Unit 2: Formation and

Incorporation documents
Sem 2, B.Com Prog. & Hons.
Oneshot 2025 with Important
Questions
FORMATION OF COMPANY
Stages of Formation of a Company

Promotion

Incorporation/Registration

Capital Subscription

Commencement of Business
 PROMOTION OF A COMPANY
PROMOTION is the first stage in the formation of a company . it involves conceiving
opportunity a business & taking an initiative to form a company so that practical shape can be
given to exploiting the available business opportunity.
 PROMOTION OF A COMPANY
PROMOTION is the first stage in the formation of a company . it involves conceiving
opportunity a business & taking an initiative to form a company so that practical shape can be
given to exploiting the available business opportunity.

Promotion may be defined as the Process of Organizing and Planning the

Finance of a Business enterprises under the corporate form.
-L . H. Haney
STAGES OF PROMOTION

Discovery of Ideas

Detailed Investigation

Assembling the Proposition

Financing the Proposition

 PROMOTERS: MEANING
“Promotor is the Person Who Assembles the Men, Money and Materials into a Going Concern.”
-Guthmann and Doughall
 Section 2(69) Of Companies Act 2013
“promoter” means a person—
(a) who has been named as such in a prospectus or is identified by the
company in the annual return referred to in section 92; or
(b) who has control over the affairs of the company, directly or indirectly
whether as a shareholder, director or otherwise; or
(c) in accordance with whose advice, directions or instructions the Board
of Directors of the company is accustomed to act:
Provided that nothing in sub-clause (c) shall apply to a person who is
acting merely in a professional capacity
CHARACTERISTICS OF PROMOTERS

 A promoter conceives an idea for the setting-up a

business.
 He makes preliminary investigations and ensures about
the future prospects of the business.
 He brings together various persons who agree to
associate with him and share the business
responsibilities.
 He prepares various documents and gets the company
incorporated. He raises the required finances and gets
the company going.
 FUNCTIONS OF PROMOTERS
A promoter plays many functions in the formation of a company, from conceiving the business idea to
taking all the required steps to make the idea a reality. Below are some of the functions of a promoter:
 A promoter needs to comprehend/conceive the idea of company formation.
 A promoter looks into the feasibility and viability of the business idea. He/she assesses whether the
company formation will be practicable or profitable.
 Once the idea is conceived, the promoter organises and collects the available resources to convert
the business idea into a reality.
 The promoter decides the company name and settles the contents of the company’s Memorandum
of Association and Articles of Association.
 The promoter decides the location of the company’s head office.
 The promoter nominates associations or people for vital company posts, such as appointing the
auditors, bankers and the company’s first directors.
 The promoter prepares all the necessary documents required to incorporate a company.
 The promoter decides the company’s funding sources and capital requirements.
 RIGHTS OF PROMOTER
He rights of promoters include the following:
 Right of indemnity
Promoters are jointly and severally accountable for any hidden profits made by any
of them and false statements made in the prospectus. All the promoters are
individually and equally responsible for the company’s affairs. Thus, one promoter
can claim the compensation or damages paid by him/her from the other promoters.
 Right of preliminary expenses
A promoter is entitled to reimbursement for preliminary expenditures incurred for
the company’s establishment, such as solicitors’ fees, advertising costs and
surveyors’ fees.
 Right of remuneration
A promoter has the right to receive remuneration from the company unless a
contract to the contrary. The company’s Articles of Association can also provide that
the directors can pay an amount to the promoters for their services. However, the
promoters cannot sue the company for remuneration unless there is a contract.
 LIABILITY OF PROMOTER
The liabilities of a promoter include the following:
 They cannot make secret profits out of company profits or deals for personal promotion.
The promoters are liable to pay such profits to the company when they make such profits.
 They can be held liable for damages or losses suffered by a person who subscribes for
debentures or shares due to the false statements made in the company prospectus.
 They are criminally liable for mentioning untrue statements in the prospectus.
 They can be held liable for a public examination of private company documents when there
are reports alleging fraud in the company formation or promotion activities.
 They are also liable to the company where there is a breach of duty on their part,
misappropriated company property or guilty of breach of trust.
 TYPES OF PROMOTER
1. Professional Promoters:
These are individuals or companies that specialize in the formation of a company. Several
companies are structured as professional services, which, once the company is formed, closes the
project and moves to another one.
2. Occasional Promoters:
These are individuals who occasionally participate in the formation of companies. Sometimes
professionals in other fields of occupation, when an opportunity arises, help in forming a company
but don't make this an occupation.
3. Financial Promoters:
These promoters are generally big financial institutions, like banks or investment firms. They create
companies for investing and sowing returns but do not necessarily remain invested after
incorporation.
4. Entrepreneurial Promoters:
These are a class of promoters who create companies they want to manage themselves. They
certainly take an active part in management after incorporation. Generally, these promoters are
visionaries or founders who plan to see their ideas grow into a fully functioning concern.
 PRE-INCORPORATION CONTRACTS
To establish a company, the promoters have to deal with various people for and on behalf of the
company being incorporated. They need to arrange for the purchase of Land, Building, Machinery
and Equipment and Raw Material for the use of a company after it has come into being- and as
such, they make contract with various parties. Since these contract are made before the company
has come into being as an entity i.e. before it has been incorporated, they are called Pre-
Incorporation or Preliminary Contract.
 STEPS IN INCORPORATION OF A COMPANY (AS PER COMPANIES ACT, 2013)
Filing of SPICe+
Apply for Digital Name Approval (Part B), AGILE- Certificate of
Signature (SPICe+ Part A PRO, e-MOA, Incorporation
Certificate (DSC) Form) and e-AOA Issued by ROC

Apply for Preparation of Payment of

Director MOA & AOA Fees & Stamp
Identification Duty
Number (DIN)

Step 1: Apply for Digital Signature Certificate (DSC)

• For proposed directors
• Mandatory for e-filing

Step 2: Apply for Director Identification Number (DIN)

• Unique number assigned to each director
STEPS IN INCORPORATION OF A COMPANY (AS PER COMPANIES ACT, 2013)
Step 3: Name Approval (SPICe+ Part A Form)
• File for company name reservation through MCA portal
• Names should follow naming guidelines

Step 4: Preparation of MOA & AOA

• Memorandum of Association (MOA): Defines the scope, objectives, powers of the
company
• Articles of Association (AOA): Rules and regulations for internal management

Step 5: Filing of SPICe+ (Part B), AGILE-PRO, e-MOA, and e-AOA

Complete forms and attach documents like:
• Identity/address proof of directors
• Address proof of registered office
• MOA & AOA
• Declaration by directors
STEPS IN INCORPORATION OF A COMPANY (AS PER COMPANIES ACT, 2013)
Documents Required for Incorporation
 Identity proof (Aadhar/PAN) of directors
 Address proof
 Passport-size photo
 Registered office address proof
 MOA and AOA
 Declaration by professionals (CA/CS/Advocate)
Incorporation under Companies Act, 2013 – Sections
Section Content
Section 3 Defines what types of companies can be formed
Section 7 Process of Incorporation
Section 10 Effect of Registration
Section 12 Registered Office of Company
 CAPITAL SUBSCRIPTION
Once a company is incorporated, the next important step—especially for a Public Company—is to
raise funds from the public.
This process is known as Capital Subscription.
📌 Capital Subscription refers to the process of inviting and receiving money from investors in the
form of shares, so that the company can collect the required capital to start its business.

Types of Share Capital in This Context

Type Meaning

Authorized Capital Maximum capital a company is allowed to raise as per its MOA

Issued Capital Portion of authorized capital offered to the public for subscription

Subscribed Capital Part of issued capital that investors have agreed to buy

Paid-up Capital Portion of subscribed capital that the company has received in money
 Steps in Capital Subscription Process (for Public Companies)

Step 8:
Step 5:
Step 1: Step 7: Commence
Step 2: Filing Step 3: Step 4: Minimum Step 6:
Preparation Issuance of ment of
with SEBI (if Invitation to Receiving Subscription Allotment of
of Share Business
applicable) Public Applications Check Shares
Prospectus Certificates (Section
(Section 39)
10A)
MEMORANDDUM OF ASSOCIATION
A Memorandum of Association (MOA) is a document containing details of the
company’s constitution and is the foundation of the company’s structure.
 It is known as the charter of a company.
 It lays down the scope of the company’s activities, objectives for which it is
formed, determine the scope of its authority and its relationship with the
outside world.
 The creation of an MOA is the first step towards company registration.
During the formation of a company, the company members must subscribe
to the MOA. Subscribing to an MOA means to put one’s mark or signature
on the document as attestation or approval of its contents
 CONTENT OF MOA
Every company’s MOA should contain the following five clauses:
• Name clause
• Registered office clause
• Object clause
• Liability clause
• Capital clause "No Real Object Lies Close to Subscribers"

Contains Six Clauses (As per Section 4 of the Companies Act, 2013)

Clause Description
Name Clause Name of the company (must include ‘Ltd.’ or ‘Pvt. Ltd.’)
Registered Office Clause The State in which the registered office is located
Object Clause Main and ancillary objects for which the company is formed
Liability Clause Extent of liability of members (limited/unlimited)
Capital Clause Authorized share capital of the company
Subscription Clause Names of initial subscribers and number of shares taken
 FEATURES OF MOA
1. Fundamental Charter of the Company
• MOA is considered the constitution or charter of the company.
• It defines the legal boundary of the company’s activities.
2. Defines Scope of Activities
• It clearly mentions what the company can do and what it cannot do.
• Activities beyond MOA are considered ultra vires (invalid).
3. Mandatory for Incorporation
• Every company must submit its MOA to the Registrar of Companies (ROC) during registration.
• Without MOA, company formation is not possible.
5. Helps in Legal Proceedings
• MOA is used in court cases to determine whether a company has acted within its powers.
• It protects shareholders and creditors from misuse of power.
6. Helps in Transparency and Accountability
By clearly defining the company’s objectives and powers, MOA ensures:
• Transparency in operations
• Accountability of directors and management
PURPOSE AND IMPORTANCE OF MOA

Defines the Company’s Objectives

Lays Down the Scope of Activities

Legal Recognition of the Company

Acts as a Contract

Guides Internal Decision-Making

Gives Transparency to Stakeholders

 Alteration of Memorandum of Association (MOA)
The Memorandum of Association (MOA) is a legal document that defines the scope and powers
of a company.
Once registered, it can be altered, but only by following the proper legal process.
📌 Meaning of Alteration of MOA:
Making legal changes in any clause of the MOA with the approval of shareholders and, in some
cases, the approval of the Central Government or Tribunal.

 Relevant Law
• Governed under Section 13 of the Companies Act, 2013
• Requires passing of a Special Resolution (with at least 75% approval)
Alteration of Memorandum of Association (MOA)

Clauses of MOA That Can Be Altered

Clause Can it be altered? Requires Govt/Tribunal approval?

✅ Yes (for public to private company

1. Name Clause ✅ Yes
conversion)

2. Registered Office Clause ✅ Yes ✅ Yes (if state is changed)

3. Object Clause ✅ Yes ✅ Yes (for certain changes)

4. Liability Clause ✅ No (except in rare cases) ✅ Usually not permitted

5. Capital Clause ✅ Yes ✅ No Govt. approval required

6. Subscription Clause ✅ No ✅ Not alterable after incorporation

Alteration of Memorandum of Association (MOA)

Procedure for Alteration of MOA

Step 1: Board Meeting
• Pass a Board Resolution to propose the alteration
• Fix the date for a General Meeting to get shareholder approval
Step 2: Issue Notice of General Meeting
• Send notice to all shareholders at least 21 days before the meeting
• Include details of the proposed alteration and resolution
Step 3: Pass a Special Resolution
• At the general meeting, pass the special resolution with 75% majority
Step 4: File with ROC
File required forms with the Registrar of Companies (ROC):
• Form MGT-14 for filing the special resolution (within 30 days)
• Other forms depending on the type of change
Alteration of Memorandum of Association (MOA)

Procedure for Alteration of MOA

Step 5: Approval from Authorities (If Required)
For change of name or state, file:
• Form INC-24 (for name change)
• Form INC-23 (for change of registered office from one state to another)

Step 6: Registrar Issues Confirmation

After approval, ROC registers the change and issues a Certificate of
Incorporation (Fresh) in case of:
• Name change
• State change
Alteration of Memorandum of Association (MOA)

Alteration of Different Clauses

A. Name Clause (Section 13(2))
• Can be changed by special resolution
• Requires approval of Central Government (except if only "Pvt Ltd" or "Ltd" is
added/removed)
• Apply through Form INC-24

B. Registered Office Clause

• Within the same city – Only special resolution required
• From one city to another within same state – Inform ROC
• From one state to another – Requires:
 Special Resolution
 Approval from Regional Director
 Form INC-23
Alteration of Memorandum of Association (MOA)

Alteration of Different Clauses

C. Object Clause
• Special resolution required
• File with ROC in Form MGT-14
• If the company has raised money from public via prospectus:
 Must pass a special resolution through postal ballot
 Must publish notice in newspaper
 Refund must be given if object changes are not acceptable to shareholders
D. Capital Clause
• Special resolution required (if increasing capital
beyond authorized capital)
• No government approval needed
• File Form SH-7 with ROC
 Articles of Association (AOA)
The Articles of Association (AOA) of the company contains its rules or bye-laws and
regulations that control or govern the conduct of its business and manage its internal
affairs.
• The AOA is subordinate to the MOA of a company and is governed by the MOA.
• Every company must have an AOA as it plays a vital role in defining its internal
rights, workings, management and duties. The contents of AOA should be in sync
with the MoA and the Companies Act, 2013
 CONTENTS OF ARTICLES OF ASSOCIATION (AOA)
Here are the important contents usually included in the Articles of Association:
SLTF-GBA-DAB-WIS
S = Share capital
L = Lien on shares
T = Transfer/Transmission
F = Forfeiture
G = General meetings
B = Board of directors
A = Accounts & audit
D = Dividend
A = Alteration of capital
B = Borrowing
W = Winding up
I = Indemnity
S = Seal
CHARACTERSTICS OF ARTICLES OF ASSOCIATION (AOA)
Here are the important contents usually included in the Articles of Association:
1. Subordinate to the Memorandum
• AOA is subordinate to the MOA (Memorandum of Association).
• If there is a conflict between the two, MOA will prevail.

2. Internal Rules of the Company

• AOA contains rules for internal governance like meetings, voting,
dividend, director powers, etc.
• It helps in the day-to-day management of the company.

3. Binding Contract
• AOA acts as a binding contract:
• Between company and its members
• Among members themselves
• All actions of the company must follow AOA.
CHARACTERSTICS OF ARTICLES OF ASSOCIATION (AOA)
Here are the important contents usually included in the Articles of Association:
4. Legal Effect
• Once registered with the Registrar of Companies (ROC), AOA gets a legal status.
• Violation of AOA may lead to the action being declared void.

5. Alterable Document
• AOA can be altered by passing a Special Resolution.
• However, alteration must not be illegal, oppressive, or against MOA.

6. Applicable to All Types of Companies

• Every company (except a company limited by guarantee not having share capital)
must have an AOA.
ALTERATION OF ARTICLES OF ASSOCIATION (AOA)
According to Section 14:
"A company may alter its Articles by passing a special resolution, subject to the
provisions of the Act and approval from authorities (if required)."

 Conditions for Valid Alteration

• Must be done bona fide (in good faith) for the benefit
of the company.
• Must not conflict with:
• Memorandum of Association (MOA)
• Companies Act, 2013
• Any other applicable laws
• Must not be oppressive or fraudulent toward any
member or minority shareholders.
ALTERATION OF ARTICLES OF ASSOCIATION (AOA)
Procedure for Alteration of AOA
1. Board Meeting
• Call a board meeting to approve the draft of the altered articles.
• Decide the date for the general meeting (AGM or EGM) to pass a special resolution.
2. Special Resolution in General Meeting
• Hold the general meeting and pass a Special Resolution (i.e., 75% or more votes in favor).
3. Filing with ROC
• File Form MGT-7 (special resolution) and Form MGT-14 with the Registrar of Companies
(ROC) within 30 days.
4. Approval from Authorities (if required)
• In case of conversion of a public company to private company, approval from the Central
Government (via RD – Regional Director) is needed.
5. Updating Company Records
• Make changes in the company’s records and updated AOA and circulate among members
and relevant departments.
 DOCTRINE OF CONSTRUCTIVE NOTICE
The Doctrine of Constructive Notice is a legal fiction which says:
• Anyone who deals with a company is assumed to have read and understood the public
documents of the company — especially the Memorandum of Association (MOA) and Articles
of Association (AOA).
These documents are publicly available on the Registrar of Companies (ROC) website.

 Meaning in Simple Words

It means that:
• If you are an outsider (like a customer, creditor, or vendor),
• And you enter into a contract or transaction with a company,
• You are deemed to have knowledge of the contents of the company’s MOA and
AOA, even if you haven’t actually read them.
 DOCTRINE OF CONSTRUCTIVE NOTICE
 Legal Basis
• Under Section 399 of the Companies Act, 2013:
 MOA and AOA are public documents and open for inspection to anyone.
• Therefore, the law assumes that you have constructive notice of their contents.
 Key Features
1. Public Documents
• MOA and AOA are available for inspection — hence, outsiders are expected to
know their contents.
2. Binding Effect
• You cannot claim that you didn’t know about the limitations in MOA/AOA —
because it is your duty to check.
3. Protection to Company
• It protects the company from being bound by unauthorized acts of its officers, if
those acts are outside the powers granted by MOA or AOA.
 DOCTRINE OF INDOOR MANAGEMENT
• When an outsider deals with a company, they are not expected to check whether internal
procedures (like board approvals, signatures, internal resolutions) were followed — as long
as the outsider has checked the public documents (MOA & AOA) or acted honestly.
In short:
• “Outsiders need not look into the internal management of the company.”
Key Features
1. Exception to Constructive Notice
• While constructive notice says “you are expected to know MOA & AOA,”
• Indoor management says “you are not expected to know internal decisions.”
2. Protects Honest Outsiders
• It helps people who deal honestly with the company and cannot access internal
records like meeting minutes or board resolutions.
3. Company is Bound
• If a company officer does something within their apparent authority, the company
cannot deny liability by claiming internal rules were not followed.
 DOCTRINE OF INDOOR MANAGEMENT
Exceptions to the Doctrine
The doctrine does not apply in the following cases:
❌ 1. Knowledge of Irregularity
• If the outsider knows internal rules were not followed — the doctrine won’t protect them.
❌ 2. Suspicion of Irregularity
• If there were clear signs of something wrong, and the outsider didn’t investigate, the rule
won’t apply.
❌ 3. Forgery
• If the documents or signatures are forged, the doctrine doesn’t apply (e.g. fake seal or
fake director signature).
 DOCTRINE OF INDOOR MANAGEMENT

Constructive Notice vs. Indoor Management

Constructive Notice Indoor Management

Protects company Protects outsider
Outsiders must know public documents Outsiders need not know internal processes
Based on Section 399 Based on common law
 DOCTRINE OF ULTRA VIRES
(Ultra Vires = Beyond Powers)
The Doctrine of Ultra Vires is a fundamental principle in Company Law which says:
• Any act done beyond the powers of the company, as defined in its Memorandum of
Association (MOA), is void and cannot be ratified, even if all shareholders agree.
 Meaning in Simple Words
• The MOA of a company defines its main objects and scope of operations.
• If the company does something outside this scope, it is called an Ultra Vires act.
• Such acts are illegal and the company cannot be held liable for them.
✅ Think of MOA as the Lakshman Rekha — the company can’t cross it.
 DOCTRINE OF ULTRA VIRES
Difference Between Intra Vires and Ultra Vires

Basis Intra Vires Ultra Vires

Beyond the powers of the
Meaning Within the powers of the company
company
Legally void and not
Validity Legally valid and binding
binding
Enforceable Yes No
Can be ratified? Yes No