COMPANY LAW

UNIT 2 : FORMATION AND INCORPORATION DOCUMENTS

PROMOTION
PROMOTION involves
• discovery of idea\ business opportunity
• investigation of the feasibility of the idea
• assembling of business elements i.e organising funds,property, and managerial ability into a
business concern
Person who does all this preliminary work is called PROMOTER. Sec.2(69) of Companies Act 2013
defines promoter. According to the definition, a promoter means a person
• has been named as such in the Prospectus or in the Annual Return
• Who has control over the affairs of the company directly or indirectly, whether as shareholder or
director or otherwise
• on whose advice, directions or instructions the BOD is accustomed to act.
The proviso to this section says that the persons assisting the promoter in professional capacity
,e.g.as solicitors, accountants, counsels, experts ..are not promoters. A promoter may be
individual, a firm , an association of persons or even a company.
LEGAL POSITION OF A PROMOTER
• A promoter is neither trustee nor agent of the company as there is no trust or principal in existence
during promotional stage
• He stands in fiduciary relationship( position of utmost good faith, trust and confidence) towards the
company. So he must act in the best interest of the proposed company.
Therefore A PROMOTER MUST MAKE FULL DISCLOSURE OF ALL MATERIAL FACTS TO AN INDEPENDENT
BODY OF DIRECTORS OR SHAREHOLDERS i.e.-must not make SECRET PROFITS (law doesnot prohibit
making of profits, it prohibits nondisclosure of it) and the disclosure should be made to independent
board of directors\shareholders.
Case-Gluckstein vs. Barnes- There was a company called Olympia which was in a very bad shape at that
time. Few persons formed a syndicate with an intention to purchase Olympia . They first bought the
debentures of Olympia at a discount and sometime later purchased the Olympia itself for pounds140,000.
Out of this money provided by themselves the debentures were repaid in full and a profit of
pounds20,000 was made by them. Then they formed a new company and sold Olympia to it for pounds
180,000. The profit of pounds 40000 was revealed in the prospectus but not the profit of pounds 20000.
It was held that profit of pounds 20000 was a secret profit made by the promoters of the company and
they were bound to repay it to the company. Promoters argued that they had in fact made a proper
disclosure of that pounds 20000 also to the directors of the company but this was turned down on the
plea that disclosure made by them in the capacity of vendors to themselves in the capacity of directors
was not sufficient. The disclosure ought to have been made to an independent board or to all the
shareholders by means of a prospectus.
 Promoters Liability
1. If secret profit is made by promoter, then the company can
✓ recover it from promoter along with interest, or,
✓ the company can set aside that transaction, restore the property back to the promoter
and recover its money
✓ company can sue him for damages for his fraud or breach of fiduciary duties
2. Liability on Preliminary Contracts
✓ the promoter is personally held liable on preliminary contracts\preincorporation contracts
3.Fraud in formation of the company.
✓ liable for fraud u\s 447- If at the time of promotion of a company, the promoter furnishes
any false \incorrect information suppresses any material information knowingly
4. Misrepresentation in Prospectus
✓ he is liable to original allottees of shares for misstatements\misrepresentations in
prospectus.(civil as well as criminal liability u\s 35 and 34 respectively ) Accordingly he
would be liable to penalty in the form of damages or imprisonment or fine.
PROMOTERS REMUNERATION .
A promoter puts in lot of efforts and incurs several expenses in the process of formation of
company . So he deserves the reimbursement of preliminary expenses incurred by him as well
as some remuneration for the work done . However, there is no contractual obligation on the
part of the company to pay him for these and a promoter cannot claim them as a matter of
right. This is because he acted for a person who is yet to take birth and therefore there was no
binding contract between them on this issue. So, it is advisable that after the incorporation of
the company, he must insist on some contract entitling promoters for remuneration and
reimbursement. Articles usually contain a provision authorizing the directors to pay the
promoters.
• Ways of remunerating promoters.
✓ The remuneration may be paid for his services in lumpsum in cash, or partly in cash and partly
in shares \debentures of the company.*
✓ He could also be remunerated by way of commission on purchase price of business taken over
by the company,
✓ He may sell his own property to company at a profit provided he discloses it to an
independent body of directors or shareholders.
• The claim for expenses should be supported by vouchers and should be placed before the
directors of the company when formed.
• The remuneration paid to promoters should be disclosed in the prospectus issued by the
Company.
Preliminary or Pre-incorporation Contracts
These are contracts entered in to by promoters with third parties to acquire some property or
right for the company before its incorporation.

• 1.Such contracts are not legally binding on the company i.e. company can neither sue other party nor
be sued by the other party on such contracts. So, promoters will continue to be personally liable for
pre- incorporation contracts . This is because before incorporation , a company is a non-entity and for a
valid contract two consenting competent parties are must.
• 2.The company cannot even ratify the preincorporation contracts after its incorporation because the
doctrine of ratification requires existence of principal ,competent to contract at the time of entering
into the contract whereas company was non-existant during that time.
• 3. The only way of adopting preliminary contract is by novation i.e. entering into new contracts with
third parties on same terms as were embodied in the original contract. So, generally promoters simply
agree to draft contract to be finally entered into by vendor and the company after the incorporation.
Thus a new contract embodying the terms of the old one is made afresh by the company after its
incorporation. Case.- Natal Land &Colonisation Co. Ltd. vs. Pauline Colliery Syndicate Ltd.
• 4. However, if contracts are covered under Sec.15(h) and 19(e) of Special Relief Act,1963, they may be
specifically enforced by or against the company. Thus, if a contract is for the purposes of the company
(is with in the object clause) )and is warranted by the terms of incorporation (necessary for
incorporation) and the company has accepted the contract and communicated its acceptance to the
other party, then only such contracts will be binding .Case- Imperial Ice Manufacturing Co. vs.
Manchershaw
NATAL LAND & COLONISATION CO. LTD. VS PAULINE COLLIERY SYNDICATE LMT.
Natal co. entered into a contract with A who was acting as the nominee of the
syndicate ( which was not then registered), to grant lease of certain mining
property for 3 years. After registration the syndicate sued the Natal co. for the
specific performance of the agreement to grant a lease. It was held that the
syndicate co, was not entitled to claim the lease as it was not in existence when
the contract was signed and a company cannot obtain the benefit of a
preincorporation contract unless a new contract is made by the co. after its
incorporation.
IMPERIAL ICE MANUFACTURING CO. VS MANCHERSHAW
The promoters of an ice manufacturing company entered into a contract with M
for purchase of ice manufacturing machinery for the company. The company on its
formation, subsequently adopted the contract and sent the communication of its
acceptance to M. It was held that the contract was “ for the purposes of the
company”and therefore ,enforceable by and against the company.
 STAGE II-INCORPORATION/ REGISTRATION OF A COMPANY
For registration of the company, the promotor , takes several preparatory steps like ascertaining the availability of proposed
name of the co., obtaining licences etc. if applicable, fixing up with auditors, bankers, solicitors, underwriters, signatories to
MOA etc, getting MOA , AOA etc prepared and fulfilling other prescribed formalities . Section 7 of the Companies Act ,2013 is on
incorporation. Its various subsections cover the entire procedure of incorporation and the related aspects .
• As per Section7(1) ,The promoter is required to submit with the ROC of the State , where the registered office of the company
is to be situated, the prescribed fees and the following documents\ information
✓ Application for the registration of the proposed company
✓ MOA of the proposed company signed by all subscribers
✓ AOA of the proposed company signed by all the subscribers
✓ Compliance Declaration made by advocate\CA\CS\CWA involved in company's formation and by a person named as
director\mgr\secretary stating that all requirements of the Act and related Rules wrt. registration have been complied with
✓ Subscribers Declaration made by each of the subscribers and also from all first directors that they are not guilty of any
company related offence\fraud\misfeasance\breach of duty during the preceding 5 years and that all the information provided
to ROC is correct and complete
✓ Address for correspondence till its registered office is established and address is finalised
✓ Subscribers particulars i.e their names, addresses, nationality, ID proofs and other particulars
✓ Directors particulars i.e. their names, addresses, nationality, ID proofs, DIN and other particulars
✓ Written Consent of directors of the proposed company to act in that capacity
✓ Particulars of directors' interest in other companies, firms and body corporates
 Registration of a company
• As per section7(2), the ROC, will then register the above documents and will issue the Certificate of
Incorporation in prescribed form (INC-11). This is the birth certificate of the company which bears the name, date
of incorporation, CIN,PAN ,TAN and seal of that ROC .Now, Certificate of Incorporation can be issued electronically
under the digital signatures of the ROC.
• As per section7(3), the ROC will also allot to the company a Corporate Identity Number (CIN) ,which shall be a
distinct identity for the company and is also mentioned in Certificate of Incorporation.
• As per section 7(4), the company is required to maintain and preserve at its registered office copies of all the
documents originally filed with the ROC for registration , untill dissolution.
• As per section 7(5), if any person furnishes any false\incorrect information\suppresses any material information
in any of the documents filed with the ROC , then he shall be liable for fraud u\s 447 and be punished.
• As per section 7(6), if a company got incorporated on the basis of documents which contained any
false\incorrect\insufficient information etc., then the promoters, the directors and the persons who made
compliance declaration will be liable for fraud u\s 447 and punished.
• As per section 7(7), in case the company got incorporated on the basis of false\incorrect information etc. and the
case goes to NCLT, then the tribunal can also pass the following orders
• order any change in MOA or AOA keeping in view interest of co., members and public
• direct that the liability of the members be unlimited
• direct the removal of name of the company from Register of companies
• pass an order for winding up of the company
• pass such order as it thinks fit
Registration of a company
Now, application for incorporating a company shall be made online in ( Form No.32:
SPICE plus i.e. Simplified Proforma for Incorporating Companies Electronically) along with
e- MOA in Form No. INC-33 and e-AOA in Form No.34. SPICE form is an integrated web
form offering a bouquet of 11 services i.e. application for incorporation, application for
reservation of name of company, application for allotment of DIN upto 3 directors and
application for registration of PAN,TAN, GSTIN, EPFO,ESIC, Professional Tax, opening of
bank account and Shop and establishment registration….. can all be made together and
there is no need to apply separately for any of these matters.
EFFECT OF CERTIFICATE OF REGISTRATION -As per section 9 of Companies Act,2013 ,
from the date of incorporation mentioned in the Certificate of Incorporation
• subscribers to memorandum become members of the co.
• it gets status of a body corporate known by the name contained in Certificate of
incorporation and gets power to hold\buy \sell assets \ enter into contracts \ sue and
be sued in its own name
• shall have perpetual succession
ON LINE REGISTRATION OF COMPANY (Using SPICE +:INC 32)
1. Web Form INC 32: SPICE + has two parts-Part A (for name reservation of new companies) and Part B offering
bouquet of services viz. Incorporation ; Reservation of Name, DIN allotment; Mandatory issue of PAN;
Mandatory issue of TAN; GSTIN; ESIC registration; EPFO registration ; Professional Tax Registration ;Opening
of Bank account; Shops and Establishment Registration.
2. File Part A of Web Form SPICE+ for name reservation. If name is approved, ROC will reserve it for a period of 20
days which can be extended upto 60 days on payment of extra fees .
3. Obtain Digital Signature Certificates as all filings will be authenticated using DSCs. Fill all particulars required in
Part B of Web Form SPICE+ for OPC/ Private/ Public co.
4. Apply for DIN for upto 3 directors in the SPICE+. Also application for PAN, TAN can be made through SPICE +
only.
5. Prepare e- MOA in Form No.INC-33 and e-AOA in Form No.INC- 34. Sign and witness them digitally and file
along with SPICE+
6. Attach Web Form AGILE PRO-S ( INC-35) containing Application for registration for GSTIN,ESIC plus EPFO,
Professional Tax, Opening of Bank Account and Shops and Establishment Registration.
7. Attach to SPICE+ --Form No. INC-8( Compliance Declaration), INC-9 ( Subscribers Declaration), DIR-2 ( Directors
consent)
8. The particulars of subscribers like their names, addresess, ID proofs etc. and particulars of directors like their
names, addresses, IDs, interest in other companies etc. will be filled up in the relevant sections of SPICE +.
9. For verification of office address, file Form NO. INC-22 within 30 days of incorporation
10. ROC will examine the form and if finds it defective, inform the applicant and ask him to resubmit within 15
days. If again on resubmission not satisfied, applicant must remove defects and resubmit again in 15 days. If
ROC finds everything in order, then Certificate of Incorporation in Form No. INC-11 is generated which will
contain Name of the Co., CIN, PAN, TAN and Date of Incorporation
CONCLUSIVENESS OF CERTIFICATE OF INCORPORATION
Conclusive Evidence-Evidence cannot be disputed on any ground and which the law does not allow to be
contradicted.
Primafacie Evidence- Evidence which suffices for the proof of a particular fact until contradicted and overcome by
another evidence.
The Certificate of Incorporation serves as a primafacie evidence of what it contains. Case -Jubilee Cotton Mills
Ltd. vs. Lewis. Here, the incorporation documents were delivered to the Registrar for registration on 6th January. Two
days later the Registrar issued the Certificate of Incorporation but dated it 6th January instead of 8th January ,the day
of actual issue of COI .On 6th January certain shares were allotted to Lewis. The question arose whether the allotment
of shares was valid or not. It was held that the Certificate of Incorporation is conclusive evidence of all it contains .
Hence, in the eyes of law the company was formed on 6th January and so the allotment was held valid.
The Companies Act, 2013 doesn't contain any provisions with respect to 'Conclusiveness of Certificate of
Incorporation'. Once a company got registered, and subsequently it comes to the knowledge of authorities that the
company had furnished false \incorrect\ insufficient information in the documents filed at the time of incorporation
, then as per sec. 7(6) of the Companies Act,2013, the promoters\first directors of the company shall be liable for
fraud u\s 447 and be punished with imprisonment and fine. Similarly u\s sec. 7(7) of the Act, the TRIBUNAL is
empowered in that case, to order winding up of the company or even order the striking off of the name of the co.
from the Register of companies.
Thus, the Certificate of Incorporation only serves as a primafacie evidence of what it contains. It is no more a
conclusive evidence of the formation of a company. The concept of conclusiveness of certificate of incorporation
has lost its relevance under Companies Act 2013. If it is proved that the company got incorporated on the basis of
documents containing false or incorrect information or in any fraudulant manner, then section 7(7) , allows the
registrar to question the validity of proceedings prior to incorporation and take necessary actions.
 III Stage: COMMENCEMENT OF BUSINESS (10A)
The Companies (Amendment) Act,2019 has, by inserting sec.10A, imposed a requirement
on part of companies having share capital ( whether public or private) to fulfill certain
formalities before commencing their businesses. Accordingly, a company will not be
entitled to commence its operations or exercise borrowing powers unless it has filed
with the ROC-
a) Declaration filed by a director in Form INC-20A (within 180 days of its incorporation
)stating that the subscribers to that MOA have all paid up on their shares and
b) Verification in Form INC-22 ( within 30 days of its incorporation)of its registered
office address by attaching documents such as title deeds, lease agreements,
telephone/gas/electricity/bills depicting the address of the premises.
If the company fails to comply with the requirements of Sec. 10 A , then it shall be liable
to a penalty of Rs.50000 and every officer in default shall be liable to penalty of Rs.1000
per day during which default continues. Incase no Declaration as prescribed above is
filed with the Registrar, it could even lead to removal of the companies' name from the
Register of Companies.
Borrowing powers mean power to borrow on loans, debentures etc.
 PROVISIONAL CONTRACTS
Provisional Contracts - These are the contracts entered into by a company after
obtaining Certificate of Incorporation but before becoming eligible to commence
business. Such contracts are not legally binding upon the company until it becomes
eligible for the commencement of business. A company becomes eligible to
commence its business only after it files with the Registrar of Companies the two
documents namely -Declaration of Subscribers (within 180 days of incorporation)
that all the subscribers have paid the value of their shares and Verification of
office address (within 30 days of incorporation) Thereafter provisional contracts
become automatically binding on the company.
PRELIMINARY CONTRACTS PROVISIONAL CONTRACTS
These contracts are made before the registration of the company These contracts are made after registration but before fulfilling requirements u/s
10A
The company can neither sue nor be sued to enforce the preincorporation The company cannot be sued for enforcing a provisional contract till it becomes
contracts eligible for commencement of business.
Preliminary contracts can be made binding by ratification if covered u\s 15h and Provisional contracts become binding as soon as company becomes eligible for
19e of Special Relief Act, 1963 commencing business and do not require any ratification.
Special Relief Act,1963 governs preincorporation contracts Companies Act,2013 governs provisional contracts by inserting sec.10A
Promoters are liable on preincorporation contracts unless covered under Special Company is liable on provisional contracts but only after getting eligibility for
ON LINE REGISTRATION OF COMPANY (Using SPICE +)
ABBREVIATIONS USED
SPICE + - Simplified Proforma for Incorporating the Company Electronically
AGILE PrO-S –Application for registration for GSTIN,ESIC plus EPFO, Professional
Tax, Opening of Bank Account and Shops and Establishment Registration.
CIN- Corporate Identity Number
PAN- Permanent Account Number
TAN- Tax deduction Account Number
GSTIN- Goods and Services Tax Identification Number
ESIC- Employees State Insurance Corporation registration number
EPFO – Employees Provident Fund Organisation registration number
DIN- Director Identification Number
 MEMORANDUM OF ASSOCIATION

• The MOA is the charter, the constitution, the principal document of the
company. This document is essential for the formation of the company and that's
why it is called its life giving document. This document decides the capacity to
contract of the company and defines the limitation of powers of the company.
As per Lord Macmillan ,the MOA enables the shareholders, creditors and
outsiders dealing with the company to know its permitted range of activities.
Any activity, howsoever promising, profitable or lucrative, cannot be undertaken
by the company if not covered in its MOA. Since, MOA is a public document,
everyone who deals with the company is presumed to have sufficient knowledge
of its contents and so will be bound by its provisions. Any act of the company
outside the scope of activities as laid down in MOA is said be ultra vires and not
binding on the company.
• According to Sec.2(56) of the Act, Memorandum means the memorandum of
association of a company as originally framed or as altered from time to time in
pursuance of any previous company laws or of this Act.
• The MOA shall have to be in prescribed format as specified in Tables A, B, C, D
and E in Schedule I, annexed to the Act as may be applicable to the Company.
 Contents of the MOA(Sec.4)
• Name clause
• Registered office clause
• Objects clause
• Liability clause
• Capital clause
• Nomination clause
• Subscription clause
NAME CLAUSE
• Name must end with words 'Limited' or 'Private Limited' in case of public and private cos. respectively. However, Charitable
Companies u\s 8 are exempted from using these 'limited' or 'Private Limited' words with their names. In case of one person
company, the words(OPC) shall be mentioned in brackets below the name of the company wherever it is printed. Name chosen
must not be identical\ similar to the name of another existing company.
• Case- Ewing v Buttercup Margarine Company Ltd .Ewing was carrying on the business as Buttercup Dairy Company. A new
company named Buttercup Margarine Company Ltd. was incorporated. The plaintiff filed a suit against the company for
restraining it from carrying business under the aforesaid name on the ground that the name of newly incorporated company was
similar to Buttercup Dairy Company .The court upheld the contention of plaintiff and restrained the new company from using the
said name.
• Name should not be misleading i.e.name should not unnecessarily connote govt. participation or patronage eg. words such as
Central, Union, National, etc.should not be used used unless circumstances justify.
• Name should not be offensive or undesirable in the opinion of the Central Govt i.e.the name adopted must not violate the
provisions of the Emblems and Name (Prevention of Improper use)Act 1950.
• Publication of name by company- once the name is chosen and company gets registered in that name, it must appear (in one of
the local language) outside everything office \ place of business in a conspicuous manner. The company shall get its name printed
on all its official publications, business letters, bill heads, letter heads, notices etc., along with registered office address, CIN,
telephone, fax. no., email, website address. Where a company has changed its name during the last two years, it shall also print
its former name along with the present name.
REGISTERED OFFICE/ DOMICILE CLAUSE

• This clause mentions the STATE in which the company's registered office is to be
situated . This is required to fix the domicile of the company.
• The actual address of the registered office is not to be stated in MOA. However,
the company is required to have specified premises in that state as its registered
office and must file with ROC, the verification of its registered office within 30
days of incorporation.
• Whenever there is any change in the address of registered office, a notice of such
change must be given to the Registrar for record within 30 days of change.
• All the communications and notices to the company are to be sent at the
registered office address. Further, register of members, register of debenture
holders, register of charges, minutes books of general meetings etc . are all kept
at the registered office.
• Domicile is different from residence. Domicile is the place of its registration
whereas residence is the place of management and control i.e. where BOD
meet.
 OBJECTS CLAUSE
• This is the most important clause of MOA because it decides the contractual capacity or vires of the company.
A company can only undertake those activities that are covered under the scope of object clause. Activities
that are outside the scope of objects clause ,howsoever remunerative, promising or profitable they may appear
to be, will be considered ultravires. The purpose of objects clause is to protect the interest of shareholders of
the company as well as public. The shareholders know that now their money cannot be misused or diverted
elsewhere and will used only for activities \projects covered in objects clause and the public gets to know the
extent of company's powers and whether the particular transaction they are entering with company is valid or
ultra vires.
• While drafting the objects clause, the following facts should be kept in mind.
✓ objects must not be illegal, e.g. to carry business of prostitution, or lottery or smuggled goods etc.
✓objects must not be against the provisions of the Companies act, e.g. to issue shares at discount ( it
contravenes sec 53) ,to declare dividend out of capital( it is prohibited u\s 123)
✓must not be against public policy, eg , to carry on trade with alien enemy
✓must not be vague ,ambiguous or indeterminable, e.g. to take up any work which it deems profitable
• The object clause shall be divided into
✓Main Objects to be pursued by the company on incorporation ,e.g. to do mining of coal
✓Ancillary Objects are those which help in achieving main objects i.e. ancillary \conducive\supplementary
to attainment of main objects e.g. to buy freehold land surface to dig mines
• In addition to powers expressly provided in objects clause, a company has certain implied powers (which are
not written in objects clause but are assumed to be exercisable by a company) such as - to borrow money, to
engage employees or agents, to compromise disputes, to mortgage\ sell \rent\lease land etc.
LIABILITY CLAUSE

This clause states that the extent of liability of members of the company. The
liability of members shall be as follows
• in case of a company limited by shares, the liability of members shall be limited
to the amount unpaid on their shares,
• in case of a company limited by guarantee, the liability of members shall be
limited to the amount each member has undertaken to contribute to the assets of
the company in the event of its winding up
• in case of unlimited company, the liability of members shall be unlimited
C APITAL CLAUSE
• This clause states the share capital with which the company is proposed to be registered . This capital is called
authorised, registered or nominal capital. . There is no legal limit on authorised capital. So the authorised capital
must be sufficiently high so that issue of shares can be easily done to finance future projects.The stamp duty is
payable on this amount.
• The clause further states their denomination and their number of shares in total. Equity shares can have
denomination of ₹10 or ₹100 and preference shares can only be in denomination of ₹ 100.However, companies
which have dematerialized their shares have freedom to issue equity shares in any denomination which should
not be less than ₹1.
• This clause also states the number of shares which the subscribers to the MOA have agreed to purchase.
NOMINATION CLAUSE- In case of OPC , the name of nominee must be stated in the MOA
ASSOCIATION OR SUBSCRIPTION CLAUSE
• This clause contains the "declaration of association" made by signatories of MOA that they desire to be formed
into a company and that they agree to purchase shares indicated against their names. Their signatures are duty
attested by witnesses.
• Each subscriber must take at least one share. However, this provision is not applicable to companies which are
limited by guarantee or having unlimited liability, and which has no share capital.
• There must be at least 7 signatories in case of public co., at least 2 in case of private company and only 1 in case
of One Person Company. The subscribers usually act as the first directors of the company.
ALTERATION OF THE MEMORANDUM

• The provisions of the memorandum can be altered by a special resolution(SR)

and as per the procedures specified in the Companies Act .
• The alteration becomes effective only from the date of registration by the ROC.
• Where an alteration is made in MOA, every copy of MOA issued subsequently
must be in accordance with alteration otherwise the company and every officer
in default shall be fined @₹ 1000 per copy issued without alteration.
ALTERATION OF NAME CLAUSE- (using webform RUN)
• Passing of SR+ written approval of CG - whenever any company wants to change its name
• Passing of SR only( no need of CG approval) - when change in name involves only addition \ deletion of word "private"due to
conversion of a public co. into private or vice versa.
• Passing of OR within 3 months of CG direction - when through inadvertance or otherwise a company's name gets wrongly
registered ,which in the opinion of CG ,is identical with some existing companies name or is undesirable and so CG directs the
company to change its name.
• Passing of OR within 3 months of CG direction- when a petition is received by CG ( within three years of incorporation or
change of name of the company ) from a registered proprietor of a trade mark that the company's name is identical or similar
to his registered trademark\name and so CG directs the company to change its name.
• Non compliance of CG direction- If such a company does not comply with the above CG direction within 3 months, CG shall
allot a new name to the company until it changes its name subsequently. The new name shall be- ORDNC( Order of Regional
Director Not Complied ), year of passing of direction , the serial no. and the existing CIN and the company will have to
mention the words ORDNC in brackets below the name of the company wherever printed, affixed or engraved till it changes
its name.
The company shall submit the following documents with ROC within prescribed time
• Notice of change of name
• Copy of SR
• Copy of CG's approval order\ Copy of CG's direction order
The ROC will do the following
• enter new name on the " Register of Companies"
• enter new name in the MOA of company
• issue a fresh Certificate of Incorporation bearing the new name
ALTERATION OF REGISTERED OFFICE CLAUSE
• Passing of BOD Resolution - when a company changes registered office from one place to another within the same city.
• Passing of SR - when company changes registered office from one city to another but there is no change in jurisdiction of ROC
• Passing of SR + Approval of Regional Director - when company changes registered office from one city to another within same
State but from jurisdiction of one ROC to another ROC e.g. applicable only in two States- Tamilnadu and Maharashtra -both
having two ROC (Chennai and Coimbatore) and (Mumbai and Pune) respectively
• Passing of SR + Approval of C.Govt. - when company changes registered office from one State to another. CG gives approval
only when it is satisfied that the company has given advertisement in a vernacular and an English newspaper about its
shifting; on objection is obtained from creditors and debentureholders ; it has given affidavit not to retrench employees and
has fulfilled other prescribed terms and conditions.
The company shall submit the following documents with ROC
• Notice of new address to the concerned ROC within prescribed time
• Copy of SR (in all situations except when shift is intra city)
• Copy of Regional Directors Confirmation Order ( when shift involves cities under jurisdiction of two different ROCs within same
state)
• Copy of Central Government Confirmation Order and copy of altered MOA- to be submitted to both the ROCs ( when shift
involves two different States)
The ROC will do the following
• make changes in his Register of Companies
• issue Certificate of Registration
• transfer all the records of the company to the new ROC ( when shift involves cities under jurisdiction of two different ROCs
within same state or different States)
• issue fresh Certificate of Incorporation ( when shift involves two different States
ALTERATION OF OBJECTS CLAUSE
• Passing of SR
• Passing of SR+ Publication of justification for alteration in newspapers and
company's website+ Giving Exit Opportunity to dissenting shareholders- when a
company has raised public money through prospectus and still has some
unutilized amount in it for which it wants to change its objects
The company shall submit to the following documents with ROC
• Copy of SR authorising alteration
• Copy of MOA as altered
The ROC will do the following
• issue Certificate of Registration
ALTERATION OF LIABILITY CLAUSE
• Passing of Unanimous Resolution for re-registration as an unlimited co. - when
a limited liability company wants to make its liability unlimited
• Passing of SR for re-registration as a limited co.- when unlimited liability
company wants to make its liability limited.
The company shall file the following documents with ROC
• Copy of resolution for reregistration.
• copy of altered MOA and AOA
The ROC shall do the following
• issue Certificate of Registration
ALTERATION OF CAPITAL CLAUSE
• Passing of OR (Ordinary Resolution) + Authorisation by AoA, if it involves
✓ Increase in authorised share capital.
✓ Consolidation \ subdivision of its existing shares in shares of larger\ smaller denominations
✓ Conversion of fully paid shares into stock or vice versa
✓ Diminution of authorised share capital i.e. cancellation of unissued shares
• Passing of SR (Special Resolutuon)+ Authorisation by AoA + Approval from NCLT +No
objection from Creditors, CG, ROC and SEBI, if it involves reduction of capital
(sec.66)- .Reduction of capital is closely guarded under the Companies Act and is
permitted for legitimate purposes only. It takes place when
✓ liability of members on shares not fully paid up is reduced to the extent of uncalled capital
✓ paying off any paid up share capital which is in excess of needs of the company.
The company has to submit the following documents with ROC
• Notice of alteration of capital to ROC
• Copy of altered MOA and AoA to ROC
The ROC shall do the following
• issue Certificate of Registration
THE DOCTRINE OF ULTRAVIRES
• 'Ultra 'means beyond and 'vires' means powers. This doctrine stipulates that those
transactions \acts of the company that are outside the ambit of its objects are called ultra vires
transactions\acts .They are beyond the powers of the company and are wholly null and void
and cannot be subsequently ratified \adopted \ validated even by the whole body of
shareholders.
• This doctrine was first explained in the leading case of Ashbury Railway Carriage &Iron
Co.Ltd.vs Riche. In this case, the company was authorized to ‘ construct the railway lines’ which
diverted from its objects and started ‘ financing of construction of railway lines’. This act was
held to be ultra vires the company and so the directors were held liable for such acts and not
the company.
• If an act is ultra vires the directors only but intravires the company, the shareholders can
ratify it and make it binding on the company by passing SR.
• Similarly, if an act is ultra vires the AOA but intravires the company, the shareholders can
alter the articles by SR so as to make it intravires the AOA.
• But if it is ultra vires the MOA,then it is ultravires the company and so it cannot be ratified
even by the whole body of shareholders.
• Since a company is incompetent to enter into transactions that are outside the scope of its
memorandum, its position in case of ultra vires acts, is similar to that of a minor. Some of the
consequences of ultra vires acts are
 THE DOCTRINE OF ULTRAVIRES
• Null and Void- A contract which is ultra vires the MOA is null and void and inoperative and of no legal
effect. It is not binding on the company. Such contract being void abinitio , can never be made binding
on company , not even by ratification .Anyone entering into ultra vires contract with company cannot
make company liable for his claim.
CASE- Re John Beauforte (London ) Ltd. A company was formed for carrying on the business of making
costumes and gowns. It decided to manufacture plywood sheets which was ultra vires. This company
entered into contracts for construction of factory; for purchase of plywood sheets; and for purchase of
coke (fuel) but this venture failed and company went into liquidation . It was held that none of the three
suppliers could prove their debts in the company. The court held that the contracts were ultra vires and so
the company was not liable for any of the claims arising out of such contracts. This is because outsiders
dealing with company are supposed to know its objects and if they act carelessly, they must suffer.
• Personal liability of directors- Director will be personally liable to third parties suffering a loss because
of ultra vires transactions entered by them in breach of their warranty of authority. Similarly directors
will be personally liable to the company for such acts. Director can be compelled to refund the money
to\ compensate the company for such loss.
• Injunction- Any member of the company can bring an injunction against the company to restrain it from
doing ultra vires acts,
• Ultra vires lending- A person borrowing money from the company under an ultravires contract, can be
sued by the company to recover that money lent.
• Ultra vires borrowing-A person lending money to the company under an ultra vires contract cannot
recover this money from the company. However, if that money exists in specie or it can be traced in
specie , the lender can get it back.
 ARTICLES OF ASSOCIATION (Sec.5)
DEFINITION -As per Sec.2(5) of the Companies Act ,2013, "Articles means articles of association of the
company as originally framed or as altered from time to time in pursuance of any previous company law
or of this Act".
MEANING-The AOA of a company contains rules, regulations and bye-laws for the internal management
of its business and for the attainment of its objectives as given in its MOA. While a MOA defines the
powers of the company and are meant for the benefit of the creditors, outside public as well as the
shareholders, the AOA define the powers of the officers of the company , lays down procedures to be
followed for general management and are for the benefit of the shareholders.
AOA of a company are like the Partnership Deed in a partnership. Articles establish a contract between
the company and the members and between the members inter-se.
FORMAT of AOA -The AOA of different companies shall be in respective format as specified in Tables F, G,
H, I and J given in Schedule I , appended to the Act. The company may adopt all or any of the regulations
contained in the model articles applicable to such a company.
Table F - Model AOA of a Company Limited by shares
Table G- Model AOA of a Company Limited by Guarantee & having share capital
Table H- Model AOA of a Company Limited by Guarantee & not having share capital
Table I- Model AOA of Unlimited Company & having share capital
Table J- Model AOA of Unlimited Company and not having share capital
 ARTICLES OF ASSOCIATION(Sec. 5)
CONTENTS of AOA- Articles usually deal in matters such as
• Different classes of shares and their rights
• Procedure of issue, transfer, transmission, forfeiture, reissue etc of shares
• Appointments, powers, duties, qualifications etc. of auditors, directors, managers, secretary, MD etc.
• General Meetings, proxies, polls,
• Board Meetings and proceedings thereof
• Voting rights of members
• Borrowing powers of directors
• Issue, allotment, alteration, reorganisation, consolidation etc.of share capital
• Keeping of books of account and their audit
• Arbitration provisions etc.
• In case of private companies, the AOA must contain the three restrictions as given in Sec.2(68)
namely restriction on right of members to transfer shares;limitation of number of members to 200
and prohibition of invitation to public for ssubscription of its securities.
Distinction between MOA and AOA
MEMORANDUM OF ASSOCIATION ARTICLES OF ASSOCIATION
Defined in section 2(56) of the Companies Act and covered in Defined in section 2(5) of the Companies Act and covered in
Section 4 of the Act. Section 5 of the Act.
MOA contains basic information about the company ,defines its AOA contain rules for attainment of objects as given in MOA
objects and lays down the permitted range of its activities. and for management of internal affairs.
MOA is the charter/ constitution/principal document of the co. AOA are bylaws/internal regulations for co.’s management
MOA is subordinate to the Companies Act AOA are subordinate to both Companies Act and MOA .
Every company must compulsorily file its MOA with the ROC at Public company limited by shares need not file AOA at the time
the time of incorporation. of incorporation if it adopts ‘Table F’ of Schedule I of Co. Act.
MOA defines the relationship of the co. with outside world AOA define the relationship between the co. and its members
Table A,B,C,D, and E of Schedule I of Companies Act are model Table F, G, H, I and J of Schedule I of Companies act are model
MOA as may be applicable to different types of companies. AOA as may be applicable to different types of companies
There is no provision of ENTRENCHMENT CLAUSE in a MOA The AOA of a company may contain ENTRENCHMENT CLAUSE
Alteration of MOA is complicated and at times requires not just AOA can be easily altered by just passing a SR (Special
passing of SR but also approvals from RD/ CG/NCLT/ creditors . resolution)
Acts done by a company ultravires the MOA are void and Acts done by the company ultravires the AOA but intravires the
cannot be ratified by the shareholders. MOA are simply irregular and not void and can be ratified
ALTERATION OF ARTICLES (Sec.14)
• Articles can be freely altered by the company as often as required.
• Articles can be altered by passing special resolution i.e. 3\4 majority of members
• Power to alter articles is a statutory power and cannot be negatived by any way.
• Articles can be altered with retrospective effect.
• Copy of special resolution along with copy of altered articles must be filed with
Registrar for registration within 15 days of passing the resolution
• Certain provisions of articles may be entrenched i.e. those provisions can be altered by
not just special resolution but by following even stricter or restrictive procedure (say
90% approval or unanimous consent or with approval of minority shareholder etc.) .
The ROC shall be given notice of such provisions for entrenchment in prescribed form
and manner. Provisions for entrenchment shall be made either
✓ On formation of the company or
✓ By an independent amendment in the articles agreed to by all members (in case of a private
company )or by a special resolution( in case of a public company)
• There are certain limitations regarding the alteration of articles
LIMITATIONS REGARDING ALTERATION OF ARTICLES
• The alteration must not be inconsistent with the provisions of the Companies Act or any other statute. Example -
alteration cannot be made to enable a company hold shares of its holding company as, it shall be contrary to
Sec.19 of the Act which prohibits subsidiary from holding shares of holding company.
• The alteration must not be inconsistent with the conditions contained in the memorandum. Articles are subject to
Memorandum and must not override the MOA. As such they cannot be altered so as to give powers which are
not given by the MOA.
• The alteration must not be inconsistent with the alteration ordered by the Tribunal. When the Tribunal ,inorder to
remedy oppression and mismanagement u\s 241 and 242, has amended the MOA or AOA in any way ,then the
company cannot make any alteration which is inconsistent with the Tribunal's order.
• Approval of Central Government must also be obtained in certain cases. For example if a public company wants to
convert into private company, the approval of Central Government is also required.
• The alteration must not deprive any person of his rights under the contract. A person appointed under an
independent contract of service cannot be deprived of any rights possessed under that contract by the alteration
of the articles. If an alteration of articles causes breach of contract with the outsider, the company will have to
give damages for that .Case- Southern Foundaries Ltd. vs Shirlaw
• The alteration must not constitute a fraud on minority. If the purpose of alteration is to oppress minority or to
give undue advantage to majority holders, then that alteration is void. Case- Menier vs Hooper's Telegraph
Works case
• The alteration must be bonafide for the benefit of company as a whole. Even if it is likely to affect adversely the
personal interests of some of the members, the alteration will be valid if it is benefits the company overall. Case-
Side bottom vs Kershaw,Leese&Company
ALTERATION OF ARTICLES (Sec.14)
Important cases
Southern Foundaries Ltd. vs Shirlaw The AOA of a company provided that the managing
director had to be director and if he ceased to be a director, he could not function as MD .Shirlaw
,a director, entered into an agreement with company by which he was appointed as MD for 10
years. After 3 years this company was taken over by some other company F. Soon after the
takeover, articles were altered and power was given to the company to dismiss any director. After
one year, Shirlaw was removed from directorship with the consequence that he ceased to be the
MD. It was held that this alteration enabled the company to commit a breach of contract with
Shirlaw and thus the company is liable to pay damages to Shirlaw as he was dismissed before his
term was over.
Menier vs Hooper's Telegraph Works case certain persons were in majority both in Company A
as well as Company B. They held a meeting in Company A and passed a resolution to alter the
articles and to compromise an action against Company B. The minority holders alleged that the
alteration was favourable to Company B but was unfavourable to Company A. Consequently, the
resolution was held invalid and set aside.
Side bottom vs Kershaw,Leese&Company A private company altered its articles and thereby
authorised its directors to order any shareholder, carrying on competitive trade to that of
company to transfer his shares at a fair value to persons nominated by the directors. The
alteration was held to be valid as it was for the benefit of the company as a whole, even though
interests of some of the members were adversely affected. But, where an alteration is not in the
benefit of the company as a whole but is for the benefit of the majority, then it is not valid.
Binding force of MOA and AOA
This implies that once memorandum and articles are registered, they bind the company and the members the same way as if
they had been signed by the company and by each member respectively .This means that
1. Company is bound to its members. An individual member can enforce his membership rights such as right to vote, right to
recover dividend, right to receive notice etc. against the company if denied by the company. Case- Wood vs. Odessa
Waterworks* The articles of a a company Odessa Waterworks provided for payment of dividends. The directors of this company
proposed to pay dividend in kind by issuing debentures. The court held that payment means payment in cash and therefore the
company could be compelled to pay dividend in terms of the articles.
2. Each member is bound to the company. Members are bound by the provisions of MOA and AOA. Case-Hickman vs.Kent Sheep
Breeders Association* The articles of a company provided for the reference of any dispute between the member and the
company to arbitration. Hickman, a member brought an action against the company in a court. The company applied to the court
for stay of proceedings (halt on legal proceedings) on the ground that it was bound by the AOA to go for arbitration. The court
granted the stay of proceedings.
3, Each member is bound to other members in exceptional case only ( i.e. in case of ultravires contracts/ fraud committed by any
shareholder who controls the majority of shares and will therefore not allow an action to be brought in the name of the
company). Case-Jehangir R. Modi vs Sham Ji Ladha * In this case the director of the company who was also the member invested
the company's funds in some transaction for which he had no authority( ultra vires). So another shareholder filed a case against
him( without making the company the party to suit )and the court ordered that the director will have to return back the money
to the company
4. Neither the company nor the members are bound to outsiders. MOA or AOA do not consttute a contract between the
company and third party. Case- Eley vs. Positive Govt. Life Assurance Co.Lmt. The articles provided that Eley shall be company’s
solicitor for life. After sometime, the company dismissed him. He sued the company for damages for breach of contract. It was
held that he had no right of action because the articles did not constitute any contract between the company and outsider.
Doctrine of Constructive Notice

This doctrine lays down that after registration, the MOA and AOA become public
documents and so it is presumed that everyone dealing with the company has
the knowledge of these documents. If the person has not read these documents
or understood their implications, he cannot later on plead ignorance or blame the
company or hold it liable on ultra vires transactions. If he enters into any
transaction which is beyond the powers of the company as set out in those
documents, he is deemed to have dealt at his own risk and shall bear the
consequences. Eg. If AOA require that a bill of exchange must be signed by two
directors , a person having bill signed by only one director cannot claim payment
on it.
Doctrine of Indoor management/TURQUAND RULE

This doctrine lays down that persons dealing with the company are only required to ensure that
proposed dealings are apparently regular and consistent with the MOA and AOA of the company.
They need not enquire into the regularity of the internal proceedings of the company. They are
entitled to presume that the directors are acting lawfully in what they do and can hold the
company liable even if the internal formalities have not been complied with. The doctrine of
Indoor Management is an exception to the Doctrine of Constructive Notice. While doctrine of
constructive notice presumes that outsiders dealing with the company are presumed to have
knowledge of MOA and AOA, they are not deemed to have constructive notice of any of its
procedural failure . Leading case- Royal British Bank vs Turquand. Here Turquand lent money
to a company on the security of a bond signed by two directors given under the seal of the
company. The company’s AOA permitted borrowing by directors in that way only when
authorized by ordinary resolution of a general meeting. The company alleged that no such
resolution had been passed by the company and so the loan was taken without its authority. The
court held that the company was bound by the contract since the plaintiff was entitled to
assume that the necessary resolution must have been made by the company.
Exceptions
1. Knowledge of irregularity. Case- Howard vs.Patent Ivory Co
2. Negligence of outsiders. Case-Anand Bihari Lal vs.Dinshaw& Co.
3. Forgery. Case-Ruben vs.Great Fingall Ltd.
 Exceptions to Doctrine of Indoor management
1. Knowledge of irregularity. A person having actual / constructive notice of internal irregularity , cannot claim
protection under this rule. Case- Howard vs.Patent Ivory Co -The directors of this company ,under the AOA, had
authority to borrow more than £1000 only when authorized by a resolution of the company passed in the
general meeting. Without any such resolution being passed, they borrowed £ 3500 from one of the directors by
way of debentures. The company later refused to pay the amount. It was held that as he knew about the
internal irregularity, his debentures were valid upto £1000 only.
2. Negligence of outsiders.The protection under this rule is not available when, despite the suspicious
circumstances, the outsider does not make proper inquiry. Case-Anand Bihari Lal vs. Dinshaw& Co. Here the
plaintiff accepted a transfer of company’s property from its accountant. The company did not enforce the
contract and when he brought an action against the company , the transfer was held to be void. It was held that
since the plaintiff did not even bother to see if the accountant had the power of attorney for executing such a
transaction, it shows his negligience and so he cannot be given protection under this rule.
3. Forgery- Doctrine of indoor management can regularize the irregularities but not illegalities.Case-Ruben
vs.Great Fingall Ltd. Here the Secretary of a company forged signatures of two of the directors,
required under the articles, on a share certificate and issued it to the plaintiff. The company refused to
accept him as a shareholder. When the plaintiff pleaded that whether the signatures were genuine or
not was part of internal management and the company should regard him as shareholder, it was held
that the certificate was a nullity and he could not take advantage of Doctrine of Indoor Management.
This doctrine only applies to irregularities which otherwise might affect a genuine transaction and
not to a forgery which is void ab-initio.