ASSIGNMENT SET – 2LEGAL ASPECTS OF BUSINESS - MB0035Question -1). What is process of an enterprise to get incorporated as acompany?Answer -1)
. The process of formation of a company can be divided anddiscussed under the following four stages:1.Promotion;2.Incorporation or Registration;3.Capital subscription;4.Commencement of business.Of these stages only the first two are necessary for the formation of a privatecompany and of a public company not having any share capital. They maycommence business immediately after they have received a certificate of incorporation. But a public company having a share capital has to passthrough all the four stages mentioned above before it can commence businessor exercise any borrowing powers.
Promotion:
Before a company can be formed, there must be some personswho intend to form a company and who take the necessary steps to carry thatintention into operation. Such persons are called promoters. It is they whoconceive the idea of forming the company and it is they who take thenecessary steps to incorporate it by registration. The promotion of a companyis comprehensive term denoting that process by which a company isincorporated and floated or established financially as a joint concern by theissue of a prospectus.The ‘promotion’ is the first stage in the formation of a company. Promotionmay be defined as “the discovery of business opportunities and thesubsequent organisation of funds, property and managerial ability into abusiness concern for the purpose of making profits therefrom.”
The promoter:
The promoter of a company is a person who does thenecessary preliminary work incidental to the formation of a company. The word‘promoter’ has not been defined anywhere in the Companies Act. Palmer hasdefined a ‘promoter’ as “a person who originates a scheme for the formation of the company, has the memorandum and articles prepared, executed andregistered and finds the first directors and settles the terms of the preliminary
contracts and prospectus (if any) and making arrangement for advertising andcirculating the prospectus and placing the capitals is a promoter.”
Incorporation of a company:
Any seven or more persons or where thecompany to be formed will be a private company, any two or more persons,associated for any lawful purpose may, by subscribing their name to amemorandum of associations and otherwise complying with the requirement of this Act in respect of registration, form an incorporated company, with or without limited liability.
Question -2). Describe in detail the clauses in the Memorandum of Association.Answer -2)
.
Memorandum of Association:
Section 2(28) defines it as “TheMemorandum of Association of a company as originally framed or as alteredfrom time to time in pursuance of any previous companies or of this Act”. Itsets out the constitution of the company and defines the scope of the activitiesof the company. It is the foundation on which the structure of the companydepends. It also defines the relationship of the company with the public. As theinterests of the shareholders, creditors and other members of the public are tobe protected by law, this document cannot be altered easily. It was regardedas an unalterable charter of a company in England, until the year 1980, whenthe Act was amended to allow alterations in certain cases and to a certainextent. Section 16 of the Indian Companies Act lays down that the conditionsin the memorandum cannot be altered except in the cases and in the manner and to the extent provided in the Act.
Importance of Memorandum:
1.Memorandum of Association of a company is its charter and defines thelimitations of the powers of the company, established under the Act.2.The Memorandum contains the fundamental conditions upon whichalone the company is allowed to be incorporated.3.The Memorandum of Association is the most important document withregard to its constitution.4.It is the foundation on which the whole super structure of company isbuilt-up.5.Its purpose is two fold. The first is the prospective inventor knows withinwhat field his money is to be risked. Secondly, outsiders also know thenature of the activities of the company and their rights against thecompany in times of breach of contracts.
6.The memorandum is the basis of the company on which is existencedepends.Section 9 lays down that the memorandum cannot contain anything contrary tothe provisions of the Act. The memorandum must be signed at least by sevenmembers in the case of a public company and two members in the case of aprivate company. It is to be divided into paragraphs, numbered consecutivelyand printed. It must be dated and duly stamped.
Contents of Memorandum of Association (Section 13):i) Name clause:
A company may have any name which is not undesirable inthe view of the Central Government. For example, the name cannot beidentical or similar to the name of another existing company. It must contain atits end, the word ‘Limited’ if it is a public limited company or the words ‘PrivateLimited’ if it is a private limited company. But companies formed for thepromotion of art, science, etc., may be exempted from adding words “Limited”or “Private Limited” as the case may be, by means of general or special order granted by the Central Government under Section 25. Section 147(1) laysdown that the name must appear on the outside of every office or place of business in a conspicuous manner and on all bills, notices, etc., of thecompany.
ii) The Situation Clause:
It shows the State in which the registered office of the company is situated.
iii) The Objects Clause:
It states separately (1) the main objects and objectsancillary or incidental to the main objects to be pursued by the company and(2) other objects. It defines the powers of the company beyond which, thecompany cannot act. But it cannot contain the objects or powers which arecontrary to the provisions of the Act.
iv) The Liability Clause:
It states whether the liability of the members islimited to the extent of the nominal value of the shares or the extent of theamount guaranteed by the members or unlimited.
v) The Capital Clause:
It states the amount of the capital and the way inwhich it is to be divided into shares.
vi) The Association and Subscription Clause:
All the signatories of thememorandum make a declaration that they are desirous of forming themselvesinto a company and that they agree to take the number of shares mentionedagainst their respective names given therein, with their addresses andoccupations.
Question -3). Discuss the need for the development of cyber laws.
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