1

RESOLUTION

When something is proposed or a proposition is formally made at a meeting, it is called a motion. A motion need not be adopted as it is. It may undergo amendments and changes when discussed by the members. A motion when adopted becomes a resolution. A resolution, therefore, is the decision of the persons present at the meeting either personally or by proxy, which is arrived at after due deliberations. Resolutions constitute the source from which action follows and they must be legally valid. A valid resolution can be passed only at a meeting which has been duly convened and duly constituted with the requisite quorum. After the motion is proposed and seconded it is put to the meeting by members or the chairman. The members present and entitled to vote, excluding the proxies, cast their votes by show of hands for or against the motion. If the requisite number of persons vote in favour of the motion, it becomes a resolution. Resolutions play a very vital role in the functioning of the company affairs. Resolutions taken at the meetings are necessary to carry out the business of the company and helps in formulating various ways through which the development of the company is specific. These resolutions are carried out with intense care and are strictly applicable to the companies.

CHAPTER-1 HISTORY OF COMPANY LEGISLATION IN INDIA

The company legislation in India has closely followed the Company Legislation in England. The first legislative enactment for registration of Joint Stock Companies was passed in the year 1850 which was based on the English Companies Act, 1844. This Act recognises companies as distinct legal entities but did not introduce the concept of limited liability. The concept of limited liability in India, was recognised for the first time by the Companies Act, 1857 closely following the English Companies Act, 1856 in this regard. The Act of 1857, however, kept the liability of the members of the banking company unlimited. It was only in 1858 that the limited liability concept was extended to banking companies also. Thereafter, in 1866, the Companies Act, 1866 was passed for consolidating and amending the law relating to incorporation, regulation and winding-up of trading companies and other associations. This Act was based on English Companies Act, 1862. This Act continued till 1913 when it

was replaced by Companies Act, 1913. The Act of 1913 had been passed following the English Companies Consolidation Act, 1908. The decisions of the English Courts under the English Company law were also closely followed by the Indian Courts. Till 1956, the business companies in India were regulated by this Act of 1913. Certain amendments were, however, made in the years 1914, 1915, 1920, 1926, 1930 and 1932. The Act was extensively amended in 1936 on the lines of the English Companies Act, 1929. Minor amendments were made a number of times thereafter.

WHAT IS A COMPANY
The word company has no strictly technical or legal meaning. It may be described to imply an association of persons for some common object or objects. The purposes for which people may associate themselves are multifarious and include economic as well as non-economic objectives. The word company in simple terms, may be described to mean a vo luntary association of persons who have come together for carrying on some business and sharing the profit there from. Indian Law provides two main types of organisations for such associations: Partnership and company. Although the word Company is colloquially applied to both, the Statute regards companies and company law as distinct from partnership and partnership laws. Partnership law is codified in the Partnership Act, 1932 and is based on the law of agency, each partner becoming an agent of the other(s), and it, therefore, affords a suitable framework for an association of a small body of persons having trust and confidence in each other. A

more complicated form of association with a large and fluctuating membership, requires a more elaborate organisation, which ideally should confer corporate personality on the association, that is, should recognise that it constitutes a distinct legal person, subject to legal duties and entitled to legal rights separate from those of its members. This can be obtained easily and cheaply by registering an association as a company under the Companies Act, 1956. It should be noted that the Companies Act, 1956 even allows a company to be formed and registered for the promotion of commerce, art, science, sports, religion or charity, i.e., for non-economic purposes.

DEFINITION OF A COMPANY
Section 3(1)(i) of the Companies Act, 1932 merely states that a company means a company formed and registered under this Act or an existing company as defined in section 3(1)(ii). Section 3(1)(ii) lays down that an existing company means a company formed and registered under any of the previous Company Law.

DEFINITION BY DIFFERENT AUTHORITIES:

A corporation is an artificial being, invisible, intangible, existing only in contemplation of the law. Being a mere creation of law, it possesses only the properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence.

Chief Justice Marshall A company is an artificial person created by law, having separate entity, with a perpetual succession and common law. Prof. Haney The above definitions clearly bring out the meaning of a company in terms of its features. A company to which the Companies Act applies comes into existence only when it is registered under the Act. On registration, a company becomes a body corporate, i.e., it acquires a legal personality of its own, separate and distinct from its members. A registered company is therefore created by law and law alone can regulate, modify or dissolve it.

CHARACTERISTIC FEATURES OF A COMPANY

The most important characteristic features of a company are separate legal entity of the company and in most cases limited liability of its members. These and other characteristic features of a company are discussed below: Incorporated association The company must be incorporated or registered under the Companies Act. Minimum number required for this purpose is seven in the case of a public company and two in the case of private company. It may also be mentioned that an association of more than 10 persons in the case of banking business and 20 persons in other commercial activities, if not registered as a company or under any other law, becomes an illegal association. Legal entity distinct from its members

The company is different from the persons who constitute it. It is capable of enjoying rights and of being subjected to duties which are not the same as those enjoyed or borne by its members. The first case on this subject was that of Kondali Tea Company Ltd., re ILR (1886) In this case certain persons transferred a tea estate to a company and claimed exemption from ad valorem duty on the ground that they themselves were the shareholders in the company and, therefore, it was nothing but a transfer from them in one to themselves under another name.1 It was held that the company is a separate personality and that is different from that of the identity of the shareholders and therefore the shareholders are liable to pay the ad valorem duty.

Artificial person
A company is primarily an artificial person. It is distinct from its share holders but is not a natural person. It does not posses the characteristics of a natural person but is a person on its own. It is a person created by law. The representatives of the company are directors, officers, shareholders etc., who control and manage the working of the c ompany on the companys behalf. They bind the company and not themselves.

Limited Liability
Limited liability is the principle advantage of a company type of business. The members of the company are only liable to contribute towards payment of its debts to a limited extent. The liability of the shareholders is limited to the extent of their shares held by them. If the company is unable to pay its debts, the creditors will move the court and ask for winding up of the company. The court then appoints an official liquidator to resolve the matter and know the exact debts of the company and then tries to distribute them equally.

Kondali Tea Company Ltd., Re ILR(1886)

Separate property Shareholders are not owners of the company. Company has a separate property. The shareholders cannot take advantage and misuse the companys property. This is well mentioned in the Macaura v. Northern Assurance Company Ltd (1925). In this case, Macaura held all except one share of a timber company. He insured the companys timber in his own name. On timber being destroyed by fire, his claim was rejected for want of insurable interest. The Court observed: no shareholder has any right to any item of property owned by the company for he has no legal or equitable interests therein. 2 Perpetual succession A company does not have an allotted span of life. The functioning of the company does not end at the death or illness of its members. Directors would come and go in the company and therefore there is no end to the company. It has a perpetual succession. This means that the company continues even if all its human members are dead.

Common seal A company being an artificial person is not bestowed with a body of a natural being. It can be held bound by only those documents which bear its signature. Common seal is the official signature of a company. There are other characteristics such as transferability of shares, a company can sue and be sued, it has contractual rights, it has a separate management also. Therefore, it can be concluded that a corporation or a body included within it a Corporate aggregate. A corporate aggregate is a collection of many individuals united in one body, under a special denomination, having perpetual succession under an artificial form, and vested by law, with a capacity of acting in several respects, as an individual, particularly of taking and granting property, of contracting obligations, and of suing and being sued; of enjoying privileges and immunities in common, and of exercising a variety or rights or
2

Macaura v. Northern Assurance Company Ltd (1925) AC 619

powers conferred upon it, either at the time of its creation or at any subsequent period of its existence.

CHAPTER-2 PROMOTION OF A COMPANY

For a company to run its daily business, it is essential to form the company. As a company is an artificial person, it has certain obligations to be fulfilled in order to exist as a person. The companies are usually formed for the purpose of earning profits by investing capital in business or industry. Broadly speaking, the formation of company involves three main stages, namely, (i) Promotion of a company; (ii) Its incorporation or registration; (iii) commencement of business. First step in the incorporation of the company is its promotion. It deals with the idea of creating a company, the purpose of creation of company and its uses. Before the company is

formed, there must be some persons who have an intention to form it and take necessary steps to bring it into existence. The persons who initiate the process of formation of a company are called promoters. The promoters not only conceive the idea of forming the company but also take necessary steps to complete the formalities of incorporation and registration and also make arrangements for capital or assets with which the company is to be started. Promotion of a company is The discovery of business opportunities and the subsequent organisation of funds, property and managerial ability into a business concern for the purpose of making profits there from. - Professor Gerstenberg

Promoter There is no statutory definition of a promoter, though the term is indirectly described in Section 56(1)(b) of the Companies Act, 1956, as a person engaged or interested in the formation of the company. Promoter is a person who has initiated the company. According to the Websters dictionary the term promoter includes a person who alone or with others set on foot and take the preliminary steps in the formation of a company.

Twycross v. Grant

In the above case, it was observed by the Lord Cockburn, CJ that a promoter is a person who undertakes to form a company with reference to a given object and to set it in going and who takes the necessary steps to accomplish that purpose.

Whaley Bridge Calico Printing Company v. Green In the above case, Lord Justice, Lord Bowen, observed that promoter is a term not of law but of business, usually summing up in a single word a number of business operations familiar to the commercial world, by which a company is generally brought into existence.

In a short, a promoter paves the way for a company to stand on its own feet. Any person who arranges a Director, places shares or negotiates preliminary agreement may be called a promoter. But a person who merely acts in his professional capacity on behalf of the promoter like a solicitor is not a promoter.

LEGAL STATUS OF A PROMOTER

Lord Cairns in Erlanges v. New Sombrero Phosphate Co . explained about the legal position of a promoter as: They stand in my opinion, undoubtedly in a fiduciary position. They have in their hands the creation and moulding of the company. They have the power of defining how and when in what shape and under what supervision the company shall start into existence and begin to act as a Trading Corporation.

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In Lagunas Nitrate Co. v. Lagunas Syndicate, the court held that a promoter occupies a fiduciary position in relation to the company he promotes. He is neither an agent nor a trustee for the company because the company before incorporation has no legal existence. The fiduciary relation of a promoter with the company he forms, gives rise to certain legal consequences. Therefore he is under a legal duty in respect of following matters:A promoter is not to make any secret profits out of the promotion of the company. Secret profits may be made by promoter by purchasing property or a business himself and selling it to the company at a higher price. He should make full disclosure of all relevant facts to the company including any profit made and his personal interest in transaction with the company. Re. Leeds and Hanley Theatres of Varieties Ltd. In this case, a company purchased two music halls for 24000 intending to sell the properties to a new company when formed. In the meantime it conveyed the properties to a nominee. It then promoted a new company and then instructed the nominee to sell the properties to this company for 75000. In the prospectus issued by the company nominees name was given as the vendor of the property but the interest of the first company was not disclosed. It was held that the Board of Directors of the second company not being independent, the interest of the first company should have been disclosed in the prospectus. Consequently, the promoters were held liable for the secret profit which they had made out of this transaction. Section 56 of the Companies Act, 1956 requires that the promoters profit should be disclosed in the prospectus itself. The disclosure has also to be made of an intere st of the promoter in the promotion of the company or any property acquired by or proposed to be acquired by the company during the preceding two years. The remedy for non-disclosure in such cases is that the company may rescind the contract with the promoter.

RIGHTS OF PROMOTERS
The rights of the promoters are as follows: Right to receive preliminary expenses

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Right to recover proportionate amount from the co-promoters Right to remuneration

RIGHT TO RECEIVE PRELIMINARY EXPENSES The promoters are entitled to receive all the expenses incurred in setting up and registering the company from the Board of Directors. RIGHT TO RECOVER PROPORTIONATE AMOUNT FROM THE CO-PROMOTERS The promoters are held jointly and severally liable for the secret profits made by them in formation of the company. If suppose, the entire amount is paid by one promoter, he has the right to take proportionate amount back from the other co-promoters. RIGHT TO REMUNERATION A promoter having made proper disclosure, has a right to be paid remuneration for his efforts. It can be in the form of fully or partly paid up shares, debentures or commission or it can even be in the form of a lump sum amount.

LIABILITIES OF PROMOTERS
The following are the liabilities of a promoter according to the Companies Act, 1956: The promoter may be held liable for non-compliance of the provisions of this section. The promoter is liable for any untrue statement in the prospectus to a person who has subscribed any shares or debentures on the faith of the prospectus. The Court may restrain a promoter from taking part in the management of the company for a period of five years if it appears that he has been guilty of any offence

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punishable under Section 542 (whether he has been convicted or not) or while being an officer of the company has otherwise been guilty of any fraud or misfeasance in relation to the company or committed any breach of duty in respect of the company of which he is a promoter. A promoter is criminally liable for the issue of prospectus containing false or deceptive statements (sec 63). The promoter is liable to public examination in case any fraud is realised at the time of wounding up by the official liquidators (Sec 478). Where a promoter has misapplied or retained any property of the company or is guilty of misfeasance or breach of trust in relation to the company, he can be sued by the company for breach of duty or deceit, as the case may be (Sec 543) In the event of death of the promoter, the company may recover the damages or compensation from the property of the deceased promoter.

WHEN DOES LIABILITY OF PROMOTER COMMENCE The promoters are liable for only those acts which are purported to have been done for the company which they intend to float. Their liability commences only after they have started functioning as promoters and not for earlier acts. This principle has been laid down in the English case of Ladgwell Mining Co. v. Brooks . In this case five persons purchased a mine for 5,000 with the intention of selling it to a company which was under formation. None of these persons were participating in the formation of the company at the time of purchase and, therefore, had no involvement in the promotion of the company. They sold the mine to the

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trustees of the company which was under formation under a contract for 18,000. The contract was ratified by the company after its incorporation. Four of these five persons later became the directors of that company. The company therefore, sued them for recovery of non-disclosed secret profit of 3,000. The Court held that the defendants were not the promoters of the company at the time of the initial purchase of the mine as they were not involved in the formation of the company at that time, they were, therefore, not liable to the company. The Court ruled that the liability of promoter commences as soon as they have set out for the promotion of the company and it does not extend to any of their earlier acts.

PRE-INCORPORATION CONTRACTS
Pre-incorporation contracts are also called preliminary contracts which are purported to be made on behalf of the company before its incorporation. Pre-incorporation contracts may relate to properties which the promoters of the company may wish to secure for the company or they may relate to secure the services of certain experts which are vital for the success of the company.

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The question arise: whether a company can be held liable for contracts which were made before its incorporation since it is non-existent and has no capacity to contract at the time the contract was made though it does take the benefit of the work done under the contract. The company cannot be sued for those expenses which would be incurred on pre-

incorporation contracts. The company on its part also cannot sue and claim any benefits under a pre-incorporation contract nor can it adopt or ratify such a contract. This means that the person who has contracted on behalf of the company would be personally liable and not the company. In other words, a pre-incorporation contract is a contract which is made on behalf of a company before it is incorporated, which is obviously not possible. Ratification of a preincorporation contract is not possible since ratification operates retrospectively. A person cannot enter into a contract before the company is born. However, it may be necessary to bind an outsider with a contract before the company is incorporated. Hence, the need for a pre-incorporation contract. Section 15(b) and 19(e) of the Specific Relief Act, 1963 provide as follows: The contract should have been entered into by the promoter for the purpose of the company. The term of incorporation should warrant such contract, that is, the contract should be within the scope of the objects of the company. The company should accept the contract after incorporation. Such acceptance should be communicated to the other party to the contract.

If the above conditions are fulfilled, then specific performance of t he contract may be enforced by the company or against the company.

CHAPTER-3 INCORPORATION OF COMPANIES

A company gets legal recognition only after its incorporation. It needs to get the certificate of incorporation from the Registrar of the Companies. Incorporation of companies is the second important stage of the formation of a company. The company gets perpetual existence soon

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after it is incorporated or registered. A company is incorporated by registering certain documents with the Registrar of Companies and paying certain fees and stamp duties. Unless these formalities are complied with, a company does not have a legal existence of its own. In order to get certificate of incorporation for a new company from the Registrar of Companies, the following formalities shall have to be complied with by the promoters: An application in the prescribed Form 1A of the Companies (Governments) General Rules and Forms, 1956 along with a fee of Rs. 100 as required under Rule 4A shall be filled to Registrar of Companies of the State in which the registered office of the proposed company is to be situated. The application must specify the name of the company proposed to be incorporated as its name and the kind of company, namely, whether it is a public or private company. The memorandum of association and the articles of association should be prepared and printed and a copy of each of them has to be stamped according to the Stamp Act. A public company limited by shares may adopt Table A of Schedule I of the Act, and in that case it need not prepare its own articles of association. The memorandum and articles are to be signed by at least seven subscribers in case of public company and two in case of a private company; and each subscriber should give his address, description and occupation etc. and number of shares subscribed by him. The subscriber must sign these documents in the presence of at least one witness who shall attest the signature. These documents should also bear the date. The following documents should then be filled with the Registrar of Companies:i. ii. Duly stamped memorandum Articles, if the company intends to get them registered. They should be duly stamped. iii. The agreement, if any, which the company proposes to enter into with any individual for appointment as managing or whole time director or manager. iv. A declaration of compliance on Form 1 on requisite non-judicial stamp paper duly signed by an advocate, an attorney or a pleader entitled to appear before a High Court or a whole time Company Secretary or a Chartered Accountant practising in India, or by a person named in the Articles as a director, manager or secretary, has also to be filed with the Registrar of the Companies.(Sec 33(2)).

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v.

In case the company to be incorporated i a public company having a share capital: a. A written consent of each director on Form No.29, to act, ass director signed by him or his agent authorised in writing and b. A written undertaking in the same Form to take from company, his qualification shares and pay for them if he had not already taken them or has signed the memorandum for such shares.

The above documents(a, b) need not be filled in case of a private company. The following two documents, though not required for the purpose of registration of the company, are usually filled along with the aforesaid documents, since the first in any case has to be filled within thirty days of incorporation, and the second within thirty days of appointment, whether the company is a public or private company: i. ii. The address of the registered office of the company in Form 18 Particulars of directors, manager and secretary in Form 32 in duplicate.

A filing fee as per Schedule X of the Companies Act has also to be deposited along with the aforesaid documents.

The incorporation of a company can be more elaborately dealt in the following method. It can be explained by the steps involved in incorporation of a company. The following documents are required in order to incorporate a company: Choice and availability of name Memorandum of association

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Articles of association Statement of nominal capital List of persons agree to act as directors Consent Qualification shares of directors Declaration

Each document can be explained as follows:

CHOICE AND AVAILABILITY OF NAME

Under Section 20, a company cannot be registered with a name which is undesirable in the opinion of the Central Government. A name which too nearly resembles with that of a company already in existence will be deemed to be undesirable. Even phonetic resemblance will not be permitted. This process of finding the names of existing company, if it is there with the Registrar of Companies. Therefore, three names in the order of preference shall be filled with the Registrar. If a proposed name is identical with or too closely resembles the name of an existing company, the Registrar will refuse it, otherwise he certifies the proposed name to be available. The name should be printed on the memorandum only after its availability is ascertained in advance.

MEMORANDUM OF ASSOCIATION
A company is an association of persons. The memorandum gives the condition under which they associate. Memorandum of association is the fundamental charter of the company. It defines the scope and ambit of a company. It contains the basic conditions subject to which

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the company is granted incorporation. It has to be a printed document containing the prescribed matters. FORMS OF MEMORANDUM The companies Act prescribes four different Forms of Memorandum, which are applicable to different classes of companies. Specimen Forms of memorandum for different kinds of companies are set out in Tables B, C, D and E in Schedule I as follows: The Form in Table B is applicable in case of companies limited by shares; The Form in Table C is applicable to companies limited by guarantee and not having share capital; The Form in Table D is applicable to companies limited by guarantee and having a share capital; The Form in Table E is applicable to unlimited companies.

It defines he purpose for which shareholders money is spent and the risk thereon. It also tells the outsiders, the scope of company whether the functions and operations of company are intra-vires or ultra-vires. A company can never go beyond the stipulations of the Memorandum of Association. Memorandum of Association can be explained by the following case law: Ashbury Railway Carriage and Iron Company Ltd. v. Riche In this case, Lord Cairns observed that: The memorandum defines the limitation of the powers of the company it contains in it, both that which is affirmative and that which is negative. It states affirmatively the ambit and extent of vitality and powers which by law are given to the corporation, and it states negatively, if it is necessary to state, that nothing shall be done beyond that ambit..

CONTENTS OF THE MEMORANDUM OF ASSOCIATION The following are the contents of the Memorandum of association: Name clause

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Registered office clause Objects clause Limited liability clause Capital clause Association clause

Name Clause Sec 13(1)(a): A company must have a name of its own. The name of an incorporation is the symbol of its personal existence. The name clause is given in Sec 13 (1)(a), which show casts the following factors: i. ii. iii. iv. v. No identical names for two or more companies It is a symbol of existence of the company. Name should accompany the word Pvt. Ltd. or Ltd. The name should be carried on all play cards, exhibits etc. They all should have a common seal which should be attested by the Directors.

Registered office clause Sec 13(b): A company is required to state in its memorandum of association the name of the state in which the registered office of the company is to be situated. This can be filed with the Registrar of the Companies separately in Form 18 within 30 days of the incorporation of the company. The purpose of registered office of the company is to enable the persons dealing with the company including Registrar to serve notices, documents, communications etc. on the company. Objects Clause Sec 13 (c)(d)(e): The most important clause of the memorandum of association is the objects clause because it sets out the purpose for which the company is formed and the kind of activities or business it intends to carry on. The importance of objects clause lies in the fact that it determines the purpose and the capacity of the company, besides its sphere of activities. It enables the subscribers, to know the use to which their investment money is put and thus extends protection to the shareholders. It also extends certain degree of protection to creditors. The objects clause also serves the public interest as the company cannot diversify its activities beyond those specified in the objects clause.

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Liability Clause Sec 13(2)(3): In case of a company whose liability of members is limited by shares or guarantee, the memorandum must contain a clause stating that the liability of the members is limited. Even a company which is exempted from using the word Limited as a part of its name under Sec 25 of the Companies Act, is also required to state in its memorandum that the liability of members is limited. The liability of the members is only to the extent of their share in the company. Capital Clause Sec 13(4)(a): The capital clause in the memorandum states the amount of the nominal or authorised capital with which the company proposes to be registered, and the value of the shares into which it is divided. There is no limit to the amount of capital which the company may have, or to the fixed value of each individual share. The capital of the company may be divided into Equity and Preference shares. Association Clause Sec. 13(3),(4): Association clause is also known as subscription clause of the memorandum. This clause must state that the persons who are subscribing their signatures to the memorandum and are desirous of forming themselves into an association in pursuance of the memorandum. Each subscriber must sign the memorandum in the presence of at least one witness who shall attest the signature.

ARTICLES OF ASSOCIATION
The articles of association of a company are the internal regulations which govern the management of the internal affairs of a company. It defines the powers of directors and officers of the company. Articles can never overwrite the objects of memorandum of

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association but can clarify the objects. It plays a sub-ordinate role in the administration of a corporate entity. CONTENTS OF ARTICLE OF ASSOCIATION Share capital Lien on shares Calls on shares Transfer and transmission etc.

Share capital: Rights, operational part, variation of shareholders rights, share certificate are considered. Lien on Shares: Lien is the right of detention. The company can always exercise the lien on shares for all the shares amount which is due to it. Call on shares: Share capital is collected in segments that is in calls like call 1, call 2 etc. Transfer and Transmission: Transfer means transfer of title from one person to another and transmission means transfer of title from dead person to living person.

STATEMENT OF NOMINAL CAPITAL

The statement of nominal capital is to be mentioned along with other documents while incorporating a company. This is the statement of total authorised capital brought by the

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members of the company. It also states the total share capital limit. This forms the basic requirement of an incorporated company. It helps in the internal application of the affairs of the company. Therefore, a statement of nominal capital should be presented to the Registrar of the Companies.

LIST OF PERSONS AGREE TO ACT AS DIRECTORS

Next document which is required by the Registrar of the Companies is the list of persons who agree to act as directors. Their details relating to name, address, amount of share contribution etc are to be mentioned and duly signed by the directors. The absence of which, incorporation process comes to a standstill. This enables the Registrar and the shareholders to know about the directors and their capacity to perform functions of the company.

CONSENT
A consent letter should be given be given by the members of the company. This consent should be duly signed by all the members of the company. The consent letter deals with the consent of all the members whose purpose is to form a company and perform the company functions. In other words, all members of the company like the directors and the promoters give their consent in writing duly signed by them to the Registrar of the Companies. Thus, this is also an important document which is required in the process of incorporation of th e company. The consent should be given only in the case of public companies.

QUALIFICATION SHARES OF THE DIRECTORS

The minimum number of shares a person must own, as provided in the articles of the company, in order to qualify to become a director of the company. Qualification shares must be acquired by a director within 2 months of his appointment. The articles cannot require a director to acquire qualification shares within a shorter period. The face value of the qualification shares cannot exceed five thousand rupees, or if the face value of one share is more than five thousand rupees, then the qualification share will be one qualification share. Every director, not being a technical director of a director appointed, by the Central or a State Government, shall within two months after his appointment file with the company a declaration specifying the qualification shares held by him. If, after the expiry of the said period of two months, any person acts as a director of the company when he does not hold the

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qualification shares, he shall be punishable with the fine which may extend to fifty rupees for every day between such expiry and the last day on which he acted as a director.

DECLARATION
A declaration should be given by an advocate or a solicitor or a chartered accountant etc regarding the incorporation of the company. This has to be duly signed by the them. This means that they hereby declare that the promoters of the company are ready to start a company.

CHAPTER-4 COMMENCEMENT OF BUSINESS

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The Registrar of Companies on being satisfied that all the requirements have been duly complied with will enter the name of the company in the Registrar of Companies maintained by him and issue a certificate of incorporation to the company under his signature under Section 34 of the Companies Act. The Company becomes a body corporate with perpetual succession and a common seal from the date on the certificate, even if that is not in fact the date when it was issued. The Certificate of Incorporation is a conclusive evidence of the fact that all the requirements of the Companies Act have been compiled with and that everything is in order as regards registration and that company is a valid incorporated company. Once the certificate of incorporation is issued by the Registrar, the validity of the certificate cannot be challenged on any ground. A private company or a public company no having share capital, may commence business and exercise borrowing powers immediately after it has received the certificate of incorporation. But a public company having share capital cannot commence business or exercise borrowing powers even after its incorporation unless it obtains a certificate of commencement of business which is often called the trading certificate from the Registrar of Companies. On receipt of this certificate a company is entitled to commence business. A company which has not issues a prospectus shall have to file a statement in lieu of prospectus for getting the certificate of commencement of business.

SUMMARY

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Incorporation procedure for a company is indeed an essential element which is noticed in the Companies Act. The way to incorporate a company must be substantially followed by the promoters in order to comply with the regulations laid down under this Act. Firstly, the incorporation of a company deals with the idea of forming a company by the promoters, who put their efforts in preparing the purpose for which they want to carry on with the business. The second step is incorporation, where in they need to follow the process of availability of name, memorandum of association, articles of association, statement of the nominal capital, list of persons who agree to act as directors, a consent letter by the members of the company, the qualification shares of the directors and the declaration given by the advocates, solicitors etc. The third step is the commencement of business where in the incorporated company must receive the certificate of incorporation which allows them to exercise their borrowing duties and other functions. In case of a public company, it has to take commencement of business certificate which is also called as trading certificate along with the certificate of incorporation.

BIBLIOGAPHY

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1. Company law by Dr. N.V Paranjape 2. Taxmanns Company Law and Practice by A.K Majumdar and Dr. G.K Kapoor 3. Lectures on Company Law and with Securities Contract (Regulations) Act, MRTP Act and SEBI Guidelines by Dr. K.S Anantharaman , 1998 edition 4. www.legalservicesindia.com 5. www.google.com 6. www.scribd.com 7. www.docstoc.com