A company is 

a legal entity formed by a group of individuals to engage in and operate a business

—commercial or industrial—enterprise. A company may be organized in various ways for tax
and financial liability purposes depending on the corporate law of its jurisdiction.

 A company is a legal entity formed by a group of individuals to engage in and operate a

business enterprise in a commercial or industrial capacity.
 A company's business line depends on its structure, which can range from a partnership
to a proprietorship, or even a corporation.
 Companies may be either public or private; the former issues equity to shareholders on
an exchange, while the latter is privately-owned and not regulated.
 A company is generally organized to earn a profit from business activities.
 Companies are an important contributor to the health of an economy as they employ
individuals and attract disposable income to spur growth.

Types of Companies

In the United States, tax law as administered by the Internal Revenue Service (IRS) and
individual states dictates how companies are classified.1 Examples of company types in the
U.S. include the following:

 Partnerships are formal arrangements in which two or more parties cooperate to

manage and operate a business.
 Corporations are legal entities that are separate and distinct from their owners and
provide the same rights and responsibilities as a person
 Associations are vague and often misunderstood legal entities based on any group of
individuals who join together for business, social, or other purposes as a continuing
entity. (This may or may not be taxable depending on structure and purpose.)2
 Funds are businesses engaged in the investing of pooled capital of investors.
 Trusts are fiduciary arrangements in which a third party holds assets on behalf of
beneficiaries.

A company may also be described as an organized group of persons—incorporated or

unincorporated—engaged in an enterprise.

Public vs. Private Companies

Companies can be divided into two distinct categories for both legal and regulatory purposes:
Public and private companies.

A public, or publicly-traded company allows shareholders to be equity owners when they

purchase shares through a stock exchange. Someone who owns a large number of shares has a
larger stake in the company compared to someone who has a small number of shares.

Shares are first issued through an initial public offering (IPO) before trading begins on a
secondary exchange. Apple, Walmart, Coca-Cola, and Netflix are all examples of public
companies.

Public companies are held to strict reporting and regulatory requirements by the U.S. Securities
and Exchange Commission (SEC). Under these guidelines, companies must file financial
statements and reports annually outlining the financial health of the company. This prevents
fraudulent reports and activities.4

Private companies, on the other hand, are held under private ownership. Although they may
issue stock and have shareholders, equity in private companies is not traded on an exchange.
They vary in shape and size and are not always bound by the strict regulations and reporting
requirements to which public companies must adhere.5

These companies do not have to disclose financial information or outlook to the public, giving
them more opportunity to focus on long-term growth rather than quarterly earnings. Examples
of private companies include Koch Industries, candy maker Mars, car rental company
Enterprise Holdings, and accounting firm PriceWaterhouseCoopers.

Features & Characteristics Of A Company

 Incorporated association: A company comes into existence when it is registered

under the Companies Act (or other equivalent act under the law). A company has
to fulfil requirements in terms of documents (MOA, AOA), shareholders,
directors, and share capital to be deemed as a legal association.
 Artificial Legal Person: In the eyes of the law, A company is an artificial legal
person which has the rights to acquire or dispose of any property, to enter into
contracts in its own name, and to sue and be sued by others.
 Separate Legal Entity: A company has a distinct entity and is independent of its
members or people controlling it. A separate legal entity means that only the
company is responsible to repay creditors and to get sued for its deeds. The
individual members cannot be sued for actions performed by the company.
Similarly, the company is not liable to pay personal debts of the members.
 Perpetual Existence: Unlike other non-registered business entities, a company is
a stable business organisation. Its life doesn’t depend on the life of its
shareholders, directors, or employees. Members may come and go but the
company goes on forever.
 Common Seal: A company being an artificial legal person, uses its common seal
(with the name of the company engraved on it) as a substitute for its signature.
 Any document bearing the common seal of the company will be legally binding
on the company.
 Limited Liability: A company may be limited by guarantee or limited by shares.
In a company limited by shares, the liability of the shareholders is limited to the
unpaid value of their shares. In a company limited by guarantee, the liability of
the members is limited to the amount they had agreed upon to contribute to the
assets of the company in the event of it being wound up.

Kinds of Companies:

On the basis of Incorporation:

  Royal Charter Company

A chartered company is formed by a charter or special sanction issued by the Head of State,
which grants a distinct group of people some unique privileges, rights, and powers to conduct
commercial operations in designated geographical areas. These rights and freedoms must be
exercised, and the powers must be used, in accordance with the provisions of the charter. Such
companies include the British East India Company, founded in England in 1600, and the Dutch
East India Company, founded in Holland in 1602 to trade with India and the East, as well as the
Bank of England (1690). Now, these forms of companies do not exist in India after the country’s
independence.

Statutory Company

A statutory company is formed by an Act enacted by the legislature of the nation or state. The
powers, obligations, liabilities, objects, scope, and so on of such a corporation are specifically
specified by the provisions of the Act that defines it. The Reserve Bank of India (RBI), the Life
Insurance Corporation of India Act, and so on are examples of statutory corporations. These
companies are usually formed to administer enterprises that are socially or nationally important.
Examples of statutory companies in India include the Reserve Bank of India, the Industrial
Finance Corporation of India, the Life Insurance Corporation of India, etc.

Registered Company

Companies that are listed under the Companies Act are referred to as registered companies. The
Registrar of Companies also issues a certificate of incorporation to companies. The majority of
firms in the field of production and services are registered companies. The establishment,
operation, and continuation of such a company shall be subject to the applicable Company act
provisions.
On the basis of Liability:

  Company Limited by Shares

Section 2(22) of the Companies Act, 2013 mentions these kinds of companies. The owners of
such a corporation are liable for the amount of shares that remain outstanding. This liability
against the retained shares may be called to the authority’s attention. If a shareholder or
participant has paid for the security, he or she is no longer liable for anything else. The
responsibility can be applied at any time during the company’s lifetime, even during the course
of winding up. A company limited by shares may be a public company or a private company.

Company Limited by Guarantee

Section 2(21) of the Company Act, 2013 mentions these forms of companies. When the liability
of a company is covered by the guarantee, that ensures that the members of the company agreed
to the Memorandum of Association to reimburse the same amount during the winding up of the
company.

Unlimited Liability Company

It is a kind of company that is mentioned in Section 2(21) of the Companies Act, 2013. Where
the members’ liability is not capped, the company is referred to as an unlimited liability
company. A member of such a corporation is liable for the company’s debts in relation to his
stake in it. After passing a special resolution for conversion and applying to the Registrar of
Companies for enrollment as a limited partnership, such a company may be turned into a limited
liability company

On the basis of Members:

  Private Company

Private companies, as specified in Section 3(1)(b) of the Companies Act, 2013, are rather
restrictive in nature, as they can limit the freedom to transfer shares in their Articles of
Association. A company of this kind could have a maximum of 50 members. These companies’
shares and debentures are not open to the general public.

Public Company

According to Section 2(71) of the Companies Act of 2013, public companies are those that are
not private. A public company must have at least 7 employees, as required by Section 3(1)(a) of
the Companies Act, 2013. The right to transfer shares and debentures in a public company to the
general public is inherent in the nature of the public company.

On the basis of Domicile:

  Domestic or Indian Company

Indian Company has been defined as any company registered under the Companies Act of 2013
or any other prior law known as Indian Company in accordance with Section 2(20) of the
Companies Act, 2013. An Indian company may use its office address to demonstrate its locus
standi, while the law includes guidelines for an Indian company to meet while using its forces.

 Foreign Company

A foreign company is described under Section 2 (42) of the Companies Act, 2013 as one that is
located outside of India but has a registered address in India, which may be physical or
electronic, or one that is owned by the company itself or by its agents, officials, or managers.
Giants such as Whirlpool of India Ltd., Timex Group India Ltd., Ambuja Cements Ltd., etc are
some of the examples of foreign companies.

On the basis of Control:

  Holding Company

Under Section 2(46) of the Companies Act, 2013, a holding company is defined as a parent
company that owns and manages the management and membership of the Board of Directors of
another company (i.e. a subsidiary company)

Subsidiary Company

A subsidiary company is described as one that is owned by another company with more than 51
percent of its overall share capital and is controlled by another company under Section 2 (87) of
the Companies Act, 2013.

  Associate company

These Companies, as specified by Section 2(6) of the Companies Act, 2013, are those on which
the other company has a considerable impact, but they are not branches of such influencing
companies, known as the Associate Company. Examples of such associate companies are Joint
Venture Companies.
Major influence can be derived clearly from the clarification added to the clause requiring the
influencing company to own 20% of the share capital or other arrangement by which the
decision making of the associate is imposed on that Influencing Company.

On the basis of different Aspects:

  One Man Company

A one-man company is one in which one person owns almost all of the company’s share capital
and certain dummy names are used to fulfill the legal provision of a minimum number of
shareholders. The dummy names that are included are usually family or associates of the primary
shareholder. A one-man company is a separate legal body from its owners. In statute, a company
is similar to a natural being and has its own legal body. And if he owns all of the shares, the
shareholder is not a company. He and no other shareholder of the company have any legitimate
or equitable right in the company’s assets

Not-for-Profit Company

Non-for-profit companies are those that do not generate profits for their members. Any revenue
generated or donated to a not-for-profit company is used to further the organization’s goals and
keep it going. Not-for-profit organizations are typically tax-funded charities or other forms of the
voluntary service company, and as such, they are excluded from paying certain taxes. Money is
not assigned to members, directors, or officers of a nonprofit company.

Promotion and incorporation of company

 Promotion of a Company

Promotion is the stage of conceiving an idea of forming a company  to do a business and
working on that idea. The person involved in this task is termed as promoter. The
promoter may work up the idea with the help of his own resources, influence or
competence or he may, if necessary, take the help of technical and legal experts to bring
a company into existence.

Promoter of a Company

Promoter is a person who conceives the idea of starting a business, plans the formation
of a company and actually brings it into existence. He may be said to be “the father of
the company who sees the prospects of gain in a business which he wishes to set up, and
believes that he can persuade others too to think as he does.” A promoter is one who
undertakes to form a company with reference to a given object and who takes the
necessary steps to accomplish that purpose. 1  Palmer has defined company promoter as “a
person who originates a scheme for the formation of the company, has the Memorandum
and the Articles prepared, executed and registered, and finds the first directors, settles
the terms of preliminary contracts and prospects (if any) and makes arrangements for
advertising and circulating the prospectus and placing the capital.” Thus, a promoter
discovers, formulates and assembles a business proposition and brings about a company
into existence for its development.

Sec. 2(69) of the Companies Act, 2013 defines the term promoter as a person:

(a)  Who has been named as such in a prospectus or is identified by the company in the
annual return referred to in section 92; or

(b)  Who has control over the affairs of the company, directly or indirectly whether as a
shareholder, director or otherwise; or

(c)  In accordance with whose advice, directions or instructions the Board of Directors of
the company is accustomed to act. This shall, however not apply to a person who is
acting merely in a professional capacity.

 Functions of Promoter

The main functions of a promoter are as follow:

(i) To conceive an idea of starting a business and explore its possibilities.

(ii) To undertake detailed technical, economic and commercial feasibility of the business
propositions. Help of experts may be taken for that.

(iii) To conduct negotiations for the purchase of a business in case it is intended to

purchase an existing business.

(iv) To collect the requisite number of persons i.e. 2 in the case of a private

company and 7 in the case of a public company, who can sign the memorandum and
articles of the company and also agree to act as the first directors of the company.

(v) To decide the following:

(a) the nature of the company

(b) the location of its registered office
(c) the amount and form of its capital
(d) the underwriters or brokers for capital issue, if necessary
(e) the bankers
(f) the auditors
(g) the legal advisers.

(vi) To get the memorandum of association and articles of association drafted and
printed.

(vii) To enter into preliminary contracts with vendors, under-writers etc.

(viii) To arrange for the preparation of prospectus, its filing, advertisement and issue of
capital.

(ix) To pay preliminary expenses.

(x) To arrange funds required by the company.

Legal Position of Promoter

A promoter can neither be termed as an agent nor a trustee of a company which has not
come into existence. The reason is that there was no principal or trust in existence for
whom or for whose benefit the promoter has acted.

 Duties of Promoter

The promoter stands in a fiduciary relationship with the company. Though the fiduciary
relationship really arises when the company is formed, the fiduciary obligation of a
promoter begins as soon as he sets out to act as promoter of the company. 4  This fiduciary
relationship imposes the following obligations on the promoters:

(i) Not to make Secret Profit: Promoters should not make any secret profits at the cost
of the company without its knowledge and consent. Secret profits or undisclosed benefits
of any type received by the promoters can be recovered from them by the
company. 5  Company can proceed against the promoters for any damage caused to it on
account of their fraud or breach of duty. The estate of the promoter shall remain liable in
an action by a company for deceit or breach of trust if any benefit has accrued to the
estate.

(ii) Disclosure of Material Facts: It is the duty of the promoters to disclose fully all
material facts relating to the formation of the company. The disclosure of all material
facts, regarding contracts made and the profits earned by them from the formation of the
company, should be made to an independent and competent Board of Directors. If the
promoters fail to disclose complete facts, company may set aside the transaction and
recover the benefit earned by them

Liabilities of Promoter

(1) Non-disclosure of Secret Profit: In case a promoter fails to make full disclosure of
his dealings and profits made in promoting the company, he can be compelled by the
company to hand over such secret profit. 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.

(2) Non-adoption of Preliminary Contract: If a promoter enters into contracts on

behalf of the company before the company was actually incorporated, he may be held
personally liable for non-adoption of those contracts by the company provided he has
purported to act as an agent and the non-existence of the company was known to both the
parties.

(3) Fraud in the Promotion of the Company:

(i) If a promoter furnishes any false or incorrect particulars of any information or

suppresses any material information, of which he is aware in any of the documents filed
with the Registrar in relation to the registration of a company, he shall be liable for
action under section 447.

(ii) Where it is found that any fraud has been committed in promoting or forming a
company, the Tribunal may order investigation against the promoters any other director
or officer of the company involved in such fraudulent activities (Section 282).

(iii) A company may proceed against a promoter where the promoter has wrongfully
obtains possession of any property, including cash of the company or wrongfully
withholds it or knowingly applies it for the purposes other than those expressed or
directed in the articles and authorised by the Act (Section 452) .

(4) Omission in the Prospectus: Prospectus issued by a company must have the

contents as laid down by Section 26 of the Companies Act. In case of omission of facts,
the promoter shall become liable to be punished with imprisonment for a term which
may extend to 3 years or a fine from Rs. 50,000 to Rs. 300,000 or both [Section 26(9)].

(5) Misrepresentation in the Prospectus: 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 (Section 35).

Remuneration to Promoter

The promoter has to incur the initial expenses in the process of formation of a company
besides undergoing a good deal of arduous task. The promoter has, therefore, a
legitimate right to claim for both the expenses incurred by him as well as remuneration
for the work done by him. The claim for expenses should be supported by vouchers and
should be placed before the directors of the company when formed. However, there is no
contractual obligation on the part of the company to pay him for these expenses unless
the company has expressly agreed to pay after its formation for the services rendered by
him. The same is true about his remuneration.

The promoter may be remunerated in any of the following ways:

(a) Promoter may sell his own asset to the company at profit for cash or shares in the
company.

(b) He may be given commission on the purchase price of the business taken over by the
company.

(c) He may be granted a lump sum as remuneration either in cash or in shares or

debentures.

The amount of remuneration payable or paid to the promoters is required to be disclosed

in the prospectus issued by the company.

Preliminary or Pre-incorporation Contracts

1.7.1 Meaning

Preliminary contracts are contracts entered into by the promoters on behalf of the
company before its incorporation with third parties.

1.7.2 Validity

It is usual for the promoters to enter into these contracts of purchases of assets on behalf
of the company about to be formed but before it is actually formed. They generally enter
into these contracts as agents or trustees of the company, which has not yet come into
existence. Such contracts are legally not binding upon the company even after it comes
into existence. The company can neither ratify those contracts nor sue the vendors on
them after its incorporation because ratification requires existence of the principal at the
time when the contract was entered into.

 Incorporation of a Company

Incorporation brings a company into existence as a separate corporate entity.

As per Sec. 3(1) 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 the company to be formed is to be a private company; or

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

by subscribing their names or his name to a memorandum and complying with the
requirements of this Act in respect of registration.

2.1 Preliminary Steps

The promoters have to go through the following preliminary steps before applying for
incorporation of the proposed company:

1. As per Sec. 4(2) a company cannot be registered with a name which is considered to
be undesirable in the opinion of the Central Government. The name should not be
identical with or resemble too nearly to the name of an existing company or registered
under this Act or any previous company law. Therefore the promoters are advised to
make an application in the Form 1 A to ascertain the availability of maximum six names
in the order of their preference.

2. A fee of Rs. 500 has to be paid alongside and the digital signature of the applicant
proposing the company has to be attached in the form. If proposed name is not available,
the user has to apply for a fresh name on the same application.

3. The name approved will be reserved by the Registrar for a period of 20 days from
name approval. Within this period, the applicant can apply for registration of the new
company by filing the required forms (i.e. Forms 1, 18 and 32).

4. Before promoters begin the incorporation of a company, they have to appoint

chartered accountants, lawyers etc., to help them in preparing various documents.

5. Arrange for the drafting of the memorandum and articles of association by solicitors,
vetting of the same by Registrar of Companies and printing of the same.
The Memorandum and Articles must be signed by at least 7 subscribers (2 in case of
private company) along with address, description, occupation, if any, in the presence of
at least of one witness. The subscribers should also clearly mention the number and
nature of shares subscribed by them.

2.2 Applying to the Registrar of Companies

After having done the preliminary work, the promoters are required to make an
application to the Registrar of the State in which company’s registered office will be
situated, accompanied by the following documents and information for registration [Sec.
7(1)]:

(a) the memorandum and articles of the company duly signed by all the subscribers to
the memorandum in such manner as may be prescribed;

(b) a declaration in the prescribed form by an advocate, a chartered accountant, cost

accountant or company secretary in practice, who is engaged in the formation of the
company, and by a person named in the articles as a director, manager or secretary of the
company, that all the requirements of this Act and the rules made thereunder in respect
of registration and matters precedent or incidental thereto have been complied with;

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

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

(e) the particulars of name, including surname or family name, residential address,

nationality and such other particulars of every subscriber to the memorandum along with
proof of identity, as may be prescribed, and in the case of a subscriber being a body
corporate, such particulars as may be prescribed;

(f) the particulars of the persons mentioned in the articles as the first directors of the
company, their names, including surnames or family names, the Director Identification
Number, residential address, nationality and such other particulars including proof of
identity as may be prescribed; and

(g) the particulars of the interests of the persons mentioned in the articles as the first
directors of the company in other firms or bodies corporate along with their consent to
act as directors of the company in such form and manner as may be prescribed.

The Registrar on the basis of the required documents and information filed shall register
all the documents and information in the register and issue a certificate of incorporation
in the prescribed form to the effect that the proposed company is incorporated under this
Act.

On and from the date mentioned in the certificate of incorporation, the Registrar shall
allot to the company a corporate identity number, which shall be a distinct identity for
the company and which shall also be included in the certificate.

If any person furnishes any false or incorrect particulars of any information or

suppresses any material information, of which he is aware in any of the documents filed
with the Registrar in relation to the registration of a company, he shall be liable for
action under section 447 of the Companies Act.

Online Registration of a New Company

The MCA 21 Project of the Ministry of Corporate Affairs enables online registration of a
company on the portal of the MCA. The steps for online registration of a company are as
follows:

Step 1: Application for DIN

To register a company, first Director Identification Number (DIN) is to be obtained. One

needs to file eForm DIN-1 in order to obtain DIN.

Step 2: Acquire/Register DSC

All filings done by the companies under MCA 21 e-Governance programme are required
to be filed with the use of Digital Signatures by the person authorised to sign the
documents.

Acquire DSC — A licensed Certifying Authority (CA) issues the digital signature.

Register DSC — Role check for Indian companies is to be implemented in the MCA
application.
Step 3: New User Registration

To file an e-Form or to avail any paid service on MCA portal, it is first required to be
registered as a user in the relevant user category, such as registered and business user.

Step 4: Incorporate a Company

— Select, in order of preference, at least one suitable name up to a maximum of six

names, indicative of the main objects of the company.

— Ensure that the name does not resemble the name of any other already registered
company and also does not violate the provisions of Emblems and Names (Prevention of
Improper Use) Act, 1950 by availing the services of checking name availability on the
portal.

— Apply to the concerned ROC to ascertain the availability of name by filing Form
INC-1 for the same in to the portal. A fee of Rs. 500 has to be paid alongside and the
digital signature of the applicant proposing the company has to be attached in the form.
If proposed name is not available, the user has to apply for a fresh name on the same
application.

— After the name approval, the applicant can apply for registration of the new company
by filing the required forms Form INC-7 or Form INC: Form INC-7 for Application for
incorporation of a company (Other than OPC) or Form INC-2 for Application for
Incorporation of OPC within 60 days of name approval.

— Arrange for stamping of the Memorandum and Articles with the appropriate stamp
duty. It can be paid electronically on the MCA portal.

— Get the Memorandum and the Articles signed by at least two subscribers (7 in case of
public company) in his/her own hand, his/her father’s name, occupation, address and the
number of shares subscribed for and witnessed by at least one person.

— Ensure that the Memorandum and Article is dated on a date after the date of
stamping.

— Login to the portal and fill the following forms and attach the mandatory documents
listed in the e-Form:



  Form INC-22: Notice of situation or change of situation of
registered office based on the option chosen in Form INC-7.

 Form DIR-12: Particulars of appointment of directors and the key

managerial personnel and the changes among them.

 Declaration of compliance

— After processing of the Form is complete and Corporate Identity is generated, obtain
Certificate of Incorporation from RoC.

2.3 Certificate of Incorporation

Certificate of incorporation is a legal document relating to formation of a company

which confirms the name by which the company is registered under the Companies Act
and date of incorporation. The Registrar of Companies issues certificate of incorporation
in the prescribed form on the basis of submission of the required documents and
information laid down by the Companies Act.

From the date of incorporation mentioned in the certificate of incorporation, such

subscribers to the memorandum and all other persons, as may, from time to time, become
members of the company, shall be a body corporate by the name contained in the
memorandum, capable of exercising all the functions of an incorporated company under
this Act and having perpetual succession and a common seal with power to acquire, hold
and dispose of property, both movable and immovable, tangible and intangible, to
contract and to sue and be sued, by the said name.

Thus, the consequences of certificate of incorporation are:

(1) The certificate of incorporation brings the company into existence from the date
mentioned in the certificate.

(2) It grants legal personality, corporate existence and perpetual succession to the
company.

(3) The subscribers to the Memorandum together with such other persons, as may from
time to time become members of the company, become a body corporate with a distinct
entity from such members having a perpetual succession with a common seal and with
the liability of the members limited to the amount for the time being unpaid on the
shares held by them.
(4) The Memorandum and Articles of Association become binding upon the members
and the company as if they have been signed by the company and by each member.

2.4 Validity of Certificate of Incorporation

Certificate of incorporation is a legal evidence with regard to the registration and

formation of a company. Section 7(6) of the Companies Act, 2013 provides that where at
any time after the incorporation of a company, it is proved that the company has been
got incorporated by furnishing any false or incorrect information or representation or by
suppressing any material fact or information in any of the documents or declaration filed
or made for incorporating such company, or by any fraudulent action, the promoters, the
persons named as the first directors of the company and the persons making declaration
shall each be liable for action under section 447 of the Companies Act.

Section 7(7) of the Act provides that where a company has been got incorporated by
furnishing any false or incorrect information or representation or by suppressing any
material fact or information in any of the documents or declaration filed or made for
incorporating such company or by any fraudulent action, the Tribunal may—

(i) pass such orders, as it may think fit, for regulation of the management of the company
including changes, if any, in its memorandum and articles, in public interest or in the
interest of the company and its members and creditors; or

(ii) direct that liability of the members shall be unlimited; or

(iii) direct removal of the name of the company from the register of companies; or

(iv) pass an order for the winding up of the company; or

(v) pass such other orders as it may deem fit.

2.5 Commencement of Business [Section 10A]

A company incorporated after the commencement of Companies (Amendment) Act, 2019

and having a share capital shall have to fulfil the following procedural requirement
before commencing any business or exercising any borrowing powers:

(a) Filing of declaration to the Registrar of Companies

A declaration by a director within 180 days of incorporation of the company in the

prescribed form to the Registrar of Companies must be filed stating that every subscriber
to the memorandum has paid the value of shares agreed upon by them at the time of
making such declaration; and

(b) Verification of the registered office

The company is required to file with the Registrar of Companies a verification of its
registered office as per section 12(2) of the Companies Act.

2.6 Default

In case of default by a company in complying with the requirement of this provision on

commencement of business, the company shall be liable to a penalty of Rs. 50,000 and
every officer in default with a penalty of Rs. 1000 for each day during which such
default continues which may go up to Rs. 1 lakh.

Further, the Registrar of Companies may initiate action for the removal of the name of
the company from the register of companies when the Registrar has reasonable cause to
believe that the company is not carrying on any business.

2.7 Provisional Contract

Provisional contracts are the contract entered into by a company having share capital
between the date of incorporation and the date on which the company has fulfilled the
requirement of section 10A on commencement of business. These are valid contracts if
company meets the requirements and would be non-operative in case the company fails
to do so.
Memorandum of Association refers to a charter document that encloses key detail which is
necessary for company's incorporation. Articles of Association refer to documents that contain
all the norms and rules that regulate the company. Rules of the company. It is subordinate to the
governing Act

The Memorandum

Every company must have a memorandum in place, they will all be in the same format and
contain the same information. This includes:

 Company name
 Date of incorporation
 Type of company
 Act under which the company is registered
  Names and signatures of all subscribers (original shareholders or guarantors)
 Limited liability of shareholders or guarantors

Any person who adds their name to the memorandum during incorporation will become a
member of the company, and will continue to be members until they decide to leave. Details of
members will be made public on the Companies House website under the company details.

The Articles of Association

Most limited companies will use the Model Articles, but it is possible to change them if needed.
These Articles will set out how the company is run, governed and owned by the members. The
Articles can put restrictions on the company's power - which can be useful if the shareholders
and directors do not agree and try pulling the company in different directions. This Model
Articles cover the following:

 Directors' powers, responsibilities, decision making, appointment and removal, indemnity

and insurance
 Shares, distribution of shares and Dividends
 Capitalisation of profits
 Shareholders
 General meetings
 Voting Rights

If you want to change these articles in any way, such as issuing different classes of shares or
adding or removing shares, then you can. However you will have to notify Companies House
when applying to incorporate the company so that they can be reviewed to ensure they are
acceptable.

You can do this as part of the incorporation process with Company Wizard. Just select that you
wish to supply your own custom articles when incorporating.

Can I change the Articles after Incorporating?

It is possible to change the Articles after incorporation, however, they must be changed via a
special resolution. In order to do this, the members have to pass the special resolution agreeing to
the changes and the final document (as altered) must be submitted to Companies House
within 15 days of the resolution being passed.

rounds FOR MEMORANDUM OF ASSOCIATION

ARTICLES OF ASSOCIATION (Aoa)
COMPARISON (Moa)
Memorandum of Association refers to a
Articles of Association refer to documents
charter document that encloses key detail
Meaning that contain all the norms and rules that
which is necessary for company’s
regulate the company.
incorporation.
Type of Information Objects and Powers of the Company Rules of the company.
Status It is subordinate to the governing Act. It is subordinate to the MoA.
The memorandum of association (MoA) The articles of association (AoA) can be
Retrospective Effect
cannot be amended retrospectively. amended retrospectively.
A memorandum has six fundamental The articles can be prepared as per the
Fundamental contents
clauses. company’s requirement
Only a private limited company is required
to draft its articles while a public limited
Obligatory Yes, for all companies.
company limited by shares can opt for
Table F in place of articles.
Mandatory filing at
the instance of Required Not required
registration
Can be subjected to alteration after passing
special resolution in AGM and prior consent Alteration is allowed by passing Special
Alteration
of Central Government or Company Law resolution in AGM
Board is imperative.
Governs the interplay between company
Specifies the interplay between company
Relation and its members & also among the
and third-party
members.
Acts done outside the
Absolutely void Can be ratified by shareholders.
scope

Definition Of Memorandum Of Association

Memorandum of Association refers to a fundamental public charter that encloses particulars

needed at the time of incorporation.

Presently, MOA acts as a mandatory requirement for incorporation in India. At the time of the
company’s incorporation, it needs to be registered with the Registrar of Companies[1]. It
encloses the powers, objects, and scope of the company, beyond which an organization is not
permitted to operate, i.e. it imposes a limitation on the range of undertakings of the company.

Any individual who deals with the company is presumed to have read the company. i.e. they
must be accustomed to the company’s objects and its area of activities.

The Memorandum is also referred to as the company’s charter. There are six clauses
mentioned under the MoA as shown below:
  Name Clause – As the name suggests, the name clause specifies the company’s name.
The company’s name ought not to be similar to any existing organization. Also, if it is a
privately-held company, then it should have the term “Private Limited” affixed at the end
of its name.
 Registered Office Clause– This clause states the state’s name in which the entity’s
registered office is operational. This helps to pinpoint the jurisdiction of the RoC. The
company is required to share the same with the RoC within thirty days from
the company registration date.
 Object Clause- This clause specifies the company’s fundamental objective with which it
is founded. The objectives can be divided into given three subcategories:

Main Objective: It specifies the fundamental business of the company.

Incidental Objective: Incidental Objective specifies the ancillary objects that help in

accomplishing the company’s main object.

Other objectives: Any other objects which the company is willing to pursue and not
encompassed in above (a) and (b)

 Liability Clause: The liability Clause defines the liability of the company’s members.
For a company limited by guarantee, the members’ liability is limited by the amount each
company member has agreed to contribute. In the case of an unlimited company, the
members’ liability is unlimited, whereas, for a company limited by shares, the members’
liability is limited by the sum unpaid on their share.
 Capital Clause: This clause pens down the maximum capital that an entity can procure,
which is also regarded as the authorized/nominal capital of the company. This also
defines the numbers of shares derived from such capital amount.

Definition Of Articles Of Association

An article of Association is technically a secondary document, which sets out the rules and
norms made by the company for its management and daily activities. Additionally, the AOA
encloses the rights, obligations, powers, and duties of members of the company. It also covers
details relating to the audits and accounts of the company.

Every company is required to draft AOA. But, a public company limited by shares can opt for
Table F rather than AOA. It encloses all the key information relating to internal matters and the
company’s management. It is drafted for the person serving the company internally, i.e.
members, employees, directors, etc. The company’s governance is done as per the rules cited in
it.

The companies can draft their article of associations according to their requirement.

Key Differences Between Memorandum Of Association And Articles Of Association

The fundamental differences between Memorandum of association and articles of association are
listed below:

1. A Memorandum of Association refers to a document that comprises the conditions

essential for the company’s incorporation. On the other hand, Articles of Association
encloses the rules and norms for the company’s management.
2. Memorandum of Association (MoA) is a subsidiary of the Companies Act; meanwhile
Articles of Association (AoA) is subsidiary to both the Act and MoA.
3. In any contradiction between the MoA relating to any clause, MoA shall prevail over the
Articles of Association.
4. Memorandum of Association has details relating to the objects and powers of the
company. Alternatively, AOA has information about the norms and rules of the company.
5. Memorandum of Association should have six fundamental clauses. On the contrary, AoA
is drafted as per the company’s discretion.
6. MoA has to be registered with the Registrar of Companies at the time of incorporation.
For AoA, the company is not required to fulfil such requirements, though there is a
provision for voluntarily registration.
7. A MoA specifies the interplay between the company and third parties. On the opposite,
AoA regulates the interplay between the company and its serving members. It also
defines the interplay between the members.
 8. When it comes to scope, the activities carried out beyond the scope of MoA are null and
void. On the contrary, activities performed outside the scope of AoA can be ratified by
shareholders’ voting.

Conclusion

The Memorandum of association and articles of association are the two imperative documents of
an organization. Both these documents guide the company on various subject matters. They also
assist in the apt administration and functioning of the company. That is why every company is
mandated to draft its Memorandum and articles.