Indian Company Act 1956 vis-à-vis

Companies Bill, 2011

Session -2
Dr. K Ashok Anand
Promotion and Incorporation
of Companies
The complete process of formation of a company
may be divided into four stages namely:
a) Promotion.
b) Registration/Incorporation.
c) Floatation/Raising of Capital.
d) Commencement of Business
 Promoters
• According to SEBI (Substantial Acquisition and
Takeover) Regulations, 1997 the term promoters means:
• the person or persons who are in control of the
company ;or
• person or persons named in any offer document as
promoters.
 Incorporation Of
A Private Limited Company In India
Procedures And Steps Involved
 Stage I - Pre-registration Process
        Basic requirements for registering a private limited
company are as follows:

Requirements / Category Private

Shareholders / Promoters 2

Directors 2

Authorised Capital INR 100,000

Digital Signature 1

        The proposed Director should have a valid DIN (Director Identification

Number) allotted by the Ministry of Corporate Affairs. One of the Directors
should have a valid Digital Signature Certificate issued by the Certifying
Authorities approved by the Ministry of Corporate Affairs
 Stage II - Name Availability

Company Registration in India starts with filing of an

application for Company Name. The chosen name for
a company should be unique all over India. Usually in
a day or two, concerned ROC approves the name if
the applied name is not same or closely similar to the
name of an existing company and the proposed name
is in accordance with the guidelines issued by the
Ministry of Corporate Affairs (MCA).
 Stage III - Documentation

• On getting the company name approved by the office of

ROC, the following documents need to be drafted in line
with the requirements of Companies Act
• Memorandum of Association (MOA)
• Articles of Association (AOA)
• On finalizing the MOA and AOA, necessary stamp duty
needs to be paid and the same should be subscribed/
signed
 Stage IV - Filing and Registration

• The office ROC will scrutinize the incorporation

documents. If the documents are found in order, the
Company will be registered and the Certificate of
Incorporation will be issued by the Registrar.

• Private Company can start commercial operations

immediately after obtaining the Certificate of Incorporation
 Incorporation Of
A Public Limited Company
Procedures And Steps Involved
 Stage I - Pre-registration Process
Requirements / Category Public
Shareholders / Promoters 7
Directors 3
Authorised Capital INR 500,000
Digital Signature 1

        The proposed Director should have a valid DIN (Director

Identification Number) allotted by the Ministry of Corporate
Affairs. One of the Directors should have a valid Digital
Signature Certificate issued by the Certifying Authorities
approved by the Ministry of Corporate Affairs
 • Stage II - Name Availability
• Stage III - Documentation
• Stage IV - Filing and Registration
 the above stages are Same as PVT Ltd

The office ROC will scrutinize the incorporation documents. If the

documents are found in order, the Company will be registered and
the Certificate of Incorporation will be issued by the Registrar.

 The Certificate of Commencement of Business has

to be obtained by a Public Company before
commencing any commercial activity
 Memorandum of Association- MoA

The Constitution of a Company is laid down in

the MoA of a Company and the Company will
not be allowed to carry on any activity which
is ultra vires the MoA of a Company.
MoA is divided into 6 Clauses
 No
Clause Clause in MoA Details of Clause

I Name Clause Specifies the Name of the Company

II Situation Clause Specifies the state in which the

Registered Office of the Company is situated

III Objects Clause Further classified as Main Objects: -

Main course of activity of the Company.
Ancillary Objects: - Objects incidental to the
carrying on of the Main objects of the Co .
Other Objects: - Activities that may be
carried on in the further.
IV Liability Clause Specifies the liability of the Members of the Co

V Capital Clause Specifies the Authorized Capital of the Company

VI Subscription Clause Specifies the details of the 7 subscribers to the

MoA for public co and 2 for Pvt Co
 Doctrine of ‘Ultra-vires’
The word ‘ultra’ means beyond and the word ‘vires’
means the powers. Therefore the term ‘ultravires’
means beyond the powers.
In case of a company, it means beyond the powers of
the company.
The powers of a company are contained in the statute
constituting it and the Memorandum of Association
The rule of ultra-vires was for the first time laid down
in the case of Ashbury Railway Carriage and Iron
Company Ltd. v. Riche.
 The effects of ultra-vires transactions
a) Void abinitio - The ultra-vires acts are null and void
abinitio (The company is not bound bythese acts).
b) Injunction - A member can get an order of restraint
(injunction) from the court against suchan act (ultra-vires) of
the company.
c) Personal liability of directors - For ultra-vires acts of
the company, directors will be personally liable.
d) Acquisition of property that is ultra-vires - In such a
case company’s right over such property is held secured.
e) Directors are personally liable to third parties
 Articles of Association (AoA)
The AoA lays down the bye-laws of the Company and regulates
the internal activities of the Company.
The AoA will contain details concerning the capital, shares and
certificates, calls on
shares, provisions for their forfeiture, alteration of share capital,
provisions concerning general meetings, voting rights, provision
for winding up, and clauses for indemnity and responsibility,
among other issues.
A public Company limited by shares need not necessarily
prepare and get its AoA registered along with its MoA. It may
adopt Table “A” of Schedule I to the Companies Act, 1956.
However as a matter of practice, every Company gets the
Articles prepared to suit its individual requirement.
Certificate of Commencement of Business -COB
COB is mandatorily required to be obtained by a Public Limited
Company having Share Capital. it will be allowed to commence
business only after obtaining a Certificate to Commence Business
from RoC
Procedure for obtaining (COB)
As a pre-requisite for applying and obtaining a COB the Public
Company having Share Capital is required to raise a minimum
paid-up Share Capital of Rs Five Lakhs.
Procedure for obtaining a COB it can be classified into two
types as Companies,
1. A company not issuing a Prospectus for public subscription
2. Company issuing Prospectus for Public Subscription
 In case of Company not issuing a Prospectus
The Companies not issuing Prospectus are required to file with the
RoC A Statement in lieu of prospectus, duly signed by every
director, in the form as given in Schedule III to the Co Act 1956.
A statement in lieu of prospectus gives practically the same
information as a prospectus and is signed by all the directors or
proposed directors
1- Name of the company
2- Statement of capital
3- Description of the business
4- Names, addresses, and occupation of directors
5- Estimated initial expenses
6- Names of vendors and details of property
7- Material contracts
8- Director's interest
 In case of Company issuing Prospectus
Companies issuing prospectus are required to look into before applying for a
COB:-
• The provisions of Section 69 with regard to minimum subscription have been
complied with and shares of the required value have been allotted.
• Every director has paid to the company, in respect of shares taken or contracted
to be taken by them
• Application has been made to the recognized stock exchange for obtaining
permission for dealing in shares/debentures.

On complying with the above mentioned points the e-form is required to be filed
with the RoC declaring that all the conditions as stated above have been dully
fulfilled. It may be noted that a copy of the prospectus is required to be attached to
the e-form .

The Registrar of companies will there upon issue the requisite

Certificate of Commencement of Business.
The End

Dr. K Ashok Anand