INCORPORATION OF COMPANY IN COMPANY LAW: Stages of incorporation or formation of company.
INCORPORATION OF COMPANY
Incorporation is done by getting the company registered with the Registrar of Companies. The required fee for registration is paid and the certificate of Registration is obtained from the Registrar of Companies. The company becomes an entity only after it is registered. It is, therefore, said that ‘floatation is the conception of a company whereas its incorporation is its birth when it takes on the form of an artificial person. So long as a company is not incorporated, it cannot be called a ‘company’ from the legal viewpoint and it has not entity as such.
PROMOTION OF COMPANY
Promotion is the first stage in the formation of the company. It implies the ‘beginning’ of the company. Before the company is formed, some persons get together and conceive the idea of doing business- i.e. the concept of the company is born in their minds- and they investigate the potential and make a plan. So, promotion implies the discovery of a business idea, search for the means to implement the idea, arranging the capital and required infrastructure and meeting the requirements of the law to transform the business idea into business concern.
REGISTRATION OR INCORPORATION OF COMPANY
After completing the promotional work and before getting the company registered, the preparatory steps can be listed as under:
- Preliminary Activities:
Before a company is incorporated, the promoter has to do the following:
(i) To decide where the registered office of the company will be located: The promoters, as a first step, must decide in which state will the headquarters of the company be located. It is necessary to do so because the company must be registered with the Registrar of Companies of the state where it has its head office.
(ii) To decide the name of the company: Before it is given a name, it is necessary to ascertain from the Registrar of Companies whether the proposed name of the company is available or not, and whether the name is acceptable. Although a company can be given any name, yet it must conform to the provisions of the Indian Companies Act-i.e., the company’s name should not be similar to that of an existing company and should be appropriate as per the directives of the Central Government.
The word ‘Limited’ must be used at the end of the company’s name. For the acceptance of the company’s name, the promoters need to make an application, through the Registrar of Companies, to Company Department of the Central Government. For the availability of name, it is mandatory to send at least three names for approval of any one of them.
(iii) To make appointments: It is also required to appoint underwriters, brokers, bankers, solicitors, auditors and signatories on the memorandum of the company.
(iv) To get the important documents prepared: The preliminary activities include getting preparing the memorandum and articles of association of the company and them printed.
(v) To send the application to the Registrar: After completing the above-mentioned formalities, the promoter makes an application to the Registrar of Companies of the state in which the company is to be established for the registration of the company.
- Documents to be Filed with the Registrar:
(i) Memorandum of Association: No company can be incorporated without having a Memorandum of Association. A company’s memorandum of association is its charter and, under the provisions of the Act, defines its rights and obligations. The memorandum defines the basic objectives for which the company is allowed to be incorporated.
For a public company, a minimum of seven, and for a private company, a minimum of two persons need to be signatories, ie, subscribers to the memorandum of association. Each signatory must give his address, description and occupation etc. and number of shares subscribed by him. The subscribers must sign these documents in the presence of atleast one witness who shall attest the signature. The documents should also bear the date.
(ii) Articles of Association: This document defines the rules that will govern the activities of the company in the attainment of its objectives. The document must be properly stamped, duly signed by the signatories of the memorandum and witnessed. The articles must be printed and in paragraphs. The articles of association are optional in the case of a public limited company with limited liability, which may adopt Table A, the model set of articles, in its entirety. If the company adopts Table A, the fact must be specified by writing ‘Registered without Articles’ on the memorandum.
(iii) Information about the Head Office of the Company: The address and location of the company’s registered office must be communicated to the Registrar of Companies. This information can also be given within 30 days of the registration of the company.
(iv) List of Directors: A list of persons who have agreed to function as the first directors of the company must also be communicated to the Registrar. The list of directors must have their names including surname or family name, Director Identification Number residential address, nationality, proof of identification etc.
(v) Written Consent of Directors: Not only is a list of the directors mandatory, it must also be sent by the secretary of the company along with their written consent to act in that capacity. The written statement must be signed by each director who has agreed to work in that capacity.
(vi) Statutory Declaration: A declaration in the prescribed form by an advocate, 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 director, manager or secretary of the company, that all the requirements of this Act and rules made thereunder in respect of registration and matters precedent or incidental thereto have been complied with.
(vii) Payment of Prescribed Fee: A filing fee has also to be deposited along with the aforesaid documents.
CERTIFICATE OF INCORPORATION
The certificate of incorporation is a conclusive evidence of the fact that all the requirements of the Companies Act have been complied with and that everything is in order as regards registration and that company is a validity incorporated company. The words ‘Conclusive Evidence’ are important. They imply that the Registrar of Companies has examined the documents submitted to him, and the certificate is proof that:
- The articles and memorandum of the company conform to the provisions of the Companies Act, and that all the legal formalities have been complied with. Once the certificate of incorporation has been granted, the regularity of incorporation cannot be questioned on any grounds whatsoever.
- The certificate of Incorporation is conclusive evidence that the company has become a body corporate from the date of issue of the certificate.
- The certificate shall be conclusive even if the signatories to the documents filed are less than seven in the case of a limited company, or the signatures are forged or those of minors.
- The certificate of incorporation is also conclusive evidence that the signatories to the documents filed have purchased and paid for the shares of the company mentioned against their names.
- The certificate testifies conclusively that the company’s incorporation is in accordance with the provisions of law. Even if an irregularity comes to light after the issuance of the certificate, the existence of the company cannot be questioned.
The company issues the prospectus inviting the public to invest in its shares and sends a copy of the prospectus to the Registrar. The applications for the purchase of shares are received by the company’s bankers. If the company has the minimum subscription, the company’s Board of Directors passes the formal resolution of allotment, and issues the share certificates.
The Board also sends the Return of Allotment to the Registrar. If the subscribed capital is less than the minimum subscription or the company does not obtain the minimum subscription with 120 days from the date of closure of the issue, all moneys are refunded and no allotment is done.
CERTIFICATE OF COMMENCEMENT OF BUSINESS
A Public and Private Limited company having share capital cannot commence business until it has obtained the certificate of commencement of business (COB) from the concerned Registrar of Companies. Normally a new company will comply with the required formalities and obtain the certificate of commencement of business (COB) from the Registrar as soon as possible after formation because it cannot commence any business activities or exercise its borrowing powers without it.
Now under Section 11 of the Companies Act, 2013, a company cannot commence business or exercise any borrowing powers, unless
- A declaration is filed by a director with the Registrar, to the effect that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him and the paid-up share capital of the company is not less than five lakh rupees in case of a public company and not less than one lakh rupees in case of a private company on the date of making of this declaration; and
- The company has filed with the Registrar a verification of its registered office as provided in sub-section (2) of section 12.
It is clear from what has been said above that the company, legally and conclusively, comes into existence as a corporate body after it has been issued the certificate of incorporation, even if there are irregularities in the filed documents. After the issuance of such certificate, the existence of the company cannot be challenged. The company’s position is firmly established, and can be terminated not by assailing its incorporation, but only by resorting to the provisions of enactments that provide for winding up of companies.