COMPANIES ACT, 1956

COMPANY

A Voluntary Association of persons / individuals formed for some common purpose Artificial Person with Perpetual Succession & Common Seal Sec. 3 a company formed & registered under this Act, or an existing Company.

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.

CHARACTERISTICS
1.

2.
3. 4. 5. 6. 7.

SEPARATE LEGAL ENTITY LIMITED LIABILITY PERPETUAL SUCCESSION COMMON SEAL TRANSFERABILITY OF SHARES SEPARATE PROPERTY CAPACITY TO SUE

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 belong to the company and not to the shareholders. Ex: Ram & Co. limited is an entirely different person from Ram, even if he holds practically all the shares in the company. Its property is not the property of Ram.

2. LIMITED LIABILITY

A company may be a company limited by shares or a company limited by guarantee.

3. PERPETUAL SUCCESSION

It means that a companys existence persists irrespective of the change in the composition of its membership.

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 common seal acts as the official signature of the company.

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 necessarily wedded to a company.

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.

7. CAPACITY TO SUE

A company can sue and be sued in its corporate name.

CLASSIFICATION OF COMPANIES
Classification on the basis of the followings.
I. II. III. IV. V.

INCORPORATION LIABILITY NUMBER OF MEMBERS CONTROL OWNERSHIP

INCORPORATION
1.

Statutory Companies : These are the companies

which 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, SBI etc

2.

Registered Companies : These are the

companies which are formed and registered under the Companies Act, 1956. These are by far the most commonly found companies.

LIABILITY
1.

Companies with limited liability

A. Companies limited by shares: Where the liability of the members of a company is limited to the amount unpaid on the Shares, such a company is known as a company limited by shares. B. Companies limited by guarantee: Where the liability of the members of a company is limited to a fixed amount which the members undertake to contribute 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.

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 without limited liability. A company without limited liability is known as unlimited liability. An unlimited company may or may not have a share capital. If it has a share capital, it may be a public company or a private company.

NUMBER OF MEMBERS
On the basis of the number of members, companies may be classified into :
1. 2.

Public Company Private Company

Public Co. Vs Private Co.

Public Co. Min. capital Min. members Max. members Directors Rs. 5 lakhs 7 No restriction At least 3 Private Co. Rs. 1 lakh 2 50 At least 2

Shares Subscription Share Transfer

Managerial Remuneration

General Public
Freely transferable Less than 11% of Net profit

Prohibited
Restricted No limit

CONTROL
On the basis of the control, companies may be classified into : Holding Companies : A Company is known as the holding company of another company if it has control over that other company. Subsidiary Companies : A Company is known as a subsidiary of another company when control is exercised by the latter (called holding company) over the former called a Subsidiary company.

1.

2.

OWNERSHIP
On the basis of the ownership, companies may be classified into : Government Company Non Government Company( Foreign Company)

1. 2.

OWNERSHIP
1.Government Company A Government Company means any company in which not less than 51 per cent of the paid-up share capital is held by
a) b) c)

The Central Government or The State Government or Subsidiary of a Government Company

2. Foreign Company It means any company incorporated outside India which has an established place of business in India.

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

FORMATION OF COMPANY

FORMATION OF COMPANIES

REGISTRATION OF COMPANY UNDER COMPANIES ACT-1956

STEPS PROMOTERS CERTIFICATE OF INCORPORATION CERTIFICATE OF COMMENCEMENT OF BUSINESS
PRELIMINARY

Incorporation of Company

a)
b) c)

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 company limited by Shares (or) A company limited by Guarantee (or) An unlimited company

Documents to be Submitted to Registrar of Companies

1.

2. 3.

4.

5.

Memorandum of Association duly signed by the subscribers. Articles of Association Agreement for Appointment of Managing Director List of Directors (Name, address, written consent & qualifying shares) Declaration of Compliance. Such declaration shall be signed by any of the following persons:
An Advocate of Supreme Court or High Court, Secretary or Chartered Accountant, Director, Manager.

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 a Certificate of Incorporation.

Effects of Registration
When a company is registered and a certificate of incorporation is issued by the Registrar, three important consequences follow 1.

CERTIFICATE OF COMMENCEMENT OF BUSINESS

Floatation (time gap between Incorporation & Commencement of business) Only for Public Companies
Prospectus

issued Prospectus not issued

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.

MEMORANDUM OF ASSOCIATION

NAME CLAUSE DOMICILE CLAUSE OBJECT CLAUSE CAPITAL CLAUSE LIABILITY CLAUSE ASSOCIATION CLAUSE

ALTERATION OF MOA

NAME CLAUSE
ORDINARY

RESOLUTION SPECIAL RESOLUTION

DOMICILE CLAUSE
WITHIN

SAME CITY / TOWN FROM CITY TO CITY WITHIN SAME STATE FROM STATE TO STATE

-contd.

OBJECT CLAUSE
With

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

-contd. CAPITAL CLAUSE

Authorised
Ordinary

by Articles of Association Increase/change structure of capital

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.

LIABILITY CLAUSE
Cannot

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

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

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

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

PROSPECTUS

Document described or issued as a Prospectus and includes any notice, circulars, advertisements or other documents inviting deposits from the public or offers from public for subscription or purchase of any shares/debentures Sec.2(34)
Invitation to Public For Deposits / offers for subscription

Issued by Public Cos. only

Contents of Prospectus

Part I of Schedule II Part II of Schedule II

REGISTRATION OF PROSPECTUS
On / before publication - Issued within 90 days of registration
-

STATEMENT IN LIEU OF PROSPECTUS When a Public Co. makes private arrangement for raising capital - Submitted to Registrar of Companies - As per Schedule - III
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