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COMPANIES ACT, 1956
NATURE, FORM AND TYPES OF BUSINESS ENTERPRISES
IMT Nagpur; 2010-12
Non-Corporate (Sole Proprietorship, Partnerships & HUF)
Corporate (Cos. & Co-operatives)
The basic difference between and Corporate and Non-Corporate form of business organization is that while a non-corporate form of business can be started without Registration, Corporate bodies cannot be set 2 up without registration under the laws which govern their functioning.
BRIEF STRUCTURE OF THE COMPANIES ACT, 1956
Section 1 – Short Title, Extent and Commencement
IMT Nagpur; 2010-12
Section 2 – Definitions
Section 3 to 658 – Other Provisions
2010-12 Section 2 – Definitions Section 3 to 658 – Other Provisions 4 . Extent and Commencement IMT Nagpur. 1956 Section 1 – Short Title.BRIEF STRUCTURE OF THE COMPANIES ACT.
FEATURES The Companies Act. 1956 . 1956 is the longest piece of legislation ever passed by our Parliament. The Act consists of 658 Sections and 15 Schedules. IMT Nagpur. 2010-12 5 .COMPANIES ACT.
1956. It came into force on April 01.SHORT TITLE. IMT Nagpur. EXTENT AND COMMENCEMENT (SECTION 1) This Act may be called the Companies Act. 1956. 2010-12 6 . It extends the whole of India.
7 . an association formed not for profit acquires a corporate life and falls within the meaning of a company by reason of a license u/s 25 of the Companies Act. 1956.COMPANY – ITS MEANING A Company in broad sense may mean an association of individuals formed for carrying on some business or undertaking for acquisition of gain. 2010-12 However. IMT Nagpur.
is a single and legal (artificial) person distinct from the individuals constituting it. IMT Nagpur.COMPANY – ITS MEANING An incorporated co. such as a partnership. 2010-12 Therefore. unlike a partnership. a co. is a mere collection of individuals. whereas an unincorporated co. is a corporate body and a legal person having status and personality distinct and separate from that of the members constituting it. 8 .
Air India) or to a company legislation (TISCO. 9 . RIL. 2010-12 The trading partnership which is governed by Partnership Act is the most apt example of an unincorporated association. IMT Nagpur. WIPRO). DVC.COMPANY – ITS MEANING The incorporated co. owes its existence either to a special act of Parliament (LIC.
is an association of both natural and artificial persons incorporated under the existing laws of the country. Act. Act. a co. means a co.COMPANY – ITS MEANING In legal sense. 10 . 3(1)(iii). 1956. a co. IMT Nagpur. 2010-12 As per the Co. 1956 or under the previous laws relating to companies. formed and registered under the Co. (Sec.
2010-12 The common stock so contributed is the capital.COMPANY – ITS MEANING Co means as association of many persons who contribute money or money’s worth to a common stock & employ it in some trade or business & who share the profit or loss arising there from. The persons who form it are the members. 11 . IMT Nagpur. The proportion of the capital to which each member is entitled is his share.
12 IMT Nagpur. Corporate Personality By incorporation under the Act.COMPANY – ITS CHARACTERISTICS The most striking characteristics of a company are: 1. the co. is vested with a corporate personality quite distinct from individuals who are its members. 2010-12 .
borrowing money. Suing and being sued 13 IMT Nagpur. Having a bank account. 2010-12 . entering into contracts.CORPORATE PERSONALITY Being a separate legal entity : It bears its own name. Incurring debts. It is capable of owning property. It has a seal of its own. Employing people.
Ltd. Saloman and Co. 2010-12 Saloman V.CORPORATE PERSONALITY Saloman V. IMT Nagpur. Saloman.xlsx 14 .
2010-12 Lee V. Lee’s Air Farming Ltd. Lee Air Farming. IMT Nagpur.xlsx 15 .CORPORATE PERSONALITY Lee V.
2010-12 New Horizons Limited.CORPORATE PERSONALITY Small deviation from the Corporate Personality Rule Experience of a Shareholder is the experience of a Company New Horizons Limited V. Union of India IMT Nagpur.xlsx 16 .
2010-12 This means that the liability of a members is limited. 17 . IMT Nagpur.COMPANY – ITS CHARACTERISTICS 2. Limited Liability One of the most important advantages of doing business under the corporate form or organization.
1000 and has already paid Rs.. he has no further liability to pay even if the co. 2010-12 If he holds fully paid up shares. IMT Nagpur. 500.COMPANY – ITS CHARACTERISTICS 2. the amount remaining unpaid on his shares. If A holds shares of nominal value of Rs. he cannot be called upon to pay more than Rs. Limited Liability Eg. 18 . 500. is declared insolvent.
COMPANY – ITS CHARACTERISTICS 2. Limited Liability In Partnership firms. 2010-12 Not only their share in the firm but their personal assets may be attached to satisfy the debts and liabilities of the firm. the liability of the partners for the debts of the business is unlimited. 19 . IMT Nagpur.
were killed by a bomb. can go on forever.” 20 . while in the General Meeting.” IMT Nagpur. 2010-12 During the war.COMPANY – ITS CHARACTERISTICS 3. all the members of one Private Co. but the co. but the co. survived – not even a hydrogen bomb could have destroyed it. Perpetual Succession “Members may come and members may go..
is capable of owning. Ltd. 2010-12 The property of the Co.COMPANY – ITS CHARACTERISTICS 4.. IMT Nagpur.xlsx 21 . it is the property of the Co. Norther Insurance Co. Separate Property A Co. is not the property of the shareholders. enjoying and disposing of property in its own name. being a legal person and entirely distinct from its members.
22 IMT Nagpur. called Shares. is divided into parts. A member may sell his shares in the open market and realise the money.COMPANY – ITS CHARACTERISTICS 5. 2010-12 . (as the member is not withdrawing his money from the Co.). Transferability of Shares The capital of a co. This provides liquidity to the members and ensures stability to the Co.
has no physical existence. is of great importance and acts as official signature of a Co. must be engraved on its seal. it must act through its agents and all contract entered into by his agents must be under the seal of the Co. the Co. 2010-12 The Common Seal of a Co. The name of the Co. IMT Nagpur. 23 .COMPANY – ITS CHARACTERISTICS 6. Common Seal Since.
24 .COMPANY – ITS CHARACTERISTICS 7. IMT Nagpur. being a body corporate. 2010-12 To sue means. to institute a legal proceedings against (a person) or to bring a suit in a court of law. Capacity to sue and be sued A Co. can sue and be sued in its name.
can enter into contracts for the conduct of the business in its own name.. being a separate legal entity different from its members. 25 IMT Nagpur.COMPANY – ITS CHARACTERISTICS 8. 2010-12 . Contractual Rights A Co.
2010-12 MOA of the Co. Limitation of action A Co.COMPANY – ITS CHARACTERISTICS 9. and provides the entire super structure of the Co. rests. 26 . IMT Nagpur. regulates the powers and fixes the objects of the Co. cannot go beyond the power stated in the MOA.
27 . is administered and managed by its managerial personnel. 2010-12 The Co. Separate Management Members do not have effective and intimate control over its working and elect its representatives to conduct corporate functioning.COMPANY – ITS CHARACTERISTICS 10. IMT Nagpur.
28 . Termination of Existence A Co.. does not die a natural death. It is created by law.COMPANY – ITS CHARACTERISTICS 11. 2010-12 It has its existence only in contemplation of law. being an abstract and artificial person. carries on its affairs as per law and ultimately is effaced by law. IMT Nagpur.
to avoid winding up sometimes companies change their form by means of reorganization. IMT Nagpur.COMPANY – ITS CHARACTERISTICS 11. 2010-12 However. 29 . reconstruction and amalgamation. Termination of Existence The existence of a Co. is terminated by means of winding up.
30 . those who are knowingly parties to such conduct of business be made personally liable without any limitation for all or any debts or other liabilities of the Co.LIFTING OF CORPORATE VEIL Fraudulent Conduct : IMT Nagpur. 2010-12 Where the business has been carried on with an intent to defraud creditors or any other person or for any fraudulent purpose.
every person who was Director of that co. 2010-12 When any Pvt. is wound up. at any time during the relevant PY shall be jointly and severally liable for payment of tax.. Co. 31 .LIFTING OF CORPORATE VEIL Non Payment of Tax: IMT Nagpur. whether before or in the course of liquidation in respect of any income of any PY cannot be recovered. any tax assessed on the Co.
if they are Ultra Vires the Co. will be personally liable for all those acts which they have done on behalf of a co. 2010-12 Directors of a Co.LIFTING OF CORPORATE VEIL Ultra Vires Act: IMT Nagpur. 32 .
xlsx 33 . 2010-12 Where an officer of a Co. Hendon V. agreement. cheque.LIFTING OF CORPORATE VEIL Mis Description of name: IMT Nagpur. Adelman & Others. bill of exchange. in not mentioned. such person shall be personally liable to the holder if the name of the Co. signs on behalf of a Co. any contract. order for money or goods or such other documents.
2010-12 In case of misrepresentation in Prospectus. Promoter and every other persons who authorises the issue of such prospectus incurs liability towards those who subscribe for share on the faith of untrue statement. every Director. 34 .LIFTING OF CORPORATE VEIL Misrepresentation in Prospectus: IMT Nagpur.
35 .. IMT Nagpur. association or partnership consisting of large number of persons has been declared illegal. under the Companies Act. 1956 or is formed in pursuance of some other Indian Law.ILLEGAL ASSOCIATION An unincorporated Co.. Association or Partnership consisting of more than 20 persons (10 in case of banking business) can be formed for the purpose of carrying on any business for gain. unless it is registered as a Co. 2010-12 No Co.
of its members.ILLEGAL ASSOCIATION This provision is not applicable to: IMT Nagpur. of members exceeds 20. Religious or scientific associations. Charitable. But if 2 or more Joint HUF carry on business together and their no. which are not formed for the purpose of making profit or gain. then their association will be illegal. 2010-12 A single Joint HUF carrying on any business whatever may be the no. 36 .
Public Co. 2010-12 37 .TYPES OF COMPANIES COMPANIES Basic Type Private Co. IMT Nagpur.
IMT Nagpur.TYPES OF COMPANIES COMPANIES On the basis of Incorporation Statutory Cos. 2010-12 38 . Registered Cos.
TYPES OF COMPANIES
COMPANIES On the basis of Liability Unlimited Cos. Limited Cos.
IMT Nagpur; 2010-12
Cos. Limited by Guarantee
Cos. Limited by Shares
TYPES OF COMPANIES
COMPANIES Other Classification Government Co. Foreign Co. Holding & Subsidiary Co. Association not for Profit
IMT Nagpur; 2010-12
TYPES OF COMPANIES
COMPANIES On the basis of Listing Listed Cos. Unlisted Cos.
IMT Nagpur; 2010-12
1. 2010-12 a) Restricts the right to transfer its shares. c) Prohibits any invitation to public to subscribe for any shares or debentures of the Co. c) Prohibits any invitation or acceptance of deposits from persons other than its members or Directors or their relatives 42 . b) Limits the no. of its members as 50.PRIVATE COMPANIES A Pvt. which has a minimum share capital of Rs. Co..00 lacs and by its AOA: IMT Nagpur. means a Co.
of Members = 2 Minimum no. Co.PRIVATE COMPANIES The word “Private Limited” must be added at the end of its name by a Pvt. 43 . Co. of Directors = 2 The only 2 members may also be the only 2 Directors of a Pvt. IMT Nagpur. 2010-12 Minimum no.
are exempt from complying with few provisions of the Act. The basic rationale behind this is that since Pvt. 2010-12 . Cos. Cos. are restrained from inviting capital and deposits from the public.PRIVILEGES AND EXEMPTIONS TO PRIVATE COMPANIES Co. Act confers certain privileges on Pvt. not much public interest in involved in their affairs as compared to Public Cos. 44 IMT Nagpur. and such Cos.
which: a) is not a Private Co. c) is a Pvt. b) has a minimum paid up capital of 5.. means a Co.00 lacs. of Members = 7 Minimum no. 2010-12 45 . of Directors = 3 IMT Nagpur.PUBLIC COMPANIES A Public Co. Co. which is a subsidiary of Public Co. Minimum no..
Such Cos.STATUTORY COMPANIES Constituted by a Special Act of Parliament or State Legislature. ONGC. 1956 do not apply to them.. 2010-12 Companies Act. IMT Nagpur. Life Insurance Corporation of India. Eg. Do not use the word “Limited” as part of their name. Reserve Bank of India. 46 .
Tata Consultancy Services Limited. IMT Nagpur.REGISTERED COMPANIES Companies registered or incorporation under the Companies Act. 2010-12 Eg.. 1956. Reliance Industries Limited. 47 . Hero Honda Motors Limited.
Members of an UC are not liable directly to the creditors of the co. IMT Nagpur. the liability is only towards the co.UNLIMITED COMPANIES A Co. 48 . not having any limit on the liability of its members.. and in the event of its being wound up only liquidator can ask the members to contribute. 2010-12 Members are liable for the Company’s debt and their liability in unlimited.
Eg. has gone into liquidation. 2010-12 The liability of the members arises only when the Co. Club. IMT Nagpur. Trade Association. in the event of its winding up.. Socities 49 .COMPANIES LIMITED BY GUARANTEE A co. having liability of its members limited by its MOA to such an amount as the member undertake to contribute to the assets of the Co.
COMPANIES LIMITED BY SHARES Liability of the members is limited by the MOA to an amount. can be called upon to pay the balance of Rs. IMT Nagpur. 25 only. 100. unpaid on the shares held by them. 50 Most common types of Companies. Eg. he has nothing more to pay. . a shareholder who has paid Rs. 2010-12 If his shares are fully paid up. 75 on a share of face value Rs. if any..
2010-12 Co. prohibits the payment of dividend to its members but use it for aforesaid objects. with “Pvt.” 51 . IMT Nagpur. Ltd. Need not end the name of the Co.” or “Ltd. religious.ASSOCIATION NOT FOR PROFIT OR SEC 25 COMPANIES Companies incorporated to promote the charitable. educational or other similar objects.
Co. Co. 52 .GOVERNMENT COMPANIES Any Co. 2010-12 A subsidiary of the Govt. in which not less than 51% of the paid up share capital is held by the CG or by any SG or Governments or partly by the CG and partly by one or more SGs. IMT Nagpur. is also treated as Govt.
FOREIGN COMPANIES A Co. 2010-12 . which is incorporated in a country outside India under the laws of that other country and has a place of business in India. 53 IMT Nagpur.
The first mentioned Co. is a subsidiary of any Co. b) That other controls more than half of the total voting power of such Co.HOLDING AND SUBSIDIARY COMPANIES A Co. if and only if – IMT Nagpur. which is the other’s subsidiary... 54 . c) That other holds more than half in the nominal value of its equity share capital. 2010-12 a) That other controls the composition of BODs. shall be treated as a Subsidiary of another Co.
B (holding) holds more than half in the nominal value of equity shares of Co. 55 . 3. A (subsidiary) . Co. A (subsidiary) . A is a subsidiary of Co. and only if: IMT Nagpur. B (holding) controls the composition of the BODs of Co. B (holding) controls more than 50% voting power of Co. Co. Co. 2. A (subsidiary) . 2010-12 1. Co. B if.HOLDING AND SUBSIDIARY COMPANIES To illustrate.
B. A is also a subsidiary of Co. C which is subsidiary of Co. B if. A (subsidiary) is a subsidiary of Co. A is a subsidiary of Co. B C A 56 . Co. B.HOLDING AND SUBSIDIARY COMPANIES To illustrate. If Co. 2010-12 4. and only if: IMT Nagpur. then the Co.
A. D is the subsidiary of Co. then D will be the subsidiary of Co. B if.HOLDING AND SUBSIDIARY COMPANIES To illustrate. B C A D 57 . 2010-12 5. B. C and also of Co. A is a subsidiary of Co. and only if: IMT Nagpur. Co. If Co.
if its shares can be traded on a stock exchange. 2010-12 58 . It is possible for a company to have listed Debt Securities but not listed shares. It is the securities that are listed.LISTED COMPANIES A company is said to be “listed”. IMT Nagpur. not the company. The phrase “listed company” is widely used to mean a company that has listed its Equity Shares.
means those Cos. NSE) in India. whose shares (or debt instruments) are not listed at any of the Recognized Stock Exchange (BSE.UNLISTED COMPANIES Unlisted Cos. 2010-12 . 59 IMT Nagpur.
applicable generally. Banking and Electricity Supply Companies incorporated and registered under the Companies Act. Banking Regulations Act and Electricity Supply Act will prevail when they are inconsistent with the provisions of the Companies Act. 2010-12 . 60 IMT Nagpur. the provisions of Insurance Act. 1956.IMPORTANT NOTE In respect of Insurance.
THANK YOU 61 IMT Nagpur. 2010-12 .