Incorporation form

I. Incorporation of a company

A company is an artificial person. It acquires legal entity through incorporation. Incorporation form implies registration of the company as a body corporate with the Registrar. Whether it is a private company or a public company, it should be incorporated with the registrar of companies.

By means of incorporation, company obtains recognition as a separate legal entity and qualities itself to conduct business activities.

However, the following documents are necessary before approaching the registrar:

1. An industrial licence if the proposed business is covered by industries.

2. An import licence if the machinery or equipment is to be imported.

3. Approval of the Government, in case of foreign collaborations.

4. Approval of the Government under monopolies and restrictive trade practices, if necessary.

5. Certificate accepting the name along with the above, the following documents should be prepared for registration of the company.

II. Important documents

Once the above documents are obtained the company has to file an application for Incorporation form. The application form contains all the particulars. It should be submitted to the registrar of companies of the state in which the registered office of the company is situated along with the following documents.

1. Memorandum of association

2. Articles of association

3. List of the directors

4. Consent letter from the directors

5. Statement of capital

6. Statutory declaration

These documents explain the objectives of the company, the scope of business and internal administration method.

Memorandum of association - The memorandum of association is the most significant document of the company among all. It is the charter which sets out the constitution of the company. It defines the objectives, powers, scope and relations with outsiders. It is the foundation of the company on which the structure is built. The memorandum determines the limits for the dealings of the shareholders and creditors. If the limits are violated the dealings of the company will become void and ultra-vires.

While designing the memorandum of association the contents should be divided into clauses, printed and serially numbered. The Incorporation form should be signed by at least two subscribers in case of a private limited company and seven in case of public limited company. The names, occupations, addresses of the share holders and the shares subscribed by each member should also be mentioned against their names.

The memorandum can be inspected by any person on the payment of a nominal fee. It is very difficult to alter the clauses in the memorandum. So, it should be prepared carefully with a foresight keeping in view the long term needs of the company. The clauses which are incorporated generally in this document are explained below:

1. Name clause: The name of the company should be specified in this clause. A company can choose any name it likes. But it should fulfill certain conditions which are given below:

a. The company should not use any name which is objectionable or identical or similar name of an existing company. Further, the prohibited names contained in the emblems and names act and also the names resembling the government bodies, should not used.

b. The words private limited in case of private companies and the word limited in case of a public company should be added at the end of their names.

c. Any names which convey any connection or link with a government department should not be used.

d. In case of companies which are formed for promoting arts, culture, commerce, the word limited need not be added at the end of their names.

The names of the company must be exhibited conspicuously in front of the factory, place of business, registered office and administrative office of the company. The name should also be printed on all letters, cheques, notices, bills and all official publications in one of the local languages as well as in English.

2. Situation clause: Every company will have a registered office. This clause should state the place and the state in which the registered office is located. It is necessary to determine the legal jurisdiction and make correspondence with the management of the company. In case, the registered office is not confirmed on the date of incorporation of the company, it should communicate the address to the registrar within 30 days of its Incorporation form.

3. Objects clause: This is core clause among all the clauses. The objective of the company and nature of business should be stated in this clause. It determines the powers of the company and defines the sphere of its activities. The company is not authorized to take up any business outside the scope of this clause. From this clause, the shareholders and creditors can know the purpose for which their money is utilized. For instance, banking companies are not empowered to undertake insurance business.

4. Liability clause: The extent and nature of the legal responsibility of shareholders should be stated in this clause. The shareholders are liable to discharge the debts of the company. The liability may be limited to the extent of share capital or additional guarantee. So, it should be clearly stated whether the liability is confined to the face value of the share or extended to the guaranteed amount. In the case of companies with limited liability, the shareholders need to pay all the arrears of share capital if any, at the time of winding up of the company. Similarly in case of companies limited by guarantee every shareholder should contribute to the company, the amount of guarantee at the time of liquidation. The unlimited companies, however, need not incorporate this clause in the memorandum of association.

5. Capital clause: This clause states the registered capital of the company. The division of capital into shares of different denominations, the number of each category and value of shares are also mentioned in this clause. In case, the capital comprises preference and equity shares, the extent of each category should be specified. If any special rights and privileges are conferred on preference shares, it should be mentioned clearly. The capital which is registered is known as authorized capital. A company is not authorized to issue shares over and above such authorized capital.

6. Subscription and association clause: This clause contains a declaration by the members. The signatories on the memorandum of association make a declaration stating that they undertake to form a company collectively, agree to subscribe the specified shares and conduct the business jointly. The names, addresses and occupations of such subscribers should be mentioned. At least two persons in the case of a private company and seven persons in the case of a public company should sign on the declaration. The signatures are to be attested by proper witnesses. The declarants should subscribe at least one share each. Thus, the name of the company, the objectives, capital and liabilities are stated in different clauses. In addition, the promoters should mention details of legal agreements and the rights of members if any.

Articles of association - Certain rules and regulations are necessary for the management and control of internal affairs of a joint stock company. They guide the management personnel as a rudder. The rules and regulations which are used to manage the day to day affairs of the company are known as articles of association. This document is a subsidiary to the memorandum of association. While the memorandum defines the objectives, the articles devise ways and means to achieve the objectives. They lay down the relations between members themselves and the company and members. The articles determine the powers and liabilities of the directors, shareholders, officers and act as a path finder for smooth and efficient management of the company.

Every company has to arrange the articles and file them with the registrar along with the memorandum. In case, a company cannot prepare its own articles, it can adopt the model set of articles as provided in the companies act. It contains 99 rules and regulations.

A reasonable care should be taken in designing the articles. The articles should not contain anything contrary to the companies act and memorandum of association. If it is so, the articles become inoperative and void. In such cases the contents of memorandum become valid.

III. Other documents

Apart from memorandum and articles, the company is required to file some other documents also. Some promoters set up companies with malintention. They collect money from the public in the name of the company and act irresponsibly by absconding. To control such misdeeds and bind them, the following documents should also be filed.

a. list of directors - The list of the directors who have agreed to act as directors should be filed with the registrar. Their names, age, occupations and full addresses should be attached with the list. In case such a list is not filed, the subscribers to the memorandum will be deemed to be the directors.

b. Consent letter of directors - The persons, who have agreed to act as directors must give a written undertaking stating that have willingly agreed to act as the directors of the company. Along with the undertaking, they have to enclose another consent letter stating that they have subscribed the qualification shares as mentioned in the articles and have paid the amount accordingly.

c. Name approval certificate - A copy of the letter from the registrar announcing that the name of the company was approved without any objection.

d. Statement of authorized capital -The Company should prepare and submit a statement of the proposed capital, which it is authorized to collect from the public. It should contain the division of shares and debentures and the amount of each category.

e. Statutory declaration - A copy of the statutory declaration should also be enclosed stating that all the formalities have been duly complied with as per the provisions of the companies act.

f. Receipt for registration fee - The necessary registration fee calculated at the prescribed rates on the basis of authorized capital, should be paid to the registrar and the receipt should be attached to the application form.

IV. Issue of certificate of incorporation

After the receipt of the above documents along with the application form, the registrar will scrutinize the documents. If he is satisfied, he will enter the name of the company in his register and issue the certificate of incorporation. With the receipt of this certificate, the company gets its recognition as a body corporate.

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