Business LAW

Incorporation Procedure Of A Company,Memorandum of Association&Articles of AssociationGroup No. 3Anirban Halder (B14131)Arunava Ray (B14137)Gagandeep Singh (B14143)Karan Chhabra (B14149)Mihir Talnikar (B14155)Prashnth Krishnan (B14161)IncorporationThe 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 liabilities2) Allows for easy transfer of ownership to another party3) Achieves a lower tax rate than on personal income4) Receives more lenient tax restrictions on loss carry forwards5) Can raise capital through the sale of stockIncorporation 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 StagesA 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 BUSINESSCompany CategoriesCompany CategoriesPublic LimitedPrivate LimitedSection 25 companyRegistration of company under PART IXProducer CompanyTypes of CompaniesCompany limited by sharesCompany limited by guaranteeCompany with unlimited liabilityCriteriaPUBLIC LIMITED COMPANYMinimum seven subscribersMinimum paid up capital of Rs.5 lacsMinimum three directors

PRIVATE LIMITED COMPANYMinimum two DirectorsMinimum paid up capital Rs.1 lacMinimum two directors

RequirementsThe 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 IncorporationMemorandum and Article of AssociationForm 1Form 18Form 32Power of Attorney on Stamp Paper of Rs. 100Mode of forming incorporated company(Sec.12)Seven or more persons for a limited companyTwo or more persons for private companyAssociation for lawful purposeSubscribing their name to the MOAWith or without limited liabilityProcess of INCORPORATIONThe 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.The articles of Association duly stamped and witnessed as in case of the Memorandum. Written consent of the proposed directors to act as director and an undertaking to purchase qualification shares.The agreement, if any, with the proposed Managing Director, Manager or whole time director.A copy of the Registrars letter approving the name of the company.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.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

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

the State in which the registered office of the company is to be situated

the objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof

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 MoAA 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.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 changethe 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 MOAMoAName ClauseCapital ClauseLiability ClauseObjects ClauseRegistered Office ClauseContents of MOA (Contd.)

Name and Registered Office ClauseObjects Clause

Objects ClauseContents 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 managementRights and duties of members and directorsDifference between AoA and MoAMemorandum of AssociationArticles of AssociationCharter of CompanyRegulations for internal managementDefines the scope of the activitiesRules for carrying out the objects of company.Supreme documentSubordinate to the memorandum.Must for every companyCompany 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 interestsWhich 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.htmCOMPANY 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 LandThe Companies Act The Public Policy Ultra Vires the Memorandum Any such clauses shall be inoperative and void.Contents of AoAInterpretationShare capital and variation of rightsTransfer, Transmission, Forfeiture and Buyback of sharesAlteration of capital & Capitalisation of profitsGeneral meetings & their ProceedingsAdjournment of meetingVoting rights & ProxyBoard of DirectorsProceedings of the BoardDividends and ReserveWinding upIndemnity

Tables From Schedule 1, Companies Act 2013TableFArticles of association of a company limited by sharesTableGArticles of association of a company limited by guarantee and having a share capitalTableHArticles of association of a company limited by guarantee and not having share capitalTableIArticles of association of an unlimited company and having a share capitalTableJArticles of association of an unlimited company and not having share capital

AOA- CA,2013 Vs CA,1956:

S.No

Companies Act,2013

Companies Act,1956

1Compulsory 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.2The 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 companyPublic company: By a special resolutionThe company shall give notice to the Registrar for entrenchment provisions. There is no such provision

3The 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 longer available in the 2013 Act. 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 AoAContents of AoAContents of AoAContents of AoAContents of AoAAlteration of AoA, Companies Act, 2013Any Company can make any change to its Article of Association (AOA) 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 CompanyThe altered AoA will bind the members in the same way as did the original ArticlesProcedure for Alteration:

Principles Used in AoADoctrine of Constructive Notice - CaseKotla Venkataswamy v. RammurthyCase Facts:The plaintiff has sued to enforce a mortgage bond purporting to have been executed on behalf of a companyThe 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 deedDoctrine of Constructive Notice - CaseKotla Venkataswamy v. RammurthyPoints 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 - CaseKotla Venkataswamy v. RammurthyJudgement: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 companyHow?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 regularlySO, 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 TurquandThey 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 resolutionJudgement: 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 Indoor-managementKnowledge of IrregularitySuspicion of IrregularityForgeryRepresentation through articlesActs outside the scope of apparent authorityExceptions to Doctrine of Indoor-managementKnowledge of IrregularityHoward v. Patent Ivory Co.Articles : directors can borrow only upto 1000 w/o resolution of general meetingBut, they borrowed 3500 from themselves w/o concurrence of general meetingSo, they had knowledge of internal irregularity and are therefore not entitled to protection of indoor-managementSuspicion of IrregularityForgeryRepresentation through articlesActs outside the scope of apparent authorityExceptions to Doctrine of Indoor-managementKnowledge of IrregularitySuspicion of IrregularityAnand Bihari Lal v Dinshaw & Co.Plaintiff accepted a transfer of a companys property from its accountant. Held void. Clearly beyond accountants scope!ForgeryRepresentation through articlesActs outside the scope of apparent authorityExceptions to Doctrine of Indoor-managementKnowledge of IrregularitySuspicion of IrregularityForgeryRuben 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 articlesActs outside the scope of apparent authorityExceptions to Doctrine of Indoor-managementKnowledge of IrregularitySuspicion of IrregularityForgeryRepresentation through articlesLakshmi 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 authorityExceptions to Doctrine of Indoor-managementKnowledge of IrregularitySuspicion of IrregularityForgeryRepresentation through articlesActs outside the scope of apparent authorityIf 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

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

Object ClauseProvisions under Object Clause 1956Provisions under Object Clause 2013

The MOA must have objects to be pursued divided in three parts i.e., between1. Main Objects2. Incidental/ancillary objects3. Other objectsThe MOA will be required to state only the object for which the company is registered & any other matter considered necessary in furtherance thereof.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 4) Certified True copy of Board Resolution may be attached as an optional attachment.

Change in Object ClauseTHANK YOU!