Section 3: Formation of company
This section is for outlining the requirements and types of companies that can be formed under Indian company law.
The section, clause by clause
What the section says
In plain terms
(1)A company may be formed for any lawful purpose by—
A company can be formed by 7 or more persons for a public company, 2 or more persons for a private company, or 1 person for a One Person Company, by subscribing to a memorandum and meeting registration requirements.
(1)(a)seven or more persons, where the company to be formed is to be a public company;
(1)(b)two or more persons, where the company to be formed is to be a private company; or
(1)(c)one person, where the company to be formed is to be One Person Company that is to say, a private company, by subscribing their names or his name to a memorandum and complying with the requirements of this Act in respect of registration:
provisoProvided that the memorandum of One Person Company shall indicate the name of the other person, with his prior written consent in the prescribed form, who shall, in the event of the subscriber’s death or his incapacity to contract become the member of the company and the written consent of such person shall also be filed with the Registrar at the time of incorporation of the One Person Company along with its memorandum and articles:
provisoProvided further that such other person may withdraw his consent in such manner as may be prescribed:
provisoProvided also that the member of One Person Company may at any time change the name of such other person by giving notice in such manner as may be prescribed:
provisoProvided also that it shall be the duty of the member of One Person Company to intimate the company the change, if any, in the name of the other person nominated by him by indicating in the memorandum or otherwise within such time and in such manner as maybe prescribed, and the company shall intimate the Registrar any such change within such time and in such manner as may be prescribed:
provisoProvided also that any such change in the name of the person shall not be deemed to be an alteration of the memorandum.
(2)A company formed under sub-section (1) may be either—
A company formed under this section can be a company limited by shares, a company limited by guarantee, or an unlimited company.
(2)(a)a company limited by shares; or
(2)(b)a company limited by guarantee; or
(2)(c)an unlimited company.
(2)1[3A. Members severally liable in certain cases.-If at any time the number of members of a company is reduced, in the case of a public company, below seven, in the case of a private company, below two, and the company carries on business for more than six months while the number of members is so reduced, every person who is a member of the company during the time that it so carries on business after those six months and is cognisant of the fact that it is carrying on business with less than seven members or two members, as the case may be, shall be severally liable for the payment of the whole debts of the company contracted during that time, and may be severally sued therefor.]
The right-hand column is written from the section text, not quoted from it, and it has no legal force. Where the two differ, the left-hand column is the law.
Amendment notes
- 1. Subs. by Act 1 of 2018, s. 2, for clause (91) (w.e.f. 9-2-2018).
- 2. Ins. by Act 31 of 2016, s. 255 and the Eleventh Schedule (w.e.f. 15-11-2016).
- 1. Ins. by Act 1 of 2018, s. 3 (w.e.f. 9-2-2018).
Referred to by
s. 2 Definitionss. 118 Minutes of proceedings of general meeting, meeting of Board of Directors and other meeting and resolutions passed by postal ballots. 133 Central Government to prescribe accounting standardss. 143 Powers and duties of auditors and auditing standardss. 205 Functions of company secretarys. 378A Definitions
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Reproduced from the official India Code print for reference. Check the current text on India Code before you rely on it, and read the section alongside its Rules. Nothing here is legal advice.