Voidable at The Option of The Shareholder

5.Can a Company be a party to a contract before it has come into an existence?
The company can’t enter into a contract before it comes into existence, and it comes into existence only
after its registration. It may be argued that, the pre-incorporation contract is entered into by the
promoters on behalf of the company. But here also, is a tangle. The promoters, while entering into the
contract, act as agents of the company. But when the principal, i.e. the company is itself not in
existence, how can it appoint an agent to act for it? So, the promoters, themselves and not the
company, become personally liable for all contracts entered into by them even though they claim to be
acting for the prospective company.
7.Is a Company bound by a contract entered into by the promoters on its behalf before its
incorporation?
A company that is yet to be incorporated cannot enter into a contract, as it is not a legal entity.
Accordingly, the company is not bound by a pre-incorporation contract because it does not have a
separate legal existence until its incorporation; nor can it appoint an agent before its incorporation.
13.Define ‘irregular allotment’ of shares. What is the effect of such an allotment?
An allotment shall be irregular when, it is made by the company. Without receiving the minimum
subscription or the application money subject to a minimum of 5% of the nominal value of the share, or.
Without filing a statement in lieu of prospectus at least three days before the allotment, if no
prospectus is issued.
Effects of Irregular allotment of shares
The effects of an irregular allotment of shares can be summarized as follows.
1. Voidable at the option of the Shareholder
An allotment which is not made after complying with the statutory requirements , shall be considered as
an invalid allotment and is void. But an irregular allotment is not an invalid allotment or a void
allotment. An irregular allotment is only voidable at the instance of the allottee.
2. Time Limit
The option to avoid the allotment should be exercised within two months after the holding of the
statutory meeting. In case of allotment by existing companies, the allottee should exercise his option
within two months from the date of allotment.
3. Compensation
Every director, who knowingly authorizes the allotment, is liable to the applicant for any loss or damage
incurred by him. They should make good the loss incurred by the allottee.
4. Ratification of the Allotment:

The allottee alone can avoid the allotment but not the company. If the allottee never avoids the
allotment, the company is bound by it as if it is a regular allotment. An irregular allotment made by the
directors can also be ratified by the company at a general meeting subsequently.
15.Enumerate the conditions to be fulfilled by a public company before It can commence business.
A public company, having a share capital and issuing a
Prospectus, cannot commence business until the Registrar issues
A certificate known as the “Certificate of Commencement of
Business”. This certificate is issued after the following formalities
Have been complied with.-Sec. 149(\) :
(a) The minimum subscription has been raised.

(b) Every director has paid the moneys payable, on
Application and an allotment, for the shares taken up by him.
(c) No money is repayable for failure to obtain stock exchange
Recognition for the shares, where such recognition was promised.
(d) A duly verified declaration by a director or the secretary
Has been filed with the Registrar stating that the above Requirements have been complied with.
A public company having a share capital but not issuing a
Prospectus, will get the commencement certificate if the following
Conditions are satisfied.-Sec. 149(2) :
(a) A statement in lieu of prospectus has been filed with
The Registrar.
(b) The directors have paid the moneys due from them on
Account of shares.
(c) A declaration by a director or the secretary has been fi led
With the Registrar stating that condition (b) has been satisfied.
The amending Act of 1965· adds a new sub-section (2A) to
Section 149 which places certain further restrictions on the Commencement of business in certain cases.
20. Write short notes : Certificate of Incorporation; Commencement Of business; Preliminary expenses.
1.Certificate of Incorporation
A certificate of incorporation is a legal document/license relating to the formation of a company or
corporation. It is a license to form a corporation issued by state government or, in some jurisdictions, by
non-governmental entity/corporation. Its precise meaning depends upon the legal system in which it is
used.
2.Commencement of business:
A public company, having a share capital and issuing a prospectus, cannot commence business until the
Registrar issues a certificate known as the “Certificate of Commencement of Business”. After issuing
“Certificate of Commencement of Business” the business can commence.
3.Preliminary expenses:
The expenses which are incurred before the incorporation of a company or the start of a business are
known as preliminary expenses. These include expenses such as legal or professional fees, logo
designing cost, printing, registration fees, stamp duty, etc.

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5.Can a Company be a party to a contract before it has come into an existence?

13.Define ‘irregular allotment’ of shares. What is the effect of such an allotment?

Effects of Irregular allotment of shares

The effects of an irregular allotment of shares can be summarized as follows.

1. Voidable at the option of the Shareholder

4. Ratification of the Allotment:

A public company, having a share capital and issuing a

Prospectus, cannot commence business until the Registrar issues

A certificate known as the “Certificate of Commencement of

Business”. This certificate is issued after the following formalities

Have been complied with.-Sec. 149(\) :

(a) The minimum subscription has been raised.

Application and an allotment, for the shares taken up by him.

(c) No money is repayable for failure to obtain stock exchange

Recognition for the shares, where such recognition was promised.

(d) A duly verified declaration by a director or the secretary

A public company having a share capital but not issuing a

Prospectus, will get the commencement certificate if the following

Conditions are satisfied.-Sec. 149(2) :

(a) A statement in lieu of prospectus has been filed with

(c) A declaration by a director or the secretary has been fi led

The amending Act of 1965· adds a new sub-section (2A) to

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