Formation and Incorporation of Companies – The Companies Act, 2013 – Law Notes
Introduction
Unlike Partnership and HUF, the formation of company requires to follow certain steps. In this note, we will discuss the steps involved in incorporation of not only private and public companies but also note on incorporation of one person company.
Number of Members required for formation of Companies :
1. Private Limited : Minimum 2 or more Maximum : 200 members.
2. Public Company : Minimum 7 or more Maximum : Unlimited.
3. One Person Company : Minimum 1 person Maximum : 1 person
(One Person Company to be incorporated as Private Company.)
Steps involved in Incorporation :
1. Application for Availability of Name
2. Preparation of MoA and AoA
3. Filing of Documents with Registrar of Companies
4. Declaration from the Professional
5. Declaration from the Subscribers to the Memorandum
6. Furnishing verification of Registered Office.
7. Particulars of Subcribers.
8. Particular of First Directors along with their Consent to Act as Director.
9. Power of Attorney
10. Issue of Certificate of Incorporation by Registrar.
11. Allotment of Corporate Identity Number.
12 Documents of Incorporation to be preserved (Section 7(4))
1. Application for Availability of Name :-
A person may make an application, in such form and manner and accompanied by such fee, as may be prescribed, to the Registrar for the reservation of a name set out in the application as
(a) the name of the proposed company (for new company); or,
(b) the name to which the company proposes to change its name (for existing company)
Section 4(2) :- The name should not be identical with or resemble too nearly to the name of an existing company registered under this Act or any previous company law; or
(b) be such that its use by the company—
(i) will constitute an offence under any law for the time being in force; or (ii) is undesirable in the opinion of the Central Government.
The object is to prevent the use of a name likely to mislead the public. For eg , a company is not allowed to use a name which is prohibited under the Emblems and Names (Prevention of Improper Use) Act, 1950.
According to section 4(3),
Without prejudice to the provisions of sub-section (2), a company shall not be registered with a name which contains—
(a) any word or expression which is likely to give the impression that the company is in any way connected with, or having the patronage(संरक्षण) of, the Central Government, any State Government, or any local authority, corporation or body constituted by the Central Government or any State Government under any law for the time being in force; or
(b) such word or expression, as may be prescribed, unless the previous approval of the Central Government has been obtained for the use of any such word or expression.
(For eg the words like, ‘national’, ‘bank’, ‘Exchange’ or ‘Stock Exchange’
‘Republic’, ‘Central’, ‘Union’ etc)
2. Preparation of Memorandum and Articles of Association : –
The MoA & AoA are the very imporatant documents in the formation of Company. They are the charter of a company. Section 4 & 5 deals regarding the contents of these two important documents.
The MoA & AoA should be as per the provisions of section 4 & 5.
3. Filing of Documents with Registrar of Companies (Section 7(1)) :-
The following documents and information for registration shall be filed with the Registrar within whose jurisdiction the registered office of a company is proposed to be situated :
- Application for Incorporation of Companies
- Memorandum and Articles of Association of the Company duly signed by all the subscribers to the memorandum in such manner as may be prescribed.
4. Declaration from the Professional (Section 7(1)(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.
5. Declaration from the Subscribers to the Memorandum (Section 7(1)(c)) :
Each of the subscriber and First Directors shall file :
An affidavit 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.
With reference to incorporation of a company, affidavit has been replaced by self-declaration from the first subscriber to memorandum and first directors (Amended in 2017)
6. Furnishing verification of Registered Office (Section 12) :-
A company shall, on and from the fifteenth day (30th day as per the amendment 2017) of its incorporation and at all times thereafter, have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it and,
The company shall furnish to the Registrar verification of its registered office within a period of thirty days of its incorporation in such manner as may be prescribed.
(Here the location of the registered office is finalised prior to incorporation of a company by the promoters)
7. Particulars of Subscribers
:- Section 7(1)(e) requires that, 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.
8. Particulars of First Directors along with their Consent to Act as
Directors :- Section 7(1)(f) requires the filing of 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.
As per section 152(3), any person who wishes to be appointed as a director of a company must obtain Director Identification Number.
9. Power of Attorney :-
For completion of the various formalities that are required for incorporation of a company, the promoters may appoint an attorney to carry out the instructions/requirements stipulated by the Registrar.
10. Issue of Certificate of Incorporation by Registrar (Section 7(2)) :-
The Registrar on the basis of documents and information filed under shall register all the documents and information referred to 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.
Effect of registration :- 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.
11. Allotment of Corporate Identity Number (Section 7(3)) :-
On and from the date mentioned in the certificate of incorporation issued, 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.
12. Documents of Incorporation to be Preserved (Section 7(4)) :-
The company shall maintain and preserve at its registered office copies of all documents and information as originally filed till its dissolution under this Act.
Punishment for Furnishing False Information at the Time of Incorporation :
The Companies Act, 2013 imposes punishment for incorporation of a company by furnishing false or incorrect information.
Sec 7(5) : 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.
Sec 7(6) : 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.
(Section 447 : Punishment for fraud :- Without prejudice to any liability including repayment of any debt under this Act or any other law for the time being in force, any person who is found to be guilty of fraud, shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud: Provided that where the fraud in question involves public interest, the term of imprisonment shall not be less than three years.)
Incorporation of One Person Company
The Companies Act, 2013 introduced a new concept and that is
“One Person Company” (OPC). With the implementation of the Companies Act, 2013, a single national person can constitute a Company, under the One Person Company (OPC) concept.
As per provision of Section 2(62) of the Companies Act, 2013,
‘One Person Company’ means a company which has only one person as a member.
Formation of OPC is same as per the Section 3 but conditions are prescribed in proviso to Section 3 which is as under
(Section 3 : Formation of company.— (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).
Provided that, the memorandum of One Person Company shall indicate the name of the other person, with his prior written consent in the prescribed form, who shall, in the event of the subscriber‘s death or his incapacity to contract become the member of the company and the written consent of such person shall also be filed with the Registrar at the time of incorporation of the One Person Company along with its memorandum and articles
Provided further that such other person may withdraw his consent in such manner as may be prescribed
Provided also that the member of One Person Company may at any time change the name of such other person by giving notice in such manner as may be prescribed
Provided also that it shall be the duty of the member of One Person Company to intimate the company the change, if any, in the name of the other person nominated by him by indicating in the memorandum or otherwise within such time and in such manner as may be prescribed, and the company shall intimate the Registrar any such change within such time and in such manner as may be prescribed
Provided also that any such change in the name of the person shall not be deemed to be an alteration of the memorandum.