Companies Act, 2013 Formation of Company

Formation of Company
Section 3(1) states that 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

STAGES IN FORMATION

PROMOTION

INCOPORATION

“Promoter” means a person—

 who has been named as such in a prospectus or is identified by the company in the annual return
 who has control over the affairs of the company, directly or indirectly whether as a shareholder,
director or otherwise; or

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 Companies Act, 2013 Formation of Company

 in accordance with whose advice, directions or instructions the Board of Directors of the
company is accustomed to act.
 Persons in accordance with whose advice, directions or instructions the Board of Directors of the
company is accustomed to act are also treated as promoters.
 However, if a person is merely acting in a professional capacity i.e. giving only professional
advice to the Board of directors, he shall not be treated as a promoter.

Legal Position of Promoter

 A promoter is neither an agent of, nor a trustee for, the company because it is not in existence.
 He occupies a fiduciary position in relation to the company and therefore requires to make full
disclosure of the relevant facts, including any profit made by him
 He may not make, either directly or indirectly, any profit at the expense of the company and that
if he does make a profit in disregard of this rule, the company can compel him to account for it.

DUTIES OF A PROMOTER

 Observance of Fudicuiary Relationship

 Disclosure of Material Facts
o Contracts made by him
o Profits earned by him
 Liable for false statements, omission of facts

RIGHTS OF PROMOTERS

 To receive all the expenses incurred for in setting up and registering the company, from Board of
Directors
 Entitled to payment of preliminary expenses to the promoters.

LIABILITIES OF PROMOTERS

 Preliminary contracts are not legally binding on the company

 Company can’t ratify such contracts
 Company can’t sue the vendors
 Company can’t adopt the contracts entered into before incorporation even by passing a special
resolution

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 Companies Act, 2013 Formation of Company

Filing of Necessary
Documents

• Required fees
Payment of Necessary • Depends on authorised cap of co (Co with share
Fees capital)
• No. of members (co without share capital)

• Issued by ROC
Obtaining Certificate • Company Identity No will be allotted
of Incorpoartion
• Subscribers to MOA will become members

Application for Availability of Name of

company

Preparation of Memorandum and Articles of

Association

Declaration from the profeAffidavit from the

subscribers to the Memorandumssional

Furnishing verification of Registered Office

Particulars of subscribers

Particulars of first directors along with their

consent to act as directors

Power of Attorney

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 Companies Act, 2013 Formation of Company

Issue of Certificate of Incorporation by Registrar

 Registrar on the basis of documents and information filed shall register all the documents and
information referred to in that sub- section 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.
 From the date of incorporation mentioned in the certificate of incorporation,
o such subscribers to the memorandum and all other persons, as may, from time to time,
become members of the company,
o 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.
o The subscribers would become the members of the company.

Conclusive Evidence

 A Certificate of Incorporation given by the Registrar in respect of any association shall be

conclusive evidence that all the requirements of the Act have been complied with in respect of
registration and matters precedent and incidental thereto,
 The association is a company authorised to be registered and duly registered under the Act.
 The Certificate of Incorporation is conclusive evidence that everything is in order as regards
registration and that the company has come into existence from the earliest moment of the day of
incorporation stated therein with rights and liabilities of a natural person, competent to enter into
contracts

 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.

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