Definition of a Company

According to Companies Act 1956, “A Company means an artificial

person in the eyes of law which have voluntary association of persons
or individuals who formed for some common purpose, in which their
capital is divisible into parts known as shares, formed for perpetual
succession under a Common Seal”
L.J.Lindley defines a company as “ an association of many persons
who contribute money or money’s worth to a common stock, and
employ it in some common trade or business(i.e; for a common
purpose) and who share the profit or loss arising therefrom”

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Features of a Company
Separate Legal Entity
Limited Liability
Perpetual Succession
Common Seal
Transferability of shares
Separate property
Capacity to sue
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 Kinds of Companies

 Classification based on Incorporation

• Statutory Companies – created by special act of
Legislature e.g. RBI, SBI, LIC, Railways etc
• Registered Companies – Under Companies Act 1956
 Classification based on Liability
• Limited Companies - by shares & Guarentee
• Unlimited Companies

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 Kinds of Companies

 Classification based on Members

• Pubic Company – Minimum number is 7 & maximum
unlimited, minimum paid-up capital of Rs. 5,00,000, minimum 3
directors, Total Managerial Remuneration cannot exceed 11% of
Net Profits etc
• Private Company – Minimum number is 2 & maximum is
50, minimum paid-up capital of Rs. 1,00,000, minimum 2
directors, etc

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 Kinds of Companies

 Classification based on Control

• Holding Companies
• Subsidiary Companies

 Classification based on Ownership

• Government Company
• Non-Government Company

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Company - Advantages
Companies are designed as to make it easy to raise
capital.
Companies have the ability to subdivide their
capital into small amounts, allowing them to draw
in huge numbers of investors who also benefit
from the sub-division by being able to sell on
small parts of their investment.
Limited liability also minimises the risk for
investors and is said to encourage investment.

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Company – Advantages (cont.)
It is also said to allow managers to take
greater risk in the knowledge that the
shareholders will not lose everything.
The constitution of the company provides a
clear organisational structure which is
essential in a business venture where you
have large numbers of participants.

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Company – Advantages (cont.)
It is also said to allow managers to take
greater risk in the knowledge that the
shareholders will not lose everything.
The constitution of the company provides a
clear organisational structure which is
essential in a business venture where you
have large numbers of participants.

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 Formation of Company

Formation of a company involves following procedures –

(a)     Approval of name of the company from the office of Registrar of companies.
(b)     Drafting of Memorandum of Association & Articles of Association duly typed on
stamp paper and signed by the promoters or Directors or persons holding Power of
Attorney
(c)     Prospectus or statement in lieu of Prospectus (in case of public co.) duly typed on
stamp paper and signed
(d)    Filing of documents in the office of Registrar of Companies
(e)     Submission of required papers like Statutory declaration of compliance, Power of
Attorney
(f)      Payment of filing Fees.
(g)     Collect certificate of incorporation by holder of Power of Attorney from the office of
Registrar of companies.

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 Memorandum of Association

Memorandum of association is a document which contains the fundamental

conditions upon which the company is allowed to be incorporated

Contents of Memorandum
• Name Clause
• Registered office clause
• Object Clause
• Liability Clause
• Capital Clause
• Association Clause

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 Articles of Association

Articles of association is a document which contains the rules, regulations and

bye-laws for the internal management of the affairs of a company
Contents of Articles
• Share capital, Rights of Shareholders etc
• Call, Forfeiture, Transfer of Shares etc
• General Meetings & their proceedings
• Appointment, Qualifications, Remuneration, Powers of Directors
• Dividends & Reserves, Accounts, Audit and borrowing Powers
• Winding Up

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 Prospectus

It is a document which invites deposits from the public or inviting offers

from the public for the subscription of shares or debentures of a company.
Prospectus is a window through which an investor can look into the
soundness of a company’s venture.
Contents of Prospectus
• Part I of Schedule II
 General Information – Name & Address of the regd office of the
company, Name of the stock exchanges where application is made for listing,
Name of the Underwriters etc
 Capital Structure of the company
 Terms & Conditions of Issue
 Company’s Management structure and Various Projects undertaken etc

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 Prospectus

Contents of Prospectus
• Part II of Schedule II
A. General Information – Consent of Directors, Auditors,
Solicitors/Advocates, Bankers etc
 Experts opinion obtained
 Name and addresses of the company Secretary, Lead Managers, Legal
Advisor, Bankers to the company
B. Financial Information
 Report by the Auditors
 Report by the Accountants
C. Statutory and other information
 Minimum Subscription
 Underwriting Commission and brokerage etc.
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