Incorporation

Incorporation of Company
Formation of company [S. 3]

• A company may be formed for any lawful purpose by the following:
(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 person company.- any one person, when the company to be
formed is "One Person Company", i.e. a private company with one
member.
by subscribing their names or his name to a memorandum and
complying with the requirements of this Act in respect of registration:
OPC
• Provided that the memorandum of One Person Company shall
indicate the name of the other person, with his prior written consent
in the prescribed form,
• who shall, in the event of the subscriber‘s death or his incapacity to
contract become the member of the company and
• the written consent of such person shall also be filed with the
Registrar at the time of incorporation of the One Person Company
along with its memorandum and articles
Withdrawal or change
• Provided further that such other person may withdraw his consent in such manner
as may be prescribed:
• Provided also that the member of One Person Company may at any time change the
name of such other person by giving notice in such manner as may be prescribed:
• Provided also that it shall be the duty of the member of One Person Company to
intimate the company the change, if any, in the name of the other person nominated
by him by indicating in the memorandum or otherwise within such time and in such
manner as may be prescribed, and the company shall intimate the Registrar any such
change within such time and in such manner as may be prescribed:
• Provided also that any such change in the name of the person shall not be deemed
to be an alteration of the memorandum.
Nature of company
• (2) A company formed under sub-section (1) may be either—
• (a) a company limited by shares; or
• (b) a company limited by guarantee; or
• (c) an unlimited company.
Sec 7. Incorporation of company
• (1) There shall be filed with the Registrar within whose jurisdiction the
registered office of a company is proposed to be situated, the
following documents and information for registration, namely:—
• (a) the memorandum and articles of the company duly signed by all
the subscribers to the memorandum in such manner as may be
prescribed;
Declaration
• (b) a declaration in the prescribed form by an advocate, a chartered
accountant, cost accountant or company secretary in practice,
• who is engaged in the formation of the company,
• and by a person named in the articles as a director, manager or
secretary of the company, that all the requirements of this Act and
the rules made thereunder in respect of registration and matters
precedent or incidental thereto have been complied with;
Affidavit
• (c) an affidavit from each of the subscribers to the memorandum and
from persons named as the first directors, if any, in the articles
• That he is not convicted of any offence in connection with the
promotion, formation or management of any company, or
• That he has not been found guilty of any fraud or misfeasance or of
any breach of duty to any company under this Act or any previous
company law during the preceding five years and
• That all the documents filed with the Registrar for registration of the
company contain information that is correct and complete and true to
the best of his knowledge and belief;
Address and particulars of subscribers
• (d) the address for correspondence till its registered office is
established;
• (e) 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, and in the case of a subscriber being a body corporate,
such particulars as may be prescribed;
Particulars of First Director
• (f) the particulars of the persons mentioned in the articles as the first
directors of the company, their names, including surnames or family
names, the Director Identification Number, residential address,
nationality and such other particulars including proof of identity as
may be prescribed; and
• (g) the particulars of the interests of the persons mentioned in the

articles as the first directors of the company in other firms or bodies
corporate along with their consent to act as directors of the company
in such form and manner as may be prescribed
Issuance of Certificate of Incorporation
• (2) The Registrar on the basis of documents and information filed
under sub-section (1) shall register all the documents and information
referred to in that subsection in the register and issue a certificate of
incorporation in the prescribed form to the effect that the proposed
company is incorporated under this Act.
CIN
• (3) On and from the date mentioned in the certificate of incorporation
issued under sub-section (2), the Registrar shall allot to the company
a corporate identity number, which shall be a distinct identity for the
company and which shall also be included in the certificate.
• (CIN is 21 digit alpha-numeric code)

Certificate as conclusive evidence.
• Not only does the certificate create the company. It also is "the
conclusive evidence that all the requirements of this Act have been
complied with in respect of registration and matters precedent and
incidental thereto and that the association is a company authorised to
be registered and duly registered under this Act.
• In other words, the validity of the certificate cannot be disputed on
any grounds whatsoever.
• This is illustrated by the decision of the Judicial Committee of the
Privy Council in Moosa Goolam Ariff v Ebrahim Goolam Ariff. ILR 1913
(40) Cal 1
Maintain and preserve all documents
• (4) The company shall maintain and preserve at its registered office
copies of all documents and information as originally filed under sub-
section (1) till its dissolution under this Act.
False information
• (5) If any person furnishes any false or incorrect particulars of any
information or suppresses any material information, of which he is
aware in any of the documents filed with the Registrar in relation to
the registration of a company, he shall be liable for action under
section 447.
Sec 447. Punishment for fraud
• Without prejudice to any liability including repayment of any debt
under this Act or any other law for the time being in force, any person
who is found to be guilty of fraud, shall be punishable with
imprisonment for a term which shall not be less than six months but
which may extend to ten years and shall also be liable to fine which
shall not be less than the amount involved in the fraud, but which
may extend to three times the amount involved in the fraud:
• Provided that where the fraud in question involves public interest, the
term of imprisonment shall not be less than three years.
First Directors liable
• (6) Without prejudice to the provisions of sub-section (5) where, at
any time after the incorporation of a company, it is proved that the
company has been got incorporated by furnishing any false or
incorrect information or representation or by suppressing any
material fact or information in any of the documents or declaration
filed or made for incorporating such company, or by any fraudulent
action, the promoters, the persons named as the first directors of the
company and the persons making declaration under clause (b) of
subsection (1) shall each be liable for action under section 447
Application to Tribunal
• (7) Without prejudice to the provisions of sub-section (6), where a
company has been got incorporated by furnishing any false or
incorrect information or representation or by suppressing any
material fact or information in any of the documents or declaration
filed or made for incorporating such company or by any fraudulent
action, the Tribunal may, on an application made to it, on being
satisfied that the situation so warrants,—
Orders that may be passed
• (a) pass such orders, as it may think fit, for regulation of the
management of the company including changes, if any, in its
memorandum and articles, in public interest or in the interest of the
company and its members and creditors; or
• (b) direct that liability of the members shall be unlimited; or
• (c) direct removal of the name of the company from the register of
companies; or
• (d) pass an order for the winding up of the company; or
• (e) pass such other orders as it may deem fit:
Reasonable opportunity
• Provided that before making any order under this sub-section,—
• (i) the company shall be given a reasonable opportunity of being
heard in the matter; and
• (ii) the Tribunal shall take into consideration the transactions entered
into by the company, including the obligations, if any, contracted or
payment of any liability.
Pre-incorporation contracts
• Company cannot be sued on pre-incorporation contract.
• Sometimes contracts are made on behalf of a company even before it
is duly incorporated.
• But no contract can bind a company before it becomes capable of
contracting by incorporation.
• "Two consenting parties are necessary to a contract, whereas the
company, before incorporation, is a non-entity".
• A company has no status prior to incorporation.
• Company cannot sue on pre-incorporation contract.-
• Secondly, the company is also not entitled to sue on a pre-
incorporation contract.
Ratification of pre-incorporation contract.-
• Thus, so far as the company is concerned, it is neither bound by, nor can have
the benefit of, a pre-incorporation contract.
• But this is subject to the provisions of the Specific Relief Act, 1963. Section 15 of
the Act provides that where the promoters of a company have made a contract
before its incorporation for the purposes of the company, and if the contract is
warranted by the terms of incorporation, the company may adopt and enforce it.
• "Warranted by the terms of incorporation" means within the scope of the
company's objects as stated in the memorandum.
• Section 19 of the same Act provides that the other party can also enforce the
contract if the company has adopted it after incorporation and the contract is
within the terms of incorporation.
Personal right and liability of contracting
agent.-
• Now, in reference to contracts which do not fall within the purview of
the above provisions, the question arises whether they can be
enforced by or against the agent who acted on behalf of the projected
corporation?
• The answer will depend upon the construction of the contract.
• If the contract is made on behalf of a company not yet in existence,
the agent might incur personal liability.
Kelner v Baxter (1866) LR 2 CP 174
• A group of promoters for a new hotel company, the “Gravesend Royal
Alexandra Hotel Company” (Gravesend) entered into a contract for wine.
• This contract was purportedly on behalf of Gravesend, but Gravesend had not
at that point been registered. It was a “pre-incorporation contract”.
• Gravesend was eventually registered, but by that stage the wine had been
consumed before the money had been paid. Gravesend soon went into
liquidation.
• The promoters, as Gravesend’s agents, were sued.
• The promoters argued that, as Gravesend had been incorporated, the contract
had subsequently been ratified and the liability had passed to the company.
Held
•The Court held that because the company did not exist at the time of the signing of the
agreement it would be wholly inoperative unless it was binding on the promoters.
•A stranger cannot, by subsequent ratification, relieve the promoters from that
responsibility of liability.
•A promoter can avoid liability if a substituted agreement novices the original pre-
incorporation contract.
• Thanks

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Incorporation of Company

Formation of company [S. 3]

• (g) the particulars of the interests of the persons mentioned in the

• (CIN is 21 digit alpha-numeric code)

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