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The Law Relating To Companies


A company is an association of a number of persons, formed for some common purpose and registered according to the law relating to companies. Section 3(1) (i) of the Companies Act, 1956 states that a company means, “A company formed and registered under this Act or an existing company”.

According to Lord Justice Lindley, “By a company is meant an association of many persons who contribute money or money's worth to a common stock and employ it for a common purpose. The common stock so contributed is denoted in money and is the capital of the company. The people who contribute it or to whom it belongs are members. The proportion of capital to which each member is entitled is his share”.

A company, formed and registered under the Company Act, is regarded by law as a single person, having specified rights and obligations. The law confers on a company a distinct legal personality, with perpetual succession and a common seal.

Objective Of This Paper

The objective of this paper is to grasp, assimilate and comprehend the application of the Corporate Business Law being practiced and its impact on day to day operations of the Business in respect of the Contract act.

In this paper we will discuss how to start a new public limited company hypothetically specifying its name, registration procedure in detail, the objectives, and legal formalities of the forming a company. According to the nature of the business, we will also have to make an offer and enter into different contracts with any 2 other groups through invitation following all the essential elements as stipulated under the contract act 1872.

The Essential Steps For Formation Of A Company

Before a company can be formed the following steps must be taken:

  1. The Memo and the Article must be prepared. These two documents must be filed when the application is made for the registration and incorporation of the company. The Companies Act lays down rules regarding the preparation of the memorandum. Schedule I to the Act of 1956 contains four model forms for use in different cases.

  2. If it is proposed to have a paid up capital of more than Rs 3 crores, sanction of the central Government must be obtained under the capital issue (Control) Act, 1956.

  3. If the company to be formed intends to participate in an industry which is included in the scheduled annexed to the industries (Development and Regulation) Act, 1951, a license must be obtained under the Act.

  4. The company must be registered in accordance with the provision of the companies Act, 1956 and a certificate of incorporation must be obtained.

  5. The prospectus or the statement in lieu of prospectus must be issued and registered with the registrar.

  6. The minimum subscription must be raised and therefore the allotment of shares must be made.

  7. The certificate for the commencement of business must be obtained from the Registrar.

Registration Procedure

For the registration of a company, the following documents, together with the necessary fees, must be submitted to the registrar of companies of the state in which the registered office of the company will be situated-Sec 33.

  1. Memorandum of Association, prepared in accordance with provision of the Companies Act, and signed by the least 7 persons in the case of public companies and 2 persons in the case of private companies.

  2. The Articles of Association, in case of unlimited companies, companies limited by guarantee and private companies limited by shares.

  3. A declaration by any of the following persons, stating that all the requirements of the act have been compiled with an advocate, an attorney a pleader, a chartered accountant, or a person named in the articles as director, manager, or secretary of the company.

  4. The duly signed list of persons have consented to be directors of the company, their consent in writing and the signed agreement with every such director to take the number of shares required to qualify as directors of the company. These are not required in the case of private companies and the companies not having a share capital.

  5. The registration fees of a company are fixed on the graduated scale on the amount of nominal capital or the number of members. There is also a filing fee per document.

If the Registrar is satisfied that all the required documents of the act have been compiled with, he will register the company and issue a certificate called the Certificate of Incorporation.

Memorandum Of Association

Is the constitution or charter of the company and contains the powers of the company. No company can be registered under the Companies Act, 1956 without the memorandum of association. Under Section 2(28) of the Companies Act, 1956 the memorandum means the memorandum of association of the company as originally framed or as altered from time to time in pursuance with any of the previous companies' law or the Companies Act, 1956.

The memorandum of association should be in any of the one form specified in the tables B, C, D and E of Schedule 1 to the Companies Act, 1956. Form in Table B is applicable in case of companies limited by the shares, form in Table C is applicable to the companies limited by guarantee and not having share capital, and form in Table D is applicable to company limited by guarantee and having a share capital whereas form in table E is applicable to unlimited companies.

Proceedings Of The Board Of Directors

Meeting Of Directors

The Directors may meet together as a Board for the dispatch of business from time to time and shall so meet at least once in every three calendar months and at least four such meetings shall be held in every year. The Directors may adjourn and otherwise regulate their meetings as they may think fit.

Notice Of Board Meetings

Notice of every meeting of the Board shall be given in writing to every Director for the time being in India and at his address in India to every other Director.


Subject to Section 287 of the Act, the quorum for a meeting of the Board shall be one-third of its total strength

(excluding Directors, if any, whose places may be vacant at the time. and any fraction contained in that one-third being rounded off as one), or two Directors whichever is higher. Provided that where at any time the number of interested Directors exceeds or is equal to two- thirds of the total strength, the number of the remaining Directors, that is to say, the number of the Directors who are not interested present at the meeting being not less than two, shall be the quorum during such meeting.

Powers Of Directors

The business of the Company shall be managed by the Board of Directors, who may exercise all such powers of the Company and do all such acts and things as are not, by the Act, or any other Act or by the Memorandum or by the Articles of the Company required to be exercised by the Company in General Meeting, subject nevertheless to the Regulations of these Articles to the provisions of the Act, or any other Act and to such Regulations being not inconsistent with the aforesaid Regulations or provisions as may be prescribed by the Company in General Meeting but no Regulation made by the Company in General Meeting shall invalidate any prior act of the Board which would have been valid if that Regulation had not been made.

Division Of Profits

The profits of the Company, subject to any special rights relating thereto created or authorised to be created by these Articles, shall be divisible among the Members in proportion to the amount of capital paid-up or credited as paid-up and to the period during the year for which the capital is paid-up on the shares held by them respectively.

The Company In General Meeting May Declare Dividends

Subject to the provisions of Section 205 of the Companies Act, 1956 the Company in General Meeting may declare dividends, to be paid to its Members according to their respective rights but no dividends shall exceed the amount recommended by the Board, but the Company in General Meeting may declare a smaller dividend.

Interim Dividend

The Board may, from time to time, pay to the members such interim dividend as in their judgement the position of the Company justifies.

Capital Paid-Up In Advance Carrying Interest Not To Earn Dividend

Where capital is paid in advance of calls, such capital may carry interest but shall not be in respect thereof confer a right to dividend or participate in profits.

Dividend To Be Paid Pro-Rata

Subject to the rights of persons, if any, entitled to shares with special rights as to dividends, all dividends shall be declared and paid according to the amounts paid or credited as paid on the shares in respect whereof dividend is paid.

Retention Of Dividends Until Completion Of Transfer Under Article 62

The Board may retain the dividends payable upon shares in respect of which any person is, under Article 62 entitled to become a Member, which any person under that Article is entitled to transfer, until such person shall become a member in respect of such shares or shall duly transfer the same.

Board Report

There shall be attached to every such balance sheet a report of the Board as to the state of the Company's affairs and as to the amounts, if any, which it proposes to carry to any reserves in such balance sheet and the amount, if any, which it recommends should be paid by way of dividend; and material changes and commitments, if any, affecting the financial position of the Company which have occurred between the end of the financial year of the company to which the balance sheet relates and the date of the report. The Board's report shall so far as is material for the appreciation of the state of the Company's affairs by its members and will not in the Board's opinion be harmful to the business of the company or any of its subsidiaries, deal with any changes which have occurred during the financial year in the nature of the Company's business, in the Company's subsidiaries or in the nature of the business carried on by them and generally in the classes of business in which the company has an interest and any other information as may be required by Section 217 of the Act. The Board shall also give the fullest information and explanations in its report aforesaid or in an addendum to that report, on every reservation, qualification or adverse remark contained in the auditor's report. The Board's report and any addendum thereto shall be signed by its Chairman if he is authorized in that behalf by the Board; and when he is not so authorised, shall be signed by not less than two Directors.

Winding Up

Distribution Of Assets

The Liquidator on any winding up (whether voluntary and supervision or compulsory) may with the sanction of a Special Resolution, but subject to the rights attached to any preference share capital, divide among the contributories in specie any part of the assets of the Company and may, with the like sanction, vest any part of the assets of the Company in trustees upon such trusts for the benefit of the contributors, as the liquidator, with the like sanction shall think fit.

Articles Of Association

The Articles of Association (AA) contain the rules and regulations of the internal management of the company. The AA is nothing but a contract between the company and its members and also between the members themselves that they shall abide by the rules and regulations of internal management of the company specified in the AA. It specifies the rights and duties of the members and directors.

The provisions of the AA must not be in conflict with the provisions of the MA. In case such a conflict arises, the MA will prevail.

Normally, every company has its own AA. However, if a company does not have its own AA, the model AA specified in Schedule I - Table A will apply. A company may adopt any of the model forms of AA, with or without modifications. The articles of association should be in any of the one form specified in the tables B, C, D and E of Schedule 1 to the Companies Act, 1956. Form in Table B is applicable in case of companies limited by the shares, form in Table C is applicable to the companies limited by guarantee and not having share capital, and form in Table D is applicable to company limited by guarantee and having a share capital whereas form in table E is applicable to unlimited companies. However, a private company must have its own AA.

The Important Items Covered By The AA Include:-

Powers, duties, rights and liabilities of Directors

Powers, duties, rights and liabilities of members

Rules for Meetings of the Company


Borrowing powers of the company

Calls on shares

Transfer & transmission of shares

Forfeiture of shares

Voting powers of members, etc

Alteration Of Articles Of Association:

A company can alter any of the provisions of its AA, subject to provisions of the Companies Act and subject to the conditions contained in the Memorandum of association of the company. A company, by special resolution at a general meeting of members, alter its articles provided that such alteration does not have the effect of converting a public limited company into a private company unless it has been approved by the Central Government.

The articles must be printed, divided into paragraphs and numbered consequently and must be signed by each subscriber to the Memorandum of Association who shall add his address, description and occupation in presence of at least one witness who must attest the signature and likewise add his address, description and occupation. The articles of association of the company when registered bind the company and the members thereof to the same extent as if it was signed by the company and by each member.

Stamping, Digitally Signing And E-Filing Of Various Documents With The Registrar.

Registration Of The Company

Once the documents have been prepared, vetted, stamped and signed, they must be filed with the Registrar of Companies for incorporating the Company. The following documents must be filed in this connection:-

  1. The MA & AA

  2. An agreement, if any, which the company proposes to enter into with any individual for appointment as its managing director or whole-time director or manager.

  3. A statutory declaration in Form 1 by an advocate, attorney or pleader entitled to appear before the High Court or a company secretary or Chartered Accountant in whole - time practice in India who is engaged in the formation of the company or by a person who is named as a director or manager or secretary of the company that the requirements of the Companies Act have been complied with in respect of the registration of the company and matters precedent and incidental thereto.

  4. In addition to the above, in case of a public company, the following documents must also be filed :-

    1. Written consent of directors in Form 29 to agree to act as directors

    2. The complete address of the registered office of the company in Form 18

    3. Details of the directors, managing director and manager of the company in Form 32(except for section 25 company).

  1. #  A printed copy each of the Memorandum and Articles of Association of the proposed company filed along with the declaration duly stamped with the requisite value of adhesive stamps from the State/ Union Territory Treasury (For value of stamps to be affixed see Schedule printed in Part III Chapter 23). Below the subscription clause the subscribers to the Memorandum should write in his own handwriting his full name and father's, or husband's full name in block letters, full address, occupation, e.g.,' business executive, engineer, housewife, etc. and number of equity shares taken and then put his or her signatures in the column meant for signature. Similarly at the end of the Articles Of Association the subscriber should write in his own handwriting: his full name and father's full name in block letters, full address, occupation. The signatures of the subscribers to the Memorandum and the Article of Association should be witnessed by one person preferably by the person representing the subscribers, for registration of the proposed company before the Registrar of Companies. Under column 'Total number of equity shares' write the total of the shares taken by the subscribers e.g., 20 (Twenty) only. Mention date e.g. 5th day of August, 1996. Place-e.g., 'New Delhi'.

  2. With the stamped copy, one spare copy each of the Memorandum and Articles of Association of the proposed company.

  3. Original copy of the letter of the Registrar of Companies intimating the availability of name.

Document evidencing payment of fee

Memorandum and Articles of Association

Copy of agreement if any, which the proposed company wishes to enter into with any individual for appointment as its managing or whole-time director or manager


#Form 29 (only in case of public companies)

Power of Attorney from subscribers

Letter from Registrar of Companies making names available

No objection letters from directors/promoters

Requisite fees either in cash or demand draft

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