ICAI Notes: Incorporation of Company and Matters Incidental Thereto | Corporate & Other Laws for CA Intermediate PDF Download

 Page 1


LEARNING OUTCOMES 
CHAPTER 
2 
 
INCORPORATION OF 
COMPANY AND 
MATTERS 
INCIDENTAL THERETO 
 
At the end of this chapter, you will be able to: 
?
Explain the Formation & Incorporation of company (Private 
Limited/ Public Limited), One person company (OPC) and the 
formation of Not for Profit Organization (Section 8 
Company). 
?
Identify the need for Memorandum of Association (MOA) and 
Articles of Association (AOA) and changes incidental thereto. 
?
Know the effect of registration. 
?
Explain and identify the concepts related to registered office 
of company. 
?
Understand how documents may be served and filing thereof.   
?
Know about Authentication of documents, proceedings and 
contracts and Execution of bills of exchange, etc. 
© The Institute of Chartered Accountants of India
Page 2


LEARNING OUTCOMES 
CHAPTER 
2 
 
INCORPORATION OF 
COMPANY AND 
MATTERS 
INCIDENTAL THERETO 
 
At the end of this chapter, you will be able to: 
?
Explain the Formation & Incorporation of company (Private 
Limited/ Public Limited), One person company (OPC) and the 
formation of Not for Profit Organization (Section 8 
Company). 
?
Identify the need for Memorandum of Association (MOA) and 
Articles of Association (AOA) and changes incidental thereto. 
?
Know the effect of registration. 
?
Explain and identify the concepts related to registered office 
of company. 
?
Understand how documents may be served and filing thereof.   
?
Know about Authentication of documents, proceedings and 
contracts and Execution of bills of exchange, etc. 
© The Institute of Chartered Accountants of India
CORPORATE AND OTHER LAWS 2.2 
This chapter will discuss in detail the provisions contained in Chapter II of the 
Companies Act 2013 pertaining to the incorporation of companies and matters 
incidental thereto. The scope of this chapter is shown in below figure; 
 
Incorporation of company and related matters
Formation and 
Incorporation
Minimum 
members & 
OPC              
(Sec 3 & 3A)
Documents 
required  (Sec 
7)
Not for profit 
company (Sec 
8)
Effect of 
registration 
(Sec 9)
Memorandum 
and Articles
Memorandum 
(MOA) (Sec 4)
Article  (AOA)
(Sec 5)
Act to override 
MOA/AOA         
(Sec 6)
Changes in 
Memorandum
(Sec 13)
Changes in 
Article (Sec 14)
Updation of  changes to be 
noted in every copy of 
MOA/AOA (Sec 15)
Give copy of MOA/AOA to 
members  (Sec 17)
Documents
Service (Sec 20)
Authentication  
(Sec 21)
Execution          
(Sec 22)
Other 
Provisions
Registered 
Office (Sec 12)
Commencement 
of Business       
(Sec 10A)
Rectify Name 
(Sec 16)
Convert 
Company       
(Sec 18)
Subsidiary 
Can't hold 
shares in 
holding         
(Sec 19)
CHAPTER OVERVIEW CHAPTER OVERVIEW
© The Institute of Chartered Accountants of India
Page 3


LEARNING OUTCOMES 
CHAPTER 
2 
 
INCORPORATION OF 
COMPANY AND 
MATTERS 
INCIDENTAL THERETO 
 
At the end of this chapter, you will be able to: 
?
Explain the Formation & Incorporation of company (Private 
Limited/ Public Limited), One person company (OPC) and the 
formation of Not for Profit Organization (Section 8 
Company). 
?
Identify the need for Memorandum of Association (MOA) and 
Articles of Association (AOA) and changes incidental thereto. 
?
Know the effect of registration. 
?
Explain and identify the concepts related to registered office 
of company. 
?
Understand how documents may be served and filing thereof.   
?
Know about Authentication of documents, proceedings and 
contracts and Execution of bills of exchange, etc. 
© The Institute of Chartered Accountants of India
CORPORATE AND OTHER LAWS 2.2 
This chapter will discuss in detail the provisions contained in Chapter II of the 
Companies Act 2013 pertaining to the incorporation of companies and matters 
incidental thereto. The scope of this chapter is shown in below figure; 
 
Incorporation of company and related matters
Formation and 
Incorporation
Minimum 
members & 
OPC              
(Sec 3 & 3A)
Documents 
required  (Sec 
7)
Not for profit 
company (Sec 
8)
Effect of 
registration 
(Sec 9)
Memorandum 
and Articles
Memorandum 
(MOA) (Sec 4)
Article  (AOA)
(Sec 5)
Act to override 
MOA/AOA         
(Sec 6)
Changes in 
Memorandum
(Sec 13)
Changes in 
Article (Sec 14)
Updation of  changes to be 
noted in every copy of 
MOA/AOA (Sec 15)
Give copy of MOA/AOA to 
members  (Sec 17)
Documents
Service (Sec 20)
Authentication  
(Sec 21)
Execution          
(Sec 22)
Other 
Provisions
Registered 
Office (Sec 12)
Commencement 
of Business       
(Sec 10A)
Rectify Name 
(Sec 16)
Convert 
Company       
(Sec 18)
Subsidiary 
Can't hold 
shares in 
holding         
(Sec 19)
CHAPTER OVERVIEW CHAPTER OVERVIEW
© The Institute of Chartered Accountants of India
INCORPORATION OF COMPANY & MATTERS 
INCIDENTAL THERETO 
2.3 
1. INTRODUCTION TO INCORPORATION OF 
COMPANIES & PROMOTOR 
Chapter II Consists of sections 3 to 22 as well as the Companies 
(Incorporation) Rules, 2014. 
A company is a separate legal entity from its members. It has perpetual succession 
and can be incorporated only for lawful purposes. Prior to incorporation, promotion 
activities are essential. Promotion signifies a number of business operations familiar 
to the commercial world by which a company is brought into existence
1
 
Persons who undertake promotion activities in order to incorporate the company 
are generally known as promoters. The section 2(69) of Companies Act, 2013
2
(herein after referred to as ‘the Act’) defines the term “Promoter” (already 
mentioned in chapter 1 of module; elaborated here). Promoter means a person; 
a. Who has been named as promoter in a prospectus; or 
b. Who is identified as promoter by the company in the annual return; or 
c. Who has control over the affairs of the company, directly or indirectly whether 
as a shareholder, director or otherwise; or 
d. In accordance with whose advice, directions or instructions the Board of 
Directors of the company is accustomed to act, but shall not include a 
person who is acting merely in a professional capacity such as attorney, 
technical or functional experts. 
Students are advised to take note that above definition serves the purpose to make 
a person liable ‘in capacity of promoter’ for fraud through misstatement, but not 
highlighting what actually promoters do. Hence, considering the judicial 
pronouncements improves our understanding regarding role of promoter. 
Promoter is one who undertakes to form a company with reference to a given 
project, and to set it going, and who takes the necessary steps to accomplish that 
1
 Whaley Bridge Printing Co. v. Green (1880) 5 B.D. 109 
2
 Act 18 of 2013 
© The Institute of Chartered Accountants of India
Page 4


LEARNING OUTCOMES 
CHAPTER 
2 
 
INCORPORATION OF 
COMPANY AND 
MATTERS 
INCIDENTAL THERETO 
 
At the end of this chapter, you will be able to: 
?
Explain the Formation & Incorporation of company (Private 
Limited/ Public Limited), One person company (OPC) and the 
formation of Not for Profit Organization (Section 8 
Company). 
?
Identify the need for Memorandum of Association (MOA) and 
Articles of Association (AOA) and changes incidental thereto. 
?
Know the effect of registration. 
?
Explain and identify the concepts related to registered office 
of company. 
?
Understand how documents may be served and filing thereof.   
?
Know about Authentication of documents, proceedings and 
contracts and Execution of bills of exchange, etc. 
© The Institute of Chartered Accountants of India
CORPORATE AND OTHER LAWS 2.2 
This chapter will discuss in detail the provisions contained in Chapter II of the 
Companies Act 2013 pertaining to the incorporation of companies and matters 
incidental thereto. The scope of this chapter is shown in below figure; 
 
Incorporation of company and related matters
Formation and 
Incorporation
Minimum 
members & 
OPC              
(Sec 3 & 3A)
Documents 
required  (Sec 
7)
Not for profit 
company (Sec 
8)
Effect of 
registration 
(Sec 9)
Memorandum 
and Articles
Memorandum 
(MOA) (Sec 4)
Article  (AOA)
(Sec 5)
Act to override 
MOA/AOA         
(Sec 6)
Changes in 
Memorandum
(Sec 13)
Changes in 
Article (Sec 14)
Updation of  changes to be 
noted in every copy of 
MOA/AOA (Sec 15)
Give copy of MOA/AOA to 
members  (Sec 17)
Documents
Service (Sec 20)
Authentication  
(Sec 21)
Execution          
(Sec 22)
Other 
Provisions
Registered 
Office (Sec 12)
Commencement 
of Business       
(Sec 10A)
Rectify Name 
(Sec 16)
Convert 
Company       
(Sec 18)
Subsidiary 
Can't hold 
shares in 
holding         
(Sec 19)
CHAPTER OVERVIEW CHAPTER OVERVIEW
© The Institute of Chartered Accountants of India
INCORPORATION OF COMPANY & MATTERS 
INCIDENTAL THERETO 
2.3 
1. INTRODUCTION TO INCORPORATION OF 
COMPANIES & PROMOTOR 
Chapter II Consists of sections 3 to 22 as well as the Companies 
(Incorporation) Rules, 2014. 
A company is a separate legal entity from its members. It has perpetual succession 
and can be incorporated only for lawful purposes. Prior to incorporation, promotion 
activities are essential. Promotion signifies a number of business operations familiar 
to the commercial world by which a company is brought into existence
1
 
Persons who undertake promotion activities in order to incorporate the company 
are generally known as promoters. The section 2(69) of Companies Act, 2013
2
(herein after referred to as ‘the Act’) defines the term “Promoter” (already 
mentioned in chapter 1 of module; elaborated here). Promoter means a person; 
a. Who has been named as promoter in a prospectus; or 
b. Who is identified as promoter by the company in the annual return; or 
c. Who has control over the affairs of the company, directly or indirectly whether 
as a shareholder, director or otherwise; or 
d. In accordance with whose advice, directions or instructions the Board of 
Directors of the company is accustomed to act, but shall not include a 
person who is acting merely in a professional capacity such as attorney, 
technical or functional experts. 
Students are advised to take note that above definition serves the purpose to make 
a person liable ‘in capacity of promoter’ for fraud through misstatement, but not 
highlighting what actually promoters do. Hence, considering the judicial 
pronouncements improves our understanding regarding role of promoter. 
Promoter is one who undertakes to form a company with reference to a given 
project, and to set it going, and who takes the necessary steps to accomplish that 
1
 Whaley Bridge Printing Co. v. Green (1880) 5 B.D. 109 
2
 Act 18 of 2013 
© The Institute of Chartered Accountants of India
CORPORATE AND OTHER LAWS 2.4 
purpose.
3
 To be a promoter, one need not necessarily be associated with the initial 
formation of the company; one who subsequently helps to arrange floating of its 
capital will equally be regarded as a promoter.
4
 
Hence, “promoter” denotes any individual, association, partnership or a company 
that takes all the necessary steps to incorporate (create and mould)
5
 a company 
and set it going, in a fiduciary position.
6
 
Illustration (True/False) 
Statement – To be a promoter one necessarily be associated with the initial formation 
of the company.  
Answer - False, one who subsequently helps company to keep going, raise fund & 
advice to board (other than in professional capacity) will equally be regarded as a 
promoter. 
2. FORMATION OF COMPANY [SECTION 3] 
Earlier companies were granted rights by royal charter, but now a company may be 
incorporated by either a special Act of the legislature or under the Companies Act, 
2013. Accordingly, an incorporated company may be either Chartered Company, 
Statutory Company, or Registered Company. Section 3 of the Act deals with 
registered companies.  
FORMS OF COMPANIES  
The Companies are broadly classified into categories shown below in figure. 
Definitions of many of these are already covered under chapter 1 of this module.  
3
 Twycross v. Grant (1877) 2 C.P.D. 469
4
Lagunas Nitrate Co. v. Lagunas Syndicate (1899) 2 Ch. 392.
5
Erlanger v New Sombrero Phosphate Co. (1878) 48 LJ Ch. 73 
6
 ibid 
© The Institute of Chartered Accountants of India
Page 5


LEARNING OUTCOMES 
CHAPTER 
2 
 
INCORPORATION OF 
COMPANY AND 
MATTERS 
INCIDENTAL THERETO 
 
At the end of this chapter, you will be able to: 
?
Explain the Formation & Incorporation of company (Private 
Limited/ Public Limited), One person company (OPC) and the 
formation of Not for Profit Organization (Section 8 
Company). 
?
Identify the need for Memorandum of Association (MOA) and 
Articles of Association (AOA) and changes incidental thereto. 
?
Know the effect of registration. 
?
Explain and identify the concepts related to registered office 
of company. 
?
Understand how documents may be served and filing thereof.   
?
Know about Authentication of documents, proceedings and 
contracts and Execution of bills of exchange, etc. 
© The Institute of Chartered Accountants of India
CORPORATE AND OTHER LAWS 2.2 
This chapter will discuss in detail the provisions contained in Chapter II of the 
Companies Act 2013 pertaining to the incorporation of companies and matters 
incidental thereto. The scope of this chapter is shown in below figure; 
 
Incorporation of company and related matters
Formation and 
Incorporation
Minimum 
members & 
OPC              
(Sec 3 & 3A)
Documents 
required  (Sec 
7)
Not for profit 
company (Sec 
8)
Effect of 
registration 
(Sec 9)
Memorandum 
and Articles
Memorandum 
(MOA) (Sec 4)
Article  (AOA)
(Sec 5)
Act to override 
MOA/AOA         
(Sec 6)
Changes in 
Memorandum
(Sec 13)
Changes in 
Article (Sec 14)
Updation of  changes to be 
noted in every copy of 
MOA/AOA (Sec 15)
Give copy of MOA/AOA to 
members  (Sec 17)
Documents
Service (Sec 20)
Authentication  
(Sec 21)
Execution          
(Sec 22)
Other 
Provisions
Registered 
Office (Sec 12)
Commencement 
of Business       
(Sec 10A)
Rectify Name 
(Sec 16)
Convert 
Company       
(Sec 18)
Subsidiary 
Can't hold 
shares in 
holding         
(Sec 19)
CHAPTER OVERVIEW CHAPTER OVERVIEW
© The Institute of Chartered Accountants of India
INCORPORATION OF COMPANY & MATTERS 
INCIDENTAL THERETO 
2.3 
1. INTRODUCTION TO INCORPORATION OF 
COMPANIES & PROMOTOR 
Chapter II Consists of sections 3 to 22 as well as the Companies 
(Incorporation) Rules, 2014. 
A company is a separate legal entity from its members. It has perpetual succession 
and can be incorporated only for lawful purposes. Prior to incorporation, promotion 
activities are essential. Promotion signifies a number of business operations familiar 
to the commercial world by which a company is brought into existence
1
 
Persons who undertake promotion activities in order to incorporate the company 
are generally known as promoters. The section 2(69) of Companies Act, 2013
2
(herein after referred to as ‘the Act’) defines the term “Promoter” (already 
mentioned in chapter 1 of module; elaborated here). Promoter means a person; 
a. Who has been named as promoter in a prospectus; or 
b. Who is identified as promoter by the company in the annual return; or 
c. Who has control over the affairs of the company, directly or indirectly whether 
as a shareholder, director or otherwise; or 
d. In accordance with whose advice, directions or instructions the Board of 
Directors of the company is accustomed to act, but shall not include a 
person who is acting merely in a professional capacity such as attorney, 
technical or functional experts. 
Students are advised to take note that above definition serves the purpose to make 
a person liable ‘in capacity of promoter’ for fraud through misstatement, but not 
highlighting what actually promoters do. Hence, considering the judicial 
pronouncements improves our understanding regarding role of promoter. 
Promoter is one who undertakes to form a company with reference to a given 
project, and to set it going, and who takes the necessary steps to accomplish that 
1
 Whaley Bridge Printing Co. v. Green (1880) 5 B.D. 109 
2
 Act 18 of 2013 
© The Institute of Chartered Accountants of India
CORPORATE AND OTHER LAWS 2.4 
purpose.
3
 To be a promoter, one need not necessarily be associated with the initial 
formation of the company; one who subsequently helps to arrange floating of its 
capital will equally be regarded as a promoter.
4
 
Hence, “promoter” denotes any individual, association, partnership or a company 
that takes all the necessary steps to incorporate (create and mould)
5
 a company 
and set it going, in a fiduciary position.
6
 
Illustration (True/False) 
Statement – To be a promoter one necessarily be associated with the initial formation 
of the company.  
Answer - False, one who subsequently helps company to keep going, raise fund & 
advice to board (other than in professional capacity) will equally be regarded as a 
promoter. 
2. FORMATION OF COMPANY [SECTION 3] 
Earlier companies were granted rights by royal charter, but now a company may be 
incorporated by either a special Act of the legislature or under the Companies Act, 
2013. Accordingly, an incorporated company may be either Chartered Company, 
Statutory Company, or Registered Company. Section 3 of the Act deals with 
registered companies.  
FORMS OF COMPANIES  
The Companies are broadly classified into categories shown below in figure. 
Definitions of many of these are already covered under chapter 1 of this module.  
3
 Twycross v. Grant (1877) 2 C.P.D. 469
4
Lagunas Nitrate Co. v. Lagunas Syndicate (1899) 2 Ch. 392.
5
Erlanger v New Sombrero Phosphate Co. (1878) 48 LJ Ch. 73 
6
 ibid 
© The Institute of Chartered Accountants of India
INCORPORATION OF COMPANY & MATTERS 
INCIDENTAL THERETO 
2.5 
Kind of Companies 
Sub-section 1 to section 3 provides that for lawful purpose, by subscribing their 
name to memorandum and complying with requirement of this Act;   
a. A public company may be formed by seven (7) or more persons 
b. A private company may be formed by two (2) or more persons 
c. A one person company (as private company) may be formed by one (1) 
person. 
Further, sub-section 2 to section 3 provides that, company formed as specified 
above may be incorporated either as; 
a. Companies limited by shares; or 
b. Companies limited by guarantee; or  
c. Unlimited liability companies.  
Company
Incorporated Companies
On the basis of mode of registration
Registered 
Companies
On the basis of liabilty
Limited by Shares
Public Private
Limited by Guarantee
with capital
Public Private
without capital
Public Private
Unlimited
with capital
Public Private
without capital
Public Private
Statutory 
Companies
Chartered 
Companies
Un-incorporated
© The Institute of Chartered Accountants of India