Before a company can do anything — open a bank account, sign contracts, hire people — it needs to be formed (legally born). Section 3 tells you exactly who can form a company and how many of them are needed. Think of it as the guest list rule for a company's birth party.
The minimum persons rule is the heart of this section. To form a public company, you need 7 or more persons. For a private company, it's 2 or more persons. And if you want to go solo, you can form a One Person Company (OPC), which requires just 1 person — but OPC is legally treated as a private company. All of them must subscribe their names to the Memorandum of Association (MoA) and comply with registration requirements under the Act.
The OPC rules have a twist that examiners love: since there's only one member, what happens if that person dies or becomes incapable of contracting? The law requires the OPC member to nominate another person (the nominee) in the MoA itself, with that person's prior written consent in prescribed form. This consent is filed with the Registrar of Companies (RoC) at the time of incorporation. The nominee can later withdraw consent (in prescribed manner), and the member can change the nominee anytime by giving notice. Importantly, any such change in nominee name is not treated as an alteration of the MoA — a clean carve-out to avoid procedural hassle.
Finally, sub-section (2) tells you the type of liability a company formed under sub-section (1) can have: it may be (a) limited by shares, (b) limited by guarantee, or (c) unlimited. Most companies you'll encounter in practice are limited by shares. This is asked frequently as a 4-mark question — either as a direct question on minimum members or as a short note on OPC nomination rules.
📊 Worked example
Example 1 — Minimum Members Test
Question: Rahul, Priya, and Anand want to start a company. They plan to invite the public to invest in shares later. Can they form the company with just 3 persons?
Working:
- They intend a public company (will invite public investment).
- Section 3(1)(a): Public company requires 7 or more persons.
- Current count: 3 persons → Falls short by 4 persons.
Answer: No, they cannot form a public company with 3 persons. They need at least 4 more subscribers to the MoA.
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Example 2 — OPC Nominee Scenario
Question: Ms. Kavitha incorporates Kavitha Designs OPC on 1st April 2025, nominating her brother Mr. Kiran as nominee. On 1st October 2025, Mr. Kiran withdraws his consent. Ms. Kavitha then wants to nominate her friend Ms. Deepa. Does she need to alter the MoA formally?
Working:
- OPC nominee can withdraw consent → valid under Section 3 proviso.
- Ms. Kavitha can change nominee to Ms. Deepa by giving notice in prescribed manner.
- Section 3 specifically states: change in nominee's name is not deemed an alteration of the MoA.
- Therefore, no formal MoA alteration procedure (like special resolution + RoC filing for alteration) is required.
Answer: No formal alteration of MoA is needed. Ms. Kavitha simply gives notice of the change, and the company intimates the RoC within prescribed time. The change is administrative, not a MoA alteration.
⚠️ Common exam mistakes
- Mixing up minimum members for public vs. private companies. Students often write 2 for public and 7 for private — it's the reverse: 7+ for public, 2+ for private, 1 for OPC.
- Forgetting that OPC is a type of private company. Don't treat OPC as a separate category of company in your answer — the Act explicitly says OPC is a private company.
- Ignoring the nominee requirement for OPC. Many students describe OPC formation without mentioning that a nominee must be named in the MoA with prior written consent filed with the RoC at incorporation — examiners dock marks for this.
- Saying a change of OPC nominee requires MoA alteration. The Act has a specific proviso saying it does NOT amount to MoA alteration. Writing that it does is a guaranteed mark-loser.
- Confusing 'subscribing to MoA' with 'signing AoA'. Section 3 requires persons to subscribe to the Memorandum — that's what counts for the minimum member requirement, not the Articles.
📖 Bare Act text — Section 3, Companies Act 2013
(click to expand)
(1) A company may be formed for any lawful purpose by—(a) seven or more persons, where the company to be formed is to be a public company;(b) two or more persons, where the company to be formed is to be a private company; or(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:Provided 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:Provided further that such other person may withdraw his consent in such manner as may be prescribed:Provided 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:Provided 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:Provided 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) a company limited by shares; or(b) a company limited by guarantee; or(c) an unlimited company.
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