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Group 3, Section B Aritra Raymukherjee
Ajay Kumar
Raunak Hisaria
Kanika Agarwal
Sankhadeep Biswas
Vinita Deswal
Shashi Joshi
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AGENDA
FORMATION OFA COMPANY
MEMORANDUMOF
ASSOCIATION
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FORMATION OF A
COMPANY
THE COMPANIES ACT, 1956
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FORMATION OF A COMPANY
PromotionIncorporation or
RegistrationCapital
SubscriptionCommencement
of Business
Public Company(having share capital)
Private Company
Public Company(not having share capital)
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STAGE 1: PROMOTIONThe discovery of business opportunities and the subsequent
organization of funds, property and managerial ability into abusiness concern for the purpose of making profits therefrom.
Discovery ofan Idea
Preliminaryand DetailedInvestigation
Assembling
of BusinessElements
Provision ofFunds
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THE PROMOTER
It is a term not of law but of business, usefullysumming up in a single word a number of businessoperations familiar to the commercial world by whicha company is generally brought into existence
L.J.Bowen
One who undertakes to form a company withreference to a given project and to set it going, andwho takes the necessary steps to accomplish that task
JusticeC.Cockburn
An industrial expert who, with the help of a big teamof experts, does all the preliminary work necessarybefore a company can be brought into existence.
GeneralDefinition
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FUNCTIONS OF A PROMOTER
Selection of Signatories to theMemorandum
Selection of First Directors
Directs the solicitors to preparethe Memorandum, the Articles
and other Documents necessaryto be filled with the Registrar ofthe Companies
Funds for RegistrationExpensesSecure the Initial Capital
for the Company
Other Worries(Land, Machinery, Plant etc)
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Who can be a PROMOTER?
Individual Firm
Association
of PersonsCompany
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Legal Position of a Promoter
Full Disclosure of Relevant Facts
including profits, if any,To the board of Directors ORTo the shareholders as a bodyBY Means of Prospectus.
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Promoters Liability
SUE
Sue the promoter
Recover the same with interest
SET ASIDE
Set aside the transaction or contract with thepromoter i.e. it may restore the property to him andrecover its money.
SUE forDAMAGES
Made liable to the original allottee of shares for themisstatements contained in the prospectus(Sec.62)
Imprisonment of 2 years, or fine upto `50,000(Sec.63)
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WINDINGUP
On an application made by the official liquidator, the court may make thepromoter liable for misfeasance or breach of trust(Sec.543)
On allegation of fraud by liquidator, The court may order for promoters publicexamination.(Sec.478, Sec 579)
Promoters Liability
Both are Liable
Sued
Can ask for Contribution
In Case ofDeath His Estate is LiableIn Case ofInsolvency
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PROMOTERS REMUNERATION Remuneration
o Cash
o Partly in Cash and Partly in Shares and Debentures of the company
No agreement with company after incorporation =Promoter cannot file a suit for recovery of remuneration
and other preliminary expenses incurred by him Why? Because he acted for a person(or company in this
case) who is yet to take birth.
IN CASE OF PUBLIC COMPANY having a SHARE
CAPITALNo liability of the company to pay promotersremuneration TILL the company has got the certificate tocommence business.
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PRE-INCORPORATION CONTRACTS
Pre-incorporation ContractsOR Preliminary Contracts
Personal Liability ofthe Promoter
Cannot be ratified
A New Contract is required
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When the promoters of a company have, before its incorporation,entered into a contract for the purpose of the companyand suchcontract is warranted by the terms of its incorporation, thecontract may be specifically enforced by or against the company, ifthe company has accepted the contract and communicated suchacceptance to the other party to the contract.
Under this section, the company can validly ratify or adopt onlysuch types of pre-incorporation contracts as are necessary for theincorporation and working of the company, i.e. a contract forprinting the Memorandum and Articles of Association or supplyof machinery indispensable for the functioning of the company.
Private Company becomes legally bound , the moment it enters into
a fresh contract or ratifies a contract Public Company having a share capital, is not legally bound TILL it
gets the certificate for commencement of the business.
PRE-INCORPORATION CONTRACTS
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Provisional Contracts
PRIVATE CompanyPublic Company
LAST 2 STAGESCapital Subscription, Certificate of Commencement of Business
WithoutSHARE Capital
2 STAGESPromotion and Incorporation
WithSHARE Capital
Pre-incorporation ContractsPre-incorporation Contracts
Valid Contracts Provisional Contracts
Valid Contracts
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INCORPORATION or REGISTRATION
STAGE 1: PROMOTION
STAGE 2: REGISTRATION OR INCORPORATION
To ascertain from the Registrarof Company if the Name is
available or not
To get Letter of Intent(IndustrialLicense Later) if the companys
business comes under thepurview of
Industrial(Development andRegulation) Act, 1951
To Fix underwriters, brokers,bankers, solicitors, auditors and
signatories to the memorandum
To get Memorandum of
Association prepared andprinted
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ACCOMPANIED DOCUMENTS Memorandum of Association duly stamped, signed and witnessed.
Articles of Association properly stamped, duly signed by thesignatories of the Memorandum and witnessed.
o OPTIONAL in case of a public company with limited liability, which may adoptTable A in its entirety.
o If such a case, then the same should be mentioned in the Memorandum i.e.Registered without Articles
The Agreement, if any, which company proposes to enter with anyindividual for appointment as its manager or whole time director ormanager.
A written consent of the directors to act in that capacity, dulysigned by each director, along with a written undertaking by themto take the necessary qualification shares, as provided in the sharecapital.
o EXCEPTION: The document is not required to be filed in the case of (i) Acompany without share capital, (ii) A Private Company (iii) A company whichwas private prior to the becoming a public company.
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Notice of Address of the registered office of the company,within 30 days of incorporation.
A statutory declaration, stating that all the legal requirements
of the Act before to the incorporation have been complied
with. It must be signedo Advocate of the Supreme Court or of a High Court
o Attorney or pleader entitled to appear before a High Court
o A secretary or Chartered Accountant, in whole time practice in India, engaged
in the formation of the company.
o
Person named in the Articles as a director, Managing Director, Manager orsecretary of the company.
ACCOMPANIED DOCUMENTS
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AFTER PROVIDING DOCUMENTS
Scrutinizingby Registrar
Certificate ofIncorporation
CommonSeal(Sec. 34(2))
CorporateIdentity
Number (CIN)
Birth of Organization
CompaniesAfter
1st November2000
CompaniesBefore
1st November2000
All providedCIN Number
ProvidedCIN Numberwithin 1year, i.e byApril 2002
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CERTIFICATE OF
INCORPORATION is CONCLUSIVESection 35 states that the certificate, once issued, is conclusive evidenceof the fact that the company has been duly registered.
Certificate ofIncorporation
is issued
Signatories ofMemorandum
Signatures ofthe
Memorandum
Sevensubscribers to
theMemorandum
Memorandum
Signatories are INFANTS
Forged Signatures Seven Signatures not present
Materially Alteredafter signatures
Still VALID
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CAPITAL SUBSCRIPTION
Task of obtaining the necessary capital for the company
Conforming to the guidelines for disclosure and investor protection, issued bySEBI regarding public issues of capital
The Directors file a copy of the prospectus with the Registar.
Invite public to subscribe to the shares of the company by putting theprospectus in circulation.
If minimum 90% of the capital issue and other conditions are fulfilled , thedirectors pass a formal resolution of allotment.
Allotment letters are posted, return of allotment is filed with the Registrar
Share certificates are issued to the allotees in exchange of allotment letters
IF the subscribed capital is less than minimum subscription or the company
could not obtain the minimum subscription(including devolvement ofunderwriters) within 60 days from the date of closure of issue, all moneys willbe refunded and no allotment can be done.
IF there is no Prospectus , the company has to file with the Registrar aStatement in lieu of Prospectus at least 3 days before the directors proceedto pass the first allotment resolution.
Only for Public Companies with Share Capital
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SECURITIES AND EXCHANGE
BOARD OF INDIA(SEBI) Established in terms of SEBI Act, 1992
It regulates the issue of capital to the public.
Conferred wide powers to make rules and regulations toprotect the interests of investors in securities and to regulate
the securities market. Issued Guidelines of Disclosure and investor Protection, on
11th June 1992 for compliance by the companies makingcapital issues to the public.
SEBI has issued new guidelines for disclosure and investorprotection, 2000
These guidelines must be complied with before making apublic offer for sale of shares and debentures.
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COMMENCEMENT OF BUSINESS Documents to be filed with the Registrar to secure the
certificate of commencement of business(a) Declaration that shares payable in cash have been alloted up to the
amount of minimum subscription
(b) Declaration that every director has paid in cash the application andallotment money on his shares in the same proportion as others.
(c) Declaration that no money is liable to become refundable to theapplicants bu reason of failure to apply for or to obtain permissionfor shares or debentures to be dealt in on any recognized stockexchange.
(d) A statutory declaration in the prescribed form by one of the directorsor the secretary or a secretary in whole time practice that the above
requirements have been complied with.
In case company not issuing a prospectus to the public, thendocuments of (b) and (d) and a copy of statement in lieu ofprospectus have to be submitted.
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On receiving the trading certificate, if the company decides tostart a new business, which is not included in the mainobjects of the company(i.e. included in the other objects), itshall obtain either the authority of a special resolution of the
company or of an ordinary resolution and the approval of theCentral Government.
A declaration by the secretary or a director that therequirement as to resolution has been complied with, must befiled with the Registrar.
For any contravention, every person responsible shall bepunishable with fine upto `5000 for every day ofcontravention.(Sec 149(6)]
COMMENCEMENT OF BUSINESS
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MEMORANDUM OFASSOCIATION
THE COMPANIES ACT, 1956
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DEFINITION
Memorandum means the memorandum of
association of a company as originally framed or asaltered from time to time in pursuance of anyprevious company laws or of this Act.
Section 2(28)CompanyAct
The memorandum of association of a company isits charter and defines the limitation of the powersof a company.
LordCairns
The purpose of the memorandum is to enable theshareholders, creditors and those who deal withthe company, to know what is its permitted rangeof enterprise.
LordMacmillan
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Importance of the Memorandum
1. Delimits the capacity to contractof a company.A company cannot undertake operations that are not mentioned in the memorandum.
2. Constitution of a company in relation to the outside world.
It is a public document and persons dealing with the company may ask for its copies onpayment of a nominal charge. Hence it is regarded as an unalterable charterof a company.
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DOCTRINE OF ULTRA VIRESUltra Vires=Beyond the powers of
According to this Doctrine, all such acts or transactions of a
company which are ultra vires the object clause of its
Memorandum of Association shall be wholly null and void and
can never be successfully ratified and validated, even though all
the shareholders consent or purport to ratify such transactions.
Scope under theMemorandumof Association
Ultra ViresNULL
andVOID
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IMPORTANCE
Company is treated as an artificial person, devoid ofo CONSCIENCE
o INTELLIGENCE
And therefore cannot look after its own interests
Prohibits the use of corporate capital in Unauthorised
Activitieso Protects the interest of the shareholders and creditors.
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Points to be Taken into Account
Directors and other officers of the company should ensure
that the companys action remains in the ambit of object
clause in the Memorandum of Association.
If the contract is entered with another company, thecompanys memorandum should contradict the memorandum
of the other company.
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CONTENTSSection 13 sets out the contents of a memorandum. The documentmust contain the following clauses:
1. The name clause:
The corporate name of the company is stated.a. In case of companies limited by shares or limited by guarantee, the word
Limited or Private Limited must be the last word in the name.
Exception:
Section 25: Charitable companies (formed to promote art, commerce, science,religion, etc.) are permitted to register with limited liability but without the wordlimited in their name.
b. The name chosen must not be undesirable in the opinion of the Central Govt.
i. Too identical/similar to the name of another existing company/firm so as tolead to confusion.
ii. Misleading, i.e. suggesting that the company is connected to a Govt.department or any municipality or any local authority.
If through inadvertence, a company is registered by an almost identical name, thecourt will grant an injunction restraining it from using the name.
Once a company is registered with a name, the name is required to appear with theaddress of the registered office In front of every office/place of business in aconspicuous manner in one of the local languages and on all cheques, bills, letters,
notices and other official publications etc. of the company.
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2. Theregistered office clause:The second clause of the memorandum must mention he name of
the State in which the registered office of the company is to be
situated.
Domicile: Place of registration.Residence: Place of management and control.
Actual address of the registered office is not required to be stated in
the memorandum, but every company must have specified premises
in a town fixed as its registered office from the day it begins to carryon business or as from the 30th day after the date of incorporation,
whichever is earlier.
CONTENTS
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3. TheObject ClauseThe objects clause of the memorandum sets out the
objects or vires of the company. A company is not
legally entitled to do any business other that specified
in the objects clause.
The objects must satisfy the following:a. The objects of the company must not be illegal.
b. They must not be against the provisions of the Companies Act.
c. They must not be against public policy.
d. They must be stated clearly and definitely.
e. They must be elaborate. The main objects, as well as the subsidiaryor theincidental objects too should be stated.
CONTENTS
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Implied Powers:
Apart from the powers expressly provided in the objects clause,
a trading company also has certain implied powers:
a) To borrow moneyb) To act by agents
c) To compromise disputes
d) To mortgage or sell land
CONTENTS
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4. The liability clause:This clause states that the liability of members is limited to the
amount, if any, unpaid on their shares.
If it is proposed to register a company limited by guarantee,
this clause will state the amount which every memberundertakes to contribute to the assets of the company in the
event of its winding up.
A company registered with unlimited liability need not give this
clause in its Memorandum of Association.
CONTENTS
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5. The Capital Clause:
Every limited company having a share capital must statethe amount of its share capital with which the company isproposed to be registered and the division thereof intoshares of a fixed denomination, in this clause.
There is no legal limit on the amount of share capital, butthe denomination of each share should be same.
An unlimited company having a share capital is notrequired to have the capital clause in its memorandum.
CONTENTS
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6. The Association or subscription clause:Declaration of association is made by the signatories of
the memorandum under their signatures duly attested by
witness, that they desire to be formed into a company
and that they agree to the purchase of qualificationshares, if any.
There must be at least 7 signatories in case of a public
company, and 2 in case of a private company.
CONTENTS
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ALTERATION OF MEMORANDUM As per Section 16, a company shall not alter the conditions
contained in its memorandum, except in the cases, in the
mode, and to the extent, for which express provision is made
in the Companies Act.
Alteration of Name Clause
Alteration of registered office clause
Alteration of objects clause
Alteration of Liability clause
Alteration of Capital Clause
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Alteration of Name Clause
A company may, by passing special resolution, and with approval
of Central Government in writing, change its name In case where the only change in name is the addition thereto or
deletion therefrom, like the word private consequent on the
conversion of a public company into a private company or viceversa, no need of approval of Central Government is required.
If through inadvertence or otherwise, a companys name is wronglyregistered, by a name which, in the opinion of the CentralGovernment, is identical with the name of another existingcompany or inappropriate, it can be changed by passing ordinaryresolution, and obtaining the approval of Central Government in
writing.o The central Government can ask to change the name within 12 months of the first registrationor registration under a changed name, direct the company to change the name
o If a direction is issued, the company must change the name within three months, from thedate of direction, unless the time is extended
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Alteration of Registered Office
Within the same city
Passing a Boards resolution only to that effect
Notice to Registrar within 30 days of the change.
Within different city in the same State Passing a special resolution authorising the
change
File its copy with the Registrar within 30 days.
Notice to Registar within 30 days of the shiftingof office.
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From jurisdiction of one Registrar to another in same state
Passing of a special resolution
Application to Regional Director
Confirmation of the Regional Director.
Memorandum (altered)+ Confirmation (Regional Director) submittedto Registrar of companies within 2 months.
Registrar issues certificate of registration within 1 month.
Registrar transfers the records to the other Registrar under whosejurisdiction the company is to be shifted.
New location of the office is given to Registrar within 30 days ofshifting.
Alteration of Registered Office
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Alteration of Registered Office
From one state to another state
Special registration must be passed by the company and a copythereof to be filed with the Registrar within 30 days
Sanction of the Company Law Board is to be obtained.
A certified copy of the Company Law Boards confirmation + aprinted copy of the altered memorandum to be filed with theRegistrars of both States within 3 months of the order.
Certificates of Registration re obtained from both thrRegistrars.
Reg. Office shifted to new location.
Notice of new address given to the Registrar within 30 days ofshifting.
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Alteration of Objects Clause
to carry on its business more economically or more efficiently.
To attain its main purpose by new and improved means
To enlarge or change its local area of operations To carry on some business which can be suitably combined
with the present business of the company.
To restrict or abandon any of its objects specified in thememorandum.
To amalgamate the company with another company.
To sell or dispose of the whole or any part of the undertakingof the company.
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Passing a special resolution only. Filing of copy of special resolution authorising the alteration together with
the printed copy of the memorandum as altered to the Registrar within 30
days of passing of resolution.
Issue of certificate of Registration by the Registrar within one month
The alteration is effective only on getting this certificate ofregistration.(Sections 17, 18, 19)
Alteration of Objects Clause
A entirely new resolution, in addition to the above resolution, has to be passed atthe same general meeting.The copy of the second resolution is to be filed with the Registrar within 30 daysof passing the resolution
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Limited Company, or Company Limited by Liability
The same has to be agreed to by each and every member concerned.(Sec.38)
The liability of Directors, Managing Directors or Managers can be madeunlimited by passing a special resolution , if the Articles so permit and ifthe office concerned has accorded his consent to the liability become
unlimited(Sec 323)
Unlimited Liability Company
To make it a limited liability company, a special resolution has to be passedand the Courts sanction has to be approved.
A copy of the special resolution is to be filed with the Registrar within 30days of passing the resolution and the Courts order has to be filed within 3months.
Alteration is effective after the filing with the Registrar.
A new liability clause is to be added in the memorandum.
Alteration of Liability Clause
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Increase its authorised share capital
Consolidate or subdivide the whole or any part of its existing shares into
shares of larger or smaller denominations.
Convert its fully paid up shares into stock or vice versa. Cancel its unissued shares i.e. the shares not subscribed for by any person
and diminish the amount of its authorised share capital by the amount of
the shares so cancelled.
Alteration of Capital Clause
A company can make any of these alterations by passing an ordinaryresolution IF it is authorised by its Articles to do so.
If the Articles do not provide so, the Articles must be changed by passing aspecial resolution.
Notice, along with the changed Memorandum and a copy of resolution has tobe given to the Registrar
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Thank you