Incorporation of Company & Matters Incidental Thereto: Notes (Part - 2) - CA Intermediate PDF Download

Act to Override Memorandum, Articles, Etc. [Section 6]

According to section 6 of the Act,
‘Save as otherwise expressly provided in this Act—
(a) the provisions of this Act shall have effect notwithstanding anything to the contrary contained in the memorandum or articles of a company, or in any agreement executed by it, or in any resolution passed by the company in general meeting or by its Board of Directors, whether the same be registered, executed or passed, as the case may be, before or after the commencement of this Act; and
(b) any provision contained in the memorandum, articles, agreement or resolution shall, to the extent to which it is repugnant (in conflict) to the provisions of this Act, become or be void, as the case may be.’
In simple words, the provisions of this Act shall have overriding effect. But keep in mind that this section starts with “Save as otherwise ….”. It means that if any other section of the Act says that article is superior then we will treat it accordingly.
Example 4: Section 47 of the Act deals with voting power of members. And a notification dated 5th June, 2015 says that section 47 is applicable to a private company subject to its Article of Association (AOA). Now if AOA of a private company says that section 47 is not applicable to it then, in this case AOA will become superior and section 47 of the Act will not be applicable. 

Effect of Memorandum and Articles [Section 10]

1. Subject to the provisions of this Act, the memorandum and articles shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been signed by the company and by each member, and contained covenants on its and his part to observe all the provisions of the memorandum and of the articles.
   It means that, on the basis of MOA and AOA:
   (a) Company is liable to members
   (b) Members are liable to company
   (c) But normally members are not liable to each other 
2. All monies payable by any member to the company under the memorandum or articles shall be a debt due from him to the company. [For example a company can recover calls in arrear from a member as forcefully as it is recovering loan due.]

Alteration of Memorandum [Section 13]

As per Section 2(3), alter or alteration includes the making of additions, omissions and substitutions.
I. Procedure of alteration of memorandum: Section 13 of the Companies Act, 2013 provides the provisions that deals with the alteration of the memorandum. The provision says that— 

1. Alteration by special resolution: Company may alter the provisions of its memorandum with the approval of the members by a special resolution. 
2. Name change of the company: Any change in the name of a company shall be effected only with the approval of the Central Government 13 in writing. However, no such approval shall be necessary where the change in the name of the company is only the addition/deletion of the word “Private”, on the conversion of any one class of companies to another class in accordance with the provisions of the Act.
   According to the Companies (Incorporation) Rules, 2014:
   The change of name shall not be allowed to a company which has not filed annual returns or financial statements due for filing with the Registrar or which has failed to pay or repay matured deposits or debentures or interest thereon.
   The change of name shall be allowed upon filing necessary documents or payment or repayment of matured deposits or debentures or interest thereon as the case may be. 
3. Entry in register of companies: On any change in the name of a company, the Registrar shall enter the new name in the register of companies in place of the old name and issue a fresh certificate of incorporation with the new name and the change in the name shall be complete and effective only on the issue of such a certificate. 
4. Change in the registered office: The alteration of the memorandum relating to the place of the registered office from one State to another shall not have any effect unless it is approved by the Central Government on an application in such form and manner as may be prescribed.
5. Dispose of the application of change of place of the registered office: The Central Government shall dispose of the application of change of place of the registered office within a period of 60 days.

   Before passing of order, Central Government may satisfy itself that
   (i) the alteration has the consent of the creditors, debenture-holders and other persons concerned with the company, or
   (ii) the sufficient provision has been made by the company either for the due discharge of all its debts and obligations, or
   (iii) adequate security has been provided for such discharge. 

6. Filing with Registrar: A company shall, in relation to any alteration of its memorandum, file with the Registrar—
   (i) the special resolution passed by the company under sub-section (1);
   (ii) the approval of the Central Government under sub-section (2), if the alteration involves any change in the name of the company. 

7. Filing of the certified copy of the order with the registrar of the states: Where an alteration of the memorandum results in the transfer of the registered office of a company from one State to another, a certified copy of the order of the Central Government approving the alteration shall be filed by the company with the Registrar of each of the States within such time and in such manner as may be prescribed, who shall register the same.

8. Issue of fresh certificate of incorporation: The Registrar of the State where the registered office is being shifted to, shall issue a fresh certificate of incorporation indicating the alteration.

9. Change in the object of the company: A company, which has raised money from public through prospectus and still has any unutilized amount out of the money so raised, shall not change its objects for which it raised the money through prospectus unless a special resolution through postal ballot is passed by the company and—
   (i) the details, in respect of such resolution shall also be published in the newspapers (one in English and one in vernacular language) which is in circulation at the place where the registered office of the company is situated and shall also be placed on the website of the company, if any, indicating there in the justification for such change;
   (ii) the dissenting shareholders shall be given an opportunity to exit by the promoters and shareholders having control in accordance with regulations to be specified by the Securities and Exchange Board of India. 

10. Registrar to certify the registration on the alteration of the objects: The Registrar shall register any alteration of the memorandum with respect to the objects of the company and certify the registration within a period of 30 days from the date of filing of the special resolution. 

11. Alteration to be registered: No alteration made under this section shall have any effect until it has been registered in accordance with the provisions of this section.

12. Only member have a right to participate in the divisible profits of the company: Any alteration of the memorandum, in the case of a company limited by guarantee and not having a share capital, intending to give any person a right to participate in the divisible profits of the company otherwise than as a member, shall be void.

II. Alteration noted in every copy: Every alteration made in the memorandum or articles of a company shall be noted in every copy of the memorandum or articles, as the case may be. If a company makes any default in complying with the stated provisions, the company and every officer who is in default shall be liable to a penalty of one thousand rupees for every copy of the memorandum or articles issued without such alteration. [Section 15]

Alteration of Articles [Section 14]

I. Section 14 of the Companies Act, 2013, vests companies with power to alter or add to its articles. A company cannot divest itself of these powers [Andrews vs. Gas Meter Co. [1897] 1 Ch. 161]. Matters as to which the memorandum is silent can be dealt with by the alteration of article. Section 14 of the Companies Act, 2013 vests companies with power to alter or add to its articles. The law with respect to alteration of articles is as follows: 

1. Alteration by special resolution: Subject to the provisions of this Act and the conditions contained in its memorandum, if any, a company may, by a special resolution alter its articles. 
2. Alteration to include conversion of companies: Alteration of articles include alterations having the effect of conversion of—
   (a) a private company into a public company; or
   (b) a public company into a private company.
   Even where a company being a private company alters its articles in such a manner that they no longer include the restrictions and limitations which are required to be included in the articles of a private company under this Act, then such company shall, as from the date of such alteration, cease to be a private company.
   Provided further that any alteration having the effect of conversion of a public company into a private company shall not be valid unless it is approved by an order of the Central Government on an application made in such form and manner as may be prescribed.
   Provided also that any application pending before the Tribunal, as on the date of commencement of the Companies (Amendment) Ordinance, 2019, shall be disposed of by the Tribunal in accordance with the provisions applicable to it before such commencement. 
3. Filing of alteration with the registrar: Every alteration of the articles and a copy of the order of the Central Government approving the alteration, shall be filed with the Registrar, together with a printed copy of the altered articles, within a period of fifteen days in such manner as may be prescribed, who shall register the same. 
4. Any alteration made shall be valid: Any alteration of the articles registered as above shall, subject to the provisions of this Act, be valid as if it were originally contained in the articles.

II. Alteration noted in every copy: Every alteration made in articles of a company shall be noted in every copy of the articles, as the case may be. If a company makes any default in complying with the stated provisions, the company and every officer who is in default shall be liable to a penalty of one thousand rupees for every copy of the articles issued without such alteration. [Section 15]

Copies of Memorandum, Articles, etc., To Be Given To Members [Section 17]

According to section 17, every company on being so requested by a member, shall send copies of the following documents within seven days of the request on the payment of fees—
(a) the memorandum;
(b) the articles; and
(c) every agreement and every resolution referred in section 117 (Resolutions and agreements to be filed), if and in so far as they have not been embodied in the memorandum and articles.
In case of default, the company and every officer who is in default shall be liable for each default, to a penalty of one thousand rupees for each day during which such default continues or one lakh rupees, whichever is less.

Registered Office of Company [Section 12]

A company is considered to be a separate legal entity from the members. Once a company gets incorporated, it is required to maintain a registered office. This is a physical office where the corporation will receive service of legal documents from ROC or in case of a lawsuit, etc. This address cannot be a P.O. box but must be a physical location where someone is present, to receive service of legal documents during normal business hours. It could be different from a Head Office or Corporate office.
Section 12 of the Companies Act, 2013 seeks to provide for the registered office of the companies for the communication and serving of necessary documents, notices letters etc. The domicile and the nationality of a company is determined by the place of its registered officer. This is also important for determining the jurisdiction of the court.

1. Registered office: A company shall, within thirty days of its incorporation and at all times thereafter, have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it.16 
2. Verification of registered office: The company shall furnish to the Registrar verification of its registered office within a period of thirty days of its incorporation.17 
3. Labeling of company: Every company shall—
   (i) paint or affix its name, and the address of its registered office, and keep the same painted or affixed, on the outside of every office or place in which its business is carried on, in a conspicuous position, in legible letters, and if the characters employed are not those of the language/s in general use in that locality, then also in the characters of that language/s.
   (ii) have its name engraved in legible characters on its seal, if any;
   (iii) get its name, address of its registered office and the Corporate Identity Number along with telephone number, fax number, if any, e-mail and website addresses, if any, printed in all its business letters, billheads, letter papers and in all its notices and other official publications; and
   (iv) have its name printed on hundies, promissory notes, bills of exchange and such other documents as may be prescribed: 
4. Name change by the company: Where a company has changed its name/s during the last two years, it shall paint or affix or print, along with its name, the former name or names so changed during the last two years.
5. In case of OPC: The words ‘‘One Person Company’’ shall be mentioned in brackets below the name of such company, wherever its name is printed, affixed or engraved.
6. Notice of change to registrar: Notice of every change of the situation of the registered office, verified in the manner prescribed, after the date of incorporation of the company, shall be given to the Registrar within 30 days of the change, who shall record the same. 18 
7. Change by passing of special resolution: The registered office of the company shall be changed only by passing of special resolution by a company, outside the local limits of any city, town or village where such office is situated or where it may be situated later by virtue of a special resolution passed by the company. 
8. Change of registered office outside the jurisdiction of registrar: Where a company changes the place of its registered office from the jurisdiction of one Registrar to the jurisdiction of another Registrar within the same State, there such change is to confirmed by the Regional Director on an application made by the company. 
9. Communication and filing of confirmation: The confirmation of change of registered office from jurisdiction of one registrar to another registrar within the same state, shall be–
   (i) communicated within 30 days from the date of receipt of application by the Regional Director to the company, and
   (ii) the company shall file the confirmation with the Registrar within a period of 60 days of the date of confirmation who shall register the same, and
   (iii) certify the registration within a period of thirty days from the date of filing of such confirmation.
   
10. Certificate, a conclusive evidence of compliance of requirements of this Act: The certificate shall be conclusive evidence that all the requirements of this Act with respect to change of registered office have been complied with and the change shall take effect from the date of the certificate. 
11. In case of default: If any default is made in complying with the requirements of this section, the company and every officer who is in default shall be liable to a penalty of one thousand rupees for every day during which the default continues but not exceeding one lakh rupees. [Sub- section (8)] 
12. If the Registrar has reasonable cause to believe that the company is not carrying on any business or operations, he may cause a physical verification of the registered office of the company in such manner as may be prescribed and if any default is found to be made in complying with the requirements of sub-section (1), he may without prejudice to the provisions of sub-section (8), initiate action for the removal of the name of the company from the register of companies under Chapter XVIII.

Commencement of Business etc. [Section 10a]

1. A company incorporated after the commencement of the Companies (Amendment) Ordinance, 2019 and having a share capital shall not commence any business or exercise any borrowing powers unless—
   (a) a declaration is filed by a director within a period of 180 days of the date of incorporation of the company in such form and verified in such manner as may be prescribed, with the Registrar that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him on the date of making of such declaration; and
   (b) The company has filed with the Registrar a verification of its registered office as provided in sub-section (2) of section 12. 
2. If any default is made in complying with the requirements of this section, the company shall be liable to a penalty of fifty thousand rupees and every officer who is in default shall be liable to a penalty of one thousand rupees for each day during which such default continues but not exceeding an amount of one lakh rupees. 
3. Where no declaration has been filed with the Registrar under clause (a) of sub-section (1) within a period of one hundred and eighty days of the date of incorporation of the company and the Registrar has reasonable cause to believe that the company is not carrying on any business or operations, he may, without prejudice to the provisions of sub-section (2), initiate action for the removal of the name of the company from the register of companies under Chapter XVIII.
   As per Rule 23A [Declaration at the time of commencement of business] of the Companies (Incorporation) Rules, 2014,the declaration under section 10A by a director shall be in prescribed form with prescribed fees and the contents of the said form shall be verified by a Company Secretary or a Chartered Accountant or a Cost Accountant, in practice.
   In the case of a company pursuing objects requiring registration or approval from any sectorial regulators such as the Reserve Bank of India, Securities and Exchange Board of India, etc., the registration or approval, as the case may be from such regulator shall also be obtained and attached with the declaration.

Rectification of Name of Company [Section 16]

According to Section 16 

1. If, through inadvertence or otherwise, a company on its first registration or on its registration by a new name, is registered by a name which, —
   (a) in the opinion of the Central Government 19, is identical with or too nearly resembles the name by which a company in existence had been previously registered, whether under this Act or any previous company law, it may direct the company to change its name and the company shall change its name or new name, as the case may be, within a period of three months from the issue of such direction, after adopting an ordinary resolution for the purpose;
   (b) on an application by a registered proprietor of a trade mark that the name is identical with or too nearly resembles to a registered trade mark of such proprietor under the Trade Marks Act, 1999, made to the 20Central Government within 3 years of incorporation or registration or change of name of the company, whether under this Act or any previous company law, in the opinion of the 21Central Government, is identical with or too nearly resembles to an existing trade mark, it may direct the company to change its name and the company shall change its name or new name, as the case may be, within a period of 6 months from the issue of such direction, after adopting an ordinary resolution for the purpose. 
2. Where a company changes its name or obtains a new name under sub-section (1), it shall within a period of 15 days from the date of such change, give notice of the change to the Registrar along with the order of the 22Central Government, who shall carry out necessary changes in the certificate of incorporation and the memorandum.
3. If a company makes default in complying with any direction—
   

Conversion of Companies Already Registered [Section 18]

According to Section 18 of the Companies Act, 2013, a company may convert itself in some other class of company by altering its memorandum and articles of association. Following is the law with respect to the conversion of the companies already registered. 

1. By alteration of memorandum and articles: A company of any class registered under this Act may convert itself as a company of other class under this Act by alteration of memorandum and articles of the company in accordance with the provisions of this Chapter. 
2. File an application to the Registrar: Wherever such conversion of companies is required to be done, the company shall file an application to the Registrar, who shall after satisfying himself that the provisions applicable for registration of companies have been complied with, close the former registration of the company. 
3. Issue a certificate of incorporation: After registering the required documents, issue a certificate of incorporation in the same manner as its first registration. 
4. No effect on the debts, liabilities etc. incurred before conversion: The registration of a company under this section shall not affect any debts, liabilities, obligations or contracts incurred or entered into, by or on behalf of the company before conversion and such debts, liabilities, obligations and contracts may be enforced in the manner as if such registration had not been done.

Subsidiary Company not to Hold Shares in its Holding Company [Section 19]

As per Section 19 of the Companies Act, 2013, 

1. No company shall, either by itself or through its nominees, hold any shares in its holding company and no holding company shall allot or transfer its shares to any of its subsidiary companies and any such allotment or transfer of shares of a company to its subsidiary company shall be void.
   Provided that nothing in this sub-section shall apply to a case—
   (a) where the subsidiary company holds such shares as the legal representative of a deceased member of the holding company; or
   (b) where the subsidiary company holds such shares as a trustee; or
   (c) where the subsidiary company is a shareholder even before it became a subsidiary company of the holding company:
   However, the subsidiary company referred to in the preceding proviso shall have a right to vote at a meeting of the holding company only in respect of the shares held by it as a legal representative or as a trustee, as referred to in clause (a) or clause (b) of the said proviso.
2. The reference in this section to the shares of a holding company which is a company limited by guarantee or an unlimited company, not having a share capital, shall be construed as a reference to the interest of its members, whatever be the form of interest.
   Example 5: RPIP Ltd. has invested 51% in the shares of SSP Pvt. Ltd. on 31st March 2019. SSP Pvt. Ltd. have been holding 2% equity of RPIP Ltd. since 2013. SSP Pvt.

   Ltd. cannot increase its equity beyond that 2% on or after 31st March 2019. However, it could continue to hold or reduce its initial 2% stake.

Service of Documents [Section 20]

Section 20 of the Companies Act, 2013, provides the mode in which documents may be served on the company, on the members and also on the registrars.
Law with respect to the service of documents is as follows— 

1. Serving of document to company: A document may be served on a company or an officer thereof by sending it to the company or the officer at the registered office of the company by
   (i) registered post, or
   (ii) speed post, or
   (iii) courier service, or
   (iv) leaving it at its registered office, or
   (v) means of such electronic or other mode as may be prescribed.
   However, where securities are held with a depository, the records of the beneficial ownership may be served by such depository on the company by means of electronic or other mode.
2. Serving of document to registrar or member: Save as provided in this Act or the rules made thereunder for filing of documents with the Registrar in electronic mode, a document may be served on Registrar or any member by sending it to him by—
   (i) Post, or
   (ii) registered post, or
   (iii) speed post, or
   (iv) courier, or
   (v) by delivering at his office or address, or
   (vi) by such electronic or other mode as may be prescribed.
   However, a member may request for delivery of any document through a particular mode, for which he shall pay such fees as may be determined by the company in its annual general meeting.
   Explanation—For the purposes of this section, the term “courier” means a person or agency which delivers the document and provides proof of its delivery.
   Exemption-Section 20 (2) shall apply to a Nidhi Company, subject to the modification that in the case of a Nidhi, the document may be served only on members who hold shares of more than ₹ 1,000 in face value or more than 1% of the total paid-up share capital of the Nidhis whichever is less.

   For other shareholders, document may be served by a public notice in newspaper circulated in the district where the Registered Office of the Nidhi is situated; and publication of the same on the notice board of the Nidhi. [Notification dated 5th June, 2015.]
   As per the Companies (Incorporation) Rules, 2014,
   (i) The term “electronic transmission” means a communication that creates a record that is capable of retention, retrieval (recovery) and review, and which may thereafter be rendered into clearly legible tangible form. It may be made by—
   (a) facsimile telecommunication (fax) or electronic mail(email), which the company or the officer has provided from time to time for sending communications,
   (b) posting of an electronic message board or network that the Registrar or the member has designated for those communications, and which transmission shall be validly delivered upon the posting, or
   (c) other means of electronic communication, in respect of which the company or the officer has put in place reasonable systems to verify that the sender is the person purporting to send the transmission.
   (ii) In case of delivery by post, such service shall be deemed to have been effected— (a) in the case of a notice of a meeting, at the expiration of 48 hours after the letter containing the same is posted; and
   (b) in any other case, at the time at which the letter would be delivered in the ordinary course of post.

Authentication of Documents, Proceedings and Contracts [Section 21]

As per section 21 of the Companies Act, 2013, a document or proceeding requiring authentication by a company or contracts made by or on behalf of a company may be signed by–
(i) any key managerial personnel, or
(ii) an officer or employee of the company duly authorized by the Board in this behalf.

Execution of Bills of Exchange, etc. [Section 22]

1. A bill of exchange, hundi or promissory note shall be deemed to have been made, accepted, drawn or endorsed on behalf of a company if made, accepted, drawn, or endorsed in the name of, or on behalf of or on account of, the company by any person acting under its authority, express or implied. 
2. A company may, by writing under its common seal, if any, authorize any person, either generally or in respect of any specified matters, as its attorney to execute other deeds on its behalf in any place either in or outside India.
   However, in case a company does not have a common seal, the above authorization shall be made by 2 directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary. 
3. A deed signed by such an attorney on behalf of the company and under his seal shall bind the company.  

It can be observed from above that a company may or may not have a common seal. If company decides to have a common seal then it has to affix the same for specified matters, execution of deeds on behalf of the company.

Summary

• A company can be defined as an “artificial person”, invisible, intangible, created by or under law, with a distinct legal personality and perpetual succession. It is not affected by the death, insanity, or insolvency of an individual member. 
• The memorandum of association (MOA) is the document that sets up the company and the articles of association (AOA) set out how the company is run, governed and owned. 
• Once an association becomes incorporated it acquires a new legal status – it becomes a legal entity in its own right, separate from the individual members. 
• A company of any class may convert itself as a company of other class by alteration of its MOA and AOA.

What you've learned?

• 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.
• Know how the Service of documents is effected.
• Know about Authentication of documents, proceedings and contracts and Execution of bills of exchange, etc.