chap-2.1 companies act

7/30/2019 Chap-2.1 Companies Act

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COMPANIES ACT,1956


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COMPANY

A Voluntary Association of persons /

individuals formed for some common purpose

Artificial Person with Perpetual Succession &

Common Seal

Sec. 3a company formed & registered

under this Act, or an existing Company.


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Definition

Lindley defines a company as as association

of many persons who contribute money or

moneys worth to a common stock, and

employ it in some common Trade or Business(ie , for a common purpose) and who share the

profit or loss arising there from.


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CHARACTERISTICS

1. SEPARATE LEGAL ENTITY

2. LIMITED LIABILITY

3. PERPETUAL SUCCESSION

4. COMMON SEAL

5. TRANSFERABILITY OF SHARES

6. SEPARATE PROPERTY

7. CAPACITY TO SUE


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1.SEPARATE LEGAL ENTITY

A Company is in law regarded as an entity

separate from its members. In other words,

it has an independent corporate existence.

The companys money and property belongto the company and not to the shareholders.

Ex: Ram & Co. limited is an entirely

different person from Ram, even if he holdspractically all the shares in the company. Its

property is not the property of Ram.


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2. LIMITED LIABILITY

A company may be a company limited by

sharesor a company limited by guarantee.


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3. PERPETUAL SUCCESSION

It means that a companys existence persists

irrespective of the change in the composition

of its membership.


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4. COMMON SEAL

Since a company has no physical existence, it

must act through its agents and all such

contracts entered into by its agents must be

under the seal of the company. The commonseal acts as the official signature of the

company.


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5. TRANSFERABILITY OF

SHARES

The capital of a company is divided into parts,

called shares. These shares are, subject to

certain conditions, freely transferable, so that

no shareholder is permanently or necessarilywedded to a company.


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6. SEPARATE PROPERTY

As a company is a legal person distinct from

its members. The company is the real person

in which all its property is vested and by which

it is controlled, managed and disposed of.


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7. CAPACITY TO SUE

A company can sue and be sued in its

corporate name.


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CLASSIFICATION OF

COMPANIES

Classification on the basis of the followings.

I. INCORPORATION

II. LIABILITY

III. NUMBER OF MEMBERS

IV. CONTROL

V. OWNERSHIP


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INCORPORATION

1. Statutory Companies : These are the companieswhich are created by a special Act of the Legislature.

These are mostly concerned with public utilities e.g.

Railways, Electricity, Reserve Bank of India, LIC, SBIetc

2. Registered Companies : These are thecompanies which are formed and registered under

the Companies Act, 1956. These are by far the mostcommonly found companies.


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LIABILITY

1. Companies with limited liability

A. Companies limited by shares: Where the liability ofthe members of a company is limited to the amount

unpaid on the Shares, such a company is known as acompany limited by shares.

B. Companies limited by guarantee: Where theliability of the members of a company is limited to a

fixed amount which the members undertake tocontribute to the assets of the company in the event of

its being wound up, such a company is known as a

company limited by shares. These companies are not

formed for the purpose of profit but for the promotion of

art, science, culture, charity, sports etc.


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2. Companies with unlimited liability

Sec 12 specifically provides that any 7 or more

persons ( 2 or more for a pvt company) may

form an incorporated company, with or withoutlimited liability. A company without limited

liability is known as unlimited liability.

An unlimited company may or may not have ashare capital. If it has a share capital, it may

be a public company or a private company.


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NUMBER OF MEMBERS

On the basis of the number of members,

companies may be classified into :

1. Public Company

2. Private Company


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Public Co. Vs Private Co.

Public Co. Private Co.

Min. capital Rs. 5 lakhs Rs. 1 lakh

Min. members 7 2

Max. members No restriction 50Directors At least 3 At least 2

SharesSubscription

General Public Prohibited

Share Transfer Freelytransferable

Restricted

ManagerialRemuneration

Less than 11%of Net profit

No limit


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CONTROL

On the basis of the control, companies may

be classified into :

1. Holding Companies : A Company is known

as the holding company of another companyif it has control over that other company.

2. Subsidiary Companies : A Company is

known as a subsidiary of another companywhen control is exercised by the latter (called

holding company) over the former called a

Subsidiary company.


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OWNERSHIP

On the basis of the ownership, companies may

be classified into :

1. Government Company

2. Non Government Company( Foreign

Company)


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OWNERSHIP

1.Government CompanyA Government Company means any company

in which not less than 51 per cent of the paid-up

share capital is held by

a) The Central Government or

b) The State Government or

c) Subsidiary of a Government Company

2. Foreign Company It means any company incorporated outside

India which has an established place of

business in India.


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ONE-MAN COMPANY

This is a company in which one man holds

practically the whole of the share capital of the

company, and in order to meet the statutory

requirement of minimum no. of members,some dummy members who are mostly his

relations or friends hold just 1 or 2 shares

each.

Example: A pvt company is registered with a

share captial of Rs. 5 Lakhs divided into

50,000 shares of Rs. 10 each. Of these sahres

49,999 are held by A & one share is held by


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FORMATION OFCOMPANY


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FORMATION OF COMPANIES

REGISTRATION OF COMPANY UNDER

COMPANIES ACT-1956

PRELIMINARY STEPS PROMOTERS

CERTIFICATE OF INCORPORATION

CERTIFICATE OF COMMENCEMENT OF BUSINESS


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Incorporation of Company

Any 7 or more persons (2 or more persons in

PVT) associated for any lawful purpose may

form an incorporated company, with or without

limited liability. A company so formed may be :a) A company limited by Shares (or)

b) A company limited by Guarantee (or)

c) An unlimited company


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Documents to be Submitted to

Registrar of Companies

1. Memorandum of Association duly signed bythe subscribers.

2. Articles of Association

3. Agreement for Appointment of ManagingDirector

4. List of Directors (Name, address, writtenconsent & qualifying shares)

5. Declaration of Compliance. Such declarationshall be signed by any of the followingpersons:

An Advocate of Supreme Court or High Court,

Secretary or Chartered Accountant, Director, Manager.


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Certificate of Incorporation

If the registrar is satisfied as to the compliance

of statutory requirements, he retains and

registers the Memorandum, the Articles and

others documents filed with him and issues aCertificate of Incorporation.


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Effects of Registration

When a company is registered and a certificate

of incorporation is issued by the Registrar,

three important consequences follow

1.


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CERTIFICATE OF COMMENCEMENT OF

BUSINESS

Floatation (time gap between Incorporation &

Commencement of business)

Only for Public Companies

Prospectus issued

Prospectus not issued


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MEMORANDUM OF ASSOCIATION

Fundamental document of a Company

It is the Charter of a company & lays down the

area of operations of the company.

Deals with & regulates the External Affairs.


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MEMORANDUM OF ASSOCIATION

NAME CLAUSE

DOMICILE CLAUSE

OBJECT CLAUSE

CAPITAL CLAUSE

LIABILITY CLAUSE

ASSOCIATION CLAUSE


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ALTERATION OF MOA

NAME CLAUSE

ORDINARY RESOLUTION

SPECIAL RESOLUTION

DOMICILE CLAUSEWITHIN SAME CITY / TOWN

FROM CITY TO CITY WITHIN SAME STATE

FROM STATE TO STATE


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-contd.

OBJECT CLAUSEWith Special Resolution

To carry on business economically /

efficiently

To attain its main purpose by new /improved means

To enlarge / change area of its operations

To carry on a new business with already

existing one

To restrict or abandon few objects


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CAPITAL CLAUSE

Authorised by Articles of Association

Increase/change structure of capitalOrdinary Resolution

Increase by calling new shares

Consolidate & divide shares into larger value

Sub-divide shares into smaller units

Cancel shares not taken up

Reduce Capital Special Resolution

Apply to Court of Law (file petition)

Get order of Court

Register with Registrar of Companies

-contd.


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-contd.

LIABILITY CLAUSECannot be changed

Act doesnt permit to add members liability

Permissible, if all members agree in writing

ASSOCIATION CLAUSE

Cannot be changed

If changed, changes the constitution of

Company


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ARTICLES OF ASSOCIATION

A document containing the rules, regulations

& bye-laws for the internal management of the

affairs of the company

Public Cos.Format Table-A of Schedule I Other Cos. Own format or Table-A


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CONTENTS OF AOA

Share capital & Rights

Calls on shares

Transfer of shares

Transmission of shares

Forfeiture of shares

Conversion of shares

Share Warrants

Alteration of capital

Meetings & proceedings

Voting rights, polls, proxies

Directors-Appointment,Powers

Managers-Appointment,

Powers Appointment of Company

secretaries, Auditors

Dividends & Reserves

Accounts & Audits Capitalisation of Profits

Winding up


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Alteration of AOA

Special Resolution

Register with Registrar, within 30 days

Restrictions on Alteration

Should not be inconsistent to the Act.Should not conflict MOA

Should be for the benefit of the Co.

Should not increase the Liability

Should not include anything Illegal


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PROSPECTUS

Document described or issued as a Prospectusand includes any notice, circulars,advertisements or other documents inviting

deposits from the public or offers from public forsubscription or purchase of anyshares/debentures Sec.2(34) Invitation to Public

For Deposits / offers for subscription

Issued by Public Cos. only


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Contents of Prospectus

Part I of Schedule II

Part II of Schedule II


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PROSPECTUS

- On / before publication- Issued within 90 days of registration

STATEMENT IN LIEU OF PROSPECTUS

- When a Public Co. makes privatearrangement for raising capital

- Submitted to Registrar of Companies

- As per Schedule - III