Incorporation of Companies

The Companies Act, 2013 details the regulations and company registration papers essential for the incorporation of a company. In this article, we will understand all such rules and documents listed in the Act.

Promoters

Section 2(69) of the Companies Act, 2013, defines promoters as an individual who:

• Is named as a promoter in the prospectus or in the annual returns of the company.
• Controls the affairs of a company, directly or indirectly.
• Advises, directs, or instructs the Board of Directors.

Hence, we can say that promoters are people who originally come up with the idea of the company, form it and register it. However, solicitors, accountants, etc. who act in their professional capacity are NOT promoters of the company.

Formation of a Company

Section 3 of the Companies Act, 2013, details the basic requirements of forming a company as follows:

• Formation of a public company involves 7 or more people who subscribe their names to the memorandum and register the company for any lawful purpose.
• Similarly, 2 or more people can form a private company.
• One person can form a One-person company.

Registration or Incorporation of a Company

Section 7 of the Companies Act, 2013, details the procedure for incorporation of a company. Here is the procedure:

Filing of company registration papers with the registrar

To incorporate a company, the subscriber has to file the following company registration papers with the registrar within whose jurisdiction the location of the registered office of the proposed company falls.

1. The Memorandum and Articles of the company. All subscribers have to sign on the memorandum.
2. The person who is engaged in the formation of the company has to give a declaration regarding compliance of all the requirements and rules of the Act. A person named in the Articles also has to sign the declaration.
3. Each subscriber to the Memorandum and individuals named as first directorsin the Articles should submit an affidavit with the following details:
   1. Declaration regarding non-conviction of any offence with respect to the formation, promotion, or management of any company.
   2. He has not been found guilty of fraud or any breach of duty to any company in the last five years.

• The documents filed with the registrar are complete and true to the best of his knowledge.

4. Address for correspondence until the registered office is set-up.
5. If the subscriber to the Memorandum is an individual, then he needs to provide his full name, residential address, and nationality along with a proof of identity. If the subscriber is a body corporate, then prescribed documents need to be provided.
6. Individuals mentioned as subscribers to the Memorandum in the Articles need to provide the details specified in the point above along with the Director Identification Number.
7. The individuals mentioned as first directors of the company in the Articles must provide particulars of interests in other firms or bodies corporate along with their consent to act as directors of the company as per the prescribed form and manner.

Issuing the Certificate of Incorporation

Once the Registrar receives the information and company registration papers, he registers all information and documents and issues a Certificate of Incorporation in the prescribed form.

Corporate Identity Number (CIN)

The Registrar also allocates a Corporate Identity Number (CIN) to the company which is a distinct identity for the company. The allotment of CIN is on and from the company’s incorporation date. The certificate carries this date.

Maintaining copies of Company registration papers

The company must maintain copies of all information and documents until dissolution.

Furnishing false information at the time of incorporation

During the formation of a company, an individual can:

• Furnish incorrect or false information
• Suppress any material information in the documents provided to the Registrar for the incorporation, on purpose

In such cases, the individual is liable for action for fraud under section 447.

The company is already incorporated based on false information

If a company is already incorporated but it is found at a later date that the information or documents submitted were false or incorrect, then the promoters, first directors, and persons making a declaration is liable for action for fraud under section 447.

Order of the National Company Law Tribunal (NCLT)

If a company is incorporated by furnishing false or incorrect information or representation or suppressing material facts or information in the documents furnished, the Tribunal can pass the following orders (if an application is made and the Tribunal is satisfied with it):

• Pass an order to regulate the management of the company. It can include changes in its Memorandum and Articles if required. This order is either in public interest or in the interest of the company and its members and creditors.
• Make the liability of its members unlimited
• Order removal of the name of the company from the Registrar of Companies
• Order the company to wind-up
• Pass any other order as it deems fit

Before passing an order, the Tribunal has to give the company a reasonable opportunity to state its case. Also, the Tribunal should consider the transactions of the company including obligations contracted or payment of any liability.

Effect of Registration of a Company

According to Section 9 of the Companies Act, 2013, these are the effects of registration of a company:

• From the date of incorporation, the subscribers to the Memorandum and all subsequent members of the company are a body corporate.
• A registered company can exercise all functions of a company incorporated under the Act. Also, the company has perpetual succession with power to acquire, hold, and dispose of property of all forms. Also, it can contract, sue and be sued by the said name.
• Further, the company becomes a legal person separate from the incorporators from the date of incorporation. Also, a binding contract comes into existence between the company and its members as mentioned in the Memorandum and Articles of Association. Until the company dissolves or the Registrar removes it from the register, it has perpetual existence.