How To Set Up A Company

` HOW TO SET UP A COMPANY ???
by :
DR. T.K. JAIN
AFTERSCHO☺OL
centre for social entrepreneurship
sivakamu veterinary hospital road
bikaner 334001 rajasthan, india
FOR – PGPSE PARTICIPANTS
mobile : 91+9414430763
5 DECEMBER 09 www.afterschool.tk 1
BE A PROMOTOR
A Promotor is a person who sets up a

company.
As a promotor, you have to think about the
idea and convert this idea into a company.
As a promotor, you have to set up initial
contracts so that company becomes
operational.
Duties of a Promotor
Not to make secret profit

give proper accounts
not to set up personal property on company's
property
work honestly, fairly
not to have personal interest
disclose all information
Qualification shares
Qualification shares have to be purchased by

promotors & directors. These are minimum
number of shares to be baught. Every
director will buy these shares or give a
written concent to buy these shares. Every
director will also given written consent to act
as director. Every director has a unique DIN
no.
Legal position of a promotor
He is not an agent, nor an office bearer

He has to buy some minimum shares
Legal position....
Sec 56: liable in give false information in

prospectus
Sec. 519 ; if a promotor is found guilty, he can
be examined by court
Sec. 203 : if a promotor is found guilty of
crimie in formation of a company, the court
may suspend him from management /
formation of company for 5 years.
Steps ......
Prepare Memorandum of association (as per
format) in at least 3 copes
Prepare Articles of association (as per format)
in at least 3 copes (or apply Table A of
schedule I)
Prepare agreements with directors
Submit declaration to Registrar of company
that all formalities have been fulfilled (by
5 DECEMBER 09
company secretary)
www.afterschool.tk 7
LEGAL FORMS
Form NO. 1 : declaration of all the formalities
of company (to be filed with registrar of
comapnies ). for other forms and their
structure, click on the following link :
http://www.mca.gov.in/MCA21/dca/download
eforms/Download_eForm_choose.html
http://www.vakilno1.com/froms_html/co_form
.htm
INCORPORATION
Registrar of companies will issue a certificate

of incorporation. (Sec. 33, 34 of companies
act) this is conclusive evidence that the
company is registered.
Can you start a business ?
Private company can start it immediately on
getting certificate of incorporation, but a
public company will have to obtain a
certificate of commencement of business to
start business.
See this link also :
http://www.legalserviceindia.com/company la
w/company_formation_procedure.htm
Commencement of business
Public company can start business only on

fulfilling following formalities :
1. directors have purchased qualification shares
2. prospectus / statement in lieu of prospectus
has been prepared and submitted
3. minimum subscription has been obtained.
PRELIMINARY CONTRACTS
These contracts are made before a company

has been given certificate of incorporation.
These contracts have no legal validity
against company and the contractor cannot
sue the company. The promotors are
personally liable for such contracts.
PROVISIONAL CONTRACTS
(ONLY FOR PUBLIC
COMPANY)
These contracts are made before a company
has been given certificate of commencement
of business but after certificate of
incorporation. These contracts have no legal
validity against company until the company
obtains certificate of commencement of
business. Once the company obtains this
certificate – these contracts are enforceable
against company.
FORMAT OF MEMORANDUM
MOA must be in following format :

Schedule I : Table B / C / D / E
B : for limited by shares
C : for guarantee
D : guarantee + share capital
E : for unlimited company
MOA
Memorandum of association must have :
NAME
PLACE
OBJECT
LIABILITY
CAPITAL
SIGNATURE AND ASSOCIATION
CLAUSE
MOA (sec. 13)
Every MOA Must be in paragraphs, printed,

signed by the sigatories
MOA
At least 2 subscriber in private company

At least 7 subscriber in public company
no person can withdraw his name after
submitting it.
NAME OF COMPANY
Avoid generic terms , names of famous

personalities, religious names etc.
apply for permission in proper format – with at
least 3 names, with prescribed fees (Rs. 500)
To change name, pass special resolution +
obtain permission from central government
(sec. 21)
AOA
It gives guidelines about day to day

management of company, powers of
directors, etc.
Read
http://www.taxguru.in/company-law/drafting-a
rticles-of-association.html
How to change office of a
company
Chaging office withing a city requires only

board resolution, but changing it out of the
state is difficult, you have to pass special
resolution + permission from company law
board + you have to file details with registrar
of companies.
Formation is easy ???
Yes, in comparision to wind up (closing a

company), formation of company is easier.
But formalities are required, which you have
to understand to set up a company ... after all
it is not very easy.
WHAT IS WIND UP ?
As per sec. 425 of companies act, you can

close a company (wind up ) by :
1. court order
2. voluntarily
3. under supervision of court
Wind up by court ????
You can go to court and request the court to

wind up a company, if it is really not
working properly, however, you have to
apply to the court in whose jurisdiction the
company is
Case : NCL Industries Ltd
Orissa High court refused to take application

for winding up of a comapny having
registered office in Hyderabad.
Wind up by court – process (sec.
433)
Convince the court that the company :
1. is unable to pay debt
2. it is just and equitable to wind up the
company
3. special resolution to wind up by court
3. non-submission of statutory report
4. no business for 1 year (any reason).
Can you apply for winding up ?
Sec. 439
If you are any of these :

creditor
shareholder
registrar
representative of government
company itself
Voluntary wind up....
As per sec. 488, a company can on its own
wind up itself : as per :
1. by members
2. by creditors
here the company will set up the process for
winding up.
However, the court can appoint official
5 DECEMBER 09
liquidator.
Winding up under supervision ....
Liquidator (the person who sells the property

of the company and settles its dues) is
appointed only by court and he has to work
only with the permission of the court. He
gives his report to the court and takes
permission from the court for all the actions
(sale of property is also with permission of
court).
Winding up of unregistered
company (sec. 583)
When there are 7 or more members in a
company / partnership / firm the court may
order for winding up if :
1.it is just and equitable
2. it is unable to pay to creditors
3. it has cesed to work
so sick comapny (which is in huge losses and
has eroded its networth or is not working)
5 DECEMBER 09 can also be wound up.
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` HOW TO SET UP A COMPANY ???

A Promotor is a person who sets up a

Not to make secret profit

Qualification shares have to be purchased by

He is not an agent, nor an office bearer

Sec 56: liable in give false information in

Registrar of companies will issue a certificate

Public company can start business only on

These contracts are made before a company

MOA must be in following format :

Every MOA Must be in paragraphs, printed,

At least 2 subscriber in private company

Avoid generic terms , names of famous

It gives guidelines about day to day

Chaging office withing a city requires only

Yes, in comparision to wind up (closing a

As per sec. 425 of companies act, you can

You can go to court and request the court to

Orissa High court refused to take application

If you are any of these :

Liquidator (the person who sells the property

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