FORMATION OF A COMPANY

UPDATE: on 30^th August 2013: Companies Bill 2012 became the Companies Act, 2013 (Act 18 of 2013).

Section 3, 4 and 5 of the Companies Bill, 2012 Act 2013

In my last post, I discussed definition of companies and classes.

FORMATION OF COMPANY (SECTION 3):

A company may be formed for any lawful purpose by:

(a)    Seven or more persons as public company;

(b)   Two or more persons as private company;

(c)    One person as One Person Company

By subscribing names to a memorandum and complying other requirements.

In case of One Person Company, the name of Nominee Person shall be in the Memorandum. The written consent of nominee shall be filed with registrar along with incorporation documents. This nominee may withdraw his consent in prescribed manner. Member of One Person Company may change nomination by giving notice in prescribed manner and following prescribed procedure. This change in nomination shall not be treated as alteration of the memorandum.

A company formed as above may be (a) a company limited by share, (b) a company limited by guarantee or an unlimited company.

MEMORANDUM (SECTION 4):

The memorandum of a company shall state:

(a)    Name of the company with “Limited”, “Private Limited” unless it is a company registered under Section 8 of this Act,

(b)   State in which its Registered Office is situated,

(c)    Objects of the company,

(d)   Liability of the members, whether limited or unlimited, and its extent as mentioned in this Section,

(e)   In the case of a company having a share capital –

1. the authorized share capital and its division in number and amount,
2. number of shares agreed to subscribed by subscribers to the memorandum opposite their name,

(f)     In case of One Person Company, name of nominee person.

The term Person includes natural person and artificial person as well. The death or incapacity shall not be suffered by any person other than individual. In my opinion, this requirement shall be applicable only in case of individual subscriber. We need some clarification from some other provision or from government.

Name of company:

The name of the company shall not be identical with or resemble too nearly to the name of an existing company.

The name of the company shall not constitute an offence under any law for the time being in force or is undesirable in the opinion of the Central Government.

A company shall not be registered with a name which contains any word or expression which may give impression that company is connected with any government or authority or any such word or expression as prescribed unless the previous of the Central Government has been obtained.

On application made by a person, the Registrar may reserve the name for a period of sixty days from the date of the application. If it is found that name was applied by furnishing wrong or incorrect information, then the reserved name shall be canceled and fine may be imposed. If the company has been incorporated with such name, the Registrar may, after giving the company an opportunity of being heard— (i) either direct the company to change its name within a period of three months, after passing an ordinary resolution; (ii) take action for striking off the name of the company from the register of companies; or (iii) make a petition for winding up of the company.

The memorandum shall be in respective form specified in Table A, B, C, D and E in Schedule I of the Act.

Any provision in the memorandum or articles, in the case of a company limited by guarantee and not having a share capital, purporting to give any person a right to participate in the divisible profits of the company otherwise than as a member, shall be void.

ARTICLES (SECTION 5):

The articles of a company shall contain the regulations for management of the company. The articles shall also contain such matters, as may be prescribed. The company may include additional matters which it may consider necessary.

The articles may contain provisions for entrenchment to the effect that specified provisions of the articles may be altered only if conditions or procedures as that are more restrictive than those applicable in the case of a special resolution, are met or complied with. The provisions for entrenchment shall only be made either on formation of a company, or by an amendment in the articles agreed to by all the members of the company in the case of a private company and by a special resolution in the case of a public company. Where the articles contain provisions for entrenchment, whether made on formation or by amendment, the company shall give notice to the Registrar.

The articles of a company shall be in forms specified in Tables, F, G, H, I and J in Schedule I as may be applicable to such company. A company may adopt all or any of the regulations contained in the model articles applicable to such company.

In case of any company, which is registered after the commencement of this Act, in so far as the registered articles of such company do not exclude or modify the regulations contained in the model articles applicable to such company, those regulations shall, so far as applicable, be the regulations of that company in the same manner and to the extent as if they were contained in the duly registered articles of the company.

I will discussion Incorporation of Company in next post.

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