Mode of Registration/Incorporation of Company :
(i) Formation of company: Section 3 of the Companies Act, 2013 deals with the basic requirement with respect to the constitution of the company. In the case of a public company with or without limited liability any 7 or more persons can form a company for any lawful purpose by subscribing their names to memorandum and complying with the requirements of this Act in respect of registration. In exactly the same way, 2 or more persons can form a private company and one person where company to be formed is one person company. Persons who form the company are known as promoters. It is they who conceive the idea of forming the company. They take all necessary steps for its registration.
One person company(OPC): Law with respect to formation of OPC provides that –
• The memorandum of OPC shall indicate the name of the other person, who shall, in the event of the subscriber’s death or his incapacity to contract, become the member of the company.
• The other person whose name is given in the memorandum shall give his prior written consent in prescribed form and the same shall be filed with Registrar of companies at the time of incorporation.
• Such other person may be given the right to withdraw his consent
• The member of OPC may at any time change the name of such other person by giving notice to the company and the company shall intimate the same to the Registrar
• Any such change in the name of the person shall not be deemed to be an alteration of the memorandum.
• Only a natural person who is an Indian citizen and resident in India (person who has stayed in India for a period of not less than 182 days during the immediately preceding one calendar year )-
o shall be eligible to incorporate a OPC;
o shall be a nominee for the sole member of a OPC.
• No person shall be eligible to incorporate more than one OPC or become nominee in more than one such company.
• No minor shall become member or nominee of the OPC or can hold share with beneficial interest.
• Such Company cannot be incorporated or converted into a company under section 8 of the Act. Though it may be converted to private or public companies in certain cases. The procedure of conversion is given in the rules 6 & 7 of the Chapter II.
• Such Company cannot carry out Non-Banking Financial Investment activities including investment in securities of anybody corporate.
• OPC cannot convert voluntarily into any kind of company unless two years have expired from the date of incorporation, except where the paid up share capital is increased beyond fifty lakh rupees or its average annual turnover during the relevant period exceeds two crore rupees.
• If One Person Company or any officer of such company contravenes the provisions, they shall be punishable with fine which may extend to ten thousand rupees and with a further fine which may extend to one thousand rupees for every day after the first during which such contravention continues.
(ii) Incorporation of company: This section 7 of the Companies Act, 2013 provides for the procedure to be followed for incorporation of a company.
(1) Filing of the documents and information with the registrar: For the registration of the company following documents and information are required to be filed with the registrar within whose jurisdiction the registered office of the company is proposed to be situated-
• the memorandum and articles of the company duly signed by all the subscribers to the memorandum.
• a declaration by person who is engaged in the formation of the company (an advocate, a chartered accountant, cost accountant or company secretary in practice), and by a person named in the articles (director, manager or secretary of the company), that all the requirements of this Act and the rules made thereunder in respect of registration and matters precedent or incidental thereto have been complied with.
• an affidavit from each of the subscribers to the memorandum and from persons named as the first directors, if any, in the articles stating that-
♦ he is not convicted of any offence in connection with the promotion, formation or management of any company, or
♦ he has not been found guilty of any fraud or misfeasance or of any breach of duty to any company under this Act or any previous company law during the last five years,
♦ and that all the documents filed with the Registrar for registration of the company contain information that is correct and complete and true to the best of his knowledge and belief;
• the address for correspondence till its registered office is established;
• the particulars (names, including surnames or family names, residential address, nationality) of every subscriber to the memorandum along with proof of identity, and in the case of a subscriber being a body corporate, such particulars as may be prescribed.
• the particulars (names, including surnames or family names, the Director Identification Number, residential address, nationality) of the persons mentioned in the articles as the first directors of the company and such other particulars including proof of identity as may be prescribed; and
• 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.
Particulars provided in this provision shall be of the individual subscriber and not of the professional engaged in the incorporation of the company [The Companies (Incorporation) Rules, 2014].
(2) Issue of certificate of incorporation on registration: The Registrar on the basis of documents and information filed, shall register all the documents and information in the register and issue a certificate of incorporation in the prescribed form to the effect that the
proposed company is incorporated under this Act.
(3) Allotment of corporate identity number (CIN): On and from the date mentioned in the certificate of incorporation, the Registrar shall allot to the company a corporate identity number, which shall be a distinct identity for the company and which shall also be included in the certificate.
(4) Maintenance of copies of all documents and information: The company shall maintain and preserve at its registered office copies of all documents and information as originally filed, till its dissolution under this Act.
(5) Furnishing of false or incorrect information or suppression of material fact: If any person furnishes any false or incorrect particulars of any information or suppresses any material information, of which he is aware in any of the documents filed with the Registrar in relation to the registration of a company, he shall be liable for action under section 447.
(6) Company incorporated by furnishing any false or incorrect information or representation or by suppressing any material fact : where, at any time after the incorporation of a company, it is proved that the company has been got incorporated by furnishing any false or incorrect information or representation or by suppressing any material fact or information in any of the documents or declaration filed or made for incorporating such company, or by any fraudulent action, the promoters, the persons named as the first directors of the company and the persons making declaration under this section shall each be liable for action under section 447.
(7) *Order of the Tribunal: where a company has been got incorporated by furnishing false or incorrect information or representation or by suppressing any material fact or information in any of the documents or declaration filed or made for incorporating such company or by any fraudulent action, the Tribunal may, on an application made to it, on being satisfied that the situation so warrants,—
(a) pass such orders, as it may think fit, for regulation of the management of the company including changes, if any, in its memorandum and articles, in public interest or in the interest of the company and its members and creditors; or
(b) direct that liability of the members shall be unlimited; or
(c) direct removal of the name of the company from the register of companies; or
(d) pass an order for the winding up of the company; or
(e) pass such other orders as it may deem fit:
Provided that before making any order,—
• the company shall be given a reasonable opportunity of being heard in the matter; and
• the Tribunal shall take into consideration the transactions entered into by the company, including the obligations, if any, contracted or payment of any liability.
[* This provision contained under the sub-section (7) is yet to be notified]
(iii) Effect of registration: Section 9 of the Companies Act, 2013 provides for the effect of registration of a company.
According to the provision from the date of incorporation (mentioned in the certificate of incorporation), the subscribers to the memorandum and all other persons, who may from time to time become members of the company, shall be a body corporate by the name contained in the memorandum. Such a registered Company shall be capable of exercising all the functions of an incorporated company under this Act and having perpetual succession and a common seal with power to acquire, hold and dispose of property, both movable and immovable, tangible and intangible, to contract and to sue and be sued, by the said name.
From the date of incorporation mentioned in the certificate, the company becomes a legal person separate from the incorporators; and there comes into existence a binding contract between the company and its members as evidenced by the Memorandum and Articles of Association [Hari Nagar Sugar Mills Ltd. vs. S.S. Jhunjhunwala AIR 1961 SC 1669]. It has perpetual existence until it is dissolved by liquidation or struck out of the register, and has the common seal. A shareholder who buys shares, does not buy any interest in the property of the company but in certain cases a writ petition will be maintainable by a company or its shareholders.
A legal personality emerges from the moment of registration of a company and from that moment the persons subscribing to the Memorandum of Association and other persons joining as members are regarded as a body corporate or a corporation in aggregate and the legal person begins to function as an entity. A company on registration acquires a separate existence and the law recognises it as a legal person separate and distinct from its members [State Trading Corporation of India vs. Commercial Tax Officer AIR 1963 SC 1811].
It may be noted that under the provisions of the Act, a company may purchase shares of another company and thus become a controlling company. However, merely because a company purchases all shares of another company it will not serve as a means of putting an end to the corporate character of another company and each company is a separate juristic entity [Spencer & Co. Ltd. Madras vs. CWT Madras [1969] 39 Comp. Case 212].
As has been stated above, the law recognizes such a company as a juristic person separate and distinct from its members. The mere fact that the entire share capital has been contributed by the Central Government and all its shares are held by the President of India and other officers of the Central Government does not make any difference in the position of registered company and it does not make a company an agent either of the President or the Central Government [Heavy Electrical Union vs. State of Bihar AIR 1970 SC 82].
(iv) Effect of Memorandum and Articles: As per section 10 of the Companies Act, 2013, where the memorandum and articles when registered, shall bind the company and the members thereof to the same extent as if they respectively had been signed by the company and by each member, and an agreement to observe all the provisions of the memorandum and of the articles. All monies payable by any member to the company under the memorandum or articles shall be a debt due from him to the company.
As a result, a number of legal relationships are formed between different parties and the company which are described below:
(a) Between the members and company: The memorandum and articles constitute a contract between the members and the company. In consequence, the members are bound to the company under a statutory covenant. For instance, it has been held in Bradford Banking Co. vs. Briggs that where the articles give the company a lien upon each share for debts due by shareholders to the company, and where a shareholder mortgages his shares and the mortgagee serves notice thereof upon the company, the mortgagee would have priority over the company, only if the shareholder had incurred a liability to the company after the notice of the mortgage was given to the company. If, on the other hand, the shareholder had incurred a liability before the notice of mortgage was given to the company, the company would have the priority.
(b) Between the company and the members: Views differ on the questions as to whether and how far the memorandum and articles bind the company to the members. One view is that it is bound just as its members are. Another view is that the company is not wholly bound. But it seems that courts, instead of conforming to either of these views, have elected to take a via media. It is not true to say that the company is wholly bound so that any member can enforce any articles against it. But it is bound to the extent that any member can sue it so as to prevent any breach of the article which is likely to affect his right as a member of the company [Hickman vs. Kent Sheepbreeder’s Association [1985] 1 Ch. 881]. Thus an individual member can file a suit against the company to enforce his individual rights, e.g. right to contest election for directorship of the company, right to get back his shares wrongfully forfeited, right to receive a share certificate, share warrants to bearer or notice of general meetings etc. [Pender vs. Lushington [1817] 7 Ch. D. 70; Nagaffa vs. Madras Race Club, AIR 1951 Mad. 83 C.L. Joseph vs. Los AIR 1965 (Ker.) 68].The member suing in such cases “sues not in the rights of a member but in his own right to protect from invasion of his own individual right as a member” [Per Jenkis L.J. in Edwards vs. Halliwell [1950] 2 All ER 1964 at p. 1067].
(c) Between member inter se: In the case of Wood vs. Odessa Water Works Co. [1989] 42 Ch. D. 363, Sterling J. Observed: The articles of Association constitute a contract not merely between the shareholders and the company but between each individual shareholder and every other.
The foregoing principle had been further clarified by the decision in another English case of Welton vs. Saffary [1897] A.C. 315. In this case, the learned Judge observed that “It is quite true that the articles constitute a contract between each members of the company but the articles do not, any the less in my opinion, regulate the right inter se. Such rights can only be enforced by or against a member through the company or by the liquidator representing the company, but no member has as between himself and another member any right beyond that which the contract with the company gives him”.
This proposition is not free from controversy because of the conflict of judicial opinions; in fact, until the decision in Rayfide vs. Hands [1960] Ch. 1, weightage of judicial opinion was against a member being bound to other member. In this case, the articles of a private company provided that “every member who intends to transfer shares shall inform the directors who will take the said shares equally between them at a fair value. “It was held that articles bound the directors as members to do so and that this obligation was a personal one, which could be forced against them by other members directly, without joining the company as a party. Obviously, the Court was influenced by the fact that the company was private company, which “bears a close analogy to partnerships”.
(d) Between the company and the outsiders: The memorandum and the articles do not constitute a contract between the company and outsiders. Neither the company nor the members are bound by the articles to outsiders, since these constitute a contract between members, inter se, and the outsider is not a party to the articles although he may be named therein.
Nonetheless, an outsider is entitled to assume that in respect of contract entered into with him all the formalities required to be carried out under the articles or memorandum have been duly complied with [Royal British Bank vs. Turquand [1956] 6 E.B. 327].
(v) Commencement of business, etc : (1) Section 11 of the Companies Act, 2013 seeks to provide that a company having a share capital shall not commence any business or exercise any borrowing powers unless—
(a) a declaration is filed by a director with the Registrar stating that –
♦ every subscriber to the memorandum has paid the value of the shares agreed to be taken by him, and
♦ the paid-up share capital of the company is not less than 5 lakh rupees in case of a public company and not less than 1 lakh rupees in case of a private company on the date of making of this declaration; and
(b) the company has filed with the Registrar a verification of its registered office
(2) If any default is made in complying with the requirements of this section:
♦ The company – liable to a penalty which may extend to five thousand rupees, and
♦ Every officer who is in default – punishable with fine which may extend to one thousand rupees for every day during which the default continues.
(3) Where no declaration has been filed with the Registrar within 180 days of the date of incorporation of the company and the Registrar has reasonable cause to believe that the company is not carrying on any business or operations, he may along with the penalties/punishment, initiate action for the removal of the name of the company from the register of companies under Chapter XVIII (Removal of names of companies from the register of companies).
Vide Notification S.O. 1352(E) dated 21.05.2014 in exercise of powers conferred by Section 458 of the Companies Act, 2013 & in supersession of the notification of the Government of India, MCA, dated the 10.07.2012 published in the Gazette of India, Extraordinary, Part-II, Section 3, Sub-Section (ii) vide no. S.O. 1539(E), dated 10.07.2012, in so far as it relates to items (a) to (f) & items (n), except as respect things done or omitted to be done before such supersession, the Central Govt. hereby delegates to the RD at Mumbai, Kolkata, Chennai, Noida, Ahmedabad, Hyderabad & Shillong, the power & functions vested in it under the following sections of the said Act, subject to the condition that the Central Govt. may revoke such delegation of powers or may itself exercise the powers & functions under this section [i.e.11(3)], if in its opinion, such course of action is necessary in the public interest.
(vi) Registered office of a company: Section 12 of the Companies Act, 2013 seeks to provide for the registered office of the companies for the communication and serving of necessary documents, notices letters etc. The domicile and the nationality of a company is
determined by the place of its registered officer. This is also important for determining the jurisdiction of the court.
(1) Registered office: From the 15th day of its incorporation and at all times thereafter a company shall have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it.
(2) Verification of registered office: The company shall furnish to the Registrar verification of its registered office within a period of thirty days of its incorporation .
(3) Labeling of company: Every company shall—
♦ paint or affix its name, and the address of its registered office, and keep the same painted or affixed, on the outside of every office or place in which its business is carried on, in a conspicuous position, in legible letters, and if the characters employed are not those of the language/s in general use in that locality, then also in the characters of that language/s.
♦ have its name engraved in legible characters on its seal;
♦ get its name, address of its registered office and the Corporate Identity Number along with telephone number, fax number, if any, e-mail and website addresses, if any, printed in all its business letters, billheads, letter papers and in all its notices and other official publications; and
♦ have its name printed on hundies, promissory notes, bills of exchange and such other documents as may be prescribed:
(4) Name change by the company: Where a company has changed its name/s during the last two years, it shall paint or affix or print, along with its name, the former name or names so changed during the last two years.
(5) In case of OPC: The words ‘‘One Person Company’’ shall be mentioned in brackets below the name of such company, wherever its name is printed, affixed or engraved.
(6) Notice of change to registrar: Notice of every change of the situation of the registered office, verified in the manner prescribed, after the date of incorporation of the company, shall be given to the Registrar within 15 days of the change, who shall record the same.
(7) Change by passing of special resolution: The registered office of the company shall be changed only by passing of special resolution by a company—
♦ in the case of an existing company, outside the local limits of any city, town or village where such office is situated at the commencement of this Act or where it may be situated later by virtue of a special resolution passed by the company; and
♦ in the case of any other company, outside the local limits of any city, town or village where such office is first situated or where it may be situated later by virtue of a special resolution passed by the company:
(8) Change of registered office outside the jurisdiction of registrar: Where a company changes the place of its registered office from the jurisdiction of one Registrar to the jurisdiction of another Registrar within the same State, there such change is to confirmed by the Regional Director on an application made by the company.
(9) Communication and filing of confirmation: The confirmation of change of registered office from jurisdiction of one registrar to another registrar within the same state, shall be–
♦ communicated within 30 days from the date of receipt of application by the Regional Director to the company, and
♦ the company shall file the confirmation with the Registrar within a period of 60 days of the date of confirmation who shall register the same, and
♦ certify the registration within a period of thirty days from the date of filing of such confirmation.
(10) Certificate, a conclusive evidence of compliance of requirements of this Act: The certificate shall be conclusive evidence that all the requirements of this Act with respect to change of registered office have been complied with and the change shall take effect from the date of the certificate.
(11) In case of default: If any default is made in complying with the requirements of this section, the company and every officer who is in default shall be liable to a penalty of one thousand rupees for every day during which the default continues but not exceeding one lakh rupees.
(vii) Act to override memorandum, articles, etc.
According to section 6 of the Companies Act, 2013, the provisions of this Act shall have overriding effect on provisions contained in memorandum or articles or in an agreement or in resolution passed by the company in the general meeting or by its board of directors, whether they are registered, executed or passed before or after the commencement of this Act.
Any provision contained in any of the above mentioned document, shall be void, to the extent to which it is inconsistent to the provisions of this Act.