THE COMPANIES ACT,1956

An association of individuals formed for some common purpose may be termed as company

Characteristics of a company
1. 2. 3. 4. 5. 6. 7. Separate legal entity Limited liability Perpetual succession Common seal Transferability of shares Separate property Capacity to sue

LIFTING OR PIERCING THE CORPORATE VEIL

A Company is a legal person distinct from its members

Exceptions to Corporate Veil

Protection of Revenue Prevention of fraud or improper conduct Determination of character of a company whether it is enemy Where Company is a sham Company avoiding legal obligations Company acting as agent or trustee of the shareholders Avoidance of Welfare legislation Protecting Public Policy

KINDS OF COMPANIES

Classification on the basis of Incorporation

Statutory Companies Companies which are created by special Act of the Legislature. E.G RBI,SBI,LIC. Registered Companies Companies formed and registered under the Companies Act,1956.

Classification on the basis of Liability

Companies With Limited Liabilitya. Companies limited by shares liability of the members is limited to the amount unpaid on the shares b. Companies limited by guarantee liability of members of a company is limited to a fixed amount which the members undertake to contribute to the assets of the company in terms of its being wound up Companies with Unlimited Liability Every member is liable for the debts of the company.

Classification on the basis of number of members

Private Company Minimum Paid up capital of Rs. 100000 or more. Minimum number of members to form is two. Maximum number should not exceed 50. Must have at least 2 directors No invitation to public Transfer of shares and debentures are restricted by Articles. No such restriction. Public Company Minimum paid up capital of Rs. 500000 or more. Minimum number of members to form is seven. No restriction. At least 3 directors Invitation is given to general public. Free transfer. Total managerial remuneration cannot exceed 11% of the net profits.

Classification on the basis of control

Holding Company - When a company has control over the other company.

Subsidiary Company On which the control is exercised by the Holding Company.

Classification on the basis of Ownership

Government Company Any Company in which not less than 51% of the paid up share capital is held either by Central Govt. or State Govt. or partly by Central Govt. and partly by one or more State Governments. Foreign Company Where a minimum of 50% of the paid-up share capital of a foreign company is held by one or more citizens of India or/by one or more bodies corporate incorporated in India. One Man Company One man holds practically the whole of the share capital and in order to meet the statutory requirement of minimum number, some dummy members hold 1 or 2 shares each.

Statutory exceptions
Number of members below statutory minimum. Failure to refund application money. Misdescription of companys name Fraudulent trading Holding and subsidiary companies.

SHARES
An expression of proprietary relationship between a shareholder and the company. An interest having a money value and made up of diverse rights specified in AOA

Types of shares

Equity shares
A part of the capital of the company. Purchased and sold in stock exchange No cumulative rights to dividends Vote in directors election Take part in making crucial decisions Participate in the profits of the company. Purchase a proportionate part of future share issues Has the right to share in assets upon liquidation.

Preference Shares
Has the preferential right to dividends at fixed rate. Cumulative rights to dividends. Preferential rights to assets of the company in case of liquidation Redeemable after the expiry of ten years from the date of its issue. No voting power May or may not be converted into equity shares.

 The money received on applications, not allotted should be refunded without interest on expiry of 120 days after the first issue of prospectus. If any such is not paid within 130 days from the date of issue of prospectus, the company shall repay the money with 6 % interest from the expiry of 130th day.

SEBI Guidelines
The appointment of Merchant banker is compulsory to manage an issue. No company shall make an issue of security through public or right issue unless a MOU has been entered into between a lead merchant banker and issuer company. The issuers have the option to have a public issue underwritten by the underwriter.

Selection of a merchant banker Issue of Prospectus Cash received from applicants

Minimum subscription is achieved

Under subscription Underwriter takes up the shortfall

Minimum subscription is not achieved

Money refunded to applicants Allotment money received Directors make call

Oversubscription Proportionate allotment

Directors make allotment Issue of share Call money

Resolution
Ordinary resolution resolution passed at a general meeting of a company by majority of votes. Special resolution duly specified in the notice of general meeting where votes are to be required to protect the minority interests in important matters relating to companys affairs.

Application of shares
An Application for shares is an offer by a prospective shareholder of a company to take shares. The amount payable on application on each share shall not be less than 50 % of the nominal amount of share. The capital issued should be fully paid up within 12 months from the date of allotment of securities. All the money received shall be deposited in a scheduled bank until certificate to commence business is obtained or minimum subscription has been received.

Allotment of shares
Allotment is the appropriation by a resolution of directors of a company of certain number of shares in the company in response to an application. For allotting shares the minimum amount should be subscribed as stated in the prospectus and the sum payable on applications received must be 90% against the entire issue. If 90% is not received, the entire amount collected on applications shall be refunded at the end of 90 days from the closure of issue. In delay by more than 10 days, an interest of 15 % p.a will be paid for delayed period.

 Call on Shares A call is a demand by a company on its shareholders to pay the whole or part of the balance remaining unpaid on each share. Share Certificate Every name whose name is entered as a member in the register of members of a company has a right to receive a certificate of his shares, specifying the number and nature of shares, the amount paid and the name of the holder of shares. Share Warrant A document issued by a public company stating thats its bearer is entitled to the shares specified there in. It is a transferable by a mere delivery and is a substitute for share certificate.

 Transfer of Shares - Shares are transferrable property but on producing a transfer deed in the prescribed form carrying the signature of transferor and transferee ant latter name, address and occupation. Forfeiture of Shares Depriving a person of his property as a penalty for some act or omission. When a shareholders fail to pay any call on his shares, the company either sue him for the amount or forfeit his shares. Surrender of Shares When a shareholder voluntarily gives up his shares in favor of the company in case where forfeiture called for partly paid shares or in exchange for new shares in fully paid up shares.

 Bonus Shares An addition to the shareholders apart from dividend. Given in case of surplus cash, converting partly paid shares as fully paid.

Issue of Shares at a premium Price received over the face value of shares used in issuing fully paid bonus shares, writing off expenses, commission paid or discount allowed on any shares or debentures and providing premium on redemption.
Issue of Shares at a Discount It can be issued only by class already issued, passed by a resolution specifying the rate of discount.

 Lien on Shares A company retains the right to possess on all shares not fully paid. Dividend Dividend is the share of the Company profits distributed among the members.

Rules regarding Dividend

1. Resolution at the annual general meeting 2. Payment of dividend in proportion to paid-up capital. 3. Dividend to be paid only out of profits 4. Unpaid dividend to be transferred to Unpaid Dividend Account. 5. Establishment of Investor Education and Protection Fund. 6. Dividend to be paid to registered shareholder.

7. Right to dividend, right shares and bonus shares to be held in abeyance pending registration of transfer of shares. 8. Penalty for defaulting Directors.

MEMORANDUM OF ASSOCIATION
The purpose of Memorandum is two-fold: Prospective shareholders shall know the purpose for which their money is going to be used by the company and what risk they are undertaking in making investment. The outsiders dealing with the company shall know with certainty as to what the objects of the company are and as to whether the contractual relation into which they contemplate to enter with the company is within the objects of the company.

Contents of MOA:
Name of the Company with Ltd or Pvt. Ltd. The state in which the registered office of the company is situated. The objects of the company should be classified under main and sub objects. The states to whose territories may extend. Limited Liability Share Capital - registration and the division.

Alteration of Memorandum
Change of name By special or ordinary resolution Change of registered office Alteration of objects Substantive limit and procedural limit. Change in liability clause Change in capital clause.

Doctrine of Ultra Vires

A company has powers to do: All things authorized by the Companies Act,1956. Essential to the attainment of its objects specified in the Memorandum. Reasonably and fairly incidental to its objects.
Doing of the act is beyond the legal power and authority of the company. Ensures and protects the investors and creditors contribution.

ARTICLES OF ASSOCIATION

AOA are the rules, regulations and bye-laws for the internal management of affairs of the company. They are framed with an object to carry out the aims and objects as set out in MOA.

Contents:
Share Capital, rights of shareholders, Variation of these rights, payment of commissions, share certificates. Lien on shares. Call on shares Transfer of shares Transmission of shares Forfeiture of shares Conversion of shares into stock Share Warrants Alteration of Capital

General meetings and proceedings Voting rights Directors Manager Secretary Dividends and reserves Accounts, audit and borrowing powers Capitalization of profits Winding up

Alteration of Articles
A company by passing a special resolution, alter its articles any time. A copy of special resolution altering the articles shall be filed with the Registrar within 30 days of its passing and attached to every copy of the Articles issued thereafter.

DISTINCTION
MOA
i. It is the charter of the company indicating nature of its business, nationality and capital. Defines scope and activities of the company. It is a supreme document Every Company must have its own Memorandum Strict restriction on alteration. Any act of the company which is ultra vires the MOA is wholly void and cant be ratified by the whole body of shareholders.
i.

AOA
Regulations for internal management of company & subsidiary to Memorandum. ii. Rules for carrying out the objects as set out in MOA. iii. Subordinate to MOA iv. A CO. limited by shares need not have its own Articles. v. They ca be altered by a special resolution provided do not conflict with MOA. vi. Any act of the company which is ultra vires the Articles can be confirmed by shareholders.

ii. iii. iv. v. vi.

DEBENTURES
It is issued by a company in the form of certificate. Issued under the companys seal. It is a mortgage of a companys property to a individual as security for a loan. It usually specifies a particular period or date as date of repayment A debenture-holder does not have any right to vote in the company meetings. Creates a charge on the undertaking of the company or some part of its property.

KINDS OF DEBENTURES
Bearer debentures Transferrable by delivery and a bona fide transferee is not affected by the title of the prior holder. Registered debentures A holder whose name appears both on debenture certificate and in the companys register of debentures. Secured debentures create any charge on the property of the company Unsecured debentures Do not create any charge on the assets of the company.

 Redeemable debentures Usually issued on a condition that they shall be retained after a certain period. Perpetual debentures No period fixed for repayment of the principal amount or conditional on happening of an event which may not happen for a indefinite time or happen only in certain specified and contingent events. Convertible debentures convertible into preference or equity shares at stated rate of exchange after a certain period. Non convertible no option for conversion, duly paid when mature.

MCA - 21
Registration and Incorporation of new companies. Filing of annual returns and balance sheets. Filing of forms for change of name/ address/directors details. Registration, modification and verification of charges. Inspection of documents. Issue of certified copies. Applications for permissions required under various provisions of Company Law. Approvals from Central Government, Regional Director and Roc. Investor grievance redressal.

Features of MCA 21
Existing forms meant for physical filing have been converted into e-forms. Some old have been eliminated and combined into new forms. Filing of forms and applications through internet. Online filing of forms. Pre-scrutiny is done in the portal before the form is accepted for submission. E-form should be digitally signed. Documents to be attached must be in PDF format. Paper documents should be scanned and attached. Original document bearing stamp duty have to be filed in the office of ROC, after e-filing is done.

 Payment of fees can be done through credit card/internet banking/designated banks. Many forms require certification by CA/ CS/ CWA or sometimes Secretary. The documents can be filed from Virtual Office or Certified Filing Centres. Every Director should obtain DIN. Physical Filing of documents is discontinued w.e.f 15-9-2006 and e-filing is compulsory from the same date. Office of ROC, Regional Director and Delhi HQ will process the documents. Issuance of certificates and approvals will continue to remain on paper, dispatched by post.

Director
A person having control over the direction, conduct, management or superintendence of the affairs of a company.

Appointment of Directors
1. First Directors 2. Appointment of Directors by company - In case of public company, at least 1/3 of the total number of directors shall be liable to retire by rotation and shall be appointed in the general meeting. The directors to retire shall be the longest duration by the retiring person or some other person. 3. Appointment of directors by directors Appointment of additional directors, in casual vacancy and alternate directors. 4. Appointment of directors by third parties Debenture holders and other creditors may appoint their nominees to Board not exceeding than 1/3 of total number, and they are not liable to retire by rotation.

5. Appointment by proportional representation The Articles provide for the appointment of not less than 2/3 of total number of directors to the principle of proportional representation. It shall be conducted within 3 years by a single transferrable vote or by a system of cumulative voting. 6. Appointment of directors by Central Government The purpose is to prevent the affairs which is oppressive to any members of the company and prejudicial to public or company interest. Any director appointed by Central Govt. shall not be liable to hold any qualification shares nor liable to termination by retirement by rotation.