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Formation of a company under companies Act ( as on March 2011)

How to form a company?

The whole process of formation of a company may be divided into four stages, namely:

(i) Promotion
(ii) Registration
(iii) Floatation/Raising of Capital
(iv) Commencement of Business.

(i)   Promotion

        Who is a Promoter?

 The term promoter is “a term not of law but of business”, usefully summing up, “a number of business operations familiar to the commercial world by which a company is brought into existence”. However, the persons assisting the promoters by acting in a professional capacity do not thereby   become promoters themselves . 

 Legal Position of a Promoter

    Promoter stands in a fiduciary position towards the company. In other words, he is not allowed to make

   secret profits .

 Pre-incorporation contracts are Void-ab-initio. However, pre-incorporation contracts shall be valid if:

The contract is made for the purpose of the company and the contract is warranted by the term of in

corporation. The company adopts the transactions after incorporation.

(ii)                        Registration/Incorporation

Private Company - Minimum Number of Members required – 2.

Public Company - Minimum Number of Members required – 7.

Steps

 1.   Application for availability of name: Three names in order of priority conforming to the provisions of the Act and the Guidelines issued by Department of Company Affairs in this regard:

   Name to end with the word(s) ‘Limited’ or ‘Private Limited’, as the case may be, except:

Section 25 Companies

Govt. Companies (need not use Pvt. Ltd.

Name should not be identical or too similar to the name of an already existing company.

Should not include the name of a registered trade mark.

2. Preparation of Memorandum and Articles of Association

Memorandum defines and limits the scope of activities of a company.

     Contents of Memorandum

Name clause

Registered office clause

Object clause

Liability clause

Capital clause

Subscription Clause

3. Preparation of other documents

Power of Attorney in favour of a professional to effect registration.

Consent of Directors (in case of a Public Company)

Particulars of Directors, Manager, Secretary, etc. in the prescribed form.

Notice of registered address - to be supplied within 30 days of incorporation.

      Statutory Declaration

To the effect that all requirements of law with respect to incorporation have been duly complied with. The declaration to be signed by:

Advocate of Supreme Court or High Court; OR

C.A../C.S. practising in India and associated with the formation of the company; OR

Director, Manager, Secretary of the company (as named in the Articles)

(ii)                        Floatation/Raising of Capital

         (iv)    Commencement of Business

A. Certificate of Incorporation :       Effect of Certificate of Incorporation (Section 34)

   On incorporation, the association of persons becomes a body corporate by the name contained  in  the memorandum, capable forthwith of exercising all the functions of an incorporated company and having perpetual succession and a common seal but with such liability on the part of the members to contribute to the assets of the company in the event of its being wound-up as is mentioned in the Act.

  B  Conclusiveness of Certificate of Incorporation is COC (Section 35)

Conclusive to the effect that all requirements of law relating to  registration & matters  precedent &  and incidental thereto have been duly complied with.