Corporate Law: Company Structure, Incorporation, and Promoters

Posted on Jun 13, 2026 in Law & Jurisprudence

Understanding Company Structure and Legal Status

A company is a legal entity formed by a group of individuals to engage in and operate a business. In corporate law, it is treated as a separate “legal person” distinct from the members who own it.

1. Concept, Characteristics, & Types

Core Characteristics of a Company

• Separate Legal Entity: A company has its own legal personality. It can own property, incur debts, enter into contracts, and sue or be sued in its own name.
• Perpetual Succession: The life of a company is not tied to the life of its members.
• Limited Liability: The liability of members is generally limited to the nominal value of their shares.
• Common Seal: Acts as the official signature of the company.
• Transferability of Shares: Shares in a public company are freely transferable.

Types of Companies

Companies are classified based on liability, members, or control:

2. Conversion of Companies

Converting a company structure requires altering its Articles of Association (AoA) and Memorandum of Association (MoA).

Private Company into Public Company

1. Board Resolution: Approve the proposal and alter the MoA and AoA.
2. Shareholder Approval: Pass a Special Resolution (75% majority).
3. Adjust Alignments: Increase members to 7 and directors to 3.
4. Filing with ROC: File statutory forms within 30 days.
5. Name Change: Remove the word “Private” from the name.

Public Company into Private Company

1. Resolutions: Pass Board and Special Resolutions.
2. Add Restrictions: Amend the AoA to include private company clauses.
3. Regulatory Approval: Obtain approval from the relevant authority (e.g., NCLT).
4. Filing with ROC: Submit the official order.
5. Name Change: Add the word “Private” to the name.

3. Incorporation of a Company

Incorporation is the legal process of bringing a company into existence.

Phase 1: Promotion

Promoters conceive the business idea, conduct feasibility studies, and draft founding documents.

Phase 2: Registration

1. Name Reservation: Apply for a unique name via the corporate portal.
2. Drafting Documents: Prepare the MoA and AoA.
3. Digital Signatures & DIN: Obtain DSC and Director Identification Numbers.
4. Filing Application: Submit the unified form and pay registration fees.

Phase 3: Certificate of Incorporation

The Registrar issues a Certificate of Incorporation and a unique Corporate Identity Number (CIN).

Phase 4: Commencement of Business

Directors must file a formal declaration verifying that subscribers have paid for their shares before starting operations.

4. Legal Position of Promoters

A promoter is neither an agent nor a trustee but holds a fiduciary relationship toward the future company.

Fiduciary Duties

• Duty to Disclose Secret Profits: Promoters must disclose any profits made during the setup phase.
• Duty of Care and Fairness: Promoters must act in the best interest of the future company.

Consequences of Breach

The company may rescind contracts, recover secret profits, or sue for damages.

5. Pre-Incorporation Contracts

These are agreements made by promoters before the company is legally registered.

Legal Handling

To make a contract binding on the company, the following must occur:

1. Check Scope: The contract must align with the company’s MoA.
2. Company Adoption: The company must formally adopt the contract via Board Resolution after incorporation.
3. Communication: The adoption must be communicated to the third party.

Liability Summary