Originally Posted by gsalvadi Every company has a clause "Registered Office", where the companies registered office is located.

This is identified as primary address for the company. For every company, it is a must to print the address of registered office in every communication, say letter heads, quotes for business etc., irrespective of the branches it has. If the company wants to open a new branch, the board must pass a resolution saying so, and must be filed with Govt. (ROC). At any point of time, if the company wishes to change the address of registered office, it can not just shift the office like a other forms of business. It must give a a notification in newspaper, the ROC would wait for a period, say 2 months, to see if there would be any objection, complaint arises. Just imagine how could the law keep hold when it comes for closing a company. Such a thing would go under standard procedures. Say the company could have liabilities, could have received advance payments in business etc., The object of Companies Act is to make it transparent to the eye of a share holder or a customer, that how the company operates. Now, our friends, A, B and C have been doing the business successfully for some years. Now the the business has grown. There are other directors have been appointed as the company has expanded its operation and so needs specialized skills for management. On its success path our company has now got say some 10 directors for 10 distinct departments. Remember the point that the directors could be mere employees. When our imaginary company wants to motivate the employees it allots shares to them under "Employees Stock Option", the section of law that allows allotment of shares among employees. Again I suggest let us not digg into the details as this series could turn more like a course on companies law What if our company wants to expand its business activity? Let us not name A, B and C as we earlier did. Because, now there are many directors. We know whether they hold shares or not, collection of such directors which called Board of Directors is suppose to take any decision by majority opinion. So from this point we call them as "Board" (Board of Directors). And again, we don't know whether A is the managing director yet and, we may not surprise at this point if A, B or C is not even at the Board. And now, we can understand the fact that the Board of Directors has the supreme power in the organization. If there are many directors who are also share holders of the company (in public limited companies it is expected), there is always a chance for politics of power. Ok. Let us come to the point. If our company wants to expand its business activity, the Board must come out with a

resolution for such an expansion. Now let us consider two aspects of a business expansion. 1. Diversified business activity (entering into new fields of commerce) 2. Need of Huge CapitalWhat you have asked is not at all a simple question at least, for a beginner. I love it. Many people consistently do a mistake by not rising layman's questions when they enter into any new field. That itself kills the roots of the learning curve. I mean this in very general sense and I don't mean that to enter in stock trading one must know each and everything about stocks which may be inappropriate. Let me write this post in small segments, if you let me know whether you this post exactly mean what you needed to know. In India, there are thress type of Business bodies exist. 1. Proprietorship 2. Partnership 3. Company Each form of business has different legal arrangements. Proprietorship is a person who invests for a business and runs it. In the eyes of law, a proprietor himself or herself is considered as the organization. Assets, Loans, Profits of the business = Assets, Loans, Profits of the Proprietor To put it in simple words, the business is simply represented by the person who holds the "ownership" of the business Partnership firm is a business run by more than one person. Group of people enter into a legal contract. By executing a legal deed, they enter into the business. The deed describes each partner's investment and return in legal terms. Company is also run by group of people, but they entirely different from a partnership firm. Management and ownership of a company is clearly distinguished by law. There can not be a "owner" for a company. Here comes the concept of "Share". Again there are two kind of companies under Companies Act. They are Private Limited companies and Public Limited companies. If and only if you find this post correctly points at where you need to start to know things, I would be interested to post about how and why a company distributes shares to public? and how and why people exchange the shares among them by trading through exchanges.

In the eyes of law, a company itself is an "entity" on its own. It does not have a owner. There is no single owner for a company. If there is no owner of a company, we have some questions. 1. Who are they started the company and put money and their efforts? They are Promoter of the company. To have a clear understanding, let us consider a case. There are three persons A, B and C. A has Rs10 lack B has a profitable business idea or a technology C has nothing but he is a well-wisher both A and C Now C approached B and suggested him to start a company. B hesitates as he lacks funds to start a business. C asks him to write a business proposal that explains the business concept, profitability etc., C takes the proposal to B, who owns fund but does not know how to start a business C explains and convince B to start a company with A as A has business skill and B has capital. B is happy now and thanked C for his effort. C introduces A to B. When A and B decides to start a company, they both ask C to stay with them and to guide them in business considering him as well-wisher of the business.C accepts that. Now, they meet a auditor, a certified charted account and asked him to write deeds to register a company with registrar of companies. Now the question is, who is the owner? A can not be a owner as he has not business skills. B can not be a owner as he does not have funds to actualize his dreams. C can not be a owner obviously. Now the auditor ask them to choose two or more people to appoint as directors of the company. If A and B wants to have C as a director of the company, they would consider him. Otherwise not. Why? The group of directors (more than one person) is called Board of Directors and the board of directors is responsible for the administration of the company. In every matter the board of directors take decisions, they are technically called resolutions. The board must have a meeting and discuss things at the end of the meeting, the board come out with a resolution to do something. That is the official decision of the company. In our case, if C is appointed as director, then he has every right in decision making as A and B. Ok, we have there people. If there is contradicting opinions arises, what to do? Voting. Majority of directors win. So in our case every decision of C is important to pass a resolution as he may support decision of A or B. Keep the point in mind there is no special privilege to A or B as for that they invest capital or for the reason they run the

business. A director is always a director. So C has every power as A and B. This is fine with administration part. What about money? People run business to make money. A has done entire investment. B has business skills. Now we do not call B as a "working partner" like one called in partnership-firm. He is giving a concrete position in the company by law. How? The entire capital pumped by members (in our case it is from A it need not be always the case. more than one people could bring money in different size) So, the entire capital is divided by a value say, Rs 10. if we divide Rs. 1000000 by 10. We get 100000. Now this one lac is number of shares that lies with the company and Rs.10, by with we divide is the "face value" of the share. So the company (Sorry we did not name it ) let us use the word company. The company has one lack shares who's face value is Rs 10. B must get some profit as he has the business skills. A must get some profit as he finance the business. C must (may) get some profit as he administer the company. Now we divide the roles of directors : A becomes Director-Finance (for an example) B becomes Director-Production and C becomes Director-Administration. So all the three decides to allot shares to each person. Say A get 1000 shares B get 1000 shares (if they go for 50% -50%) C gets 500 shares. All this allocations is decided by board of directors. If A and B does not want to allot shares to C, company (board of directors) can fix a salary for C. So a director himself or herself could be a person who does not own any share and could be a salaried employee. Ok. let us assume C too gets 500 shares.(not an employee) To lead the directors there is a person elected by other members who is called Managing Director. People use to call themselves CEOs. A big-brother syndrome. Our law does not have word CEO. Companies act speaks about Managing Director Director could be a salaried employee. . Even a Managing

If a company goes to open a bank account, the bank manager would ask as his first questions "Get me your MOA". What is MOA? MOA is memorandum of association, a legal document (mostly a book) which describes everything about a company. MOA includes the exact address where the company is located, who are all the share holder, who are directors and importantly, objective of the company. Primary objective of the company is the section which describes the business activity of the company. A company CAN NOT do any business unless it is included in MAO. Say a banking company can not become a software development company overnight. It is a crime.

Ok. Now what happened to remaining shares that left after allocating shares to A B and C? What is the difference between Pvt. Ltd. and Public Ltd. companies? How the share holders get profit of the company appropriate to the number of share they hold? How and why a company comes out with an IPO?

Diversification of Business is the activity where the company enters a business field that it has not been earlier. A company can always register amendments regarding its objective. Just understand a company can alter it's secondary objective, not the primary objective. Say if a company has been started to carry on IT related business, then it can not enter into finance business. It can do some alterations that is needed to carry on IT business. Say Infosys Technologies Ltd. can not do finance or banking business. In these cases, the company promotes another company. So, what is the relation that exists between the company and newly promoted company (usually called "sister concern")? Company is the promoter and could be the major share holder in newly promoted company. Here it is worth to note that a partnership firm can not become a "partner" in other firms. Wheres the a company can hold shares of other company. If our company needs to launch so many business in this way, we call it a "group of companies". The managing Director of the company, say A in our case may need to have the control over all the companies that lies in the group. In this case, he becomes Chairman (Chairperson) of every company in the group. Need for huge capital The essence of capital : Capital, is what a company is capable of. Though it is important to have a good product, or business idea, capital comes important to meet the objectives of the company in real world. A person can innovate a new product by research. The product could the a greatest innovation that could change lives of people. It is not only enough to have such an innovation. A business is an entity (assume that a company ) where actualization of serving customers for profits really happens Authorized Capital is the maximum amount of capital the company is allowed to hold. Authorized capital is the maximum number of shares that company can issue to pump

funds. There is a close relation between the face value of the share (when first issued) to the authorized capital of the company. Authorized capital is defined in a class of MOA. Authorized capital need be the capital the company may need in future for business operations. It is just the capital the company can have at any point of time. Likewise at any point of time, a company may give amendments to authorized capital class of MOA by registering same with ROC. (I hope I can use "MOA" and "ROC". Kindly check previous posts to know what they mean) If a company has 100 lakhs as authorized capital, till it could issue shares only for 50 lakhs. Remaining shares could be issued by the company at any point of time later. At no point the capital could not exceed 100 lakhs unless there is an amenIn dment registered. In this case 100 lakhs is authorized capital and 50 lakhs is issued captial Dividend Dividend is the portion of profit every share deserves. If a company makes a profit, then the profit would be distributed among shares issued. Each share get its portion of profit, "dividend" Types of shares Ordinary Shares : These is most risky shares as they do not have any special privileges or restrictions. If a company is winding up, these are the shares which are suppose to be settled at last. Preference Shares These shares have special privileges like getting dividends well before ordinary shares and restrictions like there will be restrictions on dividend if the company makes great profits. Redeemable Shares These shares are of the type the company could buy back from share holder at any time fixed by the company. These basic types are enough. So, the company generate funds for its business by means of shares, the shares are issued to people. Public Limited Companies Public Limited companies could be easily understood by comparing it to private limited companies. Public Limited companies need minimum of 7 members against 2 is enough for Pvt. Ltd. Public Ltd (generally "Ltd." implicitly mean "Public Limited") must be registered with a minimum amount of authorized capital that is greater than a Pvt. Ltd. company. (Say

Rs5 Lakh) Members of Pvt. Ltd. companies can not exchange their shares among them. In Public Limited companies members / share holders could exchange the ownership of shares. A Public Limited company must have a "Company Secretory" who is qualified, registered, to deal with the issues that arises on business, by the guide lines provided by law. Public Limited companies can invite public (people) to invest in their companies. By this means Public Ltd. companies could generate funds for their business operations. This process is know as IPO in general. Authorized Capital is the maximum amount of capital the company is allowed to hold. Authorized capital is the maximum number of shares that company can issue to pump funds. There is a close relation between the face value of the share (when first issued) to the authorized capital of the company. Authorized capital is defined in a class of MOA. Authorized capital need be the capital the company may need in future for business operations. It is just the capital the company can have at any point of time. Likewise at any point of time, a company may give amendments to authorized capital class of MOA by registering same with ROC. (I hope I can use "MOA" and "ROC". Kindly check previous posts to know what they mean) If a company has 100 lakhs as authorized capital, till it could issue shares only for 50 lakhs. Remaining shares could be issued by the company at any point of time later. At no point the capital could not exceed 100 lakhs unless there is an amenIn dment registered. In this case 100 lakhs is authorized capital and 50 lakhs is issued captial Dividend Dividend is the portion of profit every share deserves. If a company makes a profit, then the profit would be distributed among shares issued. Each share get its portion of profit, "dividend" Types of shares Ordinary Shares : These is most risky shares as they do not have any special privileges or restrictions. If a company is winding up, these are the shares which are suppose to be settled at last. Preference Shares These shares have special privileges like getting dividends well before ordinary shares and restrictions like there will be restrictions on dividend if the company makes great profits. Redeemable Shares These shares are of the type the company could buy back from share holder at any time fixed by the company.

These basic types are enough. So, the company generate funds for its business by means of shares, the shares are issued to people.