Intermediate · Paper 5 – Business Laws & Ethics · Companies Act, 2013 · 3:06
English
Transcript
What if someone gives false information to form a company? And once it is formed, who is bound by its memorandum and articles? Let's find out!
Under Section 7, sub section 5, anyone who gives false or incorrect particulars, or hides material information, in the registration documents, is liable under Section 447, for fraud.
Under sub section 6, if it is later proved that the company itself was incorporated by false information or fraud, the promoters, the first directors, and the persons who made the declarations, are each liable under Section 447.
Manoj formed Quick Gold Limited using fake documents. Priyanka, a shareholder, applies to the Tribunal.
Manoj: I thought nobody would ever check!
Priyanka: This company was built on lies. What can the Tribunal do?
Under sub section 7, the Tribunal may regulate its management, including changes in its memorandum and articles; direct that the members' liability is unlimited; remove its name from the register; order its winding up; or pass any other order. But first, the company gets a reasonable opportunity of being heard.
Under Section 10A, a company formed after the 2018 Ordinance cannot commence business until its directors file a declaration, within 180 days of incorporation, that every subscriber has paid for his shares, and that the registered office is verified. If no office is found on physical verification, the company's name may be struck off.
Next, Section 6. The Act overrides the memorandum, the articles, any agreement, and any resolution. Anything in them that is against the Act is void.
And Section 10. Once registered, the memorandum and articles bind the company and every member, as if each had signed them and promised to obey them. And any money a member owes the company under them is a debt due from him.
Exam tip! False particulars lead to Section 447. Remember the five Tribunal orders under Section 7, sub section 7, the 180 day declaration under Section 10A, Section 6 that the Act overrides, and Section 10 on binding effect.
Let's recap. Fraud at incorporation brings Section 447, and Tribunal orders. Section 10A needs a declaration before business. The Act overrides the documents. And the memorandum and articles bind the company and its members.
Now try the test in the MPA app. In the next video, we will learn how to alter the memorandum.