Minimum subscription - commencement of business, Business Law and Ethics

Minimum subscription - Commencement of business:

If the minimum subscription was not raised the company can only commence business or exercise borrowing powers if:-

a)      there has been delivered to the registrar for registration a statement in lieu of prospectus;

b)      Every director of the company has paid to the company, on each of shares taken or contracted to be taken by him and for which he is liable to pay in cash, a proportion equal to the proportion payable on application and allotment on the shares payable in cash; and

c)      there has been delivered to the registrar for registration a statutory declaration in Form No.212 by the secretary or one of the directors that condition b) above has been complied with.

The registrar shall, on delivery to him of the relevant form, or statement in lieu of prospectus, certify which of the company is entitled to commence business. The certificate is conclusive evidence that the company is entitled to commence business.

Section III (4) provides that any contract made by a company before the date at which it is entitled to commence business shall be provisional just, and hence shall not be binding on the company awaiting that date. This provision is somewhat ambiguous and it is not clear whether the "provisional" contract binds the other party.

In Re "Otto" Electrical Manufacturing Co (Clinton's Claim) it was held that the company was not liable to pay for the goods which had been sold to it before it obtained the trading certificate. Since it was put into liquidation before obtaining the certificate, the contract did not "become binding" and the liquidator had therefore rightly rejected the claim.

S.219 (c) provides that a company which does not commence its business within a year from its incorporation may be wound up by court.

Section III does not apply to a private company which may therefore legally commence its business as soon as it is incorporated.

Posted Date: 1/12/2013 3:16:00 AM | Location : United States

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