THE COMPANY ACT 1956 : THE COMPANY ACT 1956 By.. UMA RAMAN GL BAJAJ (G.

NOIDA) Contents:- : Contents:- COMPANY ACT 1956 COMPANY INCORPORATION TYPES OF COMPANIES. MEMORANDUM OF ASSOCIATON. ARTICLE OF ASSOCIATION. STEP OF INCORPORATION OF A CO. Company act 1956 : Company act 1956 The company act came into force from 1 April 1956. The act was based upon the recommendation of company law committee appointed under the chairmanship of Mr. C. H. Bhaba on 25 -10-1950. The committee submitted its report in 1952. The Indian company act extends to the whole India. COMPANY : COMPANY Section 3(1)(i)&(ii) of the Companies Act, 1956 defines a company as: a company formed and registered under this Act or an existing Company. Existing Company means a company formed and registered under any of the earlier Company Laws INCORPORATION UNDER COMPANY ACT 1956.. : INCORPORATION UNDER COMPANY ACT 1956.. 1 SEPERATE LEGAL ENTITY 2.ARTIFICIAL PERSON 3.PERPETUAL EXISTENCE 4.COMMAN SEAL 5.LIMITED LIABILITY 6.TRANSFERABILITY OF SHARE 1. Separate legal entity : 1. Separate legal entity A company is an separate legal entity means it is different from its members. It works as a individual body. It can make contracts, open a bank account, can sue and be sued by others. Artificial person : Artificial person A company is a purely a creation of law. It is invisible, intangible and exists only in the eyes of law. It has no soul, no body, but has a position to enter or exit into a contract. In short it can do every thing just like a natural person. Perpetual existence sec 34(2) : Perpetual existence sec 34(2) Section 34(2) of the act states that an incorporated company has perpetual life. The life of the company is not related to the life of the members . Law create the company and law alone can dissolve it. The existence of the company is not affected by death, insolvency, retirement or transfer of share of members. Common seal : Common seal A company being an artificial person can not work as a natural being. Therefore, it has to work through its directors, officers and other employees. Common seal used as a official signature of a company. Limited liability : Limited liability It means that the liability of a member shall be limited to the value of the share held by him, he cannot be called upon to bear the loss from his personal property. Transferability of share sec 82 :

Transferability of share sec 82 The share of a company are freely transferable. The shareholder can transfer his share to any person without the consent of other members. A company cannot impose absolute restrictions on the rights of member to transfer their shares Types of companies (Registered under company act 1956) : Types of companies (Registered under company act 1956) INCORPORATED : INCORPORATED 1.CHARTERED COMPANIES These companies are incorporated under a special charter such as the east India company. The bank of England. the company act does not apply to it. 2.STATUTORY COMPANIES These companies are incorporated by special act of legislature( act of parliament or state legislature) eg. RBI, UTI, LIC Slide 14: REGISTERED COMPANIES companies registered under the Indian Companies Act, 1956 are called registered companies. To become a registered company one has to take the certification of incorporation from the registrar. Cont. COMPANY WITH LIABILITY : COMPANY WITH LIABILITY COMPANY LIMITED BY SHARE [sec12(2)a] companies in which the liability of its members is limited to the extent of the amount unpaid on the shares held by a particular member. COMPANY LIMITED BY GUARANTEE The liability of members is limited to a fixed amount which members undertake to contribute to the assets of the company in case of its winding up. UNLIMITED LIABILITY wherein members are liable for the debts of the company irrespective of their interest in the company Number of members : Number of members PRIVATE COMPANIES [sec 3(1)(iii)] A private company is one which, by its Article of association restricts the right to transfer its share, if any limits the maximum number of its member to fifty prohibits any invitation to the public to subscribe for any share or debenture of the company. Slide 17: PUBLIC COMPANY [SEC 3(1)(iv)] A public company means a company which is not a private company. In other words, a public company, means a company which by its article does not- limit the number of its member. prohibit any invitation to the public to subscribe for any share in, or debentures, of the company. companies according to control : companies according to control HOLDING AND SUBSIDIARY COMPANY where a company has control over another company, it is known as the holding company The company over which control is exercised is called the subsidiary company. ownership : ownership GOVERNMENT COMPANY (sec617) a government company means any company in which at least 51% of the paid up share capital is held by the central government or by any state government or partly by one or more state Government.

MEMORENDUM OF ASSOCIATION : MEMORENDUM OF ASSOCIATION The first step in the formation of the company is to prepare memorandum of association. it is one of the documents which has to be filed with registrar of the companies at the time of incorporation of a company. It is vital document, tell about the object of the companys formation ,the power of the company as well as the boundaries beyond which the action of the company can not go. Importance of memorandum : Importance of memorandum It defines the rights and liabilities of the members. It shows the capital structure of the company It shows the object of the company It specifies the state in which the registered office of the company is situated. It shows the constitution of the company It specify the conditions under which the company has been incorporated. Article of association : Article of association Contents of article of association : Contents of article of association Rights of different classes of shareholder. Use of common seal of the company. Keeping of book of accounts and their audit. Appointment , powers, duties, salary of MD, manager, and secretary. Borrowing power of directors. Voting rights of member . Board meetings and proceedings. Winding up company. Step of incorporation of company : Step of incorporation of company

Formation of company under the companies act 1956?

A company is an association of both individual and natural persond incorporated under the existing law of a country. in ters of the companies act,1956 it is defined as: "a company means a company formed and registered under this act or any existing Company"sec 3(1). procedure for formation: ahy seven or more persons or where the company to be formed is a private company,any two or more persons associated for any lawful purpose may by subscribing their names to a memorandum of association and otherwise complying with the requirements of the companies act,1956 in respect of registration,form an incorporated companywith or without limited liability.(sec12) The following ingredients are required for the formation of a company: 1.promoters of the company 2.lawful objective for which they associate themselves. 3.promoters must subscribe their names to the memorandum of the company 4.promoters must comply with the requirements of the companies act,1956in respect of registration which is as follows: a.declaration of compliance in Form1as prescribed in Companies(central Governments)general Rules and Forms1956 executed by any one of the following persons: advocte of a high court or a supreme court,attorney or a pleader entitled to sppear before a high court,a company secretary or a chartered ccountant in whole time practice. b.a stamped and signed copy of memorandum and articles of association.

c.notice of situation of registered office in form18 d.formno.32containing particulars of a person th act as managing/wholetime director of the company. e.particulars in favour of one of the subscribers to the memorandum duly executed on a non judicial stamp paper of the requisite value. f. any agreement which the company proposes to enter into with any person g.original true copy of the Registrar of Companies letter intimating about the availability of name. 5.minimum paid up capital must be one lakh rupees for a private company and rupees five lakh for a public limited company. A private ltd company can immediately commence its business after a Certificate of registration is issued by the Registrat after due verification of the documents and on payment of the prescribed fee as specified in ScheduleX., apublic company having a share capital can commence its operations after getting the Certificate of Commencement of business from the registrar.

Brief notes on on Articles of Association of a company, its content and alteration

Articles means the articles of association of a company as originally framed or as altered from time to time in pursuance of any previous companies law of this act. The articles of association are the rules and regulations of a company framed for the purpose of internal management of its affairs. It deals with the rights of the member of the company inter-se. The articles are framed for carrying out the aims and object of the Memorandum of association. The articles of association of a company are sub -ordinate to and are controlled by the memorandum of association. Lord Cairns observed in this regard, The memorandum is as it were the area beyond which the action of the company cannot go; inside that area the shareholder may make such regulation for their own government as they think fit. It is not obligatory to register articles in the case of a public company limited by shares. In such a case model articles contained in Table A of schedule I will apply. However, a private company, a company limited by guaranteed and an unlimited company must register their articles along with the memorandum. (section26) In the case of an unlimited company, the articles shall state the number of the members, with which the company is to be registered, and if it has a share capital, the amount of share capital with which it is to be registered. [section 27(1)]

In the case of a company limited by guarantee, the articles shall state the number of members with which the company is to be registered. In the case of a private company, articles must contain provisions which (a) Restrict the right to transfer its shares; (b) Limit the number of its member to fifty excluding past and the present employees of the company; (c) Prohibit any invitation to the public to subscribe for any share in or debenture of the company. The articles must be printed and divided into paragraph, numbered consecutively. The articles must be signed by each subscriber of the memorandum in the presence of at least one witness who will attest the signature and likewise add his address, description and occupation, if any.

Contents of articles:
The articles usually contain the following matter: 1. Exclusion wholly or in part of Table A. 2. Adoption of preliminary contracts. 3. Number and value of shares. 4. Allotment of shares. 5. Calls on shares. 6. Lien on shares. 7. Transfer and Transmission of shares. 8. Forfeiture of share.

9. Alteration of capital. 10. Share certificates. 11. Conversion of share into stock. 12. Voting rights and proxies. 13. Meeting. 14. Directors their appointment etc. 15. Borrowing powers. 16. Dividends and reserves. 17. Accounts and audit. 18. Winding up.

Alteration of Articles:
Companies have wide powers to alter their articles. Any restriction on the exercise of their powers will be invalid. Articles of association may be altered by a company by passing a special resolution to that effect. The altered articles will bind the members in the same way as did the original articles. The company must file with the registrar a copy of the special resolution within one month from the date of its passing.
Limitations:

The right of alteration of articles is subject to the following conditions: 1. The alteration must not be inconsistent with or go beyond the provisions of the memorandum.

2. The alteration must not provide for anything which is opposed to the provisions of the act; for example, articles cannot authorize a company to purchase its own shares. 3. The alteration of articles must be made in good faith for the benefit of the company as a whole. 4. The alteration of articles must not constitute a fraud on minority. 5. No member of a company will be bound by any alteration made in the memorandum or the articles after he become a member which requires him to take or subscribe for more shares or in any way increases his liability to contribute to the share capital of or otherwise to pay money to the company, unless he agrees in writing before or after the alteration is made. 6. No alteration can be made in the articles which has the effect of converting the public company into a private company unless such alteration has been approved by the central government. 7. An alteration in the articles which causes a breach of contract with an outsider will be inoperative. 8. The alteration must not sanction anything which is illegal.