Page 212 - DMGT407Corporate and Business Laws

Unit 8: Formation of a Company

In the case of Moosa vs. Ebrahim (supra), the memorandum was signed by two adult persons Notes
and by a guardian of the other five members, who were minors. The registrar, however, registered
the company and issued a certificate of incorporation. The court held the certificate to be conclusive
for all purposes.
In another case of Jubilee Cotton Mills Ltd. vs. Lewis (1924) AC 958, the registrar issued a
certificate of incorporation on January 8th, but dated it January 6th, which was the date he
received the documents. On January 6th, the company had made an allotment of share to Lewis.

Held: That the certificate was conclusive evidence of incorporation on January 6th and that the
allotment was not void on the ground that it was made before the company was incorporated.

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Caution If a company has been incorporated with illegal objects, the illegal objects would
not become legal by the issue of the certificate of incorporation.
Section 36 states that, on registration, memorandum and articles of the company bind the company
and its members to the same extent as if they respectively had been signed by the company and
by the members and contained covenants on its and their part to observe all the provisions
contained in the memorandum and articles.

Self Assessment

Fill in the blanks:
5. A company cannot be registered by a name, which in the opinion of the Central Government
is……………………..
6. The certificate of incorporation is ……………….evidence that all the requirements of the
Companies Act in respect of registration and of matters precedent and incidental thereto
have been complied with.
7. The promoters will have to get together at least …………….persons in the case of a public
company to subscribe to the memorandum of association.

8.3 Floatation

When a company has been registered and has received its certificate of incorporation, it is ready
for ‘floatation’, that is to say, it can go ahead with raising capital sufficient to commence business
and to conduct it satisfactorily.
We have seen earlier under ‘classification of companies’ that a private company is prohibited
from inviting public to subscribe to its share capital. Therefore, when a private company is
formed, the necessary capital is obtained from friends and relatives by private arrangement.

In the case of a public company also, the promoters may not invite public to subscribe to its
share capital and may arrange the capital privately as in the case of a private company. In such
a case, the intention of the promoters is to avail of the advantages of incorporation not available
to a private company, e.g., to have unlimited number of members, to confer unrestricted right
to transfer shares on the members, etc.
However, by far a large number of public companies raise their capital in the very first instance
by inviting public to subscribe to their share capital.

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