Legal Aspects - Unit-2
Legal Aspects - Unit-2
Liquidators and future owners will have an interest in pursuing claims for
theft or misuse of assets where a company has been plundered by those in
day-to-day control.
Many a corporate swindler has been pursued through the courts for forgetting
this basic principle.
A company is responsible for its own debts and liabilities. The shareholders
and, as a general rule, directors cannot be forced to pay them.
Major principles of Company Law
Sometimes, shareholders of some companies might not pay the entire value of
their shares in one go. In these companies, the liabilities of members is limited to
the extent of the amount not paid by them on their shares.
This means that in case of winding up, members will be liable only until they pay
the remaining amount of their shares.
b) Foreign Companies
Foreign companies are incorporated outside India. They also conduct business in
India using a place of business either by themselves or with some other company.
Steps in Formation of a Company
Promotion stage
• Identify the business opportunity and decide on the type of business that needs
to be done.
• Perform a feasibility study and determine the economic, technical and legal
aspect of executing the business.
• Interest shown by promoters towards the business idea and supply of capital and
other necessary procedures to start the business.
Registration stage
• Memorandum of Association: A memorandum of association (MoA) must be
signed by the founders of the company. A minimum of 7 members are required
in case of a public company and 2 in case of a private company. The MoA must
be properly registered and stamped.
• Article of Association: Article of Association (AoA) is also required to be signed
and submitted. All members who previously signed MoA, should also be signing
the AoA.
• The next step is preparing a list of directors which should be filed with the
Registrar of Companies.
• Directors of the company should provide a written consent agreeing to be
directors, should be filed with the Registrar of Companies (RoC).
• The notice of address of the office needs to be filed.
• A statutory declaration should be made by any advocate of either the High Court or Supreme Court,
or a person of the capacity of Director, Secretary or Managing Director. This declaration shall be filed
Certificate of Incorporation: Certificate of incorporation is issued when the
registrar is satisfied with the documents provided. This certificate validates the
establishment of the company in the records.
Certificate of commencement of business: Certificate of commencement of
business is required for a public company to start doing business, while a private
company can start business once it has received the certificate of incorporation.
Public companies receiving the certificate of incorporation can issue prospectus
in order to make the public subscribe to the share for raising capital. Once all
the minimum number of required shares have been subscribed, a letter should
be sent to the registrar along with a bank document stating the receiving of the
money.
The registrar will issue a certificate upon finding the provided documents
satisfactory. This certificate is known as certificate of commencement of business.
The company can start business activities from the date of issue of the certificate and the business shall be
done as per rules laid down in the MoA (Memorandum of Association).
Memorandum of Association
To equip the government with ample power to protect the public interest by
intervening in the company affairs; as per the procedure prescribed by law.