Business StudiesCBSE Class 11 · Formation of a Company

Incorporation of a Company Class 11: Memorandum, Articles, Certificate and Capital Subscription

Updated 17 October 2026 · Fact-checked

Incorporation is the second stage: promoters file the memorandum, articles, directors' consents, name approval, a statutory declaration and the fee with the Registrar of Companies, who issues the Certificate of Incorporation with a Corporate Identity Number. The memorandum is the charter that defines the objects; the articles are the internal rules. A public company then completes capital subscription, needing at least 90% of the issue size subscribed.

Understand Incorporation: Documents, Memorandum and Articles, Certificate and Capital Subscription (CBSE 11)

Incorporation. Promoters apply to the Registrar of Companies (ROC) of the state of the registered office with:
1. the Memorandum of Association, stamped, signed and witnessed (at least 7 signatories for a public company, 2 for a private company);
2. the Articles of Association (model articles may be adopted);
3. written consent of the proposed directors and an undertaking to buy qualification shares;
4. an agreement, where one exists, appointing the managing director, a whole-time director or the manager;
5. a copy of the Registrar's letter approving the name;
6. a statutory declaration that all legal requirements have been met;
7. notice of the address of the registered office (can be given within 30 days of incorporation);
8. proof of payment of fees.
Directors must have a Director Identification Number (DIN).

Certificate of Incorporation. When satisfied, the Registrar issues it with a Corporate Identity Number (CIN). It is the company's birth certificate: the company is born on the date printed on it, becomes a legal entity with perpetual succession and can make valid contracts. It is conclusive evidence of the regularity of incorporation, so even a flaw such as a forged signature cannot be used to question its existence; the only remedy is winding up. NCERT adds that a certificate for commencement of business must be obtained within 180 days of incorporation.

Memorandum of Association (MoA). The charter of the company, defining its objects and relationship with outsiders. Acts beyond it are ultra vires and void. Clauses: name (ending with Limited or Private Limited), registered office (state), objects, liability (members' liability limited to the unpaid amount on shares), capital (authorised capital and its division into shares) and association (subscribers' declaration that they wish to form the company and take shares).

Articles of Association (AoA). Rules for the internal management: issue and transfer of shares, calls, forfeiture, meetings, voting, directors, dividends, accounts and audit, borrowing and winding up.

Basis	Memorandum	Articles
Objective	Objects and relationship with outsiders	Rules of internal management
Position	Main document, subordinate only to the Act	Subordinate to the memorandum
Relationship	Company and outsiders	Company and members
Validity	Acts beyond it are void	Acts beyond it can be ratified by shareholders
Necessity	Every company must file it	Model articles can be adopted

Capital subscription (public company).
1. SEBI approval and disclosure.
2. Filing of a prospectus (a document inviting the public to subscribe) with the Registrar; it must be truthful and disclose all material facts.
3. Appointing bankers (receive application money), brokers (market the issue) and underwriters (agree to buy shares not taken up, for a commission; optional).
4. Minimum subscription: applications for at least 90% of the issue size, otherwise no allotment and the money is returned.
5. Application to at least one stock exchange for permission to deal; if not granted within ten weeks of closing the list, allotment is void and money is refunded within eight days.
6. Allotment of shares, letters of allotment and a return of allotment filed with the Registrar.

Incorporation: Documents, Memorandum and Articles, Certificate and Capital Subscription (CBSE 11): key facts

Signatories: 7 for a public company
2 for a private company
on the Memorandum of Association; Directors need a DIN.
Memorandum clauses: name
registered office
objects
liability
capital
association; Six clauses.
Minimum subscription: 90% of the issue size | minimum shares = issue size x 90 / 100; Otherwise return the application money.
Certificate of Incorporation: birth certificate
CIN
conclusive evidence
commencement within 180 days; Existence cannot be questioned later.

How to answer Incorporation: Documents, Memorandum and Articles, Certificate and Capital Subscription (CBSE 11) questions

To answer a formation question, separate the stage, the document and the rule.

1Decide the stage: incorporation or capital subscription.
2For documents list the memorandum, articles, consents, name letter, declaration, address notice and fee proof.
3For a clause question match the wording to name, registered office, objects, liability, capital or association.
4For minimum subscription compute 90% of the issue size and compare with the applications received.
5State the consequence: allotment or return of money; void act if ultra vires.

Incorporation: Documents, Memorandum and Articles, Certificate and Capital Subscription (CBSE 11) in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

A bakery company changes its line of business

Suppose a company whose objects clause allows only baking and selling bread decides to open a hotel.

Is the hotel business valid?

Try it first, then show the solutionSolution

A company cannot act beyond the objects in its memorandum.
Such an act is ultra vires and void.

Answer: No; it is ultra vires and void.

Memory hook: The memorandum draws the boundary of what the company can do.

Tricks to remember Incorporation: Documents, Memorandum and Articles, Certificate and Capital Subscription (CBSE 11)

Short memory aids. Say each one aloud once, then use it on a question the same day.

NROLCA
Name, Registered office, Objects, Liability, Capital, Association.
Use it when: Memorandum clauses.
M is Main, A is Admin
Memorandum is the main charter; Articles are administrative rules.
Use it when: Comparison.
Seven public, two private
Public needs 7 signatories, private 2.
Use it when: Signatories.

Incorporation: Documents, Memorandum and Articles, Certificate and Capital Subscription (CBSE 11): solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Signatories · 1 mark · MCQBoard level

What is the minimum number of signatories to the memorandum of a public company?
(a) 2
(b) 5
(c) 7
(d) 10

Try it first, then show the solutionSolution

A public company needs at least 7 signatories; a private company needs 2.

Answer: (c) 7

Example 2: Objects and liability clauses · 3 marks · Short answerBoard level

Explain the objects clause and the liability clause of the memorandum, and state what ultra vires means. (3 marks)

Try it first, then show the solutionSolution

The objects clause states the purpose for which the company is formed.
The liability clause limits the members' liability to the unpaid amount on their shares.
Ultra vires means beyond the powers given by the memorandum; such acts are void.

Answer: Objects: purpose; liability: limited to unpaid share amount; ultra vires: beyond the objects, so void.

Example 3: Name the clause · 4 marks · Short answerHarder board level

Name the clause of the memorandum in each case. (4 marks)
(a) The company is called Pune Textiles Private Limited.
(b) The registered office will be in Maharashtra.
(c) The company will make and sell cotton fabrics.
(d) Members' liability is limited to the unpaid amount on their shares.
(e) Authorised capital is 50,00,000 divided into 5,00,000 shares of 10 each.
(f) The signatories declare that they wish to form the company and take shares.

Try it first, then show the solutionSolution

(a) Name clause.
(b) Registered office clause.
(c) Objects clause.
(d) Liability clause.
(e) Capital clause; check 5,00,000 x 10 = 50,00,000.
(f) Association (subscription) clause.

Answer: (a) Name (b) Registered office (c) Objects (d) Liability (e) Capital (f) Association

Example 4: Minimum subscription case · 5 marks · Case-basedHOTS / competency

Case: A public company offers 20,00,000 shares to the public. The prospectus has been filed and the stock exchange has been approached. When the list closes, applications are received for 17,40,000 shares. (5 marks)
(i) Find the minimum subscription required. (1)
(ii) Can the company allot shares? (2)
(iii) What must it do with the application money? (1)
(iv) What does a prospectus contain in general? (1)

Try it first, then show the solutionSolution

(i) Minimum subscription = 90% of 20,00,000 = 18,00,000 shares.
(ii) Applications of 17,40,000 are 60,000 short of 18,00,000 (87%), so the company cannot allot.
(iii) The application money must be returned.
(iv) A prospectus invites the public to subscribe and must be truthful and disclose all material facts.

Answer: (i) 18,00,000 shares. (ii) No, short by 60,000. (iii) Return the money. (iv) Truthful disclosure of material facts.

Example 5: Effects of the certificate · 4 marks · Short answerHarder board level

Explain the legal effects of the Certificate of Incorporation, why it is called conclusive evidence, and what the directors need before the application is made. (4 marks)

Try it first, then show the solutionSolution

The company is born on the date on the certificate and becomes a legal entity with perpetual succession; it can make valid contracts. It carries a Corporate Identity Number.
It is conclusive evidence that the requirements of incorporation were regularly met, so a flaw such as a forged signature cannot be used to question the company's existence; the only remedy is winding up.
Directors must hold a Director Identification Number (DIN).
A certificate for commencement of business must be obtained within 180 days of incorporation.

Answer: Birth of a legal entity; conclusive evidence of regularity; directors need a DIN.

Where students lose marks in Incorporation: Documents, Memorandum and Articles, Certificate and Capital Subscription (CBSE 11)

The slips examiners see most often, and what to write instead.

Mistake: Reversing the signatory numbers
Mixing up public and private companies.
Wrong working
2 for a public company and 7 for a private company
Right working
7 for a public company and 2 for a private company
Do this: Public is the larger number.
Usually costs: 1 mark
Mistake: Saying the articles are the main document
Confusing the two documents.
Wrong working
The articles define the objects of the company
Right working
The memorandum defines the objects; the articles are internal rules
Do this: Memorandum is the charter.
Usually costs: 1 mark
Mistake: Computing 90% of the wrong base
Using the applications received instead of the issue size.
Wrong working
90% of 17,40,000
Right working
90% of the issue size 20,00,000 = 18,00,000
Do this: The base is the issue size.
Usually costs: 1 to 2 marks

Exam tips

Give the six clauses of the memorandum by name.
Use a table with four to five bases to compare the memorandum and the articles.
Mention CIN and the birth-certificate effect when asked about the certificate.
For capital subscription write the steps in order and quote 90% and ten weeks.

Practice questions on Incorporation: Documents, Memorandum and Articles, Certificate and Capital Subscription (CBSE 11)

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
The Certificate of Incorporation is conclusive evidence of
(a) the profits of the company
(b) the regularity of incorporation
(c) the liability of directors
(d) the issue of shares
Hint
Birth certificate.
Answer
(b) the regularity of incorporation
Q2 · 1 mark · Assertion-reasonHarder board level
Assertion (A): An act of a company beyond the objects clause of its memorandum is void.
Reason (R): The memorandum is the charter that defines the objects of the company.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.
Hint
Ultra vires.
Answer
(a) Both A and R are true, and R is the correct explanation of A.
Q3 · 4 marks · Short answerHarder board level
Explain the roles of bankers, brokers and underwriters in a public issue. Is the appointment of underwriters compulsory? (4 marks)
Hint
Think of money, marketing and unsold shares.
Answer
Bankers receive the application money. Brokers market the issue to investors. Underwriters agree to buy the shares that the public does not take up, for a commission. The appointment of underwriters is optional.
Q4 · 4 marks · Short answerHarder board level
A public company issues 5,00,000 shares at 10 each. Find (a) the minimum number of shares for which applications are needed and its value at the issue price, and (b) whether allotment can be made if applications are received for 4,40,000 shares or 4,60,000 shares. (4 marks)
Hint
90% of the issue size.
Answer
(a) Minimum = 90% of 5,00,000 = 4,50,000 shares; value at 10 each = 45,00,000. (b) For 4,40,000 shares the minimum is not met (10,000 short), so there is no allotment and the money is returned. For 4,60,000 shares the minimum is met, so allotment can proceed.
Q5 · 5 marks · Case-basedHOTS / competency
Case: Orbit Systems Limited was incorporated on 10 January. Two years later a shareholder discovers that one subscriber's signature on the memorandum was forged. Meanwhile the directors wish to start a travel agency, though the objects clause covers only software services. (5 marks)
(i) Which document is the company's birth certificate and what is its effect on the forged-signature challenge? (2)
(ii) What remedy remains? (1)
(iii) Is the travel business valid? Give the term. (2)
Hint
Conclusive evidence and ultra vires.
Answer
(i) The Certificate of Incorporation is conclusive evidence of the regularity of incorporation, so the company's existence cannot be questioned because of the forged signature. (ii) The only remedy is winding up. (iii) No; an act beyond the objects clause is ultra vires and void.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Who issues the Certificate of Incorporation?Show answer
The Registrar of Companies.
2.What is the CIN?Show answer
The Corporate Identity Number given with the certificate.
3.What is the minimum subscription?Show answer
90% of the issue size.
4.What does ultra vires mean?Show answer
Beyond the powers given in the memorandum, so void.
5.What does the liability clause say?Show answer
Members' liability is limited to the unpaid amount on their shares.

Incorporation: Documents, Memorandum and Articles, Certificate and Capital Subscription (CBSE 11): frequently asked questions

Does a private company issue a prospectus?

No; it cannot invite the public to subscribe.

When may the notice of the registered office be given?

Within 30 days of incorporation.

What happens if the stock exchange does not grant permission?

If not granted within ten weeks of closing the list, the allotment is void and the money is refunded within eight days.