Definition:

 As per the Companies Act, 2013, Section 2(20)

“company” means a company incorporated under this
Act or under any previous company law;
 Company – It means a company formed and
registered under this Act or an existing company.
 Existing company – It means a Company formed and
registered under any of the previous companies laws.
 Justice Marshall – A company is an artificial person. It
has no physical existence. It is invisible and intangible.
It exists only in contemplation of laws.
1. Incorporated association
2. Artificial person
3. Separate legal entity corporate personality
4. Perpetual succession
5. Limited Liability
6. Common seal
7. Transfer of shares
8. Separation of ownership from management
9. Separate property
10.Capacity to sue and be sued in its own name
1. Common Law Exceptions
1. Determination of a character
2. Where the company is a sham
3. Prevention of fraud or improper conduct
4. Where the company is the acting agent of shareholders
5. Protection of revenue
6. Avoidance of welfare legislation
2. Statutory Exceptions
1. Number of member below statutory minimum
2. Failure to refund application money
3. Company not mentioned in the Bill of Exchange
4. Group Accounts
5. Investigation into related companies
6. Fraudulent trading
 PROMOTION AND PROMOTER
Meaning of Promotion:
 The term ‘promotion’ means all those steps that are
required to bring a company into existence, and then
to set it going.
 Promotion means the preliminary steps undertaken
by the promoter to bring a company into existence.
The term promotion also includes such steps as are
required after incorporation of the company until
company is entitled to commence its business. In
other word, promotion continues until the board of
directors assume the management of the company.
 Promotion involves the following 4 stages:
1. Generation of idea of starting a new company.
2. Registration of the company.
3. Floatation, i.e. raising of capital or arranging the
financial resources so as to carry on its business
operations.
4. Obtaining the certificate of commencement of
business.

Note: The first three stages are necessary for all the companies.
However, the fourth stage is necessary only for a public company
having share capital.
Definition:
As per section 2(69), a “Promoter” is 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 section92,
b) Who has control over the affairs of the company directly or
indirectly, whether as a shareholder, director or otherwise,
c) In accordance with whose advice, directions or instructions the
Board of Directors is accustomed to act.
A promoter is one who undertakes to form a company, with
reference to a given project and to see it going and takes the
necessary steps to accomplish the task.
 Discovery of an idea
 Detailed investigation
 Assembling of resources
 Preparing preliminary documents
 Entering into Preliminary Contracts
 Naming a company
 Appointment of bankers, brokers, solicitors
and underwriters
A promoter is neither an agent nor a trustee of the
company under incorporation. A promoter stands in a
fiduciary relationship (relation requiring confidence or
trust) with the company which he promotes.

A fiduciary position calls for a promoter:

a. Not to make any profit at the expense of the
company
b. To give the benefit of negotiations to the company
c. To make full disclosure of his interest or profit
d. Not to make use of his position.
 Situation 1
 If a person acquires a property or has had it before he takes any active steps to
promote the company and sells it to the company at a profit, so he can retain
such profit. He should make full disclosure of the fact that the property is his and
he is the real vendor. If he fails to do so, the company can rescind the contract or
claim damages for breach of duty of disclosure.

 Situation 2
 Where he was in a fiduciary position when he acquired and sold the property to
the company. The company may –
 Rescind the contract and if he has made profit on some ancillary transaction, that
may also be recovered.
 Retain the property and pay no more than what the promoter paid.
 Where remedies mentioned above would be inappropriate, the company may
sue him for misfeasance.
 Not To Make Secret Profit
 Disclosure to whom?
 Full And Fair Disclosure Of Interest
 Lead case: Gluckstein V Barnes
 A syndicate of some persons was formed with the purpose of taking over a company already in
existence, named ‘Olympia’
 The members of the syndicate purchased the debentures of ‘Olympia’ at a discount, and
thereafter purchased the whole company for 1,40,000 pounds.
 With the money received, ‘Olympia; redeemed the debentures at par, and so the members of the
syndicate made a gain of 20,000 pounds.
 Afterwards, the members of the syndicate incorporated a new company to which ‘Olympia’ was
sold at a profit of 20,000 pounds.
 The members of the syndicate disclosed the profit of 40,000 pounds made by them, but did not
disclose the profit of 20,000 pounds.
 Since, disclosure was not made to the shareholders, the promoters were held liable to pay back
the profit of 20, 000 pounds to the company incorporated by them.
 A promoter is neither an agent nor a trustee of the
company, since the company has not yet come into
existence. However, his position is similar to that of
an agent and trustee.
 A promoter stands in a fiduciary capacity towards
the company.
 Right to receive Preliminary Expenses
 Right to recover proportionate amount from
co-promoters
 Right to remuneration
1. Rescission
2. Recovery of secret profit
3. Suit for breach of trust
4. Mis-statement in Prospectus:
1. Civil Liability:
1. U/S 35(1) – Untrue statement
2. U/S 36 – Liable for inducing people to invest
2. Criminal Liability - U/S 34 – Untrue statement
5. Liability in case of Winding up:
1. Liability for Public Examination
2. Misapplication
 Preliminary contracts are those contracts which are
entered by agents or trustees on behalf of a
prospective company before it comes into existence,
E.g., contract with the proprietor of a business to sell
it to the prospective company. Such contracts are
legally not binding on the company
1. The vendor cannot sue, or to be sued by the company, even after
its incorporation.
2. The person who acts for the intended company remains
personally liable to the vendor even if the company purports to
ratify the agreement, unless the agreement provides that—
1. His liability shall cease if the company adopts the agreements and
2. Either party may rescind the agreement, if the company does not adopt it
within a specified time.
3. After incorporation, the company may adopt the preliminary
agreement. But in some cases, the Memorandum directs the
Directors to execute such contracts. The company can enforce a
pre – incorporation contract if it is warranted by the terms of
incorporation and for the purpose of the company.
4. A pre – incorporation contract can be enforced by and
against the company if it is –
1. Warranted by the terms of incorporation and
2. It is adopted by the company (Sections 15 and 16 of the Specific
Relief Act, 1963). In such a case, the Directors have no discretion in
the matter
5. Principal of Novation (sec 62 of the Indian Contract Act)
may be recalled here – substitution of new parties in the
place of old ones by mutual consent.
Meaning:
Any contract made by a company before the date at which it
is entitled to commence business shall be provisional only.
Therefore a provisional contracts means a contract entered
into by the company before or after its incorporation but
before obtaining certificate of commencement of business.

Effects of Provisional Contracts:

 A provisional contract is a valid contract
 A provisional contract does not bind the company unless the
company has obtained certificate of commencement
Procedure for Incorporation of Companies – Section 7 r/w Rule 10,
12, 14 and 15
1. Obtain Digital Signature Certificate (DSC) for at least one Director
to be able to file the incorporation forms
2. Every individual who is proposed to be appointed as a director is
required to have Director Identification Number (Section 153)
3. As per section 4(4) read with Rule 9 of Companies (Incorporation)
Rules, 2014, application for the reservation/availability of name
shall be in Form INC – 1 along with prescribed fee
4. The proposed company name should be in accordance with name
guidelines given in Rule 8 of Companies (Incorporation) Rules, 2014
Continued..........
Continued..........
5. After approval of name, ROC will issue a Name availability letter w.r.t
approval for availability of name for a proposed company. The name shall
be available for 60 days from the date of application
6. The application for incorporation of a company shall be done by filing E-
form INC 7 (section 7)
7. Preparation of Memorandum of Association (MOA). MOA prepared as
per TABLE A, B, C, D and E in Schedule I as may be applicable (section 4)
8. Preparation of Articles of Association (AOA). AOA prepared as per TABLE
F, G, H, I and J in Schedule I as may be applicable (Section 5)
9. MOA and AOA to be stamped as per the stamp duty applicable
10. MOA and AOA to be signed by the subscribers
Continued..........
Continued..........
11. To fulfil the obligations and requirements for incorporation as required by the ROC. The
promoters may appoint a person. Such person is appointed by a power of attorney
executed on non-judicial stamp power
12. Particulars of situation of Registered office of the company should be filed in Form INC-22
13. Consent of the person to act as a director should be filed in Form DIR-12 (Rule 17)
14. Form No. INC-8- statutory declaration is required to be signed by:
a. An advocate of the Supreme Court or High Court or
b. An attorney or a pleader having the right to appear before High court or
c. A Company Secretary or a Chartered Accounts in whole time practice in India
who is engaged in the formation of a company, or
d. By person named in the Articles as a Director, Manager or Secretary of the
company
Continued..........
Continued..........
That all the formalities for incorporation has been duly complied
with (rule 14)
15. Form INC 9: Affidavit from subscribers to MOA that he is not
convicted of any offence in connection with promotion of
company (Rule 15)
16. Payment of Registration fees, filing fees, stamp duty, etc…
17. The Registrar issues the Certificate of Incorporation in Form
INC 11 (Rule 14)
18. A declaration shall be filed by the directors in Form INC 21 at
the time of commencement of business
19. Corporate Identity Number (CIN) which is allotted by the ROC
shall also be mentioned on the certificate.
 The company becomes a legal entity
effective from the date of registration,
capable of exercising all the functions of an
incorporated company, having perpetual
succession and a common seal with the
power to acquire, hold or dispose of property,
to contract, to sue and to be sued by the said
name.
Certificate of incorporation to be conclusive
evidence:
 All the requirements of the Companies Act have been
complied with in respect of registration and matters
precedent and incidental thereto
 The association is a company authorized to be registered
 The association has been duly registered under
Companies Act.
The term ‘conclusive evidence’ means that no inquiry shall be
allowed

The certificate of incorporation shall remain valid even in the

following cases :
 Where one person has signed on behalf of all the subscribers.
 Where all the signatories to memorandum are minors
 Where all the signatures on the memorandum are forged
 Where the memorandum was altered after signing by
subscribers, but before its registration.
 Where illegal objects are incorporated in the object clause.
 On 6th January – The required documents were delivered to
the registrar for registration of a company
 On 8th January - The registrar issued the certificate of
incorporation
 Date on certificate - The registrar dated the certificate as 6th
January, instead of 8th January
 Date of allotment - On 6th January some shares were allotted
to Lewis.
 Date out-come from the Court - The allotment was held to
be valid since the certificate of incorporation could not be
challenged
Definition
“Memorandum” means the memorandum of
association of a company as originally framed
or as altered from time to time in pursuance
of any previous company law or of this Act -
Sec. 2(56) of the Companies Act, 2013
The memorandum shall-
 Be printed,
 Be divided into paragraphs numbered
consecutively, and
 Be signed by each subscriber to memorandum.
 Include the name of at least 1 witness who shall
attest the signature of signatories to memorandum.
 The format of the MOA shall be as per Schedule 1,
Table B,C,D,E [Section 4(6)]:
 Table A: Company limited by shares.
 Table B: Company limited by guarantee and not having
a share capital.
 Table C: Company limited by guarantee and having a
share capital.
 Table D: Unlimited company and not having a share
capital.
 Table E: Unlimited company and having a share capital.
The 6 clauses are as follows:
1. Name Clause.
2. Situation Clause/ Registered Office Clause.
3. Object Clause.
4. Liability Clause. ( This clause mentions whether the
liability is limited by shares, limited by guarantee, limited
by shares and guarantee or unlimited liability.)
5. Capital Clause.
6. Subscription Clause: In case of OPC, the name of the
person who in the event of death of the subscriber shall
become the member of the company.
 Alteration
of
memorandum
1. Voluntary Change
2. Compulsory Change
 1. Voluntary Change
 Procedure - When the company on its own contemplates a
change in its name
 Approval of shareholders through special resolution
 Approval of central government
 File with ROC a copy of the special resolution passed and also a
copy of the central government
 Fresh Memorandum and Articles to be printed with the new name.
 Change of Name shall not be allowed to a company if it has
defaulted in filing its annual returns or its financial statements or
defaulted in repaying its depositors or debenture holders (or in
payment of interest thereon).
2. Compulsory Change
Procedure - If through inadvertence or otherwise, the name of
the company is found to have been registered with a name that
is identified with or too closely resembles any other company
or when the registered proprietor of a trademark lodges a
complaint to that effect and it is found to so, the Central
Government may issue an order directing the company to
change its name and this should be done within 3 months.
 If the change is outside the local limits - from the jurisdiction of one
ROC to another ROC
 Approval of shareholders through special resolution
 Company shall publish a notice in dailies (at least in one English and in one
vernacular daily) for this and serve individual notice to each debenture
holder and creditor of the company indicating the mailer of application
and stating that any person whose interest is likely to be affected by the
proposed alteration may intimate his nature of interest and grounds of
opposition to the Regional Director with a copy to the company within 21
days. If no objection is received within the said period, the person
concerned shall be deemed to have given his consent to the change.
 Confirmation by the Regional Director within 30 days of receipt of
application from the company
Continued.................
 Continued.................
If the change is outside the local limits - from the jurisdiction of one
ROC to another ROC
 ROC to certify within 30 days from the date of intimation.
 Memorandum and Articles to be modified suitably.
 Change to be effective from the date of certificate by ROC.
 Shifting of Registered Office from one state to another (Sec. 13)
 Special resolution
 Central Government approval is necessary.
 Central government shall dispose of the application within 60 days.
 Consent of the creditors and debenture holders would be necessary for
granting the approval for the said alteration.

Continued.................
 Continued.................
Other Requirements
 List of the creditors to be kept at the Registered Office for inspection.
 Application to the Chief Secretary of the existing state.
 Advertise the application in atleast one vernacular daily in the district
where the registered office is situated.
 CG may make an order confirming the alteration on such terms and
conditions, subject to which the approval is granted.
 The approval from the CG should be filed with the ROC along with the
required fees within 30 days.
Note: Shifting of Registered Office shall not be allowed for a company if
any inquiry, inspection or investigation is initiated against the company
or any prosecution is pending against the company under the Act.
An alteration of objects shall be valid only if it is made for some
specified purpose, such as:
1. To carry on its business more economically or more efficiently
2. To attain its main purpose by new or improved means
3. To enlarge its local area of operations
4. To carry on some business which under existing
circumstances may be conveniently combined with the
business of the company
5. To restrict or abandon any of the objects specified in the
memorandum
6. To sell or dispose of the whole or any part of the undertaking
7. To amalgamate with any other company or body of persons
General Procedure
 Special Resolution
 Filing the copy of the resolution with the ROC
 ROC to confirm alteration within 30 days.
 Alteration of objects of a company which has raised money from the
public through prospectus and still has unutilized amount of the
money so raised, cannot change its objects for which the money was
raised through prospectus unless the following conditions are fulfilled:
 A special resolution has been passed by the company to this effect.
 Details of such resolution have published in the newspaper (one in
English and one in vernacular language in the place where the
Registered Office is situated) and shall be placed in the company’s
website (if any) indicating therein justification for the change.
 The dissenting shareholders should be given an opportunity to exit.
 This can be done by passing a special
resolution and informing the ROC.
Definition – Sec 2(5).

Articles means the Articles of a company as

originally framed or as altered from time to
time in pursuance of any previous Companies
Law or of this Act.
a. Adoption of preliminary l. Directors, their appointment,
contracts etc.
b. Number and value of shares m. Borrowing powers
c. Allotment of shares n. Dividends and reserves
d. Calls on shares o. Accounts and audit
e. Lien on shares p. Winding up
f. Transfer and transmission of
shares forfeiture of shares The Articles of a company
g. Alteration of share capital shall be in respective forms
h. Share certificate
specified in Tables F, G, H,
i. Conversion of shares to stock
j. Voting rights and proxies
I and J in schedule 1 as may
k. Meetings be applicable to such
company.
 Articles may provide that specified provisions can be altered only if the altered
provisions are more restrictive. Such restrictive provisions can be made only at
the time of formation or by amendment of Articles agreed to by all the members
of the company in the case of a private company and by a special resolution in
the case of a public company

Alteration of Articles involving conversions of one type of company to

another:
 Alteration of Articles including removal of restriction and limitations applicable
for a private company can be done by passing a special resolution. This will mean
the company gets converted into a public company from the date of alteration.
 If alteration involves inclusions of such restrictions, aiming at conversion of a
public company into a private company, it requires special resolution and copy of
the order from the Tribunal thus obtained, to be filed with the ROC along with
the required fee.
1. Must not be against the provisions of the Act
2. Must not be inconsistent to the Memorandum
3. Must not sanction anything illegal
4. Must not be inconsistent with any alteration made by the Tribunal
5. Approval of Central Government for conversion of public
company into private company
6. No increase in the liability of members
7. Alteration by special resolution only
8. Should not cause breach of contract
9. Must be for the benefit of the company
10. Fraud on minority
11. Retrospective alteration
12. Articles cannot be made unalterable
 The object clause of the memorandum of the
company contains the object for which the
company is formed. An act of the company
must not be beyond the object clause
otherwise it will be Ultra Vires and therefore,
void and cannot be ratified even if all the
member wish to ratify. This is called the
doctrine of Ultra Vires.
 Ashbury Railway Carriage & Iron Co. Ltd. Vs. Riche:
A Railway company was formed with the object of
making and selling railway wagons and carriages. The
company entered into a contract with Riche to finance
the construction of a railway line in Belgium. The
company later repudiated the contract as one being
ultra vires. Riche brought an action for damages for
breach of contract. The House of Lords held that the
contract was ultra vires and therefore null and void.
 Lakshmana Swamy Mudalier Vs. Life Insurance
Corporation of India:
Directors of a company were authorized to make
payments towards any charitable purpose or any
object useful for general public. The Directors paid
Rs.2,00,000/- to a Trust formed for the purpose of
promoting technical and business knowledge. The
Supreme Court held that the payment was ultra
vires.
1. Injunction
Lead case: London Country Council Vs. Attorney General: The
council had power to run tramways. It ran omni bus was ultra
vires and the council was restrained from doing so.

2. Personal liability of Directors/Agents

3. Property acquired under ultra vires acts
4. Ultra vires contracts
5. Ultra vires torts (Civil wrongs)
 A doctrine of constructive notice refers to the idea
that everyone involved with a business has
knowledge of the company's articles of association.
It reduces liability, assuming that because the
company's information is public record, it should
have been known by everyone entering into the
contract.
 The memorandum and articles of association of every company are registered with the
Registrar of Companies. The office of the Registrar is a public office and consequently the
memorandum and articles become public documents. They are open and accessible to all. It
is therefore, the duty of every person dealing with a company to inspect its public
documents and make sure that his contract is in conformity with their provisions. But
whether a person actually reads them or not, he is to be in the same position as if he had
read them. He will be presumed to know the contents of those documents.

 Another effect of this rule is that a person dealing with the company is taken not only to
have read those documents but to have understood them according to their proper
meaning. He is presumed to have understood not merely the company’s powers but also
those of its officers. Further, there is a constructive notice not merely of the memorandum
and articles, but also of all the documents, such as special resolutions [S. 117] and
particulars of charges [S. 77] which are required by the Act to be registered with the
Registrar. But there is no notice of documents which are filed only for the sake of record,
such as returns and accounts. According to Palmer, the principle applies only to the
documents which affect the powers of the company.
 Kotla Venkata Swamy Vs. Ram Murthy:
The articles required that all deeds should be signed by the
Managing Director, the Secretary and a Working Director on
behalf of the company. The plaintiff accepted the deed of
mortgage signed by the secretary and a working Director.
Held that the plaintiff could not claim under this deed.

This doctrine is not a positive one but a negative doctrine. It

operates in the company’s favor and against the person who
failed to enquire.
The doctrine of indoor management, also known as
the Turquand rule is a 150-year old concept,
which protects outsiders against the actions done by
the company. Any person who enters into a contract
with the company shall ensure that the transaction
is authorised by the articles and memorandum of
the company.
The doctrine has its origin in the case of Royal British
Bank Vs. Turquand:
The Directors were authorized by the Articles to borrow
on bonds such sums of money, by obtaining approval of
the shareholders by way of a resolution in a general
meeting. The directors gave a bond to ‘T’ without
authority of such a resolution. Held, that T could sue the
company on the strength of the bond, as he was entitled
to assume that necessary resolution had been passed.
Hence this doctrine is also referred to as the Rule in
Turquands Case.
1. Knowledge of irregularity
Howards Vs. Patent Ivory Co.: The directors of the company, under the
Articles, had no power to borrow more than 1000 pounds without the
resolution of the company in the general meeting. Without such a resolution,
the Directors borrowed 2500 pounds from themselves and took debentures. It
was held that the directors had the notice of internal irregularity and hence
the company was liable to them only to the extent of 1000 pounds.
2. Negligence
Underwood vs. Bank of Liverpool: The articles of a company provided that
the business of the company was to be managed by the directors. The
Directors and the principal shareholder of the company advised the Bank to
credit the cheque in favour of the company into his own account. The bank
accordingly credited the cheques in favour of the company into his own
account.
Continued......
Continued......
An action was brought against the bank by the company on behalf of the
debenture holders. The bank defended that it had acted on the Directors;
instructions and that as a bank it was not necessary to see whether the internal
proceedings for the director’s communication was appropriate or not. The court
held that considering the peculiar nature of instruction, the bank should have, in
the ordinary course, suspected irregularity. The court held the bank liable to
compensate the company for cheques credited to Directors personal account.

3. Forgery
Ruben vs. Great Fingall Consolidated Co.: The plaintiff was the trustee of a
share certificate issued under the seal of the defendant company. The certificate
was issued by the company’s secretary, who had affixed the seal of the company
and forged the signatures of two Directors. The certificate was held to be void.
Continued......
Continued......
4. Void Acts
5. Lack of authority
Credit Bank Cassel vs. Schenkers Ltd.: A branch manager of the
company drew a bill of exchange and also endorsed bills on
behalf of the company although he had no authority for these
acts from the company. Held, the company was not bound.

6. No knowledge of Articles
DEFINITION – SEC 2(70)
Prospectus means any document described
or issued as a prospectus and includes a red
herring prospectus(as referred to in Sec 32) or
a Shelf Prospectus(as referred in Sec 31) or
any notice, circular, advertisement, or other
document inviting offers from the public for
the subscription or purchase of any shares in
or debentures of a body corporate.
FEATURES
1. It is a document in writing. An oral invitation is not a prospectus.
2. It must be for the subscription or purchase of any shares in or debentures of a
body corporate.
3. It is an invitation to the public. An offer is not to be treated as invitation to
public if:
1. It is directed to a specific person or a group of members
2. It is not calculated to result in the shares or debentures becoming available to others.
4. Whether shares are issued to the public is a matter of fact.
5. A single private communication does not satisfy the word “issue”.
6. Public is a general word and includes a section of the public.
7. It is not necessary that prospectus should be issued by a Company. It may be
issued on behalf of the Company by its agents like an issuing house.
 FEATURES

SEBI Guidelines, 2000 provides that the term ‘Advertisement’

includes notices, brochures, pamphlets, circulars, show cards,
catalogues, hoardings, placards, posters, insertion in
newspaper, pictures, films, coverage of offer documents or
any other print medium, radio, television programs through
electronic medium.
1. Date- Sec. 26
2. Legal provisions with regard to Contents of prospectus- Sec.26: The
prospectus should contain the following information
1. Name of the company ; Address of the Registered Office of the company; Name of
the CS, CFO, Auditors, Bankers, Legal Advisors, Trustees etc.
2. Dates of opening and closing of the issue.
3. Declaration about the issue of allotment letter and refunds within the prescribed
time.
4. Statement from the Board of Directors on a separate bank account opened for the
stated purpose.
5. Consent of Directors, Bankers, Auditors and Experts for the issue.
6. Details of resolution passed for approving the issue.
7. Main objectives of public offer and terms of present issue.
Continued......
Continued......
8. Details about business of the company and project details.
9. Underwriting details, if any.
10. Is the proceeds of the issue are to be directly/indirectly applied for the purchase of
any business, Auditor’s report on the profit/loss of the business for the last 5 years and
Balance Sheet as on a date not later than 120 days before the date of the prospectus.
11. Details of minimum subscription.
12. Premium payable, if any.
13. Issue of shares other than cash.
14. Details of Directors, including their appointments, remuneration and nature and
extent of their interest in the company.
15. Details about promoters’ contribution.

Continued......
 Continued......
The prospectus shall contain a report by the Auditors with respect to the
company’s’ profits/losses and assets and liabilities (and its subsidiaries’) for the
past 5 years.
It shall also make a declaration about the complice of the provisions of the
Act(and SEBI, if applicable).
3. Registration of prospectus: A signed copy of the prospectus is to be filed with
ROC before publication. It should be accomplished by the following
documents:
a. The consent of the expert mentioned in the prospectus, if the report is
included in the prospectus;
b. A copy of every contract relating to the appointment and remuneration of a
Managing Director or Manager.
Continued......
Continued......
c. A copy of every material contract, not being a contract entered into in the
ordinary course of business of the Company, within 2 years of issue of the
prospectus.
d. A written statement relating to the adjustments if any, in respect of figures
of an profit or losses and assets and liabilities;
e. The consent in writing of the person, if any, named in the prospectus as the
Auditor, Legal advisor, Attorney, Solicitor, Issue House, Banker, Managers
to the issue or Broker of the Company to the act in that capacity.
f. The consent of the Director in respect of new Directors, if any, named
therein and
g. A copy of the underwriting agreement, if any.

Continued......
 Continued......
 Declaration
 Issue
 Approval of prospectus by various agencies
 Variation in terms of contracts or objectives in prospectus-
Sec 27
 Application to accompany prospectus (Abridged prospectus-
Sec 33)
 Public offer of securities to be in DEMAT form – sec 29
 Advertisement of Prospectus – sec 30
 Opening of Subscription List
1. Abridged prospectus (Section 2(1) r/w
Section 33)
2. Shelf prospectus (Section 31)
3. Information memorandum and Red –
herring prospectus (Section 32)
4. Deemed prospectus or prospectus by
implication (section 25)

**Statement in Lieu of Prospectus

1. The prospectus must present the whole picture of the
company
2. The prospectus must disclose all material facts truly,
honestly and accurately.
3. All facts which are likely to influence the decision
regarding applying for shares must be disclosed
4. It must not contain any untrue or misleading statement
5. No fact should be omitted , the existence of which
might in any degree affect the nature or quality of
privileges and advantages disclosed by the prospectus
 What is a misstatement or an untrue
statement?
 Who can sue?
Who can be sued?
 Proof
 Civil Liability
 Criminal Liability
Civil Liability

Remedies against the company:

a) Rescind the contract to take the shares
b) Claim damages.

Remedies against the directors, promoters and experts - The

aggrieved person may claim:
1. Compensation ;
2. Damages for non compliance ;
3. Damages under the general law.
Civil Liability
Defenses available to a director :
▪ That the prospectus was issued without his knowledge or consent and that
on becoming aware of its issue , he gave reasonable public notice to that
effect;
▪ That after the issue of prospectus and before allotment , he on becoming
aware of the untrue statement in it withdrew his consent and gave
reasonable public notice of the withdrawal and the reasons for it;
▪ That he had reasonable grounds to believe and did believe up to the time of
allotment of shares or debentures that the statement was true
▪ That he made the statement upon the authority of an expert whom he had
reasonable ground to believe
▪ That the statement was a correct and true copy of an official document.
 Criminal Liability of directors : Every person who
authorized the issue of a prospectus containing an
untrue statement shall be punishable with
imprisonment which may extend to two years or
with a fine which may extend to Rs 5000/- or with
both.
 Conditions for Commencement of Business
 According to section 11, every company with Share Capital cannot
commence business or exercise any borrowing powers unless it files
with the ROC the following:
 A declaration is filed by a director in Form INC – 21 with the Registrar
that every subscriber to the memorandum has paid the value of the
shares agreed to be taken by him and the paid up share capital of the
company is not less than 51 lakh in case of a public company and not
less than 1 lakh in case of private company on the date of making of
his declaration.
 The Form INC – 21 shall be filed along with the prescribed fee and the
contents of the form shall be verified by a CS/CA/ICWA in practice.
Continued......
 Conditions for Commencement of Business
 Form No INC – 10 regarding specimen signature (Form for verifying of signatures
of subscribers) shall be attached to Form INC 21. The specimen signature and
latest photograph duly verified by the Banker or notary shall be in Form INC 20 as
per Rule 16(1)(q) read with Sec 7(1)(e).
 The company has filed with the Registrar a verification of its registered office in
Form INC 22 within 30 days of incorporation
 (Section 12 r/w rule 25)
 Any default –
▪ The company – penalty up to Rs. 5000
▪ Officer in default – fine Rs. 1000 for every day during which the default continues.

Where no declaration has been filed with the Registrar within 180 days of the date
of incorporation of the company, the Registrar may initiate action for the removal of the
name of the company from the registrar of the companies.