For Plus one CBSE and State syllabus following students.

3. Acompanyispromotedorformedtorunanindustrialortrading
or service enterprise. The persons who thus bring a company into
existenceareknownas‘promoters’
Document like memorandum of association, articles of
associationetc. are [prepared by them and preliminary expenses are
met by them. Promotion is risky business. The promoters may be an
individual,afirm,oranassociationorabodycorporate.

4. Professional promoters: promote a company and hand it
overtheshareholders
Occasionalpromoters:dopromotionalworksoccasionally
Particular promoters: undertakes promotion of a
particularbusinessalone

5. Discoveryofbusinessidea:theideamaybeaboutanentirelynewline
of business or it may beabout the expiration of an existing business.
theworkbeginswhenhegetssuchanidea
Detailedinvestigation:hemakesanestimateofqualityofproductsto
be sold, cost of production, expected profits, capital requirements,
marketconditions,competition,availabilityofrawmaterials,power
labor,transport,etc.
Assembling : once satisfied with practicability and profitability of
theproposalthepromoterassemblethefactorsofproduction

6. Financing : the financial plan should include the type of
securities like shared and debenture to be issued for public
subscription. To raise capital by public issue he must draft a
prospectsinvitingthepublictosubscribe
Incorporation:thepromoterspreparevariousdocumentsto
befiledwiththeregistrarofcompanies.Onceacertificateis
issuedbytheregistrarthecompanycomesintoexistence.

7. A promoter is deemed to act as trustee of the company under
promotion. The contracts entered into by the promoter with the
various parties are ratified by the company on incorporation. He
should to make any secret profits. He is enmities to get remuneration
for the service rendered and be reimbursed for the expenses incurred
by him. The promoter is personally liable for all the preliminary
contractswiththeotherpartiesbeforeincorporation.Hecontinuesto
be personally liable for such contracts even after incorporation of the
company.

9. Formof acompany:thepromotersshouldfirstdecideupontheform
oftheproposedcompany-privateorpublic
Nameofthecompany:asperthecompaniesactacompanycannotbe
registered by a name which is undesirable in the opinion of central
government. Any name which is identical with , or which closely
resemblesthenameofanexistingcompanyisundesirable
SEBI’s approval of the draft prospectus : a draft prospectus has to be
submittedtoSEBI
Industrial license : industrial act.1951 insists that for starting certain
industriesalicensemustbeobtainedfromthecentralgovernment

10. The following documents are to be filed with the registrar of joint stock
companiesalongwithnecessaryfillingfees,stampdutyandregistrationfee.
Memorandum of association : signed by at least seven persons in a public
company and two persons in a private company. It should be stamped and
witnessedproperly
Articles of association : duly stamped and signed by the signatories to the
memorandumofassociation
Listofdirectors:containingnames,addressandoccupation
Writtenconsentofdirectors:toactinthatcapacity

11. Undertakingofthedirectors:totheeffectthattheywilltakeupand
payforqualificationshares.
Noticeofregisteredoffice:showingtheaddressofregisteredoffice
ofthecompany.Itneedbefiledwithin28daysofregistration
Statutorydeclaration:byanadvocateofthesupremecourtorahigh
courtorcharteredaccountantoradirectororsecretaryormanager
ofthecompanythatallrequirementsoftheacthavebeencomplied
with.

14. Thiscertificateisaconclusiveproofoftheregistrationofthecompany.
It may rightly be called the birth certificate of the company. The date
show in the certificate denote the date on which the company comes
into existence . It also evidence that the memorandum and articles are
within law. A private company can start business immediately on
receipt of certificate of incorporation. But a public company can start
business only after getting another certificate called certificate of
commencementofbusiness.

16. Theraisecapitalthedirectors ofapubliccompany havetotakethefollowing
steps:
1)Agreementwithunderwriters
2)Applicationtothestockexchangeforlistingofshares
3)Appointmentofbankersandauditors
4)Invitationtothepublicforsubscriptiontothesharecapital
5)Allotmentofsharesonreceivingapplicationforshares
6)Fillingastatementcalled“returnofallotment“withtheregistrar.

18. Certificateofcommencementofbusinessisgrantedbytheregistraronlywhen
thefollowingformalitiesarefulfilled.
 Thecompanyfiledwiththeregistraraprospectusorastatementinlieu
ofprospectus
 The number of shares allotted is not less than the minimum
subscriptionstatedintheprospectus
 Thedirectorshavetakenupandpaidfortheirqualificationshares

19. Return of allotment containing names and address of shareholders
andthenumberofsharesallottedtoeach,shouldbesubmitted
Declaration to the effect that the company was applied for or
obtained permission for dealing its shares in a recognized stock
exchangeshouldbefiled
Declarationbythesecretaryordirectorsofthecompanyisfiledwith
the registrar to the effect that all provisions of the Act in respect of
allotment of shares and commencement of business have been
complied.

20. Itentitlesacompanytostartbusiness
andexerciseitsborrowingpowers.All
the contracts entered into by the
company in between the date of
incorporation and the dates of issue of
certificate of commencement of
business are provisional. They would
nowbecomebindingonthecompany.

22. The memorandum of association is the most important
document of the company with which a company is
registered. It is described ads the charter of Magna Carta of
the company. It defines the company’s objects, capital and
power. The relation of the company with the outsiders is
governedbytheprovisionsofthememorandum.

23. The memorandum of association of a
company limited by shares contains the
followingclauses:
1)Nameclause
2)Domicileclauseorsituationclause
3)Objectsclause
4)Liabilityclause
5)Capitalclause
6)Associationclauseorsubscription
clause

24. The name of the company must be stated in this clause.
The name should not be identical with, or similar to, the
name of an existing company. The name selected must not
suggestanyconnectionwithorassociationorpatronageofa
national hero. These restrictions are imposed to avoid
confusion in the mind of public. The name should end with
theword“limited”or“ltd”.

25. This clause specifies the name of the state where the registered
office of the company is situated. This clause determines the
jurisdiction of the registrar of joint stock companies and of the
courts.Theregistrarofthestateconcernedwillbetheauthorityfor
registration, administration and winding up of the company. Full
address of the company must be filled with the registrar within 30
daysofincorporationofthecompany.

26. Itspecifiesobjectsofthecompany.Itindicatestheextent
of company’s powers and the sphere of its activities. The
objective of clause serves two purposes. It informs the
shareholdersandothersabout thekindofbusinessinwhich
their money is invested. It informs the creditors and
outsiderswhatthecompanyispermittedtodo.

27. Itstatewhethertheliabilityofmembersislimitedbyshares
or by guarantee. In the latter case the amount to be
contributedbyeachmembertowardsdebtsandliabilitiesof
thecompanyonwindingupismentioned.

28. Thisclausestatethetotalcapitalofthecompanywithwhich
thecompanyisregistered.Itisknownasregisteredcapitalor
authorized capital or nominal capital. This is the maximum
limit of capital that can be issued. The value and number of
sharesshouldalsobestatedinthisclause.

29. This clause is in the form of a declaration. It states that
thesubscribersexpresstheirwillingnessandagreement
toformacompany.

30. Alteration of memorandum alteration must be just and
equitable in the best interest of the company. It should not
defeatthemainobjectsofthecompany.Legalformalitiesfor
alterationaredescribedbelow:

31. A company can change its name at any time by passing a
special resolution and obtaining the approval of central
government. If a private company is converted into a public
company the word ‘private, is deleted. Similarly, when a
public company is converted into a private company the
word“private”isaddedtothename.

32. Change of registered office from one locality to another in
the same city or town is effected by a resolution of board of
directors. If the changes are from one place to another in the
same state a special resolution is required. In both cases the
change is notified to the registrar within 30 days. A public
noticeisalsorequired.

33. The objects clause can be altered only for some specific
purpose mentioned in the companies act. The company has
passed a special resolution and obtains conformation of the
companylawboard.Acopyoftheconformationorderanda
printedcopyofalteredmemorandummustbefiledwiththe
registrar.

34. If all themembers of alimited or guaranteecompany give
their consent in writing , liability an be altered. Liability of
directors, managing directors or manager can be altered by
passing a special resolution if the articles of association
permit. The registrar should be intimated about the
alteration.

35. To increase the share capital an orderly resolution will suffice. A
special resolution is a must for reduction of capital. Confirmation of the
resolution by the court is also necessary for reduction of capital. Copy of
resolution and confirmation by the court should be filed with the registrar
Association clause:
This clause cannot be altered.

36. The articles are to be filed
with the registrar to get the
company registered. It contains
the rules and regulations for
internal management and
administrationofthecompany.

37. 1)Sharecapitalanditssub-divisionintodifferentclasses’ofshares
2)Rightsofdifferentclassesofshareholders
3)Allotmentofsharesbydirectors
4)Theprocedureformakingcallsonshares,transfer,transmission,forfeitureand
surrenderofshares
5)Minimumsubscription
6)Issueofsharescertificateandsharewarrants
7)Company,slienonshares
8)Alterationofcapital

38. 9)Conversionofsharesintostocks
10)Borrowingpowersofthecompany
11)Conductofmeetingofshareholdersandtheboardofdirectors
12)Number,appointmentt,remuneration,poweranddutiesof
directors.
13)Appointmentofmanager,managingdirectorsandsecretary
14)Dividendsandreservefunds
15)Maintenanceofbooksofaccountsandtheiraudit
16)Executionoradoptionofpreliminarycontracts

39. 17)Commonsealofthecompany
18)Windingupofthecompany
19)Arbitration
The article must be printed, dividend into paragraph and numbered
consecutively and signed by every subscriber to the memorandum in
thepresenceofawitness,whoshallattestthesignatures.Itmustalso
bestamped.

40. The companies act gives table A containing rules and
regulations relating to the management of companies.
Accordingtosection26 of the companiesact, registrationof
articlesisnotcompulsoryforpubliclimitedcompanies

41. The articles of association can be altered with aspecial resolution and the fact
should be intimated to the registrar. But such alteration must be subject to
certainconditions
Suchalterationshallnotbeagainstthecompaniesactthememorandum.
Itshouldnotleadto conversion of apubliccompanyintoaprevious company
unlessapprovedbythecentralgovernment
Itshouldnotincreasetheliabilityofamemberwithouthiswrittenconsent
Itshouldnotviolateanyexistingcontract
Itshouldnotbefraudulentorillegal
Itshouldbeintheinterestofthecompany.

42. Memorandumofassociation Articlesofassociation
It is the constitution or charter of the
company
Itformsthebye-lawsofthecompany
It is the fundamental and main
documentofthecompany
The articles is only a subsidiary
documentofthecompany
It define the relationship between the
companyandtheoutsiders
It defines the relationship between the
companyanditsmembers
Itisacompulsoryforeverycompanyfor
incorporation
Itisnotcompulsoryforallcompanies
It contains important basic functions
suchasobjects,capital,power,etc
It mentions ways and means by which
theobjectscanbeachieved

43. For alteration it requires a special
resolution , permission from the
government orfrom thecompanylaw
boardorfromthecourt
Alteration requires only a special
resolution
It is subordinate to the companies act
only
It is subordinate both to the
companies act and memorandum of
association.
Anactultraviresofthememorandum
cannotberatifiedbythecompany
An act ultra vires of the articles but
within the scope of memorandum can

44. The object of prospects is to arouse interest of the investing
publicintheproposedcompany.Itthereforecontainsallmaterial
essentials information regarding the company’s affaires and its
future prospects. A private company is prohibited from inviting
thepublictosubscribetoitsshares
Acopyoftheprospectusmustbefiledwiththeregistrarbefore
itisissuedtothepublic.Itmustbepublishedwithin90daysfrom
thedateoffillingwiththeregistrar.

45. Themainobjectofacompany
Nameandregisteredaddressofthecompany
Name,addressandoccupationsofthesignatoriestothememorandumandthe
numberofsharestakenbythem
Numberandclassofsharesissuedandrightsofdifferentclassesofshareholders
Numberofredeemablepreferencesharestobeissued,thedateofredemption,
noticeandthemethodofredemption
Thequalificationshares,ifany,ofthedirectors.

46. Names, address and description of directors, managing directors, manager,
etc.
Nameandaddressofthepromotersofthecompanyandtheirremuneration
Minimumsubscriptionrequiredforallotmentofshares
Amountpayableonapplicationandallotmentoneachshares
Informationonlistingofsharesonastockexchange
Timeopeningandclosingthesubscriptionlist
Particulars of any option given to any person to subscribe for shares and
debenturesofthecompany

47. Detailsofborrowingpowerofthecompany
Particularsofallcontractsmade
Particularsofallcontractsmade
Particularsofsharesordebenturesissuedortobeissuedforconsideration
otherthancash
Particularsofpropertypurchased,nameofthevendorandthepaymentof
purchaseconsideration
Nameofunderwritersanddetailsofunderwritingagreement
Nameofauditors,bankersandbrokers

48. Natureandextentofinterestofdirectorsorpromotersinthepromotionand
in anypropertyproposedtobepurchased
Particularsofsharesissuedatpremium
Restrictionsonmembersanddirectors
Capitalizationofprofits
Where the prospectus is issued by an existing company, the audited profit
and lossaccountsandbalancesheetsforthelast5yearsmustbeattached.

49. Prospectusformsthebasisofacontractbetweenthecompanyand
shareholders. Therefore, if the prospectus contains any mis-
statement,misrepresentationorsuppressionoffacts,thecontractis
violated.Theshareholdersinsuchacasecanproceedtoacourtoflaw
to cancel the allotment. To protect the investors, the companies act
containspenalprovisionstodealwithsuchcases.

50. a)Civilliability:apersonwhopurchasessharesordebenture
on the strength of mis-statement or mis-preprecentaion in a
prospectus,toclaimcompensationorrefundofmoneyfrom
any directors, promoter or any person authorized to issue
suchamisleadingprospectus.
b)Criminalliability:Everypersonwhohasauthorizedissue
of such a prospectus is punishable with imprisonment unto
twoyearsorfineuntors.5000orboth.

51. When a public company wants to raise capital privately it
mustfileastatementcalled“statementinlieuofprospectus”
with the registrar at least three days before the first
allotmentofshares.

52. Applicationsforsharesdulyfilledinaresenttothecompany
or its banks along with application money .The shares are
allotted by the board of directors, whose decision is final. a
letter of allotment is sent to each applicant to whom shares
are allotted, while a letter of regret with refund of
applicationtowhomsharesarenotallotted.

53. Send a copy of the prospectus or statement in lieu of
prospectustotheregistrar
Depositallapplicationmoneyreceivedinascheduledbank
Seethattheminimumsubscriptionstatedintheprospectus
hasbeenachievedandapplicationmoneyreceived.

54. The minimum amount of capital which must be
subscribedbythepublicbeforeapubliccompanycan
allotsharesisknownasminimumsubscription,andis
decidedbythedirectorsandstatedintheprospectus.