Promotion and Incorporation of a Company

Promotion refers to a process through which a company is brought into existence. The person who brings a company into being and invests in the initial fund is called a promoter. The promoter determines whether they want to form a public or a private company. It is the prerogative of the promoters to prepare the necessary documents for the incorporation of the company.

Who is a Promoter?

A promoter is an individual who does the vital preliminary work incidental to the formation of a company. They act as nominees or as the first directors of the company.

The promoters enter into a precursory contract with the vendor and make requisite arrangements for the preparation, advertisement, and circulation of the prospectus in order to raise the required capital.

However, it is important to note that a person acting in his professional capacity on behalf of the promoter, for example, a lawyer drafting the agreements and other documents and is paid by the promoter, cannot be termed as a promoter.

Functions of a promoter:

  • The promoter decides the name of the company and makes sure that it is accepted by the registrar.
  • He superintends overlooks the details of the companies in MOA and AOA, denominations of the directors, bankers, auditors, and the registered office of the company.
  • Arranges for the publication of the MOA and AOA

A fiduciary position of the promoter:

  • A promoter cannot make any profit at the expense of the company.
  • They cannot sell the property to the company at any profit unless all the materials facts have been disclosed in front of the board of directors, or the shareholders of the company.
  • The promoters need to make a full disclosure of the interest or the profit earned.

Remuneration of Directors:

A promoter is not liable to receive any remuneration for his work unless a contract expressly approves payment for services offered.

Memorandum of association

A Memorandum of Association is considered as the constitution or the charter of a company. It contains the powers vested in the company.

A company cannot be registered under the Companies Act, 2013 without the memorandum of association.

Contents of the memorandum of association:

  • Name of the company
  • The state in which the registered office of the company is situated
  • The object clause of the company
  • The doctrine of Ultra- vires
  • The liability clause
  • The capital clause
  • The association clause

Articles of association

The Articles of association contains the rules and regulation regarding the internal management of a company. It is similar to that of a contract between the company and its members. It specifies the rights and duties of members and directors.

The provisions of the articles of association must not be in conflict with the memorandum of association. In any event, conflict arises the MOA will prevail.

Contents of the articles of association:

  • Powers, duties, rights, and liabilities of directors
  • Powers, duties, rights, and liabilities of members
  • Rules for meetings of a company
  • Dividends
  • Borrowing powers of the company
  • Calls on shares
  • Transfer and transmission of shares
  • Forfeiture of shares
  • Voting power the members

Registration for a company:

After all the documents have been prepared, scrutinized, stamped and signed, they must be filed with the Registrar of Companies for the Incorporation of the company.

The following documents have to be filed in the office of the Registrar of Companies:

  • The MOA and AOA
  • Assuming that the company proposes to enter into a contract with a person in the capacity of its managing director or a full-time director, an agreement must be drafted.

In case, of a public company, the following documents must also be filed:

Certificate of Incorporation

After the submission and completion of all the necessary documents, the registrar of the companies shall retain and register the memorandum and articles.

On, the registration of the Memorandum of a company, the registrar shall certify that the company is incorporated. The digitally signed "certificate of incorporation" is then emailed to the directors. 

Commencement of Business

A private company which possesses no share capital can commence its business immediately after its incorporation.

However, other companies can only commence their activities after they have successfully obtained the Certificate of Commencement of Business.

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