Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
We all know about the requirements of forming a Company in
India. Incorporation of a Company, as a secretarial practice, may not be a
complicated exercise. It is not difficult to get the Director Identification
Numbers (DIN) for the proposed directors in the Company to be incorporated, it
is not difficult to get Digital Signatures, it is not difficult to find the
availability of name with the Registrar of Companies by filing e-form and it
may not be difficult to comply with all the requirements and submitting an
application to the Registrar of Companies asking for incorporation of a Company
and eventually, a Certificate of Incorporation will be issued by the Registrar
of Companies and a Private Company is entitled to commence business immediate
to incorporation though a Public Limited Company needs to get further
certificate like “Certificate of Commencement of Business”.
But, what is important in the entire process is about
telling the promoters or the persons engaged in the formation of Company about
basic concepts of Company Law.
The difficulty comes with the Private Limited Companies or
the closely held companies. Even, without having a basic understanding about
the concepts of Company Law, proprietary ship concerns and partnerships are
converted into companies in order to take advantage of many privileges like
limited liability.
In the entire process of incorporating a Private Limited
Company, two issues are significant. One relates to drafting an objects clause
in the Memorandum and another is about drafting the Articles of Association.
Even when it comes to Articles of Association, normally, the professionals
prefer to adopt the articles provided in the schedule attached to the Companies
Act, 1956. But, there can not be any such thing when it comes to “Objects
Clause” and it needs to be drafted having discussion with the promoters of the
Company.
It is true that the Memorandum and also Articles can be
drafted at any time by following the procedure provided under the Companies
Act, 1956. But, most of Private Companies or the Public Limited Companies do
not adhere to the provisions of the Companies Act, 1956 and the professionals
see many of such cases practically.
We all know that section 13 of the Act deal with the
“Objects Clause” in the Memorandum and objects are drafted under three headings
viz., Main Objects, Ancillary Objects and Other Objects.
Conceptually, the Company Law is very very interesting.
There are certain issues which operate as a public notice as every shareholder
of a Company or stake holder can not take part in day-to-day affairs of the
Company. As such, the Memorandum and Articles operate as a public notice and
deemed notice to the shareholders of the Company. And, infact, only looking at
the basic documents, people may like to invest in a Company.
Some may keep the objects very specific and some will draft
objects very very vague where the language makes one to believe that the
Company can do everything it wants. It is against the logic behind the Company
Law Concept and such a practice to be avoided.
A shareholder may not be able to concentrate on the regular
affairs of the Company and it does not mean that the interests of the
shareholder can be compromised. If the Company chooses to change its objects
clause and upon notice, a shareholder may like to object to that strongly or
may take such steps to come-out of the Company by disposing his shares.
But, what happens in many cases and especially in Private
Limited Companies and closely held Public Companies is that the Company does
whatever it wants completely ignoring the “Objects Clause” and even the shareholder
will not be having any notice of such an action by the Company and he will be
knowing about the things after a long time when disputes arise. We are seeing
all this practical difficulties. When a shareholder wants to question the
action taken by the Company on the ground that the Company has completely
ignored its Objects, then, though the action of the Company is per se illegal,
there will be many complications like the interests of the third parties and
the usual delays in the adjudication process in view of the overall interests
of the shareholders. An action by a Company completely ignoring the commitments
given in the basic document and especially Object Clause, is a serious wrong.
As such, professionals involved in the formation of Company
should tell the promoters about the “Objects Clause” and avoid drafting
“Objects Clause” with vague terminology.
Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com