Indian Companies Act 1956

COMPANIES ACT, 1956

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A company implies an association of persons for some
common object(s).
j ( ) According
g to the act :A company
p y
formed and registered under the companies act 1956 or
under any previous company law. A company is a
contractual entity created by the members.
members

CHARACTERISTICS OF A COMPANY
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2.
3.
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4.
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6.
7.
8.
9.

Incorporated Association
Artificial
A tifi i l legal
l
l Person
P
Separate legal Entity
Perpetual Succession
Limited Liability
Transferable Shares
Common Seal
Separate Property
Capacity to Sue and Being Sued

KINDS OF COMPANIES
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A) On the basis of mode of Incorporation:
Chartered
Ch t d Companies
C
i
Statutory Companies
Registered Companies
B) On the basis of Liability of Members
Limited by Shares
Limited by Guarantee
Unlimited
C) On the basis on the number of members
Private
Public
D) Others: Govt. Companies, Foreign company, Holding and
subsidiary company

DISTINCTION BETWEEN PRIVATE AND PUBLIC
COMPANY
Pvt. Company

Public Company

Minimum number of members to
form a company is 2

Minimum number of members to form a
company is 7

Max. number of members should not
Max
exceed 50

No restriction

Right to transfer share is restricted

Freely transferable

Prospectus can not be issued

Prospectus is issued

Commence business immediately
after getting the certificate of
incorporation

Can start only after receiving the
certificate to commence business from
registrar of companies

Numbers of Directors must be at least Must have at least 3
2

Director) Can be registered with a paid up capital of Rs 5 Lakh Rs.( not mere than 5% to a sgl. 1 lakh Can not accepts deposits from public Can accept deposits from public Need not hold statutory meeting or file a statutory report Must do so .DISTINCTION BETWEEN PRIVATE AND PUBLIC COMPANY Directors consent to work as a Director with Registrar is not necessary Necessary Number of Directors can be increased to any number Not more than 12 without the approval of the central govt. Directors are required to retire by rotation At least 2/3rd of Directors must retire by rotation Managerial Remuneration –No restriction Not more than 11% of net profit.

Under Statutory Provisions ´ Reduction of Membership Misrepresentation of Prospectus Fraudulent Conduct of Business Failure to return application money Mis description of name Mis-description Non-payment of tax Liability of ultra -Vires acts ´ ´ ´ ´ ´ ´ .LIFTING THE CORPORATE VEIL ´ The circumstances under which the courts may lift the corporate veil are: 1.

LIFTING OF THE CORPORATE VEIL p 2)) Under Judicial Interpretations: ´ ´ ´ ´ For determining the enemy of the company: Daimler Company vs Continental Tyre rubber company For the Benefit of revenue-Sir Dinshaw Maneckjee Petil. Re For prevention of Fraud and Improper conduct Others .

FORMATION O O AND INCORPORATION CO O O OF O A COMPANY CO • Promotion • Registration/Incorporation • Flotation/Raising of Capital • Commencement of Business .

The persons who conceive the company and invest the initial funds. are known as promoters.PROMOTION ´ ´ ´ g Promotion refers to the entire p process through which a company is brought into existence. . It starts with the conceptualization p of the birth of the company with an objective for which it is to be formed.

. compliance ´ Any agreement with the relevant persons of the proposed company.REGISTRATION/INCORPORATION OF COMPANY The Promoters of the company will submit the following documents with the Registrar of Companies for the registration of company: ´ Memorandum of Association ´ The article of association ´ A list of persons who have consented to act as directors ´ of the proposed company ´ A statutory declaration of compliance.

2000.REGISTRATION/INCORPORATION GS O CO O O OF O COMPANY CO The Registrar of the Companies is to allot a Corporate Identityy Number to each company p y registered g on or after November 1.After scrutiny of all the documents a certificate of incorporation is issued .

has not proceeded to allot any shares offered to the public for subscription .FLOTATION AND RAISING OF CAPITAL p y can take either of the following g Ap public company steps: p p to invite p public for subscription p a)) Issue a prospectus b) Deliver a statement in lieu of prospectus where the company has either not issued the prospectus or through it has issued the prospectus .

or to obtain permission for the shares of debentures to be dealt in any recognized stock exchange . But a public company limited by shares is debarred from commencing business on borrowing money without the certificate of commencement of business Where a company has issued Prospectus – ´ ´ ´ The minimum subscription in cash has been raised Every director of the company has paid in cash his qualification shares . a proportion payable on application and allotment on the shares offered for p public subscription.COMMENCEMENT OF BUSINESS Every private company and a company not limited by shares can commence business immediately on receipt of certificate of incorporation. p No money is liable to be repaid to applicants for any shares or debentures which have been offered for public subscription by reason for any failure to apply for.

is filed with the registrar Where the company has not issued prospectus –it has to satisfy the following conditions: A statement in lieu of the prospectus if filed with the Registrar Every director of the company has paid in cash his qualification shares . . a proportion payable on application and allotment on the shares. with is filed with the registrar registrar. When the company has compiled with the above conditions the Registrar will issue a certificate to commence business.COMMENCEMENT OF BUSINESS ´ ´ ´ ´ ´ ´ A statutory declaration duly verified by one of the directors or the secretary above have secretar in the prescribed form that the abo e conditions ha e been complied with. A statutory declaration duly verified by one of the directors or the secretary in the prescribed form that the above conditions have been complied with.

. Incidental and ancillary objects. other objects not included in first two.MEMORANDUM OF ASSOCIATION ´ Meaning and Importance MOA of a company is its charter and defines the limitations of the powers of the company It is not unalterable Content: ´ i) Name of the Company: with ‘limited’ and ‘private limited’ as the last word(s) of the name ´ ii) Registered Office ´ iii) Objects of the company : main objects .

v) Capital-The amount of authorized share capital divided into shares if fixed amount vi) Association or Subscription: The initial members are called subscribers. who sign the memorandum in the presence of one witness .MEMORANDUM OF ASSOCIATION ´ ´ ´ iv) Liability: A declaration is made that the liability of the members is limited.

. It controls the internal management of the company and defines the powers of its offices.ARTICLES OF ASSOCIATION • Article of Association of a company are its bye laws.

Act ultra-vires but intravires the memorandum can be ratified . some alterations may require sanction of central govt.DIFFERENCE OF MOA AND AOA ´ ´ ´ ´ ´ ´ p y Charter of Company Defines the scope of activities Supreme Document Must for every company Strict restrictions restrictions. Subordinate to the memorandum Company limited by shares need to have it. Act ultra-vires is wholly void and can’t be ratified ´ ´ ´ ´ ´ Regulations for internal Mgt Rules for carrying out th objects the bj t off C Co.

DOCTRINE OF ULTRA -VIRES Ultra –Vires means beyond the powers. ´ Therefore there is a presumption that any outsider dealing with the company has read and understood these documents. • Ashbury Railway Cairrageand Iron Company Ltd vs Riche ´ Doctrine of Constructive Notice • The memorandum and articles when registered with the Registrar becomes public document and accessible to all. y • Kotla Venkatswamyy vs C Ramamurthy. ´ .

DOCTRINE OF INDOOR MANAGEMENT Persons dealing with the company in good faith have a right to assume that the internal requirements prescribed in public documents (memorandum and articles have been observed. ´ In case of forgery g y ´ Negligence on the part of the outsider ´ Acts outside the scope of apparent authority ´ Rayal British Bank v v. ´ Exceptions: E ti ´ Where the outsider had knowledge of irregularity.Turquand Turquand .

circular. or debentures of a body corporate. advertisement or other document inviting offers from the public for the subscription and purchase of shares in in.” .PROSPECTUS ´ y document described or “Prospectus means any issued as a prospectus and includes any notice.

.PROSPECTUS ´ Pre-Requisites P R i it off Prospectus P t ´ Prospectus must be dated Prospectus must be signed Prospectus must be registered ´ ´ Golden rule of the Prospectus There should be an honest disclosure of all facts. The true nature of the company’s company s venture to be disclosed.

PROSPECTUS Deemed Prospectus.is a prospectus . Suzlon ´ .which which does not have complete particulars on Price of securities offered and quantum of securities offered.g. but arranges to get money from private sources>The promoters here need not issue a prospectus but are required to draft prospectus ´ Red Herring Prospectus Prospectus. d b t t the th public bli through th h the th medium di I H then the issue houses invite subscription from the public through their own offer document. This is also called prospectus t by b implication.Where a public company does not invite public to subscribe for its shares shares.When a company allots shares or debentures to off Issue Houses. i li ti ´ Statement in Lieu of Prospectus.-Jet Airways. E.

MEMBERSHIP ´ y constitute the company y as a Persons who collectively corporate entity are members or shareholders ´ a)) The Th subscribers b ib tto th the memorandum d b) Who agrees in writing to become member and whose name appears in the register of members c) Who holds equity share capital and whose name is entered as beneficial owner in the records of the depository The agreement in writing to take shares of the company The registration of name in the register of members ´ ´ ´ ´ .

no Shareholder Member 1 Is a member May not be a shareholder because the h company may not have a share capital 2 Person who owns a bearer share warrant is a shareholder Struck off from the list 3 A legal g representative p of a member Applies pp for registration 4 No share are allotted to a subscriber to the memorandum Subscriber to a memorandum .MEMBER/SHAREHOLDER / S.

WHO CAN BE A MEMBER Minor ´ Insolvent ´ Partnership P t hi Fi Firm ´ Foreigner ´ Company ´ Trade Union or Society ´ President of India ´ .

MODES OF ACQUIRING MEMBERSHIP/INDEX OF A MEMBER ´ ´ ´ Membership by subscription Membership p by y application pp and registration g A company with more than fifty members shall keep an index of members .

RIGHTS OF MEMBER / REGISTER OF MEMBER ´ ´ ´ ´ ´ ´ y Rights g Statutory Contractual/otherwise Name address and occupation Sh Share h held ld b by each h member b and d th the amountt paid id up on those shares Date ate at which c eac each pe person so was as e entered te ed in tthe e register eg ste as a member Date at which any person ceased to be a member .

TERMINATION OF MEMBERSHIP ´ ´ ´ ´ ´ ´ ´ ´ Transfers his shares Shares are forfeited by the company Surrenders his shares Shares are sold by the company to enforce its lien Dies I adjudged Is dj d d iinsolvent l t Shares have been redeemed by the company Rescind the contract of membership on fraud or misrepresentation .

An individual can be appointed pp as director.. and termed as director. The person through whom a company acts and does its business. association or firm C Cannot hold a office ff off more than ffifteen f companies .DIRECTOR ´ ´ ´ ´ y is an artificial legal g person and the directors as a A company body endow the artificial legal person with human face than can act and react. no corporate p body corporate.

5000 or one share where its value exceeds Rs. 5000 Share warrants will not count for this purpose .QUALIFICATIONS OF A DIRECTOR ´ ´ ´ ´ ´ ´ No academic. professional or share qualification Articles may provide for any qualifications Where share qualification is fixed by articles then the actt provides id a) Qualification shares must be taken within 2 months after appointment Nominal value of qualification shares must not exceed Rs.

APPOINTMENT OF DIRECTORS First director ´ Appointment of directors by company ´ Appointment of directors by the board ´ Appointment of directors by third parties (nominee director) ´ Appointment of directors by proportional representation ´ Appointment A i t t by b central t l governmentt ´ Appointment by small shareholders Consent for appointment Written consent is required to be signed and files with the registrar and the company ´ .

REMOVAL OF DIRECTORS ´ ´ ´ Byy shareholders By Central Government By Tribunal .

POWERS OF BOARD OF DIRECTORS ´ ´ ´ ´ ´ ´ ´ ´ The board of directors of a company shall be entitled to exercise all such powers and to do all such acts and things. The following powers are: The power to make calls The power to issue debentures The power to borrow money otherwise than on debentures The power to invest funds The power to make loans The p power to buy y back of shares . as the company is authorized to exercise and do do.

lease or disposal of the undertaking Showing any concession regarding payment of debts Make investment of the amount of compensation received Contribution to charitable Borrowing monies exceeding the aggregate of the paid up capital and free reserves of the company .POWER TO BE EXERCISED IN THE GENERAL MEETINGS ´ ´ ´ ´ ´ Sale.

DUTIES /LIMITATIONS ´ ´ ´ ´ ´ ´ ´ ´ Good faith Reasonable care Disclose interest Participate in the communities Attend board meetings Actions malafide Incompetent to act Deadlock in the board .

COMPANY MEETING ´ ´ ´ ´ ´ ´ ´ ´ General meeting Requisites of valid meeting Notice of meting must be proper and adequate Chairman of the meeting Quorum Voting Agenda Minutes .

KINDS OF MEETINGS Meetings of a Company Shareholders General Meetings Statutory Meetings Extra Ordinary Meetings Class meetings Annual General Meetings Directors Creditors/ Debenture holders .

STATUTORY MEETINGS ´ ´ ´ ´ ´ ´ Object When held Not required to be held Notice St t t Statutory reportt In case of default .

ANNUAL GENERAL MEETING ´ ´ ¾ ¾ ¾ ¾ ¾ ¾ y to hold Which company When to be held Gap between two AGM First AGM Subsequent AGM E t Extension i off time ti maximum i 3 months th Business to be transacted Notice 21 days Default .

Quorum:1/3 of the total strength or two. Passing of resolution by circulation is permissible .BOARD MEETINGS ¾ ¾ ¾ ¾ y three calendar months When to hold:Atleast once in every and 4 meetings every year Notice: To be given to every director in writing. time and place of meetings. whichever is higher. The notice must state the date. No form or period of notice is laid down down. Usually a week’s week s notice is sufficient.

memorandum and articles Duly proposed by any member in a meeting Should not be withdrawn before consent ´ ´ ´ ´ ´ .MOTION ´ A proposal under consideration by members in a meeting before it is voted upon ´ Rules Should be positive in terms and should always be in writing Within power. scope and relevant to business Comply with the provisions of the Act.

meeting ´ . Resolutions requiring special notice: Resolution should be given to the company not less than 14 clear days before the g at which it is to be moved. A motion passed with or without amendment is called resolution Types of Resolution Ordinary resolution: Simple majority of the members voting at a g general meeting. g Special resolution: Members present should not be less than three times the votes cast against the resolution.RESOLUTION y motion voted upon and agreed g g and Any to in a meeting entered in minutes.

WINDING UP OF A COMPANY ´ Company dissolved ´ Winding g up p a company p y is a p process whereby y its life is ended and its property administered for the benefit of its creditors and members. collects its assets. An administrator called liquidator. liquidator is appointed and he takes control of the company. pays its debts and finally distributes any surplus among the th members b iin accordance d with ith th their i rights i ht .

p . Even a solvent company can be wound up.WINDING UP OF A COMPANY ´ Winding up of a company differs from insolvency of an i di id l iin as much individual h as a company cannott b be made d insolvent under the insolvency law.

The central g government is in the p process of formation of this Tribunal ´ .MODES OF WINDING UP ´ Compulsory winding up under orders of the National company law Tribunal NCLT ´ Voluntary Winding up The power of the court are transferred to the National Company Law Tribunal by the company (Amendment)Act 2002.

Default in holding statutory meeting or in delivering statutory report to the registrar Failure to commence business within a year from the date of incorporation or suspension of business for a whole year Reduction in membership below the minimum required I bilit tto pay itits d Inability debts bt off R Rs 1 llakh kh Tribunal is of the opinion that it is just and equitable D f lt off company’s Default ’ fili filing it its b balance l sheet h t and d profit fit and d loss account on annual return for any five consecutive financial years .GROUNDS FOR WINDING UP BY THE TRIBUNAL (NCLT) ´ ´ ´ ´ ´ ´ ´ By the company passing a special resolution.

decency or morality. the security of the state.G O GROUNDS S FOR O WINDING G UP BY THE TRIBUNAL (NCLT) C ´ ´ ´ If the company has acted against the interests of sovereignty and integrity of India. friendly relations with foreign states public order order. If the Tribunal is of the opinion p that the company p y should be wound up as it had become sick and is unlikely to become viable in future .

contributory acting jointly or separately The registrar Any person authorized by the central government The official liquidator The central government and the state government Workers of a company cannot prefer a winding up petition against the company .WHO MAY PETITION FOR WINDING UP ´ ´ ´ ´ ´ ´ ´ ´ ´ The company Any Creditor Any Contributor Any combination of creditor creditor.

LIQUIDATOR ´ ´ ´ ´ ´ ´ ´ ´ ´ ´ To conduct proceeding in winding up To make a report To take custody of company’s property To comply with directions of the creditors or contributories or the committee of inspection To summon meeting of creditors and contributories To obtain directions from the tribunal To keep statutory books To get accounts audited Central governments control of liquidator Information as to a pending winding up .