FORMATION OF COMPANY

Steps for formation of a company  Electronic filing of form  Incorporation of company  Certificate of incorporation  Promoter  Pre-incorporation or Preliminary Contracts  Provisional Contracts

MCA-21-Electronic filing of forms  The Ministry of Corporate Affairs has introduced the MCA21 e-Governance program with a view to providing all services relating to ROC offices on-line in e- Governance mode.  MCA-21 project is designed to fully automate all processes related to enforcement and compliance of legal requirements under Companies Act  Amendments to Companies Act : Companies(Amendments) Act,2006 has been passed to introduce e-filing. New Sections 610B to 610E have been inserted in Companies Act. They have been made effective from

INCORPORATION OF COMPANY  Before a company is formed, certain preliminary decisions are necessary. All these decisions are taken by persons known as “promoters”.  Mode of forming incorporated company (Sec. 12):  Any seven or more persons, or where the company to be formed will be a private company, any two or more persons, associated for any lawful purpose may, by subscribing their names to a memorandum of association and otherwise complying with the requirements of this Act in respect of registration, form an incorporated company, with or without limited liability.  Such a company may be either :  Company limited by shares,  Company limited by guarantee or  An unlimited company.

INCORPORATION OF COMPANY  Documents to be filed with the Registrar:  The Memorandum of Association duly signed by subscriber  The Articles of Association, if any, signed by subscribers  The agreement, if any,which the company proposes to enter into with any individual for appointment as its MD or manager.  A list of the directors  A declaration, stating that all the requirements of the Companies Act and other formalities relating to registration have been complied with, duly signed by any of the following:  An advocate of the Supreme Court or of a High Court  An attorney or a pleader entitled to appear before a High Court  A secretary, or a chartered accountant, in whole-time practice in India, who is engaged in the formation of a company,  By a person named in the articles as a director, manager or secretary of the company

CERTIFICATE OF INCORPORATION  If the Registrar is satisfied that all the requirements aforesaid have been complied with by the company and that it is authorized to be registered under this Act, he shall retain and register the memorandum, the articles, if any, and the agreement, if any, and issues a ‘certificate of incorporation’.  On the registration of the memorandum of a company, the Registrar shall certify under his hand that the company is incorporated and, in the case of a limited company, that the company is limited.

CERTIFICATE OF INCORPORATION  Conclusiveness Of Certificate Of Incorporation:  A certificate of incorporation given by the Registrar in respect of any association shall be conclusive evidence that all the requirements of this Act have been complied with in respect of registration and matters precedent and incidental thereto, and  The association is a company authorized to be registered and duly registered under this Act.

PROMOTER  For incorporating a company various formalities are required to be carried out. The promoters perform these functions and bring the company into existence.  A promoter conceptualizes the idea of a company and the purpose of its formation. The promoter acquires and invests the initial capital for the company.  Once all the formalities are completed, the promoter hands over the authority to the directors. A promoter can be a person or a registered company as well.

FUNCTIONS OF A PROMOTER  To originate the scheme for formation of the company  To secure the cooperation of the required number of persons willing to associate themselves with the project  To settle about the name of the company  To get the documents of the proposed company prepared and filed with the Registrar  To appoint bankers, brokers and legal advisers for the company  To settle preliminary agreements for acquisition of assets

LEGAL POSITION OF PROMOTERS  A promoter is neither a trustee nor an agent of the company which he promotes because there is no trust or principal in existence at the time of his efforts.  But certain fiduciary duties, like an agent, have been imposed on him under the Companies Act. As such he is said to be in & fiduciary position (a position full of trust and confidence) towards the company and the original allottee of shares  A promoter must make full disclosure of the relevant facts, including any profit made.  He must not make any secret profits out of the transactions he makes on behalf of the company. It is to be observed that it is not the profit made by the promoter which the law forbids, but the non- disclosure of it.  To give benefit of negotiations to the company.

REMUNERATION OF PROMOTERS A promoter may be rewarded by the company for efforts undertaken by him in forming the company in several ways. The more common ones are:- 1. The company may to pay some remuneration for the services rendered. 2. The promoter may make profits on transactions entered by him with the company after making full disclosure to the company and its members. 3. The promoter may sell his property for fully paid shares in the company after making full disclosures. 4. The promoter may be given an option to buy further shares in the company. 5. The promoter may be given commission on shares sold. 6. The articles of the Company may provide for fixed sum to be paid by the company to him. However, such provision has no legal effect and the promoter cannot sue to enforce it but if the company makes such payment, it cannot recover it back.

PRE-INCORPORATION OR PRELIMINARY CONTRACTS  When a company is being incorporated, the promoters, purporting to act on behalf of such company, enter into contracts such as for purchase of property, or for securing the services of managers or other experts. Such contracts are obviously made before the formation of the company; these agreements are known as pre-incorporation contract.  Hence, a contract by a promoter purporting to act on behalf of a company prior it its incorporation never binds the company because at the time the contract was concluded the company was not in existence. Therefore, it has no legal existence. Even if the parties act on the contract it will not bind the company.  Applicable for both private and public companies.

PROVISIONAL CONTRACTS  The contracts which are entered by a company after incorporation but before it is entitled to commence business i.e. Certificate of Commencement(COC) of Business is issued to the Company, are Provisional Contracts.  Can be enforced only on receiving Certificate of Commencement of Business.  Applicable for only public company

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