COMPANY LAW

The word company is derived from a Latin word `companies` it means a group of persons who
took their need together. In India law relating to companies is contained in the companies Act
1956.
Meaning and definition
A company is a voluntary association of persons formed for some common purpose with capital
divisible into parts known as shares.
Justice Lindlay defines company “as an association of many persons who contribute money or
money’s worth to a common stock and employs it in some trade or business and who share the
profits arising there from”
According to companies act a company means a company formed and registered under
companies act.

Features of a Registered Company

1. Voluntary Association
A company is voluntary association of persons who have come together for a common object
which generally is to earn profit.
The activities of this association are governed by the law and are limited by its memorandum of
association
2. Incorporated association
A company comes into existence on incorporation or registration under the companies act.
Minimum number of persons required for the purpose of incorporation is seven in case of a
public company and two in case of a private company.
3. Separate legal entity
On incorporation company gets personality which is separate and distinct from those of its
members. Company is an artificial person created by law.
4. Separate property
The company can own, enjoy and dispose off its property in its own name.
5. Legal restrictions
The formation, working and winding up of a company are strictly governed by laws, rules and
regulations
6. Perpetual succession
Unlike a person a company never dies. Its existence is not affected in any way by the death or
insolvency of any shareholder. Members may come and members may go , but the company
continues its operations until it is wound up.
7. Common seal
As a company is an artificial person it cannot sign its name on a contract. So it function with the
help of seal. All contract entered into by the members will be under the common seal of the
company.
8. Share capital
A company mobilizes its capital by selling its shares. Those persons who buy these shares
become its share holders and thereby become members in it
9. Limited Liability
In case of limited companies liability of members will be limited to the amount unpaid on the
shares.
10. Transferability of shares.
Members can freely transfer and sell their shares .The right to transfer share is a statutory right of
members.
Ownership and management
The owners of a company are its share holders.
The affairs of the company are managed by their representatives known as Directors

Type of companies

Companies can be classified on the basis of;

A. Incorporation
B. Liability of members
C. Number of members
D. Ownership

A. Incorporation
1. Chartered company
2. Statutory company
3. Registered company

1. Chartered company
The company which have formed and incorporated under a special charter granted by the king
or queen.
Eg East India company.
Bank of England.
2. Statutory company
These are companies which are created by means of a special Act of Parliament or any state
legislature.
Eg RBI, Railway
3. Registered company
Company formed and registered under companies Act 1956 is called Registered companies.

B. Liability of members

1. Limited company
2. Company limited by guarantee
3. Unlimited company
1. Limited company or company limited by share
Majority of registered companies will be company limited by shares. In case of limited
companies liability of members will be limited to the amount unpaid on the shares.
2. Company limited by guarantee
Here liability of each member is limited by the memorandum to such amount as he may
guarantee by the memorandum to contribute to the assets of the company in the event of its
winding up.
Such companies are formed for the promotion of art science, culture, sports etc.
 3. Unlimited company
A company not having any limit on the liability of its members is termed as unlimited company.
The members are liable for the debts of the company at the time of winding up.

C. Number of members
1. Private company
2. Public company
1. Private company
A private company is a company
-which restricts the right to transfer its shares.
-limits the number of its members to 50.
-prohibits any invitation to public to subscribe its shares.
2. Public company
A public company means a company which is not a private company

E. Ownership
1. Government Company
2. Foreign company
3. Holding and subsidiary company
1. Government Company
A company is said to be Government Company when 51% of the paid up capital is held by the
central government or by any state government or partly by central govt or partly by one or more
state govt.
2. Foreign company
A foreign company is a company incorporated outside of India and having a place of business in
India.
3. Holding and subsidiary company
À Company which controls another company is known as the holding company and the so
controlled company is known as subsidiary company.
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 number of members some
dummy members like his wife and son holds one or two shares each.

Difference between public company & private company.

No. Private Co. Public Co.

1. Minimum no of members is 2 Minimum no of members is 7

2. Maximum no members is 50 No maximum limit

3. Minimum paid up capital is Rs 1 lakh Minimum paid up capital is 5 lakh

 4. Name must end with the word ‘Pvt Ltd’ Name must end with the word ‘Ltd’

5. Can commence business immediately after It shall have to wait until it receive the
incorporation certificate for commencement of
business.

6. It cannot invite public to subscribe its shares It can invite public to subscribe its
and debentures shares and debentures

7. Minimum subscription is not required for Minimum subscription is required for

allotment of shares. allotment of shares.
9
8. Need not hold statutory meeting of the It has to hold a statutory meeting and
members. file a stat: report.

9. Quorum required for a meeting is 2. Quorum required for a meeting is 5

10. There is restriction of transfer of shares Shares can be freely transferred.

11. Not required to issue prospectus. Must issue prospectus.

13. Two directors Three directors

Formation of a company
The procedure or formation of a company may be divided into four stages;
1. Promotion
2. Incorporation
3. Raising of capital
4. Commencement of business

I. Promotion
It is the first stage in the formation of a company.
In this stage the idea of carrying on a business is conceived by a person or a group of persons
called promoters. They make detailed investigation about the workability of the idea, amount of
capital required, operating expense etc.
Before a company can be formed, there must be some persons who have an intention to form a
company and who take the necessary steps to carry that intention into operation. Such persons
are called promoters. The promoter is the person who brings a company into existence.
 II. Incorporation
A company is said to be incorporated when it is registered with the registrar under the
companies act. The certificate of incorporation is the birth certificate of the company. A
company comes into existence from the date mentioned in the certificate.
Procedure for registration
The promoter has to first decide the proposed form of company as whether it is to be a public
company or a private company.
They may form the company with limited liability, unlimited liability or limited by guarantee.
They have to decide the name of the company agreeable and desirable to all. For example if the
name proposed is identical with or closely resembles the name of an existing company, it is
undesirable.
For getting registration an application has to be made to the registrar. The application shall be
accompanied by the following documents:
1. Memorandum of association
2. Articles of association
3. A statement of nominal capital
4. A notice of address of the registered office of the company.
5. A list of directors and their consent with their signatures.
6. A declaration that all the requirements of the act have been complied with. Such declaration
shall be signed by an advocate of high court or Supreme Court or a chartered accountant who is
engaged in the formation of company
Certificate of incorporation
If the registrar is satisfied that all the requirements of the act have been complied with he shall
register the company and issue a certificate of incorporation.
Conclusive proof
Once a company is registered incorporation cannot be challenged subsequently. The certificate
of incorporation is a conclusive evidence of the fact that-
1. All the requirements of the act have been complied with.
2. Company is duly registered.
3. Company came into existence on the date of certificate.
Advantages of incorporation
1. Transferability of shares
2. Separate legal entity
3. Perpetual succession
4. Common seal
5. Separate property
6. Capacity to sue

III. Raising of capital

After incorporation a company can raise capital by issuing shares. A private company cannot
issue shares to public.
In case of public company a copy of prospectus is filed with the registrar and it will be issued to
the public. Those who are intended in purchasing share are required to send their application
money to company's banker.
 On the last date fixed for the receipt of application if the company has received application
equal to minimum subscription the directors will start with allotment of shares.

IV. Commencement of business

A private company may commence its business immediately after incorporation.
But a public company cannot commence business immediately after incorporation but it has to
obtain a certificate of commencement from the registrar.