Ch3 Formation of Company Flashcards
documents to be filed with registrar for incorporation (Sec 7)
- memorandum and articles of company signed by all subscribers to memorandum
- declation by an involved accountant involved in formation and director/manager/secretary that all requirements of Act and registration have been met
- affidavit from each subscriber to mem and first directors that they have not been convicted of any crime related to starting or managing a company in the last 5 years
- address for correspondence till registered office is established
- personal details of every sub to memorandum and first directors with proof of identity
- details of interests in of first directors in other firms along with consent to act as directors
Mary Dug An Amazing Pit Inside
Mem+Art; Declaration; Affidavit; Address; Particulars; Interests+Consent
process of incorporation - sec 7
- submit all needed documents to registrar
- registrar registers all documents and issue certificate of incorporation
- on and from date mentioned in cert of incorp, Registrar gives company corporate identity number in cert used to id company
- company should maintain all docs until dissolution
- persons knowingly providing false info will be held liable under sec 447. Tribunal may:
a) regulate mgmt of company including changes in M and A
b) make members have unlimited liability
c) remove company from register of companies
d) order winding up
e) pass any other order provided that before that, company is given reasonable opportunity to be heard
obtaining certificate of incorporation
- when necessary docs filed with registrar registrar satisfies themself that all requirements have been met
- not required to carry out any investigation
- will then retain and register Mem, Articles and other registered docs and issue certificate of incorporation
conclusiveness of cert of incorporation
- conclusive evidence that all requirements of CA have been complied with, AKA Rule in Peel’s case. Illustrated by Jubilee Cotton Mills v Lewis
- conclusive on the following points:
1) all registration requirements of act have been met
2) company is authorised to be registered under the act and has been registered
3) date borne by certificate is date of birth of company
certificate of incorporation is conclusive for purpose of incorporation but does not make an illegal object/purpose legal
confirms that a company is born and the only way to end it is by winding up.
Jubilee Cotton Mills v Lewis
- on 6th jan, documents delivered to Registrar
- 2 days later, certificate was issued but dated 6th rather than 8th
- on the 6th, before the cert was issued, some shares were allotted to Lewis
- since in law the company was formed on the 6th, and the cert of incorporation is conlusive evidence of this, the allotment of shares was valid
effects of registration
- from date of incorporation mentioned in certificate, all subscribers to the memorandum will be capable of exercising all functions of an incorporated company listed in chapter 1 (characteristics, list some of these here)
- 3 important consequences:
1) company becomes distinct legal entity
2) company acquires perpetual succession until wound up
3) property of company is not property of shareholders, neither is liability of company liability of shareholders. SH have right to share in profits of company when realised.
define promoter
person who does necessary preliminary work to form a company, including conceiving idea of forming company and taking steps to provide it with capital and acquiring property.
Following this, control of company is handed over to directors who are often promoters themselves, under a different name
1) who has been named as such in prospectus or identified by company in annual report
2) who has control over affairs of company, directly or indirectly, as a shareholder, director or otherwise
3) BoD is accustomed to act according to their advice, directions or instructions
functions of promoter
- decides name and ascertains it will be accepted by registrar
- settles details and printing of memorandum, articles and prospectus
- nominates directors, solicitors, bankers, auditors and secretary and registered office of company
- registration of company
legal status of promoter
Lindley - not an agent nor a trustee for it before its formation
- Quasi trustee - neither an agent, because no principal exists at the time, nor a trustee, because there is cestui que trust yet. Has certain fiduciary duties under companies act
- fiduciary position of promoter - cannot in equity bind the company by any contract with themselves without fully disclosing to it all material facts the company should know
disclosure and damages
made to an independent board of directors or intended shareholders as a whole if no BoD
measure of damages = actual loss suffered by company due to transaction
fiduciary position of promoter
1) not to make any profit at expense of company - if done in secret, company can force to surrender
2) give benefit of negotiations to the company, e.g. if they pruchase property for the company, cannot sell it to the company at a higher price or company can rescind contract and recover price –> Erlanger v. New Sombrero Phospate Co.
3) make full disclosure of personal interest or profit in transactions with the company or company can sue for damages for breach of fiduciary duty. Profit is not forbidden, but the lack of disclosure is and prevents promoter from keeping it.
4) not to make unfair use of position and avoid anything fraud. Cannot relieve himself of liability by making provisions like that in Articles
Erlanger v New Sombrero Phosphate
- Erlanger bought a lease of a phosphate mine
- formed the New Sombrero Phosphate Co. and sold the mine to the company at a substantial profit.
- appointed nominee directors to the company to approve the sale.
- However, no independent valuation of the mine was obtained, and the true circumstances of the sale were not fully disclosed to the shareholders of the company.
- When the true facts about the mine and its value were discovered, the New Sombrero Phosphate Co. sought to rescind the contract on the grounds of misrepresentation and non-disclosure.
duty of promoter wrt prospectus
The promoter must see that the prospectus or statement:
(1) contains the necessary particulars,
(2) does not contain any untrue/misleading statements or omit any fact
remuneration of promoter
- no right to get compensation from the
company for promoting unless there is a contract to that effect. - In practice, however, a promoter takes remuneration by:
- selling own property at profit to the company for cash or full-paid shares with disclosure
- may be given an option to buy a certain number of shares in the company at nominal value
- may take comission on shares sold
- may be paid lump sum by company
pre-incorporation/preliminary contracts
- contracts entered into to acquire some property or right for the company yet to be incorporated.
- Since the company is a non-entity before incorporation, it cannot be bound by such contracts as 2 consenting parties are needed to enter into a contract
- company not liable for acts of promoters pre-incorporation, promoter is
