JAMIA MILLIA ISLAMIA

Importance of Documents in Incorporation of

Company
Submitted to Dr. Qazi Usman
Submitted By: Shakir Shabir

Company Law Assignment

Acknowledgement
Firstly, I would like to express my profound sense of gratitude towards the almighty
ALLAH for providing me with the authentic circumstances which were mandatory for the
completion of my project.
Secondly, I am highly indebted to Prof. Dr. Qazi Usman at Faculty of Law, Jamia Millia
Islamia University, New Delhi for providing me with constant encouragement and guidance
throughout the preparation of this project.
Thirdly, I thank the Law library staff who liaised with us in searching material relating to the
project.
My cardinal thanks are also for my parents, friends and all teachers of law department in our
college who have always been the source of my inspiration and motivation without which I
would have never been able to unabridged my project.
My father, a lawyer with large access to books of value has been of great help to me.
Without the contribution of the above said people I could have never completed this project.

Shakir Shabir
B.A.LL.B (Hons) 6th Semester
3rd Year

Introduction to Corporate Law

What is the common structure of the law of business corporationsor, as it would be put in
some jurisdictions, company lawacross different national jurisdictions? Although this
question is rarely asked by corporate law scholars, it is critically important for the
comparative investigation of corporate law. Recent scholarship often emphasizes the
divergence among European, American, and Japanese corporations in corporate governance,
share ownership, capital markets, and business culture.1 But, notwithstanding the very real
differences across jurisdictions along these dimensions, the underlying uniformity of the
corporate form is at least as impressive. Business corporations have a fundamentally similar
set of legal characteristicsand face a fundamentally similar set of legal problemsin all
jurisdictions.
Consider, in this regard, the basic legal characteristics of the business corporation. To
anticipate our discussion below, there are five of these characteristics, most of which will be
easily recognizable to anyone familiar with business affairs. They are: legal personality,
limited liability, transferable shares, delegated management under a board structure, and
investor ownership. These characteristics respondin ways I will try to exploreto the
economic exigencies of the large modern business enterprise. Thus, corporate law
everywhere must, of necessity, provide for them. To be sure, there are other forms of business
enterprise that lack one or more of these characteristics. But the remarkable factand the
fact that we wish to stressis that, in market economies, almost all large-scale business firms
adopt a legal form that possesses all five of the basic characteristics of the business
corporation. Indeed, most small jointly-owned firms adopt this corporate form as well,
although sometimes with deviations from one or more of the five basic characteristics to fit
their special needs.

1 Ronald J. Gilson and Mark J. Roe, Understanding the Japanese Keiretsu:

Overlaps Between Corporation Governance and Industrial Organization, 102 YALE
LAW JOURNAL 871 (1993); Mark J. Roe, Some Differences in Corporation
Structure in Germany, Japan, and the United States, 102 YALE LAW JOURNAL
1927 (1993); Bernard S. Black and John C. Coffee, Hail Britannia? Institutional
Investor Behavior under Limited Regulation, 92 MICHIGAN LAW REVIEW 1997
(1994); COMPARATIVE CORPORATE GOVERNANCE: ESSAYS AND MATERIALS
(Klaus J. Hopt and Eddy Wymeersch (eds.), 1997); and Mark J. Roe, POLITICAL
DETERMINANTS OF CORPORATE GOVERNANCE (2003).
2

It follows that a principal function of corporate law is to provide business enterprises with a
legal form that possesses these five core attributes. By making this form widely available and
user-friendly, corporate law enables entrepreneurs to transact easily through the medium of
the corporate entity, and thus lowers the costs of conducting business. Of course, the number
of provisions that the typical corporation statute2 devotes to defining the corporate form is
likely to be only a small part of the statute as a whole. Nevertheless, these are the provisions
that comprise the legal core of corporate law that is shared by every jurisdiction.

Brief History of Company Law in India and England

The history and development of Company Law in India is closely linked with that of England
and for that reason it becomes essential to have a brief account of the history of English
Company law for proper appreciation of our law.

Background of English Company Law

The history of modern company law in England began in 1844 when the Joint Stock
Companies Act was passed. The Act provided for the first time that a company could be
incorporated by registration without obtaining a Royal Charter or sanction by a special Act of
Parliament. The office of the Registrar of Joint Stock Companies was also created. But the
Act denied to the members the facility of limited liability. The English Parliament in 1855
passed the Limited Liability Act providing for limited liability to the members of a registered
company. The Act of 1844 was superseded by a comprehensive Act of 1856 which marked
the beginning of a new era in company law in England. This Act introduced the modern mode
of creating companies by means of Memorandum and Articles of Associations.
The first enactment to bear the title "Companies Act" was the Companies Act, 1862. By these
Acts some of the modern provisions of a company were clearly laid down. Firstly, two
documents, namely,
a. the Memorandum of association, and
b. The Articles of association formed the integral part for the formation of a limited
liability company. Secondly, a company could be formed with liability limited by
guarantee.
2 Corporation statute to refer to the general law that governs corporations, and
not to a corporations individual charter (or articles of incorporation, as that
document is sometimes also called).
3

c. Thirdly, any alteration in the object clause of the memorandum of association was
prohibited. Provisions for winding-up were also introduced. Thus, the basic structure
of the company as we know had taken shape. Sir Francis Palmer described this Act
as the magna carta of co-operative enterprises.
The Companies (Memorandum and Association) Act, 1890 made relaxation with regard to
change in the object clause under the leave of the Court obtained on the basis of special
resolution passed by the members in general meeting. Then the liability of the directors of a
company was introduced by the Directors Liability Act, 1890, and the compulsory audit of
the companys accounts was enforced under the Companies Act, 1900.
The concept of private company was introduced for the first time in the Companies Act,
1908. The earlier ones were called public companies. Two subsequent Acts were passed in
1908 and in 1929 to consolidate the earlier Acts. The Companies Act, 1948 which was the
Principal Act in force in England then was based on the report of a Committee under Lord
Cohen. The Act introduced inter alia another new form of company known as exempt private
company.
Another outstanding feature of the 1948 Act was the emphasis on the public accountability of
the company. Generally recognised principles of accountancy were given statutory force and
had to be applied in the preparation of the balance sheet and profit and loss account. Further,
the 1948 legislation extended the protection of the minority (Section 210) and the powers of
the Board of Trade to order an investigation of the companys affairs (Sections 164175);
and for the first time the shareholders in general meeting were given power to remove a
director before the expiration of his period of office. The independence of auditors vis-a-vis
the directors was strengthened.
The 1948 Act was amended by the Companies (Amendment) Act, 1967. The Amending Act
was based upon the report and recommendations of the Jenkins Committee presented in 1962.
The 1967 Act adopted and considerably extended in some respects, the recommendations of
the Committee as to disclosure. The Act abolished the exempt private company, and required
all limited companies to file accounts. More stringent provisions were imposed in relation to
directors interests in the company and disclosure thereof. The Companies Act, 1976
attempted to remedy a variety of defects which had become evident in the application of the
Acts of 1948 and 1967. The 1976 Act strengthened the requirements of public accountability
and those relating to the disclosure of interests in the shares of the company. The Companies
4

Act, 1980 was a major measure of company law reform in England. Insider dealing was made
a criminal offence. The shareholders were given a right of pre-emption in the case of new
issues of shares in specified circumstances. Dealings between the directors and their
companies became greatly restricted and maximum financial limits were introduced for such
dealings. The protection to the minority shareholders was extended by enabling them to
petition for relief if their position was unfairly prejudiced.
The Companies Act, 1981 introduced other important changes. For the purposes of
accounting and disclosure, companies were divided into small, medium-sized and other
companies and their disclosure requirements were differentiated accordingly. The Law
relating to the names of companies was simplified by the abolition, in principle, of the
approval of the name by the Department of Trade. The company was authorised, subject to
certain conditions, to issue redeemable equity shares and to purchase its own shares. The
1981 Act further abolished the register of business names which had to be kept under the
Registration of Business Names Act, 1916.
Active steps were taken to prepare consolidating measures relating to the Companies Acts
1948 to 1981. In November, 1981, the Department of Trade published a consultative
document entitled Consolidation of Companies Acts. In this document the various methods
of consolidation and their relative advantages for the practice were discussed.
The whole of the existing statute relating exclusively to companies was consolidated in the
Companies Act, 1985, and the Companies Acts 1948 and 1983 repealed by the Companies
Consolidation (Consequential Provisions) Act, 1985. At the same time two minor
consolidating enactments, the Business Names Act, 1985 and the Company Securities
(Insider Dealing) Act, 1985, were passed to consolidate certain provisions of the Companies
Acts 1980 and 1981, which affected sole traders and partnerships and persons other than
companies as well as companies regulated by the Companies Act, 1985. The whole of the
present statute, therefore, was contained in the Companies Act, 1985 and the two minor
consolidating enactments together with the temporary and transitional provisions of the
Companies Consolidation (Consequential Provisions) Act, 1985, all of which have come into
force from 1st July, 1985. The U.K. company law has further been amended and has been
substituted by U.K. Companies Act, 2006 (which received Royal Assent on November 8,
2006). The Act has been brought into force in stages and circumscribes enhanced duties of

directors, simpler regime for private companies, increased use of e-communication, enhanced
auditor liabilities etc.

Development of Indian Company Law

Company Law in India, as indicated earlier, is the cherished child of the English parents. Our
various Companies Acts have been modeled on the English Acts. Following the enactment of
the Joint Stock Companies Act, 1844 in England, the first Companies Act was passed in India
in 1850. It provided for the registration of the companies and transferability of shares. The
Amending Act of 1857 conferred the right of registration with or without limited liability.
Subsequently this right was granted to banking and insurance companies by an Act of 1860
following the similar principle in Britain. The Companies Act of 1856 repealed all the
previous Acts. That Act provided inter alia for incorporation, regulation and winding up of
companies and other associations. This Act was recast in 1882, embodying the amendments
which were made in the Company Law in England up to that time. In 1913 a consolidating
Act was passed, and major amendments were made to the consolidated Act in 1936.
In the meantime England passed a comprehensive Companies Act in 1948. In 1951, the
Indian Government promulgated the Indian Companies (Amendment) Ordinance under
which the Central Government and the Court assumed extensive powers to intervene directly
in the affairs of the company and to take necessary action in the interest of the company. The
ordinance was replaced by an Amending Act of 1951. The Companies Act, 1956 was enacted
with a view to consolidate and amend the earlier laws relating to companies and certain other
associations. The Act came into force on 1st April, 1956. The present Companies Act is based
largely on the recommendations of the Company Law Committee (Bhabha Committee)
which submitted its report in March, 1952. This Act is the longest piece of legislation ever
passed by our Parliament. Amendments have been made in this Act periodically. The
Companies Act consists of 658 Sections and 15 Schedules.
Full and fair disclosure of various matters in prospectus; detailed information of the financial
affairs of company to be disclosed in its account; provision for intervention and investigation
by the Government into the affairs of a company; restrictions on the powers of managerial
personnel; enforcement of proper performance of their duties by company management; and
protection of minority shareholders were some of the main features of the Companies Act,
6

1956. The Companies Act, 1956 has undergone changes by amendments in 1960, 1962, 1963,
1964, 1965, 1966, 1967, 1969, 1971, 1977, 1985, 1988, 1996, 1999, 2000, 2002
(Amendment), 2002 (Second Amendment), 2006 and in 2013.

Company as a Business Medium - Meaning of a Company

The word company is derived from the Latin word (Com - with or together; panis- bread),
and it originally referred to an association of persons who took their meals together. In the
leisurely past, merchants took advantage of festive gatherings, to discuss business matters.
Now a day, the business matters have become more complicated and cannot be discussed at
length at festive gatherings. Therefore, the word company has assumed greater importance. It
denotes a joint stock enterprise in which the capital is contributed by a large number of
people. Thus, in popular parlance, a company denotes an association of like-minded persons
formed for the purpose of carrying on some business or undertaking. A company is a
corporate body and a legal person having status and personality distinct and separate from
that of the members constituting it.
It is called a body corporate because the persons composing it are made into one body by
incorporating it according to the law and clothing it with legal personality. The word
corporation is derived from the Latin term corpus which means body. Accordingly,
corporation is a legal person created by the process other than natural birth. It is, for this
reason, sometimes called artificial legal person. As a legal person, a corporate is capable of
enjoying many of the rights and incurring many of the liabilities of a natural person.
The five core structural characteristics of the business corporation are:
1.
2.
3.
4.
5.

Legal personality,
limited liability,
transferable shares,
centralized management under a board structure, and
Shared ownership by contributors of capital. In virtually all economically important
jurisdictions, there is a basic statute that provides for the formation of firms with all of
these characteristics.

As this pattern suggests, these characteristics have strongly complementary qualities for
many firms. Together, they make the corporation uniquely attractive for organizing
productive activity. But these characteristics also generate tensions and tradeoffs that lend a
distinctively corporate character to the agency problems that corporate law must address.
7

The incorporated company owes its existence either to a special Act of Parliament or to
company legislation. The public corporations like Life Insurance Corporation of India and
Damodar Valley Corporation have been brought into existence through special Acts of
Parliament, whereas companies like Tata Iron and Steel Co. Ltd., Reliance Industries Limited
have been formed under the Companys Legislation i.e. Companies Act, 1956. The trading
partnership which is governed by Partnership Act is the most apt example of an
unincorporated association. In the legal sense, a company is an association of both natural
and artificial persons incorporated under the existing law of a country. In terms of the
Companies Act, 1956 (Act No. 1 of 1956) a company means a company formed and
registered under the Companies Act, 1956 or under the previous laws relating to companies"
[Section 3(1)(ii)]. In common law, a company is a - legal person or legal entity separate
from, and capable of surviving beyond the lives of its members. However, an association
formed not for profit acquires a corporate life and falls within the meaning of a company by
reason of a licence under Section 25(1) of the Act.
But a company is not merely a legal institution. It is rather a legal device for the attainment of
any social or economic end. It is, therefore, a combined political, social, economic and
legal institution. Thus, the term company has been described in many ways. It is a means
of cooperation and organisation in the conduct of an enterprise. It is an intricate,
centralised, economic and administrative structure run by professional managers who hire
capital from the investor(s). Lord Justice James has defined a company as an
association of many persons who contribute money or moneys worth to a common stock and
employ it in some trade or business and who share the profit and loss arising therefrom. The
common stock so contributed is denoted in money and is the capital of the company. The
persons who form it, or to whom it belongs, are members. The proportion of capital to which
each member is entitled is his share. From the foregoing discussion it is clear that a
company has its own corporate and legal personality distinct and separate from that of its
members. A brief description of the various attributes is given here to explain the nature and
characteristics of the company as a corporate body.

Nature and Characteristics of a Company

Since a corporate body (i.e. a company) is the creation of law, it is not a human being, it is an
artificial person (i.e. created by law); it is clothed with many rights, obligations, powers and
duties prescribed by law; it is called a person. Being the creation of law, it possesses only the
properties conferred upon it by its Memorandum of Association. Within the limits of powers
conferred by the charter, it can do all acts as a natural person may do.
The most striking characteristics of a company are:
1. Corporate personality
By incorporation under the Act, the company is vested with a corporate personality quite
distinct from individuals who are its members. Being a separate legal entity it bears its own
name and acts under a corporate name. It has a seal of its own. Its assets are separate and
distinct from those of its members. It is also a different person from the members who
compose it. As such it is capable of owning property, incurring debts, borrowing money,
having a bank account, employing people, entering into contracts and suing or being sued in
the same manner as an individual. Its members are its owners but they can be its creditors
simultaneously as it has a separate legal entity. A shareholder cannot be held liable for the
acts of the company even if he holds virtually the entire share capital. The shareholders are
not the agents of the company and so they cannot bind it by their acts. The company does not
hold its property as an agent or trustee for its members and they cannot sue to enforce its
rights, nor can they be sued in respect of its liabilities. Thus, incorporation is the act of
forming a legal corporation as a juristic person. A juristic person is in law also conferred with
rights and obligations and is dealt with in accordance with law. In other words, the entity acts
like a natural person but only through a designated person, whose acts are processed within
the ambit of law.3
In case of Salomon v. Salomon and Co. Ltd.4, The above case has clearly established the
principle that once a company has been validly constituted under Companies Act, it becomes
a legal person distinct from its members and for this purpose it is immaterial whether any
3 Shiromani Gurdwara Prabandhak Committee v. Shri Sam Nath Dass AIR 2000
SCW 139
4 (1897) A.C. 22
9

member has a large or small proportion of the shares, and whether he holds those shares
beneficially or as a mere trustee.
In the case, Salomon had, for some years, carried on a prosperous business as leather
merchant and boot manufacturer. He formed a limited company consisting of himself, his
wife, his daughter and his four sons as the shareholders, all of whom subscribed for 1 share
each so that the actual cash paid as capital was 7. Salomon sold his business (which was
perfectly solvent at that time), to the Company for the sum of 38,782. The companys
nominal capital was 40,000 in 1 shares. In part payment of the purchase money for the
business sold to the company, debentures of the amount of 10,000 secured by a floating
charge on the companys assets were issued to Salomon, who also applied for and received an
allotment of 20,000 1 fully paid shares. The remaining amount of 8,782 was paid to
Salomon in cash. Salomon was the managing director and two of his sons were other
directors.
The company soon ran into difficulties and the debenture holders appointed a receiver and the
company went into liquidation. The total assets of the company amounted to 6050, its
liabilities were 10,000 secured by debentures, 8,000 owning to unsecured trade creditors,
who claimed the whole of the companys assets, viz., 6,050, on the ground that, as the
company was a mere alias or agent for Salomon, they were entitled to payment of their
debts in priority to debentures. They further pleaded that Salomon, as principal beneficiary,
was ultimately responsible for the debts incurred by his agent or trustee on his behalf. It was
held that When the memorandum is duly signed and registered, though there be only seven
shares taken, the subscribers are a body corporate capable forthwith of exercising all the
functions of an incorporated company. It is difficult to understand how a body corporate thus
created by statute can lose its individuality by issuing the bulk of its capital to one person.
The company is at law a different person altogether from the subscribers of the
memorandum; and though it may be that after incorporation the business is precisely the
same as before, the same persons are managers, and the same hands receive the profits, the
company is not in law their agent or trustee. The statute enacts nothing as to the extent or
degree of interest which may be held by each of the seven or as to the proportion of interest,
or influence possessed by one or majority of the shareholders over others. There is nothing in
the Act requiring that the subscribers to the memorandum should be independent or
unconnected, or that they or any of them should take a substantial interest in the

10

undertakings, or that they should have a mind or will of their own, or that there should be
anything like a balance of power in the constitution of company.
In case of Lee v. Lees Air Farming Ltd.5, The above case illustrates the application of the
principles established in Salomons case (supra). In this case, a company was formed for the
purpose of aerial top-dressing. Lee, a qualified pilot, held all but one of the shares in the
company. He voted himself the managing director and got himself appointed by the articles
as chief pilot at a salary. He was killed in an air crash while working for the company. His
widow claimed compensation for the death of her husband in the course of his employment.
The company opposed the claim on the ground that Lee was not a worker as the same person
could not be the employer and the employee. The Privy Council held that Lee and his
company were distinct legal persons which had entered into contractual relationships under
which he became the chief pilot, a servant of the company. In his capacity of managing
director he could, on behalf of the company, give himself orders in his other capacity of pilot,
and the relationship between himself, as pilot and the company, was that of servant and
master. Lee was a separate person from the company he formed and his widow was held
entitled to get the compensation. In effect the magic of corporate personality enabled him
(Lee) to be the master and servant at the same time and enjoy the advantages of both.
The decision of the Calcutta High Court in Re. Kondoli Tea Co. Ltd.6 recognised the
principle of separate legal entity even much earlier than the decision in Salomon v. Salomon
& Co. Ltd. case. Certain persons transferred a Tea Estate to a company and claimed
exemptions from ad valorem duty on the ground that since they themselves were also the
shareholders in the company and, therefore, it was nothing but a transfer from them in one
name to themselves under another name. While rejecting this Calcutta High Court observed:
The Company was a separate person, a separate body altogether from the shareholders and
the transfer was as much a conveyance, a transfer of the property, as if the shareholders had
been totally different persons.

5 (1961) A.C. 12 (P.C.)

6 (1886) ILR 13 Cal. 43
11

In case of New Horizons Ltd. v. Union of India,7 The experience of a shareholder of a

company can be regarded as experience of a company. The tender of the company, New
Horizons Ltd., for publication of telephone directory was not accepted by the Tender
Evaluation Committee on the ground that the company had nothing on record to show that it
had the technical experience required to be possessed to qualify for tender. On appeal the
rejection of tender was upheld by the Delhi High Court.
The judgement of the Delhi High Court was reversed by the Supreme Court which observed
as under:

Once it is held that NHL (New Horizons Ltd.) is a joint venture, as claimed by it in the
tender, the experience of its various constituents namely, TPI (Thomson Press India Ltd.),
LMI (Living Media India Ltd.) and WML (World Media Ltd.) as well as IIPL (Integrated
Information Pvt. Ltd.) had to be taken into consideration, if the Tender Evaluation
Committee had adopted the approach of a prudent business man.

Seeing through the veil covering the face of NHL, it will be found that as a result of reorganisation in 1992 the company is functioning as a joint venture wherein the Indian
group (TPI, LMI and WML) and Mr. Aroon Purie hold 60% shares and the Singapore
based company (IIPL) hold 40% shares. Both the groups have contributed towards the
resources of the joint venture in the form of machines, equipment and expertise in the
field. The company is in the nature of partnership between the Indian group of companies
and Singapore based company who has jointly undertaken this commercial enterprise
wherein they will contribute to the assets and share the risk. In respect of such a joint
venture company, the experience of the company can only mean the experience of the
constituents of the joint venture i.e. the Indian group of companies (TPI, LMI and WML)
and the Singapore based company (IIPL)8.

2. Limited Liability
The privilege of limited liability for business debts is one of the principal advantages of doing
business under the corporate form of organisation. The company, being a separate person, is
the owner of its assets and bound by its liabilities. The liability of a member as shareholder
7 AIR 1994, Delhi 126
8 New Horizons Ltd. and another v. Union of India; (1995) 1 Comp. LJ 100 SC
12

extends to contribution to the assets of the company up to the nominal value of the shares
held and not paid by him. Members, even as a whole, are neither the owners of the
companys undertakings, nor liable for its debts. In other words, a shareholder is liable to pay
the balance, if any, due on the shares held by him, when called upon to pay and nothing more,
even if the liabilities of the company far exceed its assets. This means that the liability of a
member is limited. For example, if A holds shares of the total nominal value of Rs. 1,000 and
has already paid Rs. 500/- (or 50% of the value) as part payment at the time of allotment, he
cannot be called upon to pay more than Rs. 500/-, the amount remaining unpaid on his shares.
If he holds fully-paid shares, he has no further liability to pay even if the company is declared
insolvent. In the case of a company limited by guarantee, the liability of members is limited
to a specified amount mentioned in the memorandum.
Buckley, J. in Re. London and Globe Finance Corporation,9 has observed: The statutes
relating to limited liability have probably done more than any legislation of the last fifty
years to further the commercial prosperity of the country. They have, to the advantage of the
investor as well as of the public, allowed and encouraged aggregation of small sums into
large capitals which have been employed in undertakings of great public utility largely
increasing the wealth of the country.
There are, however, some statutory exceptions to the principle of limited liability. As
provided by Section 45 of the Companies Act, 1956, the members become personally liable if
the membership falls below prescribed minimum and the business is carried on for more than
six months thereafter. It is also provided in the Act vide Section 323 that a limited company
may, if so authorised by its articles, alter its memorandum by special resolution so as to
render the liability of its directors or of any of its director or manager as unlimited. Further,
where in the course of winding up it appears that any business of the company has been
carried on with intent to defraud creditors, the Court may declare the persons who were
knowingly parties to the transaction as personally liable without limitation of liability for all
or any of the debts/liabilities of the company.

3. Perpetual Succession
An incorporated company never dies except when it is wound up as per law. A company,
being a separate legal person is unaffected by death or departure of any member and remains
9 (1903) 1 Ch.D. 728 at 731
13

the same entity, despite total change in the membership. A companys life is determined by
the terms of its Memorandum of Association. It may be perpetual or it may continue for a
specified time to carry on a task or object as laid down in the Memorandum of Association.
Perpetual succession, therefore, means that the membership of a company may keep changing
from time to time, but that does not affect its continuity.
The membership of an incorporated company may change either because one shareholder has
transferred his shares to another or his shares devolve on his legal representatives on his
death or he ceases to be a member under some other provisions of the Companies Act. Thus,
perpetual succession denotes the ability of a company to maintain its existence by the
constant succession of new individuals who step into the shoes of those who cease to be
members of the company. Professor L.C.B. Gower rightly mentions, Members may come
and go, but the company can go on forever. During the war all the members of one private
company, while in general meeting, were killed by a bomb, but the company survived not
even a hydrogen bomb could have destroyed it.

4. Separate Property
A company being a legal person and entirely distinct from its members, is capable of owning,
enjoying and disposing of property in its own name. The company is the real person in which
all its property is vested, and by which it is controlled, managed and disposed of. Their
Lordships of the Madras High Court in R.F. Perumal v. H. John Deavin,10 held that no
member can claim himself to be the owner of the companys property during its existence or
in its winding-up. A member does not even have an insurable interest in the property of the
company.
Also in case of Mrs. Bacha F. Guzdar v. The Commissioner of Income Tax, Bombay11, The
Supreme Court in this case held that, though the income of a tea company is entitled to be
exempted from Income-tax up to 60% being partly agricultural, the same income when
received by a shareholder in the form of dividend cannot be regarded as agricultural income
for the assessment of income-tax. It was also observed by the Supreme Court that a
shareholder does not, as is erroneously believed by some people, become the part owner of
10 A.I.R. 1960 Mad 43
11 AIR1955 S.C. 74
14

the company or its property; he is only given certain rights by law, e.g., to receive or to attend
or vote at the meetings of the shareholders. The court refused to identify the shareholders
with the company and reiterated the distinct personality of the company.

5. Transferability of Shares
The capital of a company is divided into parts, called shares. The shares are said to be
movable property and, subject to certain conditions, freely transferable, so that no
shareholder is permanently or necessarily wedded to a company. When the joint stock
companies were established, the object was that their shares should be capable of being easily
transferred,12 Section 82 of the Companies Act, 1956 enunciates the principle by providing
that the shares held by the members are movable property and can be transferred from one
person to another in the manner provided by the articles. If the articles do not provide
anything for the transfer of shares and the Regulations contained in Table A in Schedule I
to the Companies Act, 1956, are also expressly excluded, the transfer of shares will be
governed by the general law relating to transfer of movable property.
A member may sell his shares in the open market and realise the money invested by him. This
provides liquidity to a member (as he can freely sell his shares) and ensures stability to the
company (as the member is not withdrawing his money from the company). The Stock
Exchanges provide adequate facilities for the sale and purchase of shares.
Further, as of now, in most of the listed companies, the shares are also transferable through
Electronic mode i.e. through Depository Participants instead of physical transfers.

6. Common Seal
On incorporation, a company acquires legal entity with perpetual succession and a common
seal. Since the company has no physical existence, it must act through its agents and all such
contracts entered into by its agents must be under the seal of the company. The Common Seal
acts as the official signature of a company. The name of the company must be engraved on its
common seal. A rubber stamp does not serve the purpose. A document not bearing common
seal of the company is not authentic and has no legal force behind it.

12 [In Re. Balia and San Francisco Rly., (1968) L.R. 3 Q.B. 588]
15

The person authorised to use the seal should ensure that it is kept under his personal custody
and is used very carefully because any deed, instrument or a document to which seal is
improperly or fraudulently affixed will involve the company in legal action and litigation.

7. Capacity to Sue and Be Sued

A company being a body corporate can sue and be sued in its own name. To sue, means to
institute legal proceedings against (a person) or to bring a suit in a court of law. All legal
proceedings against the company are to be instituted in its own name. Similarly, the company
may bring an action against anyone in its own name. A companys right to sue arises when
some loss is caused to the company, i.e. to the property of the personality of the company.
Hence, the company is entitled to sue for damages in libel or slander as the case may be 13. A
company, as a person separate from its members, may even sue one of its own members for
libel.
A company has a right to seek damages where a defamatory material published about it,
affects its business. Where video cassettes were prepared by the workmen of a company
showing, their struggle against the companys management, it was held to be not actionable
unless shown that the cassette would be defamatory. The court did not restrain the exhibition
of the cassette14. The company is not held liable for contempt committed by its officer.15

8. Contractual Rights
A company, being a separate legal entity different from its members, can enter into contracts
for the conduct of the business in its own name. A shareholder cannot enforce a contract
made by his company; he is neither a party to the contract nor entitled to the benefit of it, as a
company is not a trustee for its shareholders.
Likewise, a shareholder cannot be sued on contracts made by his company. The distinction
between a company and its members is not confined to the rules of privity, however, it
permeates the whole law of contract. Thus, if a director fails to disclose a breach of his duties
13 Floating Services Ltd. v. MV San Fransceco Dipaloa (2004) 52 SCL 762 (Guj)
14 TVS Employees Federation v. TVS and Sons Ltd., (1996) 87 Com Cases 37
15 Lalit Surajmal Kanodia v. Office Tiger Database Systems India (P) Ltd., (2006)
129 Comp Cas 192 Mad
16

to his company, and in consequence a shareholder is induced to enter into a contract with the
director which he would not have entered into had there been disclosure, the shareholder
cannot rescind the contract. Similarly, a member of a company cannot sue in respect of torts
committed against the company, nor can he be sued for torts committed by the company 16.
Therefore, the company as a legal person can take action to enforce its legal rights or be sued
for breach of its legal duties. Its rights and duties are distinct from those of its constituent
members.

9. Limitation of Action
A company cannot go beyond the power stated in the Memorandum of Association. The
Memorandum of Association of the company regulates the powers and fixes the objects of the
company and provides the edifice upon which the entire structure of the company rests. The
actions and objects of the company are limited within the scope of its Memorandum of
Association. In order to enable it to carry out its actions without such restrictions and
limitations in most cases, sufficient powers are granted in the Memorandum of Association.
But once the powers have been laid down, it cannot go beyond these powers unless the
Memorandum of Association is itself altered prior to doing so.

10.Separate Management
As already noted, the members may derive profits without being burdened with the
management of the company. They do not have effective and intimate control over its
working and elect their representatives to conduct corporate functioning. In other words, the
company is administered and managed by its managerial personnel.

11.Voluntary Association for Profit

A company is a voluntary association for profit. It is formed for the accomplishment of some
public goals and whatsoever profit is gained is divided among its shareholders or restored for
the future expansion of the company. Only a Section 25 company can be formed with no
profit motive.

12.Termination of Existence
16 British Thomson-Houston Company v. Sterling Accessories Ltd., (1924) 2 Ch.
33
17

A company, being an abstract and artificial person, does not die a natural death. It is created
by law, carries on its affairs according to law throughout its life and ultimately is effaced by
law. Generally, the existence of a company is terminated by means of winding up. However,
to avoid winding up sometimes companies change their form by means of re-organisation,
reconstruction and amalgamation. To sum up, a company is a voluntary association for profit
with capital divisible into transferable shares with limited liability, having corporate entity
and a common seal with perpetual succession.

Importance of Documents in Incorporation of

Company
An incorporated association, which is an artificial person created by law, having a separate
entity, with a perpetual succession and a common seal.
The set of registration documents is the face of the company. Accordingly, these documents
must be comprehensively prepared and in compliance with the local statutory laws as the
company's future performance and business reputation depend on them.
The appearance and status of the documents differ significantly between jurisdictions. Whilst
a document may be called by one name in one country, it may be called by an entirely
different name in another country, whilst in a third country it may not exist at all.
We know that a company is a separate legal entity which is formed and registered under the
Companies Act. It may be noted that before a company is actually formed (i.e., formed and
registered under the Companies Act), certain persons, who wish to form a company, come
together with a view to carry on some business for the purpose of earning profits. Such
persons have to decide various questions such as
a. which business they should start,
b. whether they should form a new company or take over the business of some existing
company,
c. if new company is to be started, whether they should start a private company or pubic
company,

18

d. What should be the capital of the company etc. After deciding about the formation of
the company, the desirous persons take necessary steps, and the company is actually
formed.
Thereafter, they start their business. Thus, there are various stages in the formation of a
company from thinking of starting a business to the actual starting of the business.
In India, company can be incorporated either as a Private Limited or Public Limited. The
incorporation procedure all over India is same. First one has to get the name approval of the
proposed company from Registrar of Companies (ROC). After name approval, along with the
application for incorporation, the Memorandum and Articles of Association in addition to
other necessary prescribed documents has to be submitted with the ROC.
The Memorandum of Association stipulates the constitution and objects of the company. The
Articles of Association contains the rules and regulations of the company for the management
of its affairs. After examining the documents the ROC issues a Certificate of Incorporation.
Thereafter a private company becomes entitled to commence its business and a public
company after obtaining the certificate of commencement of business from ROC.
Since year 2007 ROC have introduced a new system of e-filing, under which all forms are to
be submitted online and the original documents in person.
The procedure for incorporating a company in India is as under
1. Obtain Director Identification Number (DIN) and Digital Signature Certificates (DSC) for
each Director / Promoter before making any application to ROC.
2. Apply for the name availability of the proposed company to ROC. For this one has to fill
Form 1A and submit online along with requisite fee with ROC.
3. Once Name is approved and made available by the ROC it remains valid for 6 months. If
you do not incorporate the proposed company within 6 months you can renew the name
by paying prescribed fee.
4. After getting the name following documents are prepared
a. Memorandum of Association
b. Articles of Association
c. Letter of authority to a person for carrying out corrections
d. Declaration by the Promoter Directors
e. Form 32 for the Directors
f. Form 18 for registered office address
g. Demand Draft in favour of Registrar of companies for the prescribed amount
towards registration fee.
5. Memorandum and Articles of Association are to be duly stamped before filing with ROC.
6. All the above documents are also filed in original with ROC,
7. On the receipt of the documents ROC will scrutinize the papers and if any modification is
required he will direct to make such changes accordingly.
8. Once ROC is satisfied and scrutiny is completed he will issue certificate of Incorporation.
The company would come into existence from the date of certificate of incorporation.
Following Chart would make it clearer
19

Propse
d
Compa
ny
Public
Private
Limited Limited

For Private:

Minimum Shareholders required = 2

Minimum Directors required =2
Minimum Paid up Capital - INR 100,000

For Public

Minimum Shareholders required = 7

Minimum Directors required = 3
Minimum Paid up Capital INR 500,000

Some Important things to know about companies in India

1. Any person whether Indian or Foreigner can be the Director in Indian Company.
2. Any Individual/Company whether Indian or Foreigner can be the Shareholder in
Indian Company, however foreigner would be required to comply with foreign
exchange laws in India.
3. Minimum 4 meetings of Board of Directors are required to be held in one year. Board
meeting can be held anywhere in the world. It is not necessary to hold such meetings
only in India.
4. The registration fee and Stamp Duty depends upon the authorized capital of the
proposed Company.

20

INCORPORATION OF COMPANIES
Company is an artificial person created by following a legal procedure. Before a company is
formed, a lot of preliminary work is to be performed. The lengthy process of formation of a
company can be divided into four distinct stages:
a.
b.
c.
d.

Promotion;
Incorporation or Registration;
Capital subscription; and
Commencement of business.

However, a private company can start business as soon as it obtains the certificate of
incorporation. It needs to go through first two stages only. The reason is that a private
company cannot invite public to subscribe to its share capital. But a public company having a
share capital has to pass through all the four stages mentioned above before it can commence
business or exercise any borrowing powers.
To get incorporated a company has to register with the Companies Ordinance, 1984
Securities and Exchange Commission of Pakistan. This task is now done by the Registration
Department, Company Law Division also known as Company Registration Offices, in the
same day or at least within three days.
Below is an outline of the most important basic corporate documents of non-resident
companies and their role in further activities of an entity.
MEMORANDUM OF ASSOCIATION
21

The formation of a public company involves preparation and filing of several essential
documents. Two of basic documents are:
1. Memorandum of Association
2. Articles of Association
The preparation of Memorandum of Association is the first step in the formation of a
company. It is the main document of the company which defines its objects and lays down
the fundamental conditions upon which alone the company is allowed to be formed. It is the
charter of the company. It governs the relationship of the company with the outside world and
defines the scope of its activities. Its purpose is to enable shareholders, creditors and those
who deal with the company to know what exactly its permitted range of activities is. It
enables these parties to know the purpose, for which their money is going to be used by the
company and the nature and extent of risk they are undertaking in making investment.
Memorandum of Association enable the parties dealing with the company to know with
certainty as whether the contractual relation to which they intend to enter with the company is
within the objects of the company Form of Memorandum.

Companies Act has given four forms of Memorandum of Association in Schedule

I. These are as follows:
Table B

Memorandum of a company limited by shares

Table C

Memorandum of a company limited by guarantee and not having a share capital

Table D

Memorandum of company limited by guarantee and having share capital.

Table E

Memorandum of an unlimited company

Every company is required to adopt one of these forms or any other form as near there to as
circumstances admit.
Printing and signing of Memorandum.
The memorandum of Association of a company shall be (a) printed, (b) divided into
paragraphs numbered consecutively, and (c) signed by prescribed number of subscribers (7 or
more in the case of public company, two or more in the case of private company
respectively). Each subscriber must sign for his/her name, address, description and
occupation in the presence of at least one witness who shall attest the signature and shall
likewise add his address, description and occupation, if any.
Contents of Memorandum
1. Name clause

22

Promoters of the company have to make an application to the registrar of Companies for the
availability of name. The company can adopt any name if:
i) There is no other company registered under the same or under an identical name;
ii) The name should not be considered undesirable and prohibited by the Central Government
(Sec. 20). A name which misrepresents the public is prohibited by the Government under the
Emblems & Names (Prevention of Improper use) Act, 1950 for example, Indian National
Flag, name pictorial representation of Mahatma Gandhi and the Prime Minister of India,
name and emblems of the U.N.O., and W.H.O., the official seal and Emblems of the Central
Government and State Governments.
Where the name of the company closely resembles the name of the company already
registered, the Court may direct the change of the name of the company.
iii) Once the name has been approved and the company has been registered, then
a) the name of the company with registered office shall be affixed on outside of the business
premises;
b) if the liability of the members is limited the words Limited or Private Limited as the
case may be, shall be added to the name:
Omission of the word Limited makes the name incorrect. Where the word Limited forms
part of a companys name, omission of this word shall make the name incorrect. If the
company makes a contract without the use of the word Limited, the officers of the
company who make the contract would be deemed to be personally liable.17
The omission to use the word Limited as part of the name of a company must have been
deliberate and not merely accidental. Note the following case in this regard:
Dermatine Co. Ltd. v Ashworth,18 A bill of exchange drawn upon a limited company in its
proper name was duly accepted by 2 directors of the company. The rubber stamp by which
the word of acceptance were impressed on the bill was longer that the paper of the bill and
hence the word Limited was missed. Held, the company was liable to pay and the directors
were not personally liable.
(c) the name and address of the registered office shall be mentioned in all letterheads,
business letters, notices and Common Seal of the Company, etc.

17 [Atkins & Co v Wardle, (1889) 61 LT 23]

18 (1905) 21 T.L.R. 510
23

In Osborn v The Bank of U. A. E. 19; it was held that the name of a company is the symbol of
its personal existence. The name should be properly and correctly mentioned. The Central
Government may allow a company to drop the word Limited from its name.
2. Registered Office Clause
Memorandum of Association must state the name of the State in which the registered office
of the companmy is to be situated. It will fix up the domicile of the company. Further, every
company must have a registered office either from the day it begins to carry on business or
within 30 days of its incorporation, whichever is earlier, to which all communications and
notices may be addressed. Registered Office of a company is the place of its residence for the
purpose of delivering or addressing any communication, service of any notice or process of
court of law and for determining question of jurisdiction of courts in any action against the
company. It is also the place for keeping statutory books of the company.
Notice of the situation of the registered office and every change shall be given to the
Registrar within 30 days after the date of incorporation of the company or after the date of
change. If default is made in complying with these requirements, the company and every
officer of the company who is default shall be punishable with fine which may extend to Rs.
50 per during which the default continues.
3. Object Clause
This is the most important clause in the memorandum because it not only shows the object or
objects for which the company is formed but also determines the extent of the powers which
the comapany can exercise in order to achieve the object or objects. Stating the objects of the
company in the Memorandum of Association is not a mere legal technicality but it is a
necessity of great practical importance. It is essential that the public who purchase its shares
should know clearly what are the objects for which they are paying.
In the case of companies which were in existence immediately before the commencement of
the Companies (Amendment) Act. 1965, the object clause has simply to state the objects of
the company. But in the case of a company to be registered after be amendment, the objects
clause must state separately.
i) Main Objects: This sub-clause has to state the main objects to be pursued by the company
on its incorporation and objects incidental or ancillary to the attainment of main objects.
ii) Other objects: This sub-clause shall state other objects which are not included in the above
clause.
Further, in case of a non-trading company, whose objects are not confined to one state, the
objects clause must mention specifically the States to whose territories the objects extend.
A company, which has a main object together with a number of subsidiary objects, cannot
continue to pursue the subsidiary objects after the main object has come to an end.
19 [9 Wheat (22 US), 738]
24

Crown Bank. Re,20 A companys objects clause enabled it to act as a bank and further to
invest in securities land to underwrite issue of securities. The company abandoned its banking
business and confined it self to investment and financial speculation. Held, the company was
not entitled to do so. Incidental acts. The powers specified in the Memorandum must not be
construed strictly. The company may do anything which is fairly incidental to these powers.
Anything reasonable incidental to the attainment or pursuit of any of the express objects of
the company will, unless expressly prohibited, be within the implied powers of the company.
While drafting the objects clause of a company the following points should be kept in mind.
i) The objects of the company must not be illegal, e.g. to carry on lottery business.
ii) The objects of the company must not be against the provisions of the Companies Act such
as buying its own shares (Sec. 77), declaring dividend out of capital etc.
iii) The objects must not be against public, e.g. to carry on trade with an enemy country.
iv) The objects must be stated clearly and definitely. An ambiguous statement like Company
may take up any work which it deems profitable is meaningless.
v) The objects must be quite elaborate also. Note only the main objects but the subsidiary or
incidental objects too should be stated. The narrower the objects expressed in the
memorandum, the less is the subscribers risk, but the wider such objects the greater is the
security of those who transact business with the company.

4. Capital Clause
In case of a company having a share capital unless the company is an unlimited company,
Memorandum shall also state the amount of share capital with which the company is to be
registered and division thereof into shares of a fixed amount. The capital with which the
company is registered is called the authorized or nominal share capital. The nominal capital is
divided into classes of shares and their values are mentioned in the clause. The amount of
nominal or authorized capital of the company would be normally, that which shall be required
for the attainment of the main objects of the company. IN case of companies limited by
guarantee, the amount promised by each member to be contributed by them in case of the
winding up of the company is to be mentioned. No subscriber to the memorandum shall take
less than one share. Each subscriber of the Memorandum shall write against his name the
number of shares he takes.
5. Liability Clause
In the case of company limited by shares or by guarantee, Memorandum of Association must
have a clause to the effect that the liability of the members is limited. It implies that a
shareholder cannot be called upon to pay any time amount more then the unpaid portion on
20 (1890) 44 Ch D. 634
25

the shares held by him. He will no more be liable if once he has paid the full nominal value of
the share.
The Memorandum of Association of a company limited by guarantee must further state that
each member undertakes to contribute to the assets of the company if wound up, while he is a
member or within one year after he ceased to be so, towards the debts and liabilities of the
company as well as the costs and expenses of winding up and for the adjustment of the rights
of the contributories among themselves not exceeding a specified amount.
Any alteration in the memorandum of association compelling a member to take up more
shares, or which increases his liability, would be null and void. If a company carries on
business for more than 6 months while the number of members is less than seven in the case
of public company, and less than two in case of a private company, each member aware of
this fact, is liable for all the debts contracted by the company after the period of 6 months has
elapsed.
6. Association or Subscription Clause
In this clause, the subscribers declare that they desire to be formed into a company and agree
to take shares stated against their names. No subscriber will take less than one share. The
memorandum has to be subscribed to by at least seven persons in the case of a public
company and by at least two persons in the case of a private company. The signature of each
subscriber must be attested by at least one witness who cannot be any of the subscribers.
Each subscriber and his witness shall add his address, description and occupation, if any. This
clause generally runs in this form: we, the several people whose names and addresses are
subscribed, are desirous of being formed into a company in pursuance of the number of
shares in the capital of the company, set opposite of our respective name.
After registration, no subscriber to the memorandum can withdraw his subscription on any
ground.
Alteration of Memorandum of Association
Alteration of Memorandum of association involves compliance with detailed formalities and
prescribed procedure. Alternations to the extent necessary for simple and fair working of the
company would be permitted. Alterations should not be prejudicial to the members or
creditors of the comapany and should not have the effect of increasing the liability of the
members and the creditors. Contents of the Memorandum of association can be altered as
under:
1. Change of name
A company may change its name by special resolution and with the approval of the Central
Government signified in writing. However, no such approval shall be required where the only
change in the name of the company is the addition there to or the deletion there from, of the
word Private, consequent on the conversion of a public company into a private company or
of a private company into a public company. By ordinary resolution. If through inadvertence
26

or otherwise, a company is registered by a name which, in the opinion of the Central

Government, is identical with or too nearly resembles the name of an existing comapany, it
may change its name by an ordinary resolution and with the previous approval of the Central
Government signified in writing.
Registration of change of name. Within 30 days passing of the resolution, a copy of the order
of the Central Governments approval shall also be field with the Registrar within 3 months
of the order. The Registrar shall enter the new name in the Register of Companies in place of
the former name and shall issue a fresh certificate of incorporation with the necessary
alterations. The change of name shall be complete and effective only on the issue of such
certificate. The Registrar shall also make the necessary alteration in the companys
memorandum of association. The change of name shall not affect any right or obligations of
the company or render defective any legal proceeding by or against it.
2. Change of Registered Office
This may involve:
a) Change of registered office from one place to another place in the same city, town or
village. In this case, a notices is to be give within 30 days after the date of change to the
Registrar who shall record the same.
b) Change of registered office from one town to another town in the same State. In this case,
a special resolution is required to be passed at a general meeting of the shareholders and a
copy of it is to be filed with the Registrar within 30 days. The within 30 days of the removal
of the office. A notice has to be given to the Registrar of the new location of the office.
c) Change of Registered Office from one State to another State to another State.
Special Resolution
For effecting this change a special resolution must be passed and a copy there of must be filed
with the Registrar within thirty days. Special resolution must be passed in a duly convened
meeting.
Confirmation by Central Government
The alteration shall not take effect unless the resolution is confirmed by the Central
Government.
The Central Government before confirming or refusing to confirm the change will consider
primarily the interests of the company and its shareholders and also whether the change is
bonafide and not against the public interest. The Central Government may then issue the
confirmation order on such terms and conditions as it may think fit.
Articles of association

27

In order to incorporate a new company, its founders or, depending on the jurisdiction and type
of company, the shareholders, directors or maybe just a registered agent must sign the articles
of association. This is the primary document that defines the name of the new company, its
internal management rules, the possibility of increase or reduction of its share capital, as well
as details of establishing the order of general meetings of shareholders or special provisions
for dissolution or liquidation of the company. This document usually, such as for example in
the Caribbean jurisdictions, co-exists along with the by-laws, but in some countries such as
Panama it is the main document regulating the operations of the company, and so completely
replaces the by-laws.
Every company is required to file Articles of Association along with the Memorandum of
Association with the Registrar at the time of its registration.
Companies Act defines Articles as Articles of Association of a company as originally framed
or as altered from time to time in pursuance of any previous companies Acts.
They also include, so far as they apply to the company, those in the Table A in Schedule I
annexed to the Act or corresponding provisions in earlier Acts.
Articles of Association are the rules, regulations and bye-laws for governing the internal
affairs of the company. They may be described as the internal regulation of the company
governing its management and embodying the powers of the directors and officers of the
company as well as the powers of the shareholders. They lay down the mode and the manner
in which the business of the company is to be conducted.
In framing Articles of Association care must be taken to see that regulations framed do not go
beyond the powers of the company itself as contemplated by the Memorandum of
Association nor should they be such as would violate any of the requirements of the
companies Act, itself. All clauses in the Articles ultra vires the Memorandum or the Act shall
be null and void.
Article of Association are to be printed, divided into paragraphs, serially numbered and
signed by each subscriber to Memorandum with the address, description and occupation.
Each subscriber shall sign in the presence of at least one witness who shall attest the
signatures and also mention his own address and occupation.
Contents of Articles of Association
Articles generally contain provision relating to the following matters;
a.
b.
c.
d.
e.
f.
g.
h.

the exclusion, whole or in part of Table A;

share capital different classes of shares of shareholders and variations of these rights
execution or adoption of preliminary agreements, if any;
allotment of shares;
lien on shares
calls on shares;
forfeiture of shares;
issue of share certificates;
28

i.
j.
k.
l.
m.
n.
o.
p.
q.
r.
s.
t.
u.
v.
w.
x.
y.

issue of share warrants;

transfer of shares;
transmission of shares;
alteration of share capital;
borrowing power of the company;
rules regarding meetings;
voting rights of members;
notice to members;
dividends and reserves;
accounts and audit;
arbitration provision, if any;
directors, their appointment and remuneration;
the appointment and reappointment of the managing director, manager and secretary;
fixing limits of the number of directors
payment of interest out of capital;
common seal; and
Winding up.

Model form of Articles

Different model forms of memorandum of association and Articles of Association of various
types of companies are specified in Schedule I to the Act. The schedule is divided into
following tables. Table A deals with regulations for management of a company limited by
shares. Table B contains a model form of Memorandum of Association of a company limited
by shares. Table C gives model forms of Memorandum and Articles of Association of a
company limited by guarantee and not having a share capital.
Table D gives model forms of Memorandum and Articles of Association of a company
limited by guarantee and having a share capital. The Articles of such a company contain in
addition to the information about the number of members with which the company proposes
to be registered, all other provisions of Table A. Table E contains the model forms of
memorandum and Articles of Association of an unlimited company. A Public Company may
have its own Article of Association. If it does not have its own Articles, it may adopt Table A
given in Schedule I to the Act.
Adoption and application of Table A (Section 28). There are 3 alternative forms in which a
public company may adopt Articles:
1. It may adopt Table A in full
2. It may wholly exclude Table A, and set out its own Articles in full
3. It may frame its own Articles and adopt part of Table A.
In other words, unless the Articles of a public company expressly exclude any or all
provisions of Table A shall automatically apply to it.
Alteration of Articles

29

Section 31 grant power to every company to alter its articles whenever it desires by passing a
special resolution and filing a copy of altered Articles with the Registrar. An alteration is not
invalid simply because it changes the companys constitution. Thus in Andrews v Gas Meter
Co., A company was allowed by changing articles to issue preference shares when its
memorandum was silent on the point. Alteration of articles is much easier than memorandum
as it can be altered by special resolution. However, there are various limitations under the
Companies Act to the powers of the shareholders to alter the articles.
In case of conversion of a public company into a private company, alteration in the articles
would only be effective after approval of the Central Government [Section 31]. The power is
now vested with the Registrar of Companies. Alteration of the articles shall not violate
provisions of the Memorandum. It must be made bona-fide the benefit of the company. All
clauses in the articles ultra vires the Memorandum shall be null and void, and the articles
shall be held inoperative. Alteration must not contain anything illegal and shall not constitute
fraud on the minority.
Alteration in the articles increasing the liability of the members can be done only with the
consent of the members. The Court may even restrain an alteration where is likely to cause a
damage which cannot be adequately compensated in terms of money. Similarly, a company
cannot by altering articles, justify a breach of contract. Any alteration so made shall be valid
as if originally contained in the articles. Where a special resolution has been passed altering
the articles or an alteration has been approved by the Central Government where required, a
printed copy of the articles so altered shall be filed by the company with the Registrar of
Companies within one month of the date of the passing of special resolution.

Certificate of incorporation
The certificate of incorporation is the main document that confirms existence of the company
and that the entity belongs to a particular jurisdiction. The certificate of incorporation reflects
the companys name, date of incorporation, registration number, as well as in some
jurisdictions the corporate law under which the company is registered.
The form and the title of the document purporting to be a certificate of incorporation also
differs between jurisdictions. In most countries this document is called a certificate of
incorporation.
In such jurisdictions as Panama and the countries of continental Europe, a company is
established by the signing of the articles of association or by a notarial deed and submitting
such a document to the register of companies. In these jurisdictions, the state recognizes the
incorporation by affixing the official stamp to the above articles of association and entering
the relevant data in the electronic registration system with no certificate of incorporation
being issued as a separate document. Following incorporation of the company, an extract
from the register of companies showing the current status of the company may be ordered in
30

these jurisdictions at any time. In practice such an extract is used as a certificate of

incorporation.
By-laws
Frequently, the by-laws of the company are a standard document for a particular jurisdiction
and are drawn up in accordance with legal and legislative requirements of the relevant
country.
Normally, the by-laws contain the following clauses:

name of the company;

registered address or office of the company;
the objects of the company being the intended activities decided upon on the date of
incorporation. This clause may also be expressed as diverse objects such as any
activities according to the current legislation;
the clause stipulating limited liability of the shareholders;
the amount of the share capital, its division into shares and the par value of such
shares.

The by-laws and articles of association of the company have to be drawn up in such a manner
that they do not conflict with each other. Shareholders are entitled to amend the by-laws and
articles of association, but only to the extent provided for by general laws of the country of
incorporation. In some instances, as an example for the limited liability partnership in the
United Kingdom, there are no by-laws as such, and all provisions on relations between the
founders as well as operations of the company are determined in accordance with the
operating agreement.

General power of attorney

Frequently, the company is managed under a general power of attorney. Using a general
power of attorney, the manager can manage current operations of the company effectively, as
the power of attorney authorises the manager to negotiate, sign contracts, establish
subsidiaries and to perform other actions on behalf of the company. Usually, the general
power of attorney is certified by the signatures of directors and the company seal.
Share certificates
A share certificate confirms the shareholders rights to the relevant number of shares in the
company. The certificate is signed by directors of the company and/or its secretary. The
certificate shows the number of shares held, their par value and the date of issue of the
certificate. The name of the owner may be specified in the certificate, but in some
jurisdictions a bearer share certificate may be issued instead.
A share certificate certifies that on the date of issue the person named is the registered owner
of shares in a company. Once your company has been registered, share certificates should be
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issued to shareholders within two months. This is usually yet another task to find time for in
the early months of a newly formed company. However, if you incorporate using Inform
Direct then our system will automatically create share certificates, saving you a separate job.
It will populate the share certificates with details of each share allotment and you can even
upload your company logo to produce branded share certificates.
In case of sale or transfer of all or part of the shares to other persons, the owner of the shares
in a non-resident company usually makes an appropriate note on the reverse of the certificate
known as an endorsement or, in other cases, the existing certificate is cancelled and a new
one is issued. The company makes an appropriate adjustment in its register of shareholders,
and if required by law in the public register of enterprises as well.
Classic share certificates are not provided for all types of companies. As an example, in the
United Kingdom for limited liability partnership companies they are replaced by membership
interest certificates, showing the distribution of total profit among the founders and the
number of votes held by each founder in relation to the total number of votes in the limited
liability partnership.

Bibliography
1. A Comparative Study of Companies Act 2013 and Companies Act 1956Institute of
Companies Secretaries of India (ICSI), 2013
2. A Journey of Companies Act, 1956 to The New Company Law - An Understanding,
3.
4.
5.
6.

V.S. Vadivel 2013

A Textbook of Company Law (Corporate Law), P.P.S.Gogna, 9th edition, 2013
http://www.doc-live.com/what-is-a-share-as-per-company-law
http://www.doc-live.com/share-as-per-company-law?p=2
http://corporatelawreporter.com/2013/09/18/companies-act-2013-important-

provisions-become-effective-12th-september-2013/
7. https://www.icsi.edu/WebModules/LinksOfWeeks/Companies%20Bill
%202012backgrounder.pdf

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