Companies Act 1956

Company

A voluntary incorporated association

which is an artificial person, created by
law with limited liability having common
seal and perpetual succession
Characteristics of Company

 Registration
 Distinct person- separate legal entity
 Perpetual succession
 Artificial person but not a citizen
 Transferable shares
 Limited liability
 Common seal
 Separate property
 Capacity to sue and to be sued
 Partnership Vs. Company

 Registration  Statutory obligation

 Membership  Death
 Legal status  Accounts
 Property  Agency
 Management  Creditors
 Existence
 Transfer
 Liability
 Types of Companies
 Foreign company
 Government company
 One man company
 Holding company N subsidiary company
 Statutory Public Company (Non-Profit
Association)
 Private Company

A company which, by its articles, (a) restricts

the right of the members to transfer their
shares, (b) limits the number of its members
to 50, and (c) prohibits any invitation to the
public to subscribe for any shares in, or
debentures of the company.
 Private Limited Company
 Maximum number of members 50
 Restrict the right to transfer its shares
 No deposit from public
 No issue of shares to public
 Public Company

All companies other than private

companies are called public
companies.
Public Vs. Private Company
 Members
 Transfer of shares
 Public invitation
 Name
 Privileges
 Number of directors
 Loans
 Minimum paid up capital
 Memorandum of Association

A document which contains the fundamental

rules regarding the constitution and activities
of a company.
 Contents of MOA
 Name clause
 Situation Clause / Registered office of the
company
 Object clause
 Area of operation Clause
 Capital clause
 Liability clause
 Subscription or association clause
 Articles of Association

A document which contains rules,

regulations regarding the internal
management of the company.
 Contents of AOA
 Share capital, rights of shareholders, payment of
commissions, share certificates
 Lien on shares,
 Calls on shares
 Transfer of shares
 Transmission of shares
 Forfeiture of shares
 Conversion of shares into stock
 Alteration of capital
 Dividends and reserves
Memorandum Vs. Articles
 Falling Below the Minimum Membership

 In case of public company, number of members below 7

 In case of private company, number of members below 3
 The company carries on business for more than 6 months
 The members are aware of the fact
 Shall be personally liable for all debts of the company
contracted during that time.
 Formation Process of a Company

1. The Memo and the Articles must be prepared.

2. Sanction of the Central government must be obtained
under the Capital Issues (Control) Act, 1956, regarding
its paid up capital.
3. A license must be obtained from its industry, under
Industries (Development and Regulation) Act, 1951.
4. The company must be registered under the Companies
Act, 1956 and the Certificate of Incorporation must be
obtained.
 Formation Process of a Company (contd…)

In case of Public Company, the following further steps are

required to be taken:

5. The Prospectus must be issued and registered with the

Registrar.
6. The minimum subscription must be raised and the
allotment of shares must be made.
7. The Certificate for the Commencement of business must
be obtained from the Registrar.
 Procedures of Registration and Incorporation

1. The MOA signed by at least 7 persons ( public company), and 2

persons (private companies).
2. The Articles of Association.
3. “all the requirements of the Act have been complied with” – such
declaration by an advocate, or an attorney, a pleader, or a
chartered accountant, or a person named in the articles as director,
manager or secretary of the company.
4. A duly signed list of persons who have consented to be directors of
the company, their consent in writing and the signed agreement to
take the required number of shares.
5. The Registration fees fixed on the amount of nominal capital, filing
fee per document.
The Certificate of Incorporation

The certificate issued by the Registrar

after a company is registered.
 Promoters

The persons who initially plan the

formation of a company and bring it
into existence.
 Functions of Promoters

 Decides the company’s name,

 Decides the details of the company’s MOA,
 Decides the nomination of directors, solicitors, auditors,
bankers and the registered office of the company,
 Makes arrangements for printing the MOA and AOA,
 Arranges the registration of the company and the issue
of prospectus,
 Responsible to bring the company into existence.
 Promoter’s Remuneration

 Selling to the company at a profit some property

purchased by the promoter before he became
one,
 Taking a commission on the shares sold,
 Taking a grant of some shares of the company,
 Lump sum from the company.
 Prospectus

Any document described or issued as a

prospectus and includes any notice, circular,
advertisement, or other document inviting
deposits from the public or inviting offers from
the public for the subscription or purchase of any
share in, or debentures of a body corporate.
 Minimum Subscription

The Directors fix the amount of minimum subscription

by taking into account the following expenses:
1. The purchase price of any necessary property
2. The preliminary expenses (including commissions
payable for the sale of shares),
3. Repayment of any moneys borrowed by the company
for the above two purposes,
4. Working capital,
5. Any other necessary expenditure.
 Commencement of Business
A registered public company will get the Certificate of
Commencement of Business after the following formalities have
been complied with:
1. The minimum subscription has been raised
2. Every director has paid the moneys payable for the shares
taken up by him.
3. No money is repayable for failure to obtain stock exchange
recognition for the shares, where such recognition was
promised.
4. A duly verified declaration by a director or the secretary has
been filed with the Registrar stating that the above
requirements have been complied with.
 SHARE CAPITAL

 Nominal / Authorized Capital (total face value of shares)

 Issued Capital (actually offered for sale)

 Subscribed Capital (accepted by the public)

 Paid up Capital (paid by the subscribers or credited)

 Uncalled Capital (unpaid portion of the subscribed capital)

 CLASSIFICATION OF SHARES

 Equity Share – all shares other than preference

shares.

 Preference Share – two privileges are given by the

articles (priority in the payment of dividends and
priority to return capital in case of liquidation.)
 Home Tasks

 Rights of Shareholders

 Duties of Shareholders

 Liabilities of Shareholders
 VOTING RIGHT OF EQUITY SHAREHOLDERS

 Is entitled to vote on every resolution placed before the

company.

 The number of votes is equal to his share of the paid up

equity capital of the company.
 VOTING RIGHT OF PREFERENCE SHAREHOLDER

 Is entitled to vote ONLY on resolutions which directly

affect the rights attached to his preference shares.

 Is entitled to vote ONLY on resolutions for winding up of

the company.

 If the dividend due on such capital or any part of it

remains unpaid, s/he become entitled to vote on EVERY
resolution.
 TYPES OF MEETINGS

 Meetings of the shareholders

1. Statutory Meeting
2. Annual General Meeting
3. Extra-ordinary General Meeting
4. Class Meetings
 Other Meetings
1. Meetings of the Creditors
2. Meetings of the Debentureholders

 Meetings of Directors
 STATUTORY MEETING

 Every public limited company must hold a general meeting

of members within a period of not less than one month
and not more than six months from the date at which the
company is entitled to commence the business.

 The members are to discuss a report by directors, known

as the STATUTORY REPORT.
 STATUTORY REPORT

 Drafted and certified by directors.

 A copy of the report must be sent to every member
at least 21 days before the date of the meeting.
 A copy is also to be sent to the Registrar for
registration.
CONTENTS OF STATUTORY REPORT

Home Task (Page no – 653)

 GENERAL MEETING
 A meeting of its members for specified
purposes.

 A General Meeting may be called by giving

not less than 21 days’ notice in writing.

 Two types of General Meeting

 Annual General Meeting
 Other General Meeting
 ANNUAL GENERAL MEETING

 The first AGM may be hold within a period

of not more than 18 months from the date
of its incorporation.
 Not more than 15 months shall elapse
between the date of one AGM and the
next.
 Board of Directors (RIGHTS)

 Attend the meetings

 Participate in the management
 To receive remuneration
 Board of Directors (Duties)

 General duties
Duty of good faith
Duty of care
Duty not to delegate
 Statutory Duties
Not to issue irredeemable preference shares redeemable after
10 years
Disclose interest
Attend Board Meetings
Convene General Meetings
Prepare report
 Board of Directors (Remuneration)

 Director
1% of Net Profits
3% of Net Profits if no MD
 Managing Director
5% of Net Profits
10% in case of 2 MDs
* Maximum remuneration should not exceed
11% of Net Profit
Who can not be appointed as auditors?

 A body corporate
 An officer or employee of the company
 A person who is the partner of the
company
 A person who is in debt to the company
exceeding to Rs. 1000/-or who has
given guarantee or provided any
security
Rights of auditors
 To call for information & explanation
 To access books of accounts
 To attend meetings and to receive
notices
 Inspection of articles other than books
of accounts
Duties of auditors
To scrutinize
 Loans & advances
 Entries
 Investment
 Expenses
Company Secretary
any other individual possessing the
prescribed qualifications and appointed
to perform the duties which may be
performed by a secretary under this Act
and any other ministerial or
administrative duties.
 Qualifications of Company Secretary

 Sound general education

 Proficiency in language
 Wide knowledge
 Knowledge of company law
 Knowledge of other laws
 Knowledge of office organization and methods
 Knowledge of economics, banking and finance
 Good personality
 Position of Company Secretary
 Recognized as a responsible officer of the
company
 Carries out the policy decisions of Board but for
routine day-to-day affairs, the secretary has the
authority to carry out the work
 Acts as a link between the company and the
outside world
 Enjoys a unique position in the management but
does not have managerial powers.
Rights of company secretary
 Right to control and supervise the
working of his department
 Right to sign a document or proceeding.
 Right to be indemnified by the company
for any loss suffered by him
 Right to receive remuneration.
 Dismissal of a company secretary

 May be removed from his office by a resolution

of Board of Directors.
 Can be dismissed without giving him a notice in
the following cases
 For willful disobedience
 For misconduct or moral turpitude
 For negligence
 For incompetence or permanent disability