MEANING & FORMATON OF A COMPANY

LEGAL ASPECTS OF BUSINESS (LAB) PROJECT PRESENTATATION

26/02/2011

SECTION F / GROUP- 1

Group Members:
Sharad Bajaj S Bharadwaj
Ravi Bhambhani S.K Chakravarthy
Rohit Mantri Sandeep Rawat
Rohan Dawani Sanjay Rughwani
Rohit Laumas Ritu
• The history of Indian company law began with the Companies Act of 1850,
modelled on British Companies Act of 1844.
• The concept of Limited Liability was applied in the new joint stock
Companies Act, 1857.
• Between 1850 and 1882, the Companies Act was amended many times and
the act of 1882 repealed all the previous laws and remained in force till
1912.
• The Indian Companies Act of 1913 was the result of concerted effort for a
consolidated and comprehensive law and was based on the British
Companies Act of 1908.
• After Independence it was found that the Companies Law should be
amended again.
• Therefore the Companies Act of 1956 was passed and it came into force on
1st April, 1956.
• As per Section 3(1)(i) “a company means a company formed
and registered under this Act or an existing as defined in
Section 3(1)(ii)”.

• As per Section 3(1)(ii) of The Companies Act of 1956, “an

existing company means a company formed and registered
under any of the previous Company Law” is a company.
• A Company is a voluntary association of persons formed for the
purpose of doing business having a distinct name and limited
liability.
• It is a juristic person having separate legal entity distinct from
the members who constitute it, capable of rights and duties of its
own and endowed with the potential of perpetual succession.
• A company is not a citizen so as to claim fundamental rights
granted to citizens.
• It is enough that the person competent to represent a company
presents the application on behalf of the company.
• Company is a 'juristic person' and it can file a suit as an 'indigent
person'.
• Incorporated association
• Artificial legal person
• Separate Legal Entity
• Perpetual Existence
• Common Seal.
• Limited Liability
• Transferability of Shares
• Separate Property
• Delegated Management
• In the case of a dishonest and fraudulent use of the facility of
incorporation, the corporate veil is lifted by law and the law
identifies the person who is behind such dishonest and
fraudulent use of facility of incorporation.
• Case of Prevention of fraud or improper conduct, Gilford
Motor company V. Horne.
• Case of punishment for contempt of court - Jyoti Limited V.
Kanwaljit Kavr Bhasin
Benefits:
• Personal Liability Protection.

• Protection From Legal Action.

• Tax Advantages.

• Raising New Capital.

• Transferring Ownership.

• Business Credibility.

Disadvantages:
• Double Taxation.

• Statutory Compliance Costs

• Loss of flexibility.
• Although, a company is regarded as a legal person (though
artificial), it is not a citizen either under the Constitution of
India or the Citizenship Act, 1955.
• This is also the conclusion of the special bench of the Supreme
Court in State Trading Corporation of India Ltd.V. Commercial
Tax Officers.
• Does a Company have Nationality And Residence?
• Any company association or partnership carrying on banking
business with more than ten members or carrying on any
other business with more than twenty members that has for
its object the acquisition of gain, without being registered
under the Companies act, shall be considered an illegal
association.
 Major difference between companies and partnerships may be
considered under the following headings:

• Formation
• Status at Law
• Transfer Of Shares
•  Number Of Members
• Management
• Agency
• Liability Of Members
• Powers
• Termination
• By Mode of Incorporation

• On the basis of Control

 Holding Company

 Subsidiary Company
• On the basis of Number of Members
 Public Company

 Private Company

• On the basis of Ownership

 Government Companies

 Non-Government Companies

• On the basis of Nationality

 Indian Companies

 Foreign Companies
• Members
• Number of Directors
• Capital Requirement
• Director appointment, remuneration
• Subscription
• Transferability of shares
• Statutory Meeting, Quorum and Prospectus
• Commencement of Business
i. Promotion

ii. Registration/Incorporation

iii. Floatation/Raising of capital

iv. Commencement of business

• Preliminary steps taken for the purpose of incorporation of a
company.
• The person who assumes the task of promotion is called as
promoter.
• A promoter may be an individual, syndicate, association,
partner or company.
• “One who undertakes to form a company with reference to a
given project and to set it going, and who takes necessary
steps to accomplish that purpose”.
• Any person capable of entering a contract can be a promoter.
• He forms a company with reference to a given project and
accomplish its purpose.
• Minor, insolvent, NRI w/o permission of RBI cannot be a
promoter.
• Promoter is neither an agent nor a trustee.
• Professional Promoters.
• Financial Promoters
• Entrepreneurial Promoters.
• Technical Promoters.
• Specialized Institution.
• Government.
• Type of company
 Public
 Private
• Application for availability of Name
 Not to be undesirable in opinion of Central Government.
 Should be available for allotment.
 Filling on Central Governments Form 1A by promoters along with
prescribed fee.
 Suggest three names in order of priority.
 Registrar will get back on availability of name within 7 working days.
 Name shall be available for adoption by promoters for 6 months.
• Corporate Identity Number
 Allocated corporate number for each company(vide rule- effective from
November 1, 2000).
• MOA
 Defines area within which the company can act.

 Objectives of the company.

 Capital it shall be allowed to raise.

 Nature of liability of its members.

 Name of State where registered office would be located.

• AOA
 Rules and regulation of company.

 Internal management of company.

• AOA and MOA needs to be prepared.
• Print the doc only when vetted by Registrar of
companies/Regional directors.
• Registrar or Regional directors may suggest for changes.
• Advisable to take prior suggestions before printing.
• Every subscriber need to sign the MOA, specification of his
name and address, description and occupation, number of
shares, one witness, attest from CA or registrar.
• Not necessary for subscriber to sign personally– agent on his
behalf can sign on authority.
• Power of attorney.
• Consent of the directors.
• Particulars of directors.
• Notice of registered address.
• Statutory declaration.
• The filing of the documents which are created needs to be
done.
• Verification and approval done by “Registrar of companies of
concerned state”.
• Following needs to get satisfied for getting certificate of
incorporation:
 All requirement documents.

 Fees needs to be paid.

 All procedure that are mentioned are followed.

• Registrar will enter the name of company and company gets

registered.
• Company gets incorporated.
• Conclusiveness:
 Ref. Moosa v. Ibrahim.

 Ref. Jubilee Cotton Mills Ltd. v. Lewis.

• In Private company, funds are raised by members or through
their arrangements.
• In Public company, share capital raised from public. It involves:
 Preparation of draft prospectus and inspection by SEBI.

 Filling copy of prospectus with Registrar of Companies.

 Issue of prospectus to public.

 Upon minimum subscription, shares to be allotted to

applicants and filling of return of allotment with Registrar.

 Listing of shares in recognized stock exchange.
• Private company can immediately start business.
• Public company needs to obtain ‘Certificate of commencement
of business’ from Registrar of Companies.
• Where company has issued a prospectus:
 Shares up to amount of min. subscription have been allotted.

 Every director had purchased min. no of shares required to

qualify themselves to be Director.

 No money is liable to applicants due to failure to obtain

permission for shares to be traded in a stock exchange.

 A Statutory Declaration.

• Where company has not issued a prospectus:

 Filed with Registrar a statement in lieu of prospectus.

 Every Director has paid cash to the company for the shares

he is liable.
 A Statutory Declaration.
The following steps are required:
• Special Resolution.

• Increase in membership.

• Increase in number of directors.

• Raising of the paid-up capital to the minimum prescribed

for public companies (Rs 5 Laks).
• Within 30 days from passing of the special resolution, a
prospectus in the prescribed form must be filed with the
Registrar.
This process requires:
• Passing of a special resolution authorising the conversion and
altering the articles as to the requirements of a private
company.
• Changing the name of the company by, adding the word
“private” before the word limited.
• Obtaining approval of the Central Government as required by
the Act: The Act provides that no alteration be made in the
articles unless such alterations have been approved by the
Central government.
• Filing printed copy of the articles as altered with the registrar
within one month of the receipt of the approval of the Central
Government.
• Existing statute for regulation of companies in India is, The
Companies Act, 1956, along with multiple amendments and
other associated legislations.
• Changing economic & commercial conditions in India &
overseas, has necessitated a comprehensive revision.
• The Companies Bill, 2009 on its enactment will give be a
modern legislation for growth & regulation of the corporate
sector.
• Identical in scope to The Companies Bill, 2008 which couldn’t
be passed.
• A single, comprehensive, legal framework to be administered
by the Central Government which aims to contain basic
principles for all aspects of:
 Incorporation to liquidation & winding up.

 Internal governance of corporate entities.

 Framework for their regulation (irrespective of their area

of operation).
• A new entity in form of One-Person Company (OPC).
• Retention of concept of Producer Companies, while providing
stricter regime for companies with charitable objects to check
misuse.
• An increase in speed of the incorporation process, with
detailed declarations & disclosures about promoters,
directors etc., to be made at time of incorporation itself.
• Relaxation of restrictions limiting the number of partners in
entities such as partnership firms, banking companies etc., to a
maximum of 100.
• The easy transition of companies operating under the
Companies Act, 1956, to the new framework, and also from
one type of company to another.
• Freedom with regard to the numbers and layers of subsidiary
companies that a company may have, subject to disclosures in
respect of their relationship and transactions or dealings
between them.
• Separation in the role & capacity of the office of Chairman &
Managing Director (or CEO).
• Recognition of both accounting & auditing standards, with
role, rights & duties of the auditors to be defined so as to
maintain integrity and independence of audit process.
• Changes to duties & liabilities of directors, and requirement
that every company have atleast one director resident in India.
• The role, appointment and attributes determining the
independence of the Independent Directors’.