Commercial Law and Preliminaries of Auditing · Ch 2 — Company Law
Incorporation of a Company
Incorporation of a Company
(b) Incorporation of a Company
Formation of a company begins with promotion — the persons (promoters) who conceive the business idea, decide the company's proposed name, objects, and capital structure, and take the steps needed to bring the company into legal existence.
Memorandum of Association (MOA) — Section 4: the company's foundational charter. It defines the company's name, the scope of its objects, and its relationship with the outside world — a company can never legally do anything beyond what its Memorandum authorises (the doctrine of ultra vires). The MOA's standard clauses are:
- Name Clause — the company's name, ending in "Limited"/"Private Limited" as applicable.
- Registered Office Clause — the State in which the registered office is situated.
- Object Clause — the purposes for which the company is formed; acts beyond this clause are void, however honestly intended.
- Liability Clause — states whether members' liability is limited (by shares or by guarantee) or unlimited.
- Capital Clause — the amount of authorised share capital and its division into shares of a fixed value (for a company having share capital).
- Subscription Clause — the initial subscribers' declaration that they agree to take the shares stated opposite their names.
Articles of Association (AOA) — Section 5: the company's internal rulebook — the regulations for its day-to-day management, such as rules on general meetings, voting, appointment/powers of directors, dividends, and share transfer procedure.
Distinction between Memorandum and Articles:
| Basis | Memorandum of Association | Articles of Association |
|---|---|---|
| Nature | The company's supreme charter — defines its scope and relationship with the outside world | Internal rules for the company's own management, subordinate to the Memorandum and the Act |
| Purpose | States what the company CAN do (its objects/powers) | States HOW the company will conduct its internal affairs |
| Effect of exceeding | An act beyond the Memorandum is void (ultra vires) and cannot be ratified even by all members | An act beyond the Articles but within the Memorandum is merely irregular, and CAN be ratified |
| Alteration | Requires a special resolution; some clauses need further approval (e.g. Registrar approval for a name change) | Requires only a special resolution |
Incorporation of Company — Section 7: the promoters file the required incorporation documents (Memorandum, Articles, declarations of compliance, particulars of subscribers/directors, and proof of the registered office) with the Registrar of Companies, typically through the integrated SPICe+ e-form. On being satisfied that all requirements are met, the Registrar registers the company and issues a Certificate of Incorporation (COI), which also carries the company's unique Corporate Identity Number (CIN).
Effect of Registration: from the date stated in the Certificate of Incorporation, the subscribers to the Memorandum, together with all other persons who may from time to time become members, are a body corporate capable of exercising all the functions of an incorporated company — with perpetual succession and the capacity to acquire, hold, and dispose of property, and to sue and be sued in its own name.
Commencement of Business — Section 10A: a company having a share capital, incorporated after this provision took effect, cannot commence any business or exercise any borrowing powers until a director of the company files a declaration (in the prescribed form) with the Registrar, within 180 days of incorporation, confirming that every subscriber to the Memorandum has paid the value of the shares they agreed to take, AND the company has filed verification of its registered office. Failure to file this declaration can lead to the Registrar initiating action to strike the company's name off the register. …
A company's foundational charter, defining its name, objects, and relationship with the outside world; a company cannot act beyond it (d …
The internal rules and regulations governing a company's own day-to-day management, subordinate to the Memo …
The document the Registrar of Companies issues on registering a company, carrying its Corporate Identity Number (CIN); conclusive evide …