Company Law

Companies Act

Companies Act The Companies Act is a

successor to the Indian Companies Act of
1913 and is a consolidation of many
successive Amendment Acts, statutory rules
and principles laid down in decisions of the
courts in India and England.
Meaning of Company
Meaning of Company Sec.3 of Companies
Act, 1956 defines company as- A company
formed and registered under the Act or an
existing company formed and registered
under any of the previous company laws.
Meaning of the company
According to section 3(1) (i) of The Companies
Act, 1956, “Company means a company formed
and registered under this Act or an existing
company”.
A "Company" may be defined as a voluntary
association of persons who have come
together to carry on some business and
sharing the profits, there from.
Characteristics of a Company
• An artificial person created by law
• Separate Legal Entity:
• Perpetual Existence
• Common Seal
• Limited Liability
• Free Transferability of shares
• Capacity to sue and being sued
• Separate Property
LIFTING UP CORPORATE VEIL
Protection of revenue
Prevention of fraud and improper conduct
Determination of character of company whether it is
enemy
Where the company is sham
Company avoiding legal obligation
Company acting as agent or trustee of the share
holders
Avoidance of welfare legislation
Protecting public policy
Types of Companies
On the basis of Incorporation.
On the basis of Liability.
On the basis of Number of Members
On the basis of Control
On the basis of Ownership
Types of Companies
Basis of incorporation:
Chartered company
Statutory Company
Registered or Incorporated Company
Based on Liability
a company limited by shares
a company limited by guarantee
an unlimited company
Based on Control

Holding and Subsidiary Company

Multi National Company
Classification on the basis of Number of
members
Private Company
Public company
Points of
Private Companies Public Companies
difference
Minimum
Minimum number of members in Minimum number of members in
number of
private company is two public company is seven
members
Maximum
Maximum number of members in No maximum limit of membership in
number of
private company is 50 public companies
members
Number of
Minimum number of directors is two. Minimum number of directors is three
directors
Issue of Public invitation by way of prospectus
Not allowed to issue public invitation
shares to and public issue of shares,
for investing in the company
public debentures and deposits allowed.
Transferabil Private company restricts the transfer A public company cannot put any
ity of of shares. The shares cannot be listed restriction on the transfer of shares.
shares in stock exchanges They are freely transferable
Minimum The minimum paid up capital for a The minimum paid up capital of a
Capital private company is Rs.100,000. public company is Rs.500,000
Restriction
A person cannot hold directorship in
on holding Directorships held in private
more than 20 public companies
directorship companies are excluded
on the basis of ownwership
Government company
Foreign company
Association not for profit
One man company
I. Promotion

Meaning of Promotion
Promotion is the first stage in the formation
of a company. Promotion involves
identification of a business opportunity or
idea, analysis of its prospects and taking
steps in implement it through the formation
of a Company.
Meaning of Promoters
A company may have more than one
promoter. The promoter may be an
individual, firm, an association of persons
or a body corporate.
Functions of a Promoter
To Conceive Business Idea
To make Detailed Investigation
To Organize the Resources
To Obtain the Consent of Persons Willing to
Act as First Directors
To Decide about the Name of the Company
To Get the Necessary Documents Prepared
To Arrange for Filling of the Necessary
Documents with the Registrar
Position of promoters as regards Pre-
Incorporation Contracts
1. Company not bound by pre-incorporation
contracts
2. Company cannot enforce pre-incorporation
contracts
3. Promoters personally liable

Ratification of a pre-incorporation contract

Specific performance of pre-incorporation contract
Formation Of Company
Registration of the Company
Certificate of Incorporation
Commencement of Business
REGISTRATION OF COMPANY
Documents to be filed with registrar
i. The memorandum of Association duly signed by the subscribers
ii. The Articles of Association
iii. The agreement, if any, which the company proposes to enter into
with any individual for appointment as its managing or whole time
director or manager
iv. A list of the directors who have agreed to become the first directors
of the company & their written consent to act as directors and take
up qualification shares
v. A declaration stating that all the requirements of the companies Act
& other formalities relating to registration have been complied with
Incorporation by Registration

1) Memorandum of Association:

a)Name clause
b)Domicile clause
c)Objects clause
d)Doctrine of the ultra-vires
e)Liability clause
f)Capital clause
g)Association clause

Doctrine of ultra vires

 2) Articles of Association

CONTENTS
1. Powers, duties, rights and liabilities of
Directors and Members
2. Rules for Meetings of the Company
3. Dividends
4. Borrowing powers of the company
5. Calls on shares
6. Transfer & transmission of shares
7. Forfeiture of shares
8. Voting powers of members, etc

Doctrine of Indoor management

MEMORANDUM OF ASSOCIATION ARTICLES OF ASSOCIATION

It is the charter of the company indicating They are the regulations for the internal
the nature of its business, its nationality, management
and its capital. It also defines companies
relationship with outside world.
It defines the scope of the activities of the They are rules for carrying out the objects
company, or area beyond which the of the company as set out in the
actions of the company cannot go memorandum
It, being charter of company, is the They are subordinate to the
supreme document memorandum. If there is conflict
memorandum will prevail
Every company must have its own A company limited by shares need not
memorandum have articles of their own
There are strict restrictions on its They can be altered by a special
alteration resolution, provided they do not conflict
with memorandum
Prospectus
“any document described or issued as
aprospectus and includes any notice,
circular, advertisement or other documents
inviting deposits from the public or inviting
offers from the public for the subscription
or purchase of any sharesin, or debentures
of a body corporate”
 Liabilities for mis-
statement in prospectus

Civil
liability Criminal
liability

Against the
Against the directors,
company promoters
and experts

Compensat Damages for

damages ion under non
rescission Claim for sec 62 compliances
damages

For innocent
For fraudulent
misrepresentation
misrepresentation
Share Capital
Authorized
Capital

Issued and
Unissued
subscribed
capital
capital

Called up uncalled
capital capital

Paid up Reserve
capital capital
 SHARES
The capital of a company is divided into certain
indivisible units of fixed amount.
These units are called shares
Shares means share in the capital of the company
The shares of any member in a company shall be
movable property, transferable in the manner
provided by the articles of the company
Types of shares
Preference Shares

Types of Preference Shares

Cumulative or Non-cumulative
Redeemable and Non- Redeemable
Participating Preference Share or non- participating
preference shares
Convertible and Non Convertible Shares
Types of shares
Equity Shares
Sweat equity shares
S.N Basis of
o Preference share Equity Share
distinction
1.
Voting rights The holder of these shares do not Generally equity share holders
enjoy any voting right except at enjoy voting rights.
their class meeting

2.
Payment of The holders of these shares have Equity share holders get the
dividend the preference right as to the dividend, after the payment to
payment of dividend preference share holders.

3.
Repayment of The holders of these shares have Repayment of equity share capital
capital the preference right as to the is made after making repayment
repayment of preference share to profaner share holder.
capital

4.
Rate of The rate of dividend is fixed The rate of dividend may vary
dividend year to year
5.
Convertibility Preference shares can be The equity shares are non
converted into equity shares convertible
6.
Redemption The preference are redeemable The equity shares are not
during the life time of the redeemable during the life time of
company the company
Application and Allotment Of Shares
1. Minimum subscription
2. Application money
3. Opening of subscription list
4. Shares and debentures to be listed in on
stock exchange
5. Return as to allotment
6. Share certificate & Share Warrant
calls on shares
Transfer of shares
Lien on shares
Surrender of shares
Forfeiture of shares
Buy back of shares
Issue of shares
Shares issued at premium
Shares issued at par
Shares issued at discount
Issue of sweat equity shares
Issue of bonus shares
 Debentures
Debenture means a document
acknowledging a loan made to the company
and providing for the payment of interest
on the sum borrowed until the debentures is
redeemed, i.e. the repayment of the
principal sum
Features of Debentures

The rates of interest payable on debentures is

fixed.
The rates of interest payable on the face value
of the debentures.
The debenture holders do not have any voting
right to participate in management.
The holder of debentures are paid interest
before the payment of profit to preference
share holder.
Debentures may be convertible
Types of debentures

Bearer and registered debentures

Redeemable and non-redeemable
debentures
Secured and unsecured debentures
Convertible and non- convertible
debentures
S.No Basis of distinction Shares Debentures

1. Capital Vs Loan A share is a part of owner' fund A Debenture constitutes a loan

2. Status of holder Shareholder are owners Debenture holders are creditors
3. Right to vote Shares carry the right to vote Debentures did not carry the right to vote

4. Charge on Assets Shares are not secured against any Non convertible debenture issued for a period
charge exceeding 18 months are always have a
charge
5. Return No fixed dividend payable despite Fixed rate of interest payable even in the
profits absence of profit
6. Repayment of capital Principal amount is repayable after Principal amount is repayable before
debenture holder Preference share
7. Reward for Reward is the payment of dividend Reward is the payment of interest
Investment
8. Convertibility Equity shares can not be convertible Debentures can be convertible

9. Restriction on issue at Section 79, of the companies Act 1956, The is no restriction imposed on issue of
discount imposes certain restriction on issue of debentures at discount.
shares at discount

10 Trust deed Share Trust Deed is not required to be Debentures Trust Deed is required to be
executed executed.
DIRECTORS
Number of directors
Appointment of directors
Vacation of office and removal of directors
Powers and duties of directors
Legal position of directors
Directors of the persons who direct, conduct, manage or
superintend a company’s affairs
They chalk out the general policy of the company within
the framework of the Memorandum of Association of the
company.
They appoint the company’s officers and recommend the
rate of dividend
The directors of company collectively are referred to in
Companies Act as Board of Directors.
Number of Directors
Every public company must have at least
three directors.
Every private company whether it is
subsidiary of a public company or not must
have at least two directors
Appointment of Director
The appointment of directors rests in the
following hands :-
1. Subscribers to the Memorandum
2. Company in general meeting
3. Board of Directors
Removal of Director
Company by ordinary resolution passes in
general meeting after special notice, remove
a director before the expiry of his term of
office
Power of board of directors
The power to make calls on share holders in
respect of money unpaid on their shares
The power to issue debentures
The power to borrow moneys otherwise
than on debentures
The power to invest funds of company
The power to make loans
Kinds of Company Meetings
General meetings

A company is an artificial person and therefore , cannot

act itself. It must act through human intermediary

The various provision of law empower shareholders to do

certain things

They are specially reserved for them to be done in

company's General Meeting
Statutory meetings
It is required to be held only by a public company
having a share capital
It must be held within a period of not less than one
month and not more than six months from the date
at which the company is entitled to commence
business
At least 21 days before meeting a notice of the
meeting is to be sent to every member stating it to
be statutory meeting.
Annual General Meetings
As the name signifies, this is an annual meeting of the
company
Every company whether public or private, having share
capital or not limited or unlimited must hold this meeting

The meeting must be held in each calender year and not

more than fifteen months shall elapse between two
meetings
However , the first annual general meeting may be held
within eighteen months from date of incorporation
Extra-ordinary General Meetings
All general meeting other than annual
general meeting shall be called the extra
ordinary general meetings
Requisites Of Valid Meetings
Proper authority
Notice of meeting
Quorum of meeting
Chairman of the meeting
Minutes of meeting
proxies
Kinds of resolution passed in the
meeting
Ordinary Resolution
Special resolution
Resolutions requiring special notice
Winding up
Winding up of a company is the process whereby its life is
ended and its property administered for the benefit of its
creditors and members
An administrator, called liquidator is appointed and he
takes control of the company, collects its assets, pays its
debts and finally distributes any surplus among the
members in accordance with their rights.
Modes of Winding Up
Winding up by the court also called compulsory
winding up, may be ordered in cases mentioned below the
court will make an order for winding up on an application
by the company or any of its creditors.
Grounds :-
1. Special Resolution
2. Default in holding statutory meeting
3. Failure to commence business
4. Reduction in membership
5. Inability to pay debts
Voluntary winding up
The winding up by the creditors or members
without any intervention of the court is
called ‘voluntary winding up’
Here company and its creditors are left free
to settle their affairs without going to the
court, although they may apply to the court
to the directions or orders if and when
necessary