Companies Act, 2013 - Preliminaries, Incorporation, Prospectus and Allotment
What the exam tests
Company preliminaries, incorporation, prospectus and allotment: corporate personality, formation documents, public offers and the rules for valid allotment.
Core rules
- A company is a company incorporated under the Companies Act, 2013 or an existing company (s 2(20)). It has separate legal personality (Salomon v Salomon), perpetual succession and limited liability. The corporate veil may be lifted for fraud, tax evasion, or statutory exceptions.
- Incorporation requires filing the memorandum, articles, declarations and registered office details with the Registrar (ss 3-7). The certificate of incorporation is conclusive evidence of incorporation. The memorandum contains name, registered office, objects, liability and capital clauses; the articles contain internal regulations.
- A prospectus is any document inviting the public to subscribe for securities (s 2(70)). It must contain the matters in s 26 and be dated. A shelf prospectus (s 31) and red herring prospectus (s 32) have special rules. Misstatements attract civil and criminal liability (ss 34-35).
- No allotment may be made unless the minimum subscription is received and application money is at least 5% of the nominal value (s 39). If the minimum subscription is not received within 30 days, application money must be refunded within 15 days; allotment made in contravention is void. Private placement is governed by s 42.
Worked example
A company issues a prospectus stating a minimum subscription of ₹50 lakh. It receives only ₹30 lakh but allots shares. The allotment is void under s 39, and the company must refund the application money within the prescribed time.
Traps
- Treating a prospectus as an offer rather than an invitation.
- Forgetting the minimum-subscription condition.
- Confusing shelf and red herring prospectuses.
- Assuming the certificate of incorporation can be easily challenged.