Formation of the Company The Company Act 1994 Formation of the Company

The essential steps of forming a Company Before a company can be formed the following steps must be taken: The Memorandum and Articles must be prepared. Memorandum of Association and Articles of Association must be filed when application is made for the registration and incorporation of the company.

The essential steps of forming a Company A license must be obtained under the Company Act 1994. The company must be registered in accordance with provisions of the Company Act 1994, and the Certificate of Incorporation must be obtained. In case of Public Company, Certificate of Commencement is also need to start business.

The essential steps of forming a Company Public Company must issue and register the prospectus or statement in lieu of prospectus with the register. The minimum subscription must be raised and thereafter the allotment of shares must be made. Public Company must register its name as a member of stock exchange otherwise it cannot issue shares. To start business a company has to issue a certain amount of share in public.

Promoters Normally Promoter means the person who initially plans the formation of a company and brings it into existence.

Promoters A person who originates a scheme for the formation of the company has the Memorandum and the Articles prepared, executed, registered and finds the first directors, settles the terms of preliminary contracts and prospectus (if any) and makes arrangements for advertising and circulating the prospectus and placing the capital is a Promoter.

The duties and liabilities of Promoters The Promoters can’t be described as an agent of the company. A company can’t ratify a contract made by a Promoter before the incorporation of the company because the ratifier was then not existence. A promoter can’t be a trustee of the company.

The duties and liabilities of Promoters A promoter can’t make any secret profits. If the Promoter makes any secret profit or unclosed financial benefits, then the company can recover it. The promoters can make profits, provided he discloses all the facts to the board of the Directors of the company. A promoter stands in a fiduciary position to the company.

The duties and liabilities of Promoters A promoter has got certain duties in respect to prospectus. He must see that the documents contain the particulars, which according to Schedule II to the Act they must contain. He must see that the documents don’t contain untrue statement.

The duties and liabilities of Promoters For failure to perform the duties the promoter is liable. To pay compensation to any person who buys shares on the basis of the erroneous prospectus and suffers damage. He may prosecute in the criminal courts according to the provisions of the Company Act 1994.

Prospectus A prospectus has been defined in the act any document described or issued as a prospectus and includes any notice, circular, advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any share in or debentures of a body corporate. In the words, prospectus is inviting deposits from public.

Characteristics of Prospectus It is a written document. It includes any notice, circular, advertisement for inviting deposits from the public or other document. It is a motivation to the public.

Characteristics of Prospectus The public is invited to subscribe the shares or debenture of the company. It has to be signed by the auditor to prove the truthfulness of the company. The prospectus has to be signed by the auditor by the Chartered Accountant Act of 1961.

The form and contents of Prospectus The principal items are – The prospectus must contain the signature of the signatories of the memorandum, who subscribed the primary share. Number and classes of shares and extent of interest of holders and particulars regarding debentures and redeemable preference shares will be mentioned. The rights in respect of capital and dividend.

The form and contents of Prospectus The minimum amount of subscription and amount payable on application. Odd numbers of shares are not preferred to sell. Preliminary expenses incurred. Particulars in regard to the company and other listed company under the same management.

The form and contents of Prospectus Name, address and signs of the auditor of the company. Whether the prospectus is issued at the time of the formation of the company or subsequently. The nature and extent of restrictions upon members at company meeting.

The form and contents of Prospectus Restrictions upon the powers of directors. Voting rights, capitalization of reserves and surplus of revelation of ordinary shareholder. Inspection of balance sheet and profit and loss account.

The legal requirements of Prospectus Time Particulars Date Signature Copy Statement by expert Deposits Registration Terms of contract Prospectus by a foreign company

The legal requirements of Prospectus Time Particulars Date Signature Copy Statement by expert Deposits Registration Terms of contract Prospectus by a foreign company A prospectus is to be issued after the incorporation of the company. The prospectus must contain all the particulars listed in Schedule II to the Companies Act 1994.

The legal requirements of Prospectus Time Particulars Date Signature Copy Statement by expert Deposits Registration Terms of contract Prospectus by a foreign company The prospectus must be dated and this date will be considered to be the date of publication unless otherwise proved. The Auditor and Directors must sign the prospectus.

The legal requirements of Prospectus Time Particulars Date Signature Copy Statement by expert Deposits Registration Terms of contract Prospectus by a foreign company A copy of prospectus must accompany every application form for shares. Statement of experts can be included with it. Here the experts mean Stock of Exchange, accountants, engineer.

The legal requirements of Prospectus Time Particulars Date Signature Copy Statement by expert Deposits Registration Terms of contract Prospectus by a foreign company Deposits are not to be invited without issuing the advertisement. Before a prospectus is issued it must be registered with registrar. Copies of relevant documents have to be filed when application is made for registration.

The legal requirements of Prospectus Time Particulars Date Signature Copy Statement by expert Deposits Registration Terms of contract Prospectus by a foreign company The terms of any contract, mentioned in the prospectus can’t be varied after registration of the prospectus except with the approval of member in general meeting.

The legal requirements of Prospectus Time Particulars Date Signature Copy Statement by expert Deposits Registration Terms of contract Prospectus by a foreign company In our country these types of prospectus are not found in dailies, most often they are published in economic review.

The Memorandum & Articles

Memo/ MA/ Memorandum of Association The memorandum of association is a document, which contains the fundamental rules regarding the constitution and activities of a company. It is the basic document of a company. The purpose of the memorandum is to enable the members of the company, its creditors, and the public to know what its powers are and what is the range of its activity.

Memo/ MA/ Memorandum of Association Memo contains the rules regarding: Capital structure The liability of members The objects of the company All other important matter related to the company

The contents of the Memorandum According to the Company Act 1994. A MA must contain the following particulars. Name Clause Situation Clause/ Address Clause Area of Operation Clause Objects Clause Liability Clause Capital Clause The Association/ Subscription Clause

The contents of the Memorandum Name Clause Situation Clause/ Address Clause Area of Operation Clause Objects Clause Liability Clause Capital Clause The Association/ Subscription Clause The name of the company with the word “limited” at the end of the name of a public company and the words “Private Limited” at the end of the name of a Private Company. Company can’t take a name or close to any name of a running company.

The contents of the Memorandum Name Clause Situation Clause/ Address Clause Area of Operation Clause Objects Clause Liability Clause Capital Clause The Association/ Subscription Clause The name of government office, Government related office, king or queen of the country of register is also forbidden as a name of the company.

The contents of the Memorandum Name Clause Situation Clause/ Address Clause Area of Operation Clause Objects Clause Liability Clause Capital Clause The Association/ Subscription Clause The name of the state in which the registered office of the company is to be situated. Except in the case of trading corporation the states, where the objects extend.

The contents of the Memorandum Name Clause Situation Clause/ Address Clause Area of Operation Clause Objects Clause Liability Clause Capital Clause The Association/ Subscription Clause The objects of the company are that the company can’t run any activities beyond this objects of the memo can’t be changed or modified easily, required special permission of court.

The contents of the Memorandum Name Clause Situation Clause/ Address Clause Area of Operation Clause Objects Clause Liability Clause Capital Clause The Association/ Subscription Clause The nature of the liability of the members i.e. whether limited by shares or by guarantee or unlimited. The memo shall state the amount of share capital and the division of capital as share, authorized capital, declared capital; rules of invest or reduce capital

The contents of the Memorandum Name Clause Situation Clause/ Address Clause Area of Operation Clause Objects Clause Liability Clause Capital Clause The Association/ Subscription Clause Compliance of the primary directors to direct the company and to buy a certain amount of shares.

The rules regarding the name of the Company A company cannot adopt a name by which or close to which another company is registered. Without government permission Company cannot take a name related to Government, President, King, Queen or any Government Agencies.

The rules regarding the name of the Company The word “limited” at the end of the name of a Public Company. The words “Private Limited” at the end of the name of a Private Company is must to add.

The procedures to change the Memorandum of Association Change of Name Clause Change of the objects Change in the location Change of the capital

The procedures to change the Memorandum of Association Change of Name Clause Change of the objects Change in the location Change of the capital According to the resolution in the special meeting of the members and ratification of court the name of the company can be changed. Registrar will have a copy of it.

The procedures to change the Memorandum of Association Change of Name Clause Change of the objects Change in the location Change of the capital To alter the objects new resolutions have to be permitted by court. It can be changed for – to carry its business more economically or more efficiently. to attain its main purpose by new or improved means.

The procedures to change the Memorandum of Association Change of Name Clause Change of the objects Change in the location Change of the capital to enlarge or change the local area of its operation. if the Government policy to the company is changed. if the maximum shareholders want it.

The procedures to change the Memorandum of Association Change of Name Clause Change of the objects Change in the location Change of the capital to overcome the globalization impact. to carry on some new business which can be convenient with the company’s existing business. to restrict or abandon any of the objects.

The procedures to change the Memorandum of Association Change of Name Clause Change of the objects Change in the location Change of the capital to sell or dispose of the whole or any part of the undertaking of the company. to amalgate with any other company.

The procedures to change the Memorandum of Association Change of Name Clause Change of the objects Change in the location Change of the capital The alteration must be registered with the Registrar after it has been admitted in the special meeting of the shareholders.

The procedures to change the Memorandum of Association Change of Name Clause Change of the objects Change in the location Change of the capital Alteration of the capital clause can be done in the following methods – alteration including increase of capital reduction of capital variation of shareholders right creation of reserve capital

Articles/ AA/ Articles of Association The articles of association are a document, which contains rules, regulations and bye-laws regarding the internal management of the company. Articles must not violate any provisions of the companies act. The rules laid down in the articles must always the read subject to the rules contained in the memorandum.

The contents of Articles of Association Articles of association is the secondary document of the company. It is used for internal regulation of the company. So it is also called the internal document.

The contents of Articles of Association According to the Company Act 1994. A A must contain the following particulars. Form of Articles Contents of Articles

The contents of Articles of Association Form of Articles Contents of Articles Model forms of articles for use in the case of companies not limited by shares are given in schedule 1 to the act.

The contents of Articles of Association Form of Articles Contents of Articles The articles shall – Be printed. Be dividend into paragraphs numbered consecutively.

The contents of Articles of Association Form of Articles Contents of Articles Be signed by each subscriber of the memorandum of association (who shall add his address, description and occupation, if any), in the presence of at least one witness who shall attest the signature and likewise add his address, description and occupation.

The contents of Articles of Association Form of Articles Contents of Articles Articles usually contain provisions in respect of the following matter – Share, capital, rights of share holders, payment of commissions, share certificate. Lien on shares.

The contents of Articles of Association Form of Articles Contents of Articles Calls on shares. Transfer of shares. Transmission of shares. Forfeiture of shares. Conversion of shares into stock. Share warrants. Alteration of capital. General meetings and voting rights of members.

The contents of Articles of Association Form of Articles Contents of Articles Appointment and remuneration of directors, board of directors, managers and secretary. Dividends and reserve. Accounts and audits and borrowing power. Capitalization of profit. Winding up.

Difference between MA and AA Memorandum of Association Articles of Association MA is the external document of a company. AA is the internal document of a company. It is the primary document of a company. It is the secondary document of a company. A company must have MA. A company can take alternative of AA.

Difference between MA and AA Memorandum of Association Articles of Association There must be 7 clauses – Name, Situation, Operation, Objects, Liability, Capital and Subscription. There can be as many clauses as the company thinks need to manage the company.

Difference between MA and AA Memorandum of Association Articles of Association MA is regulated by the company act 1994. AA is regulated by MA and the company act 1994. There may be any clauses, which is not mentioned in AA. There cannot be any clause, which is not mentioned in MA.

Difference between MA and AA Memorandum of Association Articles of Association It related the company to the outer world of the organization. It deals with the relationship of internal affairs of the organization. Memorandum cannot be easily changed. Articles are easily changeable.