January 23, 2022

Incorporation of a Company under Companies Act, 2013

Companies Act

The formation of a company according to the Companies act 2013, Section 3[1] details the basic requirement two constitute a company. In the case of a public company with or without limited liability 7 are more persons can form a company for any lawful purpose by subscribing their name two memorandum and complying with the requirements of this act. In the same way, two or more people can form private company and one person where company to be formed is a one-person company.

Section 7[2] of the Companies Act, 2013, specifies the procedure for incorporation of a company. To incorporate a company the subscriber needs to file the company registration paper with the registrar within who’s jurisdiction the location of the registered company falls. After the registrar receives the information and the registration papers, the subscriber has to file the registration paper which includes The articles and the memorandum of the company call mom a declaration regarding compliance of all the requirements and rules of the act, the memorandum an individual named as first directorsin The articles should summit an affidavit with declaration regarding non conviction of any offence with respect to the formation, promotion, or management of any company.

The individual has not been found guilty of fraud or any breach of duty to any company in the last five years. the registrar will issue a certificate of incorporation in the prescribed form. The registrar will also allocate a operate identity number to the company, the CIN is a form of identity for the company. The CIN is on and from the company’s incorporation date. The Registrar shall, on the basis of the documents and information filed pursuant to subsection (1), record in the Registry all the documents and information referred to in that subsection and shall grant a certificate of incorporation in the specified form to the extent that the proposed organization is incorporated in compliance with this Act.

From the date stated in the certificate of incorporation given pursuant to subsection (2)[3], the Registrar shall allocate to the company a corporate identification number which shall be a separate identity for the company, and which shall also be included in the certificate. At its registered office, the organization shall retain and maintain copies of all records and details as originally filed under sub-section till its dissolution under this Act. If any person presents any false or inaccurate information or details, suppresses any relevant details that the Registrar is aware of in any of the records lodged with the Registrar in connection with the registration of a corporation and is liable for prosecution under section 447[4].

Without prejudice to the provisions of sub-section 5[5], where it is known at any point after the incorporation of a company that the company has been incorporated by presenting any misleading or inaccurate evidence or representation, or by deleting any material fact or information in any of the documents or declarations filed or made for the incorporation of that company, or by any dishonest representation or representation, or by deleting any material fact or information in any of the documents or declarations filed or made for the incorporation of that company.

Or, through any dishonest activity, the founders, the persons appointed as the first directors of the corporation and the persons making a declaration pursuant to paragraph of paragraph shall each be responsible for the action referred to in paragraph 447[6].

Without recourse to the provisions of sub section, where a company has been incorporated by presenting any misleading or inaccurate information or description or by removing any material fact or information in any of the documents or declarations filed or made for the incorporation of that company or by any dishonest action, the Tribunal may, on the request made to it, on the finding that it is satisfied that the company has been incorporated satisfied that the situation so warrants.

Agreements are made on the location of the company prior to its registration – original or pre-registration agreements. Agreements made after registration but before receiving a permit to start business-provisional agreements. Agreements made after receiving a certificate to start a company.

In the case of a private limited corporation, the issue of provisional arrangements would not exist because it will launch a business quickly on its incorporation the certificate. If then, a public limited partnership is dissolved before it is eligible to start a corporation.

In the case of a public limited company, the arrangements entered into after incorporation but prior to the authorization of the certificate of commencement of business are temporary and are not attached to the company. Until such time as the corporation is permitted to start business on the grant of the certificate

Consequences of incorporation Independent Legal Identity, The Company shall be responsible for its own debts Owners shall not be liable for the debts and liabilities of the Company and shall not be liable to the creditors of the Company. The lender may be the debtor or borrower of the corporation and may sue or sue the company, in Solomon v A Salomon & Co Ltd[7], the case concerned claims of certain unsecured creditors in the liquidation process of Salomon Ltd., a company in which Salomon was the majority shareholder, and accordingly, was sought to be made personally liable for the company’s debt.

Restricted Liability or Limited Liability[8] The fact that the corporation is a different organization from its owners make limited liability possible. Business Property Company Property Company A company holds its own property-the owners have no direct right to this or any of its shares. Healthy income for growth Ltd v Leung Hoi[9], in this case Leung Hoi claimed that the other two defendants had agreed to convey the property to him. GPD Ltd had never agreed, but LH argued that because it was totally controlled by the two humans, it held the land in trust for them. An individual who no longer wants to be a member is only entitled to whatever price he will afford for his shares. An individual who no longer wants to be a member is only entitled to whatever price he will afford for his shares. The shareholder has no legitimate interest in the property of the corporation and cannot protect it against fraud, injury, etc. The shareholder has no legitimate stake in the land of the corporation and is powerless to do so.

Contract Capacity Business Capacity[10] A company has maximum contractual capacity-and only the organization can execute the contracts. Companies can also be liable for negligence-the shareholder cannot be found liable for negligence on the part of the corporation unless he has also been personally careless. Crimes A corporation may be accused of a felony, regardless of whether its directors are still convicted. A corporation may be accused of a felony, regardless of whether its directors are still convicted.

Any limitations: -it has been held that a company cannot be convicted of a crime involving a physical act of driving a vehicle: -it has been held that a company cannot be convicted of a crime requiring a physical act of driving a vehicle: -a company cannot be convicted of any crime for which the only penalty possible is incarceration.

Crimes Against Business/Crimes Against Company

A company may be the target of a crime. It is fraud to rob from a corporation, even though those convicted of theft are still the sole shareholder of the company. Separate identity means that the survival of a corporation does not depend on the existence of its representatives. Membership may shift or members may die-the organization continues to operate until it is wound up. Borrowing A corporation can borrow money to have a loan security. Only a corporation may set up a floating fee. Floating fee[11] = a kind of loan security. The fee “floats” because it is not tied to any single asset, but floats over the properties of the company as they occur from time to time. Certain incidents allow the fee to be “crystallize”[12] and added to the properties of the organization. has at the time. In Macaura v Northern Assurance co. Mr. Macaura[13] sold all timber to a company (Irish Canadian Sawmills Ltd) in which he and his nominees held all the shares. Subsequently mar Macaura insured the timber against fire on policies in his own name. After two weeks, a fire broke out and he claimed the insurance. 

 Formation of companies with charitable objects, where it has been formed to the satisfaction of the Central Government that an individual or association of persons proposed to be registered as a limited company pursuant to this Act— has as its objects the promotion of trade, literature, technology, athletics, education, research, social welfare, faith, charity, environmental protection or any other object, intends to apply its gains, if any, or any other benefit to the promotion of its objects, The Central Government can, by means of a license given in the manner specified and on such conditions as it deems necessary, forbid the payment of any dividend to its members, Enable the individual or group of persons to be registered as a limited company under this section without the inclusion of the term “Limited” or, as the case may be, the terms “Private Limited” and the Registrar shall, upon application in the specified manner, register that person or association of persons as a company under this section.

The corporation incorporated under this provision shall enjoy all rights and shall be subject to the responsibilities of limited corporations.  A firm may be a member of the company registered under this section. The terms of its memorandum or papers shall not be amended by a corporation incorporated under this section except with the prior approval of the Central Government. A business registered under this section may become a company of any other type only after compliance with such requirements as may be required.

Where it has been established, to the satisfaction of the Central Government, that a limited company registered under this Act or under any previous company law has been created with any of the objects referred to in paragraph of subsection and with the restrictions and prohibitions referred to in the clauses, respectively. of that sub-section, it may, by license, permit the company to be registered under this section subject to such conditions as the Central Government finds necessary and to amend its name by omitting the term “Limited” or, as the case may be, the terms “Private Limited”[14] from its name on which the Registrar shall, upon application, the incorporation of such a corporation pursuant to this section and all provisions of this section shall extend to that company in the specified manner.

By order of the Central Government, the license given to a company registered under this section may be revoked if the company contravenes any of the provisions of this section or any of the conditions subject to which the license is issued, or the conduct of the corporation is dishonest or in a manner contrary to the objects of the company or prejudicial to the public interest. Where a license is revoked under sub-section (6)[15], the Central Government may, by order, if it is satisfied that it is essential in the public interest, direct that the company be wound up under this Act or amalgamated with another company registered under this section: Provided that no such order shall be made unless the company is given a reasonable opportunity of being heard.

Where a license is revoked under sub-section (6 )[16] and where the Central Government is satisfied that it is essential in the public interest that the company registered under this section should be amalgamated with another company registered under this section and having similar objects, then, notwithstanding anything to the contrary contained in this Act, the Central Government may, by order, provide for such amalgamation to form a single company with such constitution, properties, powers, rights, interest, authorities and privileges and with such liabilities, duties and obligations as may be specified in the order. If on the winding up or dissolution of a company registered under this section, there remains, after the satisfaction of its debts and liabilities, any asset, they may be transferred to another company registered under this section and having similar objects, subject to such conditions as the Tribunal may impose, or may be sold and proceeds thereof credited to the Rehabilitation and Insolvency Fund formed under section 269[17].

A company registered under this section shall amalgamate only with another company registered under this section and having similar objects. If a company makes any default in complying with any of the requirements laid down in this section, the company shall, without prejudice to any other action under the provisions of this section, be punishable with fine which shall not be less than ten lakh rupees but which may extend to one crore rupees and the directors and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than twenty-five thousand rupees but which may extend to twenty-five lakh rupees, or with both: Provided that when it is proved that the affairs of the company were conducted fraudulently, every officer in default shall be liable for action under section 447[18].


[1] Section 3 states that a Company may be formed for any lawful purpose. Thus, no company shall be formed for carrying on any unlawful objects.

[2] Section 7 of the Companies Act, 2013 (‘Act’ for short) provides with the procedure for incorporation of company under the Act. 

[3] Registrar of Companies may register those Memorandum and Articles of Association received till 11.9. 2013 as per the definition clause of the ‘private company’ under the Companies Act, 1956 without referring to the definition of ‘private company’ under the “said Act”.

[4] Companies Act, 2013. Punishment for Fraud. 447. … Provided that where the fraud in question involves public interest, the term of imprisonment shall not be less than three years.

[5] the company shall be punishable with fine which shall not be less than one lakh rupees, but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment 

[6] Companies Act, 2013. Punishment for Fraud. 447. … Provided that where the fraud in question involves public interest, the term of imprisonment shall not be less than three years.

[7] Salomon v Salomon – Case Summary, 2021

[8] Limited liability is a type of legal structure for an organization where a corporate loss will not exceed the amount invested in a partnership or limited liability company

[9] Good Profit Development Ltd v Leung Hoi 1992 2 HKC 539

[10] Depending on the business type, capacity can refer to a production process, human resources allocation, technical thresholds, or several other related concepts.

[11] A floating charge is a security interest or lien over a group of non-constant assets, that change in quantity and value

[12] The crystallization frequency is the point in time when the fund manager updates the high-water mark and is paid the incentive fee.

[13] Macaura v Northern Assurance Co Ltd [1925] AC 619 Case …

[14]  private limited company is a popular way to start running a business. … Limited companies can be private or public.

[15] Formation of companies with charitable objects, | companies act, 2013 | bare acts | law library |

[16] Formation of companies with charitable objects, | companies act, 2013 | bare acts | law library |

[17] Rehabilitation and Insolvency Fund for the purposes of rehabilitation, revival, and liquidation of the sick companies

[18] Companies Act2013. Punishment for Fraud. 447. 


Author Details: Diksha Diwaker [Student, Bennett University]

Law Library LawBhoomi

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