Introduction
A company is a legal entity formed by a group of individuals to engage in and operate a business - commercial or industrial - enterprise. A company may be organized in various ways for tax and financial liability purposes depending on the corporate law of its jurisdiction.
Sec 3: Formation of Company
A company may be formed for any lawful purpose of the following types:
(a) Public company - Any seven or more persons when the company to be formed is a public company.
(b) Private company - Any two or more persons when the company to be formed is a private company.
(c) One man company - Any one person company, when the company to be formed is "one person company", i.e. a private company with one member.
They have to subscribe their name to the memorandum of the company.
The memorandum of "one person company" has to indicate the name of the person, with his prior written consent in the prescribed form. Such person is to become a member of the company in the event of the subscriber's death or his incapacity to contract. Such person's written consent has to be filed with the Registrar at the time of incorporation of one person company along with its memorandum and articles. Such person may withdraw his consent in accordance with the prescribed manner. The member of such company may also change the name of such person be following the prescribed procedure. He has to intimate the change to his nominee by indicating in the memorandum or otherwise. The company has then to notify the Registrar of the change, Such change is not to be taken as an alteration of the memorandum.
A company formed under this section may be either a company limited by shares or a company limited by guarantee or an unlimited company.
Registration of a company is obtained by filing an application with the Registrar of Companies [Sec 7.] The application should be accompanied by the following documents: (1) memorandum of association; (2) article of association; (3) a copy of the agreement, if any, which the company proposes to enter into with any individual for his appointment as managing or whole-time director or manager; and (4) a declaration that all the requirements of the Act have been complied with.
Section 7 of the 2013 Act introduces certain new requirements. An affidavit has to be filed by each of the subscribers to the memorandum and persons named as the first directors, if any, in the article that he has not been convicted of any offence in connection with the promotion, formation,, or management of any company or found guilty of any fraud or misfeasance or of any breach of duty to the company under the Act or preceding company law during the preceding five years and that the documents filed for registration contain correct and complete information and true to the best of his knowledge and belief; the address for correspondence till the company's registered office is established; the 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. Where the subscriber is a body corporate, such particular of persons mentioned in the articles as the first directors of the company, their names including surnames or family names, Director Identification Number, residential address, nationality and such other particulars including proof of identity as may be prescribed; and particulars of interests of persons mentioned in the articles as the first directors of the company in such form and manner as may be prescribed. [S. 7(1)]
The company has to maintain and preserve at its registered office copies of all the documents and information as originally filed under Section 7(1) till its dissolution under the Act.
Punishment for false particulars - If any person furnishes any false or incorrect particulars of any material information of which he was aware, he is to be liable for action under Section 447. [S. 7(5)] Section 447 provides punishment for fraud. If it is proved after incorporation of the company that the incorporation was obtained by furnishing false or incorrect information or by suppressing any material fact or information or by any fraudulent action, the promoters, the persons named as first directors and those making the declaration are also liable for action under Section 447. [S.7(6)]
In such cases, an application can also be made to the Tribunal which may according to its satisfaction pass any of the following orders:
(a) pass orders for regulation of the management of the company including any changes in its memorandum and articles in public interest or in the interest of the company and its members and creditors;
(b) direct that the liability of the members is to be unlimited;
(c) direct removal of company's name from the register of companies;
(d) pass an order for winding up; or
(e) pass such other orders as it may deem fit.
Before any such orders the company has to be given a reasonable opportunity of being heard in the matter. The Tribunal has to take into consideration transactions entered into by the company including all the obligations, contracted or payment of any liability. [S. 7(7)]
If the Registrar finds the documents to be satisfactory, he registers them and enters the name of the company in the register of companies and issues a certificate called the certificate of incorporation. [7(2)] The Registrar has then to allot to the company a corporate identity number which is to be a distinct identity for the company. This number has also to be included in the certificate. [S. 7(3)]
Certificate of Incorporation [S. 7]
The certificate of incorporation is a crucial document that establishes a company as a legal entity. It signifies the company's birth, with the date on it being conclusive, regardless of any inaccuracies. Section 9 dictates that upon registration, individuals subscribing to the memorandum and future members become a corporate entity under the stated name. This entity gains the ability to perform all functions of an incorporated company, including perpetual succession, a common seal, and the power to manage various types of property.
The certificate serves as conclusive evidence of compliance with all legal requirements for registration under the Act. It confirms that the association is authorized and duly registered. Even if a memorandum is altered before registration without the subscriber's authorization, or if a person signs on behalf of minors, once registered, challenging the validity of the certificate becomes difficult. However, judicial review is possible in cases where the certificate is issued to a company with illegal objectives, warranting scrutiny.
Pre-incorporation Contracts
Sometimes contracts are made on behalf of a company even before it is duly incorporated. Following are some of the effects of such contracts:
Firstly, the company, when it comes into existence, is not bound by any contract made on its behalf before its incorporation. A solicitor, who on the request of promoters, prepared a company's documents and spent time and money in getting it registered, could not recover his charges from the company. Thus, a company has no status prior to its incorporation. It can have no income before incorporation for tax purposes. (CIT v. City Mills Distributors (P) Ltd 1996)
Secondly, the other party to the contract is also not bound. The company cannot ratify a pre-incorporation contract and hold the other party liable. So where the promoters of a proposed company obtained an agreement from a landlord that he would grant lease of coal mining rights to the company, as and when a mine was struck, the company could not, after incorporation, enforce this contract. (Natal Land & Colonisation Co v. Pauline Colliery Syndicate, 1904)
Section 15, Specific Relief Act, 1963, however, provides that where the promoters of a public company have made a contract before its incorporation for the purposes of the company, the company may enforce it, if it is within its objects. According to Section 19 of the same Act, the other party may also enforce it if it is adopted by the company after incorporation.
Thirdly, the agents who contract for a proposed company may sometimes incur personal liability. In Kelner v. Baxter, the promoters of a projected hotel company purchased wine from the plaintiff on behalf of the company. The company came into being but, before paying the price, went into liquidation. They were held personally liable to the plaintiff.
But the agent himself may not be able to enforce the contract against the other party. A contract to sell shoes made in the name of a projected company was not allowed to be enforced against the other party by the person signing. Newborne v. Sensolid (Great Britain) Ltd, (1954)
Commencement of Business [S. 11]
A company having share capital is not to commence business or exercise any power unless it has satisfied the following requirements: (a) a declaration has to be filed by a director with the Registrar in a prescribed form and manner and verification that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him and the paid up capital of the company is not less than Rs. 5,00,000 is case of a public company and not less than Rs. 1,00,000 in the case of a private company on the date of the declaration; (b) the company has filed with the Registrar a verification of its registered office as required by Section 12(2).
Any default in compliance with the section makes the company liable to a penalty extending up to Rs. 5000 and for every officer who is in default up to Rs 1000 for every continuous day of default. [S. 11(2)]
Where no such declaration has been made within 180 days of incorporation and the Registrar has a reasonable cause to believe that the company is not carrying on any business, he may initiate action for removing the name of the company from the register of companies.
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