Perpetual succession
A company is a legal entity that enjoys perpetual succession. It is created by law, governed by its Memorandum of Association and Articles of Association, and can be put to an end only by the process of law. Professor Grover highlights these feature by saying that even a bomb cannot destroy a company[1].
The owners, managers and employees of the company comes and goes but the company survives. A company is like a table of which we can change the top and the legs and still call it the same table.
Alteration to the memorandum of association
The very name of the company to its business can be changed by amending the clauses in the memorandum of association, which is the constitution of the company. The only clause in the memorandum that cannot be altered under section 14, which speaks about alteration of memorandum, is the Subscription Clause. The Subscription clause in the memorandum of association, which is the signature of the founding fathers of the company, remains with it even if the subscribers cease to be members of the company.
Who is a subscriber?
The term subscriber is not defined in the definition clause of Companies Act, 2019. The Companies Act, Section 2(55), defines a member as; “member, in relation to a company, means— the subscriber to the memorandum of the company who shall be deemed to have agreed to become member of the company, and on its registration, shall be entered as member in its register of members.” The subscribers are the founders and first members of the company. In case of Shareholding Company, they all hold a minimum of one share and in case of all other companies, voting power. The subscribers signs the memorandum and the articles of association. A Private company requires a minimum of two subscribers and a Public company seven for its formation.
The section 4 (e) (I) of the Act states that the memorandum shall contain the share capital and the numbers of shares taken by every subscriber. However, the Act places subscribers in a different footing from other shareholders.
Subscribers to the Memorandum of Association are placed in a separate category from other subsequent shareholders. Each subscriber to the memorandum of association irrevocably agrees to take from the company the number of shares placed opposite to his signature, and he becomes a member ipso facto whether his name is entered in the register or not. Allotment and issuance of shares to the subscribers of the Memorandum takes place within 2 months upon its formation.
Affidavit from subscriber on incorporation
Section 7 (1) requires an affidavit from every subscriber that he is not convicted of any offence in connection with the promotion, formation or management of any company, or that he has not been found guilty of any fraud or misfeasance or of any breach of duty to any company under this Act or any previous company law during the preceding five years and that all the documents filed with the Registrar for registration of the company contain information that is correct and complete and true to the best of his knowledge and belief. The section 7 (6) imposes personal liability upon subscriber for any falsity in the affidavit. The Rule 15 of Companies Act Incorporation Rules, 2014 provides the form for the affidavit.
The signature of the subscriber in the memorandum thereby also carries his credibility before the law with it. This subscription clause is not changed even when the subscriber ceases to be a member. The Rule 13 (4) of the Companies Act Incorporation Rules, 2014 provide that, when the member is a body corporate, the subscription clause to be signed by an authorised representative of such body corporate. The name of the body corporate and the representative remains in the clause even when the representative changes or when the body corporate ceases to be a member or even ceases to exist.
Conclusion
Thus it can be stated that the subscription clause imprints with the company an unalterable signature of its founding fathers which carries with it, at least to an extent, their credibility.
Authors:
Alby Stephan. K, Legal executive at Legality Simplified
[1] Salomon vs. Salomon & Co. Ltd. [1896] UKHL 1, [1897] AC 22