Procedure
for registration of a company
A company, in common parlance, means a group of persons associated together
for the attainment of a common end, social or economic. It has “no strictly
technical or legal meaning.”
According to sec. 3 (1) (ii) of the Companies Act, 1956 a company means a
company formed and registered under the Companies Act, 1956 or any of the
preceding Acts. Thus, a Company comes into existence only by registration under
the Act, which can be termed as incorporation.
A company
comes into existence when a number of persons come together with a view to
exploit some business opportunity. According to section 12, for a private
company any two persons or more and for a public company any seven persons or
more may incorporate a company, by subscribing their names to the Memorandum of
Association and complying with other requirements, in respect of registration.
The
memorandum for registration of a company should be presented to the registrar
of the state in which the business office of the company is to be situated.
Documents to be filed with the
registrar:-
1. Application
for availability of name
2. Memorandum
of Association
3. Articles of
Association
4. Copy of
proposed agreement
5. Statement on
nominal capital
6. Address of
the registered office
7. List of
directors and their consent
8. Undertaking
to take up qualification shares
9. Statutory
declaration
When the
Registrar of Companies is satisfied by the filed documents, he registers the
company and places its name on the register of companies. If there are small
defects in the documents, the registrar can get it rectified and then get the
company registered. But, if there is a material defect, he may refuse for
registration.
Advantages of incorporation
Incorporation offers certain advantages to a
company as compared with all other kinds of business organizations. They are
1) Independent corporate existence- the outstanding feature of a
company is its independent corporate existence. By registration under the
Companies Act, a company becomes vested with corporate personality, which is
independent of, and distinct from its members. A company is a legal person. The
decision of the House of Lords in Salomon
v. Salomon & Co. Ltd. (1897 AC 22) is an authority on this
principle:
One S incorporated a company to take over his personal business of manufacturing
shoes and boots. The seven subscribers to the memorandum were all his family
members, each taking only one share. The Board of Directors composed of S as
managing director and his four sons. The business was transferred to the
company at 40,000 pounds. S took 20,000 shares of 1 pound each n debentures
worth 10,000 pounds. Within a year the company came to be wound up and the
state if affairs was like this: Assets- 6,000 pounds; Liabilities- Debenture
creditors-10,000 pounds, Unsecured creditors- 7,000 pounds.
It was argued on behalf of the unsecured creditors that, though the co was
incorporated, it never had an independent existence. It was S himself trading
under another name, but the House of Lords held Salomon & Co. Ltd. must be
regarded as a separate person from S.
2)
Limited liability- limitation of liability is another
major advantage of incorporation. The company, being a separate entity, leading
its own business life, the members are not liable for its debts. The liability
of members is limited by shares; each member is bound to pay the nominal value
of shares held by them and his liability ends there.
3)
Perpetual succession- An incorporated company never dies.
Members may come and go, but the company will go on forever. During the war all
the members of a private company, while in general meeting, were killed by a
bomb. But the company survived, not even a hydrogen bomb could have destroyed
it (K/9 Meat Supplies (Guildford)
Ltd., Re, 1966 (3) All E.R. 320).
4)
Common seal- Since a company has no physical
existence, it must act through its agents and all such contracts entered into
by such agents must be under the seal of the company. The common seal acts as
the official seal of the company.
5)
Transferable shares- when joint stock companies were
established the great object was that the shares should be capable of being
easily transferred. Sec 82 gives expression to this principle by providing that
“the shares or other interest of any member shall be movable property,
transferable in the manner provided by the articles of the company.”
6)
Separate property- The property of an incorporated
company is vested in the corporate body. The company is capable of holding and
enjoying property in its own name. No members, not even all the members, can
claim ownership of any asset of company’s assets.
7)
Capacity for suits- A company can sue and be sued in
its own name. The names of managerial members need not be impleaded.
8)
Professional management- A company is capable of attracting
professional managers. It is due to the fact that being attached to the
management of the company gives them the status of business or executive class.
Disadvantages of incorporation
1)
Lifting of corporate veil- though for all purposes of law a
company is regarded as a separate entity it is sometimes necessary to look at
the persons behind the corporate veil.
a)
Determination of character- The House of Lords in Daimler Co Ltd. v. Continental Tyre and
Rubber Co., held that a company though registered in England would
assume an enemy character if the persons in de facto control of the company are
residents of an enemy country.
b)
For benefit of revenue- The separate existence of a company
may be disregarded when the only purpose for which it appears to have been
formed is the evasion of taxes. – Sir
Dinshaw Maneckjee, Re / Commissioner of Income Tax v. Meenakshi Mills Ltd.
c)
Fraud or improper conduct- In Gilford Motor Co v. Horne, a company was restrained from
acting when its principal shareholder was bound by a restraint covenant and had
incorporated a company only to escape the restraint.
d)
Agency or Trust or Government
company- The
separate existence of a company may be ignored when it is being used as an
agent or trustee. In State of UP v.
Renusagar Power Co, it was held that a power generating unit created
by a company for its exclusive supply was not regarded as a separate entity for
the purpose of excise.
e)
Under statutory provisions- The Act sometimes imposes personal
liability on persons behind the veil in some instances like, where business is
carried on beyond six months after the knowledge that the membership of company
has gone below statutory minimum(sec 45), when contract is made by
misdescribing the name of the company(sec 147), when business is carried on
only to defraud creditors(sec 542).
2) Formality and expense- Incorporation
is a very expensive affair. It requires a number of formalities to be complied
with both as to the formation and administration of affairs.
3) Company not a citizen- In State Trading Corporation of India v. CTO,
the SC held that a company though a legal person is not a citizen neither under
the provisions of the Constitution nor under the Citizenship Act.
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