Company Law

1 Incorporation of company

Formation of a company involves following procedures –

(a)     Approval of name.
(b)     Drafting of Memorandum of Association, typed on stamp paper and signed
(c)     Articles of Association duly typed on stamp paper and signed (not essential in case of
public limited company limited by shares, but still almost invariably submitted).
(d)     E-filing of documents
(e)     Submission of required papers like Statutory declaration of compliance, Power of
Attorney
(f)      Payment of filing Fees.
(g)     Correcting Memorandum and Articles if required by ROC by person holding Power of
Attorney
(h)     Filing final copy of Memorandum and Articles in pdf format, if corrections were made.
(i)       Collect certificate of incorporation by holder of Power of Attorney.

1-1 Approval of name – The first step in formation of a company is getting the proposed name approved
from Registrar of Companies of the State where the company is to be incorporated.  Availability of
a name can be checked using the ‘Check Company Name’
service under ‘Other Services’ tab on homepage of MCA i.e.
www.mca.gov.in. Once this is done, chances of rejection of
proposed name will be much less.
Name should be indicative of the main object of the proposed company.

Purpose of application is to confirm that the proposed name is not undesirable as per section
20. Same procedure applies for change of name also.

The procedure for approval of name of company has been

changed w.e.f. 16-11-2007. Application for approval of name
should be made to regional ROC electronically in form 1A with
fees of Rs 500.
If some key words or coined words are used, its significance should be stated. If proposed
name is based on registered trade mark or application has been made for registration of trade
mark, details should be furnished.

Two persons in case of a private company and seven persons in case of public company should
be named as promoters/subscribers. They should have obtained DIN.
Registrar of Companies is required to inform approval of name / rejection of proposed name
within seven days.

Six names are required to be submitted. If none of these names is

found to be acceptable, ROC will give opportunity to propose new
names. These are to be submitted within three days. Two
opportunities will be given for re-submission of names. If despite
this, none of the names is found to be acceptable by ROC, the
fees paid will lapse. Then fresh application for name approval with
fresh fees should be paid.

Name approved is valid for 60 days. The approval can be

renewed once for a period of 30 days by paying fees of Rs 250. If
the company is not incorporated within 60 days (or within further
30 days if extension s obtained), the name approved will lapse. Of
curse, fresh application with fresh fees can be made  [Rule 4A as
amended w.e.f. 16-11-2007].

As per circular No. 1/95, dated. 16-2-1995, the persons who have applied for approval of name
as promoters should be subscribers to the memorandum and articles. If not, at least one person
should be common and others should have no objection.

SRN after submission of application - Applicant will get SRN

(Service Request
Number), which can be used to trace position about approval of
name.

Words private limited or Limited - Name of a company must

contain the word 'Limited' or 'Private Limited' at the end.
Exemption from this provision is given only to section 25
companies. Such company is termed as' licensed company'. The
license is given to chamber of commerce, trade associations,
charitable organisations etc. which are not for profits. A
Government company formed as a private company can delete
the word 'Private' from its name.
Criteria in approving a name - Name should be indicative of the main object of the proposed company.
If some key words or coined words are used, its significance should be stated. If proposed name is based
on registered trade mark or application has been made for registration of trade mark, details should be
furnished. Name should not be identical or should not too nearly resemble the name of another registered
company.
Name should not be considered undesirable by Central Government [section 20(1)] Offensive
name or name suggesting unlawful activity is not permissible.

Name should not violate provisions of Emblems and Names (Prevention of Improper Use) Act,
1950.

Name misleading i.e. key word suggesting a great scale while company is with small resources.
Thus, following are restrictions - word ‘Corporation’ permitted when authorised capital is Rs 5
crores. Words like International, Global, Asia etc. is permitted if authorised capital is Rs 1 crore.
Words like Hindustan, India, Bharat permitted when authorised capital Rs 50 lakhs. Words like
Industries/Udyog permitted if capital is Rs 1 crore. Words like ‘Enterprise’, ‘Business’
‘Manufacturing’ permitted when capital is Rs 10 lakhs.

Change of name of company to reflect business of software (e.g. name containing words like
Infosys, Software, Cyber, Cyberspace, Computers etc.) will be permitted only if a substantial
portion of its income is derived from software business. - PIB press release dated 16-8-1999.

Consent of other companies in group for using group name

in name of a company - If a company intends to use group name
as part of its name (e.g. Kirloskar, Birla, Tata, Reliance etc.) it is
standard practice of ROC to obtain no objection letters from other
group companies.
1-2 Procedure after obtaining approval of name

Following  documents are to be submitted electronically as scanned attachment to e-form No.

1.  After submission, a SRN (Service Request Number) will be generated by system.
(a)     Memorandum of Association duly stamped as per State Stamp Act [section 33(1)(a)] 
Memorandum and articles have to be signed by all signatories, writing (by hand) their
names, address, occupation and number of shares they are subscribing to.
(b)     Articles of Association, if any, duly stamped as per State Stamp Act [compulsory for
private company, optional for public company, but almost always filed]
(c)     If company proposes to appoint a person as Managing Director or wholetime director or
Manager, a copy of agreement is to be enclosed [section 33(1)(c)]
(d)     Statutory Declaration of Compliance in form 1 u/s 33(2) on stamp paper. The
declaration can be signed by Advocate, Practising Company Secretary, practising
Chartered Accountant, or by a person named in the articles as Director, Manager or
Secretary of the company. The stamp paper should be purchased in name of applicant-
subscriber and not in name of company which is yet to be incorporated
(e)     Power of attorney to correct memorandum and Articles and to collect certificate of
incorporation (PoA should be on stamp paper as per State Stamp Act. The stamp paper
should be purchased in name of applicant-subscriber and not in name of company which
is yet to be incorporated).
(f)      If Articles of public company having share capital specify names of directors, their
written consent as attachment to e-from 32.
(g)     Original letter of ROC approving name of company
 (h)     Notice of registered office as required u/s 146(1) – It can be filed within 30 days from
incorporation in e-form 18. However, as per instructions to e-form 1, e-from 18 is to be
filed along with form No. 1.
(i)       Proof of payment of filing fees. The fee payable is specified in Schedule X.

Submission of original papers in physical form - The original memorandum of association and articles
of association duly stamped signed should be submitted to ROC of concerned State, giving reference to
SRN. Original Statutory Declaration of Compliance in form 1 u/s 33(2) on stamp paper and Power of
attorney should also be submitted.

1-3 Fees payable for registration of a company

Fees payable for registration of a company having share capital depends on nominal share
capital and varies from Rs 4,000 to Rs 2,00,04,000. [Rs two crore and four thousand], as follows
–
Nominal share capital (Authorised Registration
Capital) fees Rs
Not exceeding Rs One lakh 4,000
Above Rs one lakh and upto Rs 4,000 plus Rs
five lakhs 300 for every
Rs 10,000 or
part thereof
above Rs one
lakh
Above Rs five lakhs and  upto Rs 16,000 plus Rs
fifty lakhs 200 for every
Rs 10,000 or
part thereof
above Rs five
lakhs
Above Rs fifty lakhs and  upto Rs 1,06,000 plus
One crore Rs 100 for
every Rs 10,000
or part thereof
above Rs fifty
lakhs
Above Rs one crore and upto Rs 1,56,000 plus
397.96 crore Rs 50 for
every Rs
10,000 or part
thereof above
Rs One crore
Rs 397.96 crore and above Rs two crore
and Rs 4,000
(2,00,04,000)

Company not having a share capital – Fee payable is Rs 5,000 when number of members as stated in
Articles is unlimited. Fees for filing or registering a document is Rs 50.
Section 25 companies – Companies licensed under section 25 will have to pay same registration fees as
above [Till 31-12-2007, they were required to pay nominal fee of Rs 50].

Fee for increase in nominal capital - If nominal share capital is increased, difference in fees is payable,
while filing notice of increase in nominal capital. The differential fees payable is equal to fees payable on
increased capital as per Schedule less the amount payable on share capital equal to nominal capital before
the increase, at the rates prevailing on date of filing the notice. [Thus, if nominal share capital is increased
from Rs 10 lakhs to Rs 50 lakhs, calculate fees payable on Rs 50 lakhs, calculate fees payable if nominal
capital was Rs 10 lakhs and then pay the difference].

1-4 Procedure after e-filing and submission of original documents

The documents are scrutinised by ROC.  If the Memorandum/Articles is corrected as required

by ROC, final soft copy in PDF format will have to be submitted.

After correction and completion of all requirements, certificate of incorporation will be issued by
ROC with CIN (Corporate Identity Number).

Certificate of commencement of business - A private company can commence business immediately,

while a public company can commence business only after obtaining certificate of commencement of
business.

1-5 Alterations to Memorandum and Articles of Association

Any provision in Articles can be changed by a special resolution.

Provisions in respect of change of Memorandum are as follows.

Clause in Procedure of amending the clause

Memorandum
Name Clause Special resolution with approval by
Registrar of Companies  [section 21]
Registered  * Change outside State - Special
Office Resolution and approval of CLB
[section 17(2)] * Board resolution for
change  within same city or town *
Change within same State by Special
Resolution (Resolution by postal ballot
 in case of listed company) [section
146] * If change within Same State but
under jurisdiction of another ROC will
require permission of  Regional
Director (section 17A) [Really, in
second and third case, there is o
alteration in Memorandum, as
memorandum states only name of
State in which registered office of the
company is situated]
Object Clause Special Resolution [Section 17(1)]
(Postal ballot in case of listed
company)
Liability Unlimited to limited by special
Clause resolution and getting fresh registration
from ROC [section 32(3)]
Capital Clause  * Increase, consolidation or division -
Ordinary Resolution and notice to
ROC [section 94] * Reduction in
Capital - Special Resolution and
confirmation from Company Court -
Section 100
Subscription No need to change arises and hence
Clause there is no provision in law to change
the subscription clause.
 

Overall control of company by Shareholders

2 The body of members (shareholders) are real owners of the company. However, they have no authority
to look after day to day affairs of the company or enter into contracts on behalf of company. They have
limited powers. They must meet at least once a year at Annual General Meeting. (AGM).

Ordinary Business at AGM - Following is the ordinary business of the company. Normally, this business
should be transacted at every AGM. [section 173(1)]—
·          Consideration of accounts - to receive and adopt annual accounts of the company.
 ·          Consideration of report of Board of Directors and auditors - To receive and adopt
Report of Board of Directors and Auditors
·          To declare dividend
·          To appoint directors in place of retiring directors
·          To appoint auditors for ensuring year and fix their remuneration.

Special Business - All business at the meeting other than the aforesaid ‘ordinary business’ is termed as
‘special business’.

2-1 Businesses in which the resolutions shall be passed

through Postal Ballot only

As per rule 4, following business of public listed company shall be

transacted through postal ballot. -

Alteration of Object clause - alteration in the Object Clause of

Memorandum [section 17(1)] – Requires special resolution.

Alteration of Articles defining private company - alteration of

Articles of Associations in relation to insertion of provisions
defining private company.  [This is meaningless as the provision
of postal ballot is only for listed company and a listed company
cannot be a ‘private company’ ]. – Requires special resolution.

Buy back of shares - buy-back of own shares by the company

under section 77A(1). [However, postal ballot is not required for
buy back of ‘other specified securities’ which includes Employees
Stock Option]. [Buy back of shares upto 10% of total paid up
equity capital and free reserves can be made every year with
resolution of Board, as per amendment to section 77(2)(b) w.e.f.
23-10-2001. In such cases, postal ballot will not be required]. –
Requires special resolution.

Issue of sweat equity to promoters - Issue of Sweat equity

shares to promoters u/s 79A(1)(d) in case of listed company – It
should be by passing ordinary resolution through postal ballot.
Promoters will not participate in such resolution, i.e. resolution
shall be passed excluding the voting of promoters. [SEBI (Issue of
Sweat Equity) Regulations, 2002].

Issue of shared with differential voting rights - issue of shares

with differential voting rights as to voting or dividend or otherwise
under section 86(a)(ii) – Requires ordinary resolution.

Change of registered office outside city but within State -

change in place of Registered Office outside local limits of any
city, town or village as specified in section 146(2) – Requires
special resolution.

Sale of substantially whole undertaking - sale of whole or

substantially the whole of undertaking of a company as specified
under section 293(1)(a). [The words ‘lease or otherwise dispose
of’’ are missing. Thus, postal ballot is not required for
usufructuary mortgage of the undertaking. Lease of undertaking
is also excluded from provision of postal ballot]. – Requires
ordinary resolution.

Loans or guarantees in excess of limits - giving loans or

extending guarantee or providing security in excess of the limit
prescribed under section 372A(1). [The words inter corporate
investment is missing. Thus, for making corporate investment
exceeding the limit u/s 372A, postal ballot is not necessary] –
Requires special resolution.

Election of small shareholders - election of a  small

shareholders’ director under proviso to section 252(1) – Requires
ordinary resolution

Variation of rights to class of shares or debentures - variation

in the rights attached to a class of shares or debentures or other
securities as specified under section 106 [In fact, section 106 only
provides for variation of rights of shareholders. Thus, extending it
to debentures by rules does not seem to be correct]. – Requires
special resolution.

Waiver of public offer in case of takeover - Under SEBI code,

in case of takeover, the acquirer is required to make public offer
to purchase at least 20% of shares. Such public offer is not
necessary if change in control takes place in pursuance to special
resolution of target company. Such special resolution should be
passed by postal ballot. [second proviso to regulation 12 of SEBI
(Substantial Acquisition of Shares and Takeovers) Regulation,
1997] ) – Requires special resolution as per SEBI guidelines
2-2 Resolutions which are required to be passed as special resolutions

Some important sanctions requiring special resolution are as follows -

Section Details

No.
17 and 17A Alter object clause, name of company, registered office to other State.
Change to other State requires confirmation of Central Government
(postal ballot required in case of listed companies). Change within the
State but under jurisdiction of different ROC requires permission of RD
u/s 17A – see 146(2))
21 Change name of Company, subject to approval of Central Government.
25(3) To omit the name 'Limited' or 'Private Limited' in case of licensed
company.
31(1) Alter Articles of Association (postal ballot required in case of listed
companies for insertion of provisions relating to private company).
77A Buy back of securities (postal ballot required in case of listed
companies, if in excess of 10% of total paid up capital in a year).
79A Issue of sweat equity shares (postal ballot required in case of listed
companies).
81(1A) and 81(3 Offer further shares to persons other than existing members (i.e. not to
make a rights issue)
81(3) Convert loans or debentures into shares, if approved before issue of
debentures or raising of loans.
99 To determine that any portion of share capital shall not be called up
except in winding up.
100(1) Reduction in share capital (subject to confirmation by Court)
106 Varying rights of holders of class of shares  (postal ballot required in
case of listed companies for variation of rights attached to class of
shares or debentures or other securities).
146(2) Remove registered office out of city limits, but within the State (postal
ballot required in case of listed companies).
149(2A)(b) To commence new business.
163(1) Keep statutory registers at any place within city / town other than the
registered office.
208(2) Authorise payment of interest out of capital - approval of Central
Government is required
224(A)(1) Appoint statutory auditors when share-holding of Government,
financial institutions and nationalised banks is 25% or more.
237(a)(i) Have affairs of the company investigated by inspector appointed by
Central Government.
269 (read with Approval of minimum remuneration to MD/WD/Manager, if more than
Schedule XIII) prescribed ‘normal’ limit.
294AA(3) Appoint sole selling agents in certain cases if paid-up capital is Rs 50
lakhs or more.
309(1) Determine remuneration payable to a director (other than MD) -
necessary only if Articles require a special resolution - applicable only
to a public company or its subsidiary.
309(4) Authorising payment by way of commission on basis of percentage of
profit, to a director who is not MD or whole time director - applicable
only to a public company or its subsidiary.
314(1), (1B) Approval for holding office of profit under the company or subsidiary
for director or his relative or partner, firm, private company etc. in
certain cases.
323(1) To alter memorandum of association so as to render unlimited liability
of its directors or manager - resolution can be passed only if articles so
authorise - such resolution can only apply to future director/s and
manager. It does not apply to existing director / directors / manager
during his current term, unless he has accorded his consent to his
liability becoming unlimited.
372A(1) Make / give investment / loans / guarantee / security beyond 60% /
100% limit (postal ballot required in case of listed companies for giving
loans or extending guarantee or providing security in excess of limits).
433(a) To get the company wound up by Court.
484(1)(b) To have the company voluntarily wound up.
494(1) To authorise liquidator in a voluntary winding up to accept shares as
consideration for company's property.
512(1)(a) To authorise liquidator in a members' winding up to exercise powers
specified in section 457(1)(a) to (d).
517(1) To accord sanction for any agreement between company and its
creditors so as to bind company and its creditors.
546(1)(b) To authorise liquidator to exercise certain powers in a voluntary
winding up.
550(1)(b) To direct disposal of books and papers after completion of winding up
and about to be dissolved, in case of members' voluntary winding up.
 579(1) To alter form of constitution of a company registered under part IX of
the Act, e.g. a partnership firm registered as a company.
581H to 581ZL Resolutions relating to producer company.
SEBI Resolution that acquirer need not make public offer to take 20% shares
of target company (Required as per SEBI Takeover Regulations) (postal
ballot required in case of listed companies).

In addition, in some cases, approval of Central Government, Court or CLB is required.

2-3 Resolutions requiring special notice

Special notice is required for following resolutions - (a) Resolution appointing an auditor other
than the retiring auditor or resolution that the retiring auditor shall not be appointed (section 225)
(b) Resolution to remove director before expiry of his period and a resolution to appoint another
director in place of removed director (section 284).  - - Interestingly, in both the cases, only
ordinary resolution is required to pass the motion and not special resolution.

As per section 190 of Companies Act, a member intending to move such resolution has to give
at least 14 days’ clear notice to the company before the general meeting. ‘Clear notice’ means
date of giving notice and date of the general notice will have to be excluded for calculating
period of 14 days. On receipt of such intimation, the company must give its members notice of
the resolution in the same manner as notice of general meeting is given. If this is not
practicable, notice should be given by advertisement or other mode as may be prescribed in
Articles of Association. Such notice must be given at least seven clear days before the meeting.

2-4 Resolutions which can be passed as ordinary resolutions

Some important sanctions requiring ordinary resolution are as follows—

Section Details
No.
22(1)(a) Rectify name of company with approval of Central Government
61 Vary terms of contract referred to in prospectus or statement in lieu of
prospectus.
79(2) Issue shares at discount subject to sanction of CLB
81(1A)(b) Issue further shares without making rights issue with approval of Central
Government.
86(a)(ii) Issue of shares with differential voting rights as to voting or dividend or
otherwise. (postal ballot required in case of listed companies).
94(2) Alter company’s share capital, if authorised by articles.
98 Increase nominal capital by an unlimited company.
121(1) Reissue redeemed debentures.
149(2B) Commencement of new Business with approval of Central Government.
165 Adopt statutory report.
173 and Declare dividend.
Article 85 of
table A
210 Adopt balance sheet and report of Board of Directors and Auditors at AGM.
214(1) Authorisation by holding company to its representative to inspect books of
account of its subsidiaries.
224(1) Appoint auditors and fix their remuneration (power to fix remuneration
can be delegated to Board of Directors).
224(5) Remove auditor and appoint another nominated by any member.
224(6)