How a private limited company is incorporated under the Companies Act?

By Group 9

Executive Summary

This term paper discusses the procedure underlying the incorporation of a private limited company

in India. It starts with an overview of the establishment of the company and then lists down the

documents that are required for the registration process with the registrar followed by the

procedures carried out to complete the registration process. This paper also talks about the

penalties that are exercised if any misleading or false facts are filed in the registration process. This

piece ends by explaining about the certificate of incorporation and its conclusiveness and the effect

of registration.

Methodology Adopted

The methodology adopted while preparing this report included performing secondary research

first to understand the primary difference between a private and a public limited company,

followed by the various steps to be taken and the guidelines to be maintained while performing

those steps by the individual or group while incorporating a company. The methodology is also

concerned with identifying the key players during the incorporation process and the punishment

and penalties being imposed if the general guidelines are not followed.

Incorporation of a Company
Before an organization is formed, certain initial choices are considered fundamental, e.g., whether

the company should be a private or public, what its capital ought to be, and whether it is

advantageous to start a new company or assuming control over an already existing one. Specific

people known as 'promoters take every one of these choices.' They do all the essential preliminary

work incidental to the formation of a company.

Mode of forming incorporated company (Sec. 3)

At least seven people (two in case of a private limited company) may for any legitimate purpose

form an incorporated company, with or without limited liability. They will subscribe their names to

a Memorandum of Association (MOA) and furthermore agree to different conventions with regards

to registration. An organization so shaped might be:

(1) A company limited by shares, or

(2) A company limited by guarantee, or

(3) An unlimited company.

Incorporation of a Company: (Sec. 7)

(1) Following documents needs to be submitted to the Registrar within whose purview the

registered office of a company will be located, the documents are as follows : —

(a) The Memorandum of Association (MOA) and the Articles of Association (AOA)of the company

needs to be duly signed by all the subscribers to the memorandum in the prescribed manner;

(b) An advocate, a chartered accountant, a cost accountant or a company secretary in practice, who

is involved in the formation of the company, or a person named in the articles as a director,

manager or secretary of the company has to give a declaration in the prescribed form, complying
with all the requirements of this Act and the rules specified in the registration process and matters

precedent or incidental thereto the process;

(c) An affidavit signed by each of the subscribers to the memorandum and the persons named as

the first directors in the articles that they are not convicted of any offense in relation with the

process of promotion, formation or management of any company, or that they have not been

charged with any fraud or misfeasance or any breach of duty to any company under this Act or any

previously established company law during the preceding five years and that all the documents

filed with the Registrar contains information that is correct, complete and true to the best of their

knowledge and belief;

(d) The address for correspondence purposes till the company’s registered office is established;

(e) Name, surname or family name, Residential address, Nationality and such other particulars of

every subscriber to the Memorandum along with their proof of identity in the prescribed manner,

and in the case of a subscriber being a body corporate, the prescribed particulars need to be

followed;

(f) The names, including surnames or family names, the Director Identification Number, residential

address, nationality, and the proof of identity in the prescribed manner of the people identified as

the first directors in the Articles of Association.

(g) The particulars of interests of the first directors of the company in other firms or body

corporate along with their consent to act as the director.

(2) On the basis of the documents and information filed with him under sub-section (1), the

Registrar will register all these documents and information and issue a certificate of incorporation

in the prescribed form.

the organization a corporate identity number, which will be a unique identity for the company and

which will likewise be incorporated into the certificate

(4) The company is required to maintain and preserve copies of all documents in its registered

office under sub-section (1) until the company’s dissolution under this Act.

(5) In case a person suppresses any material information, furnishes any false or incorrect

information in the documents willingly, or whose presence he is aware of in relation to the

registration of the company, then, he shall be liable for action under section 447.

(6) Without prejudice to the provisions of sub-section (5) where, at any time after the

incorporation of a company, it is proved that the company has been got incorporated by furnishing

any false or incorrect information or representation 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 promoters, the persons named as the first directors of the company

and the persons making declaration under clause (b) of subsection (1) shall each be liable for action

under section 447.

(7) Without prejudice to the provisions of sub-section (6), where a company has been incorporated

by furnishing any false or incorrect information or representation 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, on an application made to it, on being

satisfied that the situation so warrants, :

its memorandum and articles, in public interest or the interest of the company and its

members and creditors; or

(b) Make a ruling that liability of the members shall be unlimited instead of limited; or

(c) Directly remove the name of the company from the register of companies; or

(d) Simply pass an order directing the company to wind up; or

(e) Pass any other such order as it may deem necessary:

Provided that before making any order under this subsection;

(i) The company gets a reasonable opportunity to be heard in the matter concerned.

and,

(ii) The Tribunal takes into consideration the various transactions entered into by

the company, including the obligations, if any, contracted or payment of any liability.

Certificate of Incorporation

After all the required documents are filed with the Registrar, the Registrar shall make sure that

all the Statutory requirements regarding registration have been duly complied with. In exercising

his duty, the Registrar is not required to carry out an investigation.

After the examination, if the Registrar is satisfied with the company’s compliance of statutory

requirements, he shall retain and register the MOA, the AOA and the other documents filed with

him and issue a 'certificate of incorporation,' i.e., solidify the formation of the company [Sec. 7(2)].

Conclusiveness of Certificate of incorporation

A certificate of incorporation issued by the Registrar is the conclusive evidence that all the

requirements of the Companies Act have been duly complied with by the company. Nothing can be
inquired into as to the regularity of the prior proceedings, and the certificate cannot be questioned

on any grounds whatsoever. This is known as ‘Rule in Peel’s case’. At the point when once the

Memorandum is enrolled, and the company holds out to the world as a company undertaking

business, willing to get investors and prepared to contract commitments, at that point, it would be

of the most futile results if after the sum total of what that has been done, any individual was

permitted to examine the circumstances and documents required for the initial registration.

For Example:

Suppose the MOA of a company was signed by 2 adult members and by a guardian of the other 5

minor members, the guardian signing separately for each minor member. The registrar then

registered the company and duly issued the cetificate of incorporation. Now, the plaintiff contends

that the conditions of registration were not duly complied with. However, the court will not uphold

his contention because of the Judgement made in the Peel’s case regarding the conclusiveness of the

Certificate of Incorporation.

The conclusiveness of Certificate of incorporation holds due to the following points:

1. That requirements of the Act in respect of the registration of matters precedent and incidental to

it have been complied with.

2. That the association is a company authorized to be registered under the Act and has been duly

registered.

3. That the date mentioned on the Certificate of Incorporation is the date, the company was born,

i.e., the date on which the company comes into existence.

Even though the certificate of incorporation is conclusive for incorporation, it does not make an

illegal object a legal one. But the position is firmly established that if a company is born, the only

method to put an end to it is by winding it up [T. V. Krishna v. Andhra Prabha (Pvt.) Ltd., A.I.R.

(1960) A.P. 123].

weeklies, consequent upon the Government adopting certain recommendations of the Wage Board

for improvements in terms of the service and salaries of the working journalists, sold its

undertaking to a new company, ABC Pvt. Ltd. Should the company be declared void on the plea that

the new company was formed for the purpose of evading the new obligation imposed by the Wage

Board? The answer is no as per the T.V. Krishna v. Andhra Prabha (Pvt) Ltd., (1902) 2 Ch 809 which

states that once the company is firmly established, the only way to put an end to it is by winding it

up.

Note the following case for understanding:

Jubilee Cotton Mills Ltd. Vs. Lewis, (1924) A.C. 958

Facts: On January 6th, the prescribed documents were delivered to the Registrar for registration.

And after two days, he issued the certificate of incorporation but dated it 6th January instead of 8th

January, (i.e., the day on which the certificate was issued). Now, On 6th January some shares were

allotted to ‘L,’ (i.e., before the certificate of incorporation was issued to the company). Hence, the

Question arose whether the allotment was void or not.

Judgment: The certificate of incorporation is conclusive evidence of all that it contains. Therefore,

according to the law, the company was formed on 6th January itself and, hence, the allotment was

declared as valid

Effects of registration (Sec. 9 of Companies Act, 2013):

From the date of incorporation mentioned in the certificate of incorporation, the subscribers to the

memorandum and all other persons, as may, from time to time, become members of the company,

shall be a body corporate by the name contained in the memorandum, capable of exercising all the

functions of an incorporated company under this Act and having perpetual succession and a

common seal with power to acquire, hold and dispose of property, both movable
and immovable, tangible and intangible, to contract and to sue and be sued, by the said name (Sec.

9). When a company is registered, and a certificate of incorporation is issued by the Registrar, three

important consequences follow:

1. The company becomes a distinct legal entity. Its life commences from the date mentioned in the

certificate of incorporation.

2. The company acquires a perpetual succession. The members may come and go, but it goes on

forever unless it is wound up.

3. The shareholders don’t have any claim in the company’s property. The shareholders only have a

right to share in the profits of the company when realized and divided. Similarly, the individual

shareholders are not liable to the liability of the company.

A private limited company can commence business immediately after its incorporation. A public

company has to obtain a certificate to commence business before it can commence business.

Conclusion:

Through this report, we have understood various procedures underlying the incorporation of the

company, the required document for the filing of the registration, the penalties and punishment if

false data is submitted, the role of the Registrar and the tribunal in the registration process, and the

importance of the certificate of incorporation and its conclusiveness.

References:

Elements of Mercantile Law book by N. D. Kapoor

https://www.indiafilings.com/learn/private-limited-company/

http://www.madaan.com/private_limited_company_india.html