A company is an artificial person. It comes into existence when the same is registered and the Certificate of Incorporation of the company is issued by the Registrar of Companies. It is a corporate personality having an existence which is independent of, and distinct from its members and shareholders. A company is a legal entity having perpetual succession, practically it has an unending life and can only be created and dissolved by the procedure prescribed by law. In this article, the author has mentioned all the formalities which are undertaken for the registration of a company i.e. making its existence legal.
A company is an organisation formed under the Companies Act. It comes into existence on its incorporation. It has corporate existence, independent from its members. Any seven or more persons (two or more in case of a private company and, one person in case of a one-person company) associated for any lawful purpose may form an incorporated company. They shall subscribe their names to a Memorandum of Association and also comply with other formalities in respect of registration [Sec. 3(1)]. If all the requirements and essentials are fulfilled by the company and they satisfy or convince the Registrar and that it is authorized to be registered under the Act, the Registrar shall register the documents submitted and enter the company’s name in the Register of Companies. The Registrar shall then issue a certificate, known as the Certificate of Incorporation, certifying that the company has been incorporated [Sec.7 (2)]. The Registrar shall grant the company a Corporate Identification Number (CIN), a distinct identification for the company, on and after the date indicated by the Certificate of Incorporation.
Incorporation of a Company-
Section 3 provides that a company may be formed for any lawful purpose by:
- Seven or more individuals, if the corporation to be established is a public company;
- Two or more individuals, where the company to be established is a private company;
- Only one individual, there where the company to be established is a one-person company, that is also a private company
By subscribing to a document of their name or names and by following the registration requirements of this Act. The Memorandum of One Person Company shall signify the name of the other person, with his previous written consent, who shall become a member of the Company in the event of death of the subscriber or his inability to contract. The written consent of such other person shall also be filed along with its memorandum and articles.
(a) Application for the availability of name of the company.
According to Section 4, the name stated in the memorandum of association-
- shall not be identical with or resemble too nearly the name of an existing company registered under this Act or any previous company law; or
- shall not be such that its use by the company will constitute an offence under any law for the time being in force; or
- shall not be such that its use by the company is undesirable in the opinion of the Central Government.
Therefore, Section 4 further provides that a person may select six names in order of preference and make an application in the prescribed form accompanied by the prescribed fee to the Registrar for the reservation of name set out in the application as the name of the proposed company. On receipt of the application, the Registrar may reserve the name for a period of 60 days from the date of the application. If the Registrar finds the name undesirable, he shall inform the applicant within three days of the receipt of the application. He may ask for any other information in this matter or ask for resubmission of the application with a new name.
(b) Preparation of memorandum and articles.
Memorandum of Association is the charter of a company. It, inter alia, defines the area in which the company can operate. According to Section 4(1), the memorandum shall state the name, registered notice, objects, liability of members, share capital in case of a company having share capital. In the case of a One Person Company, the name of the person who, in the event of death of the subscriber, shall become the member of the company must be stated. Section 5(1) provides that the articles of a company shall contain regulations for the management of the company.
According to Section 7(1)(a) read with Rule 13 of the Companies (Incorporation) Rules, 2014, the memorandum and articles must be signed by at least seven subscribers in the case of a public company, two subscribers in a private company and one individual in a One Person Company. Each subscriber should give his address, description, and occupation, and the number of shares subscribed by them. The subscribers must sign these documents in the presence of at least one witness who shall verify the signature of the subscribers.
(c) Filing of documents with the Registrar of Companies.
The following documents, as per Section 7(1), shall be filed with the Registrar within whose jurisdiction the registered office of a company is proposed to be situated.
Issue of Certificate of Incorporation by the Registrar
Section 7(2) states that the Registrar on the basis of the documents information filed under Section 7(1) shall register all the documents information referred to in Section 7(1) in the register and issue a Certificate of Incorporation in the recommended form to the effect that the projected company is incorporated under this Act.
Allotment of Corporate Identity Number
Section 7(3) states that on and from the date mentioned in the Certificate of Incorporation issued und Section 7(2), the Registrar shall allot to the company a CIN, which shall be the distinct identity for the company and which shall also be included in the certificate.
The incorporation records to be preserved
Section 7(4) provides that the corporation shall retain and preserve at its registered office copies of all records and information as originally filed pursuant to Section 7(1) until such time the company is dissolved under this Act.
Registration and its effect (Section 9)
- Since the date of registration attributed to in the Certificate of Registration, all subscribers to the memorandum as well as all other individuals who may, from time to time, become members of the organization shall be the corporate body in the name set out in the Memorandum.
- It is capable of exercising all the functions of an incorporated company under this Act.
- It has perpetual succession and a common seal.
- It has the power to acquire, hold, and dispose of property, both movable and immovable, tangible and intangible.
- It is capable of entering into contracts.
- It can sue and be sued, by the said name.
Section 35 of the Companies Act, 1956 provides that a Certificate of Incorporation issued by the Registrar in respect of any association shall provide definite proof that all the provisions of the Act have been satisfied with respect to registration and the matters preceding and incidental thereto. Once the Certificate is received, the association is a company authorized to be incorporated and legally registered under the Act.
It means that once the Certificate has been issued, the existence of the company is not allowed to be questioned on the ground that either certain requirements of the Act have not been complied with or that there was any other discrepancy in the process of formation of the company. For example, in Moosa v. Ibrahim, the validity of the incorporation was not allowed to be questioned. In this case, the Memorandum of Association was signed by two adult persons and by a guardian of the other five members, who were minors at that time, the guardian making separate signatures for each of the minors. The Registrar then registered the Company and issued a Certificate of Incorporation. Likewise in Peel’s Case (1867) it was held that once the incorporation is given nothing is to be inquired into as to the regularity of the prior proceedings. In this case, after signature and before registration, a proposed Memorandum of Association had been materially altered without the authority of the subscribers.
In T.V. Krishna v. Andra Prabha (P) Ltd., the position was summarised by Chandra Reddy, C.J., as follows: “Thus the position is firmly established that if a company is born, the only method to get it extinguished is not by assailing its incorporation, but by resorting to the provisions of enactments, which provide for the winding up of the companies.” It was held in this case that even if some of the objects were illegal, the legal persona of the company could not have been extinguished by cancelling the certificate. Also in such a situation, the certificate is definitive and the solution will be to terminate the company. In Bowman v. Secular Society Ltd., it was held that if a company having illegal objects has been registered, the illegal objects do not become legal by the issue of the Certificate of Incorporation.
It may be noted that there is no section in the Companies Act, 2013 pertaining to conclusiveness of the Certificate of Incorporation. Section 7(7) of the Companies Act, 2013 provides that any person may challenge the validity of a Certificate of Incorporation before the Tribunal if the company is formed by furnishing false or incorrect information or suppressing any material fact. Punishment may be awarded for furnishing false or incorrect information or suppressing any material fact.
Punishment for furnishing false or incorrect information at the time of incorporation
The Companies Act, 2013 prescribes severe punishment for furnishing false or incorrect information at the time of incorporation. These are as follows:
- If a person provides any inaccurate or misleading information or suppresses any material information that he or she is aware of in any of the documents submitted with the Registrar in connection with the registration of a company, he or she shall be liable for action under Section 447. [Section 7(5) of the Rules].
- Where a company has been incorporated by offering misleading or inaccurate representation or by suppressing any material fact or data in any of the documents or records submitted or rendered for the incorporation of that company or by malicious action, the promoters shall each be liable for the acts referred to in Section 447 as the first directors. [Section 7(6)].
Power of the Tribunal in case of Incorporation of a Company by Furnishing
False or Incorrect Information
Where a company has been incorporated by furnishing any false or incorrect information or by suppressing any material fact or information in any of the documents or declaration filed or made for incorporating such company or by any fraudulent action, the Tribunal may
- pass an order as it may think fit for the regulation of the management of the company; or
- direct that the liability of the members shall be unlimited;
- direct removal of the name of the company from the Register of Companies; or
- pass an order for winding up of the company;
- pass such order as it may deem fit.
However, before making any order under Section 7(7) the company shall be given an opportunity of being heard in the matter. Further, the Tribunal shall take into consideration the transactions entered into by the company, including the obligations, if any, contracted or payment of any liability.
After the incorporation a company it enjoys advantages such as independent corporate existence, limited liability, separate property (owning, enjoying and disposing of property in its own name), perpetual succession (no allotted span of life), capable of enforcing its legal rights or be sued for breach of legal duties, enabling transferability of shares, separation of management and ownership and lastly, allowance for raising capital from the public.
It suffers disadvantages such as; formality and complications (incorporation is time-consuming, expensive, and formal process), loss of privacy, corporate governance, and lifting the corporate veil.
Thus, though there are disadvantages, incorporation brings in accountability and keeps a check on the functioning of the company at the same time extends protection to the company and its shareholders.
Frequently Asked Questions (FAQ’s):
- How does a company come into existence?
- How is the name of an organisation selected?
- What are the requirements of the Memorandums of a company?
- What are the formalities done by a company before proceeding to the Registrar?
- Company Law, R.K. Bangia, Allahabad Law Agency
- Company Law, B.K. Goyal, Singhal Law Publications