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Elements of Company Law - I

Steps In Incorporation of A Company

The incorporation of a company refers to the legal process that is used to form a corporate entity or a company. An incorporated company is a separate legal entity on its own, recognized by the law. These corporations can be identified with terms like ‘Inc’ or ‘Limited’ in their names. It becomes a corporate legal entity completely separate from its owners.

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Steps in Incorporation of a Company

A group of seven or more people can come together so as to form a public company whereas, only two are needed to form a private company. The following steps are involved in the incorporation of a company.

incorporation of a company

1. Ascertaining Availability of Name

The first step in the incorporation of any company is to choose an appropriate name. A company is identified through the name it registers. The name of the company is stated in the memorandum of association of the company. The company’s name must end with ‘Limited’ if it’s a public company and ‘Private Limited’ if its a private company.

To check whether the chosen name is available for adoption, the promoters have to write an application to the Registrar of Companies of the State. A 500 rupee is paid with the application. The Registrar then allows the company to adopt the name given they fulfill all legal documentation formalities within a period of three months.

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2. Preparation of Memorandum of Association and Articles of Association

The memorandum of association of a company can be referred to as its constitution or rulebook. The memorandum states the field in which the company will do business, objectives of the company, as well as the type of business the company plans to undertake. It is further divided into five clauses

  1. Name Clause
  2. Registered Office Clause
  3. Objects Clause
  4. Liability Clause 
  5. Capital Clause 

Articles of Association is basically a document that states rules which the internal management of the company will follow. The article creates a contract between the company and its members. The article mentions the rights, duties, and liabilities of the members. It is equally binding on all the members of the company.

3. Printing, Signing and Stamping, Vetting of Memorandum and Articles

The Registrar of Companies often helps promoters to draw up and draft the memorandum and articles of association. Above all, with promoters who have no previous experience in drafting the memorandum and articles.

Once these have been vetted by the Registrar of Companies, then the memorandum of association and articles of association can be printed. The memorandum and articles are consequently divided into paragraphs and arranged chronologically.

The articles have to be individually signed by each subscriber or their representative in the presence of a witness, otherwise, it will not be valid.

Want to know the Promoters Contract ?

4. Power of Attorney

To fulfill the legal and complex documentation formalities of incorporation of a company, the promoter may then employ an attorney who will have the authority to act on behalf of the company and its promoters. The attorney will have the authority to make changes in the memorandum and articles and moreover, other documents that have been filed with the registrar.

5. Other Documents to be Filed with the Registrar of Companies

The First –      e-Form No.32 – Consent of directors

The Second – e-Form No.18 – Notice of Registered Address

The Third –    e-Form No.32. – Particulars of Directors

What are the Disadvantages of Incorporation ?

6. Statutory Declaration in e-Form No.1

This declaration, furthermore states that ‘All the requirements of the Companies Act and the rules thereunder have been compiled with respect of and matters precedent and incidental thereto.’

7. Payment of Registration Fees

A prescribed fee is to be paid to the Registrar of Companies during the course of incorporation. It depends on the nominal capital of the companies which also have share capital.

What are the Advantages of Incorporation?

8. Certificate of Incorporation

If the Registrar is completely satisfied that all requirements have been fulfilled by the company that is being incorporated, then he will register the company and issue a certificate of incorporation. As a result, the incorporation certificate provided by the Registrar is definite proof that all requirements of the Act have been met.

(source – Wikipedia)

Solved Question for you

Question: List at least three clauses of the memorandum of association.

Answer – There are five clauses of the memorandum of association, stated accordingly

  1. Name Clause
  2. Registered Office Clause
  3. Objects Clause
  4. Liability Clause
  5. Capital Clause
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Ashley Johnson

I liked that you said that one reason to hire an attorney is to help make sure that you have assistance when you decide to sue. I have been thinking about starting a business myself but am worried that I won’t have to ability to protect myself from lawsuits. I will be sure to hire an attorney to receive help in the courtroom if needed.

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