1. Explain the fundamental clauses of memorandum of association?

According to Section 2(56) of the Companies Act,

2013, 'memorandum' means memorandum of association of a
company as originally formed or altered from time to time in
pursuance of any previous companies law or of this Act. This
definition. however, does not give an idea as to the nature of this
document nor is it indicative of its importance.
A company can exercise only such powers which are either expressly
stated in the memorandum or as may be implied therefrom
including matters incidental to the powers so conferred. In short, it
determines the extent of the powers of a company. A company
must act within and not ouside the scope of its memorandum. Any
transaction which is not within the ambit of the powers of a
company shall be ultra vires and void and cannot be validated on
any ground. It is for this reason that a company while drafting its
memorandum should exercise utmost care and ensure that its
scope is wide enough to include all activities in which the company
may engage are well within its range of activities.

Registered Office Clause

This clause specifies the name of the State in which the registered office of the company is
situated. This helps to determine the jurisdiction of the Registrar of Companies. 

Change of Registered Office

Change of Registered Office

A company can shift its registered office from one place to another within the same city,
town or village. But in case a company proposes to change its registered office from one city
to another within the same State, it can do so only after passing a special resolution. A notice
of any such change has also to be given to the Registrar within thirty days of the change.
Non-compliance of this provision shall render the company and its every officer who is
responsible for this default liable to punishment with fine extending upto one thousand rupees
for every day during which default continues but not exceeding one lakh rupees.
Where the company wants to shift its registered office from one place to another within the
same State from the jurisdiction of one Registrar of Companies to the jurisdiction of another
Registrar of Companies, confirmation by the Regional Director shall be mandatory for such
change. For this purpose, the company shall make an application to the Regional Director in
the prescribed form and the confirmation shall be communicated within four weeks from the
date of receipt of the application.

In case a company proposes to shift its registered office from one State to another it has to
alter its memorandum of association subject to compliance of the provisions of Section 13
of the Companies Act, 2013 which require passing of a special resolution and approval of the
Central Government. The alteration relating to change of the place of its registered office
from one State to another shall not take effect unless it is confirmed by the Central
Government on petition. Before granting permission to change of registered office, the
Central Government must be satisfied :

(a) that sufficient notice has been given to every holder of the debentures of the company,
and to every other person or class of persons whose interests will in the opinion of the Central
Government, be affected by such alteration; and

(b) that, with respect to each creditor who, in the opinion of the Central Government is
entitled to the alteration and who signifies his objection in the manner directed by the Central
Government, either his consent to the alteration has been obtained or his debt or claim has
been discharged or has been determined, or has been secured.

The Central Government shall also give a reasonable opportunity to every person on whom
the notice of alteration is served to appear before it and put up his objections, if any.
Thereafter, the Central Government may make an order confirming the alteration on such
terms and conditions, if any, with respect to the confirmation of the alteration. It may, for the
purpose of the interests of dissenting members, give such directions and make such orders as
it thinks fit for facilitating or carrying into effect, any such alteration

The alteration shall be registered within three months from date of its confirmation by the
Central Government. On receipt of the confirmation by the Central Government, the
Company shall file with the Registrar a copy of the special resolution passed by the company
along with a certified copy of the order of the Central Government confirming the alteration
together with a printed copy of the memorandum as altered and the Registrar shall register
the same and certify the registration under his hand within one month from the date of filing
of such documents.
In  Orient Paper Mills Ltd. v. State, the company proposed to shift its registered office from
the State of Orissa to West Bengal by a special resolution and sent it for Court's approval.
The State of Orissa opposed the change on several grounds including the loss of revenue and
employment opportunities to the State. Barman, J., declined to approve the change on the
ground that every State has got the right to protect its revenue.

But in a subsequent case, the High Court of Calcutta refused to sustain the contention of the
State that the shifting of the company from the State of West Bengal to the State of
Maharashtra would result into loss of revenue to the State and allowed the petition for change
of company's registered office. Mr. Justice Ray (later C. J. of the Supreme Court) observed :

"the question of loss of revenue to one State would have to be considered in the total
conspectus of revenue for the Republic of India and no parochial considerations should be
allowed to turn the scale in regard to change of registered office from one State to another
within India."

The above decision was indorsed by a Division Bench of the Calcutta High Court in Rank
Film Distributor of India Ltd. v. Registrar of Companies and State of West Bengal

Yet in another case, namely, In Re Bharat Commerce & Industries Ltd., a company resolved
and sought confirmation for removing its registered office from West Bengal to New Delhi
on the ground that it has become impossible for the company to manage its branches located
in different places due to disturbances caused by a few employees. The State Government did
not oppose the confirmation but it was opposed by the employees on the plea that the
management had taken this step to frustrate the outcome of an industrial dispute. The Court
ruled that the proposed change was mala fide. This decision was, however, overruled by the
Division Bench," as the Court did not like to go into the bona fides of the member's
resolution for shifting their company's office from the State of West Bengal to Maharashtra.

In Re Kalitara Wood Industries Ltd., the Company Law Board did not approve the policy of
the State Financial Corporation and the State Industrial Development Corporation to insist
upon shifting of office by the company to their State in order to avail loan facilities
In Stridewell Leathers (P) Ltd. v. Bhankerpur Simbhaoli Beverages (P) Ltd., the Supreme
Court held that expression "the High Court" means the High Court having jurisdiction in
relation to place at which registered office of company concerned is situate Accordingly, the
appeal in this case against the order of the Company Law Board lay to the Madras High
Court which had jurisdiction in relation to the place at which the registered office of the
company concerned is situated and not the Delhi High Court merely because the order was
made by the Company Law Board at Delhi, The Company Law Board (now Company Law
Tribunal) granted permission to a company to shift its registered office from the host State
whose actions and policies were against the interests of the company and take it to another
State which was willing to provide necessary facilities to the company. In Re Upper Ganga
Sugar & Industries Ltd., the Company Law Board held that where all the manufacturing
units of the Company are located in the State of Uttar Pradesh and not even a single unit
exists in the State of West Bengal, the Company can be allowed to shift its registered office
from West Bengal to the State of Uttar Pradesh provided a special Resolution has been
passed by the Company for this purpose.

In Re Usha Beltron Ltd., the State of Bihar granted lease of land to the Company to
establish its factory on the condition that Company shall not shift its registered office
anywhere outside the State of Bihar. Despite this agreement, the Company applied for
shifting its registered office to the State of West Bengal which was opposed by the Bihar
State Government. The Company Law Board (now Tribunal) quashed the objection raised by
the State Government and allowed the Company to shift its registered office from Bihar to
the State of West Bengal and held that considerations like interest-free debt, exemption on
sale tax, supply of electricity on concessional rates etc. could not adversely effect the legal
right of a Company to shift its registered office from one State to another as these
concessions had no direct nexus with the Company's right to shift its registered office when a
special resolution has been passed for this purpose.

object Clause
This clause states the objective with which the company is formed.

Object Clause

OBJECTS CLAUSE

The most important clause of the memorandum of association is

the objects clause because it sets out the purpose for which the
company is formed and the kind of activities or business it intends
to carry on. Generally, Companies divide their objects clauses into
three distinct parts, namely:

1. Main objects. - This sub-clause contains the main objects to be

pursued by the company on its incorporation and objects incidental
or ancillary to the attainment of the main objects. 

2. Other objects. - This sub-clause must include other objects

which are not included in the main objects.
3. States to which objects extend-The non-trading companies
whose objects are not confined to one State have to state in their
object clause, the States to whose territories the objects extend.

However, the Companies Act, 2013 has dispensed with such

classification of objects. It only provides

(i) objects for which the company is proposed to be incorporated,

and 

(ii) any matter considered necessary in furtherance thereof.

Purpose of Objects Clause

The importance of objects clause lies in the fact that it determines

the purpose and the capacity of the company, besides its sphere of
activities. The objects clause of a company serves three distinct
purposes : Firstly, it enables the subscribers to know the use to
which their investment money is put and thus extends protection to
shareholders.

Secondly, it also extends certain degree of protection to creditors

also inasmuch as the company cannot spend its capital on any
activities which are not within the purview of the objects clause.
Thirdly, the objects clause also serves the public interest as the
company cannot diversify its activities beyond those specified in the
objects clause.

Although express powers are necessary, a company may do

anything which is incidental to and consequential upon the powers
specified in the objects clause and such acts shall not be ultra vires.
Thus a trading company has an implied power to borrow money,
draw and accept bills of exchange, etc.

The subscribers to the memorandum enjoy almost unrestricted

freedom to choose the objects. The only restriction is that the
objects should not be illegal or against the provisions of the
Companies Act. For example, no company can be incorporated with
the object of carrying on the business of gambling. Likewise, any
clause in the memorandum giving the company limited by share, a
power to purchase its own shares shall be inoperative since it is
contrary to the provisions of the Companies Act. Similarly, giving
loan by a company for purchase of its own share is also restricted
under Section 67 of the Companies Act, 2013.

The Companies which are non-trading and their object is not

limited to a particular State, must specify in their memorandum to
all the States in which they would r operating. This is particularly
necessary for mutual fund companies which must seek approval of
SEBI.

LIMITED LIABILITY CLAUSE

LIMITED LIABILITY CLAUSE
In case of a company whose liability of members is limited by shares
or guarantee, the memorandum must contain a clause stating that
the liability of the members is limited'. Even a company which is
exempted from using the word Limited as a part of its name under
Section 8 of the Companies Act, 2013 is also required to state in its
memorandum that the liability of members is limited. The effect of
this clause is that, a company limited by shares, no member can be
called upon to pay more than the unpaid value of the shares held
by him. In case his shares are fully paid, he shall not be required to
pay any more even if the company owes huge debts to its creditors.

A member of a company limited by guarantee, not having share

capital cannot be called upon to contribute an amount more than
his guarantee in the event of liquidation of the company. Likewise,
in case of a company limited by guarantee but having share capital,
the members cannot be called upon to contribute more than the
amount guaranteed by them and the amount unpaid on their share,
if any. A company cannot alter its liability clause so as to enhance
the liability of its members or compelling them to take further
shares. Such an alteration would be void in law. There are, however
certain exceptions to this rule where additional liability may
be attributed to members by altering its liability clause.

CAPITAL CLAUSE

CAPITAL CLAUSE

The capital clause in the memorandum states the amount of the

nominal or authorised capital with which the company proposes to
be registered, and the value of the shares into which it is divided.
There is no limit to the amount of capital which the company may
have, or to the fixed value of each individual share.
The cpaital of the company may be divided into two different
categories namely, 

(a) equity share capital, which may be 

(i) with voting rights; or 

(ii) with differential rights as to dividend, voting or otherwise in

accordance with such rules as may be prescribed, and 

(b) preference share capital

Provided that nothing contained in the Companies Act, 2013, shall

affect the rights of the preference share holders who are entitled to
participate in the proceeds of winding up before the
commencement of this Act.

Alteration of Share Capital (Section 61) 

(a) Alteration of capital clause 

Section 61 of the Companies Act, 2013 provides that a Limited

Company can make the following types of alterations by an
ordinary resolution, if authorised by its articles to do so :-
(i) increase its share capital by an issue of new shares 

(ii) consolidate existing shares into shares of larger denomination 

(iii) sub-divide its shares or any of them into shares of

smaller amount than is fixed by memorandum [Section 61 (1) (d)) ; 

(iv) convert fully-paid shares into stock or vice versa (Section 61 (1)
(c)):

(v) cancel unissued shares and to that extent diminish the amount
of its shares capital. Such cancellation shall not, however, be
deemed as reduction of share capital (Section 61 (1)(e)).

The cancellation of shares under sub-section 61 (1) shall not be

deemed to be reduction of share capital.

All such alterations do not require the confirmation by the Company

Law Board These alterations are, however, required to be notified
giving details of the shares consolidated, divided, converted, sub-
divided, redeemed or cancelled or the stock reconverted, as the
case may be, and a copy of the resolution should be filed with the
Registrar within 30 days of the resolution.
The Registrar shall record the notice and make any alteration which
may be necessary in the company's memorandum or articles or
both. It must be noted that cancellation of shares does not amount
to reduction of share capital 

(b) Increase in share capital [Section 62]

A limited company having a share capital can increase its share

capital by such amount as it thinks expedient subject to the
fulfilment of the following conditions -

(i) The articles of the company should contain powers authorising

the company to increase its capital 

(ii) A resolution must be passed by the company in a general

meeting.

(iii) A notice of increase in capital is required to be filed by the

company which the Registrar within 30 days after the passing of the
resolution and the Registrar shall thereupon record the increase and
also make any alterations which may be necessary in the company's
articles or memorandum or both. 

(iv) The notice to be given to the Registrar should include

particulars of the class of shares affected and the conditions, if any,
subject to which the new shares have been or are to be issued.
The share capital of a company shall stand increased automatically
without the procedure mentioned above being followed in the
following circumstances :

(i) Where the Central Government has, by an order made under Sub
section (4) of section 62 of the companies Act directed that any
debenture or loan or any part thereof shall be converted into share
of the company and such an order has the effect of increasing the
authorised capital of the company

(ii) Where any public financial institution, in pursuance of option

attached to debentures issued or loans raised by the company,
proposes to convert such debentures or loans or part thereof into
shares in the company, and such conversion results in the
authorised share capital in the company, and the Central
Government issues a direction in this behalf.

Notice to be given to Registrar for alteration of share capital

(Section

64]

(1) Where

(a) a company alters its share capital in any manner specified in sub-
section (1) of Section 61;
(b) an order made by the Governent under sub-section (4) read with
sub-section (6) of Section 62 has the effect of increasing the
authorised capital of a

company, or

(c) a company redeems any redeemable preference shares, the

company shall file a notice in the prescribed form with the Registrar
within a period of thirty days of such alteration or increase or
redemption, as the case may be alongwith an altered memorandum.

[(2) Where any company fails to comply with the provisions of sub-
section (1). such company and every officer who is in default shall
be liable to a penalty of one thousand rupees for each day during
which such default continues, or five lakh rupees whichever is less.)

Unlimited Company to provide for reserve share-capital on

conversion into a limited company Section 65)

Section 65 of the Companies Act, 2013, provides that an unlimited

company having a share capital may, by a resolution for registration
as a limited company under this Act, do either or both of the
following things, namely: (a) increase the nominal amount of share
capital by increasing the nominal value of each of its shares subject
to the condition that no part of the increased capital shall
be capable of being called up except in the event of company being
wound up : (b) provides that a specified portion of its uncalled share
capital shall not be capable of being called up except in the event
and for the purposes of winding up of the company
The company is required to file with the Registrar within 30 days
from the date of receipt of the order a return in the prescribed form
with regard to the increase of share capital. The Registrar will, on
receipt of such order and the return, carry out the necessary
alterations in the memorandum of the company

(c) Reduction of capital (Section 66)

Subject to confirmation by the Tribunal, a company limited by

shares or limited by guarantee having a share capital may by a
special resolution, reduce its share capital

(a) by extinguishing or reducing the liability on share capital not

paid-up:

(b) by refunding surplus of the paid-up capital: 

(c) by writing off the lost capital:

(d) by any other method approved by the Court.

A company can reduce its share capital by any of the above

mentioned methods only when the following conditions are fulfilled
:
The Articles of the company permit such a reduction.

(i) The company passes a special resolution for reducing share

capital

(iii) The company also obtains confirmation of the resolution by the

Tribunal Provided that no such reduction shall be made if the
company is in arrears in the repayment of any deposits accepted by
it, either before or after the commencement of the Companies Act,
2013, the interest payable thereon.  

Nothing contained in Section 66 permitting deduction in share

capital shall apply to buy-back of its own securities by a company
under Section 68 of the Act.

Being a domestic affair, the Companies Act, 2013 permits the

companies to decide the extent, mode etc, of reduction of its share
capital. With a view, however, to safeguarding the interests of the
creditors and the minority shareholders as also to ensure that the
scheme of reduction is fair and reasonable, it is provided that the
scheme of reduction of the company shall be subject to the
approval of the Court. Before putting its seal of confirmation on the
scheme, it is the duty of the Court to see that the procedure
adopted is formally correct, the creditors are not prejudiced and the
scheme is fair and equitable between the different classes of
shareholders.
However, the above mentioned procedure is not called for:

(a) Where redeemable preference shares are redeemed in

accordance with the provisions of Section 55 of Companies Act,
2013.

(b) Where any shares are forfeited for non-payment of calls.

 ASSOCIATION CLAUSE

This clause is also known as 'subscription clause of the

memorandum. The association clause must state that the persons
who are subscribing their signatures to the memorandum and are
desirous of forming themselves into an association in pursuance of
the memorandum. Each subscriber must sign the memorandum in
the presence of atleast one witness who shall attest the signature.
Each one of them agrees to take the number of shares stated
against their respective names. The memorandum has to be
subscribed by atleast seven persons in case of a public company
and two in the case of a private company

Binding Effect of Memorandum on Members [Section 10]

Section 10 of the Companies Act, 2013 provides that the
Memorandum (and articles), when registered bind the company and
its members to the same extent as if they have been signed by the
company and by each member to abide by all the provisions
contained therein. This is applicable to every member irrespective of
the fact whether he became a member through allotment, transfer
or transmission of shares. The binding nature of a duly registered
memorandum (and articles) affects the members only in the
capacity of members of the company and not in any other capacity.

Sub-section (2) of Section 10 of the Companies Act, 2013 makes it

clear that all amounts payable by any member to the company
under the memorandum or articles shall be a debt due from him to
the company.

2. Company is totally different from its members. Explain.

Corporate Personality
Corporate personality is the fact stated by the law that a company is
recognized as a legal entity distinct from its members. A company
with such personality is an independent legal existence separate
from its shareholders, directors, officers and creators.

Corporate Personality

Corporate Personality is the creation of law. 

Legal personality of corporation is recognized both in English and

Indian law. A corporation is an artificial person enjoying in law
capacity to have rights and duties and holding property.
A corporation is distinguished by reference to different kinds of
things which the law selects for personification. The individuals
forming the corpus of corporation are called its members. The
juristic personality of corporations pre-supposes the existence of
three conditions :

(1) There must be a group or body of human beings associated for

a certain purpose.

(2) There must be organs through which the corporation functions,

and

(3) The corporation is attributed will by legal fiction. A corporation is

distinct from its individual members.

It has the legal personality of its own and it can sue and can be sued
in its own name. It does not come to end with the death of its
individual members and therefore, has a perpetual existence.
However, unlike natural persons, a corporation can act only through
its agents. Law provides procedure for winding up of a corporate
body. Besides, corporations the banks, railways, universities,
colleges, church, temple, hospitals etc. are also conferred legal
personality. Union of India and States are also recognized as legal
or juristic persons .

In certain cases, the corpus of the legal person shall be some fund
or estate which reserved certain special uses. For instance, a trust –
estate or the estate of an insolvent, a charitable fund etc..; are
included within the term ‘legal personality’.
Corporations are of two kinds :

1. Corporation Aggregate : Is an association of human beings

united for the purpose of forwarding their certain interest. A limited
Company is one of the best example. Such a company is formed by
a number of persons who as shareholders of the company
contribute or promise to contribute to the capital of the company
for the furtherance of a common object. Their liability is limited to
the extent of their share-holding in the company. A limited
liability company is thus formed by the personification of the
shareholders. The property is not that of the shareholders but its
own property and its assets and liabilities are different from that of
its members. The shareholders have a right to receive dividends
from the profits of the company but not the property of the
company. The principle of corporate personality of a company was
recognized in the case of Saloman v. Saloman & Co

3. Corporation Sole : Is an incorporated series of successive

persons. It consists of a single person who is personified and
regarded by law as a legal person. In other words, a single
person, who is in exercise of some office or function, deals in
legal capacity and has legal rights and duties. A corporation
sole is perpetual. Post – Master- General, Public Trustee,
Comptroller and auditor general of India, the Crown in
England etc are some examples of a corporation sole.
Generally, corporation sole are the holders of a public office
which are recognized by law as a corporation.. The chief
characteristic of a corporation sole is its “continuous entity
endowed with a capacity for endless duration”. A corporation
sole is an illustration of double capacity. The object of a
corporation sole is similar to that of a corporation aggregate.
In it a single person holding a public office holds the office in
a series of succession, meaning thereby that with his death ,
 his property , right and liabilities etc., do not extinguish but
they are vested in the person who succeeds him. Thus on the
death of a corporation sole, his natural personality is
destroyed, but legal personality continues to be represented
by the successive person. In consequence , the death of a
corporation sole does not adversely affect the interests of the
public in general.

4. define articles of association. Explain alteration of articles of association

under the companies act.

Articles of Association
Articles of Association (AOA) describes the rules and regulations
for the internal management of the company. ... It usually contains
regulation relating to Share capital and Variation rights, Lien, Calls
on Shares, Transfer and Transmission of shares etc.

Articles of Association

The articles of association of a company are the internal regulations

which govern the management of the internal affairs of a company.
As against the articles, the memorandum of a company contains the
fundamental conditions for guidance and benefit of the creditors
and outside public as also shareholders who are desirous of dealing
with the company. The articles being meant for regulating the
internal affairs of a company, the members have full control and
may by resolution alter them as they think fit so long as they do not
exceed the limits defined by the memorandum of the company

Definition and Nature of Articles Section 2(5) of the Companies

Act, 2013 defines "Articles of Association" thus:
"Articles means the articles of association of a company as originally
framed or as altered from time to time or applied in pursuance of
any previous companies law or of this Act." Thus, it would be seen
that the articles of a company are its bye-laws or rules and
regulations which govern its internal affairs and the conduct of its
business. They are of vital importance to the company inasmuch as
they deal with the rights of the members of the company inter se.
They are subordinate to and controlled by the memorandum.

Lord Cairns L.C. described the functions of Articles of Association of

a company in Ashbury Railway Carriage & Iron Co. Ltd. v. Riche,
in the following words:

"The articles play a part subsidiary to the memorandum of

association. They accept the memorandum as the charter of
incorporation of the company, and so accepting it, the articles
proceed to define the duties, rights and powers of governing body
as between themselves and the company at large, and the mode
and form in which business of the company is to be carried on, and
the mode and form in which changes in internal regulations of
company may from time to time be made.. Briefly stated, while the
memorandum lays down the scope and powers of the company, the
articles govern the ways in which the objects of the company are to
be carried out.

In case of a conflict between the contents of memorandum and

articles, the provisions of former i.e. memorandum, must prevail.
However, where the memorandum is ambiguous or silent on a
particular issue, it is permissible to refer to the articles to resolve the
difficulty. Thus, a power to charge future calls or to issue preference
shares contained in the articles alone may be implemented
effectively. But the articles cannot be used to resolve an ambiguity
which relates to some matter required by statute to appear in the
memorandum.

Alteration of Articles (Section 14)

Section 14 of the Companies Act, 2013  provides that subject to

the provisions of the Act and to the conditions contained in its
memorandum a company may by special resolution alter its articles.
However, the only restriction on this unfettered power granted
under Section 14 is that a public company cannot convert itself into
a private company by carrying out alterations in its Articles of
Association

The right to alter the articles being unfettered, the company cannot
in any manner, either by express provisions in the Articles or
Memorandum or by independent contract, deprive itself of the
power to alter its articles. However, the alteration should have been
made bona fide for the benefit of the company as a whole, and the
power to alter must not have been exceeded.

Thus in Allen v. Gold Reefs West Africa Ltd.,  the articles of the
company gave the company lien over all "not fully paid" shares for
calls due to company. 'A' was the only shareholder who held fully
paid shares, he also owed money to the company for calls due on
other shares. 'A' died. The company altered its articles by striking
out the words "not fully paid up" and thus gave itself the power to
exercise lien on all of A's shares. The Court held that alteration was
valid as it was bona fide made for the benefit of the company. The
articles must be altered in good faith and not so as to give unfair
advantage to majority of shareholders.

In Harichandan v. Hindustan Insurance Society, the petitioner

took a policy from the Insurance Company under which a specified
amount was to be paid to him on a specific date. Before that date,
the Company altered its articles under which the said amount was
to be paid from a Special Fund but the said Fund was declared
insolvent and the petitioner was denied payment on the ground
that the Fund had become non-existent. The petitioner moved the
High Court of Calcutta claiming the amount payable by the
Insurance Company on the basis of contract between him and the
Company under the Insurance Policy. The Court ruled that any
alteration in the article cannot adversely affect the rights of parties
under the contract and therefore, the Company was bound to pay
to the petitioner the amount which it had agreed to pay under a
valid insurance contract.

As stated earlier, the absolute power of the company to alter its

articles is subject to two restrictions :

Firstly, it must not contravene any of the provisions of the

Companies Act. That is, it should not be an attempt to do
something which the Act forbids. For example, in Madhav R.
Kamath v. Canara Banking Corporation Ltd., the company
altered its articles by a special resolution for expulsion of a member
and authorising the directors to register the transfer of his shares
without a transfer-deed. The alteration was struck down by the
Court being contrary to the provisions of the company Law.
company's power to alter the articles is subject to the conditions in
Secondly, the the Memorandum. If any alteration in the articles is
contrary to the provisions contained in the Memorandum or
inconsistent therewith, it shall be void being ultra vires the
Memorandum. The altered articles shall have the same binding
effect on the members of the company as that of the original
articles. But the articles so altered shall not operate retrospectively

After an alteration in the articles is made, it should be endorsed in

every copy of the document subsequently issued after the date of
alteration. Failure to comply with this provision will render the
company and its every defaulting officer liable to punishment with
fine which may extend to Rs. 10/- for each copy issued by the
company.

The Central Government vide their circular No. 8/32(31)63-PR,

dated 23rd October, 1963 have notified that a company can never
replace its articles. It is only the regulations contained therein which
can be changed. Accordingly, a company can adopt an entirely new
set of regulations in which case the explanatory statement should
set out all material facts concerning the proposed alterations in the
existing Articles of Association.

Alteration of Articles under order of the National Company Law

Tribunal (Sections 241-242)

The Tribunal may order a company to alter its articles with a view to
resolving complaints against oppression and mismanagement in the
company on an application made under Section 241 or 242 of the
Act. The alterations made under an order of the Tribunal shall have
the same effect as if they were made by the company in accordance
with the Act. The company must file a certified copy of the order
with the Registrar within thirty days of the issue of that order.
Section 242 of the Companies Act, 2013 deals with the powers of
the National Company Law Tribunal on receiving an application
made under Section 241 for alteration of Articles in order to prevent
oppression and mismanagement in the company. An alteration
made in the articles or memorandum of a company shall, in all
respects, have the same effect as if they had been duly made by the
Company in accordance with the provisions of the Companies Act,
2013.

Any contravention of the provisions of Section 242 (5) shall render

the company liable to punishment with fine which shall not be less
than one lakh rupees but which may extend to twenty-five lakh
rupees and every officer of the company who is in default shall be
punishable with imprisonment which may extend to six months or
with fine which shall not be less than twenty-five thousand rupees
but which may extend to one lakh rupees, or with both.

5. explain the doctrine of lifting the corporate veil

Lifting of Corporate Veil

The doctrine of lifting the corporate veil means ignoring the
corporate nature of the body of individuals incorporated as a
company.

Lifting of corporate Veil

Corporate Veil ?

A company is composed of its members and is managed by its

Board of Directors and its employees. When the company is
incorporated, it is accorded the status of being a separate legal
entity which demarcates the status of the company and the
members or shareholders that it is composed of. This concept of
differentiation is called a Corporate Veil which is also referred to as
the ‘Veil of Incorporation’.

Meaning of Lifting of Corporate Veil

The advantages of incorporation of a Company like Perpetual

Succession, Transferable Shares, Capacity to Sue, Flexibility, Limited
Liability and lastly the company being accorded the status of a
Separate Legal Entity are by no means inconsiderable, under no
circumstance can these advantages be overlooked and, as
compared with them, the disadvantages are, indeed very few. 

Yet some of them, which are immensely complicated deserve to be

pointed out. The corporate veil protects the members and the
shareholders from the ill-effects of the acts done in the name of the
company. Let’s say a director of a company defaults in the name of
the company, the liability will be incurred by the company and not a
member of the company who had defaulted. If the company incurs
any debts or contravenes any laws, the concept of Corporate Veil
implies that the members of the company should not be held liable
for these errors.

Development of the Concept of “Lifting of Corporate Veil”

Once a company is incorporated, it becomes a separate legal

identity. An incorporated company, unlike a partnership firm which
has no identity of its own, has a separate legal identity of its own
which is independent of its shareholders and its members.

The companies can thus own properties in their names, become

signatories to contracts etc. According to Section 34(2) of the
Companies Act, 2013, upon the issue of the certificate of
incorporation, the subscribers to the memorandum and other
persons, who may from time to time be the members of the
company, shall be a body corporate capable of exercising all the
functions of an incorporated company having perpetual succession.
Thus the company becomes a body corporate which is capable of
immediately functioning as an incorporated individual.

The central focal point of Incorporation which overshadows all

others is a distinct legal entity of the Corporate organisation.

Solomon v Solomon

What the milestone case Solomon v Solomon lays down is that “in
inquiries of property and limitations of acts done and rights
procured or liabilities accepted along these lines… the characters of
the common people who are the organization’s employees is to be
disregarded”.

Lee v Lee’s Air Farming Ltd

In Lee v Lee’s Air Farming Ltd., Lee fused an organization which he

was overseeing executive. In that limit he named himself as a
pilot/head of the organization. While on the matter of the
organization he was lost in a flying mishap. His widow asked for
remuneration under the Workmen’s Compensation Act. At times,
the court dismisses the status of an organization as a different
lawful entity if the individuals from the organization attempt to
exploit this status. The aims of the people behind the cover are
totally uncovered. They are made to obligate for utilizing the
organization as a vehicle for unfortunate purposes.

 
The king v portus ex parte federated clerk union of Australia

In this case, Latham CJ while choosing whether or not workers of a

company which was incorporated in the name of the Federal
Government were not employed by the Federal Government
decided that the company possesses a distinct identity from that of
its shareholders. The shareholders are not at risk to banks for the
obligations of the company. The shareholders don’t claim the
property of the company.

Life insurance corporation of India v Escorts Ltd.

“It is neither fundamental nor alluring to count the classes of

situations where lifting the veil is admissible, since that must
essentially rely upon the significant statutory or different
arrangements, an outcome which is tried to be achieved, the poor
conduct, the element of public interest, the impact on parties who
may be affected by the decision, and so forth.”

What is Promoters?
A promoter may be individual, syndicate, association, partner or company. It is
the Promoter who undertakes does and goes through all the necessary & incidental
requirements keeping in view the object of proposed company in order to bringing to
existence as such incorporated company.

Promoters

A person who involves in the promotion the company. A promoter is a person who does all
necessary preliminary work, incidental to the formation or promotion of the company. To be
a promoter one need not necessarily be associated with the initial formation of the company;
one who subsequently helps to arrange floating of its capital will equally be regarded as
a promoter.

Definition:

The expression ‘promoter’ has not been defined under the Companies Act, although the term
is used expressly in Sections 2(69), 35, 39, 40, 300, and 317 of the New Company Act, 2013.
Even in English law, no general statutory definition of ‘Promoter’ is available.

Duties and Liabilities of Promoters

A promoter typically is responsible for raising capital, targetting initial leads and
chasing initial business opportunities, entering into the initial contracts for the
business formation and incorporating the company.

Duties and Liabilities of Promoters

FUNCTIONS OF PROMOTER

            A promoter plays a very important role in the formation of a company.

A promoter may be an individual, an association or a company. In their capacity
as promoters, they perform the following functions in order to incorporate a
company and to set it going. To originate the scheme for formation of the company:

·       Promoters are generally the first persons who conceive the idea of business.

·       They carry out the necessary investigation to find out whether the formation of
a company is possible and profitable.

·       Thereafter they organize the resources to convert the idea into a reality by
forming a company; or in other words we can say that it is the promoter –

·       who settles the name of the company thereby ascertain the name will be
acceptable by the registered of the office;
·       who settles the content or details as to the Articles of the companies; (here,
articles implies Articles of association & Memorandum of association),

·       who nominates the directors, bankers, auditors and etc.;

·       who decides the place where registered office (head office) have to be situated;

·       who prepare the Memorandum of Association, Prospectus and other necessary

documents and file them for incorporation.

In this sense, the promoters are the originators of the plan for the formation of a
company. To secure the cooperation of the required number of persons willing to
associate themselves with the project: The promoters, in accordance with whether
they want to incorporate a private or public company, try to secure the co-operation
of persons needed to from the company. Minimum number of members required to
from a public company is seven and that for a private company the minimum
number is two. Depending upon the form chosen, the promoters may decide upon
the number of primary members.

To seek and obtain the consent of the persons willing to act as first directors of the
company: The company has a system of representative management and is managed
by individuals appointed as directors. The first directors of the company are,
however, generally appointed by the promoters. The promoters seek the consent of
some individual whom they seem appropriate so that they agree to be the first
directors of the proposed company. To settle about the name of the company:
The promoters have to seek the permission of the Registrar of companies for
selecting the name of the company.

PRE-CONTRACTUAL AND POST CONTRACTUAL OBLIGATIONS WITH RESPECT

TO: STATUS, DUTIES & LIABILITIES.

                 Legal status of promoter is concerned it is undefined. So, legal status

of promoter has not been determined and specified by the statute. His position is
incapable of being defined. He cannot considered as an agent, an employee and
trustee of the companies. The status of the promoter is generally terminated when
the board of directors has been formed and the board starts governing the company.
Chronologically, the first persons who control or influence the company, and it they
who take the necessary steps to incorporate it, to provide it with share and loan
capital and acquire the business or property which it,  to provide it with share and
loan capital and acquire the business or property which it is to manage. When these
things are done, they handover the control of the company to its directors, who are
often themselves under a different name.

Duties:

The early companies Acts contained no provisions regarding the liabilities or duties
of promoters, and even today legislation is largely silent on the subject, merely
imposing liability for untrue statement in listing particulars or prospectuses to which
they are parties.

There are some duties or liabilities with respect to Promoter has been also provides
by the statute: The promoters have certain basic duties towards the company
formed :-

As we know that Promoters have been described to be in a fiduciary relationship

(i.e., relationship of trust and confidence) with the company. This relationship of trust
and confidence requires the promoter to make a full disclosure of all material facts
relating to the formation of the company. He must not make any secret profit out of
the promotion of the company. Secret profit is made by entering into a transaction
on his own behalf and then sell to concerned property to the company at a profit
without making disclosure of the profit to the company or its members.
The promoter can make profits in his dealings with the company provided he
discloses these profits to the company and its members. What is not permitted is
making secret profits i.e. making profits without disclosing them to the company and
its members.

He must make full disclosure to the company of all relevant facts including to any
profit made by him in transaction with the company.

Liabilities of promoter:

A promoter can be compelled by the company to hand over any secret profit which
he has made without full disclosure to the company. The company can also sue for
the rescission of the contract of sale by the promoter where the promoter has not
disclosed his interest therein.

A promoter is subject to the following liabilities under the various provisions of the
Companies Act:
 

Section 56 lays down matters to be stated and reports to be set out in

the prospectus. He may be held liable for the non-compliance of the provisions of
this section.

Under Section 62, a promoter is liable for any untrue statement in the prospectus to
a person who has subscribed for any shares or debentures on the faith of
the prospectus. Such a person may sue the promoter for compensation for any loss
or damage sustained by him.

Besides civil liability, the promoters are criminally liable under Section 63 for the
issue of prospectus containing untrue statements. Section 68 imposes severe
penalty on promoters who make untrue and deceptive statements in
a prospectus with a view to obtaining capital.

A promoter may be liable to public examination like any other director or officer of

the company if the court so directs on a liquidators report alleging fraud in the
promotion or formation of the company.

A company may proceed against a promoter on action for deceit or breach of duty
under Section 543, where the promoter has misapplied or retained any property of
the company or is guilty of misfeasance or breach of trust in relation to the company.

So, promoter is liable to the original allottee of shares for mis-statements contained

in the prospectus. It is clear that his liability does not extend to subsequent allottees.
He may also be imprisonment for a term which may extent to 2 years or may be
punished with fine up to Rs. 50,000 for such untrue statements in the prospectus

POSITION OF PROMOTER IN INDIA IN RELATION TO COMPANY.

Position of the promoter is fiduciary concerning the company which being the

promotes his position is quasi legal. A promoter is neither a trustee nor an agent of
the company which he promotes because there is no trust or principal in existence at
the time of his efforts. But certain fiduciary duties, like an agent, have been imposed
on him under the Companies Act. As such he is said to be in & fiduciary position (a
position full of trust and confidence) towards the company and the original allottee
of shares. Consequently, a promoter must make full disclosure of the relevant facts,
including any profit made.

 
He must not make any secret profits out of the transactions he makes on behalf of
the company. It is to be observed that it is not the profit made by
the promoter which the law forbids, but the non-disclosure of it. If full disclosure is
made to an independent Board of Directors or to the shareholders as a body (and
not to a selected few), the profit is permissible. A promoter vendor cannot evade his
liability of disclosure of profits by disclosing to a Board of Directors who is mere
nominees of his own, or in his pay.

A good illustration on the point is to be found in Gluckstein vs. Barnes. In this case,
a syndicate of persons was formed to purchase the Olympia Company and to
promote and register a company to which the Olympia property was to be resold. At
that time the Olympia Company was in a bad shape. The syndicate first bought the
debentures of the Olympia Company at a discount. Then they brought the Company
for £ 1,40,000. Out of this money, provided by them, the debentures were repaid in
full and a profit of £ 20,000 was made thereon. They promoted a new company and
sold Olympia to it for £ 1,80,000.

The profit of 40,000 was revealed in the, prospectus, but not the profit of £ 20,000. It
was held that the profit of £ 20,000 was a secret profit made by the syndicate
as promoters of the company, and they were bound to pay it to the company which
was at that time in liquidation. On behalf of the syndicate it was argued that they had
in fact made a proper disclosure, but it was turned down on the plea that disclosure
made by them in the capacity of vendors to themselves in the capacity of directors of
the purchasing company was not sufficient. The disclosure ought to be to an
independent Board or to all shareholders by means of a prospectus.

Prior to incorporation of the company:

Sometimes, contracts are made on behalf of a company even before it is duly

incorporated. But no contract can be bind a company even before it becomes
capable of contracting by incorporations. So, a pre-incorporation contract is a
contract entered into by a company before it is incorporated, which is obviously not
possible. Ratification of a pre-incorporation contract is not possible since ratification
acts retrospectively. A person cannot entered into a contract on behalf of a company
before the company incorporated or born or came into existence. However, it may be
necessary to bind an outsider with a contract before the company is incorporated.
Hence, the need for pre-incorporation contract.
 

The true legal position in respect of pre-incorporation contracts may be discussed

under the following two heads:-

Position before 1963 (i.e., before passing of Specific Relief Act, 1963), and

Position since 1963.

Position before 1963:

A pre-incorporation contract never binds a company since a person (legal or juristic

cannot contract before his or its existence and a company before incorporation has
no legal existence. Another reason is that promoters are proverbially profuse in their
promises and if the corporation were to be bound by them, it would be subject to
many unknown, unjust and heavy obligations).

Even where there is a request purported to enforce such a contract, the company
cannot be found because ratification is not possible as the ostensible principal did
not exist at the time the contract was made. In re English and colonial Produce
Company case, a solicitor was engaged to prepare the necessary documents and
obtain the registration of a company. He paid the registration fee and incurred the
certain expenses incidental to registration. It was held in this case that the company
was not liable or bound to pay for his services and expenses.

The company is also not entitled to sue on a pre-incorporation contract. As it was

held in the case of Natal land and Colonisation Company v. Pauline Colliery
Syndicate  that the syndicate was not entitled to its claim as it was not in existence
when the contract was made and a company cannot obtain the benefit of a pre-
incorporation contract in the suit of specific performance. So, fact of this case was
that the a ‘N’ company contracted with ‘A’, the nominee of the syndicate company
which was not even incorporated, to grant a lease of certain coal mining rights for
three years. After the syndicate was registered, it claimed the contracted lease which
the company ‘N’ refused.

Position since 1963 (i.e., after passing of the specific relief Act, 1963):  

Until the passing of the Specific Relief Act, 1963, in India the promoters found it very
difficult to carry out the work of incorporation. Since contracts prior to incorporation
were void and also could not be ratified, people hesitated to either supply any goods
or services for the cause of incorporation. Promoter also felt shy of accepting
personal responsibility. The Specific Relief Act, 1963 came as a relief to
the promoters.

The specific relief Act provides under the following sections:

Section 15  and 19(e) of the Specific Relief Act provides as follows:

The contract should have been entered into by the promoter for the purpose of the
company.

The terms of incorporation should warrant should warrant such contract.

The company should accept the contract after incorporation.

Such acceptance should be communicated to the other party to the contract.

So, preliminary contract enforced by the promoter at the prior to incorporation of

the company will be treated as contract between two individuals who are in
existence. Thus, the company do have no inherent right concerning ratification of
those contract unless company acquiring the power as to the ratification by its
memorandum as the subject-matter of contract is not contrary to the object of the
company. Hence, the third party cannot sue the company, if any breach of contract
has been taken place where such contract entered prior to the incorporation even
they for the benefit of the company.

So, question is here that the what is the position of the promoter in relation to
preliminary contracts? Or in other words we can say that if the company does not
execute a fresh contract incorporation and the contract is not one warranted for the
purposes of incorporation of the company, what will be the legal position of
the promoter who brings about such a contract? It was observed in the case of
Phonogram Limited v. Lane, that although a contract made before a company’s
incorporation cannot bind the company, it is not wholly devoid of legal effect, even if
all the persons who negotiated the contract are attempting to incorporate a Pop
group had obtained financial assistance from a recording company. He was held
personally liable to refund the amount on his project failing to materialize.
 

So, Promoters shall be liable to pay damages for failure to perform the promises

made in the name of company and this shall be so, even where the contract
expressly provides that only the company’s paid up capital shall be answerable for
performance as it was also held in the case of Scot. v. Lord Ebury.

Under Section 19 (e) of the Specific Relief Act, 1963,

Except as otherwise provided by this Chapter, specific performance of a contract may

be enforced against the company, when the promoters of a company have, before
its incorporation, entered into a contract for the purpose of the company and such
contract is warranted by the terms of the incorporation.

In Weavers Mills Ltd. v. Balkies Ammal  , the Madras High Court extended the
scope of this principle through its decision. In this case, promoters had agreed to
purchase some properties for and on behalf of the company to be promoted. On
incorporation, the company assumed possession and constructed structures upon it.
It was held that even in absence of conveyance of property by the promoter in favor
of the company after its incorporation, the company’s title over the property could
not be set aside.

Promoters are generally held personally liable for pre-incorporation contract. If a

company does not ratify or adopt a pre-incorporation contract under the Specific
Relief Act, then the common law principle would be applicable and
the promoter will be liable for breach of contract.

In Kelner v Baxter, where the promoter in behalf of unformed company accepted

an offer of Mr. Kelner to sell wine, subsequently the company failed to pay Mr.
Kelner, and he brought the action against promoters. Erle CJ found that the
principal-agent relationship cannot be in existence before incorporation, and if the
company was not in existence, the principal of an agent cannot be in existence. He
further explain that the company cannot take the liability of pre-incorporation
contract through adoption or ratification; because a stranger cannot ratify or adopt
the contract and company was a stranger because it was not in existence at the time
of formation of contract. So he held that the promoters are personally liable for the
pre-incorporation contract because they are the consenting party to the contract.

In Newborne v Sensolid (Great Britain) Ltd,  Court of Appeal interpreted the

finding of Kelner v Baxter in a different way and developed the principle further. In
this case an unformed company entered into a contract, the other contracting party
refused to perform his duty. Lord Goddard observed that before the incorporation
the company cannot be in existence, and if it is not in existence, then the contract
which the unformed company signed would also be not in existence. So company
cannot bring an action for pre-incorporation contract, and also the promoter cannot
bring the suit because they were not the party to contract.

This case created some amount of confusion that, if the contract was sign by the
agent or promoter, then he will be liable personally and he has the right to sue or to
be sued. But if a person representing him as director of unformed company enters
into the contact then the contact would be unenforceable.

These principles were found applicable in Indian case.

In Seth Sobhag Mal Lodha v Edward Mill Co. Ltd., the High Court of Rajasthan
followed the approach of Common Law regarding liability of pre-incorporation
contract. This case was criticized by A. Ramaiya in Guide to Companies Act (Sixth
Edition), he found that learned judges did not noticed the Specific Relief Act.

Although under common law promoter is personally liable for the pre-incorporation

contract, but there are some scope where the promoter can shift his liability to
company. He can shift to company his liability under the Specific Relief Act 1963 or
he can go for novation under contract law. In Howard v Patent Ivory
Manufacturing, the English Court accepted the novation of contract.

In conclusion we can say that, a promoter is personally liable for the pre-
incorporation contract, because at the time of formation of pre-incorporation
contract, the company does not come in existence, so neither the principle agent
relationship exist not the company become the party. Company is not liable for the
pre-incorporation contract when it come in existence, but under the arrangement of

section 15  and 19(e) of the Specific Relief Act 1963, company can take the rights
and liability of promoter. It is also found that promoter is personally liable for the
pre-incorporation contract in American Law, English Law and Indian Law.

After incorporation of the company:

After company came into existence, a company can ratify or adopt the contract, and
this would bound the company and not the promoter. under the Specific Relief Act

1963, section 15  and 19(e) promoter can shift his right and responsibility to the
company, if it is warranted by the terms of incorporation. If we look on the point of
remuneration for promoter concerns, then it is clear that generally the promoter is
not entitled for any kind of remuneration, salary and in any manner. However, once
the company is incorporated & members of the company is improved then he may
be compensated in terms of lump-sum amount. Nothing is entitled to obtained as a
legal right he only be compensate on the ground of equity. If the allotment of share
is taken place for promoter then automatically promoter becomes a member of the
company.

Comparison between Indian and other country’s laws regarding promoter’s

liability for pre-incorporation contract:

Although under the English Common Law, the American law and the Indian Law
recognize the rule that promoter is personally liable for pre-incorporation contract,
American Laws and Indian laws are much more innovative and effective to solve the
problem of Pre-incorporation Contract. Whereas the English Courts still follow the
principle of Kelner v. Baxter. Although in UK, Contracts (Rights of Third Parties) Act
1999 brought some relief, but it is not as broad as the American and Indian Laws are.

Under English Common Law, the ratification or adoption, after the incorporation, did
not release the promoter from liability of pre-incorporation contract. Whereas in
American Court recognize that if the after the incorporation company can ratify or
adopt the contract, and this would bound the company and not the promoter.
Indian Law the rule of Kelner v. Baxter is applicable but under the Specific Relief Act

1963, section 15  and 19(e) promoter can shift his right and responsibility to the
company, if it is warranted by the terms of incorporation. The principle of novation of
pre-incorporation contract is applicable in above three counties, the reason behind is
that, the novation replace the old contract with the new contract, so there is not
problem of non-existence of company. Now after the Contracts (Rights of Third
Parties) Act 1999, English laws may also allow company to become the part of pre-
incorporation contract, when it acquire its legal existence.

CONCLUSION

 In conclusion, it may be said that the word ‘Promoter’ is used in common parlance
to denote any individual, syndicate, association, partnership or a company which
takes all the necessary steps to create and set it going. The Promoter originated the
scheme for the formation of the company; gets together the subscribers to the
memorandum; gets memorandum and prepared articles, executed and registered;
finds the bankers, brokers and legal advisors; located the first directors, settle the
terms of preliminary contracts with vender and agreement with underwriters and
makes arrangements for preparation, advertisement and circulation of
the prospectus and arrangement of the capital. So, Promoters act as a molding
format for the company and gives it a shape which can exist in the world although
they cannot take anything in this regard.

8. A company has its registered office at Kerala. Due to some

reasons unfavorable to the company, it wishes to shift its registered
office to Karnataka. Advise the company.
A company can shift its registered office from one place to another within the same city, town or
village. But in case a company proposes to change its registered office from one city to another
within the same State, it can do so only after passing a special resolution. A notice of any such
change has also to be given to the Registrar within thirty days of the change. Non-compliance of this
provision shall render the company and its every officer who is responsible for this default liable to
punishment with fine extending upto one thousand rupees for every day during which default
continues but not exceeding one lakh rupees.

Where the company wants to shift its registered office from one place to another within the same
ibed form and the confirmation shall be communicated within four weeks from the date of receipt of
the application.

In case a company proposes to shift its registered office from one State to another it has to alter its
memorandum of association subject to compliance of the provisions of Section 13 of the Companies
Act, 2013 which require passing of a special resolution and approval of the Central Government. The
alteration relating to change of the place of its registered office from one State to another shall not
take effect unless it is confirmed by the Central Government on petition. Before granting permission
to change of registered office, the Central Government must be satisfied :

(a) That sufficient notice has been given to every holder of the debentures of the company, and
to every other person or class of persons whose interests will in the opinion of the Central
Government, be affected by such alteration; and

(b) That, with respect to each creditor who, in the opinion of the Central Government is entitled
to the alteration and who signifies his objection in the manner directed by the Central
Government, either his consent to the alteration has been obtained or his debt or claim has
been discharged or has been determined, or has been secured.
The Central Government shall also give a reasonable opportunity to every person on whom the
notice of alteration is served to appear before it and put up his objections, if any. Thereafter, the
Central Government may make an order confirming the alteration on such terms and conditions, if
any, with respect to the confirmation of the alteration. It may, for the purpose of the interests of
dissenting members, give such directions and make such orders as it thinks fit for facilitating or
carrying into effect, any such alteration

The alteration shall be registered within three months from date of its confirmation by the Central
Government. On receipt of the confirmation by the Central Government, the Company shall file with
the Registrar a copy of the special resolution passed by the company along with a certified copy of
the order of the Central Government confirming the alteration together with a printed copy of the
memorandum as altered and the Registrar shall register the same and certify the registration under
his hand within one month from the date of filing of such documents.

State from the jurisdiction of one Registrar of Companies to the jurisdiction of another Registrar of
Companies, confirmation by the Regional Director shall be mandatory for such change. For this
purpose, the company shall make an application to the Regional Director in the prescr

FORMALITES FOR THE FORMATION OF COMPANY ?

Procedure for Incorporation
A Company gets legal recognition after its incorporation, namely, get certificate of incorporation of
the company form the Registrar of Companies.

Procedure for Incorporation

Formation of company [Section 3]:

Section 3(1) of the Companies Act, 2013 provides that a company may be formed for any lawful
purpose by

(a) seven or more persons, where the company to be formed is to be a public

company:

(b) two or more persons, where it is to be formed as a private company; or

(c) one person where the company is to be formed as One Person Company (OPC), that is to say, a
private company :

Provided that the memorandum of One Person Company (OPC) 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 formation of One Person
Company along with its memorandum and articles:
Provided further that the member of One Person Company may at any time change the name of such
other person by giving notice in such a manner as may be prescribed :

Provided also that such change in the name of the person shall not be deemed to be an alteration of the
memorandum.

(2) A company formed under sub-section (1) may be either

(a) company limited by shares; or

(b) company limited by guarantee; or

(c) an unlimited company.

3-A. Members severally liable in certain cases.-If at any time the number of members of a company is
reduced in the case of a public company, below seven, in the case of a private company, below two,
and the company carries on business for more than six months while the number of members is so
reduced every person who is a member of the company during the time that it so carries on business
after those six months and is cognisant of the fact that it is carrying on business with less than seven
members or two members, as the case may be, shall be severally liable for the payment of the whole
debts of the company contracted during that time, and may be severally sued therefor)

Incorporation of Companies

Incorporation of Companies
A company gets legal recognition only after its incorporation, namely,
gets certificate of incorporation of the company from the Registrar of Companies
Incorporation is the second important stage of the formation of a company. The
company gets perpetual existence soon after it is incorporated or registered. A
company is incorporated by registering certain documents with the Registrar of
Companies, and paying certain fees and stamp duties. Unless these formalities are
complied with, a company does not have a legal existence of its own. Therefore,
mere adding of the word 'company in a firm's name would not convert it into an
incorporated company as it would depend on the number of members of the firm
whether the firm could be incorporated as a company or not.3

In order to get certificate of incorporation for a new company from the Registrar of

Companies, the following formalities shall have to be complied with by
the promoters

1. An application in the prescribed Form 1A of the Companies (Government's)

General Rules & Forms, 1956 along with the prescribed fee as required under Rule
4A shall be filed to Registrar of Companies of the State in which the registered office
of the proposed company is to be situated. The application must specify the name of
the company proposed to be incorporated as its name and the kind of company,
namely, whether it is a public or a private company.

2. The Memorandum and Articles of Association should be prepared and printed

and a copy of each of them has got to be stamped, according to the Stamp Act. A
public company limited by shares may adopt Table A of Schedule I of the Act, and in
that case, it need not prepare its own Articles of Association.

3. The Memorandum and Articles are to be signed by atleast seven subscribers in

case of public company and two in case of a private company ; and each subscriber
should 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.
4. The following documents should then be filed with the Registrar of Companies
within whose jurisdiction the registered office of the company is proposed to be
situated : 

(a) The Memorandum and articles of the company duly signed by the subscribes in a
manner prescribed;

(b) 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;

(c) a declaration] from each of the subscribers to the memorandum and from
persons named as the first directors, if any, in the article, that he is not convicted of
any offence in connection with the promotion, formation or management of any
company; or has not been found guilty of any fraud or misfeasance or any breach of
duty to any company under this Act or any previous company law during the
preceding five years and that all information filed in the documents filed with the
Registrar for registration of the company is correct and complete and true to the
best of his knowledge and belief,

(d) the address of correspondence till the registered office is established;

(e) the particulars of name, surname or family name, residential address. nationality
etc. of each subscriber to the memorandum with proof of identity, and in case of
subscriber being body corporate, such particulars as may be prescribed

(f) particulars of the persons mentioned in the articles as the first directors of the
company, their names including surname or family name, Director Identification
Number, residential address, nationality, proof of identification etc.;

(g) the particulars of interests of the persons mentioned in articles are 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.
On the basis of aforesaid documents and information the Registrar shall issue
a certificate of incorporation in the prescribed form to the effect that the proposed
company is incorporate under the Companies Act, 2013.

5. The following two documents though not required for the purpose of registration
of the company, are usually filed along with the aforesaid documents since the first
in any case has to be filed within thirty days of incorporation and the second within
thirty days of appointment, whether the company is a public or a private company :

(a) the address of the registered office of the company:

(b) particulars of directors, manager and secretary etc. 6. A filing fee has also to be
deposited along with the aforesaid documents.

7. Upon receipt of an application under Section 4(4), the Registrar may, on the basis
of information and documents furnished alongwith application, reserve the name for
a period of twenty days from the date of approval or such other period as may
be prescribed. Provided that in case of an application for the reservation of name or
for change of its name by an existing company, the Registrar may reserve the name
for a period of sixty days from the date of approval.

The Registrar of Companies on being satisfied that all the requirements have been
duly complied with will enter the name of the company in the Register of Companies
maintained by him and issue a certificate of incorporation to the company under
his signature under Section 9 of the Companies Act, 2013. The company becomes a
body corporate with perpetual succession and a common seal from the date on the
certificate even if that is not in fact the date when it was issued.

It must be stated that if the documents are in order and the object of the company is
legal, the Registrar has no discretion in the matter and he must grant the certificate
of incorporation. A writ of mandamus can therefore, be issued by the High Court to
any of the subscribers ordering the Registrar to issue the certificate of
incorporation to the company since he is acting as a quasi-judicial authority in the
matter.
If the documents produced before the Registrar are returned for rectifications of
certain defects and the applicant instead of rectifying the defects, drops the matter,
he cannot claim refund of fees paid for registration.