INCORPORATION OF COMPANY

Incorporation of a company refers to the setting up of a company according to the provisions

laid out in the Companies Act 2013.

Five stages of formation of company:

1. Promotion
The expression promotion is a very wide term that includes all the preliminary steps
that are taken for the purpose of the formation of a company. The promoter, along with
convincing investors towards the idea of the company, also brings together the
physical capital of the labour, raw materials, managerial ability, machinery, etc. A
promoter is to a company, as parents are to a child.
The word promoter has been defined under Section 2(69) of the Companies Act. It
states that promoter is a person who has been named as promoter in the prospectus
issued by the company or who has direct or indirect control over the company’s affairs
or on whose advice and directions, the Board of Directors of the company exercise
their decision making power.
The promoters have to decide certain aspects, such as the type of company and the
name of the company, before they can file an application for registration of the
company. Moreover, they have to oversee the preparation of several documents, such
as Memorandum of Association, Articles of Association, consent, particulars of the
directors, etc.

Promoters also owe fiduciary duties to the company they are promoting. One of the
fundamental duties of a promoter is not to make any secret profit. Secret profits refer
to any undisclosed financial gains that promoters earn by taking advantage of their
position, often by engaging in transactions that are not in the best interest of the
company. These profits cannot be considered as the company's earnings since they do
not belong to the corporate entity but rather to the individual promoters who acted in
breach of their duties.
Example: UK Case
When a landowner sells land to a promoter, who then transfers it to the company at an
inflated price without disclosing the original purchase cost. Since the company, as a
separate legal entity, relies on the promoter's representations, any undisclosed profit
made in this manner can be considered wrongful gain.

2. Drafting of MOA & AOA

Memorandum of Association
A Memorandum of Association (MoA) is also known as a company’s constitution. It
defines the scope of a company’s actions. The Memorandum of Association states the
object of the company’s formation, the authorised share capital that the company can
raise, the extent of liability that the members undertake and other particulars such as
the name of the company and location of the registered office.
 The MoA of a private company has to be signed by at least two people, while the
MoA of a public company needs to be signed by at least seven people. The signatories
to the MoA are known as the subscribers, and each subscriber, has to take at least one
share in the capital of the company.

Articles of Association
Articles of Association (AoA) are the byelaws that govern the functioning and
management of a company. They represent the ethics and values of the promoters.
All the subscribers to the MoA are required to sign the AoA. It is pertinent to note that
the AoA is a document that is subordinate to the MoA. If the AoA and MoA contain
inconsistent provisions, then the MoA would prevail over the AoA. The MoA states
the object for which the company is formed, while the AoA embodies the manner in
which the object is to be achieved.

3. Documentation
Before proceeding with registration, the promoters must compile essential documents
for submission to the Registrar of Companies (ROC). These include the duly signed
MOA and AOA, declaration of compliance from a professional (such as a Chartered
Accountant or Company Secretary), details of directors (such as their identification
and address proofs), and affidavits confirming that the company adheres to the legal
requirements. For private limited companies, a declaration of minimum capital and
shareholder details must also be provided. Any additional licenses or approvals,
depending on the industry, are also obtained at this stage.

4. Registration
After the submission of documents, the company undergoes the registration process
with the ROC. The registrar verifies the accuracy of the submitted documents and
ensures compliance with legal provisions. If the application meets all statutory
requirements, the ROC enters the company’s details into the official register. At this
stage, the company is assigned a Certificate of Incorporation (COI) along with a
Corporate Identification Number (CIN). For companies requiring share capital, the
registration process also involves obtaining approvals for issuing shares.

5. Incorporation
Once Certificate of Incorporation is issued to the company, it becomes a conclusive
proof of existence/formation of the company. Unlike some other jurisdictions where
business can begin upon registration, Indian law mandates that a company cannot
commence operations until it receives the Incorporation Certificate.

The process of incorporation in India is governed by Sections 3 to 22 of the

Companies Act, 2013, read with the Companies (Incorporation) Rules, 2014 as
amended till date.
 MEMORANDUM OF ASSOCIATION

A well-drafted MoA ensures that the company can adapt to changing business environments
over decades. The objective is to anticipate potential business expansions, regulatory
changes, and technological advancements so that frequent amendments are not required. For
example, Kotak Mahindra started as an automobile financing company, later expanded into
insurance, and now operates in digital banking and financial services. Such diversification is
possible when the MoA is drafted with foresight, keeping in mind the company's long-term
vision.

Basic Features of MOA:

Section 4 of the Act prescribes the particulars to be mentioned in a memorandum of
association and other requirements. It is the constitution document of the company. The
company cannot depart from the provisions of the memorandum. If it enters into a contract or
engages in any trade or business which is beyond the powers conferred on it by the
memorandum, such a contract or the act will be ultra vires (Beyond Powers) the company and
hence void.

Section 4(6) of the Companies Act, 2013 provides that the memorandum of association
should be in any one of the Forms specified in Tables A, B, C, D or E of Schedule I to the
Act, as may be applicable in relation to the type of company proposed to be incorporated or
in a Form as near thereto as the circumstances admit.

Schedule I
 Table A: Company limited by shares (used by maximum number of companies)
 Table B: Company limited by guarantee but does not have a share capital
 Table C: Company limited by guarantee having a share capital
 Table D: Unlimited company but does not have a share capital
 Table E: Unlimited company with a share capital

The MoA should be numbered, printed and divided into paragraphs.

The subscribers of the company must sign the MoA.

Section 3 (1) - A company may be formed for any lawful purpose by—
(a) seven or more persons, where the company to be formed is to be a public company;
(b) two or more persons, where the company to be formed is to be a private company; or
(c) one person, where the company to be formed is to be One Person Company that is to
say, a private company.

(2) A company formed under sub-section (1) may be either— (a) a company limited by
shares; or (b) a company limited by guarantee; or (c) an unlimited company.
It is to be noted that the Companies Act, 2013 shall override the provisions in the
memorandum of a company, if the latter contains anything contrary to the provisions in the
Act - Section 6.
A. Name clause
A company being a legal entity must have a name of its own to establish its separate identity.
The name of the company is a symbol of its independent corporate existence. The first clause
in the memorandum of association of the company states the name by which a company is to
be known. The company may adopt any suitable name provided it is not undesirable in the
opinion of Central Government.

Once a company gets its name registered, it acquires a monopoly right to use that name. No
other company can thereafter register with an identical or similar name. The name of the
company is considered to be an inherent part of its public reputation. Section 13 of the
Companies Act provides that a company can change its name only with the prior approval of
the Central Government.

Section 4(1)(a) states:

 If a company is a public company, then the word ‘Limited’ should be there in the
name.
 If a company is a private company, then ‘Private Limited’ should be there in the
name.
 This condition is not applicable to Section 8 companies.

In case of OPC, word “One Person Company” shall be written within bracket after the name
as per Section 12(3) of the Companies Act, 2013

The use of words Public, Pvt. Ltd., Nidhi, etc. are not considered as identical.

Identical Name
Rule 8(1) provides that before granting any name, it will be examined whether name is
identical with name of any other company/LLP or any other name already allowed to a
company/LLP. To determine whether a proposed name is identical with another, the
differences which are arising on account of the following are to be disregarded:
  Words like Private, Pvt, Pvt., (P), Limited, Ltd, Ltd., LLP, Limited Liability
Partnership appeared anywhere in the proposed name and any name already granted.
 Words appearing at the end of the names – company, and company, co., co,
corporation, corp, corpn, corp.
 Plural version of any of the words appearing in the name.
 Type and case of letters, spacing between letters and punctuation marks.
 Joining words together or separating the words does not make a name distinguishable
from a name that uses the similar, separated or joined words.
 Use of a different tense or number of the same word does not distinguish one name
from another.
 Using different phonetic spellings or spelling variations shall not be considered as
distinguishing one name from another.
 Misspelled words, whether intentionally misspelled or not, do not conflict with the
similar, properly spelled words.
 The addition of an internet related designation, such as .com, .net, .edu, .gov, .org, .in
does not make a name distinguishable from another, even where (.) is written as ‘dot’.
 The addition of words like New, Modern, Nav, Shri, Sri, Shree, Sree, Om, Jai, Sai,
The, etc. does not make a name distinguishable from an existing name and similarly,
if it is different from the name of the existing company only to the extent of adding
the name of the place, the same shall not be allowed. Such names may be allowed
only if no objection from the existing company by way of Board resolution is
submitted.
 Different combination of the same words does not make a name distinguishable from
an existing name, e.g., if there is a company in existence by the name of “Builders and
Contractors Limited” – the name “Contractors and Builders Limited” shall not be
allowed unless it is change of name of existing company.
 If the proposed name is the Hindi or English translation or transliteration of the name
of an existing company or limited liability partnership in English or Hindi, as the case
may be.

Undesirable Names
According to Rule 8(2)(a), the Name shall be considered undesirable, if –
(i) It attracts the provisions of section 3 of the Emblems and Names (Prevention and
Improper Use) Act, 1950. The said Section prohibits the improper use of certain
names and emblems which are covered under the Schedule to the said Act.
(ii) It includes the name of a registered trade mark or a trade mark which is subject of
an application for registration, unless the consent of the owner or applicant for
registration, of the trade mark, as the case may be, has been obtained and
produced by the promoters, and
(iii) It includes any word or words which are offensive to any section of the people.
For Fresh Incorporation of a company, SPICe+ (Simplified Proforma for Incorporating
Company Electronically) Part A allows applicants to reserve a company name for 20 days
before proceeding with incorporation. If the name is approved, the applicant can proceed with
SPICe+ Part B for company registration.

For an existing company that wants to change its name, the RUN (Reserve Unique Name)
facility allows name reservation for 60 days from the date of approval. The company must
complete the name change process within this period; otherwise, the reservation lapses.

If the selected name is not approved due to similarity, non-compliance with naming
guidelines, or objections, the entire process must be restarted from the beginning.

Available Remedies:
In case of Infringement of Trademark, the aggrieved party may seek certain remedies
available under Trademark Act, 1999. It includes Permanent of Temporary Injunction,
Damages or Account of Profits or Delivery of Infringing Goods.

The aggrieved party may also file an application with the Registrar of Companies (ROC)
under Section 16(1) of the Companies Act, 2013 to prevent the infringing company from
using the name. The ROC has the power to direct the infringing company for ‘Rectification
of Name’ i.e., to change its name within three months if it is identical or too similar to an
existing registered trademark. There is no punishment till this stage. If the company fails to
comply with this order, the ROC can strike off the company’s name from the Register of
Companies under Section 248 of the Companies Act, 2013.

There is no legal prohibition on approaching both the courts under the Trademark Act and the
ROC under the Companies Act simultaneously. These are distinct remedies with different
objectives.

Lulu v. Coolulu (Karnataka HC)

RD has no power to take decision regarding to infringement of trademark.

Facts: Coolulu Sports has been incorporated in 2018 under the Companies Act, 2013 and is
engaged in sports coaching, sporting events, adult fitness events. Lulu International Shopping
Malls Pvt. Ltd. is engaged in the establishment and operation of several commercial
establishments such as malls and super-markets.
Coolulu Sports, though incorporated in the year 2018, this fact was not known to Lulu
International Shopping Malls Pvt. Ltd. It was indicated from the petitioner’s side that ‘Lulu’
group has expanded its footprints into the sports retail in India and, therefore, Coolulu wanted
to have strategic partnership with ‘Lulu’ as it was a sports Company. Lulu Malls complained
to the competent authority that Coolulu by using the word ‘lulu’ in its incorporated name, is
using a name that is too near to the name of the Lulu Malls.
A show-cause notice was then issued to Coolulu Sports under Section 16 of Companies Act,
2013. The Regional Director, Corporate Affairs, upon perusal of the complaint, issued the
order directing Coolulu Sports that it should not use the word ‘Lulu’ in its name and that the
name of the Company should be changed within 3 months from the date of the order. The
matter was challenged before Karnataka HC.

The Karnataka High Court chided the competent authority for not considering the nuances of
the dispute properly, which meant that the impugned order did not show even a semblance of
application of mind. It held that Coolulu Sports Pvt. Ltd. is not identical with Lulu
International Shopping Malls Pvt. Ltd., as the words ‘International’ ‘Shopping’ and ‘Malls’
are not a part of Coolulu. Coolulu has the words ‘Sports’ and ‘Entertainment’ in its name.
The Court directed the Regional Director to pass fresh but reasoned order in the dispute
between Coolulu Sports and Lulu Malls.

CGMP Pharmaplan Pvt. Ltd. v. Regional Director (Delhi HC)

The Delhi High Court upheld the Regional Director's order directing CGMP Pharmaplan Pvt.
Ltd. to remove the word PHARMAPLAN from its name, as it was identical/similar to NNE
Pharmaplan India Limited. The court found that PHARMAPLAN was the dominant part of
both names and that mere addition of the prefix CGMP did not create sufficient distinction.

The key reason Appollo Pharmacy and Appollo Tyres are permitted to co-exist despite
sharing the word APPOLLO is that they operate in entirely different industries with distinct
consumer bases—one in pharmaceuticals and the other in automotive tyres.

B. Registered Office Clause

This clause specifies the name of the State in which the registered office of the company is
situated. It helps to determine the jurisdiction of the Registrar of Companies and the
applicable state laws.
 However, at the time of incorporation, the company is not required to provide the
exact address of its registered office, because the government does not expect a
company to have a fully established office at the stage of incorporation.
 The company must inform the registered office location and address to the Registrar
of Companies within 30 days from the date of incorporation or commencement of the
company.
 The registered office is the official office of the company. All communications, legal
notices and documents will be sent to the registered office address.

C. Object clause
Under section 4(1)(c) of the Companies Act, 2013, all companies must state in their
memorandum the objects for which the company is proposed to be incorporated and any
matter considered necessary in furtherance thereof.

This clause sets out the process for which the company was formed. It is difficult to change
the object clause later. Therefore, it is necessary for the company to formulate this clause
carefully. This clause lists all types of business that a company may carry out in the future.
The purpose of the objects clause is to enable the persons dealing with the company to know
its permitted range of activities. Anything not mentioned in object clause, you cannot
commence that business. It would be considered as ultra-vires and hence void. Even the
entire body of shareholders cannot ratify such acts.

Mandatory Format:
 The objects to be pursued by the company on its incorporation
 Matters which are necessary for furtherance of the objects specified in Clause III (A)

Ancillary word is prohibited today.

Now, you cannot go for unconnected/unrelated clauses.

Vodafone Essar Gujarat Limited v. Department of Income Tax

Power of demerger through gift was discussed.

Vodafone proposed the scheme of demerger. As per the scheme, the transferee company i.e.,
Vodafone Essar Gujarat Ltd. was to gift its seven Vodafone companies in form of passive
assets to Vodafone Essar Infrastructure Ltd (VEIL). The Income Tax department objected.
Two broad submissions were made by the Income tax Department. The first was that the
expression “arrangement with members” used in S. 391, did not contemplate a gift from one
party to the Scheme to the other party for the reason that the aforesaid expression
contemplated an arrangement in the nature of a contract with a consideration involved, which
is missing in this case.
The court examined whether the MOA of Vodafone Essar Gujarat Limited explicitly
permitted such a transaction. If the MOA did not authorize it, such a transaction could not be
legally sustained.

Practical Tip: When you bring many things together in object clause (using commas – single
paragraph – in one clause), it is considered as better drafting skill.

D. Liability Clause
The liability clause in a company’s Memorandum of Association (MOA) specifies the extent
to which members are liable in case of financial obligations. This clause differs based on the
type of company.
 In a company limited by shares, members’ liability is restricted to the unpaid amount
on their shares.
 In a company limited by guarantee, members’ liability is limited to the amount they
have agreed to contribute in case the company is wound up. Earlier, members in
guarantee-based companies would contribute landed property, but nowadays, a lump
sum amount is mentioned.
 In an unlimited company, members have unlimited liability, meaning their personal
assets can be used to settle debts.

E. Capital Clause
The capital clause specifies the total amount of capital a company is allowed to raise by
issuing shares. It is known as Authorized Share Capital. Debt is not part of Authorized Share
Capital. Debt financing, such as loans or debentures, is separate from this.
 Mention Share Capital – Companies governed under Table B and Table D of the
Companies Act do not have share capital, while others do. If a company has share
capital, it must be explicitly mentioned in this clause.
 Structure of Authorized Share Capital – If there are both equity and preference
shares, then the division of the capital is to be shown under these two heads.
Generally, companies keep a small percentage for preference shares because they are
not in high demand. For example, if the total share capital is ₹500 crore, the company
may allocate ₹400 crore for equity shares and ₹100 crore for preference shares.
 Nominal Value of Shares – The nominal value of each share must also be
mentioned. If the nominal value is ₹10 per share, the number of equity shares issued
would be calculated as follows:

 Any alteration in capital clause, either to increase or decrease the share capital of a
company, requires permission from NCLT. Reduction of share capital is common in
mergers and restructuring. For instance, in the Vodafone-Idea merger, Idea retained
its existing structure while Vodafone had to reduce its share capital.

A company is not authorised to issue capital beyond its authorised/nominal/registered capital.

If it receives applications for shares beyond the shares covered by the authorised capital, the
amount received on excess number of shares should be returned.

F. Subscription Clause
The subscription clause marks the starting point of company membership and is a
fundamental requirement in company formation. The subscription clause defines the initial
members of the company and their shareholding.
 For public companies, the minimum number of subscribers is seven, while for private
companies, it is two. If a public company lists only three subscribers, it would be
invalid.
 The details of the subscribers must strictly follow the prescribed format as per the
relevant Table of the Companies Act. No additional modifications or alterations are
allowed.
 Each subscriber must state the number of shares he is subscribing to. Each subscriber
must subscribe to at least one share of the company.
 The subscribers have to sign the memorandum in the presence of two witnesses.
Subscribers cannot act as witnesses to their own subscription.
 ARTICLES OF ASSOCIATION

If a company does not draft its own AOA, then these tables (Table F, G, H, I or J) becomes
the deemed AOA for that company. But it is a very bad idea. Nobody should opt for it.

Any alteration to AOA can be done by member’s approval by way of Special Resolution.

Entrenchment clause
Introduced through 2013 Act
The term entrenchment has not been defined in the Companies Act, 2013. The dictionary
meaning is as follows:
 The process by which ideas become fixed and cannot be changed
 Basic law or constitution is a provision which makes certain amendments either more
difficult or impossible
Therefore, it can be concluded that the entrenchment of provisions makes the current level of
provisions more stringent/difficult to follow for coming period.

Practical application of the clause: It allows a company to include provisions in its Articles of
Association that can only be amended with a stricter procedure than a standard special
resolution. Not much preferred by companies, because it adds more complications.

Which companies will prefer entrenchment provisions in their AoA?

 Closely-held companies which intend to restrict transfer of shares and maintain the
status of ‘Closely-held’
 Family-owned companies which intend to ensure that the control and management is
kept with the same family
 Companies – in which there is strategic investment by private equity firm/ angel
investor – which intend to have more control over the management and control
(shareholding, investments, borrowings, authority, etc.) over the company;
 Joint Venture (‘JV’) company which may include restrictive provisions on the other
JV party (e.g. shareholding, investments, borrowings, authority, etc.) or may include
provisions which may require unanimous approval of both JV partners (e.g. increase
in capital, allotment of shares, convening of general meeting, etc.).

Purpose: Primarily intended to protect the rights of minority shareholders by ensuring that
crucial decisions regarding the company's operations cannot be easily changed without their
consent.

A private company can include entrenchment provisions only if agreed by all its members or,
in case of a public company, if a special resolution is passed - Section 5 of 2013 Act.
Share Capital Clause
Composition of Board of Directors