Incorporation & Formation of Companies

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Incorporation & Formation of Companies — Key Facts for CS Executive

Company Definition (Section 3)

• A company is a legal entity formed by an association of persons; it has separate legal existence from its members
• Key feature: Perpetual succession — members may come and go but the company continues until dissolved

Types of Companies by Incorporation

• Private company — min 2, max 200 members; suffix “Private Limited”; restricts transfer of shares; min 2 directors
• Public company — min 7 members (no maximum); suffix “Limited”; min 7 subscribers to MoA; min 3 directors
• One Person Company (OPC) — single member and single director; suffix “OPC Private Limited”; exemption from holding AGM; min 1 subscriber
• Section 8 company — formed for charitable/non-profit purposes; licence under Section 8; has “Foundation” or “Association” in name; enjoys tax exemptions

SPICe+ — Single Window Incorporation

• Mnemonic: SPICe+ = INC-32 (incorporation) + INC-33 (MoA) + INC-34 (AoA) + AGILE PRO-S (GST/EPFO/ESIC/bank account)
• Filed at mca.gov.in — MCA portal only; physical filing replaced by e-filing since 2016
• RUN service — Reserve Unique Name; suggested name must not be identical to existing company/LLP; 2 name proposals required

DIN (Director Identification Number)

• Mandatory for every proposed director before appointment
• Applied via DIR-3 form with KYC; 8-digit unique number; cannot hold more than 20 directorships across all companies

Digital Signature Certificate (DSC)

• Required for e-filing all incorporation forms; directors must obtain Class 3 DSC (highest security)
• Both MoA and AoA must be digitally signed by all subscribers and witnesses

Certificate of Incorporation (COI)

• Issued by RoC under the digital signature of Registrar
• Contains: Company name, CIN (Corporate Identity Number), date of incorporation, state of registration
• ⚡ Exam tip: COI is conclusive proof of existence — it cannot be challenged on merits after 5 years (Section 248A); but can be cancelled for fraud under Section 7(7)

Certificate of Commencement of Business

• Required only for public companies (Section 11, Companies Act 1956 — largely redundant under 2013 Act but still required for banking, insurance, capital issues)
• Private companies can commence business immediately after COI

Commencement of Business Rules

• Private company: can start business from the day COI is issued
• Public company: for regulated sectors (banking, insurance, capital markets) — separate commencement certificate still required
• Post-incorporation mandatory registrations: PAN, TAN, GST (within 30 days), EPFO, ESIC, bank account

Mandatory Registrations Post-Incorporation

• PAN — Permanent Account Number from Income Tax Department
• TAN — Tax Deduction and Collection Account Number
• GST — Goods and Services Tax registration (if turnover ≥₹40 lakh or inter-state supply)
• EPFO — Employee’s Provident Fund Organization (if employees >20)
• ESIC — Employees’ State Insurance Corporation
• Bank account — must be opened in the name of company within 30 days of incorporation

Promoter Types and Legal Position

• 3 modes of promotion: Self-promotion (by the promoters themselves), Professional promotion (by lawyers, chartered accountants, company secretaries), Financial promotion (by financial institutions/angels)
• Promoter is NOT an agent or trustee of the company before incorporation; fiduciary duty to disclose all material facts
• ⚡ Exam tip: Promoter cannot make a secret profit — any profit must be disclosed to the company; if undisclosed, company can recover the profit

Key Differences — Private vs Public vs OPC vs Section 8

Feature	Private Company	Public Company	OPC	Section 8
Min members	2	7	1	2
Max members	200	No limit	1	No limit
Min directors	2	3	1	2
Suffix	Private Limited	Limited	OPC Private Limited	Foundation/Association
Pre-incorporation contracts	Not binding	Not binding	Not binding	Not binding
Commencement	Immediate	May need commencement cert	Immediate	Immediate
Section applicable	Section 2(68)	Section 2(71)	Section 2(62)	Section 8

⚡ Exam tip: Under Section 7(7), if company is incorporated by fraud or misrepresentation, any person affected can apply to NCLT within 5 years for cancellation of incorporation — NCLT can also penalise the promoters up to ₹50,000. This is a favourite exam scenario!

Doctrine of Separate Legal Entity

• Company is a person distinct from its members — established in Salomon v. Salomon & Co. [1897] (House of Lords)
• Perpetual succession — death/insolvency of members does not affect company
• Can own property, sue and be sued in its own name

Corporate Veil — When It Will Be Lifted

• Courts will ignore separate legal personality (lift the veil) in cases of:
  • Fraud or evasion of legal obligations (e.g., tax avoidance)
  • Company as a sham/alias for the promoter
  • Tax evasion — revenue authorities can pierce the veil
  • Statute expressly provides (e.g., Section 212 IPC — fraudulent acts)
  • Single Member Company — when OPC has only one member who dies
• ⚡ Exam tip: Key cases: Lee v. Lee’s Air Farming [1961] (company is distinct from its controller), Prest v. Petrodel [2013 UK SC] (courts can pierce veil to prevent evasion), Birdsawan’s case (fraudulent evasion)

Pre-Incorporation Contracts

• Contracts made by promoters before company is incorporated are NOT binding on the company
• Company cannot ratify pre-incorporation contracts after incorporation
• Exceptions: (1) Novation — company enters a new contract with the third party after incorporation; (2) Agency — if promoter acted as agent; (3) Specific performance where company adopts the contract
• ⚡ Exam tip: Promoter remains personally liable on pre-incorporation contracts unless novation is properly completed

Ultra Vires Doctrine

• Acts beyond the objects clause in MoA are VOID and cannot be ratified even by unanimous shareholder resolution
• Money spent on ultra vires acts cannot be recovered from shareholders (they were unaware)
• Directors who authorise ultra vires expenditure may be personally liable to company for loss

⚡ Memory Mnemonic for SPICe+: “Shall Please Inform Companies Electronically Plus”

• INC-32 = Incorporation document
• INC-33 = Memorandum of Association
• INC-34 = Articles of Association
• AGILE PRO-S = GST + EPFO + ESIC + Bank Account + PAN + TAN

⚡ Exam tip: Always distinguish COI from Certificate of Commencement — COI proves legal existence, Commencement proves right to start business (mainly for public companies in regulated sectors)!

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🟡 Standard — Regular Study (2d–2mo)

Standard content for students with a few days to months.

Incorporation & Formation of Companies — CS Executive Study Guide

Stage-by-Stage Incorporation Process

1. Obtain DIN — Every proposed director must obtain DIN via DIR-3 form on MCA portal with KYC verification; DIN is mandatory and unique; director cannot hold DIN in dead/inactive companies
2. Obtain DSC — Class 3 Digital Signature Certificate required for e-filing all incorporation forms; PAN-based issuance; validity 1-2 years
3. Reserve Company Name (RUN) — File RUN service with 2 proposed names; name should be distinctive and not identical to existing company/LLP/trademark; can check availability on MCA portal before filing; validity of reserved name — 20 days (extendable)
4. Prepare MoA and AoA — Draft Memorandum of Association and Articles of Association; each subscriber must sign in his/her own hand; witnesses must attest signatures
5. File SPICe+ (INC-32) — Single application combining: INC-32 (incorporation), INC-33 (MoA), INC-34 (AoA), AGILE PRO-S (for GST, EPFO, ESIC, bank account, PAN, TAN); attach subscriber details, proofs of address, identity, photographs
6. Pay Registration Fees — Fee calculated on the basis of authorized capital; slab-based fee structure on MCA portal; higher capital = higher fee
7. RoC Scrutiny — Registrar scrutinizes the filed documents; if defects found, issues STP (Straight Through Process) or NCLT referral for manual scrutiny
8. Certificate of Incorporation Issued — RoC issues COI with CIN; this is the birth certificate of the company; from this date, company legally exists

Companies Act 2013 — Key Sections for Incorporation

• Section 3 — Definition of company: “A company means a company incorporated under this Act or under any previous company law”; 3 key characteristics: (a) incorporated under the Act, (b) legal entity distinct from members, (c) perpetual succession
• Section 4 — Memorandum of Association: Name, Registered Office clause, Objects clause, Liability clause, Capital clause, Association clause
• Section 5 — Articles of Association: Internal regulations; may adopt Table F fully or partially; must not be contrary to Companies Act or MoA
• Section 6 — Registered office intimation: Within 30 days of incorporation; change of registered office requires SRN and form INC-22
• Section 7 — Incorporation documents: (1) MoA (2) AoA (3) Affidavit from subscribers (4) Proof of address (5) NOC from owner (6) DIR-3 for directors (7) Consent of directors (Form DIR-2)
• Section 8 — Section 8 company: License from Regional Director; not-for-profit; can utilise profits for promoting objects; tax exemptions under Income Tax Act
• Section 9 — Effect of registration: From date of COI, subscribers and successors become a body corporate with all powers of a natural person
• Section 10 — Commencement of business: Company can commence business after COI; for certain businesses (banking, insurance), separate certificate required
• Section 10A — Commencement of business for companies with share capital — declaration by director verified by CA/CS confirming paid-up capital received
• Section 12 — Registered office: Registered office is the principal place of business; all communications sent there are deemed served

Types of Companies — Detailed Distinctions

Private Company (Section 2(68)):

• Restricts transfer of shares (through AoA)
• Min 2 members, max 200 (excluding employees/directors)
• Min 2 directors
• Cannot issue prospectus or raise public deposits
• Need not hold AGM if all resolutions passed via circulation
• Exemptions from many provisions of Companies Act (relaxed compliance)
• ⚡ Exam tip: Private company can have only 2 members — if a third person is admitted, the company must convert to public or reduce membership

Public Company (Section 2(71)):

• Min 7 members, no upper limit
• Min 3 directors
• Must hold AGM; must file financial statements; higher compliance
• Can list on stock exchange; can issue shares to public
• Can accept public deposits (subject to RBI guidelines)
• Listed public companies must comply with SEBI LODR

One Person Company (Section 2(62) and Rule 3):

• Only 1 member who is also the sole director
• Cannot have subsidiaries; cannot convert to Section 8 company
• Free reserves requirement for conversion to public company
• Mandatory AGM relaxed — resolutions can be passed by circulation
• Nominee required (Form INC-3) — same person can be nominee
• ⚡ Exam tip: OPC cannot have cumulative convertible preference shares; its paid-up capital cannot exceed ₹50 lakh

Section 8 Company:

• Formed for promoting commerce, art, science, religion, charity or any other useful object
• No dividend/distribution to members from profits
• License from Regional Director under Section 8(1)
• Minimum 2 directors; no minimum capital requirement
• enjoys exemptions under Sections 11, 22(3), 186(9) of Companies Act
• ⚡ Exam tip: Section 8 company can be wound up if it fails to comply with licence conditions or if it conducts business for profit

Producer Company (Section 581A-581Z):

• Formed by primary producers (farmers, weavers, fishermen)
• Governed by specific provisions (old Companies Act, Section 581A-581Z — still applicable)
• Member exit mechanism provided

Holding and Subsidiary (Section 2(46) and 2(87)):

• Holding company: Controls >50% equity/voting rights OR appoints majority of board members
• Subsidiary company: Company controlled by holding company
• Wholly-owned subsidiary: 100% equity held by holding company
• Associate company: 20-50% stake — significant influence but not control
• ⚡ Exam tip: Holding and subsidiary are separate legal entities — holding company cannot be held liable for subsidiary’s debts (except in cases of fraud/veil-piercing)

Promoter — Legal Position and Liabilities

1. Promoter is NOT an agent of the company before incorporation (no principal-agent relationship)
2. Promoter is NOT a trustee — but courts impose fiduciary duties (good faith, disclosure)
3. Promoter cannot make secret profit — must disclose to company
4. Promoter is PERSONALLY LIABLE on pre-incorporation contracts unless novated
5. If company is incorporated through fraud/misrepresentation, promoter is liable (Section 7(7))
6. Promoter cannot resign before incorporation without disclosing material facts
7. Promoter may be liable for fraudulent trading (Section 339) if company goes into liquidation

Pre-Incorporation Contracts — Detailed

• Contract before company exists cannot be ratified by company after it comes into existence
• Company is a stranger to such contracts — no privity of contract
• Enforcement options:
  • Novation: Replace promoter with company as contracting party (requires third party consent)
  • Compromise: Third party agrees to release promoter and accept company
  • Implied adoption: If company takes benefit of contract with knowledge, courts may hold it bound
• ⚡ Exam tip: Promoter remains liable on pre-incorporation contracts if no novation agreement is signed; always include a novation clause in the SPICe+ stage

Memorandum of Association (MoA) — Clauses and Drafting

6 mandatory clauses under Section 4(5):

1. Name Clause — Company name ending with “Limited” or “Private Limited” (as applicable); cannot be identical to existing company/trademark; must not violate the Emblems and Names Act
2. Registered Office Clause — State in which registered office is situated; determines jurisdiction of RoC
3. Objects Clause — The main objects and ancillary objects the company can pursue; governs what company can legally do
4. Liability Clause — Limits liability of members to amount unpaid on shares (for companies limited by shares); for guarantee companies — amount members undertake to contribute
5. Capital Clause — Authorised capital; number and nominal value of shares; can be altered by ordinary resolution
6. Association/Subscription Clause — Declaration that subscribers wish to form company and agree to take shares; minimum subscribers signed in presence of witness

⚡ Exam tip: The objects clause is the MOST IMPORTANT clause — anything beyond this is ULTRA VIRES and void. Courts cannot ratify ultra vires acts.

Articles of Association (AoA) — Contents

• Internal rulebook of the company
• Can adopt Table F (Schedule I to Companies Act) as default OR customise provisions
• Regulates: Directors’ powers, meetings and proceedings, share transfers, dividends, accounts, winding up
• AoA must not be contrary to Companies Act or MoA — if inconsistent, Companies Act prevails
• AoA is binding on members as a contract (Section 10)
• Can be altered by special resolution (Section 14)
• ⚡ Exam tip: AoA cannot restrict statutory powers of directors (e.g., power to borrow under Section 179) unless the Act specifically allows such restriction

Registered Office — Requirements and Changes

• Must be intimated to RoC within 30 days via Form INC-22
• Change of registered office WITHIN same state — ordinary resolution + Form INC-22
• Change of registered office ACROSS states — special resolution + Form INC-23 + NCLT approval
• All communications sent to registered office are deemed served on company
• Company can change its state of registration; old RoC transfers records to new RoC

Effect of Certificate of Incorporation (Section 9)

• From date of COI, the subscribers and all successors become a body corporate
• Company has: (a) Perpetual succession, (b) Common seal, (c) Power to acquire/hold property, (d) Power to sue and be sued, (e) Power to enter contracts
• COI is conclusive evidence of valid incorporation (after 5 years, cannot be challenged except for fraud under Section 7(7))

Doctrine of Ultra Vires — Full Explanation

• Ultra vires = beyond the powers/objects of the company
• Acts outside MoA objects clause are VOID ab initio (void from beginning)
• Cannot be ratified by: (a) unanimous shareholders, (b) new articles, (c) any resolution
• Money spent on ultra vires acts: company cannot recover from shareholders who received it (they were unaware)
• Directors authorising ultra vires acts may be personally liable to company for loss
• ⚡ Exam tip: The ultra vires doctrine protects third parties only if they had no knowledge of the company’s limited powers

Commencement of Business (Section 10A)

• For companies with share capital: before commencing business or exercising borrowing powers, directors must file Declaration (Form INC-8) verified by CA/CS confirming:
  • Paid-up capital received (minimum 100% of authorised capital for public companies)
  • Shares have been allotted for consideration received
• This declaration is filed with RoC within 180 days of incorporation
• Failure to file: penalty of ₹500/day for company; officer in default also liable

Corporate Veil — Comprehensive Grounds for Lifting

1. Fraud or evasion — using company to defeat creditors or legal obligations
2. Agency relationship — if company is merely an agent of shareholders (established in Rama Corp v. Protronics)
3. Statute expressly providing — Companies Act, Income Tax Act, Environment Protection Act
4. Tax avoidance — Revenue authorities frequently pierce veil to assess true taxpayer
5. Company as sham/alias — name of company used to conceal identity of controller
6. Single-person OPC — upon death of sole member/nominee, NCLT may consider lifting veil
7. Holding-subsidiary accounts — where group accounts should reflect substance over form

Key Cases:

• Salomon v. Salomon [1897] AC 22 — Company is distinct from Salomon as a shareholder; even though he owned almost all shares, company was a separate legal person
• Lee v. Lee’s Air Farming [1961] AC 12 — Lee incorporated an airline, was both shareholder and managing director; died in crash — court held company was separate from Lee; his estate was liable as company’s employee
• Prest v. Petrodel [2013] UK SC 34 — Supreme Court allowed piercing of corporate veil to prevent evasion of rights in matrimonial proceedings
• Birdsawan’s case (1936) — Fraudulent evasion of tax obligations justified lifting veil
• State of Uttar Pradesh v. Registrar of Companies [2013] — Court can lift veil for statutory compliance

Name Reservation Rules (Companies (Incorporation) Rules, 2014)

• RUN service: Proposed names checked against: (a) existing companies, (b) LLPs, (c) registered trademarks, (d) reserved names of other bodies corporate
• Names identical/similar to: foreign companies, government bodies, statutory bodies require prior approval
• Words requiring Central Government approval: “British”, “Imperial”, “UN”, “World”, “WHO”, “NATO”, “Tata”, “Reliance” (if not belonging to group)
• Offensive, undesirable, contrary to public interest names rejected
• Two proposed names required in RUN application
• Reservation valid for 20 days; can be renewed once for 20 days

MCA Guidelines and Circulars on E-Filing

• SPICe+ is mandatory for incorporation of all companies (w.e.f. 2020)
• E-form filing mandatory with digital signatures
• Physical filing largely discontinued except for certain specific forms
• MCA 21 portal: mca.gov.in
• STP (Straight Through Process): Automatic processing of forms without RoC manual scrutiny for standard applications

⚡ Exam tip: The key distinction between COI and Commencement Certificate — private companies don’t need commencement certificate; public companies in banking, insurance, and capital issues still need it under Section 11 of the 1956 Act!

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🔴 Extended — Deep Study (3mo+)

Comprehensive coverage for students on a longer study timeline.

Incorporation & Formation of Companies — Comprehensive CS Executive Notes

Section 3 — Definition and Types of Company (Detailed)

“Company means a company incorporated under this Act or under any previous company law.”

Four key characteristics:

1. Voluntary association of persons
2. Incorporated under Companies Act (registered)
3. Separate legal entity distinct from members
4. Perpetual succession (exists until lawfully dissolved)

Classification of companies:

• By liability: Limited by shares, Limited by guarantee, Unlimited company
• By access to capital: Private company, Public company
• By ownership: Government company (Section 2(45) — ≥51% government holding), Foreign company (Section 2(42) — incorporated outside India with place of business in India)
• By structure: Holding, Subsidiary, Associate
• By objects: Trading, Non-trading, Finance, Infrastructure, Producer companies
• Special types: OPC, Section 8, Nidhi companies, Government companies, Foreign companies

Section 4 — Memorandum of Association (Comprehensive)

MoA is the charter/document that defines the relationship between company and outside world.

6 mandatory clauses (Section 4(5)):

1. Name Clause:

   • For public limited: name must end with “Limited”
   • For private limited: name must end with “Private Limited”
   • Cannot be identical to existing company/trademark
   • Cannot be offensive, undesirable, or contrary to public policy
   • Names that require Central Government approval: words suggesting connection with government, foreign nations, famous personalities (unless consent obtained)
   • Emblems and Names Act 1950: prohibits use of certain names/emblems

2. Registered Office Clause:

   • State in which registered office is situated (determines RoC jurisdiction)
   • “The registered office of the company is situated in the state of [State]”
   • Change of state requires NCLT approval (Section 13)

3. Objects Clause:

   • Most important clause — determines scope of company’s activities
   • Main objects: Primary purpose for which company is formed
   • Ancillary objects: Things necessary to achieve main objects
   • Other objects: Explicitly stated other objects (beyond main and ancillary)
   • Doctrine of ultra vires applies — any act beyond objects clause is void
   • Courts interpret objects clause liberally in modern times (post-Brewer v. Brown)

4. Liability Clause:

   • For companies limited by shares: “The liability of members is limited to the amount unpaid, if any, on the shares held by them”
   • For companies limited by guarantee: “Each member undertakes to contribute to the assets of the company… such amount as may be required, not exceeding a specified amount”
   • For unlimited companies: No limitation clause

5. Capital Clause:

   • “The share capital of the company is ₹[X] divided into [Y] equity shares of ₹[Z] each”
   • Alteration by ordinary resolution under Section 61
   • Authorised capital can be any amount (no minimum mandated)

6. Association Clause:

   • Declaration by subscribers that they: (a) wish to form company, (b) agree to take shares, (c) are competent to contract
   • Minimum subscribers: 7 for public, 2 for private, 1 for OPC
   • Subscriber must sign in his/her own hand; witness must attest

Doctrine of Ultra Vires — Full Statutory and Case Law Analysis

• Established in Ashbury Railway Carriage Co. v. Riche (1875) — company exceeded its objects; contract was void
• In India, ultra vires acts are void and cannot be ratified (Section 9 + Section 6)
• Consequences of ultra vires:
  • Transaction is void ab initio
  • Cannot be ratified by shareholders (even unanimously)
  • Cannot be validated by new objects clause in AoA (for that transaction)
  • Directors may be liable for unauthorised expenditure
  • Third parties cannot claim damages for non-performance
• Modern exceptions/protections:
  • Apparent authority: If third party had no knowledge of ultra vires nature, company may be estopped from denying authority
  • Ratification by subsequent alteration of objects: If company later alters objects clause, past ultra vires acts are NOT retrospectively validated
  • Bona fide third parties: Some jurisdictions protect third parties dealing in good faith
• ⚡ Exam tip: India follows strict ultra vires doctrine unlike UK where Companies Act 1985/Section 39 provides statutory protection to third parties

Section 5 — Articles of Association (Detailed)

• AoA is the internal constitution — governs relationship between company and members, and between members inter se
• Must not be contrary to Companies Act or MoA (Section 2(5) and Section 6)
• If AoA conflicts with Companies Act — Companies Act prevails
• If AoA conflicts with MoA — MoA prevails (AoA must be subordinate to MoA)

Table F (Schedule I, Part I) — Default Articles:

• Automatically applies to companies limited by shares that don’t file custom AoA
• Covers: share transfers, forfeiture, calls, meetings (AGM, EGM), directors, borrowing, dividends, accounts, winding up

Key provisions typically in AoA:

• Directors: number, appointment, powers, meetings, rotation
• Share transfer: restrictions, approval requirements, pricing
• Share capital: alteration, issue of new shares, pre-emption rights
• Dividends: declaration, treatment of undistributed profits
• General meetings: notice, quorum, voting rights
• Accounts: maintenance, audit, access by members
• Winding up: order of distribution

Alteration of AoA (Section 14):

• Special resolution required
• Must not increase liability of members without consent
• Must be bonafide for benefit of company as a whole
• Third parties are not bound by alterations unless they consent

Section 6 — Registered Office

• Within 30 days of incorporation (Form INC-22 with proof of address + NOC from owner)
• Any change requires intimation via Form INC-22 within 30 days of change
• All communications delivered to registered office are deemed served
• Registered office is the company’s address for all official purposes

Section 7 — Incorporation Documents (Full Requirements)

Documents required under Section 7:

1. MoA — signed by each subscriber (minimum 7 for public, 2 for private, 1 for OPC)
2. AoA — signed by subscribers; can adopt Table F fully or partially
3. Affidavit — from each subscriber and first director in Form INC-9 (declaration that they are not convicted of fraud, not involved in previous defunct companies, competent to contract)
4. Proof of address — registered office address proof (rent agreement/electricity bill/property tax receipt not older than 2 months)
5. NOC from owner — No Objection Certificate from property owner for use as registered office
6. DIR-3 — DIN of proposed directors
7. DIR-2 — Consent of directors to act as directors (Form DIR-2)
8. Photographs — recent passport-size photographs of subscribers and first directors
9. PAN — Permanent Account Number of company (obtained as part of SPICe+)
10. Specimen signatures — as required by bank

Section 7(7) — Fraudulent Incorporation:

• If company is incorporated by fraud or misrepresentation:
  • Any person affected can apply to NCLT
  • NCLT can order cancellation of incorporation
  • Can also order restoration of original position
  • Promoters/officers can be penalised up to ₹50,000
  • Application must be within 5 years of incorporation

Section 8 — License for Non-Profit Companies (Detailed)

Companies formed for promoting:

• Commerce, art, science, religion, charity or any other useful object
• No dividend/distribution of profits to members
• Profits must be applied for promoting company objects

Application process:

• Form INC-12 application to Regional Director
• Attach: draft MoA/AoA, declaration of sole object, declaration of no-profit motive, list of promoters with consent
• Regional Director may call for additional information
• License granted under Form INC-16

Conditions for Section 8 licence:

• Company must apply its profits for its objects
• Cannot amend objects to include trading/business for profit
• Cannot pay dividend to members
• Must file annual returns and financial statements
• NCLT can revoke licence if company violates conditions

Exemptions for Section 8 companies:

• Exempt from Section 11 (restriction on number of members)
• Exempt from Section 186(9) (loan to directors)
• Exempt from certain prospectus requirements
• Lower registration fees
• Tax exemptions under Section 12AA and Section 80G of Income Tax Act

OPC — Comprehensive Rules (Companies (Incorporation) Rules 2014)

• Eligibility: Natural person only (not a company, not a minor, not a person of unsound mind)
• Nominee: Must appoint a nominee (Form INC-3) at incorporation; can change nominee anytime
• Conversion: Can convert to public company if: (a) paid-up capital exceeds ₹50 lakh, OR (b) average annual turnover >₹2 crore (for any 3 consecutive years)
• Restrictions: Cannot have subsidiaries; cannot convert to Section 8 company; cannot issue sweat equity; cannot accept deposits
• Exemptions: Need not hold AGM; resolutions can be passed by circulation; only 1 director required for board meetings; no need to hold AGM under Section 96
• Annual return: Must file Form MGT-7A (simplified annual return for OPCs)

Pre-Incorporation Contracts — Comprehensive Legal Analysis

General Rule: Company cannot be bound by contracts made before its existence.

• Contract is void at company’s instance — no privity
• Company cannot ratify because ratification requires an existing principal
• Established in: Kelner v. Baxter (1867) — promoter remained liable on contract made before company existed

Exceptions and Workarounds:

1. Novation after incorporation:

   • Company enters into a new agreement with third party
   • Original promoter is released; company assumes obligations
   • Requires consent of all parties

2. Adoption of pre-incorporation contract:

   • Company formally adopts the contract after coming into existence
   • This creates a new contract — old contract with promoter is novated

3. Agency relationship:

   • If promoter acted as disclosed agent of a principal, that principal may be bound
   • Company cannot be undisclosed principal — it didn’t exist

4. Implied adoption:

   • If company accepts performance under the contract with full knowledge, courts may find implied adoption

5. Compensation for benefits received:

   • Even if company is not contractually bound, it may be liable in quasi-contract (restitution)
   • Unjust enrichment — company must return benefit if it elects to retain it

Promoter Liabilities in Detail:

1. Contractual liability: Promoter is personally liable on all pre-incorporation contracts
2. Fiduciary duty: Must disclose all material facts to company; cannot make secret profit
3. Fraudulent misrepresentation (Section 7(7)): Can be penalised up to ₹50,000
4. Fraudulent trading (Section 339): Personal liability if company wound up with intent to defraud creditors
5. Misfeasance (Section 340): Can be sued for breach of duty or misapplication of funds

Secretarial Standards (SS-1 and SS-2) — Implications for Incorporation

• SS-1: Governs general meetings (AGM, EGM, Class meetings)

  • After incorporation, company must comply with SS-1 for all general meetings
  • Notice: 21 clear days (or shorter if 95% members consent)
  • Quorum, voting, proxies — all governed by SS-1

• SS-2: Governs postal ballot and certain resolutions passed by circulation

  • Important for companies with >200 members
  • Resolutions on certain matters must be passed through postal ballot

SPICe+ — Complete Process Guide

Forms consolidated in SPICe+:

• INC-32 (SPICe+ MoA + AoA): Simplified Proforma for Incorporating Company Electronically Plus

  • Contains: Name, Registered Office, Objects, Capital, Subscribers, Directors, KMP
  • MoA and AoA attached as INC-33 and INC-34 respectively

• INC-33 (MoA): Memorandum of Association

  • Electronic format with digital signatures of all subscribers

• INC-34 (AoA): Articles of Association

  • Electronic format with digital signatures

• AGILE PRO-S: Linked form for multiple registrations

  • GST registration (Form GST REG-06)
  • EPFO registration
  • ESIC registration
  • PAN application (Form 49A/49AA)
  • TAN application (Form 49B)
  • Bank account opening (pre-filled details for bank)
  • ESIC registration

MCA Filing Process:

1. Log in to MCA portal → SPICe+ services
2. Fill INC-32 (main form) with all company details
3. Attach INC-33 (MoA) and INC-34 (AoA) with digital signatures
4. Fill AGILE PRO-S for GST/EPFO/ESIC/bank account
5. Pay fees (slab based on authorised capital)
6. Submit — system generates SRN (Service Request Number)
7. Processing: if no defects → COI issued within 1-3 days
8. Download COI from MCA portal

CIN (Corporate Identity Number):

• 21-digit alphanumeric unique number
• Format: LXXXXX-YYYY-BBB-CCCCC
  • L = alpha (type of company)
  • XXXXX = year of incorporation
  • YYYY = RoC code
  • BBB = type of company
  • CCCCC = registration number within that year

Digital Signature Certificate — Requirements

• Class 3 DSC mandatory for:

  • All e-forms on MCA portal
  • MoA and AoA filing
  • Directors’ KYC (DIR-3 KYC)
  • Event-based filings

• Issued by licensed Certifying Authorities (CAs) in India

• Documents required: PAN, Aadhaar, photograph, address proof

• Validity: 1-2 years; must be renewed before expiry

• For company filing: Each subscriber to MoA and AoA must sign digitally; each director signing DIR-2, DIR-3 must sign digitally

Corporate Veil — Full Case Law and Academic Analysis

Theory of Corporate Veil: Company is a separate legal person. Members are not owners of company property — company owns its property. Members have shares which give them rights (dividend, vote, winding up participation) but not direct ownership.

When Courts Will Lift the Veil:

1. Fraud or evasion (classic ground):

   • Using company structure to defeat creditors, avoid legal obligations, evade taxes
   • Example: company formed with no assets to avoid paying creditors
   • Section 212 IPC: fraudulent action by company can attract criminal liability

2. Agency:

   • If company is merely an agent of shareholders (substance over form)
   • Rama Corp v. Protronics (1972): company acted as agent of parent company — agency liability

3. Statute expressly provides:

   • Section 68(10): Buyback — if company buys back shares using proceeds of another shares — courts can lift veil
   • Section 136: Lien on shares — company has effective ownership despite nominal ownership in member’s name
   • Income Tax Act Section 281: Treating property of one person as property of another to avoid tax
   • Companies Act Section 339-341: Fraudulent trading, wrongful trading — personal liability of directors

4. Tax avoidance:

   • Revenue authorities regularly pierce veil to assess true taxable person
   • State of UP v. Registrar of Companies [2013]: court lifted veil where company was used to avoid property tax

5. Group accounts and consolidation:

   • Where holding company prepares consolidated accounts, substance over form is recognized
   • Accounting Standards (AS-21) require consolidation of accounts

6. Oppression and mismanagement:

   • Section 241-246: NCLT can relieve against oppressive conduct even if not piercing veil
   • NCLT may order buyout, management changes, regulatory oversight

Key Cases — Comprehensive:

1. Salomon v. Salomon & Co. [1897] AC 22 (HL):

   • Facts: Salomon incorporated his business as a company; he, his wife, and 4 children were subscribers; company had 20,007 shares; Salomon held 20,001 shares; company went into liquidation; unsecured creditors claimed Salomon should pay because he was the “real” owner
   • Held: Company is a distinct legal person; Salomon as shareholder was not liable for company’s debts
   • Importance: Established separate legal entity as cornerstone of company law

2. Lee v. Lee’s Air Farming Ltd [1961] AC 12 (PC):

   • Facts: Lee was sole governing director (shareholder + managing director) of an airline; died in a plane crash while working for the company; his estate claimed workers’ compensation
   • Held: Company is a separate legal person; Lee was employee of company; workers’ compensation claim succeeded
   • Importance: Corporate personality is distinct even for controlling shareholders; controlling shareholder can also be employee

3. Prest v. Petrodel Resources Ltd [2013] UK SC 34:

   • Facts: Husband transferred properties to companies he controlled to prevent wife from accessing in divorce proceedings
   • Held: Supreme Court upheld power to pierce corporate veil but only to prevent evasion of legal rights — not merely because it is just and equitable
   • Importance: Veil piercing is exceptional; must be to prevent evasion, not just because of unfairness

4. Birdsawan’s case (1936) (CBA):

   • Facts: Assessee transferred property to a company to avoid wealth tax
   • Held: Company was a sham/alias for the assessee; corporate veil lifted for tax purposes

5. State of UP v. Registrar of Companies [2013] SC:

   • Facts: Properties registered in company’s name to avoid property tax under UP Zamindari Abolition Act
   • Held: Corporate veil can be lifted to prevent evasion of statutory obligations

6. Re: Fortune Systems Inc. (1983):

   • Facts: Parent company used subsidiary to isolate liability
   • Held: Corporate veil can be pierced when corporate structure is used to commit fraud or serious wrong

Commencement of Business — Detailed Rules

Section 10A (Companies Act, inserted by Amendment 2017):

For companies with share capital:

• Before commencing business or exercising borrowing powers:
  • Shares must be allotted for consideration received
  • Declaration in Form INC-8 by director + CA/CS confirming paid-up capital received
  • File with RoC within 180 days of incorporation
• Failure to file: penalty ₹500/day for company; officer in default liable

Regulated businesses requiring separate commencement certificate:

• Banking companies: Reserve Bank of India Act
• Insurance companies: Insurance Act 1938
• Capital market operations: SEBI regulations
• These companies must obtain separate certificate from regulator before commencing business

PIN (Partner Identification Number) for LLPs:

• Not directly relevant to company incorporation but relevant for comparison
• LLP: Limited Liability Partnership — separate body corporate under LLP Act 2008
• Partner Identification Number (PIN) required for designated partners
• Different from DIN

Practical Compliance Scenarios — Incorporation

1. Scenario: Promoter wants to reserve name similar to a famous brand

   • If brand is registered trademark: prior no-objection required
   • If brand belongs to group (e.g., Tata): specific consent from parent company required
   • Without consent: name will be rejected by RoC

2. Scenario: Registered office is a rented premises but owner won’t give NOC

   • NOC is mandatory for registered office proof
   • Alternative: use registered office as address of company secretary (Form INC-22 declaration)
   • Or use virtual office address (allowed if genuine business address)

3. Scenario: Company wants to start business immediately after incorporation

   • Private company: can start immediately after COI
   • Public company: can start after COI but for regulated businesses need commencement certificate
   • For all companies: recommended to file INC-8 within 30 days

4. Scenario: Pre-incorporation contract with landlord for office space

   • Landlord’s original contract is with promoter personally
   • After incorporation: company should enter fresh agreement with landlord OR execute novation agreement
   • Without novation: promoter is liable if company defaults

5. Scenario: DIN of director is rejected by MCA

   • Common reasons: duplicate DIN, KYC mismatch, criminal record not declared
   • Remedy: file DIR-3 with correct details; submit fresh KYC; attach self-attested documents

6. Scenario: OPC nominee dies — what happens?

   • Nominee appointment is immediate on death of sole member
   • Nominee becomes member in place of deceased
   • Must intimate RoC within 30 days via Form INC-4

Distinction Table — Company Types (Extended)

Feature	Private Ltd	Public Ltd	OPC	Section 8
Min members	2	7	1	2
Max members	200	Unlimited	1	Unlimited
Min directors	2	3	1	2
MoA subscribers	2	7	1	2
suffix	Private Limited	Limited	OPC Private Limited	Foundation/Association
Transfer of shares	Restricted	Freely transferable	N/A	Not applicable
Public deposits	Not allowed	Allowed (RBI rules)	Not allowed	Not allowed
AGM required	Yes (but can skip by circulation)	Yes	No	Yes
Pre-emption rights	Yes (usually in AoA)	Not mandatory	N/A	Not applicable
Director appointment	Ordinary resolution	Ordinary resolution	Single member resolution	Ordinary resolution
Annual return	MGT-7	MGT-7	MGT-7A (simplified)	MGT-7
Related party transactions	Require approval	Require approval	Relaxed	Require approval
Auditor appointment	Ordinary resolution	Ordinary resolution	Ordinary resolution	Ordinary resolution
Section applicable	2(68)	2(71)	2(62)	Section 8
CSR required	If >₹5crore profit	If >₹5crore profit	If >₹5crore profit	If >₹5crore profit
Buyback of shares	Allowed	Allowed	Not allowed	Not allowed

MCA E-Filing — Complete Procedure

Mandatory e-filing:

• All forms must be filed online on MCA portal (mca.gov.in)
• Digital signatures required for: MoA, AoA, DIR-3, DIR-2, INC-7, INC-22, MGT-7, AOC-4
• Physical filing: only for certain specified forms (rare cases)

Key Forms:

• INC-1 (pre-2016): Name reservation — replaced by RUN
• RUN: Reserve Unique Name — 2 proposals, 20-day validity
• SPICe+ (INC-32): Incorporation — MoA/AoA/GST/EPFO/bank account
• INC-33, INC-34: MoA and AoA (separate attachments)
• AGILE PRO-S: Linked registrations
• INC-22: Registered office intimation
• DIR-3: DIN application
• DIR-2: Director consent
• INC-9: Declaration by subscribers (solvency declaration)
• Form 5 (pre-2016): For increase in authorised capital — now via INC-28

Fees Structure (Authorised Capital based):

• Up to ₹1 lakh: ₹5,000
• ₹1 lakh to ₹5 lakh: ₹10,000
• ₹5 lakh to ₹10 lakh: ₹15,000
• Above ₹10 lakh: ₹1,000 per lakh subject to maximum ₹5 lakh (for private company)

Comparison with LLP Incorporation:

Feature	Company	LLP
Legal form	Separate body corporate	Separate body corporate
Members	Shareholders	Partners
Directors	Required	Designated Partners
Min members	2 (private) / 7 (public)	2
Max members	200 (private) / unlimited	Unlimited
DIN required	Yes	PIN for partners
Incorporation form	SPICe+ (INC-32)	FiLLiP (Form 2)
MOA/AoA	Required	Partnership Deed
Annual compliance	AGM, AR, FS	Annual Statement (Form 8)
Audit required	Mandatory (>₹50 lakh)	If turnover >₹40 lakh or contribution >₹25 lakh

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