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Incorporation Procedure Of A Company,

Memorandum of Association
&
Articles of Association
Group No. 3
Anirban Halder (B14131)
Arunava Ray (B14137)
Gagandeep Singh (B14143)
Karan Chhabra (B14149)
Mihir Talnikar (B14155)
Prashnth Krishnan (B14161)

Incorporation
The process of legally declaring a corporate entity as separate from its owners.
Incorporation has many advantages for a business and its owners, including:
1) Protects the owner's assets against the company's liabilities
2) Allows for easy transfer of ownership to another party
3) Achieves a lower tax rate than on personal income
4) Receives more lenient tax restrictions on loss carry forwards
5) Can raise capital through the sale of stock
Incorporation involves drafting an "Articles of Incorporation", which lists the
primary purpose of the business and its location, along with the number of shares
and class of stock being issued, if any. Incorporation will also involve state-specific
registration information and fees.
Incorporation creates a protective bubble around a company's owners,
shareholders and directors. Incorporated businesses can take the risks that make
growth possible without exposing the shareholders, owners and directors to
personal financial liability outside of their original investments in the company.

Incorporation Stages
A company is said to be incorporated when it fulfils formalities of
registration and obtain the CERTIFICATE OF INCORPORATION by
submitting the MoA, AoA and written consent of all the directors.
A public to commence business should raise the required capital and
obtain the CERTIFICATE OF COMMENCEMENT OF BUSINESS

Company Categories
Company Categories
Public Limited
Private Limited
Section 25 company
Registration of company under PART IX
Producer Company
Types of Companies
Company limited by shares
Company limited by guarantee
Company with unlimited liability

Criteria
PUBLIC LIMITED COMPANY
Minimum seven subscribers
Minimum paid up capital of Rs.5 lacs
Minimum three directors

PRIVATE LIMITED COMPANY


Minimum two Directors
Minimum paid up capital Rs.1 lac
Minimum two directors

Requirements
The person who wishes to be the director of the firm has to apply for
DIN (Director Identification Number)
Apply to concerned Registrar of Companies to ascertain the name of
companies in eForm 1A.
After the name is approved the person has to fill the forms (form 1, 18
and 32) within 6 months of approval of name.

Forms for Incorporation


Memorandum and Article of Association
Form 1
Form 18
Form 32
Power of Attorney on Stamp Paper of Rs. 100

Mode of forming incorporated


company
(Sec.12)
1. Seven or more persons for a limited company
2. Two or more persons for private company
3. Association for lawful purpose
4. Subscribing their name to the MOA
5. With or without limited liability

Process of INCORPORATION

1. The memorandum of association duly stamped, signed & witnessed. In case of a


public company, at last seven members must signed it. For a private company
however the signature of two members are sufficient. The signatories must also
give information about their address, occupation and the number of share
subscribed by them.
2. The articles of Association duly stamped and witnessed as in case of the
Memorandum.
3. Written consent of the proposed directors to act as director and an undertaking
to purchase qualification shares.
4. The agreement, if any, with the proposed Managing Director, Manager or whole
time director.
5. A copy of the Registrars letter approving the name of the company.
6. A statutory declaration affirming that all legal requirements for registration
have been compiled with. This must be signed by an advocate of a high court or
supreme court or a signatory to the Memorandum of Association or a Chartered
Accountant or company secretary in whole time practice in India.
7. Documentary evidence of payment of registration fees.

Memorandum of Association
(MoA)
TheMemorandum of Associationofcompany defines and governs
the relationship of the company with the external world
It regulates acompany'sexternal activitiesand has to be submitted to
the Registrar of Companies upon during the incorporation phase
The MoA contains the name of the company, the state where its
registered office is located, its objectives and the liability of its
members (limited by shares or guarantee).

According to the Companies Act 2013, the MoA of a company, as


defined by the Act, shall state the following
1. the name of the company with the last word Limited in the case of a public limited
company, or the last words Private Limited in the case of a private limited company
2. the State in which the registered office of the company is to be situated
3. the objects for which the company is proposed to be incorporated and any matter considered
necessary in furtherance thereof
4. the liability of members of the company, whether limited or unlimited, and also state
a. in the case of a company limited by shares, that liability of its members is limited to the amount unpaid, if any, on the
shares held by them; and
b. in the case of a company limited by guarantee, the amount up to which each member undertakes to contribute

5. in the case of a company having a share capital


a. the amount of share capital with which the company is to be registered and the division thereof into shares of a fixed
amount and the number of shares which the subscribers to the memorandum agree to subscribe which shall not be less than
one share; and
b. the number of shares each subscriber to the memorandum intends to take, indicated opposite his name;

6. in the case of One Person Company, the name of the person who, in the event of death of
the subscriber, shall become the member of the company.

Alteration of the MoA


A company may amend the MoA by means of a special resolution
According to the Companies Act 2013, additional restrictions have been
imposed on a company which has resorted to raising money from the
public to fulfill its objects and has some money un-utilized.
a)

the details, as may be prescribed, in respect of such resolution shall also be published in the
newspapers (one in English and one in vernacular language) which is in circulation at the
place where the registered office of the company is situated and shall also be placed on the
website of the company, if any, indicating therein the justification for such change

b)

the dissenting shareholders shall be given an opportunity to exit by the promoters and
shareholders having control in accordance with regulations to be specified by the Securities
and Exchange Board.

Change of Name of the


Company

Contents of MOA
Name
Clause

Registere
d Office
Clause

Capital
Clause
MoA

Liability
Clause

Objects
Clause

Contents of MOA (Contd.)


Name and Registered Office Clause

Objects Clause

Objects Clause

Contents of MOA (Contd.)


Capital Clause

Articles of
Association(AoA)

Rules, regulations and bye-laws for the internal management of the


affairs of the company.
They are framed with object of carrying out aims and objects as set in
MoA.
Subordinate to MoA. ( What if, there is inconsistency? )
AoA : Contract between company and members + implied contract
between members themselves to abide by:
Rules and Regulations of internal management
Rights and duties of members and directors

Difference between AoA and


MoA
Memorandum of Association
Articles of Association
Charter of Company

Regulations for internal management

Defines the scope of the activities

Rules for carrying out the objects of company.

Supreme document

Subordinate to the memorandum.

Must for every company

Company limited by shares need not have it


(Table A applies)

Strict restrictions, alteration only with sanction


of central govt./ tribunal.

Can be altered by special resolution.

It define the relationship between the company


& the outsiders

It define the relationship between company & its


staff and between members & members
interests

Which companies must have


Articles?
As per company Law 1956, PUBLIC COMPANY LIMITED BY SHARES- may register articles
(in case does not, TABLE A shall apply)
http://www.mca.gov.in/SearchableActs/Schedule1.htm
COMPANY LIMITED BY GUARANTEE/ UNLIMITED COMPANY/PRIVATE COMPANY LIMITED BY
SHARES-must register articles along with the memorandum at the time of registration

Also articles should not contain anything which is against:


Law Of The Land
The Companies Act
The Public Policy
Ultra Vires the Memorandum
Any such clauses shall be inoperative and void.

Contents of AoA
Interpretation
Share capital and variation of rights
Transfer, Transmission, Forfeiture and Buyback of shares
Alteration of capital & Capitalisation of profits
General meetings & their Proceedings
Adjournment of meeting
Voting rights & Proxy
Board of Directors
Proceedings of the Board
Dividends and Reserve
Winding up
Indemnity

Tables From Schedule 1, Companies


Act 2013
TableF

Articles of association of a company limited by shares


TableG
Articles of association of a company limited by guarantee and having a share
capital
TableH
Articles of association of a company limited by guarantee and not having share
capital
TableI
Articles of association of an unlimited company and having a share capital
TableJ
Articles of association of an unlimited company and not having share capital

AOA- CA,2013 Vs CA,1956:


S.N
o

Companies Act,2013

Companies Act,1956

Compulsory for every company to have its own


articles and to file the same with ROC for
registration.

Optional for a Public company limited


by shares. Compulsory for other
Companies.

The articles may contain provisions for


entrenchment. The provisions for
entrenchment shall only be made by:
Private Company: On formation of a company,
or by an amendment in the articles agreed to
by all the members of the company
Public company: By a special resolution
The company shall give notice to the Registrar
for entrenchment provisions.

There is no such provision

The articles of a company shall be in the


respective forms specified in Tables F,G,H,I,J in
Schedule I as may be applicable to such
company. The liberty to have articles or in a
form as near thereto as circumstances admit,
which was available in the 1956 Act is no

The articles of any company, not being


a company limited by shares shall be
in such Tables C,D,E in Schedule I as
may be applicable or in a form as near
thereto as circumstances admit.

Contents of AoA
Interpretati
on

This Section describes meanings of the specific words


used in the reminder of the articles and these meaning
shall be the same as defined in the Companies Act, 2013
unless the context requires otherwise

Share
capital and
variation of
rights, Lien
and Call on
Shares

Describes the powers of the directors to issue, allot or


otherwise dispose of the shares in the capital of the
company
Describes the procedure to issue different classes of
shares and the rights attached to them
Gives the company the powers to pay commissions,
provided they disclosed in the manner required and not
exceed the rate prescribed in sub-section (6) of section
40
Declares when the company shall have a first and
paramount lien on the shares and how it may sell those
shares
Also contains details on making Calls on shares

Contents of AoA
Transfer &
Transmissi
on of
shares

Forfeiture
and
Buyback of
shares

Provides guidelines on transfer of shares from transferor to


transferee
Declares the right of the Board to decline to recognise any
instrument of transfer or suspension of the registration of
transfers subject to certain conditions regarding the
transferor, transferee or the instrument of transfer
Provides the requirements for the transmission of shares to
nominee in case of death of insolvency of the holder of the
share

Declares the conditions under which the Board can declare


that the holder had forfeited his/her share and the
procedure to declare the same.
The board is also given the power to dispose of the share
in the manner it sees fit
Gives the power to the company to buyback its shares
subject to certain provisions

Contents of AoA
Alteration
of capital &
Capitalisati
on of
profits

Declares the resolution required to increase or reduce its


share capital
Provides the requirements for consolidating, dividing,
converting, reconverting and sub dividing and cancelling
the existing shares
Describes the extant of power of the Board to capitalize
any part of the amount for the time being standing to the
credit of any of the companys reserve accounts, or to the
credit of the profit and loss account, or otherwise available
for distribution

General
meetings &
their
Proceedings

Declares the conditions under which annual general


meeting or an extraordinary general meeting might take
place
Declares the quorum of the members required in those
meetings
Describes the procedure for selecting a chairperson

Contents of AoA
Voting
rights
&
Proxy

Declares which members a eligible to vote, how many


votes they have and by what means they vote, subject to
the rights and restrictions of the class of share
Gives the provision and procedure for raising any
objections
Contains information regarding instrument for appointing a
proxy and on what grounds will the vote given by such an
instrument be declared invalid

Board
of
Directo
rs

Describes how the number and the names of the first


directors are to be determined
Describes in detail the powers, monetary or otherwise,
that are given to the board of directors
Gives the provisions for appointing additional directors
Provides the board the power and also certain conditions
to appoint a CEO, CFO, Company Secretary, etc.

Contents of AoA
Dividen
ds and
Reserve

Outlines how the amount of the dividend and the


manner of payment may be declared and approved
Sets out conditions due to which the board may deduct
or decline payment to certain holders

Winding
up

Gives the procedure of winding up the company and


the powers and the duties of the liquidator subject to
the relevant provisions of the Act

Indemni
ty

Defines situations in which an officer of the company


shall be indemnified out of the assets of the company
against any liability incurred by him

Alteration of AoA, Companies


Any Company can make any change to its Article of Association (AOA)
Act,
2013
of its company, is free to do so, provided it complies with the
provisions of Section- 14 of Companies Act, 2013

It should also fulfil conditions as may be contained in the


Memorandum of Association (MOA) of Company
The altered AoA will bind the members in the same way as did the
original Articles
Procedure for Alteration:
Get the Approval for
Alteration in AoA and
recommendation for
members consideration by
way of special resolution in
the Board Meeting.

Pass Special Resolution for


Approval of Alteration in AOA
in a general meeting

File the form with the


Registrar along with the
requisite documents within 30
days of the general meeting

Principles Used in AoA


Mutatis Mutandis
The Phrase means The necessary changes. This is a phrase used to
mean that things are to be changed which need to be changed
without affecting the main point at issue

Doctrine of Constructive Notice


The doctrine of constructive notice is a doctrine where all persons
dealing with a company are deemed (or "construed") to have
knowledge of the company's articles of association and
memorandum of association.
Thus, this doctrine is used to protect the company against an
outsider
This principle works because MoA and AoA are public documents and
thus anyone dealing with the company have access to those
documents and are expected to not only read but also understand

Doctrine of Constructive Notice


Kotla Venkataswamy v. Rammurthy
Case
Case Facts:
The plaintiff has sued to enforce a mortgage bond purporting to have
been executed on behalf of a company
The mortgage deed was signed by the Working Director and by the
Secretary to the company (defendants 1 and 2).
Defendant 4 declared that he could not admit that the document was
executed by and on behalf of the company, and that the defendants 1
and 2 were not competent authority to sign the deed

Doctrine of Constructive Notice


Kotla Venkataswamy v. Rammurthy
Case
Points of Contention:
The main point in dispute was whether the mortgage bond was validly
executed so as to make the company liable.
The suit document, had been signed only by the Secretary and the
working Director, and not also by the Managing Director.
Article 15, of the Company's Articles of Association had provided that all
deeds, cheques, certificates and other instruments shall have to be
signed by the Managing director, the Secretary and the working Director
on behalf of the Company, and only then shall be considered valid.

Doctrine of Constructive Notice


Kotla Venkataswamy v. Rammurthy
Case
Judgement:
The court held that the plaintiff could not claim under this deed.
The Court further observed that if the plaintiff had consulted the articles
she would have discovered that a deed such as she took required
execution by three specified officers of the company and she would have
refrained from accepting a deed inadequately signed.
Notwithstanding, therefore, she may have acted in good faith and her
money may have been applied to the purposes of the company, the bond
is nevertheless invalid.

Doctrine of Indoor-Management
(or TURQUAND rule)
It is exception to the rule of constructive notice.
Doctrine of constructive notice protects company against outsider, whereas
doctrine of Indoor-management protects the outsider against the company

How?
2 aspects of every transaction substantive, and procedural.
Outsider only knows substantive aspect.
He cannot trace internal procedures.
So, he can presume that all is being done regularly

SO, an outsider need not enquire into the regularity of the internal proceedings
(or indoor management)
Why is it called Turquand rule?

Doctrine of Indoor-Management
(or TURQUAND rule)
What if you make a deal with director of a firm, whose
-> appointment was defective ?
Or,
-> who have been delegated authority in a meeting which
lacked quorum ?

Royal British Bank v.


Turquand(1856)
Directors of company issued a bond to Turquand
They had power to issue such bonds under articles, provided they were
authorized by a resolution passed by shareholders at a general meeting of
the company.
But no such resolution was passed.
When the company was sued, it alleged that under its registered deed of
settlement (the articles of association), directors only had power to borrow
what had been authorised by a company resolution
Judgement: It was held that Turquand could recover the amount of bond from
company, because he was entitled to assume that the resolution was passed.

Exceptions to Doctrine of Indoormanagement


Knowledge of Irregularity
Suspicion of Irregularity
Forgery
Representation through articles
Acts outside the scope of apparent authority

Exceptions to Doctrine of Indoormanagement


Knowledge of Irregularity
Howard v. Patent Ivory Co.
Articles : directors can borrow only upto 1000 w/o resolution of general meeting
But, they borrowed 3500 from themselves w/o concurrence of general meeting
So, they had knowledge of internal irregularity and are therefore not entitled to
protection of indoor-management

Suspicion of Irregularity
Forgery
Representation through articles
Acts outside the scope of apparent authority

Exceptions to Doctrine of Indoormanagement


Knowledge of Irregularity
Suspicion of Irregularity
Anand Bihari Lal v Dinshaw & Co.
Plaintiff accepted a transfer of a companys property from its accountant.
Held void. Clearly beyond accountants scope!

Forgery
Representation through articles
Acts outside the scope of apparent authority

Exceptions to Doctrine of Indoormanagement


Knowledge of Irregularity
Suspicion of Irregularity
Forgery
Ruben v Great Fingal Consolidated Co.
Secretary of company issues a share certificate with his own signature and
forged signature of director.
This was forged, so it was not binding on the company.

Representation through articles


Acts outside the scope of apparent authority

Exceptions to Doctrine of Indoormanagement


Knowledge of Irregularity
Suspicion of Irregularity
Forgery

Representation through articles


Lakshmi Ratan Lal Cotton Mills v J.K. Jute Mills Co.
Delegation clause is generally included in articles.
G was a director. Articles authorized directors to borrow money.
G borrowed money from plaintiff, company refused to bound on the ground that
there was no resolution of the board delegating the powers to borrow to G.
Yet, company was held bound by the loans.

Acts outside the scope of apparent authority

Exceptions to Doctrine of Indoormanagement


Knowledge of Irregularity
Suspicion of Irregularity
Forgery
Representation through articles
Acts outside the scope of apparent authority
If an officer of a company enters into a contract with the third party,
and act is beyond the scope of his authority, the company is not
bound

Object Clause
The most important clause prescribed in the
Company Act.
This clause in the MoA defines the objectives over
which the company is formed

Provisions under Provisions under


Object Clause
Object Clause
1956
2013
The MOA must have objects to be
pursued divided in three parts i.e.,
between
1. Main Objects
2. Incidental/ancillary objects

The MOA will be required to state


only the object for which the
company is registered & any other
matter considered necessary in
furtherance thereof.

Change in Object
Clause
Procedure for alteration in object clause:

Call a board Meeting to get in-Principal approval of directors

Fix the date and time of the Extra-ordinary General Meeting to get
approval of the shareholders

Hold the Extra-ordinary General meeting (EGM) on due date and pass the
necessary Special Resolution under section 13(1) of the Companies Act,
2013, for change in object clause of Memorandum.

File form MGT.14 within 30 days of passing of Special Resolution with the
concerned Registrar of Companies, with prescribed fees and along with
following attachments:
1) Notice of EGM
2) Certified True copy of Special Resolution
3) Altered Memorandum of Association

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