Section 7: Companies Act- Incorporating companies and compliances in India
Updated: Feb 25
Section 7 of the Companies Act, 2013 pertains to the requirements for the incorporation of a company. The section lays down the following requirements:
Formation of a company: A company can be formed for any lawful purpose by complying with the provisions of the Act. The company can be formed as a public company or a private company.
Minimum number of members: A company must have at least two members in the case of a private company, and at least seven members in the case of a public company.
Minimum number of directors: A company must have at least two directors, in the case of a private company, and at least three directors, in the case of a public company.
Registered office: A company must have a registered office within 15 days of its incorporation. The registered office must be capable of receiving and acknowledging all communications and notices as may be addressed to it.
Memorandum of association: The memorandum of association must state the name of the company, its registered office, the objects for which it is formed, the liability of its members, and the authorized capital of the company.
Articles of association: The articles of association define the rules and regulations for the internal management of the company.
Name approval: The company must obtain approval of its proposed name from the Registrar of Companies.
The Companies (Meetings of Board and its Powers) Rules, 2014, provide for the conduct of board meetings, the quorum required, and the matters that can be dealt with in such meetings.
The Companies (Management and Administration) Rules, 2014, prescribe the manner and procedure for the maintenance of books of accounts, preparation of financial statements, and other compliance requirements.
The Companies (Incorporation) Second Amendment Rules, 2020, introduced a new process of incorporation of companies through the web-based system called SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus).
The Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2019, require companies to file a new form called PAS-6, which provides for the reconciliation of the share capital audit report with the information provided in the form PAS-3 (Return of Allotment).
The Securities and Exchange Board of India (SEBI) has also issued various regulations and guidelines relating to the incorporation and functioning of companies, including the Listing Obligations and Disclosure Requirements (LODR) Regulations.
Relevant case laws and rules related to Section 7 are as follows:
In the case of A. Navinchandra & Co. v. Registrar of Companies, the court held that the memorandum of association must be strictly construed, and any acts that are not within the ambit of the objects clause cannot be carried out by the company.
The Companies (Incorporation) Rules, 2014, provide for the procedure for the incorporation of a company, including the documents required to be filed with the Registrar of Companies.
The Companies (Prospectus and Allotment of Securities) Rules, 2014, prescribe the manner and procedure for issuing and allotting securities by a company.
The Companies (Appointment and Qualification of Directors) Rules, 2014, lay down the qualifications and disqualifications for directors, their appointment, and removal.
It is essential for companies to comply with all the relevant provisions of the Companies Act, 2013, and the rules and regulations made thereunder. Failure to comply with these provisions can result in penalties and legal consequences. Companies should seek the guidance of legal and financial professionals like StartUp Sherpa to ensure compliance with all the applicable laws and regulations.
In conclusion, Section 7 of the Companies Act, 2013 lays down the requirements for the incorporation of a company in India. It is essential for companies to comply with these requirements to avoid legal complications and ensure a smooth incorporation process. The relevant case laws and rules provide guidance and direction for companies in complying with these requirements.
By Siddharth Dalmia
The StartUp Sherpa
+91-9971799250
dalmiasiddharth1994@gmail.com
