Company incorporation under section 7: the filing pack, the certificate and liability for false papers

Every company begins as a filing pack. Section 7 of the Companies Act 2013 lists what must be filed with the Registrar: the signed charter documents, a professional's declaration, clean-record declarations, a correspondence address, particulars of subscribers and first directors with identity proof, and the first directors' disclosures of other interests with their consents. The Registrar registers the pack and issues a certificate of incorporation. If the pack is false, the Act attaches fraud liability under section 447 to the people behind it and lets the Tribunal act against the company itself.

This guide walks through those provisions in order, and then covers the two steps that follow incorporation straight away: the registered-office verification and, for companies with share capital, the commencement declaration under section 10A.

Legal basis: Companies Act 2013, ss.3, 7, 9, 10, 10A and 12(2), as they read in the consolidated text.

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Who can form a company (s.3)

A company may be formed for any lawful purpose by seven or more persons for a public company, two or more persons for a private company, or one person for a One Person Company, "by subscribing their names or his name to a memorandum and complying with the requirements of this Act in respect of registration" (s.3(1), Companies Act 2013). The memorandum of a One Person Company must name another person, with prior written consent in the prescribed form, who becomes the member of the company if the subscriber dies or has an incapacity to contract (proviso to s.3(1)).

For a founder starting out, the first practical question is therefore simple: how many subscribers will sign, and what type of company will they form? The rest of this guide assumes the signing group is already decided.

The seven filings (s.7(1))

Section 7(1) requires the following to be filed "with the Registrar within whose jurisdiction the registered office of a company is proposed to be situated":

• (a) The memorandum and articles, "duly signed by all the subscribers to the memorandum in such manner as may be prescribed". Every subscriber signs.
• (b) A professional declaration. A declaration "in the prescribed form by an advocate, a chartered accountant, cost accountant or company secretary in practice, who is engaged in the formation of the company, and by a person named in the articles as a director, manager or secretary of the company", that all the requirements of the Act and the rules in respect of registration and matters precedent or incidental to it have been complied with. A practising professional and an insider named in the articles therefore vouch for compliance together.
• (c) A clean-record declaration from each subscriber and from each person named as a first director in the articles. It states that the person is not convicted of any offence in connection with the promotion, formation or management of any company, or found guilty of any fraud, misfeasance or breach of duty to any company under the Act or any previous company law "during the preceding five years". It also states that all documents filed for registration contain information that is "correct and complete and true to the best of his knowledge and belief". Since the 2018 amendment this is a declaration; the Act formerly required an affidavit.
• (d) The address for correspondence until the registered office is established.
• (e) Subscriber particulars: name including surname or family name, residential address, nationality and other prescribed particulars of every subscriber, with proof of identity. For a subscriber that is a body corporate, the particulars that may be prescribed.
• (f) First-director particulars: names, the Director Identification Number, residential address, nationality and other prescribed particulars including proof of identity, for the persons named in the articles as first directors.
• (g) Interests and consent: the particulars of the first directors' interests in other firms or bodies corporate, together with their consent to act as directors, in the form and manner prescribed.

The exact forms, fees and portal steps for filing are set by the rules and the Registrar's notified process; check the current notified position before filing, because those details are not set by section 7 itself.

The certificate, the CIN and the preservation duty (s.7(2)–(4))

Under s.7(2), the Registrar "on the basis of documents and information filed under sub-section (1)" registers them and issues a certificate of incorporation "in the prescribed form to the effect that the proposed company is incorporated under this Act". The statutory basis for registration is the filed documents and information.

Under s.7(3), "on and from the date mentioned in the certificate of incorporation", the Registrar allots a corporate identity number (CIN), which is "a distinct identity for the company" and is included in the certificate.

Under s.7(4), the company must "maintain and preserve at its registered office copies of all documents and information as originally filed under sub-section (1) till its dissolution under this Act". The signed charter, the declarations and the consents stay on file for the whole life of the company, and they are the first documents anyone will look at if the incorporation is later questioned.

What incorporation creates (ss.9 and 10)

Section 9 provides that "from the date of incorporation mentioned in the certificate of incorporation", the subscribers and all other persons who become members from time to time "shall be a body corporate by the name contained in the memorandum". The company can exercise all the functions of an incorporated company under the Act and has perpetual succession, with power to acquire, hold and dispose of property (movable and immovable, tangible and intangible), to contract, and to sue and be sued in its own name.

Section 10(1) turns the registered memorandum and articles into a binding instrument: they bind the company and its members "to the same extent as if they respectively had been signed by the company and by each member, and contained covenants on its and his part to observe all the provisions of the memorandum and of the articles". Under s.10(2), all monies payable by a member to the company under the memorandum or articles are "a debt due from him to the company".

After the certificate: two early duties (ss.12(2) and 10A)

Registered office verification. The company must furnish the Registrar with verification of its registered office "within a period of thirty days of its incorporation in such manner as may be prescribed" (s.12(2)).

Commencement declaration for companies with share capital. A company incorporated after the commencement of the Companies (Amendment) Act, 2019 and having a share capital "shall not commence any business or exercise any borrowing powers" unless (s.10A(1)):

• a declaration is filed by a director within one hundred and eighty days of the date of incorporation, in the prescribed form and verified in the prescribed manner, that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him on the date of making the declaration; and
• the company has filed the registered-office verification under s.12(2).

If the company defaults, the company is liable to a penalty of fifty thousand rupees (₹50,000), and every officer in default to a penalty of one thousand rupees (₹1,000) for each day the default continues, subject to a maximum of one lakh rupees (₹1,00,000) (s.10A(2)). Separately, if no declaration has been filed within the one hundred and eighty days and the Registrar has reasonable cause to believe the company is not carrying on any business or operations, the Registrar may initiate action to remove the company's name from the register of companies under Chapter XVIII (s.10A(3)).

False papers: section 447 and the Tribunal (s.7(5)–(7))

Person-level liability. Section 7(5) provides that if any person "furnishes any false or incorrect particulars of any information or suppresses any material information, of which he is aware" in any of the documents filed with the Registrar for registration, he is liable for action under section 447. Section 7(6) goes further. Where, at any time after incorporation, "it is proved" that the company was got incorporated by furnishing false or incorrect information or representation, by suppressing any material fact or information in any of the documents or declaration filed or made, or by any fraudulent action, then the promoters, the persons named as first directors and the persons making the declaration under s.7(1)(b) "shall each be liable for action under section 447". So three groups are exposed together: the promoters, the first directors, and the professional who signed the s.7(1)(b) declaration.

Company-level orders. Section 7(7) covers the same situations and lets the Tribunal, "on an application made to it, on being satisfied that the situation so warrants", make any of the following orders:

• (a) orders it thinks fit for regulation of the management of the company, including changes in its memorandum and articles, in public interest or in the interest of the company and its members and creditors;
• (b) a direction that the liability of the members shall be unlimited;
• (c) a direction for removal of the name of the company from the register of companies;
• (d) an order for the winding up of the company; or
• (e) such other orders as it may deem fit.

Before making any order under s.7(7), the company must be given a reasonable opportunity of being heard, and the Tribunal must take into consideration the transactions entered into by the company, including the obligations, if any, contracted or payment of any liability (provisos (i) and (ii) to s.7(7)).

A worked illustration

Suppose a company is incorporated with three subscribers, and the third subscriber's identity proof was used without his knowledge, with the consent to act as director signed by someone else. The certificate issues and the company operates. Later the third subscriber discovers his name on the register and complains. This is a hypothetical, but it shows how the provisions fit together.

• Whoever furnished the false particulars is exposed to action under section 447 (s.7(5)).
• If it is proved that the company was got incorporated through false information, the promoters, the named first directors and the professional who made the s.7(1)(b) declaration are each exposed (s.7(6)).
• On an application, the Tribunal may make orders under s.7(7), after hearing the company and considering its transactions.
• The original filing, preserved under s.7(4) at the registered office, is the evidence everyone will turn to.

The practical lesson is to verify each signature and each consent before the declarations go in. Whether liability attaches in any particular case depends on the facts and on what is proved.

What a defensible incorporation file contains

The file should mirror the statute: the signed memorandum and articles; the s.7(1)(b) declaration by the professional and the named insider; the s.7(1)(c) declarations from every subscriber and first director; the correspondence address; subscriber identity proofs, with the prescribed particulars for any corporate subscriber; first-director DIN and identity details with the interests and written consents; the certificate showing the CIN; a note of the date the registered-office verification and (where applicable) the s.10A declaration were filed; and a record that the originally filed documents are kept at the registered office as s.7(4) requires.

What to do now

• Next step: Fix the type of company and the subscribers (s.3(1)), then assemble the seven items in s.7(1)(a)–(g), checking each person's identity details and signature before anything is filed (s.7(1)).
• Deadlines after the certificate: Verify the registered office within thirty days of incorporation (s.12(2)); for a company with share capital, file the director's declaration within one hundred and eighty days of incorporation (s.10A(1)(a)).
• Consequence of getting it wrong: a false or incorrect filing exposes the furnisher to action under section 447 (s.7(5)); a missed s.10A requirement carries a company penalty of ₹50,000 and a daily officer penalty of ₹1,000 up to ₹1,00,000 (s.10A(2)).

Have a CA review your facts before you act or file.

Frequently asked questions

What must be filed to incorporate a company?
Seven items under s.7(1)(a)–(g): the signed memorandum and articles; the professional's declaration; clean-record declarations; the correspondence address; subscriber particulars with proof of identity; first-director particulars with DIN and identity proof; and the first directors' interests with their consent to act.

Who signs the declaration that the pack complies?
An advocate, chartered accountant, cost accountant or company secretary in practice who is engaged in the formation of the company, and a person named in the articles as a director, manager or secretary (s.7(1)(b)).

What does the clean-record declaration cover?
No conviction for an offence connected with the promotion, formation or management of any company, no finding of fraud, misfeasance or breach of duty to a company in the preceding five years, and that all documents filed are correct, complete and true to the best of the declarant's knowledge and belief (s.7(1)(c)).

From when does the company exist as a body corporate?
From the date of incorporation mentioned in the certificate (s.9). The CIN is allotted on and from the date mentioned in the certificate (s.7(3)).

How long must the incorporation papers be kept?
Copies of all documents and information as originally filed must be preserved at the registered office till the company's dissolution under the Act (s.7(4)).

What can happen if the filing contains false information?
Action under section 447 against the person who furnished it (s.7(5)); the same for the promoters, first directors and the s.7(1)(b) declarant where it is proved the company was incorporated through false information or fraud (s.7(6)); and Tribunal orders under s.7(7), including unlimited liability of members, removal of the name, or winding up.

Do the memorandum and articles bind members like a contract?
Yes, they bind the company and the members as if signed by each and containing covenants to observe them, and sums payable by a member under them are a debt due to the company (s.10).

What if a company with share capital does not file the commencement declaration?
It may not commence business or exercise borrowing powers, and the company and officers in default face the penalties in s.10A(2); the Registrar may also initiate name-removal action in the circumstances in s.10A(3).

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See Also

• Sweat equity shares: issuing shares for know-how instead of cash (s.54)
• Moving Shares Between Founders? Transfer Deeds, Certificates and Timelines Under Sections 46 and 56
• Director Duties and Automatic Vacation of Office: Sections 166 and 167