 History of Company Legislation

 Corporate Aggregate and Corporate Sole

 Nature and Features of Company

 Classification of Companies

 Formation of Companies

 MOA and AOA

 Prospetus

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1.Origin and development of Company Law In India

Company Law is a wider concept based on commercial law. It states about all legal
rights, relation, and conduct of a persons, companies, organizations & businesses and
its formation, funding, governance & death of a corporation.

History:

 The concept of company act taken from English Companies Act, 1844.
 The first company legislation in India was passed in 1850 known as a Joint Stock
Companies Act.
 This Act was replaced by the Joint Stock Companies Act, 1857 which introduced
the principle of limited liability for the first in India.
 This act again as a Joint Stock Companies Act, 1860 modified by addition the
principle to banking companies.
 In 1866 the first comprehensive Act provided for the incorporation, regulation and
winding up of companies.
 The 1866 Act was recast in 1882 and remained in force till 1913.
 Later on the Indian Companies Act, 1913 was passed followed by the English
Companies Act, 1908.
 After that this act was amended and recasted several times almost every year.
 Finally the Companies Act, 1956 was passed and came into force 1st April 1956
based on the English Companies Act, 1943. It consists of 658 sections and 13
schedules.
 After 25 amendments the Companies Act, 2013 passed by Parliament by
introducing a new Company Bill. It came into force on the 29th of August 2013.


Origin:
The word "company" is derived from two Latin words that are "com" & "panis" which
means "together" & "bread" respectively. So it literally means that a company is an
association of a person who took their meals together.

Meaning:

 Company simply means an incorporated association of a person.

 Here, person means there are two types of person;
 Natural Person - It is created by nature for example; human beings.
 Artificial or Legal Person - It is created by law for example; firms, companies,
trusts, LLP etc.

Definition: According to section 2 clause 20 of the Companies Act, 2013 a "company"

means association of a person formed or registered under either present company laws,
that is Companies Act, 2013 or previous company laws, that is Indian Companies Act,
1956/1913/1882 etc. Here, Association of Person (AOP) belong to two different types;

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Incorporated AOP:

A single person distinct from the members constituted it. Having such legal rights to
make a contract and also can purchase any property etc. It can come into existence
through either the company legislation (ex- RIL, TCS, SAIL, TATA etc.) or by special act
of Parliament called statutory corporation (ex- LIC, GIC, SIDBI, ICSI, ICAI etc.)

Unincorporated AOP:

Mere collection/aggregation of individuals for example partnership firms. Means that are
not registered under the act and don't have any legal identity.

According to Haney, A company is an artificial person created by law having a separate

entity with a perpetual succession and common seal.

Important features of a company under Company Law:

1. Incorporated Association:

Means it must be registered under present Companies Act, 2013 or previous Indian
Companies Act, 1956 and others.

2. Separate Legal Entity:

It means an independent person who acquires such rights and powers as a human
being. Every company, whether private limited or public limited, must be registered and
get its own legal identity. And there are veils between the company & its members.

3. Perpetual Succession:

Perpetual means 'forever'. So that Once a company is created by process of law it can be
ended only by the process of law. Members of a company may transfer their shares, and
the name of the transferee is entered in the register a member may die, then his
successor occupies his place, same in the case of Insolvency. This character of the
company is called perpetual succession.

4. Common Seal:

It is nothing but an official signature of a company just like a stamp. Company seal is
affixed on the document of the company. It can be used as evidence to sue in court.

Limited Liability: Liabilities of members in a company are always limited upto their
shares in the company. Here liability means a legal responsibility or obligation to do a
thing or to refrain from doing something.

5. Separate Property:

A company can hold property, acquire, sell, lease, mortgage, gift or otherwise transfer a
property in its own name because of its legal identity. It simply means that a company
can be transferor or a transferee of the property.

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Company can sue or can be sued:

A company is a legal person who can file a suit against another and against whom a suit
can be filed in his name. Any one can sue the company and the company can also sue
others.

Case Laws:

Mr. Salomon Vs. Salomon & Co. Ltd.

Introduction;

This is a landmark case under UK company law. To uphold doctrine of corporate

personality under Companies Act, 1862.

In this case it established the concept of separate legal personality of a company that
allowed shareholders to carry on trading with minimal exposure to the risk of personal
insolvency in the event of collapse.

Facts;

 Mr. Aron Salomon has a sole proprietorship of his leather boots and shoes
business.
 Later on he turned the business into a limited liability company at � 38,000.
Total shares of the company � 40,000 and value of one share � 1.
 There are total 7 subscribers;
 Salomon - owner of 20,000 shares and 10,000 debentures, his Wife has 1 share,
One Daughter has 1 share, and Four Sons has 1 share each.
 After one year the company was liquidated with � 6,000 assets and � 17,000
liabilities.
 Salomon's liability � 10,000 and Unsecured Creditor's liability 7,000.

Issue Raised:

 Was the formation of Salomon's company a fraud intended to defraud the

creditor?
 Whether the company is considered to be an artificial person created by law?
 Whether the person can be liable for debts of the company?
 Whether the company purchases its own separate properties?
 Whether the limited liabilities of a company falls to whom?

Arguments;

Unsecured creditor claim as a first right to receive because there is no separate legal
existence and the company was acting as Salomon's agent.

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Judgment;
The court said that on incorporation the company becomes an independent legal person
and not an agent of Salomon. Salomon, as a debenture holder of the company, was
ought to get priority in payment over the unsecured creditor.

2. corporate personality and theories of corporate personality

Introduction
In the subject of the statute and lawful hypothesis, the law perceives two sorts of people
that are normal individuals and legitimate individuals (counterfeit formation of law). In
this article, we will examine the juristic character of a corporation. Corporate Personality
is considered a counterfeit character.

A Corporation is a fake individual appreciating in law jobs to have commitments and

holding property. The people shaping the corpus of the organization are called its
individuals. The juristic character of organizations pre-assumes the presence of the
following conditions:

There should be a gathering or assemblage of individuals related for a specific

reason.
There should be organs through which the company capacities,

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 The organizations are ascribed will (enmity) by lawful fiction.
The privileges of organizations are unimaginable, similar to the right of holding property
or arranging it off, right of sue, right of going into contracts and so on. They are likewise
responsible for their demonstrations and demonstrations of specialists acted in their
name. In the milestone instance of The Citizen’s Life Assurance Company v. Brown
(1904)AC426 the Privy Council has decided that corporations may likewise be expected
to take responsibility for their demonstrations suggesting malignant aim. Along these
lines, it is expressed that ‘artificial’, ‘conventional’ or ‘ juristic’ people, are such masses of
property or gatherings of individuals that according to the law are fit for rights and
liabilities, that is, to which the law gives recognition.

Comprehensively Corporate Personality is of two sorts –

 Corporation Aggregate
 Corporation Sole

Corporation Aggregate
There are a number of individuals where we make a section outside individuals which
means making a group as a solitary unit. In basic words, company total is a gathering or
relationship of individuals joined for specific interests. It was at first made by the Royal
Charter in England later it was enrolled under the organizations’ act.

The organization is fundamentally made by advertisers. Production of the organization

incorporates different exercises like enrollment of organizations, arrangement of the
directorate, making an outline and so forth. At long last when the entire system of
enlistment is finished then the organization is treated as a legitimate character.

Such an organization is framed by various people who as investors of the organization

contribute or guarantee to add to the capital of the organization for the assistance of
normal target. The property of the organization is treated as unmistakable from its
individuals if there should be an occurrence of death and bankruptcy of individuals if it
doesn’t influence the organization, it might keep on prospering the business. The
organization has separate legitimate substance and restricted obligation.

On account of Salmon v. Salmon that a corporate body has its own reality or character
independent and unmistakable from its individuals and thus an investor can’t be
expected to take responsibility for the demonstrations of the organization despite the fact
that he holds the whole offer capital.

On account of Tata Engineering and Locomotive Company Ltd. V. Province of Bihar the
Court noticed the organization in law is equivalent to a characteristic individual and has
its very own legitimate element’. The substance of the enterprise is totally isolated from
that of its investors and its resources are discrete from those of its investors.

Utility of Corporation Aggregate

The different purposes which counterfeit enterprise total might advance and protect may
momentarily be expressed as follows-

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 Help and aid the administration of the country through Municipal partnerships,
Local Bodies, Panchayats, Welfare Organizations. and so forth
Promote demonstrable skills through foundations, schools giving specialized,
logical, designing, clinical law, and other particular courses.
Preserve and advance strict amicability by comprising strict trusts, sheets,
learning focuses, altruistic homes, etc.
Advancement of logical and imaginative fever through suitable trusts,
associations, establishments, and so on
General public help, through Medical clinics, Trusts, halfway houses, salvage
homes, etc.
Promote exchange, trade, and enterprises through Corporate houses, Public area
utility foundations, Private business houses, etc.

Corporation sole
An organization sole is a legitimate substance consisting of a single sole in a corporate
office, involved by a single (sole) regular individual. The most remarkable illustration of
partnership sole is the crown (in England) It basically implies that there is a solitary
individual who is represented and viewed by law as a legitimate individual.

Single individual in his legitimate limit has a few rights and obligations while holding the
workplace or capacity. The fundamental point of organization sole is to guarantee the
coherence of an office so the inhabitant can gain property to serve his replacements or
he might agree to tie or help them and can sue for wounds to the property while it was in
the possession of his archetype.

Holders of public office are referred to by law as enterprises. The principal trademark is
its consistent element supplied with a limit with respect to perpetual length.

Model

In India, different workplaces like the Prime Minister Office, Governor of Reserve bank of
India, The State Bank of India, The Post Master General, the General Manager of the rail
line, the Registrar of Supreme Court, Comptroller and Auditor-General of India and so
forth are made under various sculptures are the instances of enterprise sole.

Case: Govid Menon v. Association of India

The Supreme Court called attention to the fundamental attribute of company sole. The
court noticed the partnership sole isn’t invested with a different lawful character. It is
made out of one individual who is joined by law. a similar individual has a double person
one is normal and the other is corporate sole. “There are restricted qualities of
organization sole” this view was perceived for the situation Power v. Bank.

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Theories of Corporate Personality
Different Jurists gave various perspectives and conclusions with respect to the idea of
corporate character. Changes have happened in the perspectives occasionally. However,
there are various hypotheses to clarify the idea of a corporate character yet none of them
is supposed to be prevailing. Comprehensively we have talked about five speculations of
corporate character.

Fiction Theory

The law specialists who gave this hypothesis were Savigny, Salmond, Holland they
expressed a partnership with an imaginary characters. Company is treated as not quite
the same as its individuals The imaginary character is quality to the need for shaping an
individual association existing without anyone else and overseeing for its recipients ‘The
persona ficta’- Savigny gave the term juridical individual.

Partnership as an elite making of law having no presence separated from its individual
individuals who structure the corporate gathering and whose acts by fiction, are credited
to the corporate substance.

The Fiction hypothesis along these lines expresses that fuse is an invented expansion of
character depending on the motivation behind working with managing property claimed
by a huge assortment of individuals.( regular) this hypothesis neglects to answer the
acceptably the obligation of the corporation.

Realistic Theory

The hypothesis was given by Johannes Althusious, Gierke in German and Maitland in
England. As per this hypothesis, it declines the fiction hypothesis. The practical
hypothesis keeps up with that an organization has a genuine clairvoyant character
perceived and not made by the law. There is a genuine part in the partnership. The
desire of many is not quite the same as the desire of a person. A company subsequently
has genuine presence, regardless of the reality if it is perceived by the state.

The significant contrast between the fiction hypothesis and the pragmatist hypothesis
lies in the way that the previous rejects that the corporate character has any presence
past what the state decides to give it, the last hold that a company is a portrayal of
actual real factors which the law perceives. On account of dalme co. restricted v.
mainland tire the choice was made on the practical hypothesis where there was the
upliftment of corporate cover.

Bracket Theory

The section hypothesis was given by Ihering. The section hypothesis of the character of
the enterprise keeps up with the individuals from the organization itself essentially
according to the perspective comfort. The genuine idea of enterprise and its individuals
are kept in section.

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According to this hypothesis, juristic character is just an image to work with the working
of the corporate bodies. Just the individuals from the company are people in a genuine
sense and a section is put around them to show that they were treated as one single unit
when they structure themselves into a partnership.

Concession Theory

Given by Savigny, Salmond and sketchy the concession hypothesis of the character of
the partnership which is a family to fiction hypothesis not indistinguishable says that
lawful character can adhere to from law alone. It is by elegance or concession alone that
the legitimate character is in all actuality, made or perceived.

According to this hypothesis, the juristic character is a concession allowed to an

organization by the state. It is completely at the prudence of the state to perceive if it is a
juristic individual. This hypothesis is not quite the same as the fiction hypothesis in
however much it underlines the optional force of the state in the issue of perceiving the
corporate character of the partnership. A few pundits consider this hypothesis perilous
in view of its over-accentuation on State caution in the issue of perceiving organizations
that are non-living elements. This choice might prompt discretionary caution.

Purpose Theory

The principle ramifications of this hypothesis are that law ensures certain reasons and
expected to be possessed by juristic people doesn’t have a place with everything except it
has a place for a reason and that is the fundamental reality about it. All juristic or fake
individuals are only legitimate gadgets for securing or offering impact to some genuine
reason.

The beginning of this hypothesis has been brought back from German law for example
‘establishments’ which were treated as juristic people. An establishment is analogous to
trust for explicit beneficent reasons like engendering of schooling, grants and so forth In
the milestone instance of M.C Mehta v. Association of India set out the boundaries as
to corporate risk of perilous ventures and brought the private area inside the ambit
of Article 12 of the Constitution, emphasizing the need to develop new procedure for
corporate responsibility of public and private endeavours for heartbreaking gas spillages
or ecological corruption causing wellbeing dangers and immense harm to the property.

There was an earnest requirement for the foundation of Environmental Courts (for
example Green Tribunals) with proficient specialists from Lego-climate cum biology area
and severe activity was justified against the failing corporate bodies, what’s more,
businesses for abusing the natural laws.

Conclusion
In this article, we have attempted to cover the significance of Corporate Personality and
its inclination. Fundamentally there are two sorts of companies for example Corporation
Aggregate and Corporation Sole. Corporation Aggregate it’s a relationship of numerous
people or gatherings. It very well might be undetectable, godlike and it might rest just in
intention and think of law.

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It has no spirit nor is it dependent upon the stupidities of the body. The demise or
indebtedness of individuals doesn’t influence the organization. Corporation Sole is a
fused series of progressive people. The point of corporate total and enterprise sole is the
same. In enterprise sole a solitary individual holding a public office, in this way that with
singular passing his property and right doesn’t quench yet they are vested in the
individual who succeeds him.

Many Jurists have communicated clashing perspectives in regards to the specific idea of
corporate character. The perspectives discover articulation through various hypotheses
of corporate character which they have changed every now and then. However there are
a few speculations of corporate character, yet none of them can be supposed to be
prevailing.

In this article, we have talked about momentarily five hypotheses of corporate character
specifically Fiction hypothesis, Realist Theory, Bracket hypothesis, Concession
hypothesis, Purpose hypothesis. The speculation of legitimate character is neither
completely fictitious nor entirely genuine; it is somewhat fictitious and genuine.

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Nature of Company and Registration: A guide

This article lay emphasis on the The Companies Act, 2013. Since this Act, being complex
in itself, creates confusion in the minds of the people and they are afraid of establishing
his/her company due to the intricacies involved in it. Therefore, this article has been
written to help those people to understand the types of company, the rules and
regulations and the procedure required to incorporate a company under Registrar of
Companies.

Definition of company
According to Black law’s dictionary, the definition of company is “a voluntary association
of a certain number of people having some common interests united by some commercial
or industrial undertaking to carry out legitimate business.”

The Companies Act of 2013 in India defines company in the Section 2(20) as “a
company incorporated under this actor under any previous company law”. This means
that any corporation which is incorporated and registered under this Act or under other
previous company Act will be called as a company.

A company is considered to be an artificial legal person according to Indian Constitution

which have an independent legal entity and a common legal seal for its signatures.

Corporate Personality and Advantages of Incorporation

Independent Corporate Existence

A company is said to have an independent corporate existence since its incorporation

because it holds a separate legal entity. In law, a company is considered to be an
artificial person having similar rights and obligation as a natural person but no physical
or natural existence. The property of the company is possessed by it and not by the
individual members. All the contracts, entered into or any transactions made, are in the
name of the company and not in the name of its members. A company can enter into
partnership with other individuals or other companies and can buy any number of
shares, debentures of another company. It can also join other companies by ascertaining
to their terms and conditions.

The famous landmark case of Bates v. Standard Land Co., the question of the distinction
of the personality of a person and a company was brought before the court. The court
held that members of the company were the pillars by which any act or important
decision can be taken by it.

The principle of independent existence of companies was established in india by the

judgement of the High Court of Allahabad in the case of In Re: The Kondoli Tea Co. Ld.
vs Unknown where it was held that the company was a seperate body altogether from
the shareholders.

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Limited Liability

One of the most important and essential advantages of incorporation and registration of
companies is the limited liability. The term “limited liability” means the condition where
the shareholders or the proprietors of the company are legally liable only for the debts
which are equal to the nominal value of their shares invested. In other words, private
assets of the shareholders are not at risk if the company goes into incurring debts or
when the company becomes bankrupt.

To explain in simple words, if the company is not limited company, then if the company
fails, then the personal assets like property, cars,etc. are seized for clearing his debts.

Perpetual succession

The literal meaning of the term “perpetual succession” is the continuance of a company
or an incorporated firm unaffected by death of any of its members or the transfer of the
company’s shares to a new entity.

This is a major advantage of a company because even though members come and go, but
the company never dies and it enjoys the same rights and privileges. The company
continues to exist for an indefinite period of time until the company shuts down due to
some other reason. This also reduces the legal entanglements like deregistering of
company and then again registering, etc. which happens in other business areas.

Transferable shares

According to Section 44 of the Companies Act, 2013, the shares,debentures or any

other interests of any member in a company shall be movable as well as transferable in
the manner provided by the articles of the company. This means that the investors of the
company are free to liquidate shares or encash money, whenever they are willing to at
any point of time. This helps and motivates the investors to invest their money as they
can get back their investments easily.

Separate property

The company is considered to be a separate independent legal entity formed by

unification certain number of investors having some common business goals. The
property or assets owned by the company does not belong to any of the members of the
company. No members can claim the property and use it for personal purposes. If
he/she does so, then they will be held liable for criminal misappropriation of company
funds. Hence, the company has the full right to hold and enjoy property in its own name.

Capacity for suits

A proven fact is that where a right exists, there exists a liability, as well. Therefore, if the
company has the right of incorporation, then there are certain liabilities for which it can
be held liable. The company, hence, can sue as well be sued by other companies and
people. The beneficial part is that no member, whether the managing directors or other
directors, can be sued in the name of the company.

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Professional management

Professional management refers to systematic management and administration of the

company or the organisation. This helps the company to increase the productivity of the
employees, optimum use of resources, reduce costs, accountability of employees and
their effective control.

Access to money market

Money markets are those markets that trade in short-term loans between banks and
other financial institutions. The participants of the money market is the banks that lend
money to one another and to large companies when the companies are running short of
company. The companies have a shoulder behind their back on which they can rely on
for receiving funds in their need.

Disadvantages

Lifting the Corporate Veil

A ‘corporate veil’ is a fictional veil or a covering to the corporation when it gets

incorporated under The Companies Act, 2013. The incorporation of company makes the
company a separate and independent legal entity. Moreover, The Supreme Court of India
in the case of R C Cooper v. Union Of India, had held that company is an artificial
person. Therefore, the shareholders or members of the corporation cannot be held liable
for it. Although there is the concept of limited liability and separate identity of a
company which benefits the members, yet the shareholder may be held liable for the
debts or other illegal activities of the incorporation. This principle is known as ‘Lifting the
Corporate Veil’.

When it becomes necessary to determine the legal character of a corporation

It becomes necessary to determine the legal character of a corporation when the
members like directors or the shareholders of the company start committing fraud, or
other activities which are not in confirmation with the existing law.

The morale behind this is that a corporation although identified to be an artificial entity,
yet it cannot perform any tasks or jobs without its agent i.e., it is incapable to do any
work on its own. Hence, when its agent does or perform any illegal task in the name of
the company, in order to reach to the right culprit, lifting of the corporate veil becomes
necessary.

In the landmark judgment of Saloman v. Saloman Ltd. Co., the English law court held
that company and its members are separate entity and therefore, the property owned by
the company does not belong to its members. This paved the way for many members to
commit illegal activities inside the veil of the corporation. However, later in due course of
time, the court held that if the court feels that it is necessary to lift the corporation, then
they can do that anytime and reach the real culprit.

For benefit of revenue

An incorporated company have to necessarily pay taxes on the revenue generated by the
company. Evasion of tax is illegal and has always been disregarded by the court.

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In the landmark case of RE: Dinshaw Mackenzie Petit v. Unknown case where the
founders of the company with the objective of enjoying high income and huge dividends,
opened four new sham companies. The income generated through initial company was
added into these four companies and the founder of the company was repaid in the form
of pretended loan. In this way, the founder of the company divided his income in four
parts and utilised the tax benefits. However, the court held that the formation of four
companies was only to evade super tax and hence lifting of corporate veil was important
here.

When company conceived and brought forth for fraudulent purposes

The judicial intervention is necessary for the courts to highlight the fraudulent activities
of the company and to reach the right culprit who was responsible for those acts. With
the passage of time, courts have performed their duties well and recognised the
situations for lifting the corporate veil as and when necessary.

In the case of Gilford Motor Company v. MR. Horne, Mr. Horne was an ex-employee of
the Gilford Motor Company. According to the terms of contract, he cannot solicit
customers. However, in order to gain advantage, he founded another company in the
name of his wife and solicited the customers. The company took legal action against him
and filed a case in the court. The court in its judgement held that Mr. Horne had
established the company with the strategy and intention to do fraud under the mask of
the corporate identity. Therefore, the corporate veil has to be lifted here.

Another case of Jones v. Lipman, a man contracted to sell his land and thereafter
changed his mind in order to avoid an order of specific performance. The Hon’ble Judge,
specifically, referred to the judgements in Gilford v. Horne and held that the company
here was “a mask which (Mr. Lipman) holds before his face in an attempt to avoid
recognition by the eye of equity” he awarded specific performance both against Mr.
Lipman and the company. The court was of the belief that no one will be allowed to
abuse the corporate form.

Agency or trust
Under agency, it is the discretion of the court to decide whether the company is acting as
an agent for the shareholders or not. If the company is acting, the shareholders may be
responsible for the activities of the company which invalid from the point of law.

For better understanding, A company having power to act as an agent may do so as an

agent for its parent company or indeed for all or any of the individual members if it or
they authorize it to do so. The courts cannot lift the veil if there is no express or implied
conditions in the agreement.

Furthermore, the court has the right to lift the corporate veil if a corporation is
administered by board of trustees to check whether the shareholders in the trust have
held the shares as per legal terms or not.

There was a case with the same fact known as Abbey v. Planning, where there was a
trust who administered the educational institutions. The court was of the same view that
if this trust does anything wrong, then the trustees shall be accountable.

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Under statutory provisions
The Companies Act, 2013 provides for certain provisions to point out that person who
shall be held liable for any such illegal activities. The person who is held liable is known
as “officer who is in default” under Section 2(60) of the Act.

Following are the provisions in the indian law regarding “lifting of the corporate veil”:

1. Reduction of membership below statutory minimum (Section 45): Under

this section, if in the case of public company, number of members is reduced
below 7 and in the case of private companies, the number of members is
reduced below 2 and still there is continuance of business in the company for
more than six months, then all the members or any person who were well aware
of it shall be severally liable for the debts contracted during that time.
2. Improper use of name (Section 147): Under Section 147(4) of this Act, an
officer of a company, if signs any bill of exchange, promissory note, cheque
wherein the name of the company is not mentioned in the correct manner, then
such officer shall be held personally liable to the holder of the bill of exchange,
unless it is duly paid by the company.
3. Liability for fraudulent conduct of business (Section 542): If the company is
on the verge of closing, and it is noticed that the members form the
shareholders of the company have done fraudulent activities to defraud the
creditors of the company or any person, then such members or the person who
were aware of that activity shall be held liable.
4. Failure to refund application money (Section 69(5)): Under this section, the
directors of the company are jointly and severally liable for the repayment of the
application money with interest, if the company fails to pay them within 130
days of the issuing.
5. Repeated Defaults ( Section 449) : Under this section, if a company commits
an offence with a punishment of imprisonment or fine and is committed again
and again within 3 years, then the company or the officer relating has to pay a
penalty if twice the fine amount along with the punishment for that offence.

Formality and expense

The procedure followed for the incorporation of the companies is very complex and
lengthy which restrains oblivious people from doing business. It requires a considerable
amount of time and money. The other provisions of the Act like particular events for
corporate audits, meetings, borrowing, editing to be conducted, filing of returns and
other documents, etc.

Company is not citizen

The citizenship of india is decided under the Citizenship Act, 1955. According to this Act,
the company, being an artificial person, cannot have citizenship and hence it cannot be
called a citizen of India. Moreover, since the company is not regarded as the citizen,
therefore, it cannot enjoy various rights provided by the Constitution of india.

Although the company is not a citizen of India, yet it possess domicile, residence and
nationality. The question of whether a corporation can claim rights conferred to the
citizens of india was decided by the Supreme Court of India in the case of Tata

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Engineering Locomotive v. State Of Bihar. The court held that although all the
members of the company are indian, yet it cannot claim protection of fundamental rights
because legal status of company is totally different from the legal status of its
shareholders and members.

How are company formed?

According to section 3(1) of the Companies Act, 2013, there are three types of companies
which can be registered. They are:

1. Public Company – When the company is formed by seven or more than seven
persons.
2. Private Company – When the company is formed by two or more than two
persons.
3. One Person Company – When the company has only one person as its member
and he/she is the only shareholder of that company.
The company formed under this Sub-section can be classified into three types:

1. A company limited by shares.

2. A company limited by guarantee.
3. An unlimited company.

Classification of Companies
On the basis of classification of incorporation, there are two types of companies. They
are:

1. Statutory Companies – The companies which are constituted by the special act
of the Parliament or state legislatures. The companies act, 2013 is not
applicable to them. Some of the examples are Life Insurance Corporation, etc.
2. Registered Companies – The companies which are incorporated according to
the procedure of the Companies Act, 2013 and the Act is applicable to them.
Some of the examples are Hindustan Unilever Limited, etc.

Registration and Incorporation

The Section 7 of the Companies Act, 2013 explains to us the “incorporation of
company”. The word ‘registration’ and ‘incorporation’ is often confused. The main
difference between these two words is that when the company is incorporated, only those
assets are taken into account which have been invested but in the registration, even the
personal assets will be taken into consideration if the company runs into losses.

Procedure of incorporation of the company

 The company shall have to register itself with the Registrar within its jurisdiction
with the following documents and information of registration:

1. The memorandum and articles of the company shall be signed by all the
members ascertaining the memorandum.
2. A declaration shall be prescribed by the Chartered Accountant, Advocate, Cost
Accountant or Company Secretary, whoever is involved in the process. This

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 declaration paper shall have a name of a person who may be a director,
manager or secretary confirming that the rules made under the registration are
complied with.
3. The correspondence address will be provided until the registered office is
established.
4. An affidavit shall be signed by all the members for the promotion, formation and
management of the company.
5. All members, directors and the other interested person shall provide their
names with surnames, Director Identification Number, residential address,
nationality and other particulars as may be required including the proof of
identity.

 The registrar on receiving the documents and information required for

registration, shall issue a certificate of incorporation in the prescribed form and
register the company under this Act.
 On the date of issue of certificate of incorporation, the registrar shall allot a
separate distinct corporate identity to the company.
 There shall keep a copy of all the documents presented during the incorporation
of the company till its dissolution.
 If a member furnishes false information in any matters, of which he/she is aware
of, he/she shall be liable for committing fraud under Section 447 of the
Companies Act, 2013.
 In any case, if it is proved that the company incorporated has furnished any
information falsely, incorrectly or fraudulently, then the promoters, the person
named as first directors and person making the declaration shall be held liable
for committing fraud under Section 447 of the Companies Act, 2013.
 In the case of fraudulency, the tribunal will be constituted who after giving
reasonable opportunity of being heard to the company shall pass such orders
which it shall deem to be fit and sufficient. Following orders may be passed by
the tribunal:

1. Regulation of management of the company and its members.

2. Liability of the members.
3. Removal of the name of companies from the register of companies.
4. Winding up of company.
5. As the tribunal deems fit.

Certificate of incorporation
Section 18 of The Companies(Incorporation) Rules, 2014 provides for the issuing of a
certificate of incorporation. The Certificate of Incorporation is the ‘birth certificate’ of the
company showing its legal name and the date of incorporation. It is issued to all the
entities who have registered with the Registrar of Companies. The certificate confirms the
company’s existence and other important information like its date of incorporation,
registration number, etc.

The Certificate of Incorporation is important for a company because this helps an

investor to sell his/her shares. Even when the company applies for loans, this certificate
is required.

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Pre-incorporation contracts
As the word suggests, Pre-incorporation contract means those contracts which are made
by or on behalf of the corporation at the time when it wasn’t registered under Register of
Companies.

Legal status of Pre-incorporation Contracts

Since, the contract is signed by the promoter on behalf of the corporation acting as an
agent of the company which is still not registered, the liability of such contracts comes
under the promoters itself. However, before 1963, although the promoter was acting for
the company, yet he was solely responsible for any activity of the company. After
enforcement of Special Relief Act of 1963, the promoters heaved a deep sigh of relief
because according to Section 15(h) of the Special Relief Act, the companies were made
liable for the acts done.

In the case of Weaver Mills Ltd. v. Balkis Ammals, the scope of this principle was
extended by the Madras High Court. The court held that the promoters even though fail
to convey the properties bought on behalf of the company after its incorporation, will
automatically be acquired by the company as its own asset.

On the other hand, under Section 19(e) of Special Relief Act, 1963, the company can be
held liable by the other party of pre-incorporation contract, if there is such terms written
in the contract.

Pre-incorporation contracts can be undertaken by the company in the following

manners:

1. Introducing the contract when the company is being incorporated.

2. Making a fresh contract with the members of the company.
3. Accepting the benefits of the contract, either expressly or impliedly.

Commencement of business
The provision of the ‘Commencement Of Business’ was initially incorporated under the
Companies Act, 1956, and was also included under section 11 of the Companies Act,
2013. Later on, in 2015, it was omitted by the legislature.

Recently by The Companies (Amendment) Act, 2018, it was added under Section 10A of
the Companies Act, 2013.

According to section 10A of Companies Act, 2013, a company after its incorporation
cannot begin its business unless and until it has obtained the Certificate of
Commencement of Business and fulfilled the following conditions:

1. Filed a declaration within 180 days of incorporation which has a confirmation

that all the members of the company have paid the value of their shares as per
the agreement.
2. Filed a verification of its registered office address with the Registrar of
Companies within 30 days of its incorporation.

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 3. Removal of the name of companies from the Registrar of Companies if the
provisions of the Act is not complied with or if the company is not carrying out
any business.

Steps to obtain Certificate of Commencement of Business

1. A declaration form has to be filled up along with bank statements of the

company showing the payment of value of shares by the shareholders.
2. A certificate of registration have to be submitted.

Consequences of Non – Compliance

There is a penal provision for the non compliance of this provision under this Act. the
defaulter is charged with a penalty of Rs. 50,000 on the company and Rs. 1,000 per day
on every member of the company.

Other Provisions
Apart from complying with the rules, regulations and procedures, one must keep the
following in mind while running the business. These provisions must be intimated or
approved by the Registrar of Companies so that there is smooth running of business.
They are:

1. Change in the members of the company.

2. Change in statutory auditor of the company.
3. Change of registered office.
4. Change in Memorandum or Articles.
5. Increase in capital.
The following provisions, according to the Companies Act, 2013 should never be violated.

1. The company should not do other activities which are not mentioned in the
objective clause of the company’s contract.
2. The company should not issue securities to third party or to the public at large.

Conclusion
Legislation being the part of the government and companies being the most important
part of economy to earn revenue for the country, they are taking initiative to make the
company law simpler. But, being a responsible citizen of India, one should be aware of
the post-registration compliance which is equally important for a corporation because in
any case, penal action will be taken by the authorities for the non-compliance. Therefore,
the promoters should be well aware of the next steps to be taken for the company. It is
always recommended to ask the help of professionals for reducing chances of being non-
compliant.

This article has tried to consolidate all the basic knowledge and the documents required
to incorporate a company under the Companies Act, 2013. The advantages and
disadvantages have also been highlighted. Since every coin has two sides, therefore
incorporation also has both pros and cons. The legislature of india have been very
effective in bringing out changes that are required in the said Act. The only change
required for the incorporation is that in the technological world, the procedure of

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incorporation should be made online so that the complexity is reduced and time is saved
of the members involved.

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