A NOTE ON THE COMPANIES ACT, 1956 INTRODUCTION A Company is defined as a voluntary association of persons formed for the purpose

of doing business, having a distinct name and limited liability. Companies, whether public or private, are an indispensable part of an economy. They are the modes through which a country grows and expands world wide. Their performance is an important parameter of a countries economic position. In India, the Companies Act, 1956, is the most important piece of legislation that empowers the Central Government to regulate the formation, financing, functioning and winding up of companies. The Act contains the mechanism regarding organisational, financial, managerial and all the relevant aspects of a company. It provides for the powers and responsibilities of the directors and managers, raising of capital, holding of company meetings, maintenance and audit of company accounts, powers of inspection, etc. The Act applies to whole of India and to all types of companies, whether registered under this Act or an earlier Act. But it does not apply to universities, co-operative societies, unincorporated trading, scientific and other societies. The Act empowers the Central Government to inspect the books of accounts of a company, to direct special audit, to order investigation into the affairs of a company and to launch prosecution for violation of the Act. These inspections are designed to find out whether the companies conduct their affairs in accordance with the provisions of the Act, whether any unfair

Public Trustee. earlier known as Department of Corporate Affairs under Ministry of Finance. Chennai and Noida. is primarily concerned with administration of the Companies Act. action is initiated under provisions of the Companies Act or the same is referred to the Central Bureau of Investigation.practices prejudicial to the public interest are being resorted to by any company or a group of companies and to examine whether there is any mismanagement which may adversely affect any interest of the shareholders. If an inspection discloses a prima facie case of fraud or cheating. . creditors. Director of Inspection. and  Tthe Registrars of Companies (ROCs) in States and Union Territories. etc. other allied Acts and rules & regulations framed there-under mainly for regulating the functioning of the corporate sector in accordance with law. Kolkata. The Ministry of Corporate Affairs. 1956. The Regional Directorates at Mumbai. The Ministry has a three-tier organisational set-up:  The Headquarters at New Delhi. The Companies Act is administered by the Central Government through the Ministry of Corporate Affairs and the Offices of Registrar of Companies. Official Liquidators. The Registrar of Companies (ROC) controls the task of incorporation of new companies and the administration of running companies. employees and others. Company Law Board.

Mumbai. 1956. Their offices function as registry of records relating to the companies registered with them. a quasi-judicial body. economic and statistical matters. Registration of prospectus. The four Regional Directors. The organisation at the Headquarters also includes two Directors of Inspection and Investigation with a complement of staff. The powers vested with the ROCs are:  Registration of memorandum and articles. . comprising a number of States and Union Territories. covering various States and Union Territories. Kolkata and Chennai.The Official Liquidators who are attached to the various High Courts functioning in the country are also under the overall administrative control of the Ministry. accounting. interalia. They also maintain liaison with the respective State Governments and the Central Government in matters relating to the administration of the Companies Act. supervise the working of the Offices of Registrars of Companies and the Official Liquidators working in their regions. who are in charge of the respective regions. an additional principal bench for Southern Region at Chennai and four Regional Benches located at New Delhi. The set-up at the Headquarters includes the Company Law Board. are vested with the primary duty of registering companies floated in the respective States and the Union Territories and ensuring that such companies comply with the statutory requirements under the Act. Registrar of Companies (ROCs) appointed under Section 609 of the Companies Act. an Economic Adviser for Research and Statistics and other Officials providing expertise on legal. having the principal Bench at New Delhi.

They are under the administrative charge of the respective Regional Directors who supervise their functioning on behalf of the Central Government. It is invisible. To strike off defunct companies from register. Call information or explanation. intangible. etc to Registrar.e. Inspection of books of accounts. According to the Act. etc of companies. immortal and exists only in . Non-disclosure of information in certain cases. Seizure of documents. a company means "a company formed and registered under the Act or an existing company i.         Registration of reduction of capital. Enforcement of duty of company to make returns. Winding up petition by the Registrar. The salient features of a company are: Artificial legal person:. Official Liquidators are the officers appointed by the Central Government under Section 448 of the Companies Act and are attached to the various High Courts. Investigation into affairs of a company.a company is an artificial person in the sense that it is created by law and lacks the attributes possessed by natural persons. a company formed or registered under any of the previous company laws".

the contemplation of law. if the company goes into liquidation. mental or physical incapacity of its members. in case of fully paid-up shares.a company has a common seal. Thus.  Perpetual succession:. the members of the company can enter into contracts with the company. insolvency. it has to operate through a board of directors consisting of individuals. no member can either individually or jointly claim any ownership rights in the assets of the company. which is the signature of that company and signifies common consent of all the members. the members cannot be asked to contribute any further.a company enjoys continuous existence and its continuance is not affected by the death.  Limited liability of members:.  Transferability of shares:. an individual member cannot be held liable for the wrongful acts of the company even if he/she holds virtually the entire share capital. different from its members or shareholders. The shareholders may transfer their shares to another person and this does not affect the funds of the . It is created by law and law alone can dissolve it.  Separate legal entity:.the shares of a public company are freely transferable without the permission of the company but in a manner provided in the Articles.the liability of its members is limited to the amount remaining unpaid on the shares subscribed by them.  Common seal:. This implies that:.a company is a distinct legal entity. The company's seal is affixed on all the documents executed for and on its behalf.the property of the company belongs to it and not to the members or shareholders. Hence.

A shareholder does not even have an insurable right in the property of the company. But. either individually or collectively.a company can enforce its rights through suits and can also be sued for breach of its statutory rights. The members have no ownership rights in the company's property. manage and hold the same in its own name. The creditors of the company can have a claim only against the property of the company and not against the property of the individual members. To safeguard the interests of the creditors. .company. To protect the interests of the shareholders. a private company imposes restrictions on transfer of its shares.  A fair and true disclosure of the affairs of companies in their annual published balance sheet and profit and loss accounts.  Separate property:. The basic objectives underlying the Act are: A minimum standard of good behaviour and business honesty in company promotion and management.     To help in the development of companies on healthy lines.all the property of the company vests in it.  Capacity to sue and being sued:. The company can control. To equip the Government with adequate powers to intervene in the affairs of a company in public interest and as per the procedure prescribed by law.

 To help in the attainment of the ultimate ends of the social and economic policy of the Government. A ceiling on the share of profits payable to managements as remuneration for services rendered. which is an unique Identification Number allotted to an individual who is an existing director of a company or intends to be appointed as director of a company pursuant to section 266A & 266B of the Companies Act. etc. For example.  A provision for investigation into the affairs of any company managed in a manner oppressive to minority of the shareholders or prejudicial to the interest of the company as a whole.  Proper standard of accounting and auditing. The various amendments are:- . depositors and debenture holders. the Companies (Amendment) Act. the Companies Act. 1956 has been amended from time to time so as to provide more transparency in corporate governance and protect the interests of small investors. 2006 introduced an important provision of Director Identification Number (DIN).  A check on their transactions where there was a possibility of conflict of duty and interest.  Enforcement of the performance of their duties by those engaged in the management of public companies or of private companies which are subsidiaries of public companies by providing sanctions in the case of breach and subjecting the latter also to the more restrictive provisions of law applicable to public companies. 1956 (as amended vide Act No 23 of 2006). In response to the changing business environment.

Sign up to vote on this title
UsefulNot useful