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.
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