Page 166 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Unit 8: Formation of Company

8.5 Summary Notes

The whole process of formation of a company may be roughly divided, for convenience,
into three parts. These are: (i) Promotion; (ii) Registration and (iii) Floatation.
Section 12 states that, “any seven or more persons or where the company to be formed will
be a private company, two or more persons, associated for any lawful purpose may, by
subscribing their names to a memorandum of association and otherwise complying with
the requirements of this Act in respect of registration form an incorporated company, with
or without limited liability.”

Section 33 also requires a declaration to be filed with the Registrar along with the
Memorandum and the Articles. This is known as “Statutory Declaration of Compliance.”
Section 20 states that a company cannot be registered by a name, which in the opinion of
the Central Government is undesirable.

On registration, the company comes into existence as a legal person distinct from its
members who constitute it from the earliest moment of the day of incorporation stated

in the certificated of incorporation, with rights and liabilities similar to a natural person,
competent to enter into contracts (s.34).
When the company has complied with these conditions, the Registrar will issue a certifi cate
to commence business.
The Memorandum of Association of a company is its charter which contains the fundamental
conditions upon which alone the company can be incorporated.

The memorandum serves a two-fold purpose. It enables shareholders, creditors and all
those who deal with the company to know what its powers are and what is the range of
its activities.

The articles of association of a company and its bye laws are regulations which govern the
management of its internal affairs and the conduct of its business.

Section 36 provides that the memorandum and articles, when registered, bind the company
and its members to the same extent as if they had been signed and sealed by each member
and of the memorandum and articles.

8.6 Keywords

Articles of association: The Articles of association of a company and its bye laws are regulations
which govern the management of its internal affairs and the conduct of its business.
Association clause [s.13(4)(c)]: At the end of the memorandum of every company there is an
association or subscription clause or a declaration of association.
Capital clause [s.13(4)(c)]: This clause states the amount of share capital with which the company
is registered and the mode of its division into shares of fi xed value.
Liability clause [s.13(2)]: This clause states the nature of liability of the members. In case of a
company with limited liability, it must state that liability of members is limited, whether it be by
shares or by guarantee.
Memorandum of Association: The Memorandum of Association of a company is its charter which
contains the fundamental conditions upon which alone the company can be incorporated.
Promotion: It is a term of wide important denoting the preliminary steps taken for the purpose
of registration and flotation of the company.

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