Procedure of Incorporation of Company

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Procedure of Incorporation of Company

incorporation of company

Introduction

The procedure of Incorporation of company, any seven or more person (two or more in case of a private company, and one person in case of a one-person company) associated for any lawful purpose may form an incorporated company with or without limited liability. They shall subscribe their name to a memorandum of association and also comply with other formalities in respect of registration (section-3(1)).

Before a company is registered, it is desirable to ascertain from the registrar of companies (for the state in which the registered office of the company is to be situated) if the proposed name of the company is approved. As per section-7(1), the following documents duly stamped together with the necessary fees are to be filed with the registrar for registration of a company.

Documents required for Incorporation of company

documents

  1. Memorandum of association and Article of association of the company, duly signed by all the subscribers to the memorandum in the prescribed manner.
  2. The agreement, if any, which the company proposes to enter into with any individual for appointment as its managing or whole time director or manager.
  3. A declaration that all the requirements of the companies act and the rules there under have been complied with. Such a declaration has to be signed by an advocate, or any proposed director/manager/secretary of the company or by a company secretary or cost accountant or chartered accountant who is in whole-time practice in India.
  4. An affidavit from the subscribers to the memorandum and from the first directors (if any) to the effect that they are not convicted of any offence in connection with promoting, forming or managing a company or have not been found guilty of any fraud or misfeasance, etc., under the 2013 Act or any previous company law during the last five years along with the complete details of name, address of the company, particulars of every subscriber and the persons named as first directors (including nationality, DIN, proof of identity).
  5. The address for correspondence till its registered office is established.
  6. The particulars of the interests of the persons mentioned in the articles as the first directors of the company in other firms or bodies corporate along with their consent to act as directors of the company.

If the registrar is satisfied that all the requirements mentioned above are complied with by the company and that it is authorized to be registered under the act, the registrar shall register the documents submitted and enter the company’s name in the register of companies, and then issue a certificate, know as the certificate of incorporation, certifying that the company has been incorporated (section-7(2)). On and from the date mentioned in the certificate of incorporation, the registrar shall allot to the company a “Corporate Identity Number” which is to be a distinct identity for the company. This number has also to be included in the certificate (section-7(3)).

The company has to maintain and preserve at its registered office copies of all the documents and information as originally filed u/s 7(1) till its dissolution under the act (section-7(4) ).

Punishment for False Particulars at the time of Incorporation of company

The companies act, 2013 prescribes severe punishment for furnishing false or incorrect information at the time of incorporation.

fake documentsIf any person furnishes any false or incorrect particulars of any material information of which he was aware, he is to be liable for action which provides punishment for fraud (section-7(5) ).

If incorporation was obtaining by furnishing false or incorrect information or by suppressing any material fact or information or by any fraudulent action, the promoter, first directors and those making the declaration are also liable for action under section-447 (section-7(6) ).

In such cases, an application can also be made to the tribunal which may pass any of the following order:

  • Pass such orders, as it may think fit, for regulation of the management of the company including changes in its memorandum and articles, in public interest or in the interest of the company and its members and creditors
  • Direct that liability of the members shall be unlimited
  • Direct removal of the name of the company from the register of companies
  • Pass an order for the winding up of the company
  • Pass such other orders as it may deem fit

Provided that before making any order, the company shall be given a reasonable opportunity of being heard in the matter and the Tribunal shall take into consideration  the transaction entered into by the company, including the obligations contracted or payment of any liability (Section-7(7) ).

Effect of Registration (Certificate of Incorporation)

certificate of incorporationA “certificate of Incorporation” is a certificate issued by the registrar of companies of a state indicating that a company’s memorandum of association and article of association have been accepted for filing and that the company is incorporated.

The certification of incorporation brings the company into existence as a legal person. On the issue of the certificate of incorporation the company gets its existence as a body corporate. The said company “comes into existence” from the date of incorporation mentioned in the certificate, it does not matter that the certificate was issued few days later. Further, the date appearing on its is conclusive, even if wrong.

From the date of incorporation, such of the subscribers of the memorandum and other person, as may from time to time to members of the company, shall be a body corporate by the name contained in the memorandum, capable forthwith of exercising all the functions of an incorporated company, and having a perpetual succession and a common seal. It has power to acquire, hold and dispose of property, both movable and immovable, tangible and intangible, to contract and to sue and be sue, by the said name (section-9).

Effect of Memorandum and Article

Section 10 of the 2013 act lays down that “subject to the provisions of this act, the memorandum and article shall, when registered, bind the company and the member thereof to the same extent as if they respectively had been signed by the company and by each member, and contained covenants on its and his part to observe all the provisions of the memorandum and of the articles.”

Further, all money payable by any member to the company under the memorandum or articles shall be a debt due from him to the company.

Commencement of Business

Section 11 of the 2013 Act lays down that “A company having a share capital shall not commence any business or exercise any borrowing powers unless

  1. A declaration is filed by a director in such form and verified in such manner as may be prescribed, with the registrar that every subscriber to memorandum has paid the value of the shares agreed to be taken by him
  2. The company has filed with the registrar a verification of its registered office as provided in section-12(2).

commencement of businessIf any default is made in complying with the requirements of this section, the company shall be liable to a penalty which may extend to five thousand rupees and every officer who is in default shall be punishable with fine which may extend to one thousand rupees for every day during which the default continues.

Where no declaration has been filed with the registrar under sub-section (1)(a) within a period of 180 days of the date of incorporation of the company and the registrar has reasonable cause to believe that the company is not carrying on any business or operations, he may, without prejudice to the provisions of sub-section(2), initiate action for the removal of the name of the company from the register of companies under chapter XVIII.           

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