MEMORANDUM OF ASSOCIATION

● The Memorandum of Association of company is in fact its charter; it

defines its constitution and the scope of the powers of the company with
which it has been established under the Act. It is the very foundation on
which the whole edifice of the company is built.
● It's a document which explains the object and purpose of the company,
its scope and extent.
● MOA is the primary document upon which the company is built.
Features / objects of MOA
1. It contains the object for which the company is formed and therefore
identifies the possible scope of its operations beyond which its actions
cannot go.
2. It enables shareholders, creditors and all those who deal with a company
to know what its powers are and what activities it can engage in.
(A memorandum is a public document under Section 399 of the
Companies Act, 2013. Consequently,every person entering into a
contract with the company is presumed to have the knowledge of the
conditions contained therein.- DOCTRINE OF CONSTRUCTIVE NOTICE)
3. The shareholders must know the purposes for which his money can be
used by the company and what risks he is taking in making the
investment.
● A company cannot depart from the provisions contained in the
memorandum however imperative may be the necessity for the
departure. It cannot enter into a contract or engage in any trade or
business, which is beyond the power confessed to it by the
memorandum. If it does so, it would be ultra vires the company and
void.
 Contents of MOA
1. The name of the company (Name Clause) with the last word “Limited” in
the case of a public limited company, or the last words “Private Limited”
in the case of a private limited company.
2. The State in which the registered office of the company (Registered
Office clause) is to be situated;
3. The objects for which the company is proposed to be incorporated and
any matter considered necessary in furtherance thereof (Object clause);
4. The liability of members of the company (Liability clause), whether
limited or unlimited,or limited by guarantee.
5. the amount of authorized capital (Capital Clause) divided into shares of
fixed amounts and the number of shares with the subscribers to the
memorandum have agreed to take, indicated opposite their names, which
shall not be less than one share. A company not having share capital
need not have this clause.
6. the desire of the subscribers to be formed into a company. The
Memorandum shall conclude with the association clause. Every
subscriber to the Memorandum shall take atleast one share, and shall
write against his name, the number of shares taken by him.

DOCTRINE OF ULTRA VIRES

● Doctrine of ultra vires: The meaning of the term ultra vires is simply
“beyond (their) powers”. The legal phrase “ultra vires” is applicable only
to acts done in excess of the legal powers of the doers.
● This presupposes that the powers in their nature are limited. It is a
fundamental rule of Company Law that the objects of a company as
stated in it memorandum can be departed from only to the extent
permitted by the Act, thus far and no further.
● In consequence, any act done or a contract made by the company which
travels beyond the powers not only of the directors but also of the
company is wholly void and inoperative in law and is therefore not
binding on the company.
● On this account, a company can be restrained from employing its fund
for purposes other than those sanctioned by the memorandum.
● Likewise, it can be restrained from carrying on a trade different from the
one it is authorised to carry on.
● The impact of the doctrine of ultra vires is that a company can neither be
sued on an ultra vires transaction, nor can it sue on it. Since the
memorandum is a “public document”, it is open to public inspection.
● Therefore, when one deals with a company one is deemed to know about
the powers of the company. If in spite of this you enter into a transaction
which is ultra vires the company, you cannot enforce it against the
company.
- Ashbury Railway Carriage and Iron Company Limited
v.
- Riche-(1875).
The facts of the case are:
The main objects of a company were:
(a) To make, sell or lend on hire, railway carriages and wagons;
(b) To carry on the business of mechanical engineers and general
contractors.
(c) To purchase, lease, sell and work mines.
(d) To purchase and sell as merchants or agents, coal, timber, metals etc.
● The directors of the company entered into a contract with Riche, for
financing the construction of a railway line in Belgium, and the company
further ratified this act of the directors by passing a special resolution.
● The company however, repudiated the contract as being ultra-vires. And
Riche brought an action for damages for breach of contract.
● His contention was that the contract was well within the meaning of the
word general contractors and hence within its powers. Moreover it had
been ratified by a majority of share-holders.
● However, it was held by the Court that the contract was null and void. It
said that the terms general contractors was associated with mechanical
engineers, i.e. it had to be read in connection with the company’s main
business. If, the term general contractor’s was not so interpreted, it
would authorize the making of contracts of any kind and every
description, for example, marine and fire insurance.

An ultra vires contract can never be made binding on the company.

It cannot become “Intravires” by reasons of estoppel, acquiescence,
Iapse of time, delay or ratification.
 SUMMARY OF THE DOCTRINE

- When an act is performed, which though legal in itself, is not

authorized by the object clause of the memorandum, or by the
statute, it is said to be ultra vires the company, and hence null
and void.
- An act which is ultra vires, the company cannot be ratified even by
the unanimous consent of all the shareholders.
- An act which is ultra vires the directors, but intra vires the
company can be ratified by the members of the company through a
resolution passed at a general meeting.
- If an act is ultra vires the Articles, it can be ratified by altering the
Articles by a Special Resolution at a general meeting.

ARTICLES OF ASSOCIATION (AOA)

● The articles of association of a company are its rules and regulations,
which are framed to manage its internal affairs. Just as the
memorandum contains the fundamental conditions upon which the
company is allowed to be incorporated, so also the articles are the
internal regulations of the company (Guiness vs. Land Corporation of
Ireland).
● These general functions of the articles have been aptly summed up by
Lord Cairns in Ashbury Carriage Co. vs. Riches as follows: “The articles
play a part subsidiary to memorandum of association. They accept the
memorandum as the charter of incorporation, and so accepting it the
articles proceed to define the duties, the rights and powers of the
governing body as between themselves and the company and the mode
and form in which the business of the company is to be carried on, and
the mode and form in which changes in the internal regulation of the
company may from time to time be made.”
● It regulates domestic management of a company and creates certain
rights and obligations between the members and the company [S.S.
Rajkumar vs. Perfect Castings (P) Ltd.].
● The articles of association are in fact the bye-laws of the company
according to which director and other officers are required to perform
 their functions as regards the management of the company, its accounts
and audit. It is important therefore that the auditor should study them
and, while doing so he should note the provisions therein in respect of
relevant matters.
● The MOA tells the company what is to be done and the AOA tells the
company how it is to be done that is the basic difference between
the two.

DOCTRINE OF CONSTRUCTIVE NOTICE

● Section 399 of the Companies Act, 2013 provides that any person can
inspect by electronic means any document kept by the Registrar, or
make a record of the same, or get a copy or extracts of any document,
including certificate of incorporation of any company, on payment of
prescribed fees.
● The memorandum and articles of association of a company when
registered with the Registrar of Companies, become public documents,
and they are available for inspection to any person, on the payment of a
nominal fee.
● In other words, Section 399 confers the right of inspection to all. It is,
therefore, the duty of every person dealing with a company to inspect its
documents and make sure that his contract is in conformity with their
provisions but whether a person reads them or not, it will be presumed
that he knows the contents of the documents. This kind of
presumed/implied notice is called constructive notice.
WHICH MEANS THAT ;
1. Whether a person reads the documents or not, he is presumed to have
knowledge of the contents of the documents, he is not only presumed to
have read the documents but also understood them in their true
perspective,
2. Every person dealing with the company not only has the constructive
notice of the memorandum and articles, but also of all the other related
documents, such as Special Resolutions etc., which are required to be
registered with the Registrar.
 Conclusion:
Thus, if a person enters into a contract which is beyond the powers
of the company as defined in the memorandum, or outside the
authority of directors as per memorandum or articles, he cannot
acquire any rights under the contract against the company.

DOCTRINE OF INDOOR MANAGEMENT

● The Doctrine of Indoor Management is the exception to the doctrine of

constructive notice.
● The aforesaid doctrine of constructive notice does in no sense mean that
outsiders are deemed to have notice of the internal affairs of the
company.
● For instance, if an act is authorised by the articles or memorandum, an
outsider is entitled to assume that all the detailed internal formalities for
doing that act have been observed.
● This can be explained with the help of a landmark case The Royal
British Bank vs. Turquand. This is the doctrine of indoor management
popularly known as Turquand Rule.
FACTS OF THE CASE
● Mr. Turquand was the official manager (liquidator) of the insolvent
Cameron’s Coalbrook Steam, Coal and Swansea and Loughor Railway
Company. It was incorporated under the Joint Stock Companies Act,
1844.
● The company had given a bond for £ 2,000 to the Royal British Bank,
which secured the company’s drawings on its current account.
● The bond was under the company’s seal, signed by two directors and the
secretary.
● When the company was sued, it alleged that under its registered deed of
settlement (the articles of association), directors only had power to
borrow up to an amount authorized by a company resolution.
● A resolution had been passed but not specifying how much the directors
could borrow. Held, it was decided that the bond was valid, so the Royal
British Bank could enforce the terms. He said the bank was deemed to
 be aware that the directors could borrow only up to the amount
resolutions allowed.
● Articles of association were registered with Companies House, so there
was constructive notice. But the bank could not be deemed to know
which ordinary resolutions passed, because these were not registrable.
The bond was valid because there was no requirement to look into the
company’s internal workings.
Exceptions to the doctrine of Indoor Management:
When this doctrine is not applicable ?
1. Actual or constructive knowledge of irregularity
2. Suspicion of Irregularity
3. Forgery

PROSPECTUS : Meaning, Contents, Kinds

Definition :
Section 2(70) of the Companies Act, 2013 defines a prospectus as “any
document described or issued as a prospectus and includes a red herring
prospectus (referred to in section 32) or shelf prospectus (referred to in section
31) or any notice, circular, advertisement or other document inviting offers
from the public for the subscription or purchase of any securities of a body
corporate.”
A document should have following essentials to constitute a prospectus:
(a) There must be an invitation to the public;
(b) The invitation must be made “by or on behalf of the company or in relation
to an intended company”;
(c) The invitation must be “to subscribe or purchase”;
(d) The invitation must relate to any securities of the company.
 ● A document is deemed to be issued to the public, if the invitation to
subscribe for share capital is such as to be open to anyone who brings
his money and applies in prescribed form, whether the prospectus was
addressed to him or not. The test is not who receives the document, but
who can apply for the securities in response to the invitation contained
in it. However, an issue will not be “Public” if- (i) It is directed to a
specified person or a group of persons, and (ii) It is not calculated to
result in the securities becoming available to other persons.
PROSPECTUS
- Prospectus is issued only by a Public Limited Company when the
said Company is willing to raise capital through INITIAL PUBLIC
OFFER (IPO).
- The Prospectus contains every possible information with respect to
the company and the Initial Public Offer,
- Company / Officers in Default are liable to be punished if any false
or deceptive information is published in the Prospectus.
- Investors rely upon the prospectus before subscribing to such an
IPO.
- Prospectus is a document containing a detailed description of
company information and details of the share capital which is to be
raised.
-
Matters to be stated in prospectus[Section 26]
(1) Dated:
Every prospectus must be dated. The date appearing on the prospectus is
deemed to be date of publishing prospectus
(2) Registered:
The prospectus must be registered with ROC on or before the issue of
prospectus to the public.
(3) Issued:
The prospectus must be issued to public within 90 days of registration with
ROC. Any issue of securities under the prospectus which is issued beyond 90
days shall be deemed to be an issue without a prospectus.
(4) Contents of the prospectus:
Every prospectus issued by or on behalf of a public company either with
reference to its formation or subsequently, or by or on behalf of any person
who is or has been engaged or interested in the formation of a public company,
shall be dated and signed and shall state such information and set out such
Securities and Exchange Board in consultation with the Central Government:
GENERAL INFORMATION, FINANCIAL INFORMATION AND STATUTORY
INFORMATION.

TYPES OF PROSPECTUS
1. Shelf Prospectus (Section 31)
2. Red Herring Prospectus (Section 32)
3. Abridged Prospectus (Section 33)

PRIVATE PLACEMENT [SECTION 42]

Definition of Private Placement: Private Placement' means any offer of securities
or invitation to subscribe securities to a select group of persons by a company
(other than by way of public offer) through issue of a private placement offer
letter (Form PAS.4) and which satisfies the specified conditions.

-
 COMPANIES ACT, 2013 - 1.1

Introduction : Concept of a Company.

● The word 'company' is derived from the Latin words (com= with or
together; and panis = bread or meal); and originally referred to an
association of persons who took their meals together.
● Section 2(20) of the Companies Act, 2013, defines Company as ‘ a
company incorporated under Companies Act, 2013 or under any of
the previous laws relating to companies.’
● Although a company is regarded as a legal person (though artificial), it is
not a citizen either under the Constitution of India or the Citizenship Act,
1955.
● Thus, a company is a corporate body distinct from its members,
employees, operators, promoters etc. formed for a specific purpose with
any intention of creating profit.
1. Features of a Company :
a) Separate legal entity
b) Perpetual Succession
c) Limited liability
d) Artificial Legal Person
e) Common Seal
f) Capacity to enter into a Contract
g) Separate Property
h) Transferability of Shares
i) Capacity to sue and be sued
j) Separate Management
k) Voluntary Association for Profit

a) Separate legal entity

● There are distinctive features between different forms of
organisations and the most striking feature in the company form of
 organisation vis-à-vis the other forms of business organisations is
that it acquires a unique character of being a separate legal entity.
In other words, when a company is registered, it is clothed with a
legal personality. It comes to have almost the same rights and
powers as a human being. Its existence is distinct and separate
from that of its members. A company can own property, have a
bank account, raise loans, incur liabilities and enter into
contracts.
● A company is capable of owning, enjoying and disposing of
property in its own name. Although the capital and assets are
contributed by the shareholders, the company becomes the owner
of its capital and assets. The shareholders are not the private or
joint owners of the company’s property.
b) Perpetual Succession:
● Members may die or change, but the company goes on till it is
wound up on the grounds specified by the Act.
● The shares of the company may change hands infinitely but that
does not affect the existence of the company. Since a company is
an artificial person created by law, law alone can bring an end to
its life. Its existence is not affected by the death or insolvency of its
members.
c) Limited Liability:
● The liability of a member depends upon the kind of company of
which he is a member.We know that company is a separate legal
entity which is distinct from its members.
(i) Thus, in the case of a limited liability company, the debts of the
company in totality do not become the debts of the shareholders.
The liability of the members of the company is limited to the extent
of the nominal value of shares held by them. In no case can the
shareholders be asked to pay anything more than the unpaid value
of their shares.
(ii) In the case of a company limited by guarantee, the members are
liable only to the extent of the amount guaranteed by them and
that too only when the company goes into liquidation.
(iii) However, if it is an unlimited company, the liability of its
members is unlimited as well.
d) Artificial Legal Person:
 ●A company is an artificial person as it is created by a process other
than natural birth. It is legal or judicial as it is created by law. It is
a person since it is clothed with all the rights of an individual.
● Further, the company being a separate legal entity can own
property, have a banking account, raise loans, incur liabilities and
enter into contracts. Even members can contract with company,
acquire right against it or incur liability to it. It can sue and be
sued in its own name. It can do everything which any natural
person can do except be sent to jail, take an oath, marry or
practice a learned profession. Hence, it is a legal person in its own
sense.
● As the company is an artificial person, it can act only through
some human agency, viz.,directors. The directors cannot control
affairs of the company and act as its agency, but they are not the
“agents” of the members of the company. The directors can either
on their own or through the common seal (of the company) can
authenticate its formal acts.
● Thus, a company is called an artificial legal person.
e) Common Seal:
● A company being an artificial person is not bestowed with a body
of a natural being.Therefore, it works through the agency of
human beings.
● Common seal is the official signature of a company, which is
affixed by the officers and employees of the company on its every
document.
● The common seal is a seal used by a corporation as the symbol of
its incorporation.
(The Companies (Amendment) Act, 2015 has made the common seal optional by
omitting the words “and a common seal” from Section 9 so as to provide an
alternative mode of authorization for companies who opt not to have a common
seal. Rational for this amendment is that the common seal is seen as a relic of
medieval times. Even in the U.K., common seal has been made optional since
2006. This amendment provides that the documents which need to be
authenticated by a common seal will be required to be so done, only if the
company opts to have a common seal. In case a company does not have a
common seal, the authorization shall be made by two directors or by a director
and the Company Secretary,
wherever the company has appointed a Company Secretary.)
CORPORATE VEIL THEORY

Corporate Veil:
Corporate Veil refers to a legal concept whereby the company is identified
separately from the members of the company.
● The term Corporate Veil refers to the concept that members of a company
are shielded from liability connected to the company’s actions.
● If the company incurs any debts or contravenes any laws, the corporate
veil concept implies that members should not be liable for those errors.
● In other words, they enjoy corporate insulation.Thus, the shareholders
are protected from the acts of the company.
1. The Salomon Vs. Salomon and Co Ltd. laid down the foundation of the
concept of corporate veil or independent corporate personality.
- In Salomon vs. Salomon & Co. Ltd. the House of Lords laid down that a
company is a person distinct and separate from its members.
In this case one Salomon incorporated a company named “Salomon & Co.
Ltd.”, with seven subscribers consisting of himself, his wife, four sons and one
daughter.
This company took over the personal business assets of Salomon for £ 38,782
and in turn, Salomon took 20,000 shares of £ 1 each, debentures worth £
10,000 of the company with charge on the company’s assets and the balance in
cash.
His wife, daughter and four sons took up one £ 1 share each.
Subsequently, the company went into liquidation due to general trade
depression. The unsecured creditors to the tune of £ 7,000 contended that
Salomon could not be treated as a secured creditor of the company, in respect
of the debentures held by him, as he was the managing director of one-man
company, which was not different from Salomon and the cloak of the company
was a mere sham and fraud.
It was held by Lord Mac Naughten:
“The Company is at law a different person altogether from the subscribers to
the memorandum, and though it may be that after incorporation the business
is precisely the same as it was before and the same persons are managers, and
the same hands receive the profits, the company is not in law the agent of the
subscribers or trustees for them. Nor are the subscribers, as members, liable,
in any shape or form, except to the extent and in the manner provided by the
Act.”
Thus, this case clearly established that company has its own existence and as
a result, a shareholder cannot be held liable for the acts of the company even
though he holds virtually the entire share capital. The whole law of corporation
is in fact based on this theory of separate corporate entity.
Now, the question may arise whether this Veil of Corporate Personality
can even be lifted or pierced.
Before going into this question, one should first try to understand the meaning
of the phrase “lifting the veil”.
It means looking behind the company as a legal person, i.e., disregarding the
corporate entity and paying regard, instead, to the realities behind the legal
facade.
Where the Courts ignore the company and concern themselves directly with the
members or managers, the corporate veil may be said to have been lifted. Only
in appropriate circumstances, the Courts are willing to lift the corporate veil
and that too, when questions of control are involved rather than merely a
question of ownership.
Lifting of Corporate Veil:
The following are the cases where company law disregards the principle of
corporate personality or the principle that the company is a legal entity distinct
and separate from its shareholders or members:
(1) To determine the character of the company i.e. to find out whether
co-enemy or friend: In the law relating to trading with the enemy where the test
of control is adopted. The leading case in this point is Daimler Co. Ltd. vs.
Continental Tyre & Rubber Co., if the public interest is not likely to be in
jeopardy, the Court may not be willing to crack the corporate shell. But it may
rend the veil for ascertaining whether a company is an enemy company. It is
true that, unlike a natural person, a company does not have a mind or
conscience; therefore, it cannot be a friend or foe.
It may, however, be characterised as an enemy company, if its affairs are under
the control of people of an enemy country.
For this purpose, the Court may examine the character of the persons who are
really at the helm of affairs of the company.
(2) To protect revenue/tax: In certain matters concerning the law of taxes,
duties and stamps particularly where question of the controlling interest is in
issue. [S. Berendsen Ltd. vs. Commissioner of Inland Revenue]
(i) Where corporate entity is used to evade or circumvent tax, the Court can
disregard the corporate entity [Juggilal vs. Commissioner of Income Tax AIR
(SC)].
(ii) In [Dinshaw Maneckjee Petit], it was held that the company was not a
genuine company at all but merely the assessee himself disguised under the
legal entity of a limited company.
The assessee earned huge income by way of dividends and interest. So, he
opened some companies and purchased their shares in exchange of his income
by way of dividend and interest. This income was transferred back to assessee
by way of loan. The Court decided that the private companies were a sham and
the corporate veil was lifted to decide the real owner
of the income.
(3) To avoid a legal obligation: Where it was found that the sole purpose for
the formation of the company was to use it as a device to reduce the amount to
be paid by way of bonus to workmen, the Supreme Court upheld the piercing of
the veil to look at the real transaction.
(The Workmen Employed in Associated Rubber Industries Limited, Bhavnagar
vs. The Associated Rubber Industries Ltd., Bhavnagar and another).
Workmen of Associated Rubber Industry ltd., v. Associated Rubber Industry
Ltd.:
The facts of the case are that “A Limited” purchased shares of “B Limited” by
investing a sum of ` 4,50,000. The dividend in respect of these shares was
shown in the profit and loss account of the company, year after year. It
was taken into account for the purpose of calculating the bonus payable to
workmen of the company. Sometime in 1968, the company transferred the
shares of B Limited, to C Limited a subsidiary, wholly owned by it. Thus, the
dividend income did not find place in the Profit & Loss Account of A Ltd., with
the result that the surplus available for the purpose for payment of bonus to
the workmen got reduced. Here a company created a subsidiary and
transferred to it, its investment holdings in a bid to reduce its liability to pay
bonus to its workers. Thus, the Supreme Court brushed aside the separate
existence of the subsidiary company. The new company so formed had no
assets of its own except those transferred to it by the principal company, with
no business or income of its own except receiving dividends from shares
transferred to it by the principal company and serving no purpose except to
reduce the gross profit of the principal company so as to reduce the amount
paid as bonus to workmen.
(4) Formation of subsidiaries to act as agents: A company may sometimes be
regarded as an agent or trustee of its members, or of another company, and
may therefore be deemed to have lost its individuality in favour of its principal.
Here the principal will be held liable for the acts of that company.

(5) Company formed for fraud/improper conduct or to defeat law: Where

the device of incorporation is adopted for some illegal or improper purpose,
e.g., to defeat or circumvent law, to defraud creditors or o avoid legal
obligations. [Gilford Motor Co. vs. Horne]
 CONCEPT OF PROMOTER AND PRE-INCORPORATION CONTRACTS
● The Companies Act, 2013 defines the term “Promoter” under section
2(69) which means a person—
(a) who has been named as such in a prospectus or is identified by the
company in the annual return referred
to in section 92; or
(b) who has control over the affairs of the company, directly or indirectly
whether as a shareholder, director
or otherwise; or
(c) in accordance with whose advice, directions or instructions the Board
of Directors of the company is
accustomed to act.
- Persons who form the company are known as promoters.
- It is they who conceive the idea of forming the company.
- They take all necessary steps for its registration.
It should, however, be noted that persons acting only in a professional capacity
e.g., the solicitor, banker, accountant etc. are not regarded as promoters.
PROMOTERS systematize the resources to convert the idea into a reality by founding
a company; or in other words we can declare that it is the promoter:
● who settles the name of the company thus determine the name, will be acceptable by
the registered official of the office.
● who decides the content or details as to the Articles of the companies. (here, articles
refers to Articles of association & Memorandum of association)
● who proposes the directors, bankers, auditors and etc.
● who decides the place where registered office or head office has to be situated.
● who prepares the Memorandum of Association, Prospectus and other essential
documents and file them for the reason of incorporation.
● In conducting the necessary transactions to the formation of a corporation, a
promoter who may not be an incorporator, frequently enters into pre-incorporation
agreements, including agreements with third parties, formal agreements and
resolutions to incorporate, and stock subscription agreements.

● Rights of a Promoter
1. Right of Indemnity
If in the formation of a company more than one promoter is involved,
then one promoter can claim compensation or the damages from the
 others, in case of a breach of contract. It is important to note that all the
promoters are jointly and severally liable for all the affairs of the
company.
2. Preliminary Expenses
It is the legitimate right of a promoter to receive all those expenses which
he incurred from his pocket during the formation of the company. These
expenses include – registration, documentation, advertisement, legal
expenses, etc.
3. Right to Receive Remuneration

● Liabilities of a Promoter
1. Liability for pre- incorporation contract:
If the promoters enter into a Contarct before the company comes into
existence such contracts are called pre-incorporation contract for which
company does not become liable nor ratifies so the promoters would
personally be liable
2. Liability for misstatement in Prospectus:
The format of filing a prospectus is given under Section 26 of the
Companies Act, 2013. All the information relating to secretaries,
auditors, legal advisors, bankers, trustees, statements given by the
Board of Directors, etc., must be mentioned therein. However, if any of
the important information is omits from the prospects, the promoter
shall be held liable and will entail punishment as per Section 447 of the
Companies Act, 2013.
3. Criminal liability Under sec- 34 & Civil liability under Sec-35
As per Section 34, if any of the information mentioned in the prospectus
is untrue or misleading, the promoter will be held criminally liable for the
same under section 447.
4. If fault appears during winding up: If during the winding up of the
company proceedings, any fault appears, the promoter of the company
will be directly liable for the same
● Duties of Promoter in a Company
1. Duty of Disclosure of Interest (Sec. 26).
2. Duty Not to make secret Profit,
3. Duty to repay or restore the money or property which has been
misappropriated or Duty to make compensation (Sec. 340)
4. Duty to disclose all the hidden facts
 Classification of Companies :
● On the basis of liability:
a. Company limited by shares:
Section 2(22) of the Companies Act, 2013, defines that when the liability
of the members of a company is limited by its memorandum of
association to the amount (if any) unpaid on the shares held by them, it
is known as a company limited by shares.
● It thus implies that for meeting the debts of the company, the
shareholder may be called upon to contribute only to the extent of the
amount, which remains unpaid on his shareholdings.
● His separate property cannot be encompassed to meet the company’s
debt.
● It may be worthwhile to know that though a shareholder is a co-owner of
the company, he is not a co-owner of the company’s assets. The
ownership of the assets remains with the company, because of its nature
as a legal person. The extent of the rights and duties of a shareholder as
co-owner is measured by his shareholdings.
b. Company limited by guarantee:
● Section 2(21) of the Companies Act, 2013 defines it as the company
having the liability of its members limited by the memorandum to such
amount as the members may respectively undertake by the
memorandum to contribute to the assets of the company in the event of
its being wound up. Thus, the liability of the member of a guarantee
company is limited upto a stipulated sum mentioned in the
memorandum. Members cannot be called upon to contribute beyond that
stipulated sum.
c. Unlimited Company
● Section 2(92) of the Companies Act, 2013 defines unlimited company as
a company not having any limit on the liability of its members. In such a
company, the liability of a member ceases when he ceases to be a
member.

● On the basis of members:

d. One person company:
The Companies Act, 2013 introduced a new class of companies which
can be incorporated by a single person.Section 2(62) of the Companies
Act, 2013 defines one person company (OPC) as a company which has
only one person as a member.
e. Private Company [Section 2(68)]:
“Private company” means a company having a minimum paid-up share
capital as may be prescribed, and which by its articles,—
(i) restricts the right to transfer its shares;
(ii) except in case of One Person Company, limits the number of its
members to two hundred:
Provided that where two or more persons hold one or more shares in a
company jointly, they shall, for the purposes of this clause, be treated as
a single member:
Features of Private company - significant points
⬥ No minimum paid-up capital requirement.
⬥ Minimum number of members – 2 (except if private company is an
OPC, where it will be 1).
⬥ Maximum number of members – 200, excluding present
employee-cum-members and erstwhile
employee-cum-members.
⬥ Right to transfer shares restricted.
⬥ Prohibition on invitation to subscribe to securities of the company.
⬥ Small company is a private company.
⬥ OPC can be formed only as a private company.
f. Public company [Section 2(71)]:
“Public company” means a company which—
(i) is not a private company; and
(ii) has a minimum paid-up share capital, as may be prescribed:
Features of Public company
⬥ Is not a private company (Articles do not have the restricting clauses).
⬥ Shares freely transferable.
⬥ No minimum paid up capital requirement.
⬥ Minimum number of members – 7.
⬥ Maximum numbers of members – No limit.

On the basis of control:

g. Holding and subsidiary companies:
‘Holding and subsidiary’ companies are relative terms. A company is a
holding company in relation to one or more other companies, means a
company of which such companies are subsidiary companies. [Section
2(46)]
● For the purposes of this clause, the expression “company" includes any
body corporate.
● Whereas section 2(87) defines “subsidiary company” in relation to any
other company (that is to say the holding company), means a company in
which the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total voting power
either at its own or togetherwith one or more of its subsidiary companies:
h. Associate company [Section 2(6)]:
In relation to another company, means a company in which that other
company has a significant influence, but which is not a subsidiary
company of the company having such influence and includes a joint
venture company.
Explanation. — For the purpose of this clause —
(a) the expression “significant influence” means control of at least twenty
per cent of total voting power, or control of or participation in business
decisions under an agreement;
 (b) the expression ”joint venture’’ means a joint arrangement whereby the
parties that have joint control of the arrangement have rights to the net
assets of the arrangement.
● Example -
A Ltd. is a Public Company and holds 23% of share capital in B
Ltd. and 15% share capital of C Ltd. By virtue of the shareholding
pattern, B Ltd. will be known as the Associate Company of A Ltd.
(as the holding is more than 20%), whereas C Ltd. will not be
Associate as the required 20% is not there and hence no significant
influence.
● On the basis of access to capital:
i. Listed Company : As per the definition given in the section 2(52) of the
Companies Act, 2013, it is a company which has any of its securities
listed on any recognised stock exchange.
j. Unlisted company : means company other than listed company.
k. Government company [Section 2(45)]:
Government Company means any company in which not less than 51%
of the paid-up share capital is held by- (i) the Central Government, or (ii)
by any State Government or Governments, or (iii) partly by the Central
Government and partly by one or more State Governments, and the
section includes a company which is a subsidiary company of such a
Government company.
l. Foreign Company [Section 2(42)]: It means any company or body
corporate incorporated outside India which— (i) has a place of business
in India whether by itself or through an agent, physically or through
electronic mode; and (ii) conducts any business activity in India in any
other manner.
m. Sec. 8 -Company
n. Dormant Company
 INCORPORATION OF COMPANIES
INCORPORATION OF COMPANIES:
I. Selection of the type of company
II. Preliminary Requirements
III. Reservation of Name
IV. Preparation of the Memorandum of Association and Articles of Association
V. Filing of the documents with the Registrar of Companies
(a) The memorandum and articles
(b) a declaration in the prescribed
(c) an declaration in Form INC-9
(d) The address for correspondence
(e) prescribed particulars of every subscriber
(f) particulars of the interests of the persons mentioned in the articles as the
first directors along with FormDIR-12
(g) E-Form INC-22
VI. Certificate of Incorporation and allotment of Corporate Identity Number
VII. Effect of Registration [Sec. 9]
VIII. Commencement of Business [Sec. 11]
Process in brief :
● Filing of the documents and information with the registrar: For the
registration of the company following documents and information are
required to be filed with the registrar within whose jurisdiction the
registered office of the company is proposed to be situated inthe
memorandum and articles of the company duly signed by all the
subscribers to the memorandum.
- Also declarations are to be filed with the registrar with respect to the
compliance of the mandates of the Companies Act.
● Issue of certificate of incorporation on registration: The Registrar on the
basis of documents and information filed, shall register all the
documents and information in the register and issue a certificate of
incorporation in the prescribed form to the effect that the proposed
company is incorporated under this Act.
● Allotment of Corporate Identity Number (CIN)
● Maintenance of copies of all documents and information
● Furnishing of false or incorrect information or suppression of material
fact at the time of incorporation (i.e. at the time of Incorporation):
● Company already incorporated by furnishing any false or incorrect
information or representation or by suppressing any material fact