UNIVERSITY INSTITUTE OF LEGAL STUDIES COMPANY LAW

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UNIVERSITY INSTITUTE OF LEGAL STUDIES COMPANY LAW

MEANING OF A COMPANY

A Company is a corporate body and a legal person having status and personality distinct and
separate from the members constituting it. In legal sense, a company is an association of both
natural and artificial persons and is incorporated under the existing law of the country. In
India, the Companies Act, 2013 governs the functioning of a Company. The Companies Act,
2013 does not define a Company per se. Section 2(20) of the Act merely states – “company"
means a Company incorporated under this Act or under any previous Company Law.

A Company is not merely a legal institution. It is rather a legal device for the attainment of
the social and economic end. It is, therefore, a combined political, social, economic and legal
institution. Thus, the term Company has been described in many ways. It is a means of
cooperation and organization in the conduct of an enterprise. It is a complex, centralized,
economic and administrative structure run by professional managers who hire capital from
the investors.

ADVANTAGES OF INCORPORATION OF A COMPANY:

1. Creates a Separate Legal Entity: This states that a company is independent and

separate from its members, and the members cannot be held liable for the acts of the
company, even when a particular member owns majority of shares.

2. Company Has Perpetual Succession: The term perpetual succession means

continuous existence, which means that a company never dies, even if the members
cease to exist. The membership of a company changes from time to time, but that has
no effect on the existence of the company.

3. Can Own Separate Property: Since a company is termed as a separate legal entity in
the eyes of law, it can hold property in its own name and the members cannot claim to
be the owner of the company property(s).

4. Capacity To Sue and Be Sued: The Company has the capacity of suing a person or
being sued by another person in its own name. A company, though can be sued or sue
in its own name, it has to be represented by a natural person and any complaint which
is not represented by a natural person is liable to be dismissed in the same way in

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which an individual complaint is liable to be dismissed in the absence of the

complainant.

5. Easier Access to Capital: Raising capital is easier for a corporation, since a

corporation can issue shares of stock. This may make it easier for your business to
grow and develop. If the in the market for a bank loan, that is another reason to
incorporate, since in most cases, banks prefer and easily lend money to incorporated
business ventures.

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PROMOTION OF A COMPANY
The steps which are taken to persuade or motivate a number of persons to come together for
the achievement of a common objective through the Company form is called Promotion. The
person or the persons who undertake the responsibility to bring the Company into existence
are called Promoter. Section 2(69) of the Companies Act, 2013, defines Promoter as an
individual who:
a. is named as a Promoter in the Prospectus or in the annual returns of the Company;
b. controls the affairs of a company, directly or indirectly;
c. advises, directs, or instructs the Board of Directors.

STEPS IN PROMOTION OF A COMPANY:

1. Discovery of an idea: The Promoter start with an idea to start some business either in
new field which has not been commercially explored or in some existing lines of
business. He makes preliminary investigation to find out whether the particular
business is useful and he roughly estimates income and expenditure of the proposed
business.

2. Detailed Investigation: The Promoter needs to make detailed investigation of his idea
with the assistants of many experts like engineers, chemists, market analyzers, finance
experts, management consultants etc. on the basis of reports of these experts the
Promoters would be in a position to know the capital requirements, place or location,
size of the unit, demand condition in the market, price of product, cost of production,
return on capital etc.

3. Assembling: After detailed investigation, if the Promoter is satisfied with practicability and
profitability of the proposal concern, he starts assembling preparation, assembling means
getting the support and consent of other persons to act as a director or founders, arranging for
patents, a suitable site for the Company, machinery, equipment etc.

4. Financing the proposition: After assembling the proposition, the Promoter prepares a
‘Prospectus’ to present to the public and to underwriters to persuade them to finance
the ‘proposition’. The Promoter also takes steps to incorporate the Company, and to
secure the Certificate of Incorporation to commence the business.

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INCORPORATION PROCESS

A Company gets legal recognition only after its incorporation i.e. after receiving Certificate
of Incorporation. The company gets perpetual existence soon after it is incorporated or
registered. A company is incorporated by registering certain documents with the Registrar of
Companies and paying certain fee and stamp duties. Unless these formalities are complied
with, a Company does not have a legal existence of its own.

The Companies Act, 2013 lay down the rule for the incorporation of both Public and Private
Companies under Chapter-II of the Act along with the Companies (Incorporation) Rules,
2014.

CLASSIFICATION OF COMPANIES:

Public Company:

Section 2(71) states that a Public Company is Company which is not a Private Company. A
Private Company which is subsidiary of a Public Company shall also be deemed to be Public
Company.  A Public Company must have at least seven shareholder and minimum three
Directors. There is not limit for maximum shareholder in a Public Company. 

A Public Company can only be listed on stock exchanges and can issue securities to public
through an initial public offering (IPO). Shares of only Public Company can be traded on
stock exchanges. Public Companies are subject to higher levels of reporting, regulations, and
public scrutiny. A listed Public Company must meet stringent reporting requirements set out
by Securities and Exchange Board of India (SEBI).

Private Limited Company:

Section 2 (68) of the Companies Act, 2013 defines a ‘private company’ as a Company which
has a minimum paid up capital of one lakh rupees or such higher paid up capital as may be
prescribed, and by its Articles: (i) restricts the right to transfer its shares, if any; (ii) except in
case of One Person Company, limits the number of its members to two hundred.

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One Person Company:

Section 2(62) of the Companies Act, 2013 define “one person company” as a company which
has only one person as member. Rule 3 of the Companies (Incorporation) Rules 2014 say,
only a natural person who is an Indian citizen and resident in India:
a. Shall be eligible to incorporate a One Person Company;
b. Shall be a nominee for the sole member of an OPC.

It is different from a sole proprietorship as OPC is a separate legal entity, has limited liability
and is governed by the Companies Act, 2013.

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UNIVERSITY INSTITUTE OF LEGAL STUDIES COMPANY LAW

STEPS & FORMALITIES FOR THE INCORPORATION OF A

COMPANY

STEP-1
Appointment of Directors

Under Section-149(1)(a) of Companies Act, 2013. Select the name of Directors i.e. who will
be Directors (At least Three for Public Company and Two for Private Company). Maximum
no. of Directors who can be ordinarily appointed in a Public Company is 15, above which a
special resolution must be passed for any more appointments. Section 149(3) says that every
Company shall have atleast one Director who has stayed in India for a total period of not less
than 180 days in the previous calendar year.

STEP-2
Apply for Digital Signature Certificate (DSC)

Digital Signature Certificate is the electronic form of physical or paper certificates.

Certificates serve as proof of identity of an individual for a certain purpose. Likewise, a
digital certificate can be presented electronically to prove your identity, to access information
or services on the internet or to sign certain documents digitally.

STEP-3
Apply for Director Identification Number (DIN)

It is a unique identification number allotted to the existing Director of the Company or

intending to be appointment as Director of a Company according to Section 152(3), Section
153 & Section 154 of the Companies Act, 2013. It is only after the DIN is approved; the
incorporation documents can be filed with the Registrar Form No. DIR-3.

Documents to be furnished for getting DIN application are-

o Identity proof: Copy of PAN card is mandatory.
o Address proof: Copy of passport or Voter Id or Ration card or Electricity bill or any
other address proof.
o Passport size photograph in soft copy (.JPEG format).
o Current occupation.

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o Email address of applicant.

o Education qualification and contact number of applicant.
o Verification to be signed by the applicant.

STEP-4
Filing the Proposed Name of Company for the Approval to The Registrar of
Companies

A Company is identified through the name it is registered. The name of the Company is
stated in the Memorandum of Association of the Company. The Company’s name must end
with Limited if it is a Public Company and Private Company must have Private Limited. To
check whether the chosen name is available for adoption, the promoters have to write an
application to the Registrar of Companies of the State with prescribed fee. The Registrar then
allows the Company to adopt the name, given they fulfil all legal documentation formalities
within a period of 3 months. Upto six names can be proposed after checking its availability in
MCA-21 and as per guidelines given in the said rules.

According to Section 4(4) of The Companies Act, 2013 person can make an application to
propose the name of the company to be registered with such forms and manner accompanied
by fees as may be prescribed, to the Registrar for the reservation of a name set out in the
application.

According to Section 4(5) of The Companies Act, 2013 the application submitted to the
Registrar will be reserved for a period of 60 days to check and verify the document and
information furnished along with the application.

STEP-5
Drafting of Memorandum of Association (MoA)
The Memorandum of Association is a document which sets out the constitution of a company
and is therefore the foundation on which the structure of the company is built. It defines the
scope of the company’s activities and its relations with the outside world. The Memorandum
of Association is the charter of a company. According to Section 4(6) of The Companies Act,
2013 MoA shall be in respective form as prescribed in Table A, B, C, D and E of Schedule-I
as may be applicable. According to Section 3(1)(a), there must be atleast 7 subscribers to the
MoA of a Public Company.

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CLAUSES AND CONTENTS OF MEMORANDUM OF ASSOCIATION:

 Name Clause: This clause contains the name of the Company. The name selected
should not be similar to that of the existing Company. The name of the Company
must be approved by the Ministry of Corporate Affairs. The name of the Public
Company must have Limited and Private Company must have Private Limited.

 Situation or Domicile Clause: In this clause, the name of the State in which the
Registered Office of the Company is situated is to be mentioned. This clause helps fix
the territorial jurisdiction of the Court in case any dispute arises in future.

 Object Clause: This clause defines the object for which the Company is formed. The
object should be legal and must not be inconsistent with the Companies Act as well as
any other law of the land. A Company is not legally allowed to carry any business
other than specified in this clause.

 Liability Clause: This clause states that the liability of members is limited to the face
value of the shares held up by them. If a member has already paid some amount on
shares, he can call upon to pay only the unpaid amount on shares.

 Capital Clause: In this clause, particulars regarding the amount of share capital with
which the Company is proposed to be registered and the division of share capital into
a fixed amount are included.

 Association or Subscription Clause: The subscribers to the Memorandum will give a

Declaration to this clause and express the desire to purchase a number of shares
mentioned against their respective names.

 In case of the One Person Company (OPC) the name of the person who in the event of
death of the subscriber shall become the member of the company.

ALTERATION OF MEMORANDUM OF ASSOCIATION:

The procedure for alternation of the Memorandum of Association as per the Companies Act,
2013 can be of the following ways:

 Alteration in the name clause [Section 13(2)]:

The name of a Company can be altered by passing a special resolution with the approval of
the Government of India. However, if accidently, a Company gets registered under name
similar to or identical with that of an existing Company, the alteration can be effected by
passing ordinary resolution and with the previous consent of the Government of India.

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Alteration of Name Clause Steps or Procedure-

 Ascertainment: The Company Secretary has to ascertain from the Registrar whether
the proposed name is desirable or not.
 Written approval from MCA, GoI: If the Registrar informs him that the name
proposed is not desirable then the Company Secretary has to obtain written
permission from GoI for changing the name.
 Board meeting: The Company Secretary has to arrange a board meeting for
recommending the changed name to the members and to call extra-ordinary general
meeting.
 Special resolution: The Company Secretary has to get the special resolution passed at
a extra-ordinary general meeting.
 Copy of special resolution to Registrar: Within 30 days of passing a resolution, a copy
of the same has to be submitted to the Registrar.
 Obtainment of fresh incorporation certificate: On filing of the resolution, the Registrar
makes necessary changes in the register and issues fresh Certificate of Incorporation
with the changed name.
 Arrangement for change of name: The Company Secretary has to arrange for the
change of name on all the documents and seal etc. and also should inform all the
parties who are dealing with the Company.

 Alteration in registered office clause [Section 13(4) (5) & (7)]:

Any alteration of place i.e., State of registration office shall take effect only after the approval
of GoI. The registered office (RO) of a Company is specified in Certificate of Incorporation
issued by the Registrar of companies (ROC) for the first time after registration. Such
registered office has to be verified by the Company and furnish to the concerned register
about verification of registered office within 30 days of its incorporation.

 Change within the City: If a Company wants to change its registered office from one
place to another within the city, town. The board of directors will pass a resolution
and the same to be informed the Registrar within 30 days of passing the resolution.

 Change within the State: A special resolution must be passed and a notice of such
change should be given to the Registrar within 30 days of passing the resolution.

 Change of registered office from one State to another: The shifting of the registered
office from one state to another involves the following steps:

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o Passing a special resolution in a extra-ordinary general meeting.

o Filing a copy of resolution with the Registrar of Companies within 30 days of
resolution.
o Getting a certificate of registration of the transfer from the Registrar of both
the States.
o Giving a notice of a location of new office to the Registrar of the State to
which the Company is shifted within 30 days of the transfer.

 Alteration of Object Clause:

A change in object clause can be affected by passing a special resolution and with the
sanction of GoI. This involves arranging a board meeting, to discuss the proposed change and
also to call an extraordinary meeting to pass a special resolution. In addition, to send notice of
extra-ordinary general meeting to all the members and also to debenture holders, creditors
etc.
 Alteration of Capital Clause:
A Company may alter its capital at the general meeting for the following purposes-
 For increasing the capital;
 For reorganization of capital; or
 For reduction of capital.

STEP-6
Drafting of Articles of Association (AoA)

In terms of section 5(1), the articles of a company shall contain the regulations for
management of the company. The articles of association of a company are its bye-laws or
rules and regulations that govern the management of its internal affairs and the conduct of its
business.

Section 5(2) provides that the articles shall also contain such matters, as may be prescribed.
However, nothing prescribed in this sub-section shall be deemed to prevent a company from
including such additional matters in its articles as may be considered necessary for its
management. The articles of a company shall be in respective forms specified in Tables, F, G,
H, I and J in Schedule I as may be applicable to such company. [Section 5(6)].

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While the Memorandum lays down the objects and purposes, for which the Company is
formed. Articles prescribe the regulations for the attainment of those objects. Articles provide
the rules for the conduct of the day-to-day administration of the companies.

CONTENTS OF AoA:

Articles contain rules and regulations regarding-

 Authorized share capital;  The Company seal;
 Calls on shares;  Appointment, powers, duties,
 Transfer, transmission, forfeiture of remuneration etc. of the Directors;
shares;  Dividends, interests and other
 Issue of share warrants; declarations;
 Alteration or reduction in capital;  Maintenance of books of accounts and
 Voting rights according to share type; statements;
 Borrowing powers;  Auditing of accounts;

DIFFERENCE BETWEEN MOA & AOA:

MoA AoA

It governs external relations of a Company. It governs internal relations of a Company.

It states the objects for which the Company is It states the rules for carrying out the business.
formed.

If defines limits and powers of Company. It defines rights and duties of Directors,
members etc.

It is compulsory for incorporation. It is not compulsory for incorporation. Instead

of this Table–A can be used.

It is a primary and fundamental document of a It is secondary and subsidiary document of a

Company. Company.

It can be altered by a special resolution and It can be altered by special resolution without
subject to sanction of Court or GoI. any approval from Court or GoI.

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ALTERATION OF ARTICLES OF ASSOCIATION

The AoA of a Company can be altered at any time by a special resolution, but the alteration
should be restricted to the scope of the Company’s internal managerial powers as laid down
by its Memorandum. The power to alter the Articles is wide, however it is also subjected to
large number of limitations such as:
 It should not violate any provision of the Companies Act and general law of the
land;
 It must be within the scope of MoA of a Company;
 It should not break any existing contract;
 It must be just and equitable. It must be in the best interests of the Company as a
whole and should not constitute a fraud on small minority of share-holders;
 It must not impose on any member the obligation to subscribe for more shares or to
increase his liability on his existing shares.

STEPS TO ALTER AOA:

 To arrange board meeting to decide on the alteration in Articles and to fix up the day
for an extraordinary general meeting for passing a special resolution to effect a
change in the Articles.
 To issue notices of the general meeting along with the proposed special resolution and
an explanatory statement at least 21 days before the meeting.
 To file a copy of the special resolution along with the explanatory statement with the
Registrar within 30 days of passing the resolution.
 To file with the Registrar an altered or revised printed copy of the AoA within 3
months of the passing the resolution for the updating in their record of Incorporation
Documents.

STEP-7
Application for Incorporation of Company
According to Section 7 of The Companies Act, 2013 shall be filed with the registrar within
whose jurisdiction the registered office of a company is proposed to be situated.

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[Rule No.-12] of Companies (Incorporation) Rules, 2014- An application shall be filed, with
the Registrar within whose jurisdiction the registered office of the company is proposed to be
situated, in Form No. INC-2 (for One Person Company) and Form No. INC-7 (other than One
Person Company) along with the fee as provided in the Companies (Registration offices and
fees) Rules, 2014 for registration of a Company.

If all the documents are in order then on the basis of Forms filed and on the basis of
satisfaction of Registrar will issue a Certificate of Incorporation bearing Corporate Identity
Number (CIN), which shall be a distinct identity for the Company.

STEP-8
Commencement of Business
A Company cannot commence business without obtaining from the Registrar a certificate
called ‘Certificate to Commence Business’. To obtain this the following conditions must be
filled:
 A Prospectus or a statement in lieu of Prospectus has to be filed with the Registrar of
the Company.
 The number of shares allotted should not be less than the minimum subscription as
mentioned in the Prospectus.
 If the Directors have taken up and paid for any qualification shares, the amount paid
on such shares should not be less than the amount paid by other member.
 The declaration is that no money is liable to become refundable to the applicants of
shares if they fail to make full payment of shares.
 A Declaration by one of the Directors or Company Secretary that all the conditions
regarding the commencement of business have been complied with.

CERTIFICATE OF COMMENCEMENT OF BUSINESS:

As per Section 11 of Companies Act, 2013, now all newly incorporated Public and Private
Companies having share capital would be required to obtain Certificate of Commencement of
Business from concerned Registrar of Companies before commencing the business or
exercise of borrowing powers. The Registrar after receiving the Declaration of Compliance
with the provisions of Section 11 from the Company Secretary or one of the Directors along
with required filing fee, will scrutinize the Declaration and if satisfied will issue a Certificate

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to Commence the Business. From the date of this Certificate, the Company is entitled to
commence its business.

STEP 9
Registered Office

Section 12(1) and (2) of The Companies Act, 2013 that the Company on and from the 15
days of its incorporation and at all times thereafter, have a registered office capable of
receiving and acknowledging all communications and notices as may be addressed to it and
company shall furnish to the registrar verification of its registered office within a period of 30
days of its incorporation in Form No. INC-22 along with the documents as prescribed in Rule
25 of Companies (Incorporation) Rules, 2014.

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BIBLIOGRAPHY

Books Referred:
Singh Avtar, Company Law (Eastern Book Company, Lucknow, 17th ed. 2019)

Statues:

1. The Companies Act, 2013

2. The Companies (Incorporation) Rules, 2014

Internet Sources:
1. http://www.legalservicesindia.com/article/1889/Steps-to-be-followed-for-the-

Incorporation-of-Company-in-India.html (retrieved on 5 June 2021)

2. https://lexcomply.com/Procedure-under-Companies Act2013.php?page=Incorporation-

of-A-Public-limited-Company&key=MzA (retrieved on 5 June 2021)

3. https://www.icsi.edu/media/webmodules/companiesact2013/

Incorporation_of_Companies-8-8-2015.pdf (retrieved on 9 June 2021)

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