Incorporation of Company — Procedure (Sections 3–11) →

Incorporation is the moment a business idea becomes a legal person. The Companies Act, 2013 takes a promoter from a bare intention to form a company through a sequence of provisions — Section 3 on who may form a company and in what numbers, Section 4 on the memorandum, Section 5 on the articles, and Section 7 on the actual machinery of registration — and ends with Section 9, under which the subscribers are clothed with a separate corporate personality from the date entered on the certificate of incorporation. This chapter walks through that sequence in the order a file actually moves, anchors each step in the statute, and flags the two most-tested traps: the conclusive character of the certificate of incorporation, and the fact that the old Section 11 on commencement of business no longer exists.

The heading "Sections 3–11" is conventional, but it conceals an important amendment. The original Section 11, which required a declaration before a company could commence business, was omitted by the Companies (Amendment) Act, 2015, and the requirement reappeared in 2019 as Section 10A. So the operative band of provisions today is really Sections 3, 3A, 4, 5, 7, 9, 10, 10A and 12. We take them in that working order, beginning with the architecture that ties them together.

Statutory scheme — from formation to existence

The 2013 Act separates three ideas that are often blurred in everyday speech: promotion, formation and incorporation. Promotion is the preliminary commercial activity by which a promoter conceives the business and assembles the people and capital to launch it. Twycross v. Grant, (1877) 2 CPD 469, describes a promoter as one who undertakes to form a company with reference to a given object and to set it going. Formation, under Section 3, is the act of the requisite number of persons subscribing their names to a memorandum and complying with the registration requirements. Incorporation, under Section 7 read with Section 9, is the legal event by which the Registrar registers the company and it springs into existence as a body corporate. The promoter occupies a fiduciary position throughout: Lagunas Nitrate Co. v. Lagunas Syndicate, (1899) 2 Ch 392, holds that a promoter stands in a fiduciary relation to the company he promotes, even though he is neither agent nor trustee, because before incorporation the company has no legal existence to which an agency could attach.

Understanding this division matters for the exam because remedies and liabilities differ at each stage. A pre-incorporation contract binds the promoter personally, not the unborn company; a defect in formation may invite action under Section 7; and once incorporation is complete, the company's separate personality under Section 9 generally insulates the members. For the conceptual groundwork on what a company is, see our chapter on the introduction to company law, and for the statutory vocabulary used throughout, the chapter on the definitions of company, director and member.

Section 3 — formation of company

Section 3(1) provides that a company may be formed for any lawful purpose by seven or more persons where the company to be formed is a public company; by two or more persons where it is a private company; or by one person where it is to be a One Person Company, which the section expressly classifies as a species of private company. The threshold numbers are the most-tested fact in the whole topic: seven for public, two for private, one for an OPC. The company is formed by the requisite persons subscribing their names to a memorandum of association and complying with the registration requirements of the Act.

The proviso to Section 3(1) introduces a feature peculiar to the One Person Company. The memorandum of an OPC must indicate the name of the other person who, in the event of the subscriber's death or his incapacity to contract, will become the member of the company. The written consent of that nominee must be filed with the Registrar at the time of incorporation, and the nominee may be changed at any time. This is the statutory device that supplies the OPC with the "perpetual succession" that would otherwise be impossible in a one-member company. Section 3(2) adds the orthogonal classification: any company formed under sub-section (1) may be a company limited by shares, a company limited by guarantee, or an unlimited company — a distinction that governs the liability clause of the memorandum under Section 4.

Section 3A — reduction of members below the minimum

Section 3A, inserted by the Companies (Amendment) Act, 2017, restates a classical rule about minimum membership. If at any time the number of members of a company falls — below seven in a public company or below two in a private company — and the company carries on business for more than six months while the number is so reduced, every person who is a member during the time the company so carries on business after those six months, and who is cognisant of the fact, is severally liable for the whole of the debts of the company contracted during that period.

Two points are worth pinning down for the exam. First, the liability does not attach the moment the number drops; it bites only after the six-month grace period and only on a member who knows of the deficiency. Second, the liability is several, falling on the individual member personally — it is a statutory exception to the limited-liability principle, and a member who pays may proceed against the company. The provision is a reminder that the separate-personality shield of Section 9 is not absolute; the statute itself lifts it where the constitutional minimum of membership is allowed to lapse.

Section 4 — the memorandum and name reservation

Section 4 prescribes the contents of the memorandum, the foundational document on which the company is built. The memorandum must state the name of the company with "Limited" as the last word in the case of a public limited company and "Private Limited" in the case of a private limited company; the State in which the registered office is to be situated; the objects for which the company is proposed to be incorporated and matters considered necessary in furtherance of those objects; the liability of the members, whether limited or unlimited; the amount of authorised share capital and its division into shares of a fixed amount; and, in the case of an OPC, the name of the nominee under Section 3. For the full treatment of each clause and the doctrine of ultra vires that polices the objects clause, see the dedicated chapter on the memorandum of association.

Section 4(2) controls the choice of name: the name must not be identical with or too nearly resemble the name of an existing company, must not constitute an offence under any law or be undesirable in the opinion of the Central Government, and must not improperly suggest connection with or patronage of any government or authority. Section 4(4) and 4(5) supply the name-reservation machinery — a person may apply to the Registrar to reserve a name, and the Registrar may reserve it for a period of twenty days from the date of approval (sixty days from the date of application in the older formulation reflected in the source material; the period was shortened by the 2018 amendment). Section 4(5)(ii) adds a deterrent: if a reserved name was obtained by furnishing wrong or incorrect information, and the company has not yet been incorporated, the reservation is cancelled and a penalty up to one lakh rupees is payable; if the company has been incorporated, the Registrar may, after hearing, direct a change of name, strike the name off the register, or petition for winding up.

Section 5 — the articles of association

Section 5 deals with the articles of association, the document that governs the internal management of the company — the rights of members inter se, the conduct of meetings, the powers of directors, and the machinery of decision-making. Section 5(1) provides that the articles shall contain the regulations for the management of the company, and Section 5(2) permits the articles to contain provisions for "entrenchment" — provisions that can be altered only on conditions more restrictive than a special resolution. The articles are always subordinate to the memorandum: the memorandum lays down the scope and powers of the company, while the articles regulate how those powers are exercised, and in any conflict the memorandum prevails.

The classic statement of the relationship is in Guinness v. Land Corporation of Ireland, (1882) 22 Ch D 349, where the court explained that the memorandum contains the fundamental conditions on which the company is incorporated, while the articles are the internal regulations. A company may adopt the model articles in the tables under Schedule I, or register its own. The detailed treatment — including the rule that acts ultra vires the articles (but intra vires the memorandum) may be ratified, whereas acts ultra vires the memorandum cannot — belongs to the chapter on the articles of association.

Section 7 — the incorporation machinery

Section 7 is the engine of incorporation. Section 7(1) requires that there be filed with the Registrar within whose jurisdiction the registered office is proposed to be situated the documents and information that follow. The list is a frequent fill-in-the-blank in objective papers, so it repays careful memory:

1. the memorandum and articles of the company duly signed by all the subscribers to the memorandum;
2. a declaration by an advocate, a chartered accountant, a cost accountant or a company secretary in practice who is engaged in the formation of the company, and by a person named in the articles as a director, manager or secretary, that all the requirements of the Act and the rules in respect of registration and matters precedent or incidental thereto have been complied with;
3. a declaration from each of the subscribers to the memorandum and from persons named as the first directors that they are not convicted of any offence in connection with the promotion, formation or management of any company, nor guilty of any fraud or breach of duty under the Act or any previous company law during the preceding five years, and that all documents filed contain correct, complete and true information;
4. the address for correspondence till the registered office is established;
5. the particulars — name, surname, residential address, nationality and the like — of every subscriber to the memorandum, with proof of identity;
6. the particulars of the first directors, including the Director Identification Number, residential address and nationality; and
7. the particulars of the interests of the first directors in other firms or bodies corporate, with their consent to act as directors.

Two drafting points distinguish the 2013 regime from the 1956 Act. First, the document at item (2) is now styled a declaration rather than a statutory declaration, and the class of professionals who may give it is widened. Second, item (3) — once a free-standing affidavit — was converted into a declaration by the Companies (Amendment) Act, 2017, easing the procedural burden on subscribers. The substance, however, is unchanged: the Registrar relies on these declarations as the gatekeeping verification that the conditions of incorporation are satisfied.

Sections 7(2) and 7(3) — certificate and CIN

Section 7(2) provides that the Registrar, on the basis of the documents and information filed under sub-section (1), shall register all the documents and information in the register and issue a certificate of incorporation in the prescribed form to the effect that the company is incorporated. The certificate is the operative instrument: it is, in practical terms, the birth certificate of the company. Section 7(3) follows immediately — on and from the date mentioned in the certificate of incorporation, the Registrar shall allot to the company a Corporate Identity Number (CIN), which is a distinct identity for the company and is included in the certificate.

The sequencing of these sub-sections matters. The company does not exist because the subscribers signed the memorandum, nor because the Registrar received the file; it exists because the Registrar has issued the certificate under Section 7(2), and from the date that the certificate carries. That date is the hinge on which Section 9 turns, and it is also the point at which the classic English authority on conclusiveness becomes relevant.

Conclusiveness of the certificate — Jubilee Cotton Mills

The leading authority on the conclusive character of the certificate of incorporation is Jubilee Cotton Mills Ltd. v. Lewis, (1924) AC 958. The memorandum and articles were delivered to the Registrar for registration on 6 January; the Registrar issued the certificate two days later, on 8 January, but dated it 6 January. On 6 January, before the certificate had actually issued, the company purported to allot shares to Lewis. The House of Lords held that the certificate of incorporation is conclusive evidence of the date on which the company was incorporated, so the company must be treated as having existed from 6 January, and the allotment made on that date was valid. The case is the foundational statement of the rule that, once the certificate is issued, the existence of the company and the date of its birth cannot be reopened on the ground of some procedural irregularity in the antecedent steps.

The English rule was codified in Section 35 of the Companies Act, 1956, which declared the certificate "conclusive evidence" that all the requirements of the Act in respect of registration had been complied with and that the company was duly registered. The 2013 Act does not reproduce a "conclusive evidence" clause in identical terms; instead, it builds in a corrective mechanism through Section 7(7), discussed below, allowing the National Company Law Tribunal to intervene where the certificate was obtained by fraud or false information. The practical takeaway for the exam is nuanced: the certificate remains the operative instrument and is generally not to be questioned by third parties on grounds of irregularity, but it is no longer absolutely unimpeachable, because the Tribunal may now unwind a company born of suppression.

Section 9 — effect of registration and Salomon

Section 9 states the legal consequence of incorporation. From the date of incorporation mentioned in the certificate, the subscribers to the memorandum and all other persons who from time to time become members of the company are a body corporate by the name contained in the memorandum, capable of exercising all the functions of an incorporated company under the Act and having perpetual succession, with power to acquire, hold and dispose of property — both movable and immovable, tangible and intangible — to contract and to sue and be sued by the said name. The words "and a common seal", which originally appeared in the provision, were omitted by the Companies (Amendment) Act, 2015, reflecting the move to optional sealing.

The doctrinal heart of Section 9 is the doctrine of separate legal personality, whose locus classicus is Salomon v. Salomon & Co. Ltd., (1897) AC 22. Aron Salomon, a sole trader in the boot business, incorporated his enterprise; the seven shareholders were himself and his family, with Salomon holding the overwhelming majority — 20,001 of the shares — and also holding debentures worth £10,000 secured by a charge on the company's assets. When the company went into liquidation within a year and the assets proved insufficient to pay the unsecured creditors after the debentures were satisfied, those creditors argued that the company was a mere alias or agent for Salomon, who should therefore be personally liable. The House of Lords rejected the argument and held that, the company having been duly incorporated, it was a legal person altogether distinct from its subscribers, even though all the shares were practically controlled by one man; Salomon, as a secured debenture-holder, ranked ahead of the unsecured creditors, and was not personally liable for the company's debts.

The Indian courts have applied Salomon without qualification. In Electronics Corporation of India Ltd. v. Secretary, Revenue Department, Government of Andhra Pradesh, AIR 1999 SC 1734, the Supreme Court reaffirmed the clear distinction in law between a company and its shareholders — a company is a distinct legal entity from those who hold its shares. The doctrine has its limits, of course: where the corporate form is used as a cloak for fraud or to evade legal obligation, the courts will lift the veil and look at the persons behind it. That body of doctrine — the exceptions to Salomon — sits alongside the question of the company's contractual capacity, taken up in the chapter on the company's capacity, the objects clause and ultra vires.

Section 10 — binding force of memorandum and articles

Section 10 supplies the contractual force of the constitutional documents. It provides that, when registered, the memorandum and articles bind the company and the members to the same extent as if they had respectively been signed by the company and by each member, and contained covenants on the part of the company and each member to observe all the provisions of the memorandum and of the articles. The effect is that the articles constitute a statutory contract binding the company to its members and the members to the company and to one another in their capacity as members.

Two limits on this statutory contract are heavily examined. First, the contract binds only in the capacity of member: a member who happens also to be a solicitor or a director cannot sue on the articles to enforce a right conferred on him in that outside capacity. Second, the contract binds the company and the members inter se, but not outsiders — a person who is not a member cannot found a claim on the articles, even if the articles purport to confer a benefit on him. Section 10(2) adds that all monies payable by a member to the company under the memorandum or articles are a debt due from him to the company. These propositions, and the leading cases that illustrate them, are developed in the chapter on the articles of association; for present purposes the point is that registration under Section 7 is what converts these private documents into the binding constitution of the corporate body.

Section 12 — the registered office

A company is born with a State of registered office named in its memorandum, but it need not have a fixed address on the day of incorporation. Section 12(1) fills the gap: a company shall, within thirty days of its incorporation and at all times thereafter, have a registered office capable of receiving and acknowledging all communications and notices addressed to it. (The source notes the older "fifteenth day" formulation; the period was harmonised to thirty days by the Companies (Amendment) Act, 2017.) Section 12(2) requires the company to furnish to the Registrar verification of its registered office within thirty days of incorporation, in the prescribed manner.

The registered office is not a mere formality. It fixes the jurisdiction of the Registrar, the place where the statutory registers and records are kept, and the address for service of process. Section 12(3) requires the company to paint or affix its name and registered-office address outside every office, to engrave its name on its seal (if any), and to print its name, address, CIN, telephone and e-mail on its business letters and other documents. Section 12(4) governs the notice of any change of the registered office, which must be given to the Registrar within thirty days. The verification of the registered office under Section 12(2) is, importantly, one of the two facts a director must certify before the company can commence business under Section 10A — the bridge to the next provision.

Section 11 to 10A — the commencement-of-business shift

This is the single most important amendment trap in the topic. The Companies Act, 2013 as originally enacted contained a Section 11 headed "Commencement of business, etc." It required a company having a share capital not to commence any business or exercise any borrowing powers unless a director filed a declaration with the Registrar that every subscriber to the memorandum had paid the value of the shares agreed to be taken by him, and the company had filed verification of its registered office under Section 12. Section 11 was, however, omitted by the Companies (Amendment) Act, 2015, with effect from 29 May 2015. For a period of nearly four years there was therefore no commencement-of-business declaration at all.

The requirement was revived, in stricter form, as Section 10A, inserted by the Companies (Amendment) Ordinance, 2019 (later replaced by the Companies (Amendment) Act, 2019). Section 10A provides that a company incorporated after the commencement of the 2019 Ordinance and having a share capital shall not commence any business or exercise any borrowing powers unless a director files, within 180 days of the date of incorporation, a declaration in Form INC-20A that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him, and the company has filed with the Registrar a verification of its registered office under Section 12(2). On default, the company is liable to a penalty of fifty thousand rupees and every officer in default to one thousand rupees per day, subject to a cap of one lakh rupees; and where no declaration is filed within 180 days and the Registrar has reasonable cause to believe the company is not carrying on business, he may initiate action to remove its name from the register.

For the exam, hold three facts: the original Section 11 was omitted in 2015; the present provision is Section 10A, inserted in 2019; and the operative timeline is a declaration within 180 days in Form INC-20A, certifying paid-up subscription and registered-office verification. A question that asks for "the requirement of commencement of business under Section 11" is testing whether the candidate knows that Section 11 no longer exists.

Sections 7(5) to 7(7) — incorporation by false information

The 2013 Act builds an anti-fraud architecture directly into the incorporation provision. Section 7(4) requires the company to keep copies of the documents and information filed at incorporation at its registered office. Section 7(5) provides that if any person furnishes any false or incorrect particulars of any information, or suppresses any material information, in any of the documents filed for incorporation, he shall be liable for action under Section 447 — the fraud provision, which carries imprisonment of not less than six months extending to ten years and a fine of not less than the amount involved in the fraud, extending to three times that amount.

Section 7(6) extends liability to the company's promoters, the persons named as first directors, and the person making the declaration under Section 7(1)(b), where it is found after incorporation that the company was got incorporated by furnishing false or incorrect information or by suppressing material facts. The most consequential remedy is in Section 7(7): where a company has been got incorporated by furnishing false or incorrect information or representation, or by suppressing any material fact or by any fraudulent action, the Tribunal — the National Company Law Tribunal — may, on an application and on being satisfied that the situation so warrants, pass such orders as it thinks fit. Those orders may include regulating the management of the company, including changes in its memorandum and articles, in the public interest or in the interest of the company and its members and creditors; directing that the liability of the members be unlimited; directing removal of the name of the company from the register of companies; or passing an order for the winding up of the company. Section 7(7) is thus the 2013 Act's answer to the rigidity of the old "conclusive evidence" rule — the certificate is generally unimpeachable, but a company born of fraud can be unwound by the Tribunal.

Exam pointers and recurring distinctions

Five propositions recur across judiciary prelims and CLAT-PG papers. First, the minimum-membership numbers under Section 3(1): seven for a public company, two for a private company, one for a One Person Company. Second, the effect of registration under Section 9 and its anchoring in Salomon v. Salomon & Co. Ltd., (1897) AC 22 — separate legal personality, perpetual succession, and the omission of the common-seal requirement in 2015. Third, the conclusive character of the certificate of incorporation as to the date of incorporation, established in Jubilee Cotton Mills Ltd. v. Lewis, (1924) AC 958, now read subject to Section 7(7). Fourth, the Section 11-to-10A shift: the original commencement-of-business section was omitted in 2015 and revived as Section 10A in 2019, with a 180-day declaration in Form INC-20A. Fifth, the Section 7 document list and the certificate-and-CIN sequence under Sections 7(2) and 7(3).

Two finer distinctions are worth carrying forward. The registered office is fixed by State in the memorandum under Section 4 but need only have an address within thirty days of incorporation under Section 12, with verification filed under Section 12(2) — the same verification that feeds the Section 10A declaration. And the binding force of the memorandum and articles under Section 10 runs between the company and its members in their capacity as members, not in favour of outsiders. With the incorporation machinery in place, the natural next steps are the constitutional documents themselves — the memorandum of association and the articles of association — and the doctrines of constructive notice and indoor management that govern how outsiders deal with the newly born company. For the broader map of the subject, return to the Companies Act notes hub.