Procedure to establish company under complete self control

Mr. X is engaged in trading activities as a grocer. The business at present is a sole proprietary concern. He wants to expand the business by entering into the food processing industry, for which a minimum investment of Rs. 200 lakhs as capital is required. His existing business is worth Rs. 25 lakhs. He may be able to invest a total amount of Rs. 120 lakhs provided the business is rum as a corporation. There are a few others who are prepared to be associated in the new venture of X . But he is apprehensive. He wants to be quite sure that in spite of the association of his two friends and few others in the capital; the control over the business concern shall always remain with him.
(1) Which type of company is suitable to achieve the purpose? Explain how this would ensure X's perpetual control.
(2) Assume that the company may require another 300 lakhs in the near future for its expansion. The present members of the company are not in a position to make further investments. But, the members of the public and a few other friends of X will be inclined to take shares of the company. What would be the device to be resorted to?
(a) Assuming that Mr. X is agreeable to form a company advice him as to the steps to be taken for the purpose.
(b) Assume that the company was formed with an initial membership is six persons. Of these, two persons were minors at the time when they subscribed to the constitutional documents of the company, but they attained majority within three months of incorporation of the company. One of the members pleads that the company is not legally incorporated. Advise.

Solution

(A) In this case the Private Limited Company is suitable to achieve the purpose, because,
1) In private limited Company there is restriction of on transfer of its shares.
2) The number of its members is limits to 50.
3) In private Company the articles prohibits invitation to the public to subscribe for any shares is or debentures the Company
4) In private Company the issue of prospectus is not necessary.
5) In this Company the minimum number of directors is only 2.
6) In private Company permission of the directors consults for signing the memorandum of association.
7) For appointing the directors resolution is not necessary and there are not required to retire by rotation due to the above reason the private limited Company is suitable X for having perpetual control.

(B) In this situation my advice to X is, he should issue the shares to the public but the allotment should not exceed the amount, which he has invested that means he should issue shares for each subscribers below than 75 lakhs, which he has invested in the present Company then only he can have the control over the Company

(C) Mr. X has to take the following steps to form a Company.
i) First he has to make plan or an idea for the promotion of the Company
ii) Then he has to design the project outline.
iii) Then he has to make viability study and legal implications.
iv) Then he has to assemble or search the promoters.
v) Then apply for necessary license or permit to start the Company
vi) Then he has to make agreements for infrastructure.
vii) Then in case necessary he has to make pre incorporation contracts and appoint the lawyer to face the legal consequences.
viii) Then he has to prepare the documents like memorandum of association and articles of association.
ix) Then he has to apply for registration according to Sec. 33 (1)
x) Ones the registration is made and certificate of incorporation is given then,
(a) If his Company is private limited Company then he can start business immediately.
(b) If his Company is public limited Company then,
(1) Invite the public to subscribe by issue of prospectus according to Sec. 149 (1) read with Sec. 55
(2) Then arise minimum subscription mentioned in prospectus Sec. 149 A, read with Sec. 69
(3) Then he has to allot shares to each subscriber.
(4) There certificate to act, as a director has to be given.
(5) Then he has to make statutory declaration.
(6) After this the certificate to commence the business will be given according to Sec. 149 then the public Company can commence business.

(D) Here the plea of one of the member is not valid. Because, in this case the Company was formed with membership of 6 persons that means the certificate of incorporation was already issued to the Company

Because the certificate of incorporation is considered as the conclusive proof of the Company In Mossa Gulam Arif Vs. Ibrahim Gulam Arif [ILR (1913) 40 Cal I (pc)] it was held that ones the certificate of incorporation as issued that cannot be revoked. Because in this case 2 of the subscribers of a company’s memorandum were infants.

So according to the above principles in this case also even though out of 6, two persons were minors then also the Company is treated as legally incorporated.

So the plea of one of the member is not valid and it is not maintainable.