Accounts of Limited Companies in Banks: Documents and Mandates (JAIIB PPB)

When a private limited company, a public limited company, or a one person company walks into your branch to open a current account, due diligence goes well beyond a standard KYC form. Handling accounts of limited companies in banks requires you to verify legal existence, read the objects clause, confirm borrowing powers, and match every signatory against a valid board resolution. Get any of these wrong and a cheque paid on a defective mandate can leave the bank liable even though the money reached a genuine creditor. This article walks through the certificate of incorporation, the memorandum and articles of association, the operating mandate, registration of charges with the Registrar of Companies, changes in directors or signatories, One Person Companies and LLPs, and the precautions you must take before honouring a company cheque — exactly what JAIIB PPB expects you to know.

🏢 Certificate of Incorporation and Commencement of Business

The certificate of incorporation (COI) issued by the Registrar of Companies (ROC) under the Companies Act, 2013 is conclusive proof that a company legally exists from the date shown on it. No account can be opened for a limited company without production of a certified copy of the COI along with the Corporate Identification Number, PAN, and GST registration where applicable. The COI also fixes the company's registered name, registered office state, and date of incorporation — all of which the branch must cross-check against the account opening form and the MCA21 master data.

Under Section 10A of the Companies Act, 2013 (inserted by the 2018 amendment), a company having share capital cannot commence business or exercise any borrowing powers until its directors file a declaration confirming that subscribers have paid for their shares, and the company has filed verification of its registered office. A banker extending fund-based or non-fund-based facilities to a newly incorporated company should ask for this declaration before disbursing, since borrowing before compliance can taint the loan's enforceability. Along with the COI, collect the list of directors, Director Identification Numbers, and specimen signatures at account opening.

📜 Memorandum, Articles of Association and Borrowing Powers

The Memorandum of Association (MOA) is the company's charter — it states the name, registered office, objects, and liability clauses. The objects clause is the single most important thing a banker checks before opening or continuing an account: any transaction outside the stated main objects can be challenged as ultra vires and unenforceable against the company, even if directors personally approved it. Before sanctioning a loan or permitting a large withdrawal for an unusual purpose, compare the transaction against the "main objects" and "objects incidental or ancillary" clauses in the MOA.

The Articles of Association (AOA) govern internal management, including how the board exercises its powers. Under Section 179 of the Companies Act, 2013, the board of directors can borrow money by passing a board resolution. However, under Section 180(1)(c), if the aggregate borrowing (excluding temporary loans from banks in the ordinary course of business) exceeds the company's paid-up share capital plus free reserves plus securities premium, the board needs a special resolution passed by shareholders in general meeting. A banker sanctioning a large term loan or overdraft limit to a company must call for this special resolution wherever the threshold is likely breached — one of the most tested points in JAIIB PPB on this topic.

💡 Exam Tip: Section 180(1)(c) special resolution is triggered by borrowings crossing paid-up capital + free reserves + securities premium — not by any fixed rupee ceiling. Learn the formula, not a number.

✍️ Board Resolution and the Operating Mandate

A company cannot itself sign a cheque or an account opening form — it acts only through natural persons authorised by its board. The bank must insist on a certified true copy of the board resolution, passed under Section 179, specifically authorising the opening of the account, naming the officials empowered to operate it, and describing the extent of their authority — whether they can sign cheques singly or jointly, avail loan facilities, execute security documents, or close the account. This resolution, read together with the MOA, AOA, list of directors, and specimen signatures, forms the complete operating mandate.

The mandate is not permanent. It stays valid only until the company passes a fresh resolution amending or revoking it, and the bank must act on the latest certified copy received, not on an older one still on file. Many operational disputes trace back to branches continuing to honour instructions from a signatory whose authority was withdrawn weeks earlier but whose revocation letter was filed without updating the account mandate — a gap examiners test frequently. For related precautions on cheque handling once a mandate is in place, see the chapter on payment and collection of cheques.

🔍 Registration of Charges and Change of Directors or Signatories

When a limited company creates a charge on its assets to secure a loan — a mortgage, hypothecation, or pledge — Section 77 of the Companies Act, 2013 requires the company to register the charge with the Registrar of Companies within 30 days of creation, extendable on payment of additional fees. A charge that remains unregistered is void against the liquidator and other creditors, even though it may still be enforceable against the company itself. Before disbursing any secured facility, the bank must obtain the Certificate of Registration of Charge issued by the ROC and independently verify the charge entry on the Ministry of Corporate Affairs MCA21 portal rather than relying solely on the borrower's paperwork.

Directors and authorised signatories change routinely — through resignation, removal, or a fresh board decision. Every such change must be filed with the ROC in Form DIR-12. On the banking side, the branch must obtain a fresh board resolution reflecting the new signatories, verify the change against the ROC filing, and update the account mandate immediately; cheques signed by a removed signatory after the bank has notice of the change should not be honoured. The same discipline applies to changes affecting the authority behind the account operated for responsibility of the paying bank once a stop-instruction or revised mandate is received.

📌 Remember: An unregistered charge under Section 77 is void against the liquidator and creditors — always confirm the ROC charge certificate before releasing a secured limit.

🏦 One Person Companies, LLPs and Precautions Before Honouring Cheques

A One Person Company (OPC), defined under Section 2(62) of the Companies Act, 2013, has a single member who is also usually its sole director. The account opening process mirrors that of any limited company — COI, MOA, AOA, PAN — but the board resolution can be passed and signed by the sole director alone, and the bank must additionally record the nominee's details filed with the ROC, since the nominee steps into the member's shoes on death or incapacity.

A Limited Liability Partnership (LLP), incorporated under the LLP Act, 2008, is a distinct entity from a company. Its governing document is the LLP Agreement, not an MOA or AOA, and it too is registered with the ROC. The account is operated by designated partners as authorised in the LLP Agreement or by a resolution/consent of partners, and any change in designated partners must be reflected in a fresh mandate, exactly as with director changes in a company.

Before honouring any cheque drawn on a company or LLP account, verify that the signature matches the specimen on record, the signatory's authority under the current mandate is still in force, the amount falls within any monetary ceiling specified in the resolution, and the account is not restrained by a garnishee order, charge default, or director dispute. A settled precaution among collecting bankers: a cheque payable to the company must never be credited to a director's or employee's personal account merely on his instruction — doing so exposes the bank to a claim for conversion. These checks sit alongside the general precautions every banker follows during collecting bank responsibilities and are reinforced by how clearing now moves through the cheque truncation system, where image-based verification adds another layer of scrutiny.

⚠️ Common Mistake: Treating a company cheque as good simply because the signature "looks right" — always cross-check it against the current board resolution and mandate, not an outdated one on file.

🧠 Practice MCQs: Accounts of Limited Companies in Banks

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❓ FAQs on Accounts of Limited Companies in Banks

📌 Conclusion: Build This Into Your PPB Revision

Opening and running accounts of limited companies in banks tests a candidate's grip on company law fastened directly to everyday branch operations — the COI, the objects clause, borrowing powers under Sections 179 and 180, charge registration under Section 77, and the discipline of honouring only a current, verified mandate. These same principles carry over, with variations, to trust and society accounts in banks and to the broader customer service standards in banks that IIBF expects every officer to follow. If your syllabus also covers macroeconomics, revisit how corporate borrowing patterns connect to the wider picture in external debt of India for JAIIB IE&IFS. For the full set of PPB topics, browse the Principles and Practices of Banking tag, and lock in this chapter with a graded mock test on iibf.store before exam day.