INTRODUCTION TO COMPANIES ACT 1956

What is a company
A company is an artificial person created by law. A company means a group of persons associated together for the attainment of a common end, social or economic.

Definition of a company
According to Sec (1), A company formed and registered under the act. According to Sec (3) of the act, on incorporation a company becomes a body corporate or a corporation with a perpetual succession and a common seal. According to Lord justice Lindley , IT is an association of many persons who contribute money or moneys worth to a common stock and employ it in some trade or business, and who share the profit and loss arising there from.

 A company is an incorporated assosiation which is an artificial person having seperate legal entity and perpetual sucession, a common seal and capital Comprise of transferable shares and carrying limited libility

CHARACTERSTICS OF A COMPNAY
Incorporated Assosiation Artificial legal person Separate legal entity Limited liability Perpetual succession Common seal Transferability of shares Separate property Capacity to sue

Incorporated Association: a company must register under prevalent companies act Artificial Legal Person Created by process other than natural birth Does not have physical attributes Invisible and exist only in the eyes of law No body, no soul, no conscience Though it can enter in contract, has rights and duties like natural person, it can be fined. But cannot sent to jail or cant take oath

 Seperate legal entity; A company is a legal person having juristic personality entirely distinct from and independent of the individual persons who are for the time being its members. It has right to own and transfer the title to property in any way it like It can sue and be sued in its own name In mathematical language it is defined as n+1th person. N stands for total members, 1th person for company itself

 Perpetual existence (cnt for long time)

Company is a stable form of business organisation Ita life does not depend up on death , insolvency or retirement of any or all share holders Law created it law alone can dissolve Members can come and go but company go on for ever

 Common Seal Being a legal entity , it can be bound by only those documents which bear its signature. Law has provided for the use of common seal with the name of the company engraved on it as substitute for its signature.
Any document bearing the common seal of the company will be legally binding on the company

 Limited libility The libility of the members for the debt of the company is limited to the amount paid on their shares
No share holder can called upon to pay more than the nominal or face value of shares held by him in case of company with limited libility

 Transferability of shares
Shares of public company are freely transferable and members can dispose of their shares when ever they like without the permission from company or members In private company some restiction on the right to transfer is essential in its article as per section 3(1)(iii)

Incorporation of company
Company is brought into existance by legal process called incorporation This is effect by registration with the registrar of companies After the promotional work before getting registed following steps has to be taken To ascertain from registrar of companies the availability of name

 get a letter of intent from industries developement and regulation act if the company comes with the purivew of the act
To fix up brokers, bankers, solicitors,auditors and signatories to the memorandum To get Memorandum and Articles of Association prepared and printed

 After taking the above preliminery steps promoters make an application to registrar of companies of the state Application must accompanied with Memorandum of association duly stamped signed and witnessed Article of Association properly stamed and duly signed Agreement if any with the manager or directorsappointed Written consent of directors to act for the company

 The notice of address of the registerd office of the company A satuatory declaration stating that legal requirements are complied with , it must be signed by Advocate of Supreme court or High court
Along with documents necessary filing fees and registration fees at prescribed rates are also paid

 Registrar of companies will scrutinize these documents and if they are in order he will register the company and will issue a certificate of incorporation
Registrar will allocate a Corporate Identity Number

Classification of Companies
Companies

On the basis of incorporation

On the basis of liability

On the basis Of no. of members

On the Basis Of control

On the Basis Of ownershi

Cos. With limited liability Ltd. Ltd. Registered companies By By shares guarantee Statutory companies Unlimited liability

Private company

Holding company government

Public company

Subsidiary company

Nongovernment

Classification on the basis of incorporation

Statutory companies: These are created by special act of the legislature Special act either pass by central or state legislature Companies intending to carry on business of national importance are formed in this way Powers will be defined in act no memorandum of association
E.g.: The Reserve bank of India The Life Insurance corporation The Unit Trust Of India

 Registered Companies: These are the companies which are formed and registered under the companies Act, 1956 or were registered under any of the earlier companies act.
Insurance, banking, electric supply company though registerd but govern by insurance act, banking regulation act and electric supply act

Classification on the basis of liability

1. Companies with limited liability:
Company having its liability of its members limited by memorandum to the amount Extend of liability is determined by face value of shares

2. Companies limited by guarantee A company having liability of its members limited by its memorandum to such amount as members may respectively there by undertake to the assets of the company in the event of being wound up

Unlimited Company
There is no limit on the liability of the members. The liability in such cases would extend to the whole amount of the companys debts and liabilities. Here the members cannot be directly sued by the creditors. When the company is wound up, the official liquidator will call upon the members to discharge the liability. The details of the number of members with which the company is registered and the amount of share capital has to be stated in the Articles of Association (AOA).

Classification on the basis of number of members Private company

A private company means a company which has a minimum paid up capital of Rs.1,00,000 or such higher paid up capital as may be prescribed , and by articles (a) restricts the right to transfer its shares, if any. This restriction Is meant to preserve the private character of the company (b) limits the number of its members to 50 not including its employee-members ( C) prohibits any invitation to the public to subscribe for any shares in or debentures of the company (d) prohibits any invitation or acceptance of deposits from persons other than its members, directors and their relatives

Public company
A public company means a company which
Has a minimum paid up capital of Rs.5 lakh or such high paidup capital, as may be prescribed

Classification on the basis of control

Holding company
A company is known as the holding company of another company if it has control over that other company.

Subsidiary company
A company is known as a subsidiary of another company when control is exercised by the latter over the former called a subsidiary company.
Company controlling composition of Board of Directors Holding of majority of shares Subsidiary of another subsidiary

Other types of companies

Government company
A Government Company means any company in which not less than 51% of the paid-up share capital is held by
The central government or Any state government or governments or

Partly by the central government and partly by one or more state governments.
E.g.: State Trading Corporation of India Limited Minerals and Metals Trading Corporation of India limited

Non-government company
Foreign companies

Foreign Company
A company incorporated outside India, but having a place of business in India. If it does not have a place of business in India but only has agents in India it cannot be considered to be foreign company.

Memorandum of Association
It is the charter of the company It contains the fundamental conditions upon which the company can be incorporated It contains the objects of the companys formation The company has to act within objects specified in the MOA It defines as well as confines the powers of the company Any thing done beyond the objects specified in the MOA will be ultra vires. Their transactions will be null and void

Conditions of the MOA

it should be printed Divided into paragraph and numbers consecutively Signed by at least seven persons or two in case of public and private company respectively. The signature should be in the presence of a witness, who will have to attest the signature Members have to take shares and write the number of shares taken with full address

MOA of limited company

The name of the company with limited as the last word The name of the state where the registered office of the company is to be situated The objects of the company stating the Main objects and the other objects The declaration about the liability of the members is limited ( limited by shares or guarantee) The amount of the authorized share capital, divided into shares of fixed

Compulsory clauses in Moa

The Name Clause it decides on the name of the company based on the capital involved Private or public, not undesirable in the opinion of central govt, identical or existing names not allowed, misleading names ie of govt dept not allowed The Registered Office Clause- where it has registered its head office and other branch office ( The registered office can be changed with the permission of the ROC). Name of the state must be mentioned The Object Clause- Main object, ancillary object and the other objects of the company are clearly specified . The applicable doctrine here is the Doctrine of Ultra Vires beyond the powers of the company (opposed to Intra Vires)

 The Liability Clause- What is the liability of its members.. limited by shares or guarantee or unlimited, there can be alteration in the liability clause The Capital Clause - The amount of the nominal capital of the company, number of shares in which it is to be divided alteration of the capital clause etc
The Association or Subscription clause- Where the subscribers to the MOA declare that they respectively agree to take the number of the shares in the capital. It has to have the following: a) They have to sign in the presence of two witnesses, who attest the signatures, b) The subscriber to take at least one share.

Articles of Association
It is the companies bye- laws or rules to govern the management of the company for its internal affairs and the conduct of its business. AOA defines the powers of its officers and also establishes a contract between the company and the members and between the members inter se It can be originally framed and altered by the company under previous or existing provisions of law.

 AOA plays a subsidiary part to the MOA Any thing done beyond the AOA will be considered to be irregular and may be ratified by the shareholders. The content of the AOA may differ from company to company as the Act has not specified any specific provisions Flexibility is allowed to the persons who form the company to adopt the AOA within the requirements of the company law The AOA will have to be conversant with the MOA, as they are contemporaneous documents to be read together. Any ambiguity and uncertainty in one of them may be removed by reference to the other.

Content of Articles
Share capital Lien on shares Calls on shares Transfer and transmission of shares Forfeiture of the shares Surrender of the shares General meetings Alteration of the capital Directors etc.. Dividends and reserves

Account and audit Borrowing powers Winding up Adoption of the preliminary contracts etc.