Question4: During the lockdown some undergraduate students of University conducted some market research to understand the consumer requirements regarding an innovative product.

 Question4: During the lockdown some undergraduate students of University conducted some market research to understand the consumer requirements regarding an innovative product. They designed the prototype of that product and got encouragement from their teachers as well. Since they had studied Companies Act, one of them thought of registering their association as a private company. Can they do so? Discuss in detail about the procedure of registration of their company on the portal of Ministry of Corporate Affairs.

Answer : 

Types of Private Companies

 1. Sole proprietorship

A sole proprietorship is a business owned and managed by one person, and the owner bears unlimited personal liability on the debts incurred by the business. All of its assets, liabilities, and obligations are the responsibility of the business owner.

If the business goes into debt, the owner may be required to sell personal assets to settle the debt. The owner can decide to either run the business on his/her own or employ other people to help run the business.

2. Partnership

A partnership has a lot of similarities to a sole proprietorship, except the partnership is owned and managed by two or more people who come together with the goal of making a profit. The partners bear unlimited personal liabilities on any debts incurred by the business. The main types of partnerships include general partnerships, limited partnerships, and limited liability partnerships.

3. Corporation

A corporation is a for-profit or not-for-profit business entity that exists as a separate legal entity from its owners. A corporation possesses the rights and privileges of an individual, as it can enter into contracts, sue or be sued, own assets, and pay taxes. Corporations are owned by shareholders or individual investors who provide capital to the business through the purchase of the corporation’s stock.

The shareholders are required to elect a board of directors, which is required to oversee the overall operation of the business. The board appoints the managerial officers, such as the Chief Executive Officer (CEO), who supervise, direct, and manage the core business activities of the corporation.

Steps In Incorporation of A Company

The incorporation of a company refers to the legal process that is used to form a corporate entity or a company. An incorporated company is a separate legal entity on its own, recognized by the law. These corporations can be identified with terms like ‘Inc’ or ‘Limited’ in their names. It becomes a corporate legal entity completely separate from its owners.

1. Ascertaining Availability of Name

The first step in the incorporation of any company is to choose an appropriate name. A company is identified through the name it registers. The name of the company is stated in the memorandum of association of the company. The company’s name must end with ‘Limited’ if it’s a public company and ‘Private Limited’ if its a private company.

To check whether the chosen name is available for adoption, the promoters have to write an application to the Registrar of Companies of the State. A 500 rupee is paid with the application. The Registrar then allows the company to adopt the name given they fulfill all legal documentation formalities within a period of three months.

2. Preparation of Memorandum of Association and Articles of Association

The memorandum of association of a company can be referred to as its constitution or rulebook. The memorandum states the field in which the company will do business, objectives of the company, as well as the type of business the company plans to undertake. It is further divided into five clauses

Name Clause

Registered Office Clause

Objects Clause

Liability Clause 

Capital Clause 

Articles of Association is basically a document that states rules which the internal management of the company will follow. The article creates a contract between the company and its members. The article mentions the rights, duties, and liabilities of the members. It is equally binding on all the members of the company.

3. Printing, Signing and Stamping, Vetting of Memorandum and Articles

The Registrar of Companies often helps promoters to draw up and draft the memorandum and articles of association. Above all, with promoters who have no previous experience in drafting the memorandum and articles.

Once these have been vetted by the Registrar of Companies, then the memorandum of association and articles of association can be printed. The memorandum and articles are consequently divided into paragraphs and arranged chronologically.

The articles have to be individually signed by each subscriber or their representative in the presence of a witness, otherwise, it will not be valid.

Want to know the Promoters Contract ?

4. Power of Attorney

To fulfill the legal and complex documentation formalities of incorporation of a company, the promoter may then employ an attorney who will have the authority to act on behalf of the company and its promoters. The attorney will have the authority to make changes in the memorandum and articles and moreover, other documents that have been filed with the registrar.

5. Other Documents to be Filed with the Registrar of Companies

The First –      e-Form No.32 – Consent of directors

The Second – e-Form No.18 – Notice of Registered Address

The Third –    e-Form No.32. – Particulars of Directors


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