Explain the process of Registration of Company. Discuss about Memorandum and Article of Association

 

Registration of a Company

Registration of a company is also known as incorporation. A company is said to be incorporated when it receives the certificate of incorporation from the Registrar of Companies. The certificate of incorporation is a conclusive proof of the fact that a company, bearing a specific name has been lawfully formed. The promoter has to take the following steps for obtaining the Certificate of Incorporation--

1 Selecting a name for the company

2 Preparation and printing the documents to be filled

3 Filing the documents with the Registrar of Companies

Let us now take up these aspects one by one.

1 Selecting a name: Every company to he registered should have a name by which be known for legal and business purposes. The promoters generally select a few names and ascertain from the Registrar's office whether these names are available. For this purpose, an application on a prescribed form is submitted to the Company Law Administration, Government of India, through the Registrar of Companies for approval. The promoter can then adopt any name from the list of approved names. It is also necessary to include the words 'Limited' and 'Private Limited in case of public limit" company and private limited company respectively.

2 Preparation and printing of documents: After the name of the company has been approved and adopted, the promoters have to get the following two documents prepared and printed:

a) Memorandum of Association

b) Articles of Association

Memorandum of Association:

It is the most important document of a company as it lays down the constitution of the company and states the relationship of the company with the outside world. It is a public document and each person who deals with the company is supposed to know the provisions contained in the memorandum. The purpose of memorandum is to enable the shareholder, creditors and those who deal with the company know what is its permitted range of activities. Although the company is a legal 'person' its capacity to do business, unlike that of a real person, is restricted. If a company is engaged in any trade or business which is outside the provisions of the Memorandum of Association, such acts are regarded ultra vires of the company and therefore, void and inoperative.

The Memorandum of Association contains the following particulars under different clauses:

i)                    Name of the company

ii)                   Name of the state in which the registered office is to be located.

iii)                 Objects clause-The nature of business activities which the company will undertake to be stated in this clause.

iv)                 A declaration that the liability of the members will be limited to the face value of shares subscribed.

v)                   Capital clause-The total amount of capital with which the company is proposed to h, registered and its divisions into different shares of a fixed amount are to be stated under this clause.

vi)                 A declaration by signatories to the Memorandum that they are desirous of being formed into a company and agree to take the number of shares mentioned against their names.

The Articles of Association:

 It contains the rules and regulations relating to the management of its internal affairs. They define the rights, powers and duties of the management, the mode and form in which the business of the company is to be carried on and the manner in which changes in the internal regulations of the company may be made from time to time. Articles lay down the relations between the company and its members and between the members. A public company limited by shares may register its own Article of Association or adopt Table A containing the model set of 99 articles given in Schedule I of the Companies Act. Other types of companies must prepare and file their own Articles of Association along with the memorandum at the time of incorporation. The Articles of Association must not contain anything contrary to the Companies Act, the public poll, Memorandum of Association and the general law of the land.

3 Filing of documents for registration:

After preparing and printing the Memorandum of Association and Articles of Association, the promoters make an application to the Registrar of Companies and file the following documents :

i)                    A copy of the Memorandum of Association

ii)                   A copy of the Articles of Association

iii)                 A list of persons who have agreed to become director of the company with the° names, addresses, age and occupations. In case a separate list of directors is not filed, signatories to the Memorandum of Association will be deemed to be the directors.

iv)                 Written consent of the directors to act in that capacity, duly signed by each director. along with a written undertaking to take the prescribed qualification shares, if any. A company without share capital rind a private company need not file this document.

v)                   A statutory declaration stating that all the legal requirements with respect to incorporation have been duly complied with. This declaration should be signed by an Advocate of a High Court or of the Supreme Court. or by a practicing chartered accountant or by a person named as director, manager, or secretary of the company.

vi)                  Notice of the registered office of the company. However, this notice may be filed within 30 days of incorporation.

Along with the above documents, the Memorandum of Association and the Articles of Association must bear stamp duty as per the Indian Stamps Act. The promoters have also arranged payment of registration fees and filing fees at the time of submitting the application. If the Registrar upon scrutiny of the documents finds them to be in order, he issues the Certificate of Incorporation in favour of the company. The company becomes a separate entity in law when it gets the Certificate.

 

Commencement of Business

 A private limited company can commence business activities as soon as it is registered. The promoters of such a company raise the amount of capital necessary from their friends and relatives either against shares issued or in the form of loan. The general public cannot be invited to contribute to the capital.

For a public limited company, however, business activities cannot be started immediately alter registration. It has to obtain a Certificate of Commencement of Business from the Registrar of Companies for which a number of additional steps have to be taken by the promoters. They are as follows :

1 Preparation and registration of Prospectus or a Statement in lieu of Prospectus:

After the company has been incorporated, it is necessary for the directors to raise necessary capital for the company. Generally, shares of fixed amount are decided to be issued to the public to raise the amount of capital required. The document which is prepared to invite the public to subscribe to the shares of the company is known as Prospectus. In fact, the prospectus includes all such information about the company which may be of interest to the people who are likely to subscribe to the capital. The content of the prospectus have been specified in the Companies Act, so that the promoters may not suppress anything or mislead the public. A copy of the prospectus is required to be filed with the Registrar for registration before it is issued to the public.

 

A private limited company does not have to issue a prospectus to raise its capital since it is no permitted under law to invite the public to subscribe to its shares. However, it is not compulsory even for a public limited company to issue prospectus unless it decides to approach the public for raising its capital. If the promoters decide not to approach the public for raising the necessary capital but to arrange subscription of capital by their friends or relatives or through underwriters, it is not necessary for them to issue a prospectus. In that case, a Statement in lieu of Prospectus must be filed with the Registrar. The contents of such a statement are virtually the same as those of a Prospectus. The Statement must be signed by all the directors of the company and filed with the Registrar.

2 Subscription and Allotment of Shares:

If public offer for sale of shares and debentures exceeds Rs. I crore, the company must obtain the permission of the Controller of Capital Issues, New Delhi. After obtaining such permission and the registration of prospectus with the Registrar, the company can invite public to subscribe to its shares. The companies usually appoint brokers through whom they approach the public for subscription. The brokers issue prospectus and application forms to the prospective investors. The company also appoints some banks who receive the applications from the public along with the application money and credit the amount to company's account specially opened for the purpose. After the issue is closed, the Board of Directors decide the basis of allotment in consultation with the stock exchange authorities and pass a formal resolution for allotment. On the basis of the resolution the Secretary of the company issues letters of allotment to the subscribers. If the subscription exceeds the amount of capital to be raised, the excess is refunded to the subscribers involved. After the allotment exercise is over, the Secretary submits a Return of Allotment to the Registrar of Companies.

 

One of the important conditions to he fulfilled by a public limited company before it can apply for the Certificate of Commencement of Business is that it must have received share applications for the minimum subscription as indicated in the prospectus. Minimum subscription is defined as the minimum amount which in the opinions of the directors (or the signatories to the Memorandum), must be raised by the issue of shares to meet the following expenses:

i)purchase price of any property bought or to be bought which is to be paid out of the proceeds of the share issue;

 ii) preliminary expenses:

 iii) repayment of money borrowed in respect of the above matters;

 iv) working capital required: and

 v) any other payment that may be specified.

If the amount of capital subscribed by the public is less than the minimum subscripti5 or the company could not obtain minimum subscription within 120 days of the issue, prospectus. all money received from the applicants have to be refunded and no allot can be done.

3 Declaration of Compliance:

 When all the formalities in respect of the public issue have been completed, the company will have to file a statement with the following declarations with the Registrar :

 i) That the shares payable in cash have been allotted up to the amount of minimum subscription as slated in the prospectus.

ii) That every director has paid in cash the application and allotment money on his shares in the same proportion as others.

iii) That no money is liable to become refundable to the applicants by reason of failure to apply for permission for shares and debentures to be dealt in on any recognised stock exchange.

iv) The statutory declaration by the Secretary or one of the directors that the above requirements have been complied with.

 A company which has not issued a prospectus can submit the declaration immediately after the statement in lieu of prospectus has been filed and other conditions have been fulfilled. A private limited company is not required to submit any declaration, as it is permitted to commence business immediately after incorporation of the company.

The Registrar of companies will scrutinise all these documents and if satisfied, he shall issue a 'Certificate of Commencement of Business'. After this, the company is entitled to commence business and borrow money from the date of issue of the certificate.