UNIT : I

The Companies Act 2013 of India defines a company as-

A registered association which is an artificial legal person, having an independent legal,
entity with a perpetual succession, a common seal for its signatures, a common capital
comprised of transferable shares and carrying limited liability.

Characteristics of aCompany
Incorporated association: A company comes into existence when it is registered under the
Companies Act (or other equivalent act under the law). A company has to fulfil requirements
in terms of documents (MOA, AOA), shareholders, directors, and share capital to be deemed
as a legal association.

Artificial Legal Person: In the eyes of the law, A company is an artificial legal person which
has the rights to acquire or dispose of any property, to enter into contracts in its own name,
and to sue and be sued by others.

Separate Legal Entity: A company has a distinct entity and is independent of its members or
people controlling it. A separate legal entity means that only the company is responsible to
repay creditors and to get sued for its deeds. The individual members cannot be sued for
actions performed by the company. Similarly, the company is not liable to pay personal debts
of the members.

Perpetual Existence: Unlike other non-registered business entities, a company is a stable

business organisation. Its life doesn’t depend on the life of its shareholders, directors, or
employees. Members may come and go but the company goes on forever.

Common Seal: A company being an artificial legal person, uses its common seal (with the
name of the company engraved on it) as a substitute for its signature. Any document bearing
the common seal of the company will be legally binding on the company.

Limited Liability: A company may be limited by guarantee or limited by shares. In a

company limited by shares, the liability of the shareholders is limited to the unpaid value of
their shares. In a company limited by guarantee, the liability of the members is limited to the
amount they had agreed upon to contribute to the assets of the company in the event of it
being wound up.

Types of companies

A company can be classified into various types depending upon the following requirements:

Classification of Companies by Mode of Incorporation

Royal Chartered Companies

These companies are formed under a special charter by the monarch or by a special order of a
king or a queen. Few examples of royal chartered companies are BBC, East India Company,
Bank Of England, etc.

Statutory Companies

These companies are incorporated by a special act passed by the central or state legislature.
These companies are intended to carry out some business of national importance. For
example, The Reserve Bank of India was formed under RBI act 1934.

Registered or Incorporated Companies

These companies are formed/incorporated under the companies act passed by the
government. These companies come into existence only after these are registered under the
act and the certificate of incorporation is passed by the Registrar of companies.

Classification of Companies based on the liability of the members

The registered companies can be classified into the following categories based on the
liabilities of members:

Companies Limited By Shares

These companies have a defined share capital and the liability of each member is limited by
the memorandum to the extent of the face value of shares subscribed by him.

Companies Limited By Guarantee

These companies may or may not have a share capital and the liability of each member is
limited by the memorandum to the extent of the sum of money s/he had promised to pay in
the event of liquidation of the company for payments of debts and liabilities of the company.

Unlimited Companies

There is no formal restriction to the amount of money that the shareholder/member of the
company has to pay in the event of the liquidation of an unlimited company.

Classification of Companies based on The Number of Members

Public Company (or Public Limited Company)

A public company is a corporation whose ownership is open to the public. In other words,
anyone can buy the shares of a public company. There are no restrictions to the number of
members of a public company or to the transferability of shares. However, there are some
other restrictions:
  (In India) A public company should have at least 7 members and 3 directors, and issue
a prospectus or file a statement in lieu of prospectus with the Registrar before allotting
shares.
Private Company (or Private Limited Company)

A private company cannot be owned by the public; it restricts the number of members, the
right to transfer its shares and prohibits any invitation to the public to subscribe for any shares
or debentures of the company.

(In India) A private company is a separate legal entity with a suitable company name, an
address, at least 2 members and at most 200 members, and at least two directors with one
being an Indian resident.

One Person Company

A one-person company is an Indian private limited company which has only one
founder/promoter. The founder should be a natural person who is a country resident. There is
also a threshold of paid-up capital (₹ 50 lakh) and average turnover (₹ 2 crores in 3
immediate preceding financial years) for a one-person
UNIT : II

MEMORANDUM OF ASSOCIATION

A Memorandum of Association of any company is a legal document that consist fundamental

information required for the Incorporation of the company. It is also called the Charter of the
Company. Companies may need to bring changes in the clauses of the company, for which
alteration of Memorandum of Association is required. The MOA of a company outlines the
company’s name, the physical address of registered office, names of shareholders, and
distribution of shares.

Section 4 of the Companies Act defines MOA and Memorandum of Association consists
of following clauses:

Name Clause: The name clause of the Memorandum defines that the name of the company
must be unique, authentic, and legal. The name of the company must be different from those
names which are already registered with a similar name. The name availability of the
companies can be checked on the MCA portal[1] for verification. Any such changes in the
name clause require alteration in MOA.

Registered Office Clause: The Registered Office clause comprises of all the details of the
registered office of the company. It has the name of the state or UT of the office location
which may or may not contain the exact address of the office. It includes the name of the
state and UT of the registered office. After the Incorporation of the company, within 15 days
you need to specify the exact location of the office and also verify the office address within
30 days from the Incorporation of the company. Any such change in the objective
requires Alteration in the Registered Office clause of the MOA.

Objective Clause: This clause defines the object for which the proposed company is going to
be incorporated, which means the purpose for which the company is being established. Any
changes in the objective of the company require alteration in the objects clause of the MOA.

Liability Clause: This clause defines the extent to which the shareholders are liable to pay
off the debt obligations during the discontinuation of the company. The clause also states that
no member can be asked to pay more than the amount that is liable to be paid.

Capital Clause: This clause includes the company’s authorized capital with which the
company is registered. Capital Clause specifies the number of shares of each kind and the
face value of each share.

Alteration of Memorandum in different clauses

Any alterations in the different clauses of the MOA are described as the Alteration of
Memorandum of Association.

Alteration in the Name clause of Memorandum

If the company itself wants to change its name, then this alteration in the name clause of
Memorandum will come under clause Section 13.

Whereas for any kind of rectification in the name of the company, then the alteration will
come under clause section 16 which requires approval from the Central Government.
Purpose of memorandum

The purpose of having a memorandum of association is that the person outside the company
must have a clear picture about the company:

1. The shareholder intending to invest his capitals should know the complete details
about the field he is going to put his risk on.
2. Any other person who is planning to deal with the company is obliged to know
without any doubt whether the contractual relation with the company he is
considering to enter with is the one actually relating to the matter within the
company’s corporate objects.

A company can change its name at any time by any of the following procedures:

 By passing a special resolution.

 By obtaining the approval of the Central Government.

What are the Conditions for any such Alteration in the Name?

The change of name shall not be allowed to a company which has defaulted in filing its

 Annual returns
 Financial Statements
 Any document due for filing with Registrar
 repayment of matured deposits or debentures or interest on deposits or debentures

How to Reserve the Company name?

In Form INC.24 an application shall be filed along with the fee for a change in the name of
the company and a new certificate of incorporation in Form No. INC.25 shall be issued to the
company following upon the change in the name.

In RUN (Reservation of Unique Name) form an application for the reservation of a name is
done along with the required fee as provided in the companies Rules, 2014.

Steps taken by ROC (Registrar of Companies)

On any change in the name of the company, the Registrar will enter the new name in the
register of companies in place of the previous name. And after that, it will issue a fresh
certificate of Incorporation with the new name and the change in the name shall be complete
and valid only on the issue of the fresh certificate of incorporation.

Alteration in the Objective Clause of Memorandum

If the company wants to change the objective of its business, then there is a requirement of
special resolution that must be passed. For example, Reliance is a telecommunication
industry and wants to expand or change its service, and then it requires consent from the
majority of its shareholders.
The details of the objective must be published in the newspaper that too in different
languages (one in English and other in the vernacular language) where the registered office of
the company is situated and also on the website of the company.

Alteration of the Registered Office Clause

In case, the company wants to change its registered office, then this alteration in the
registered office clause of Memorandum will come under clause Section 12.

Here, the Registrar will register any alteration in the Memorandum with respect to the objects
of the company and then certify the registration within a period of 30 days. Any such change
in the Memorandum results in the transfer of the registered office of a company from one
state to another.

Shifting of the registered office from one state or UT to another state –

For the change in the registered office from one state to another state, an application under
sub-section (4) of section 13 is filed with the Central Government in Form No. INC.23 along
with the fee. The application must be accompanied by the following documents:

 Copy of MOA (Memorandum of Association) with proposed alterations.

 A copy of the details of the general meeting at which the resolution authorizing such
alteration was passed. These details give the number of votes cast in the favor or
against the resolution.
 A copy of Board Resolution or Power of Attorney.
 A list of creditors and debenture holders is attached to the application, drawn up to the
latest date prior to the date of filing of an application by not more than one month. It
must include:
 The name and address of the credit and debenture holder of the company.
 The nature and amounts due to them in respect of debts, claims, or liabilities.

The company Secretary has a certain task to look into the company’s matter. These are:

 To make a complete inquiry into the affairs of the company and decide that the list of
creditors is true.
 No employee of the company shall be retrenched as a result of the transfer of the
registered office from one state to another.
 Authenticated copy of the list of creditors shall be kept at the registered office of the
company and any person who desires to inspect the list of creditors can do so at any
time during the working hours of business.

A company may alter the capital clause only if it is authorized by its articles. Alteration
can be for any of the following purposes:

Alteration of the Capital Clause

 An increase of its share capital by issue of new shares.

 Consolidation of existing shares into shares of larger amounts.
 Conversion of fully paid shares into stock or vice versa.
 Cancellation of unissued shares.

Alteration of the Liability Clause

The alteration of the Liability Clause restricts the liability of the Directors. The liability
clause can be unlimited by passing a special resolution which should be filed with the
Registrar within a period of 30 days.

What are the steps required for Alteration in MOA?

 A Notice of Board meeting is issued at least 7 days before the date of Board meeting.
 In the board meeting, a board resolution is being passed for the alteration in MOA
subject to approval of shareholder meeting.
 Fix the date, time and venue for convening the shareholder meeting.
 A notice of Shareholder meeting is issued at least 21 days before the date of
shareholder meeting.
 After the shareholder’s resolution is being passed, Form MGT-14 is filed within 30
days from passing of the special resolution along with the Explanatory statement,
altered copy of MOA.

Conclusion

Memorandum of association of any company defines the scope of its activities that are
required for the Incorporation of the company. Any such alteration in the MOA of a
company is a very complicated and lengthy procedure and carried out only by a special
resolution at the shareholder meeting.

Articles of Association
Understanding Articles of Association
Articles of Association is an important document of a Joint Stock Company. It contains the
rules and regulations or bye-laws of the company. They are related to the internal working or
management of the company. It plays a very important role in the affairs of a company. It
deals with the rights of the members of the company between themselves.

The contents of articles of association should not contradict with the Companies Act and the
MOA. If the document contains anything contrary to the Companies Act or the Memorandum
of Association, it will be inoperative. The pvt concern that are limited by shares and those
limited by guarantee and unlimited companies must have their articles of association. Public
companies may not have their articles but may adopt Model articles given in Table A of
Schedule I of Companies Act, 1956. If a public company has only some articles of its own,
for the rest, articles of Table A will be applicable.
Articles that are profound to be registered should be printed, segmented well and sequenced
consecutively. Each subscriber to Memorandum of Association must sign the articles in the
presence of at least one witness.

Contents of Articles of Association

The articles generally deal with the following

1. Classes of shares, their values and the rights attached to each of them.

2. Calls on shares, transfer of shares, forfeiture, conversion of shares and alteration of capital.

3. Directors, their appointment, powers, duties etc.

4. Meetings and minutes, notices etc.

5. Accounts and Audit

6. Appointment of and remuneration to Auditors.

7. Voting, poll, proxy etc.

8. Dividends and Reserves

9. Procedure for winding up.

10. Borrowing powers of Board of Directors and managers etc.

11. Minimum subscription.

12. Rules regarding use and custody of common seal.

13. Rules and regulations regarding conversion of fully paid shares into stock.

14. Lien on shares.

Alteration of Articles of Association

The alteration of the Articles should not sanction anything illegal. They should be for the
benefit of the company. They should not lead to breach of contract with the third parties. The
following are the regulations regarding alteration of articles:

A company may alter its Articles with a special resolution. Due importance and care should
be given to ensure that the alteration of AoA does not conflict with the provisions of the
Memorandum of Association or the Companies Act. A copy of every special resolution
altering the Articles must be filed with the Registrar within 30 days of its passing.

1. The proposed alteration should not contravene the provisions of the Companies Act.

2. The proposed alteration should not contravene the provisions of the Memorandum of
Association.

3. The alteration should not propose anything that is illegal.

4. The alteration should be bonafide for the benefit of the company.

5. The proposed alteration should in no way increase the liability of existing members.

6. Alteration can be made only by a special resolution.

7. Alteration can be done with retrospective effect.

8. The Court does not have any power to order alteration of the Articles of Association
 BASIS FOR STATEMENT IN LIEU OF
PROSPECTUS
COMPARISON PROSPECTUS

Meaning Prospectus refers to a legal- Statement in lieu of prospectus is a

document published by the document issued by the company
company to invite general public for when it does not offer its securities
subscribing its shares and for public subscription.
debentures.

Objective To encourage public subscription. To be filed with the registrar.

Used when Capital is raised from general Capital is raised from known
public. sources.

Content It contains details prescribed by the It contains information similar to a

Indian Companies Act. prospectus but in brief.

Minimum Required to be stated Not required to be stated

subscription

Meaning.of Prospectus
It refers to a legal-document published by the company to invite general public for
subscribing its shares and debentures. Statement in lieu of prospectus is a
document issued by the company when it does not offer its securities for
publicsubscription

Examples of Prospectus
In an IPO, the prospectus tells potential shareholders about the company’s plans and business
model.
For insurance and investment fund customers, a prospectus lists out the objective of the
product, inclusions, and exclusions, fees, etc.
For an ETF, a prospectus informs likely investors of the fund’s goals, history, portfolio, fees
and costs, and other financial details.
Importance of Prospectus
The company provides prospectus with capital raising intention. Prospectus helps the
investors to make a well-informed decision because of the prospectus all the required
information of the securities which are offered to the public for sale.
Whenever the company issues the prospectus, the company must file it with the regulator.
The prospectus includes the details of the company’s business, financial statements.

1. To notify the public of the issue

2. To put the company on record with regards to the terms of the issue and allotment process
3. To establish accountability on the part of the directors and promoters of the company
 Types of prospectus

According to Companies Act 2013, there are four types of prospectus.

Deemed Prospectus – Deemed prospectus has mentioned under Companies Act, 2013
Section 25 (1). When a company allows or agrees to allot any securities of the company, the
document is considered as a deemed prospectus via which the offer is made to investors. Any
document which offers the sale of securities to the public is deemed to be a prospectus by
implication of law.
Red Herring Prospectus – Red herring prospectus does not contain all information about the
prices of securities offered and the number of securities to be issued. According to the act, the
firm should issue this prospectus to the registrar at least three before the opening of the offer
and subscription list.
Shelf prospectus – Shelf prospectus is stated under section 31 of the Companies Act, 2013.
Shelf prospectus is issued when a company or any public financial institution offers one or
more securities to the public. A company shall provide a validity period of the prospectus,
which should not be more than one year. The validity period starts with the commencement
of the first offer. There is no need for a prospectus on further offers. The organization must
provide an information memorandum when filing the shelf prospectus.
Abridged Prospectus – Abridged prospectus is a memorandum, containing all salient
features of the prospectus as specified by SEBI. This type of prospectus includes all the
information in brief, which gives a summary to the investor to make further decisions. A
company cannot issue an application form for the purchase of securities unless an abridged
prospectus accompanies such a form.
Prospectus and its contents
The prospectus contents are specified in the Companies Act. The prospectus must touch over
the following content points:

1. Details of the company, such as name, registered office address, and objects
2. Details of signatories to the Memorandum and their shareholding particulars
3. Details of the directors
4. Details of shares offered and the class of the issue as well as voting rights
5. Minimum subscription amount
6. The amount payable on application, on allotment, and on further calls
7. Underwriters of the issue
8. Auditors of the company
9. Audited reports regarded profit and losses of the company
UNIT III

Who can become a member?

The company law does not prescribe any disqualification, which would depart a person from
becoming a member of a company. It appears that any person who is competent to enter into
valid contract can become a member of a company. The reason is obvious. Subscribing for
shares is basically a contract between the company and the shareholder. However, the
Memorandum or Articles may impose certain restrictions or restrain certain persons from
acquiring membership in a company. In the absence of any express provision regarding the
capacity of a person, the provisions of the Contract Act shall apply.

As regards to certain special category of persons, the judiciary has laid down certain
principles for acquiring membership in a company. They are as follows:

1. Minors: A minor, is not a competent person to enter into a valid contract. As such, he is
disqualified to acquire membership. However, minors may be allotted shares. On attaining
majority, the minor can avoid the contract. But the minor should repudiate the contract within
a reasonable time.
2. Lunatic and Insolvent: A lunatic cannot become a member. An insolvent, however, can
become a member and is entitled to vote at the meetings of the company. But his shares vest
in the Official Receiver when he is adjudged insolvent.
3. Partnership Firm: A partnership firm may hold shares in a company in the individual
name of partners as joint holders. But the shares cannot be issued in the name of the
partnership firm, as it is not a legal person in the eye of law.
4. Company: A company, being a legal person, can become the member of another company
in its own name. But a company can subscribe for the shares of another company only when
it is authorized by Memorandum. Similarly, a subsidiary company cannot buy the shares of
its holding company.
5. Foreigners: Foreign national can be members of companies registered in India. For that
permission of RBI is mandatory. When he turns an alien enemy, his right as a member will be
suspended.
6. Fictitious Person: A person who takes the shares in the name of fictitious person becomes
liable as a member. Besides, such a person can be punished for impersonation under section
68-A.
Modes of acquiring membership
As per Sec. 41 of the Companies Act, a person may acquire the membership of a company

1. by subscribing to the Memorandum before the registration of the company.

2. by agreeing to become a member

a. by applying for the shares offered by a company.

b. by becoming a transferee of a share or shares and being placed on the register of
members.
c. by transmission of shares on succession to a deceased or bankrupt member and the
consequent registration in the register of the company.
d. by holding out shares and by allowing his name to be retained on the register.
Besides, there is another method of becoming a member of a company i.e. “Membership by
Qualification Shares“. If a person agrees to become a director of a company, he is deemed
to have accepted to become a member of that company. On his appointment, certain shares
should be allotted to him. The Companies Act provides that any one who agrees to become a
 director of a public company should take at least one share before his appointment. Such
shares are known as qualification shares.
Rights of the Members
The members of a company enjoy several rights and they are the ultimate authority in the
matters of the company and its management. Their rights can be grouped under three heads.
They are detailed below:

1. Statutory Rights: These are the rights conferred upon the members by the Companies Act.
These rights cannot be taken away by the Articles of Association or Memorandum of
Association. Some of the important statutory rights are given below
i. Right to receive notice of meetings, attend, to take part in the discussion and vote at the
meetings.
ii. Right to transfer the shares [in case of public companies].
iii. Right to receive copies of the Annual Accounts of the company.
iv. Right to inspect the documents of the company such as register of members, annual
returns, etc.
v. Right to participate in appointments of directors and auditors in the Annual General
Meetings.
vi. Rights to apply to the Government for ordering an investigation into the affairs of the
company.
vii. Right to apply to the Court for winding up of the company.
viii. Right to apply to the National Company Law Tribunal for relief in case of oppression
and mismanagement under Secs. 397 and 398.
2. Documentary Rights: In addition to the statutory rights, there are certain rights that can be
conferred upon the shareholders by the documents like the Memorandum and the Articles of
Association.
3. Legal Rights: These are the rights, which are given to the members by the General Law.

Difference between Member & Shareholder

MATTER Member Shareholder

Meaning A person whose name is A person who owns the shares of the company.
entered in the register of
members of a company.

Definintion Companies Act, 2013 defines Shareholder is not listed under the Companies Act, 2013
‘Member’ under section 2(55)

Share The holder of the share warrant The holder of the share warrant is a Shareholder.
Warranges is not a member.

Company Every company must have a The Company limited by shares can have shareholders
minimum number of members.
Memorandum A person who signs the After signing the memorandum, a person can become a sh
memorandum of association shares are allotted to him.
with the company becomes a
member.

Modes of Acquiring Membership

Acquiring a membership in a company requires many processes and modes. The following
are the modes of acquiring membership in a company:

Subscribing to MOA

 If a person agrees to sign the memorandum and pledge his presence on the board of
members, he becomes the member of the company.
 Names of the people who have agreed to join the membership of the company should
be entered in Register of Members.
 Along with the agreement, if they’ve agreed to share the company’s shares they
become the Shareholders of the Company.

Agreement in Writing

 A person would become the member of the company if he ‘agrees in writing’ and gets
his name entered in the register of members of the company.
 A shareholder would also become a member of the company if he ‘agrees in
writing’, and by the following methods:
o By transfer of shares
o By transmission of shares
o By Estoppels (Membership Without sufficient Cause).

Holding Shares
A person becomes a member of the company if his name is entered as a beneficial owner of
the records of the depository and also holds equity share capital of the company. In such
cases, the person needn’t apply ‘in writing’ to become a member of the company.