Formation of a Company Long Answer Type Questions

Question 1.
What is equity share? What are the feature explain briefly its merits and demerits.
Equity shares : are ordinary shares of a company. These share holders are not having preferential right either in respect of payment of dividend or in respect of repayment of capital. These shares are also known as ownership shares.


  • These shares earn dividend only after the payment of dividend to preference shareholders.
  • The rate of dividend on equity shares depend on the profits available for distribution.
  • These share holders are not having right over the arrears of dividend.
  • Market value of equity shares fully depend on dividend paid to equity share holders.
  • Equity share holders have full voting right.
  • Major portion of share capital of a company is generally in equity share capital.

Advantages of equity shares:

  • It is a major amount of capital to a company.
  • It is a long term finance to a company.
  • These share holders are real owners of the company.
  • These share holders have voting right in the management of the company.
  • If company earns more amount of profits, equity shareholders may get very high rate of dividend.


  • Over – issue of equity shares may lead to over capitalization and it is very danger to company development.
  • Equity shareholders cannot get fixed and regular dividend. Therefore it is a kind of investment assume risks.
  • Equity share amount is not refunded to shareholders during the existence of the company.

Question 2.
What is preference share? What are is features? Explain its advantages and disadvantages?
Preference shares are the shares which are having preferential rights over the other kinds of shares in respect of payment of dividend of the company.


  • These shares have fixed rate of dividend.
  • These share holders are having priority over the equity shares in the payment of dividend.
  • These share holders are having priority in respect of refund of capital during the winding up of the company.
  • These shareholders are having restricted and limited voting rights.
  • Preference shares can get the arrears of dividend also.
  • As compared to equity shares risk is less in preference shares.

Advantages of preference shares:

  • Preference share capital is the long term capital for the company.
  • Preference share capital have only fixed rate of dividend. Therefore it is comparatively cheaper than equity shares.


  • Preference share holders are not sure in getting regulars dividend every year.
  • In case of good profit earning company equity share holders are receiving more dividend than the preference share dividend.
  • Preference share holders are not having full voting rights. They can exercise their voting rights only on these matters which directly affect this interest.

Question 3.
What is debentures. What are its features? Briefly explain its merits and demands.
Debentures is an instrument of credit issued by the company to borrow funds from the public. It is also called as an acknowledgement of debt issued by a company.


  • It is a loan borrowed by the company by issuing a certificate of loan.
  • Debentures holders are getting fixed rate of interest every year on this investment.
  • Interest amount paid to debenture holders is a deductible expenditure for the income tax purpose to company.
  • Debenture amount is received by the company fully from debenture holders.
  • Debentures amount is paid back by the company after certain period of time.


  • It is a long term finance for a company development.
  • Interest on debenture is counted as expenditure for income tax purpose.
  • Debenture holders have no control over the affairs of the company therefore company is free from debenture holders control.
  • It is an easy method of .raising funds from public.
  • Debentures holders are getting fixed and regulars rate of interest on thus investment therefore it is less risk investment to the public.
  • Debenture holders have priority over the shareholders as regards the repayment of finds.


  • It is not allowed to use by private company only public company can borrow debenture capital.
  • Debenture holders have no control over the affairs of the company.
  • Debenture holders are not getting more amount of interest during the profit earned by the company in surplus.

Question 4.
Explain briefly power and functions of SEBI?
Following are the functions and powers of SEBI (Securities and Exchange Board of India)
(a) Functions of SEBI:
Section 11 of SEBI act 1992 specifies the function of SEBI into –

  • Regulatory functions
  • Developmental function

(i) Regulatory functions :

  • SEBI regulates stock exchange organization.
  • It registers the name of intermediates.
  • It registers and regulates investment schemes including mutual funds.
  • it tries to put control over the fraudulent and unfair trade practices relating to securities market

(ii) Developmental functions:

  • It educates the investors.
  • It gives training to intermediaries.
  • It conducts research on market transaction.
  • It publishes information which are useful to all market participants.
  • It tries to,promote fair practices in securities market.
  • It promotes self regulatory organizations.

(b) Powers of SEBI:

  • It has power to collect information from stock exchanges.
  • It has power to put control over stock exchange.
  • It has power of make enquires in relation to affairs of stock exchange market.
  • It has power to grant approval to bye laws of recognised stock exchange.
  • It has power to make bye – laws of stock exchanges.
  • It has power to regulate stocks exchanges.
  • It has power to charge fees on regulation of stock exchanges.
  • It has power to compel listing of securities by public companies.

Question 5.
Explain in detail the SEBI guidelines for issue of shares?
Securities and exchange Board of India guide lines for public issue of shares:

  • Prospectus of the company has to be attacked with every application.
  • Company has to mention risk factor in the prospectus.
  • Company has to mention aim and objectives of the project in the prospectus.
  • Company’s over all historical growth and preset business situation must be maintained in the prospectus.
  • Company has to mention the reason for issue of shares at premium or discount in the prospectus.
  • Subscription list for public issue should be kept open for 3-10 days.
  • Collection agents are having right to collect application at free of cost.
  • Detail report on such issue of securities should be submitted to SEBI with in 45 days from the date of closure of issue.
  • Minimum 500 shares of face value of Rs. 100 has been fixed for each application.
  • Allotment of shares have to be made in multiples of tradable lot of 100 shares of Rs. 10 each.
  • Issue of Bonus shares to be made in appropriate lots.
  • In care of refund of amount to investors the entire amount to be returned within 120 days.
  • Underwriting has been made mandatory.
  • Listing of companies issue in stock exchange has been increased from Rs. 3 crore to 5 crores.
  • The gap between closure dates of various issues should not exceed 30 days.

Question 6.
Explain the various stages of promotion.
(1) Identification of Business Opportunity:
The first stage in promotion of a business is the identification of a business opportunity. The promoter visualises that there are opportunities for a particular type of business and it can be run profitability. The idea may be to exploit a new area of natural resources or a venture in the existing line of business. He develops the ideas with the help of technical experts of that field. When the promoter feels that there are opportunities in taking up a particular venture then the idea is taken further.

(2) Detailed Investigation:
At the second stage, various factors relating to the business are studied from a practical point of view. The demand for the product is estimated and the likely business share is determined. After determining the prospective demand, the promoter thinks of arranging finances, labour, raw materials, power, etc. The cost structure of the product is analysed to find out profitability from the venture. An expert opinion is sought upon the viability of the project.

(3) Approval of Name:
It is necessary to get the name of the company approved from the Registrar of Companies. This is done in order to avoid duplication of the name. Generally, a company submits a list of names in order of preference. The Registrar matches the names with the names of existing companies and then one name is approved.

(4) Signatories to Memorandum:
The promoters decide the names of persons to be the signatories to the memorandum of association. Usually, the first signatories to the memorandum become the first directors of the company. The written consent of the persons to act as directors is taken and they are asked to take qualifying shares of the company.

(5) Appointment of Professionals:
The next stage is of raising funds and deciding about various contracts. So, promoters appoint the brokers and underwriters to ensure the availability of capital by sale of company’s securities. They also appoint solicitors to deal with legal matters of the company.

(6) Preparing necessary Documents:
The promoters take steps to prepare various legal documents of the company which have to be submitted to the Registrar of Companies at the time of incorporation. The documents which are required to be prepared include Memorandum of Association, Articles of Association, Prospectus, etc.

Question 7.
Explain the stages involved in formation of company as per companies act 2013.
(a) Digital signature certificate:
The first step towards the incorporation of the company is getting authorized signatories as mentioned under the Information Technology Act, 2000. A digital signature is basically an electronic signature which is duly issued by a certifying authority that shows the authority of a person signing the same

(b) Section 153 obtaining directors’ identification number:
The next step is to obtain directors identification number, every individual who is appointed as a director of a company will make an application for director identification number in form of Dir 3, It is mandatory for the directors to apply for the DIN. DIN is required before commencing the incorporation of the company.

(c) Name for proposed company:
According to the Section 4(4) with rule 9 of Companies (Incorporation) rules, 2014 the name of the company shall be in Form no. INC 1 with a payable fee of one thousand rupees and the name should be in accordance with name guidelines given in Rule 8. After the company’s approval name ROC will send a letter with respect to approval for the availability of name for a company. The name will be valid for sixty days from the date on which application was made.

(d) Preparation of important documents:
After the company’s name is approved by ROC, then the next step is to prepare documents like a memorandum of association and articles of association. It should be noted that main object of both the documents should match the objects mentioned in e- Form INC. 1 these two documents contain the rules and regulations of the company arid, therefore, should be prepared with utmost care drafted in a broader sense. Memorandum of Association shall be in the respective form as prescribed in Tables A, B, C, D and E in schedule 1 and Article of Association in F, G, H, I and J in schedule 1.

(e) Documents required for the incorporation of a private company:
A private company requires certain documents Memorandum of Association, Articles of Association, Declaration in Form no INC 8 by professionals, an affidavit from each subscriber, proof of residential address, verification signature of the subscriber, NOC, proof of identity.

(f) Commencement:
After all the documents are submitted the company is finally registered, the company can start the commencement from the date mentioned.

Question 8.
State the contents of prospectus.
Section 2(70) of the Companies Act, 2013 defines a prospectus as “”A prospectus means Any documents described or issued as a prospectus and includes any notices, circular, advertisement, or other documents inviting deposit fro the public or documents inviting offer from the public for the subscription of shares or debentures in a company.” A prospectus also includes shelf prospectus and red herring prospectus. A prospectus is not merely an advertisement.

A document shall be called a prospectus if it satisfy two things:

  • It invites subscription to shares or debentures or invites deposits.
  • The aforesaid invitation is made to the public.

Contents of a prospectus:

  • Address of the registered office of the company.
  • Name and address of company secretary, auditors, bankers, underwriters etc.
  • Dates of the opening and closing of the issue.
  • Declaration about the issue of allotment letters and refunds within the prescribed time.
  • A statement by the board of directors about the separate bank account where all monies received out of shares issued are to be transferred.
  • Details about underwriting of the issue.
  • Consent of directors, auditors, bankers to the issue, expert’s opinion if any.
  • The authority for the issue and the details of the resolution passed therefore.
  • Procedure and time schedule for allotment and issue of securities.
  • Capital structure of the company.
  • Main objects and present business of the company and its location.
  • Main object of public offer and terms of the present issue.
  • Minimum subscription, amount payable by way of premium, issue of shares otherwise than on cash.
  • Details of directors including their appointment and remuneration.
  • Disclosure about sources of promoter’s contribution.
  • Particulars relation to management perception of risk factors specific to the project, gestation period of the project, extent of progress made in the project and deadlines for completion of the project.

Question 9.
Give a brief note on book building process.
Book building is a systematic process of generating, capturing, and recording investor demand for shares during an initial public offering (IPO), or other securities during their issuance process, in order to support efficient price discovery. Usually, the issuer appoints a major investment bank to act as a major securities underwriter or book runner.

The following are the important points in book building process:

  • The Issuer who is planning an offer nominates lead merchant banker(s) as ‘book runners’.
  • The Issuer specifies the number of securities to be issued and the price band for the bids.
  • The Issuer also appoints syndicate members with whom orders are to be placed by the investors.
  • The syndicate members put the orders into an ‘electronic book’. This process is called ‘bidding’ and is similar to open auction.
  • The book normally remains open for a period of 5 days.
  • Bids have to be entered within the specified price band.
  • Bids can be revised by the bidders before the book closes
  • On the close of the book building period, the book runners evaluate the bids on the basis of the demand at various price levels.
  • The book runners and the Issuer decide the final price at which the securities shall be issued.
  • Generally, the number of shares is fixed; the issue size gets frozen based on the final price per share.
  • Allocation of securities is made to the successful bidders. The rest bidders get refund orders.

Question 10.
State the various types of documents required to efile to the registrar of companies under the companies act 2013.

Type of Document TYPE OF E-FORM Purpose of Filing of Form
Balance -Sheet Form AOC-4. Filing of Financial Statement with the ROC
Consolidated Financial Statement Form AOC-4 (CFS) Companies which have subsidiary Company, Associate Company and Joint Ventures.
Profit & Loss Account Form AOC-4. Filing of Profit & Loss Account with the ROC
Annual Return Form MGT-7. To be filled by Companies having share Capital. To give information relating to directors and shareholder for the period of Financial Year.
Annual Return Form MGT-7 To be filled by companies not having share capital.
Director Report Director Report along With Following Annexure:
1. AOC-22. MGT-93. Secretarial Audit Report
Filing of CTC of Resolution Form MGT-14 (for the Companies except Private Limited Company) For the purpose of adoption of Balance Sheet and Director Report.

Question 11.
Explain the legal position of promoter.
The promoter is neither a trustee nor an agent of the company because there is no company yet in existence. The correct way to describe his legal position is that he stands in a fiduciary position towards the company about to be formed. Lord Cairns has correctly stated the position of promoter in Erlanger V. New Semberero Phophate Co. “The promoters of a company stand undoubtedly in a fiduciary position. They have in their hands the creation and moulding of the company. They have the power of defining how and when and in what shape and under what supervision, it shall start into existence and begin to-act as a trading corporation.”

From the fiduciary position of promoters, the two important results follow:
(1) A promoter cannot be allowed to make any secret profits. If it is found that in any particular transaction of the company, he has obtained a secret profit for himself, he will be bound to refund the same to the company.

(2) The promoter is riot allowed to derive a profit from the sale of his own property to the company unless all material facts are disclosed. If he contracts to sell his own property to the company without making a full disclosure, the company may either repudiate/ rescind the sale or affirm the contract and recover the profit made out of it by the promoter.

A promoter who wishes to sell his own property to the company must make a full disclosure of his interest.
The disclosure may be made:

  • To an independent Board of Directors, or
  • In the articles of association of the company, or
  • In the prospectus, or
  • To the existing and intended shareholders directly.

If the promoter fails to discharge the obligation demanded of his fiduciary position the company may rescind the contract or may in the alternative choose to take advantage of the contract and sue the prortoter or damages for breach of his duty to the company. Secret profits on the sale of property can be recovered from a promoter only when the property was bought and sold to the company while he was acting as a promoter.

Question 12.
Give a brief note on commencement of business under the companies act 2013.
The provisions with regard to Certificate of Commencement of business have been dispensed with under the Companies Bill, 2013. Only declaration and verification is required by the Public Company under the Companies Bill, 2013.

These provisions were as follows:
(1) A company having a share capital shall not commence any business or exercise any borrowing powers unless:
(a) a declaration is filed by a director in such form and verified in such manner as may be prescribed, with the Registrar that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him and the paid-up share capital of the company is not less than five lakh rupees in case of a public company and not less than one lakh rupees in case of a private company on the date of making of this declaration; and

(b) the company has filed with the Registrar a verification of its registered office as provided in sub-section (2) of section 12.

(2) If any default is made in complying with the requirements of this section, the company shall be liable to a penalty which may extend to five thousand rupees and every officer who is in default shall be punishable with fine which may extend to one thousand rupees for every day during which the default continues.

(3) Where no declaration has been filed with the Registrar under clause (a) of subsection (1) within a period of one hundred and eighty days of the date of incorporation of the company and the Registrar has reasonable cause to believe that the company is not , carrying on any business or operations, he may, without prejudice to the provisions of sub-section (2), initiate action for the removal of the name of the company from the register of companies under Chapter XVIII.

Question 13.
Give a brief note on statement in lieu of prospectus.
Where a public company does not invites public to subscribe for it shares but arrange money from private sources, it needs not issue the prospectus to the public. But the company has to get its prospectus registered three days before the allotment of shares. Thus, the company not inviting public to subscribe, prepare a draft prospectus which contains the information given in schedule III of the act, such a draft prospectus is knows as a statement in lieu of f prospectus.

Only public company which does not invite public for subscription can issue this prospectus. Responsibility will be same as that when actual prospectus is issued.

When issued: Section 70( 1) requires a public company having a share capital to file with the Registrar of Companies a statement called “Statement in lieu of prospectus” in the following cases:
(a) Where it does not issue a prospectus (because it feels that it can raise enough capital without inviting a subscription from the public); or

(b) Where it issues a prospectus but has not proceeded to allot any of the shares offered to v the public for subscription (because the issue has been a failure and the minimum subscription has not been received)

Statement in lieu of prospectus must be filed with Registrar of Companies at least three days before any allotment of shares or debenture is made.

Form of statement in lieu of prospectus: Schedule III contains a model form of a statement i in lieu of prospectus in pursuance of section 70; Schedule IV contains a model form of a statement in lieu of prospectus when a private company is converted into a public company in pursuance of section 44.

Consequences/Penalty for misstatement in, or not filing of statement in lieu of prospectus: If the allotment of shares or debenture is made without filing the statement in lieu of prospectus.
(i) The allottee may avoid the allotment within two months after the statutory meeting, or where no such meeting is held, within two months of the allotment [section 71(1)]

(ii) The person who authorized the delivery of SLP may be punished with imprisonment upto 2 years or with fine Rs. 50,000 or with both, [section 70(5)]

Question 14.
Distinguish between prospectus and statement in lieu of prospectus.

Basis For Comparison Prospectus Statement in Lieu-of Prospectus
Meaning Prospectus refers to a legal – document published by the company to invite general public for subscribing its shares and debentures. Statement in lieu of prospectus is a document issued by the company when it does not offer its securities for public subscription.
Objective To encourage public subscription. To be filed with the registrar.
Used when Capital is raised from general public. Capital is raised from known sources.
Content It contains details prescribed by the Indian Companies Act. It contains information similar to a prospectus but in brief.
Minimum subscription Required to be stated Not required to be stated

Question 15.
Explain the duties and liabilities of promoter.
Duties of promoter:
(1) To disclose the secret profit:
The promoter should not make any secret profit. If he has made any secret-profit, it is his duty to disclose all the money secretly obtained by way of profit. He is empowered to deduct the reasonable expenses incurred by him.

(2) To disclose all the material facts:
The promoter should disclose all the material facts. If a promoter contracts to sell the company a property without making a full disclosure, and the property was acquired by him at a time when he stood in a fiduciary position towards the company, the company may either repudiate the sale or affirm the contract and recover the profit made out of it by the promoters.

(3) The promoter must make good to the Company what he has obtained as a trustee:
A promoters stands in fiduciary position towards the company. It is the duty of the promoter to make good to the company what he has obtained as trustee and not what he may get at any time.

(4) Duty to disclose private arrangements:
It is the duty of the promoter to disclose all the private arrangement resulting him profit by the promotion of the company.

(5) Duty of promoter against the future allottees:
When it is said the promoters stand in a fiduciary position towards the company then it does not mean that they stand in such relation only to the company or to the signatories of memorandums of company and they will also stand in this relation to the future allottees of the shares.

Liabilities of Promoter:
The liabilities of promoters are given below:
(1) Liability to account in profit:
As we have already discussed that promoter stands in a fiduciary position to the company.
The promoter is liable to account to the company for all secret profits made by him without full disclosure to the company. The company may adopt any one of the following two courses if the promoter fails to disclose the profit.

  • The company can sue the promoter for an amount of profit and recover the same with interest.
  • The company can rescind the contract and can recover the money paid.

(2) Liability for mis-statement in the prospectus:
Section 62(1) holds the promoter liable to pay compensation to every person who subscribes for any share or debentures on the faith of the prospectus for any loss or damage sustained by reason of any untrue statement included in it. Sec. on 62 also provides certain grounds on which a promoter can avoid his liability. Similarly Sec. 63 provides for criminal liability for mis-statement in the prospectus and a promoter may also become liable under this section. The promoter may also be imprisoned for a term which may extend to two years or may be punished with the fine upto Rs. 5,000 for untrue statement in the prospectus. (Sec.63).

(3) Personal liability:
The promoter is personally liable for all contracts made by him on behalf of the company until the contracts have been discharged or the company takes over the liability of the promoter. The death of promoter does not relieve him from liabilities.

(4) Liability at the time of winding up of the company:
In the course of winding up of the company, on an application made by the official liquidator, the court may make a promoter liable for misfeasance or breach of trust. (Sec. 543). Further where fraud has been alleged by the liquidator against a promoter, the court may order for his public examination. (Sec. 478).

Question 16.
Distinguish between memorandum and articles of association.

Basis For Comparison Memorandum of Association Articles of Association
Definition Memorandum of Association (MOA) is a document that contains all the fundamental data which are required for the company incorporation. Articles of Association (AOA) is a document containing all the rules and regulations that govern the company
Registration MOA must be registered at the time of incorporation. The articles may or may not be registered.
Scope The Memorandum is the charter, which characterizes and limits powers and constraints of the organization. The articles demonstrate obligations, rights, and powers of individuals, who are endowed with the responsibility of running the organization and administration.
Status Supreme document. It is subordinate to the memorandum.
Power The memorandum cannot give the company power to do anything opposed to the provision of the companies act. The articles are constrained by the act, but they are also subsidiary to the memorandum and cannot exceed the powers contained therein.
Contents A memorandum must contain six clauses. The articles can be drafted according to the decision of the Company.
Objectives The memorandum contains the objectives and powers of the company. The articles provide the regulations by which those objectives and powers are to be conveyed into impact.
Validity The memorandum is the dominant instrument and controls articles. Any provision, as opposed to a memorandum of association, is invalid.

Question 17.
What are the contents of articles of association?
Contents of Articles Of Association:
Section 5(1) and section 5(2) of the Companies Act, 2013 provide for the contents of the articles of association. The articles must contain the regulations for the management of the company along with the matters prescribed by the Central Government. Further, the articles of association must also contain the following:

  • Share capital including sub-division, rights of various shareholders, the relationship of these rights, payment of commission, share certificates.
  • Lien of shares: Lien of shares means to retain possession of shares in case the member is unable to pay his debt to the company.
  • Calls on shares: Calls on shares include the whole or part remaining unpaid on each share which has to be paid by the shareholders on the company’s demand.
  • Transfer of shares: The articles of association include the procedure for the transfer of shares by the shareholder to the transferee.
  • Transmission of shares: Transmission includes devolution of title by death, succession, marriage, insolvency, etc. It is not voluntary but is in fact brought about by operation of law.
  • Forfeiture of shares: The articles of association provide for the forfeiture of shares if the purchase requirements such as paying any allotment or call money, are not met with.
  • Surrender of shares: Surrender of shares is when the shareholders voluntary return the shares they own to the company.
  • Conversion of shares in stock: In consonance with the articles of association, the company can convert the shares into stock by an ordinary resolution in a general meeting.
  • Share warrant: A share warrant is a bearer document relating to the title of shares and cannot be issued by private companies; only public limited companies can issue a share warrant.
  • Alteration of capital: Increase, decrease or rearrangement of capital must be done as the articles of association provide.
  • General meetings and proceedings: All the provisions relating to the general meetings and the manner in which they are to be conducted are to be contained in the articles of association.
  • Voting rights of members, voting by poll, proxies: The members right to vote on certain company matters and the manner in which voting can be done is provided in the articles of association.
  • Directors, their appointment, remuneration, qualifications, powers and proceedings of the boards of directors meetings.
  • Dividends and reserves: The articles of association of a company also provide for the distribution of dividend to the shareholders.
  • Accounts and Audits: The auditing of a company shall be done subject to the provisions of the articles of association of the company.
  • Borrowing powers: Every company has powers to However, this must be done according to the articles of association of the company.
  • Winding up: Provisions relating to the winding up of the company finds mention in articles of association of the company and must be done accordingly.

Question 18.
What is memorandum of association? State the clauses of memorandum of association of company.
Memorandum of association is the charter of the company and defines the scope of its activities. Memorandum of association defines the relation of the company with the rights of the members of the company interest and also establishes the relationship of the company with the members. As per Section 2(56) of the Companies Act,2013 “memorandum” means the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of this Act.

Memorandum Of Association:
Section 4 of the Companies Act,2013 deals with MOA. The Memorandum of a company shall contain the following:
1. Name Clause: The name of the company with the last word “Limited” in the case of a public limited company, or the last words “Private Limited” in the case of a private limited company.

2. Situation Clause: The State in which the registered office of the company is to be situated.

3. Object Clause: The objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof.

4. Liability Clause: The liability of members of the company, whether limited or unlimited, and also state

  • in the case of a company limited by shares- liability of its members is limited to the amount unpaid, if any, on the shares held by them.
  • in the case of a company limited by guarantee-the amount up to which each member undertakes to contribute.

(A) to the assets of the company in the event of its being wound-up while he is a member or within one year after he ceases to be a member, for payment of the debts and liabilities of the company or of such debts and liabilities as may have been contracted before he ceases to be a member,as the case may be; and

(B) to the costs, charges and expenses of winding-up and for adjustment of the rights of the contributories among themselves;

5. Capital Clause:
(i) the amount of share capital with which the company is to be registered and the division thereof into shares of a fixed amount and the number of shares which the subscribers to the memorandum agree to subscribe which shall not be less than one share.

(ii) the number of shares each subscriber to the memorandum intends to take, indicated opposite his name.

Question 19.
Explain the procedure involved in alteration of memorandum of association.
(i) Name clause change in the Memorandum of association:
The company may be nominated by the Central Government approval by passing a special resolution. Changes If the name changes are subject to a private limited or public limited, no central government approval is required.

If a company registers a name similar to the existing company name, the central government may ask it to change its name. In that case the general resolution is sufficient. The change of name should be given to the registrar and they will add a fresh certificate. Changing the situation transition .
(1) Registration Office should be issued notice within thirty days if it is to be moved within one city, town or village.

(2) In order to move the registered office from one town to another town or to another village, a special conclusion should be implemented.

(3) A company can change its registered office from one state to another.

  • To trade the business more effectively and economically
  • To achieve the main purpose of the company by a sophisticated approach
  • Expand its operations in the current location
  • To control any of the existing objects
  • To sell the whole or part of the business
  • To associate with other business or person.

In order to be transferred from state to state to another registered office, a special decision must be passed and approved by the company’s Law Board. The memorandum should be replaced by the Registrar of the State by the State and the Registrar of the State.

(ii) Object clause change in memorandum of association:
Objects can be conditional by passing a special resolution. Items can change the clause for the following reasons:

  • For the purpose of carrying out its business more economically and efficiently.
  • The purpose of obtaining the company’s main business through new and advanced methods
  • The purpose of expanding or replacing the local area of its operations.
  • The purpose of having some business may be convenient or conveniently integrated With existing business.
  • For the purpose of abandoning any objects specified in the memorandum.
  • For the purpose of selling the whole or any stake.
  • For the purpose of integrating any company.

(iii) Conditions of Liability in the Association of Memorandum:
The liability clause can only be changed when a public company is converted to a private company.

(iv) Change of Capital clause of memorandum of association:
The company changes its capital clause by passing a general resolution at a general meeting. May be related to capital change;

  • Sub category of shares
  • Reinforcement of shares
  • Converting shares into shares and canceling unsubscribed capital.

In order to pass a resolution within thirty days, the revised articles and memorandum must be submitted to the Registrar.

(v) Change of Subscription clause of the Memorandum of Association:
The company may change the subscription condition to appoint the subsequent replacement of the liability of the director.

Question 20.
Explain the steps involved in incorporation of a company under the companies act 2013.
Step-1: Select the type of company.

Step-2: Apply for Digital Signature Certificate (DSC) – It is an electronic certificate refers to the identity of a person as like as passport or driving license. DSC is used in certain cases for signing the various documents in digital medium.

Step-3: Apply for DIN (Director Identification Number) – It is a unique identification number which is allotted to director of the company according to Section 152, 153, 154 of Company Act, 2013. DIN is mandatory for all directors.

Step-4: Apply for Name Approval – Company shall give proposed name of company to ROC for approval of name. The name shall not be resembled to any other company name.

Step-5: Upload the SPICe Forms INC-32, INC-33 and INC-34 in MCA (Ministry of Corporate Affairs) for incorporating the company.

INC-32 – It contains the details of the company like SRN of form INC-1, the type of company, the class of company, the category of company, sub-category of company, Company is Having share capital or Not having share capital, Main division of industrial activity of the company, Capital structure of the company, Registered office address, Particulars of individual first subscriber(s) cum directors, Particulars of payment of stamp duty, Additional Information for applying Permanent Account Number (PAN) and Tax Deduction Account Number (TAN) Information specific to PAN, Source of Income.

INC-33 (MOA) – It is a constitution of company which contains all the objects of the company. It is a document which describes activity and scope and relation with shareholders.

INC-34 (AOA) – It is a document which contains rules and regulations relating to the internal management of the company.

Step-6: Payment of Fees – After uploading above forms, registration fees shall be paid towards the registrar of companies online.

Step-7: Incorporation Certificate – When all documents are filed in order with requisite, fees then MCA will verify it and issue the incorporation certificate. After this a company can start their business journey in the corporate world.

Question 21.
Explain the procedure for altering articles of association.
A company which proposes to alter its articles of association has to follow the procedure detailed below:
(1) Convene and hold a Board meeting to:

  • Consider and decide which of the articles are to he altered and pass a formal resolution in this respect.
  • Fix time, date and venue for holding a general meeting of the company for passing a special resolution as required by Section 14 of the Companies Act, 2013.
  • Approve notice, agenda and explanatory statement to be annexed to the notice of the general meeting as per 102 of the Act.
  • Authorise the Company Secretary or any other competent officer of the company to issue notice of the general meeting as approved by the Board.

(2) On the conclusion of the Board meeting, send to the stock exchanges, where the securities of the company are listed, particulars of the proposed alteration of the articles of association of the company.

(3) Issue notice of the general meeting along with the explanatory statement, to all the members, directors and the auditor of the company. Also forward three copies of the notice of the general meeting to the concerned stock exchanges as per the Listing Agreement.

(4) Hold the general meeting and have the special resolution passed.

(5) Forward a copy of the proceedings of the general meeting to the concerned stock exchanges as per the Listing Agreement.

(6) File with the ROC, Form MGT- 14 along with a certified copy of the special resolution and the explanatory statement annexed to the notice of the general meeting at which the resolution was passed and a copy of the Articles of Association, within fifteen days of the passing of the resolution along with the prescribed filing fee.

(7) Make necessary changes in all the copies of the articles of association of the company lying in the office of the company.