Bachelor's of Business

Administration (BBA VI)

COMPANY LAW
BBA 602-18
 In this session you will get:

I. Meaning
II. Functions of Promoters
III. Legal Position of Promoters
IV. Remuneration of Promoters
V. Pre-incorporation Contracts
VI. Online Registration of a Company
 PROMOTERS 

A promoter may be
▪ an individual, 
▪ a firm or a company, 
▪ association of people or 
▪ even the government 
▪ who performs all basic and preliminary work and duties which is
necessary to bring company into existence
•He conceives the idea, develops it and finds and induces
or influence others to join the company​

•He is a “father of the company” ​

The promoters prepare
▪ Scheme and ideas-  the formation of the Co.
▪ Find and bring together subscribers to MOA,
▪ Prepare, executed and registered the MOA, AOA  and
▪ Finds the bankers, brokers and legal advisors. 
A person cannot be considered as a promoter
• merely signed at foot of the MOA or that he has provided
money for the payment of formation expenses
[G.Tiruvengadachariar v. Velu Mudaliar(1938)]​
A person cannot be considered as a promoter​

who has not performed the functions of the promoter

of a company, may not be liable as a promoter​​
▪ According to SEBI “promoter” includes: 

 (i) the person or persons who are in control of the issuer; 

 (ii) the person or persons who are instrumental in the

formulation of a plan or program pursuant to which
specified securities are offered to public; 

 (iii) the person or persons named in the offer document as

promoters 
 Is a director/officer/employee of the issuer a promoter? 

A director/officer/employee who has control over the affairs of

the company, directly or indirectly whether as a shareholder,
director or otherwise is considered as a promoter.
 ​
However, a director or officer or employee of the
issuer or a person, if acting as such merely in his
professional capacity, shall not be deemed as a
promote​r. 
 FUNCTIONS OF PROMOTER 

1. DETAILED INVESTIGATION :-

The promoter , after getting an idea of business then make a

detailed investigation of the prospects of the business. 
• Undertake detailed technical, economic and commercial
feasibility of the business proposition 
• Take help of experts
2. VERIFICATION:- 
• Verify whether the advises or comments or reports
made by the expert are free from bias . 
• Consult with others regarding that the idea is
commercially viable or not.
3.NEGOTIATION:- ​
To conduct negotiations for
the purchase of a business in
case its intended to purchase
an existing business​
3.REQUISITE NUMBER OF PERSONS:- ​
​

To collect right and requisite number of person ,

•  2 in case of private company and 
• 7 in case of public company, and 
• who can sign MOA and AOA of the company and
also agree to act as the first directors of the
company 
4.   DECISIONS MAKE TOWARDS FOLLOWING

❖ The nature of the company

❖ The location of its registered office
❖ The amount and form of its capital
❖ Bankers 
❖ The legal advisors
❖ The underwriters or brokers for capital issue, if necessary
5. PREPARATION OF DOCUMENTS:- 

To get the MOA and AOA drafted and printed, to arrange for
the preparation of prospectus, its filing, advertisement and
issue of capital. 
6. Preliminary contracts:- 
To enter into preliminary contracts with vendors, underwriter etc. 
 LEGAL POSITION OF PROMOTER 

1. LEGAL STATUS OF A PROMOTER:- 

• Promoter is accountable to it for all money secretly obtained

by him from it, 
• just as the relationship of the principal and agent or the
trustee and the trust had really existed between him and the
company when the money was obtained.
2. QUASI-TRUSTEE:-

▪ A promoter is neither an agent nor a trustee of the

company under incorporation, but certain fiduciary
duties have been imposed on him or he is liable for
some duties. 
3. FIDUCIARY POSITION OF A PROMOTER :

▪  A promoter stands in a fiduciary relation(relation

requiring confidence or trust) to the company which he
promotes 
 THE FIDUCIARY POSITION OF A PROMOTER MAY BE
SUMMED UP AS FOLLOWS: 

Not to make any profit at the expense of the company :- 

▪  The promoter must not make, either directly or indirectly,

any profit at the expense of the company which is being
promoted

▪ If any secret profit is made in violation of this rule, the

company may, on discovering it, compel him to account for
and surrender such profit [Cape Breton Co. Re, (1885)]
B. To give benefit of negotiation to the company :-  

▪ The promoter must, when once he has begun to act in

promotion of a company , give to the company the
benefit of any negotiations or contracts into which he
enters in respect of the company 
• Thus, where he purchases some property for the
company, he cannot rightfully sell that property to the
company at a price higher than he gave for it. 

• If he does so, the company may, on discovering it,

rescind the contract and recover the purchase money.​
C. To make a full disclosure of interest or profit :- 

▪ The company may sue  in case if  promoter fails to make a

full disclosure of all the relevant facts, 
•The disclosure must be made to an independent
Boards of Directors​.

• In case there is no independent board, disclosure

must be made to the intended shareholders as a
whole​
D. Not to make unfair use of position:- 

▪ The promoter must not make an unfair or irrelevant use

his position and must take care to avoid anything which
has the appearance of undue influence or fraud
 REMUNERATION OF A PROMOTER

▪ No right to get compensation from the company for his

services in promoting the company 
▪ unless there is a contract regarding to remuneration
▪ Promoters takes remuneration for his
services in one of the following ways :- 

1. Sell his own property to the company after making full

disclosure about profit to the boards of directors or to
intended shareholders

2.  Option to purchase or buy a certain number of shares

in the company at par
3.He may take commission on shares sold​

4. He may be paid with lump sum amount by the company

according to contract made
 PRELIMINARY OR PRE-INCORPORATION CONTRACT  

MEANING:-

▪ Contracts which are made before the company is

incorporated.
▪ Promoters - on the behalf of the company as a agent
▪ Adoption of preliminary contract:- 

▪ A company may adopt preliminary contracts by either of the

two ways :- 

1.  By entering into new contracts with the third parties on the
same terms as were embodied in the original contract. 

2. Such a new agreement of adoption may not be expressly

made but may be implied by the acts of the company.  
These contracts can be enforced by or against the company, if
the following two conditions are satisfied: ​

• The contract is entered into, for the purposes of the

company and such contract is warranted by the terms
of incorporation. 
• The company accepts the contract after its
incorporation and communication such acceptance to
the other party to the contract. 
Position of Promoters as Regards Pre- Incorporation
Contracts 

Company is not bounded by the pre-incorporation

contract :-

• A company does not have legal existence before

incorporation and so it cannot enter into any contracts
before incorporation. 
•However, so many financial commitments
are made, and tasks executed to bring a company into
existence ​

•Promoters entered such contracts but with understanding

that the liability will be incurred by the company when it
comes into existence​. 
2. Company cannot enforce pre-incorporation contract :-  

•Its all up to the company that those pre contracts will

accepted by the company or not
3. Promoters personally liable :- 

•  which is made on behalf of a company which have not yet existence 

PROVISIONAL CONTRACTS 

▪ Contracts in which only public

company entered after its
incorporation but before getting
the certificate to commence
business.
•It will not bind the company until that date, and on
that date it shall become binding​

•In case when company is unable to get or obtain

certificate to commence business , the provisional
contracts automatically lapses. 
Basis Preliminary contract Provisional contract
1.Meaning Preliminary contract are Provisional contracts
the contracts, which are which are entered by a
made before the company after
formation of the company incorporation but before
getting certificate

2 Enforcement of Neither the company can Can be enforced only on

contract sue nor can it be sued to receiving certificate of
enforce the preliminary Commencement of
contracts business

3 applicable for Private company and Only public company.

Both public company
 ONLINE REGISTRATION OF A NEW COMPANY

The MCA 21 project of the Ministry of Corporate Affairs

enables online registration of the company:

1. Integrated Process 
2. Non-Integrated process
 INTEGRATED PROCESS​
​
1.RUN –Reserve Unique Name is a web service used for
reserving a name for a new company or for changing its
existing name . It verifies that whether the name is
unique is not
II. The central Registration centre (CRC) may on the basis of
information and documents provided, reserve the name for a
period of:- 

a.  20 days from the date of approval if in case the name is

being reserved for a new company
b. 60 days from the date of approval if in case of it includes
a change in the name of an existing company
            INC form 32

File an application for 

• reservations of name incorporations of company , 
• appointments of proposed company’s Directors, etc , 
• OPC ,Private company , public company etc. 
• Maximum 3 directors:-  allowed to be filled in INC-32 in case when

proposed directors do not have Director Identification  number

• Promoter:- the applicant shall sign and witness digitally, form INC-32
• Registered office :  documents required to filled and attached 
 NON –INTEGRATED PROCESS 

I. Digital Signature Certificate(DSC):- 

      Obtain the DSC for all proposed Directors 

      Issued by A licensed Certifying Authority (CA) 
2.Directors' identification number (DIN ):- ​

• Apply for DIN in proper format to be digitally signed by

CA/CS/Cost Accountant etc, 
• Upload, successful, payment, then Provisional DIN
is generated. 
VALIDATE THE SIGNATURE:- 

Implement a role check in the MCA application to validate the

signature Director. 
NAMES (PREVENTION OF IMPROPER USE )1950, :- ​
​
• To select , in order of preference, at least one name and maximum of
six names, consistent with the main objects of the company ​
• Does not resemble the name of any already – registered company 
•  Does not violate the provisions of Emblems and Names 
• If the proposed name is not available, then in that case fresh name
on the same application​ 
 NAME APPROVED: 

• After approval, the applicant apply for registration of new

company by filing all the required documents for
incorporating   
• within 60 days of the name approved
Declaration:- 
A declaration by professional (practicing CA, CS, ICWA) and
director, manager or company secretary that all requirements
related to incorporation have been compiled with. 
Affidavit:-​

An affidavit from each subscriber and first director

• stating that in the past five years, he has not been convicted

of an offence in connection with promotion, formation or

management of a company ,

• nor found guilty of fraud /misfeasance /breach of duty , and 

• all document contain true and complete information to the

best of his knowledge 

APPOINTMENT OF DIRECTORS:-

• Within 30 days from the date of appointment of every

directors and key personnel
• File particulars of appointment of directors and key
managerial personnel  with the Registrar. 
E- PAYMENT:-

E-payment of requisite filing and registration fee

RECEIVING E-MAIL:- 

• Receiving email on approval of application, then Registrar generated

incorporation certificate and Corporate Identity Number
• within a few days consisting PAN(Permanent account number ) of the
company and TAN(Tax deduction account ) 
•  NO hard copy of certificate issued, only digital certificate issued
This Photo by Unknown author is
licensed under CC BY.