Study Notes

Companies Act, 2013

Chapter II -Part 1
Incorporation of a
Company
Companies Act, Chapter II Incorporation of a Company

INCORPORATION OF COMPANY AND MATTERS INCIDENTAL THERETO

Section Heading of the section

3 Formation of company
3A Members Severally liable in certain cases Covered
4 Memorandum in this
5 Articles note
6 Act to override memorandum, articles, etc.
7 Incorporation of company
8 Formation of companies with charitable objects, etc.
9 Effect of registration
10 Effect of memorandum and articles
11 Omitted
12 Registered office of company
13 Alteration of memorandum
14 Alteration of articles
15 Alteration of memorandum or articles to be noted in every copy
16 Rectification of name of company
17 Copies of memorandum, articles, etc., to be given to members
18 Conversion of companies already registered
19 Subsidiary company not to hold shares in its holding company
20 Service of documents
21 Authentication of documents, proceedings and contracts
22 Execution of bills of exchange, etc.

SECTION 3- FORMATION OF COMPANY

 A company may be formed:

 for any lawful purpose;
 by 7 or more persons in case of public company, 2 or more persons in case
of private company and 1 person in case of a one-person company.
 Hence, a company cannot be formed for an unlawful purpose or for carrying on illegal
business.

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Note: TYPES OF PRIVATE COMPANIES

One Person A private company with only one person as its member
Company
Small Company  Max Paid up capital = Rs.50 Lakh (or a higher amount as prescribed but not more
than Rs.10 crore)
and
 Max turnover as per profit and loss account for the immediately preceding
financial year = Rs.2 crore (or a higher amount as prescribed but not more than
Rs.100 crore)

Note:
A company shall not be a small company, if
 It is a public company; or
 It is a holding company of any company; or
 It is a subsidiary company of any company
 It is a company registered under section 8 (i.e., non-profit company); or
 It is a company or a body corporate governed by any special Act

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Companies Act, Chapter II Incorporation of a Company

SECTION - 3A MEMBERS SEVERALLY LIABLE IN CERTAIN CASES

 Inserted in Companies Act, 2013 to clarify that:

 if number of members falls below specified number, and if business is
carried out for more than six months,
 every member who was cognizant of the fact will be severally liable for payment
of whole debts of the company contracted during that time.

SECTION - 4 MEMORANDUM OF ASSOCIATION

 It is the charter of a company and defines the limitations on the powers of a

Company.
 Contents of MoA

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 Form of MoA per Schedule I

SECTION – 5 ARTICLES OF ASSOCIATION

 It is the bye laws of a company which lays down the rules and regulation for internal
management.
 Contents of AoA

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 Form of AoA per Schedule I

SECTION – 5 ENTRENCHMENT PROVISIONS

 The articles may contain provisions for entrenchment (to protect something) to the
effect that specified provisions of the articles may be altered only if conditions or
procedures as that are more restrictive than those applicable in the case of a special
resolution, are met or complied with.
 Manner of inclusion of the entrenchment provision: The provisions for entrenchment
shall only be made either:
 on formation of a company, or
 by an amendment in the articles:
o agreed to by all the members of the company in the case of a private
company and
o by a special resolution in the case of a public company.

SECTION – 6 ACT TO OVERRIDE MEMORANDUM, ARTICLES etc.,

 The provisions of this Act shall have overriding effect on provisions contained in
memorandum or articles or in an agreement or in resolution passed by the company in

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the general meeting or by its board of directors, whether they are registered, executed or
passed before or after the commencement of this Act.
 Any provision contained in any of the above-mentioned document, shall be void, to the
extent to which it is inconsistent to the provisions of this Act.

SECTION – 7 INCORPORATION OF A COMPANY

 Filing of document with the Registrar of Companies: After getting the name
approved, the following documents along with the application and prescribed fee, are to
be filed with the Registrar: -
 Memorandum of Association & Articles of Association signed by each
subscriber to the memorandum.
 Declaration:
o by an advocate, a Chartered Accountant, Cost Accountant or Company
Secretary in Practice, who is engaged in the formation of the
company, and by a person named in the articles as a Director, Manager
or Secretary of the company.
o from each of the subscribers to the memorandum and from persons
named as the first directors, if any, in the articles that he is not
convicted of any offence in connection with the promotion, formation or
management of any company, or that he has not been found guilty of any
fraud or misfeasance or of any breach of duty to any company under this
Act or any previous company law during the preceding five years and
that all the document filed with the Registrar for registration of the
company contain information that is correct and complete and true to the
best of his knowledge and belief.
 Address for correspondence till its registered office is established-
Company shall have within 30 days of its incorporation a registered office under
section 12(1) and shall furnish to the Registrar a verification of its registered
office under Section 12 (2) within 30 days of incorporation in such manner as
prescribed.
 Particulars of name, including surname or family name, residential address,
nationality and such other particulars of every subscriber to the memorandum
along with proof of identity, as may be prescribed, and in the case of a subscriber
being a body corporate, such particulars as may be prescribed.
 Particulars of the:
o persons mentioned in the articles as the first directors of the company,
their names, including surnames or family names, the Director
Identification Number, residential address, nationality and such other
particulars including proof of identity as may be prescribed;
o interests of the persons mentioned in the articles as the first directors
of the company in other firms or bodies corporate along with their
consent to act as directors; of the company in such form and manner as
may be prescribed.

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 Under section 7 (2) the Registrar shall on the basis of documents and information
filed for the formation of a company, shall register the aforesaid documents and
information and issue a certificate that the company is incorporated in the
prescribed form to the effect that the proposed company is incorporated under
this Act.
 Section 7 (3) further provides that on and from the date of incorporation
mentioned in the certificate of incorporation the Registrar shall allot to the
company a Corporate Identification Number (CIN) which shall be the distinct
identity of the company and which shall also be included in the certificate of
incorporation. The company becomes a legal entity from the date mentioned in
the certificate of incorporation and continues to be so till it is wound up.
 Summary Procedure for Registration

Procedure for Registration of a company

1. Requirement for the a. A person may make an application, in prescribed form, manner
reservation of the name of the
company
Where after reservation of name
it is found that name was applied
by furnishing wrong or incorrect
information, then,
2. Filing of the documents with
the registrar
3. Issue of certificate of
incorporation on registration
4. Allotment of corporate identity
number (CIN)
5. Maintenance of copies of all
documents and information
6. Furnishing of false or incorrect he shall be liable for action under section 447 of Companies Act,
information or suppression of
material fact
7.Company incorporated by
furnishing any false or incorrect
and fee, to the Registrar for the reservation of a name set out in
the application as—
• the name of the proposed company; or
• the name to which the company proposes to change its name.
b. the Registrar may, reserve the name for a period of 20 days from
the date of approval or such other period as may be prescribed.
Application for reservation of name or for change of name by an
existing company, the Registrar may reserve the name for a period
of 60 days from the date of approval.
i. if the company has not been incorporated-
the reserved name shall be cancelled and
the person making application shall be liable to a penalty extending
to one lakh rupees
ii. if the company has been incorporated- the Registrar may, after
giving the company an opportunity of being heard—
• either direct the company to change its name within a period of
three months, after passing an ordinary resolution.
• take action for striking off the name of the company from the
register of companies; or
• make a petition for winding up of the company.
After getting the name approved, certain documents along with the
application and prescribed fees, should be filed with the Registrar.
The Registrar shall issue a certificate of incorporation in the
prescribed form to the effect that the proposed company is
incorporated under this Act.
On and from the date mentioned in the certificate of incorporation,
the Registrar shall allot to the company a corporate identity number,
which shall be a distinct identity for the company, and which
shall also be included in the certificate.
The company shall maintain and preserve at its registered office
copies of all documents and information as originally filed, till its
dissolution under this Act.
2013(Fraud).
• the promoters,
• the persons named as the first directors of the company and

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information or representation or
by suppressing any material fact
8. Order of the Tribunal [Sec 7(7)]
• the persons making declaration under this section shall each be
liable for action under section 447 of Companies Act, 2013 (Fraud)
the Tribunal may, on an application made to it, on being satisfied
that the situation so warrants, —
a. Pass such orders, as it may think fit, for regulation of the
management of the company including changes, if any, in its
memorandum and articles, in public interest or in the interest of the
company and its members and creditors; or
b. Direct that liability of the members shall be unlimited; or
c. Direct removal of the name of the company from the register of
companies; or
d. Pass an order for the winding up of the company; or
e. Pass such other orders as it may deem fit:

Documents, required to be filed with the Registrar of Companies at the time of registration of a
company
MOA & AOA the memorandum and articles of the company duly signed by all the subscribers to the
memorandum
Declaration a declaration by person who is engaged in the formation of the company (an
advocate, a chartered accountant, cost accountant or company secretary in
practice), and by a person named in the articles (director, manager or secretary of
the company), that all the requirements of this Act and the rules made thereunder in
respect of registration and matters precedent or incidental thereto have been complied
with

Declaration A Declaration from each of the subscribers to the memorandum and from persons
named as the first directors, if any, in the articles stating that
i. he is not convicted of any offence in connection with the promotion, formation or
management of any company, or
ii. he has not been found guilty of any fraud or misfeasance or of any breach of duty to
any company under this Act or any previous company law during the last five years,
iii. and that all the documents filed with the Registrar for registration of the company
contain information that is correct and complete and true to the best of his knowledge
and belief.
Address of The address for correspondence till its registered office is established.
Registered
Office
Particulars of the particulars (names, including surnames or family names, residential address,
Subscribers nationality) of every subscriber to the memorandum along with proof of identity
Particulars of the particulars (names, including surnames or family names, the Director Identification
first Directors Number, residential address, nationality) of the persons mentioned in the articles as
the first directors of the company and such other particulars including proof of identity
as may be prescribed
Particulars of the particulars of the interests of the persons mentioned in the articles as the first
Interest of first directors of the company in other firms or bodies corporate along with their consent to
Directors act as directors of the company in such form and manner as may be prescribed.

 Flowchart of Incorporation of Companies

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