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COMPANIES ACT, 1956

FORMATION OF A COMPANY
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INCORPORATION OR

PROMOTERS OF A COMPANY
Before a Co. is formed, there must be some persons who have an intention to form a Co. & who take the necessary steps to carry that intention into operation.


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

Such persons are called “Promoters”.

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PROMOTERS OF A COMPANY

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It is they who :
 Conceive the idea of forming the Co.;
 Take the necessary steps to incorporate it;
 Provide it with Share & Loan Capital;
 Acquire the business or property;
 Negotiates the preliminary agreement;
 Prepare, execute & register the MOA & AOA;
 Finds the bankers, brokers, legal advisers, underwriters, first Directors;
 Prepares, advertises & Circulates the Prospectus for placement of capital

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PROMOTERS OF A COMPANY

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But a person who merely acts in a professional capacity, such as solicitor who draws up an agreement or articles, an accountant or valuer who prepares figures or valuation and who is paid for the same is not a Promoter.

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PROMOTION OF A COMPANY

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Incorporation of a Co. means a process by which a
Co. is incorporated or brought into being as a
Corporate body, and floated as a going concern, by the issue of prospectus.

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REGISTRAR OF COMPANIES (ROC)

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Ministry of Corporate Affairs

Registrar of Companies (ROC)

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FORMATION OF COMPANIES
STEP I :
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Decide the type of the Co. to be registered.
A.
1. Private Co.
2. Public Co.
B.
1. Limited Co.
2. Unlimited Co.

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FORMATION OF COMPANIES
RULE
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Any 7 or more persons (for Public Co.) or any 2 or more persons (for Pvt. Co.), associated for any lawful purpose may, by subscribing their names to the MOA, and complying with the requirements of the Act, form an Incorporated Co.

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FORMATION OF COMPANIES
STEP II:

1. Application for name availability to be made to the ROC of the state in which the Registered Office of the Co. will be situated.
Form 1A.PDF

2. Promoters should decide upon at least 5 suitable names, apart from one main name, in order of preference to ROC to ascertain the availability.

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Application for availability of name:

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FORMATION OF COMPANIES
STEP II:

3. ROC shall confirm the availability of the name within 7 days of the receipt of the application.
4. Where the Promoters are informed by the ROC of the availability of the name, such name shall be available for adoption by the promoters of Cos. for a period of 6 months from the date of intimation.

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Application for availability of name:

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FORMATION OF COMPANIES
RULE:
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1. A Co. cannot be registered with the name which is undesirable or which is identical with or too nearly resembles the name of an existing Co.
2. A Co. will not be allowed to use a name which is prohibited under the Emblems and Names
(Prevention of Improper Use) Act, 1950.

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FORMATION OF COMPANIES

Proposed name will be disallowed, if :
1. It is not in consonance with the objects of the
Co.;

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Undesirable name or a name which is prohibited under the Emblems and Names (Prevention of
Improper Use) Act, 1950.

2. Name is offensive to any section of the people;
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FORMATION OF COMPANIES

3. Close Phonetics resemblance to an existing co., eg.,
J.K. Industries Ltd = Jay Kay Industries Ltd.

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Proposed name will be disallowed, if :

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FORMATION OF COMPANIES

Cotton Textiles Mills Ltd. = Not Allowed
Silk Manufacturing Ltd. = Not Allowed

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4. If the name is a general name, eg.,

Calcutta Cotton Textiles Mills Ltd. = Allowed
Lakshmi Silk Manufacturing Ltd. = Allowed
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FORMATION OF COMPANIES

TISCO
HMT
WIMCO
TEXMACO

=
=
=
=

Tata Iron and Steel Company Ltd.
Hindustan Machine Tools
Western India Match Company
Textile Machinery Corporation

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5. Resembles closely the popular or abbreviated descriptions of important Cos.

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FORMATION OF COMPANIES

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6. It is different from the name of the existing Co. merely by the addition of the words like “New”, “Modern”, etc. like Bata Shoe Company Ltd. = New Bata Shoe Company
Ltd.”

Bharat Electronics Company Limited = Modern Bharat
Electronic Company Ltd.
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FORMATION OF COMPANIES

Indian Press Ltd. = Indian Press (Delhi) Ltd. (Not Allowed)

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7. If the proposed name is different from the existing name only to the extent of having the name of the place within brackets before the word “Limited”.

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FORMATION OF COMPANIES
8. If it connotes Govt. participation like the name, emblem or official seal of
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Union, State,
National, Central,
Rashtrapati, PM, CM, Governor,
UNO, WHO,
Indian National Flag,
Mahatma Gandhi,
Parliament,
SC, HC, etc.

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FORMATION OF COMPANIES
STEP III:

MOA: Charter or Constitution of the Co.

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Preparation of the MOA / AOA

AOA: Rules and Regulations relating to the internal management of the Co.

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FORMATION OF COMPANIES
STEP IV:

1. MOA / AOA have to be stamped as per the State
Stamp laws (value differs from State to State).

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Printing, Stamping & Signing of MOA / AOA

2. MOA / AOA should be signed by the each subscriber who should write his name, address, occupation, which will be attested by a witness.
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FORMATION OF COMPANIES
STEP IV:

3. In case of Co. having share capital, the subscriber shall take at least one share each.

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Printing, Stamping & Signing of MOA / AOA

4. After the MOA / AOA has been Stamped, Signed,
Dated, one original Copy shall be submitted to the
ROC.
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FORMATION OF COMPANIES
STEP V:

1. Promoters will execute a Power of Attorney in favour of an attorney to fulfill all the formalities required under the Companies Act, 1956 for the incorporation of a Co. on their behalf.

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Power of Attorney

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FORMATION OF COMPANIES
STEP VI:

1. Consent of Directors
2. Registered Office Address of the Company

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Additional Documents : To be submitted to
ROC

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FORMATION OF COMPANIES
STEP VII:

A declaration that all the requirements of the Co.
Act, 1956 & the Rules thereunder has been complied with in respect to the Incorporation of the
Co. by a :
1. A advocate of the SC or HC;
2. PCS / PCA;
3. Director, Manager or Company Secretary

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Statutory Declaration

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FORMATION OF COMPANIES
STEP VIII:

The quantum of Registration fees depends on the nominal capital of the Company.

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Payment of Registration Fees : To be paid to the ROC

http://www.mca.gov.in/DCAPortalWeb/dca/MyMCA
Login.do?method=setDefaultProperty&mode=15
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FORMATION OF COMPANIES
STEP IX:

If all the documents mentioned above are complete and ROC is satisfied that all the requirements have been complied with, he will register the
MOA/AOA, and issue the COI.

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Certificate of Incorporation

EMCO - COI.pdf
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FORMATION OF COMPANIES
STEP X:

A Pvt. Co. may commence business & exercise its various powers immediately after its incorporation.
Once it has received the COI, nothing further is required. On the other hand, A Public Co. must obtain a
COB from the ROC before it commences business or exercises borrowing powers.

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Certificate of Commencement of Business

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FORMATION OF COMPANIES
Memorandum of Association:
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“MOA is a document which sets out the constitution of the Co. and as such is the foundation on which the structure of the Co. stands.” It defines the scope of the Co. and its relation to the outside world.

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FORMATION OF COMPANIES
Memorandum of Association:
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Its purpose is to enable the shareholders, creditors and those who deal with the Co. to know what is the permitted range of activities.
The Co. cannot depart from the provisions of the
MOA however great the necessity may be.

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FORMATION OF COMPANIES
Memorandum of Association:
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If it enters into contract or engages in any trade or business which is beyond the powers conferred on it by the MOA, then such a contract or the act shall be ultra vires the co. and hence void.
The Cos Act shall override the provisions of the MOA of a Co., if the latter contains anything contrary to the provisions in the Act.

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FORMATION OF COMPANIES
Contents of Memorandum of Association:

Name Clause:

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1st Clause

Name of the Company.

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FORMATION OF COMPANIES
Contents of Memorandum of Association:

Registered Office Clause:
Name of the State in which the Regd. Office will be situated.

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2nd Clause

But the exact address of the registered office is not required to be stated therein.
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FORMATION OF COMPANIES
Contents of Memorandum of Association:

Object Clause

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3rd Clause

A. Main Objects of the Co. to be pursued upon incorporation of the company;
B. Objects “incidental and ancillary” to the attainment to the main objects;
C. Other Objects (which may be pursued by the company at any time in future);

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FORMATION OF COMPANIES
Object Clause

Eg.,

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B. Objects “incidental and ancillary” to the attainment to the main objects;

The production of by products is incidental to the manufacture of the main products.
2.
The power to borrow money.
1.

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FORMATION OF COMPANIES
Contents of Memorandum of Association:

Liability Clause:

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4th Clause

A statement that the liability of its members are limited, in case the company is a limited by shares or by guarantee.

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FORMATION OF COMPANIES
Contents of Memorandum of Association:

Capital Clause:
It must state the amount of share capital with which the company is registered.

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5th Clause

It is described as “Nominal Capital”, “Authorized Capital” or
“Registered Capital”
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FORMATION OF COMPANIES
Contents of Memorandum of Association:

Capital Clause:
The amount of Nominal capital is determined as per the present and future requirements of the company.

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5th Clause

Usual way to state the capital in the MOA is:

“The Authorized Share Capital of the company is Rs.
30,00,000 divided into 2, 00,000 Equity Shares of Rs. 10 each and 1,00,000 Preference Shares of Rs. 10 each.”

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FORMATION OF COMPANIES
Contents of Memorandum of Association:

Association Clause:

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6th Clause:

We the several persons whose names and addesses are subscribed below are desirous of being formed into a Company in pursuance of this Memorandum of Association and we respectively agree to take the number of shares in the Capital of the Company set opposite to our respective names.
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FORMATION OF COMPANIES
Doctrine of Ultra Vires:

2. An act which is ultra vires is void, and does not bind the company. IMT NAGPUR - 2011-13

1. Whatever is not stated in the MOA as the objects or powers is prohibited by the doctrine of Ultra Vires.

3. Neither the Co. nor the other contracting party can sue on it. 4. The Co. cannot make it valid, even if every member assents to it.
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FORMATION OF COMPANIES
Doctrine of Ultra Vires:
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5. An act which is intra vires the Co., but outside the authority of the Directors may be ratified by the Co. in proper form.

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FORMATION OF COMPANIES
Doctrine of Ultra Vires:

6. The doctrine prevents the Co. to employ the money of the investors for a purpose other than those stated in the objects clause.

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Protection to Shareholders and Creditors

7. This doctrine protects the creditors by ensuring them that the funds of the Co. are not dissipated in unauthorized activities.
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FORMATION OF COMPANIES
Consequences of an Ultra Vires Act:

2. The directors of the company may be held personally liable to outsiders for an ultra vires act.

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1. The company cannot sue any person for enforcement of any of its rights and vice versa.

Ashbury Railway Carriage.xlsx
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FORMATION OF COMPANIES
Articles of Association (AOA):
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The AOA of a Co. are its by-laws or rules or regulations that govern the management of its internal affairs and the conduct of its business.

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FORMATION OF COMPANIES
Articles of Association (AOA):
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MOA is the area beyond which the action of the Co. cannot go; inside that area shareholders may make such regulations for their own governance as they think fit.

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FORMATION OF COMPANIES
Articles of Association (AOA):

Companies Act, 1956

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They are subordinate to and are controlled by the
MOA.

Memorandum of Association
Article of Association
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FORMATION OF COMPANIES
Contents of Articles of Association :

1. Issue of Preference Shares;
2. Allotment of Shares;
3. Calls on Shares;
4. Lien on Shares;
5. Transfer and Transmission of Shares;
6. Nomination;
7. Forfeiture of Shares;

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AOA set out the rules and regulations framed by the Co. for its own working. It contains generally:

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FORMATION OF COMPANIES
Contents of Articles of Association :
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8. Alteration of Capital;
9. Buy Back;
10. Borrowing Power
11. Share Certificates;
12. Dematerialization;
13. Rematerialization
14. Voting Rights and Proxies;
15. Shareholders, Director & Committee Meeting;
16. Directors, their appt. and delegation of power;
17. Nominee Director, Additional Director;
18. Common Seal.

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FORMATION OF COMPANIES
Difference between MOA and AOA:
Article of Association

1. Charter of the Co. & defines the 1. Defines the Rules and fundamental conditions and Regulations for the internal objects of the Co. management of the Co.
2. Clauses of the MOA cannot be 2. Clauses of AOA can be altered easily altered. by Special Resolution.

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Memorandum of Association

3. MOA cannot include any clause 3. AOA cannot include any clause contrary to the Co. Act. contrary to the Co. Act & MOA

4. Acts done by the Co. beyond the 4. Acts of the Directors beyond the scope of the MOA are void & Ultra AOA can be ratified by the
Vires & cannot be ratified by even shareholders. by all the Shareholders.

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FORMATION OF COMPANIES
Doctrine of Constructive Notice :

Hence, every person who enters into a contract with a Co. is “presumed to know”, not only the exact powers of the Co. but also the extent to which these powers have been delegated to the directors.
Every person dealing with the Co. is deemed to have a constructive notice of the contents of its
MOA/AOA.

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MOA & AOA are public documents and can be inspected by anyone on payment of nominal fees.

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FORMATION OF COMPANIES
Constructive Notice of MOA & AOA :
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Consequently, if a person enters into a contract which is beyond the powers of the Co., as defined in the MOA, or outside the limits set on the authority of the Directors, he cannot acquire any rights under the contract against the Co.
Kotla Venkataswamy V. Rammurthy.xlsx

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FORMATION OF COMPANIES
Doctrine of Constructive Notice :
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So, the Doctrine of Constructive Notice operates in favour of the company against the outsiders.

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FORMATION OF COMPANIES
Doctrine of Indoor Management :

In other words, while persons contracting with the
Co. are presumed to know the provisions of the contents of the MOA/AOA, they are entitled to assume that the provisions of the AOA have been duly observed by the officers of the Co.
It is not their duty to see that the Co. carries out its own internal regulations.
Royal British Bank V. Turquand.xlsx

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FORMATION OF COMPANIES
Doctrine of Indoor Management :
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So, the Doctrine of Indoor Management operates in favour of the outsiders against the company.

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THANK YOU

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