ON THE BASIS OF MEMBERS

ONE PERSON COMPANY (OPC)

 Only one person as a member – Section 2 (62)

 Purpose is to encourage Entrepreneurship and corporatization of business
 It is not sole proprietorship
 There will be only one member – he will have limited liability (which means the creditors should be cautious of
the same) – The phrase OPC should be printed on all the documents of the company.
 It is registered as a Private Limited Company only
 There is no limit on Minimum Paid Up Capital
 MOA – should indicate the name of the person who will take charge of the company in the case of the death of
the person.
 That person should give his consent in writing during the time of registration of the company
 He will have every right to withdraw the consent
 The actual member can change the name by informing the company and the company should inform the
registrar
 Any such change is not considered will not be considered as altering the MOA
 Only a natural person who is an Indian Citizen or a Resident Indian should is permitted an OPC – (A resident
Indian is a person who stayed in India for a period of not less than 182 days during the immediately preceding one
calendar year) – is eligible to start an OPC or to become a nominee for OPC
 Only one OPC can be started by one person
 One person cannot be nominee for one more company
 Minor cannot become nominees
 Minor cannot hold shares with beneficial interest
 OPC can convert into other kind of company – only after the period of 2 years – if the paid up share capital goes
beyond 50 Lakhs OR its annual turnover during the relevant period exceeds 2 crores
 If the OPC moves against the provisions of the Companies Act, 2013 – it may be fined with 10,000 rupees OR
1000/- per day from the date of contravention.

PRIVATE LIMITED COMPANY

 Which restricts the right of its members to transfer shares (SELLING THE SHARES TO OTHERS)
 Which has a minimum of 2 members (except in the case of OPC) and maximum of 200 (excluding past or present
employees of the company, who are the members of the company)
 Cannot invite public to subscribe for share capital
  Must have a minimum paid up capital of Rs.1 Lakh or such higher amount which may be prescribed by the
Companies Act 2013 from time-to-time.

PUBLIC LIMITED COMPANY

 Which has a minimum paid up capital of Rs.5 Lakh or a higher amount which may be prescribed by the Companies
Act 2013 from time to time
 Minimum Members -7 and Maximum Members – Unlimited
 Can invite public for subscription of share capital by issuing a prospectus (A prospectus is a booklet issued by the
Public Limited Company to motivate the society to invest in the company – the book will contain all the details of
the company, the details of Directors, nature of business, risks involved, opportunities, distribution of funds,
future growth prospects etc, and every detail will be given)
 There is no restriction on transfer of shares (SHAREHOLDERS CAN SELL THE SHARES TO OTHERS)
 A private company which is a subsidiary of a public company is also treated as a public company

A Holding company is the one who holds 51% of share capital of another company.

The one whose shares are held is known as Subsidiary Company

Now – if the Holding company is a Public Limited Company and if the Subsidiary is a Private Limited company – at this
juncture, even the Private Limited Company is treated as a Public Limited Company.

DIFFERENCES BETWEEN PRIVATE LIMITED AND PUBLIC LIMITED COMPANY

Index OF Members Yes NO

Conduction of AGM Mandatory Not mandatory

Note:

A Public Limited company is born when the certificate of commencement of business is issue.
A Private Limited company is born when the certificate of incorporation is issued

Company Limited by Guarantee

The liability of the members is limited by the Memorandum of Association – in which the members may undertake to
contribute to the assets of the company in the event of is being wound up.

FORMATION OF THE COMPANY

There are 4 stages in the formation of a company

Promotion – Bringing up the business idea and converting it into a Joint Stock Company

Incorporation – Getting the Joint Stock Company registered as per the rules and regulations of Companies Act 2013

******** AFTER THESE TWO STAGES, A PRIVATE LIMITED COMPANY IS BORN*****************

Capital Subscription – Raising funds from Public

Commencement of Business – after completing certain formalities, a Public Limited Company can initiate its business

**** AFTER THE ISSUE OF CERTIFICATE OF COMMENCEMENT OF BUSIENSS, A PUBLIC LIMITED COMPANY IS BORN***

PROMOTION STAGE
Let us answer the following questions

What is Promotion? It is the first stage in formation of a company

It includes the following steps

Identification of business opportunity

Analysis of Prospects (How far the idea is feasible? When BEP can be achieved?
When would profits be earned? When can wealth be created? How far the
competition be faced? How to sustain in the market?)

Taking steps to implement the plan

 The one who promotes the company is known as Promoter

Who is a Promoter?

Is the person who conceives the idea of starting a business in the form of a Joint Stock Company, examines the feasibility
(possibility) of the idea, assemble the various resources (financial, technical, physical and human), prepare necessary
documents, and perform other activities needed to commence the business.

A promoter can be a person, a group of persons or a company.

Promotion ---- Incorporation (PVT LTD IS BORN) ----- Capital Subscription ---Commencement of Business (LTD IS BORN)

What is the Status of Promoter as per Companies Act 2013?

 He is not an agent of the company

 He is liable (responsible) for the agreements entered by him before the incorporation of the company, on behalf
of the company – these are known as Preliminary contracts
o Preliminary contracts are not legally binding on the company, since they are made by the promoter
before the incorporation of the company
o Promoters are personally liable for these contracts
o Once, the company comes into existence, the company can enter into fresh contracts with the same
terms and conditions
 Or, the company can cancel the contracts
 Recover the purchase price paid to the promoters
 Claim damages for the loss suffered
o Promoter is not the trustee of the company – they are in a fiduciary position – he cannot misuse his
position to make secret profits – he should disclose all the secret profits that he made, if he has earned
o Promoters do not have a right to claim for the expenses born by them to promote the company – if the
company wishes to, it can reimburse the same
o The company may remunerate the promoters by making a lump sum payment or commission (on the
basis of property purchased or shares sold)
o The company may allot shares or debentures to the promotes or give them an option to purchase the
securities at a future date
FUNCTIONS OF A PROMOTER

o IDENTIFFICATION OF A BUSIENSS OPPORTUNITY

 The process promotion starts when a promoter identifies a business idea
 The idea could be starting a new business – or expanding an existing business or a merger of two
different business units
 Here, the promoter also does the preliminary analysis of the idea in terms of
 Profitability
 Risk involved
 Resources required etc, (Financial, Technical, Physical and Human)
o FEASIBILITY (POSSIBILITY) STUDIES
 Every idea may not be converted into a real business project
 Before initiating, the following analysis has to be done
 Technical feasibility – do we have the right technology, do we need to borrow it, or
create it or buy it – from where can the raw materials and other resources be acquired
 Financial Feasibility – whether sufficient funds are available or not – what are the
sources of various funds – can we arrange the funds on time and invest on time
 Economic Feasibility – is the venture profitable; how far can this idea withstand in the
market etc
 Some time, even experts are hired to conduct feasibility studies
o NAME APPROVAL
 The promoters should give a name to the company and get it approved from the registrar of the
companies
 The name selected should not match with the name of any other company
 So to avoid any other issues, 3 names are given to the Registrar of the companies
 The registrar, after verification, grants the approval
 The following points are checked during the verification
 The name should not be identical or should not closely resemble with the name of an
existing company
 The name should not be misleading
o It should suggest the business
o It should not suggest that it belongs to a particular group of business, when it is
not true
 It should not be objectionable as per The Emblem and Names (Prevention and Improper
use) Act, 1950
 The name must not include the word “Cooperative”
 The name should not convey any connection with a government department or local
authority
 The name should end with the word
o If it is a Private Limited – “Private Limited” OR “Pvt Ltd”
o It is a Public Limited company = “Limited” OR “Public Limited” or “Ltd”.

o FIXING UP THE SIGNATORIES TO THE MEMORANDUM OF ASSOCIATION

 Promoter should now decide on the people who would sign on the MOA
 The people who sign on the MOA (called as Signatories) are known as First Directors
 Written consent (Acceptance) is important from them to act as Directors
 They should pay for the qualification shares (Value of Rs.5000/-)
  In the case of Public Limited Company
 7 persons have to sign
 In the case of Private Limited Company
 2 persons have to sign
 Promoters generally convince influential people to be first directors of the proposed company so
that the goodwill of the company increases
o APPOINTEMENT OF PROFESSIONALS
 The promoters now appoint professionals like bankers, auditors etc, to assist in preparation and
submission of necessary documents to the Registrar of Companies
o PREPARATION OF NECESSARY DOCUMENTS
 The following documents are prepared
 Memorandum of Association (M.O.A)
 Articles of Association (A.O.A)
 Consent (Acceptance) of Proposed Directors
 Agreement
 Statutory Declaration

MEMORANDUM OF ASSOCIATION

 Principal (Main) document of the company

 Known as “Charter of the company”
 It states the powers and objectives of the company
 Defines the scope of its operations and its relations with the investors and outsiders of the world
 Any act by the company beyond the MOA is void
 It is subsidiary to Companies Act, 2013.

Contents of MOA (6 clauses)

o Name Clause – Contains the name of the company which is already approved by the Registrar of the
company
o Registered Office / Situation / Domicile Clause – contains the name of the state, in which the registered
office of the company is situated. The detailed address is not required at this stage – but it should be given
within 30 days of the incorporation of the company.
o Objects clause – most important clause – it defines the purpose of the company for which it is formed –
any activity by the company beyond this is void – any activity conducted by the company that is related to
the main object is valid, though it is not stated. It is further divided into two
 The Main Objects – defines the main purpose of initiating the business
 The other objects – this includes other objects that are not included in the main objects – anyway,
if a business wants to undertake a business which is mentioned in the sub-clauses, it has to take a
prior permission from the Central Government after passing an ordinary resolution.
o Liability clause – this states the liabilities of the members to the extent of money that is unpaid by the
members – limited liability of the members is discussed
o Capital clause – here the authorized capital of the company is defined – a company cannot raise capital
beyond this. The division of the authorized capital into shares is discussed in this document.
 Kinds of share capital
 Authorized / Nominal Share Capital – the total amount of capital which company wanted
to raise
 Issued capital – which is issued by the company from time to time
 Subscribed capital – which is paid by the investors
  Called-Up Capital – part of the capital which is called for payment
 Paid-Up Capital – which is paid by the subscribers
o Association Clause –
 The details of Signatories (First Directors) and their consent to be directors are attached
 MOA should be signed by 7 in the case of Limited and by 2 in the case of Pvt Ltd
 ARTICLES OF ASSOCIATION
o Is a document that contains the rules and regulations of internal management of the company
o It is not a primary document but it is subsidiary to the MOA
o It cannot define any powers or include any powers which are prohibited by the MOA
o If no Articles are defined, a Public Ltd company may adopt Table F (a model set of articles) signed by the
signatories while registration

MOA VS AOA

CONSENT OF PROPOSED DIRECTORS – along with MOA and AOA, a written consent of proposed directors is required that
they are ready to take responsibilities as directors and are willing to pay for qualification shares
AGREEMENT – if the company wants to go for an agreement with any individual to be associated as Managing Director /
Whole Time Director / Manager etc., then such agreement has to be made and submitted to the registrar

STATUTORY DECLARATION – a statutory declaration has to be made and to be submitted to the Registrar claiming that all
the necessary formalities have been complied with. This statement has to be signed by one of the following

 Advocate of High Court

 Advocate of Supreme Court
 Chartered Accountant in full time practice
 Company Secretary in full time practice
 Any person named in the Articles as Director
 Manager prescribed as Companies Act 2013
 Secretary of the Company

PAYMENT OF FEE – along with the above documents, necessary filing fees and registration fees has to be paid for the
registration of the company.

 How much fees has to be paid? – depends on the Authorized Capital of the company.

Refer to the sample documents of Memorandum of Association, Articles of Association, Certificate of Incorporation,
Certificate of Commencement of Business etc.

Sample Documents - Joint Stock Company

INCORPORATION OF THE COMPANY

Registration of the company is known as Incorporation of the company under the Companies Act 2013.

This is the second stage – the following are the steps in the Incorporation of the company

 FILING OF DOCUMENTS
o The following documents have to be filed with the Registrar of the companies
1. Memorandum of Association
2. Articles of Association
3. Written consent (acceptance) of Directors
4. Agreement if any with any Managing Director / Whole Time Director
5. Copy of the document issued Registrar approving the name of the company
6. Statutory Declaration given
7. Notice of the address of the Registered office
 PAYMENT OF FEES – Fees has to be paid for the process of Registration as prescribed by the office of the
Registrar (this is decided as per the Authorized Capital)
 CERTIFICATE OF INCORPORATION – after verifying all the details, the registrar will approve the registration of the
company and a certificate of incorporation is given – with this, a Private Limited Company is born
o Certificate of Incorporation is like the Birth Certificate for a company
o A CIN number is given – Corporate Identity Number
o With the issue of the certificate, the company will acquire the following attributes
 1. Separate Legal Entity
2. Artificial Legal Person
o Registrar has to be very careful while issuing this certificate.

******the process of starting a public limited company after the stage of incorporation***************

CAPITAL SUBSCRIPTION
A Private limited company is born immediately after the process of incorporation – but for a Public Limited Company, still
two more stages have to be processed. They are Capital Subscription & Certificate of Commencement. The stages in
Capital Subscription are…..

 SEBI Approval of Prospectus

 Filing of Prospectus or Statement in lieu of Prospectus
 Appointment of Bankers, Brokers, and Underwriters
 Minimum Subscription
 Application to Stock Exchange
 Allotment of Shares
o SEBI APPROVALOF PROSPECTUS
 SEBI – Securities Exchange Board of India
 The draft copy of Prospectus (the document which is issued by a Public Limited Company to
motivate the public for subscription of capital with all the details of the company) has to be
submitted to SEBI
 SEBI will review the Prospectus (since SEBI is concerned about the investments made by the
public into the company) and give its approval
 This is mandatory to get approval from SEBI
o FILING OF PROSPECTUS or STATEMENT IN LIEU OF (instead of) PROSPECTUS
 There are two choices
 If the company does not have sufficient funds, it will issue a prospectus to public
 It the company has sufficient funds, there is no need to issue a prospectus – so they will
submit a Statement in lieu of (instead of) Prospectus – since submitting a prospectus is
mandatory to the Registrar
o APPOINTMENT OF BANKERS, BROKERS AND UNDERWRITERS
 Why Bankers? –
 No individual can collect the subscription from Public – it should be routed through a
banker
 Why Brokers?
 They will help to ensure that the public buy the shares and securities
 Why Underwriters?
 It should be noted that no Public Limited can start its business until and unless it receives
90% subscription
 But, there is no guarantee that public will subscribe for the same
 If public does not subscribe for the same – then, a banker or a financial institution will be
approached for assistance
 The banker will give assurance that he will subscribe for the minimum subscription – this
process is called as Underwriting – the banker, in this case is called as Underwriter
 Here, the banker has to be paid an amount of commission – which is known as
Underwriter’s commission
o MINIMUM SUBSCRITION
 As discussed, every public limited company should get 90% subscription from investors –
if it is not received within 30 days (or as mentioned in the prospectus, or as prescribed by
SEBI) – the total amount has to be refunded within 15 days or as prescribed by SEBI
 To avoid such issues, Underwriters are appointed
o APPLICATION TO STOCK EXCHANGE
 For all public limited companies, a facility is given – that is the investor can sell his shares
to anyone who is willing to buy
 Stock Exchange is the only facility that can give this advantage to the investor
 In order to provide this advantage to the investor, the company should get its shares
listed on at least one stock exchange
 If the stock exchange does not given permission with 10 weeks, the entire amount should
be refunded within 80 days to the investors
 o ALLOTMENT OF SHARES
 Once the Stock Exchange gives the permission, the shares can be allotted to the investors
 Letters of allotment are issued to the investors to whom the shares are allotted
 For the investors, to whom the shares are not allotted, the money subscribed should be
returned back
 If shares are allotted in a partial note, the remaining money has to be returned or to be
adjusted towards further allotment
 A return of allotment containing names, addresses of shareholders and numbers of
shares allotted to each shareholder – should be filed with the registrar within 30 days of
allotment.
 This should be signed by a Director / or by a Secretary

COMMENCEMENT OF BUSINESS
 Once the company receives the minimum subscription, the company now will submit an
application for the certificate of commencement of business
 Along with the application – the following documents have to be submitted
1. A declaration that the shares have been allotted up to the amount of minimum
subscription
2. A declaration that every director has paid in cash for qualification shares and
his share allotment has been done to him as it is done to others.
3. A declaration that no money is pending to be returned to the shareholders since
the stock exchange has refused to list the shares
 Money is returned in two different cases
 When the Minimum Subscription is not received
 When the Stock Exchange refuses to list the shares on its
platform
4. A statutory declaration by a Director or Secretary of the company stating that
the requirements relating to the commencement of business have been duly
complied with.
 Note: if a Public Limited company filed a Statement in lieu of Prospectus – it has to submit the
documents as mentioned in 2 & 4.
 The Registrar of the company will review and if he is satisfied then he will issue a certificate of
commencement of business.
 This issue will complete the process of incorporation for a Public Company and it can start the
business.