Incorporation of a Company-
Section 3 provides that a company may be formed for any lawful purpose by:
- Seven or more individuals, if the corporation to be established is a public company;
- Two or more individuals, where the company to be established is a private company;
- Only one individual, there where the company to be established is a one-person company, that is somehow, a private company,
By subscribing to a document of their name or name and by following the registration requirements of this Act. The Memorandum of One Person Company shall signify the name of the other person, with his previous written consent, who shall become a member of the pay Company in the event of the death of the subscriber or his inability to contract. The written consent of such other person shall also be filed with along with its memorandum and articles.
(a) Application for availability of name of company.
According to Section 4, the name stated in the memorandum of association-
- shall not be identical with or resemble too nearly to the name of an existing company registered under this Act or any previous company law; or
- shall not be such that its use by the company will constitute an offence under any law for the time being in force; or
- shall not be such that its use by the company is undesirable in the opinion of the Central Government.
Therefore, Section 4 further provides that a person may select six names in order of preference and make an application in the prescribed form accompanied by the prescribed fee to the Registrar for the reservation of name set out in the application as the name of the proposed company. On receipt of the application, the Registrar may reserve the name for a period of 60 days from the date of the application. If the Registrar finds the name undesirable, it shall inform the applicant within three days of receipt of application. He may ask for any other information in this matter or ask for resubmission of the application with new name.
(b) Preparation of memorandum and articles.
Memorandum of Association is charter of a company. It, inter alia, defines the area with which the company can operate. According to Section 4(1), memorandum shall state the name, registered notice, objects, liability of members, share capital in case of a company having share capital. In case of One Person Company, the name of the person who, in the event of death of the subscriber, shall become the member of the company be stated.
Section 5(1) provides that the articles of a company shall contain regulations for management of the company.
According to Section 7(1) (a) read with Rule 13 of the Companies (Incorporation) Rules, 2014, memorandum and articles must be-signed at least seven subscribers in case of public company, two in case of private company and one in case of One Person Company. Each subscriber should give his address, description and occupation, etc., and number of shares subscribed by them. The subscribers must sign these documents in the presence of at least one witness who shall verify the signature of the subscribers.
(c) Filing of documents with the Registrar of Companies.
The following documents, as per Section 7(1), shall be filed with the Registrar within whose jurisdiction the registered office of a company is proposed to be situated.
(i)Memorandum and articles of the company duly signed by all the subscribers to the memorandum in the prescribed manner. [Section 7(1(a)]
(ii) A declaration that all the requirements of the Companies Act and the rules thereunder have been complied with. Such a declaration has to be signed by an advocate, or any proposed director manager/secretary of the company or by a company secretary or cost accountant or chartered accountant who is in whole-time practice in India.
(iii) An affidavit from the subscribers to the memorandum and from the first directors (if any) to the effect that they are not convicted of any offence in connection with promoting, forming or managing a company or have not been found guilty of any fraud or misfeasance, etc., under the 2013 Act or any previous company law during the last five years along with the complete details of name, address of the company, particulars of every subscriber and the persons named as first directors (including nationality, director identification number, proof of identity).[Section 7(1) (c)]
(iv) The address for communication till the registered office is established. As per Section 12, a company is required to have a registered office within 15 days of incorporation. [Section 7(1) (d)]
(v) The particulars of name, including surname or family name, residential address, etc. [Section 7(1) (e)]
(vi) The particulars of the persons named in the articles as the first directors of the company, their names, including surnames or family names, the Director Identification Number, residential address and other identity proofs. [Section 7(1) (f)]
(vii) The particulars of the interests of the persons mentioned in the articles as the first directors of the company in other firms or bodies corporate along with their consent to act as directors of the company in such form and manner as may be prescribed. [Section 7(1) (g)]
Issue of Certificate of Incorporation by Registrar-
Section 7(2) states that the Registrar on the basis of the documents information filed under Section 7(1) shall register all the documents information referred to in Section 7(1) in the register and issue a certificate of incorporation in the recommended form to the effect that the projected company is incorporated under this Act.
Allotment of corporate identity member: Section 7(3) states that on and from the date mentioned in the certificate of incorporation issued und Section 7(2), the Registrar shall allot to the company a corporate ident number, which shall be distinct identity for the company and which shall also be included in the certificate.
The incorporation records to be preserved: Section 7(4) provides that the corporation shall retain and preserve at its registered office copies of all records and information as originally filed pursuant to Section 7(1) until such time the company is dissolved pursuant to this Act.
Registration and its effect (Section 9): Since the date of registration attributed to in the certificate of registration, all subscribers to the memorandum as well as all other individuals who may, since time to time, become members of the organization shall be the corporate body in the name set out in the memorandum.
It is capable of exercising all the functions of an incorporated company under this Act.
It has perpetual succession and a common seal.
It has power to acquire, hold and dispose of property, both movable and immovable, tangible and intangible.
It is capable of entering into contracts. It can sue and be sued, by the said name.
Section 35 of the Companies Act, 1956 provided that a certificate of incorporation issued by the Registrar in respect of any association shall provide definite proof that all the provisions of the Act have been satisfied with in respect of registration and the matters preceding and incidental thereto, and that the association is a company authorized to be incorporated and legally registered under the Act.
It means that once the certificate has been issued the existence of the company is not allowed to be questioned on the ground that either certain requirements of the Act have not been complied there was any other discrepancy in the process of formation of the company. For example, in Moosa v. Ibrahim1, the validity of the incorporation was not allowed to be questioned. In this case the memorandum of association was signed by two adult persons and by a guardian of the other five members, who were minors at that time, the guardian making separate signatures for each of the minors. The Registrar, then registered the Company and issued a certificate of incorporation. Likewise in Peel’s Case (1867) it was held that once the incorporation is given nothing is to be inquired into as to the regularity of the prior proceedings. In this case after signature and before registration a proposed memorandum of association had been materially altered without the authority of the subscribers.
In T.V. Krishna v. Andra Prabha (P) Ltd.2, the position was summarised by Chandra Reddy, C.J., as follows: “Thus the position is firmly established that if a company is born, the only method to get it extinguished is not by assailing its incorporation, but by resorting to the provisions of enactments, which provide for the winding up of the companies.” It was held in this case that even if some of the objects were illegal, the legal persona of the company could not have been extinguished by cancelling the certificate. Also in such a situation, the certificate is definitive and the solution will be to terminate the company. In Bowman v. Secular Society Ltd.3, it was held that if a company having illegal objects has been registered, the illegal objects do not become legal by the issue of the certificate of incorporation.
It may be noted that there is no section in the Companies Act, 2013 pertaining to conclusiveness of the certificate of incorporation. Section 7(7) of The Companies Act, 2013 provides that any person may challenge the validity of certificate of incorporation before the Tribunal, if the company is formed by furnishing false or incorrect information or suppressing any material fact. Punishment for furnishing false or incorrect information or suppressing any material fact.
Punishment for furnishing false or incorrect information at time of incorporation-
The Companies Act, 2013 prescribes severe punishment for furnishing false or incorrect information at the time of incorporation. These are as follows:
If a person provides any inaccurate or misleading information or suppresses any material information that he or she is aware of in any of the documents submitted with the Registrar in connection with the registration of a company, he or she shall be liable for action under Section 447. [Section 7(5) of the Rules].
Where a company has been incorporated by offering misleading or inaccurate representation or by suppressing any material fact or data in any of the documents or records submitted or rendered for the incorporation of that company or by malicious action, the promoters shall each be liable for the acts referred to in Section 447 as the first directors. [Section 7(6)].
After incorporation a company:
It enjoys advantages such as; independent corporate existence, limited liability, separate property (owning, enjoying and disposing property in its own name), perpetual succession (no allotted span of life), capable of enforcing its legal rights or be sued for breach of legal duties, enabling transferability of shares, separation of management and ownership and lastly, allowance for raising capital from public.
It suffers disadvantages such as; formality and complications (incorporation is time consuming, expensive and formal process), loss of privacy, corporate governance, and lifting the corporate veil.
1 ILR (1930) 40 Cal. 1 PC
2 AIR (1960) AP 123
3 AIR (1917) AC 406