The company's documents

The most important document is the Memorandum of Association: the company's charter, which says what the company may do. It has these clauses:

• Name clause: the company's name.
• Registered office clause: the state where its registered office is.
• Objects clause: the purposes for which the company is formed. It cannot legally do anything outside these.
• Liability clause: that the members' liability is limited.
• Capital clause: the maximum capital the company may raise, and how it is divided into shares. A company with a capital of ₹10 lakh might have 1 lakh shares of ₹10 each.

It must be signed by at least seven people for a public company, and at least two for a private company.

An example of the liability clause at work: a member holds 1,000 shares of ₹10 each, with ₹6 paid on each. The most he can be asked to pay is the unpaid ₹4 × 1,000 = ₹4,000.

The Articles of Association are the rules for the company's internal management: meetings, directors, shares, and so on. They are subordinate to the Memorandum: they cannot go beyond it. Instead of writing its own, a company may adopt the model set called Table F.

Other documents are also needed: the written consent of the proposed directors (and their agreement to buy qualification shares, the shares a director must hold), any agreement with a proposed managing director, a statutory declaration that all the legal requirements have been met, and the fees for registration.

What is the legal position of promoters? They are neither agents nor trustees of the company (it does not yet exist). But they stand in a fiduciary position, a position of trust: they must not make secret profits from the company, and must disclose all their dealings with it. They are personally liable for contracts they sign before the company is formed.