Formation of Company
Q. Discuss the importance
of Memorandum of Association.
Ans: - It is the foundation of a
business. It shows the capacity to contract of a company. It is constitution of
a company which relates with the outside world. No company is allowed to temper
with its contents without the sanction of central government or court of law.
Any act of the company outside the scope of activities as laid down in the
memorandum is said to be ultra vires and non binding on it.
Q. What are the documents
which are required for the Incorporation of a company?
Ans: - The documents which are required for
the Incorporation of a company:
of proposed directors
evidence of payment evidence fees
Q. What is the difference
between Certificate of Incorporation and Certificate of Commencement?
Ans: - Certificate of Incorporation is
the birth certificate of the company. A company is born on the date mentioned
on Certificate of Incorporation it becomes a separate legal entity. It can
enter into contract with any party. The certificate of commencement of business
is an evidence to start the operations of the business. The company can start
its functioning after getting certificate of commencement.
Q. Explain the term "Minimum
Ans: - According to the sections 69(1) of
the Companies Act, no allotment shall be made of any share capital of a company
offered to the public for subscription, unless the amount stated in the
prospectus as the minimum amount has been subscribed. This amount is known as
"Minimum Subscription”. According to SEBI guidelines minimum subscription has
been fixed at 90% of the entire issue.
Q. What is the difference
between preliminary contracts and provisional contracts?
Ans: - Preliminary contracts are signed
by the third parties before the incorporation of the company .Provisional
Contracts are signed after incorporation but before commencement of business.
These are signed before incorporation.
These are signed after the incorporation but before certificate
to commence business.
These are signed by the promoters.
These are signed by the company.
These are not binding on the company.
These are binding on the company.
Q. What is Article of
Ans: - Article of Association contains
the rules & regulation for the internal management of the company. These
rules and regulations are framed to carry the objects of the company as stated
in the memorandum of association. Article of association contains the matter
related to issue of shares forfeiture, meetings & maintenance of books. The
articles are subordinate to Memorandum and prescribe the regulation for the
attainment of objects listed in memorandum.
Q. What is Memorandum of
association? Name the clauses of Memorandum of Association.
Ans: - Memorandum of association is the
most important document of a company. It contains the fundamental on which a
company is incorporated. The company is bound to act according to the objects
and powers contained in its Memorandum of association. It also regulates the
relationship of the company with the rest of the world
are six clauses of Memorandum of Association:
are various types of Promoters?
Ans: Promoters may
be classified into the following categories:
1. Professional Promoters
2. Entrepreneur Promoter
3. Occasional Promoter
4. Financial Promoter
5. Government Promoter
Q. What do you mean by
promotion? What are the functions of promoters?
Ans: - Promotion refers to the process of
establishing new business enterprises .It is grabbing a business opportunity
& converting it into a new company. Promotion includes the preliminary work
incidental to formation of a company.
Following are the steps of
Discovery of Idea
finding the promoters to
Assembling the preposition
Formation or getting the
promoter performs all the necessary functions for the incorporation of a company.
A promoter has a unique legal position in a company. A promoter is not an agent
of the company because company is yet to be incorporated. Even then promoter
would be liable for the preliminary contracts .A promoter is not allowed to
make any secret gains out of the dealings.
functions of promoters are:
Identification of Business
Opportunity- The promoters identify an opportunity which can be taken by a
identified a business opportunity the promoter’s undertake detailed examination
to satisfy them regarding profitability of the proposition
Ensuring availability of resources-
The promoter arrange the procurement of human, resources material machinery and
equipment etc. for the company
Preparing preliminary Documents-
The promoters take steps to prepare the necessary documents required for
obtaining the certificate of incorporation and certificate of commencement of
business. The documents include:
Memorandum of Association
Article of Association
Entering into preliminary
contracts -The promoters enter into contracts with different parties before
incorporation of company.
Naming a company-The
promoters have to select a name of the company in such a manner that it is not
identical to the name of other company.
Q. Define a prospectus
and state its main clauses.
Ans: - According to Companies act 1956 "A
prospectus may be defined as a document that invites deposits or offers from
public for the subscription or purchase of any shares or debenture of a body
corporate”. The contents of a prospectus should be such that prospective
investors can evaluate a company. Usually the following are contents of
name and the address of its registered office
- The main
object of the company
number and classes of the share and the nature of the interest of the
shareholders in the property and profits of the company
details of redeemable preference shares to be issued the date and mode of
shares of the directors
Any provision in the article regarding the remuneration of the
directors, managing directors, managers:
- The names and addresses of the Director,
Managing director or manager
time of opening and closing of the subscription list
amount payable on the application and allotment of each class of share
Privileges and restrictions attached to each class of shares
to the issue
to the issue
- Bankers to the issue