shall be freely transferable, subject to the

provisions of these Articles and any restrictions imposed by law. 3.2 The
instrument of transfer must be executed by or on behalf of the transferor and
transferee.

4. General Meetings

4.1 The company shall hold an annual general meeting within six months of
the end of each financial year. 4.2 An extraordinary general meeting may be
called by the Board of Directors or upon a requisition of members holding not
less than one-tenth of the paid-up share capital.

5. Proceedings at General Meetings

5.1 No business shall be transacted at any general meeting unless a quorum of

members is present at the time when the meeting proceeds to business. The
quorum for general meetings shall be two members present in person or by
proxy. 5.2 Resolutions at general meetings shall be decided by a show of hands
unless a poll is demanded.

6. Directors

6.1 The number of directors shall not be less than two and not more than
twelve. 6.2 Directors shall be appointed by ordinary resolution of the
shareholders at a general meeting. 6.3 The directors may from time to time
appoint one or more of their number to be the managing director or whole-time
director of the company.

7. Dividends and Reserves

7.1 The company in general meeting may declare dividends, but no dividend
shall exceed the amount recommended by the Board of Directors. 7.2 The
Board may, before recommending any dividend, set aside out of the profits of
the company such sums as they think proper as a reserve.

8. Accounts and Audit

8.1 The Board shall cause proper books of accounts to be maintained. 8.2
Auditors shall be appointed and their duties regulated in accordance with the
provisions of the Act.
9. Winding Up

9.1 If the company is wound up, the liquidator may, with the sanction of a
special resolution, divide among the members in specie or kind the whole or
any part of the assets of the company.

10. Indemnity and Insurance

10.1 Subject to the provisions of the Act, every director and officer of the
company shall be indemnified by the company against, and it shall be the duty
of the directors out of the funds of the company to pay all costs, losses, and
expenses which any such director or officer may incur or become liable for by
reason of any contract entered into or act or deed done by him as such director
or officer in the discharge of his duties.

Conclusion

The Articles of Association are vital for setting the framework of a company’s
internal governance and management. Proper drafting and periodic review of
the AoA are essential to ensure that it continues to meet the needs of the
company and complies with current laws. Legal advice and customization to
reflect the specific nature of the business are crucial to crafting effective and
compliant Articles of Association.

Certificate of Incorporation

The Certificate of Incorporation is a legal document issued by a government

authority or a registrar of companies upon the formation of a company. It
serves as proof that the company has been legally incorporated and exists as a
separate legal entity.

Key Contents:

• Company Name: The official name of the company.

• Registration Number: A unique identifier assigned to the company.
• Date of Incorporation: The date on which the company was
incorporated.
• Type of Company: Specifies whether the company is a private limited
company, public limited company, etc.
 • Registered Office Address: The official address of the company’s
registered office.
• Company Seal: An official seal or stamp of the issuing authority.

Significance:

• Legal Existence: Confirms that the company is legally recognized and

can engage in business activities.
• Perpetual Succession: Indicates that the company has a continuous
existence independent of its members or owners.
• Limited Liability: Establishes the company’s status, which typically
includes limited liability for its shareholders.

Prospectus

A prospectus is a formal document issued by a company intending to offer its

shares or other securities to the public. It provides detailed information about
the company and the securities being offered to help investors make informed
decisions.

Key Contents:

• Company Background: Information about the company’s history,

mission, and objectives.
• Business Description: Details about the company’s operations,
products, and services.
• Financial Information: Financial statements, including profit and loss
accounts, balance sheets, and cash flow statements.
• Management Team: Information about the company’s directors,
management, and key personnel.
• Risk Factors: Disclosure of potential risks associated with the
investment.
• Use of Proceeds: How the funds raised from the securities offering will
be used.
• Legal Matters: Any legal issues or proceedings involving the company.
• Details of the Offering: Information about the securities being offered,
including price, number of shares, and terms of the offering.
• Underwriting Arrangements: Information about the underwriters
involved in the offering.
Kinds of Prospectus

79. Red Herring Prospectus:

o Issued during the initial public offering (IPO) process.
o Contains most of the information about the company but does not
include the price or number of shares being offered.
80. Abridged Prospectus:
o A summary of the full prospectus.
o Provided to investors to give a quick overview of the offering and
the company.
81. Shelf Prospectus:
o Used by companies to issue multiple securities over a period
without the need to issue a separate prospectus for each offering.
o Typically valid for one year.
82. Deemed Prospectus:
o Applies to documents that are not officially called prospectuses but
are deemed to be so under the law because they offer securities to
the public.

Liabilities Related to a Prospectus

Civil Liabilities:

83. Misstatements: If the prospectus contains false or misleading

information, those who have invested based on the prospectus can sue
the company, directors, promoters, and other responsible parties for
compensation.
84. Omission of Material Facts: Failure to disclose material
information can lead to civil lawsuits from investors seeking damages.

Criminal Liabilities:

85. Fraud: If the prospectus is found to be fraudulent, the responsible

parties (including directors and promoters) can face criminal charges,
including fines and imprisonment.
86. Negligence: Issuing a prospectus with reckless disregard for the
truth can lead to criminal penalties.
Regulatory Liabilities:

87. Non-Compliance: Failing to comply with the legal requirements for

issuing a prospectus can result in penalties from regulatory authorities
such as fines, sanctions, and restrictions on future offerings.
88. Investor Protection Laws: Violations of securities laws designed
to protect investors can lead to enforcement actions by regulatory bodies.

Conclusion

The Certificate of Incorporation and the prospectus are fundamental

documents in company law, each serving distinct but essential roles. The
Certificate of Incorporation signifies the legal existence and identity of the
company, while the prospectus provides necessary information to potential
investors, ensuring transparency and informed decision-making. The liabilities
associated with the prospectus underscore the importance of accuracy,
honesty, and compliance in financial disclosures and offerings.

Share Capital

Share Capital refers to the amount of money that a company raises by issuing
shares to investors. It represents the equity investment in the company and
forms a significant part of its funding.

Kinds of Share Capital

89. Authorized Share Capital:

o The maximum amount of capital that a company is authorized to
issue as stated in its Memorandum of Association.
o Can be increased with shareholder approval and compliance with
regulatory requirements.
90. Issued Share Capital:
o The portion of authorized capital that has actually been issued to
shareholders.
o Represents the nominal value of shares issued to investors.
91. Subscribed Share Capital:
o The part of the issued share capital that has been subscribed
(taken up) by shareholders.
o Reflects the investors' commitment to pay for the shares.
92. Paid-up Share Capital:
 o The amount of money that shareholders have actually paid to the
company for their shares.
o Represents the actual funds received by the company from
shareholders.
93. Called-up Share Capital:
o The portion of subscribed capital that the company has called for
payment from shareholders.
o Can be equal to or less than the subscribed capital.
94. Uncalled Share Capital:
o The portion of subscribed capital that has not yet been called for
payment.
o Represents potential future calls on shareholders to pay for their
shares.

Issue of Share Capital

95. Initial Public Offering (IPO):

o The first time a company offers its shares to the public.
o Used to raise significant capital and often involves listing on a
stock exchange.
96. Rights Issue:
o Shares are offered to existing shareholders in proportion to their
current holdings.
o Allows current shareholders to maintain their ownership
percentage.
97. Bonus Issue:
o Free shares issued to existing shareholders from the company’s
reserves.
o Does not raise new capital but increases the number of shares.
98. Private Placement:
o Shares are offered to a select group of investors rather than the
general public.
o Often used to raise capital quickly and with fewer regulatory
requirements.
99. Preferential Allotment:
o Shares are allotted to specific investors at a preferential price.
o Can include strategic partners, institutional investors, or other
entities.
Alteration of Share Capital

100. Increase in Share Capital:

o The company can increase its authorized share capital with
shareholder approval and regulatory compliance.
o Enables the company to issue more shares in the future.
101. Consolidation of Shares:
o Combining smaller shares into larger ones.
o Reduces the number of shares and increases the nominal value of
each share.
102. Subdivision (Stock Split):
o Splitting existing shares into smaller units.
o Increases the number of shares and decreases the nominal value
of each share.
103. Reduction of Share Capital:
o Decreasing the company’s share capital by canceling unissued
shares or repurchasing and canceling existing shares.
o Requires approval from shareholders and, in many jurisdictions, a
court order.

Dividend

Dividend is a portion of the company's earnings distributed to shareholders as

a return on their investment.

Types of Dividends:

104. Interim Dividend:

o Declared and paid before the finalization of annual accounts.
o Typically decided by the board of directors.
105. Final Dividend:
o Declared at the end of the financial year based on the company’s
performance.
o Requires approval from the shareholders at the annual general
meeting (AGM).
106. Special Dividend:
o One-time distribution of profits, often resulting from extraordinary
gains or surplus cash.
o Not part of regular dividend policy.
107. Stock Dividend (Bonus Shares):
o Payment made in the form of additional shares rather than cash.
 o Increases the number of shares held by each shareholder.
108. Cash Dividend:
o Payment made in cash to shareholders.
o Directly impacts the company’s cash reserves.

Debentures

Debentures are long-term debt instruments issued by a company to borrow

money. They are typically unsecured and rely on the issuer’s creditworthiness
and reputation.

Types of Debentures:

109. Convertible Debentures:

o Can be converted into equity shares at the option of the debenture
holder.
o Provides an opportunity for debenture holders to participate in the
company's equity.
110. Non-Convertible Debentures (NCDs):
o Cannot be converted into equity shares.
o Offer higher interest rates to compensate for the lack of conversion
option.
111. Secured Debentures:
o Backed by the company’s assets as collateral.
o In case of default, debenture holders have a claim on the assets.
112. Unsecured Debentures:
o Not backed by any specific assets.
o Rely on the issuer’s creditworthiness, often carrying higher interest
rates due to higher risk.
113. Redeemable Debentures:
o Have a specified maturity date on which the principal amount will
be repaid.
o Can be redeemed at the end of the term or earlier if callable by the
issuer.
114. Irredeemable (Perpetual) Debentures:
o Do not have a fixed maturity date.
o Provide interest payments indefinitely, unless the company decides
to redeem them.