Companies Act 2013

The Companies Act 2013 is the law covering incorporation, dissolution and the
running of companies in India. The Act came into force across India on 12th
September 2013 and has a few amendments to the previous act of 1956. It has also
introduced new concepts like a One Person Company. 

Meaning and Features of a Company

With a phenomenal change in the domestic and international economic landscape,
the Government of India decided to replace the Companies Act, 1956 with a new
legislation. The Companies Act, 2013, endeavours to make the corporate
regulations in India more contemporary.

Meaning of a Company
There are many definitions of a Company by various legal experts. However,
Section 2(20) of the Companies Act, 2013, defines the term ‘Company’ as follows:
“Company means a company incorporated under this Act or under any
previous company law.”

Hence, in order to understand the meaning of a Company, it is important to look at

the distinctive features that explain the realm of a Company.

Features of a Company
A Company is a Separate Legal Entity

One of the most distinctive features of a Company, as compared to

other organizations, is that it acquires a unique character of being a separate legal
entity. Hence, when you register a company, you give it a legal personality with
similar rights and powers as a human being.

The existence of a company is distinct and separate from that of its members. It can
own property, bank accounts, raise loans, incur liabilities and enter into contracts.
According to Law, it is altogether different from the subscribers to
the Memorandum of Association.

Also, it has a distinct personality which is different from those who compose it.
Member can also contract with the Company and acquire a right against it or incur a
liability to it. However, for any debts, the creditors can sue the Company but the
members cannot.

A Company can own, enjoy, and dispose of a property in its own name. While the
shareholders contribute to the capital and assets, the company is the rightful owner
of such assets and capital. Further, the shareholders are not private or joint holders
of the company’s property.

Perpetual Succession

Another important feature of a Company is that it continues to carry on its business

notwithstanding the death of change of its members until it is wound up on the
grounds specified by the Act. Further, the shares of the company change hands
infinitely, but that does not affect the existence of the company.

In simple words, the company is an artificial person which is brought into existence
by the law. Hence, it can be ended by law alone and is unaffected by the death or
insolvency of its members.

Limited Liability

One of the important features of a company is the limited liability of its members.
The liability of a member depends on the type of company.

 In the case of a limited liability company, the debts of the company in

totality do not become the debts of its shareholders. In such a case, the
liability of its members is limited to the extent of the nominal value of
shares held by them. The shareholders cannot be asked to pay more
than the unpaid value of their shares.

 In the case of a company limited by guarantee, members are liable only

to the extent of the amount guaranteed by them. Further, this liability
arises only when the company goes into liquidation.

 Finally, if it is an unlimited company, then the liability of its members is

unlimited too. But such instances are very rare.
Artificial Legal Person

Another one of the features of a company is that it is known as an Artificial Legal

Person.

 Artificial – because its creation is by a process other than natural birth.

  Legal – because its creation is by law, and

 Person – because it has similar rights to a human being.

Further, a company can own property, bank accounts, and do everything that a
natural person can do except go to jail, marry, take an oath, or practice a learned
profession. Hence, it is a legal person in its own sense.

Since a company is an artificial person, it needs humans to function. These humans

are Directors who can authenticate the company’s formal acts either on their own or
through the common seal of the company.

Common Seal

While a company is an artificial person and works through the agency of human
beings, it has an official signature. This is affixed by the officers and employees of
the company on all its documents. This official signature is the Common Seal.

However, the Companies (Amendment) Act, 2015 has made the Common Seal
optional. Section 9 of the Act does not have the phrase ‘and a common seal’ in it.
This provides an alternative mode of authorization for companies who do not wish
to have a common seal.

According to this amendment, if a company does not have a common seal, then the
authorization shall be done by:

 Two Directors or

 One Director and the Company Secretary (if the company has appointed
a Company Secretary).

Company Kinds: Top 8 Kinds of Companies Registered in India

You can register the following kinds of companies in India:  
1. Chartered Company:
Before the enactment of the Companies Act, a company would be formed by means
of Royal Charter or Proclamation. That is, the promoters had to apply to the King
through the parliament for necessary sanction and approval of the company. As such,
these companies were called Chartered Companies and they were to use the word
‘Chartered’, e.g., the East India Company, the Bank of England etc.
2. Registered Company:
The companies which are registered and formed under the Companies Act, 1956, or
were registered under any of the earlier Companies Act are called Registered
Company. These are commonly found companies.

They were of three types:

(i) Company Limited by Shares [Sec. 12(2)(a)];

(ii) Company Limited by Guarantee [Sec. 12(2)(b)]; and

(iii) Unlimited Company [Sec. 12(2)(c)].

(i) Company Limited by Shares [Sec. 12(2)(a)]:

In these companies, the liability of the shareholders is limited up to the extent of the
face value of shares owned by each of them, i.e., the member is not liable to pay
anything more than the fixed value of the shares, whatever may be the liability of the
company.

It is interesting to note that the liability can be maintained either during the
existence of the company or during the period of winding-up. Needless to mention, if
the shares are fully paid, the liability of the shareholders are nil with the exception to
the rule as laid down in Sec. 45. The type of company may be a Private Company or a
Public Company.

(ii) Company Limited by Guarantee [Sec. 12(2)(b)]:

In these companies, the liability of the shareholders is limited to a specified amount
as provided in the memorandum, i.e., each member provides to pay a fixed sum of
money in the event of liquidation of the company.

It has a legal entity distinct from its members. The liability of its members is limited.
According to Sec. 27(2), the Article of Association of the company must express the
number of members by which the company is actually registered.

It is interesting to note that these types of companies are not formed for the purpose
of earning revenue/profit but for the purpose of promoting arts, sciences, commerce,
culture, sports etc., and, as such, they may or may not have any share capital. So, the
amount which has been guaranteed by the members is like reserve capital.

If the company has a share capital, it must conform to Table D in Schedule I, and, if it
has no share capital, it must conform to Table C in Schedule I. It is also mentioned
here that if it has a share capital, it is governed by the same provisions as governed
by the company limited by shares. It cannot purchase its own shares [Sec. 77(1)].
This type of company may be a Private Company or a Public Company.

According to Sec. 426, if the company limited by guarantee is being

wound-up, every member is liable to contribute to the assets of the
company for:
(a) Payment of the liabilities,

(b) Cost, charges and expenses of winding-up, and

(c) For adjustment of rights of the contributories among themselves.

(iii) Unlimited Company [Sec. 12(2)(c)]:

In these companies, every shareholder is liable for all the liabilities of the company
like ordinary partnership in proportion to his interest. According to Sec. 12, any
seven or more persons (two or more in case of private company) may form a
company with or without limited liability and a company without limited liability is
actually known as unlimited company. It may or may not have any share capital. It
will be a private or a public company if it has a share capital. Its Articles of
Association will provide the number of members by which the company is registered.

3. Statutory Company:
These companies are created by the Special Act of the legislature, e.g., the State Bank
of India, the Life Insurance Corporation of India, the Reserve Bank of India, etc.
These are actually concerned with public utility services, e.g., railways, gas and
electric companies, etc. which require special powers to function.

4. Private Company:
According to Sec. 3(1)(iii) of the Indian Companies Act, 1956, a
private company is one which, by its Articles:
(i) Restricts the rights to transfer its shares, if any;

(ii) Limits the number of the members to fifty not including

(a) Persons who are in the employment of the company, and

(b) Persons who, having been formerly in the employment of the company, were
members of the company while in that employment, and have continued to be
members after the employment ceases; and
(iii) Prohibits any invitation to the public to subscribe for any shares in or debentures
of, the company.

A private company must have its own Articles of Association which will contain the
provisions laid down in Sec. 3(1)(iii).

This type of company is in the nature of partnership with mutual confidence among
them.

5. Public Company:
Sec. 3(1)(iv) of the Indian Companies Act, 1956, states that public companies are “all
companies other than private companies.” It is a company of seven or
more persons which offers its shares to the public for subscription. Since its shares
are offered to the public, scope for investment by a large number of- people is
possible.
Its Articles do not contain provisions restricting the number of its members or
excluding generally the offer or transfer of shares or debentures to the public.
Accordingly, any public who is interested to purchase shares or debentures may
acquire the same. In this company, there is no maximum limit of members like
private company.

6. Foreign Company:
The companies which are incorporated outside India but which had a place of
business in India prior to commencement of the new Companies Act, 1956, and
continue to have the same or which establishes’ a place of business in India after the
commencement of the Companies Act, 1956, is called a foreign company. These
companies are registered in a country outside India and under the law of that
country.

At present Sec. 591(2) added by the Companies (Amendment) Act, 1974, informs that
where not less than 50% of the paid-up share capital (whether equity or preference or
partly equity or partly preference) of a foreign company, (i.e., a company
incorporated outside India having an established place of business in India) is held
by one or more citizens of India and/or by one or more Indian companies, singly or
jointly, such company shall comply with such provisions as may be prescribed as if it
was an Indian company.
If a company has an established place of business in India and if it has a specified or
identified place where it carries on business, e.g., an office, store-house, godown or
other premises.

7. Government Company:
According to Sec. 617, a Government company is a company in which not less than
51% of the paid-up share capital is held by the Central Government and/or any State
Government or partly by Central and partly by State Governments. The subsidiary of
a Government company is also a Government company.

8. Holding and Subsidiary Company:

According to the Companies Act, 1956, a holding company may be defined as “any
company which directly or indirectly, through the medium of another company,
holds more than half of the equity share capital of other companies or controls the
composition of the board of directors of other companies. Moreover, a company
becomes a subsidiary of another company in those cases where the preference
shareholders of the latter company are allowed more than half of the voting power of
the company from a date before the commencement of this Act”.

In other words, a holding company is one which controls one or more other
companies—either by means of holding shares in that company or companies or by
having powers to appoint directly or indirectly the whole or majority of the Board of
Directors of those companies.

A company controlled by a holding company is known as a subsidiary company.

Actually, it is a part and parcel of the combination movement in business.