COMPANIES ACT

1956
 About Company Act
The Companies Act 1956 is an Act of the Parliament of
India, enacted in 1956, which enabled companies to be
formed by registration, and set out the responsibilities of
companies, their directors and secretaries

The Companies Act 1956 is administered by

the Government of India through the Ministry of
Corporate Affairs and the Offices of Registrar of
Companies, Official Liquidators, Public
Trustee, Company Law Board, Director
of Inspection, etc. The Registrar of Companies (ROC)
handles incorporation of new companies and the
administration of running companies
 Contd
Since its commencement, it has been amended many
times, in which amendment of 1988, 1990, 1996, 2000
and 2011 are notable

Like most of Indian acts, it also extends to the whole

India except State of Jammu and Kashmir (S. 3).
Notwithstanding anything contained in the Act every
company, international or indigenous will work under the
provisions of the Act. This Act is general in nature and
not subordinate.
 Contd
So if a special Legislation applies on a Company, then
the Company has to, in addition to Companies Act, must
comply the special Legislation.

For example, all banking Companies in India has to

comply Banking Regulation Act 1949, in addition to the
Companies Act 1956.

The Act is 658 sections long. It contains provisions about

Companies, directors of the companies, memorandum
and articles of associations, etc. This act states and
discusses every single provision requires or may need to
govern a company.
 What is a Company???
A company is an artificial person created
by law.
A company means a group of persons
associated together for the attainment of a
common end, social or economic.
 Definition of a Company
According to Sec (1), A company formed
and registered under the act.
According to Sec (3) of the act,
On incorporation a company becomes a
body corporate or a corporation with a
perpetual succession and a common
seal.
 Essential Characteristics of
a Company
Registration- Should be registered under
the Companies Act.
Distinct Person- Separate legal entity.
Perpetual succession- Never dies.
Easy transfer of shares.
Limited liability.
Artificial person but not a citizen.
Common Seal.
 Contd
Capacity to sue and be sued.
Share holders are actual owners of
Company.
Number of persons are as per MOA.
Separate Property.
 Approval of the Name of the
Company
Registrar of the Companies of the State
where the company to be incorporated.
Availability of a name can be check using
the Check Company name Service under
other Services tab on homepage of MCA
i.e. www.mca.gov.in.
Once this is done, chances of
rejection of proposed name will
be much less.
 Application for approval
of the name
Application for approval of name should be
made to regional ROC electronically in
form 1A with fees of Rs 500
 Other Formalities
Registrar of Companies is required to
inform approval of name / rejection of
proposed name within 7 days.
6 names have to be submitted to the
Registrar of Company.
 Types of Companies

Royal Charter/ Statutory Registered

Chartered Companies Companies Companies

On basis of Liability

Companies limited Companies limited

by shares. by guarantee. Unlimited
companies

Public Companies Private Companies

 Types of Companies
On the basis of Liability
On the basis of Incorporation
On the basis of Ownership
Government Companies
On the basis of Jurisdiction
On the basis of Control &Shareholding
One Man Company
 Contd
On the basis of Liability
Limited by shares
Limited by Guarantee
Unlimited liability Company
On the basis of Incorporation
Chartered Company
Statutory Company
Registered Company
 Contd
On the basis of Ownership
Private Limited Company
Public Limited Company
Government Companies
On the basis of Jurisdiction
Foreign Company
MNC Company
 Contd
On the basis of Control & Shareholding
Holding Company
Subsidiary Company
One Man Company
 On the basis of Liability
Companies Limited by shares : companies
limited by shares are the most commonly found
companies.
Section 12 (2) (a) implies that where the liability
of the shareholders of a company is limited to
the extent of the unpaid amount on the shares
held by them, the company is known as a
company limited by shares.
 On the basis of incorporation
Chartered Companies
Companies which are incorporated under special charter or proclamation
issued by the head of state, are known as chartered companies. The Bank
Of England, The East India Company, Chartered Bank etc. are the
examples of chartered companies.
Statutory Companies
Companies which are formed or incorporated by a special act of parliament,
are known as statutory companies. The activities of such companies are
governed by their respective acts and are not required to have any
Memorandum or Articles Of Association.
Registered Companies
Registered companies are those companies which are
formed by registration under the Company Act.
Registered companies may be divided into two categories.
 Contd
Private Company
A company is said to be a private company which by its Memorandum of
Association restricts the right of its members to transfer shares, limits the
number of its members and does not invite the public to subscribe its shares
or debentures.
Public Company
A company, which is not private, is known as public company. It needs
minimum seven persons for its registration and maximum to the limit of its
registered capital. There is no restriction on issue or transfer of its shares
and this type of company can invite the public to purchase its shares and
debentures.
 On the basis of
Ownership
Private company :
Section 3 (i) (iii) defines a private company as
follows-
Private company means a company which by
its Articles
a) Restricts the rights to transfer its shares, if
any,
b) Limits the number of its members to fifty and
c) Not includes the persons who are in
employment of the company;
 Contd
d) 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 ceased; and
e) prohibits any invitation to the public to subscribe for
any shares in or debentures of the company.
Thus, the three features i.e. restriction on right to
transfer, limit on the number of members and invitation
to the public to subscribe as mentioned above are the
mandatory provisions of a private limited
company words Private Limited are required
to be used at the end of the name of every company.
 Contd
Public company :
Section 3 (1)(iv) lays down that. Public company means
a company which is not a private company.
Thus it can be said that a public company is a company
which by its Articles, does not restricts the right to
transfer its shares. If any, does not limit the number of its
members and further does not prohibit any invitation to
the public to subscribe for any shares in or debentures of
the company. Any seven or more persons can come
together and join hands to form a public company.
However, there is no restriction on the maximum number
of members
Government Companies
Section 617 of the companies Act of 1956 defines government
company as follows
i) For the purpose of this Act Government company means any
company in which more than fifty one percent of the paid up share
capital is held by the central government, or by any State
Government, or Governments or partly by others.
The Central Government and partly by one or more state
governments and includes a company which is a subsidiary of a
Government company as thus defined In India, there are many
companies in which 100% paid-up share capital or more than 51%
of the paid up share capital is provided by the Central or State
Government.
 On the basis of Jurisdiction
The boundaries of the country wherein it is
registered, such a company is called a
multinational or transnational company
Foreign company
It can be said that a foreign company is one which is incorporated
outside India but has a place of business in India.
MNC
Companies incorporated outside India
before/after the commencement of this act at
many places, established a place of business
within India and continue their business at established
places within India at the commencement of this Act and after.
 On the basis of control
and/or share holding
Holding company :- section 4 (iv) of the companies Act of 1956
implies that a company is deemed to be holding company of another
if that other is its subsidiary. Thus, a holding company can be
defined as a company which has a control over a subsidiary
company through anyone of the several methods as explained in
section 4(i).
Subsidiary company :- A company is a subsidiary of a holding
company if a holding company controls the majority composition of
its board of directors, having an object to control the management of
the subsidiary or that other company i.e. holding company holds the
majority of its shares or the holding companys subsidiary has its
own subsidiary, it becomes the subsidiary of the first mentioned
company
 One Man company
One man company can be a public or a private
company, but it is usually a private company wherein
one man holds practically the whole of the share capital
of the company. In other words, it can be said that where
a single man holds almost all the shares of a company
such a company is called as one man company. If one
man company satisfies all the conditions and
requirements of incorporation as laid down in the
companies Act, it becomes a legal personality.
 Difference between
Public & Private Company
PRIVATE LTD. PUBLIC LTD.
No of members No of members can be 7 to
from 2 to 50 unlimited.
Minimum paid up capital Minimum paid up capital of
of Rs one lakh. Rs. 5 lakh.
Cannot invite public to Can invite public to
subscribe for shares of subscribe for shares or
debentures. Debentures.
Can accept deposit only Can accept
from members, directors public deposits.
or their relatives.
 Contd
PRIVATE LTD. PUBLIC LTD.
Should contains words Should contains words
Private Ltd at the end Public Ltd at the end of
of its name. its name.
Statutory meeting and Statutory meeting and
statutory report is not Statutory report is
required. required.
Postal ballot is never There are many
required. resolutions for which
postal ballot is
required.
 Contd
Annual accounts Annual accounts and
and documents can documents can be
be seen by a member. seen by any person
and a copy can also
be obtained.
Can restricted transfer Shares are freely
of shares. transferable.
 Winding
up/liquidation/dissolution
Winding up of a company is a process of
putting an end the life of a company. It is a
proceeding by means of which a company
is dissolved and in the course of such a
dissolution its assets are collected, its
debts are paid off out of the assets of the
company or from contribution
by its members.
Q1. On acceptance of deposits a private Company becomes a Public
Company, ( TRUE/FALSE)

False. A private Company becomes a public Co. on acceptance of deposits

from public through issue of advertisement. However the private Co. can
accept the deposit from its shareholders, directors, from their relatives and
even then the private Co. does not become a public Co. (Sec.3)
Q2. A firm can also become member of a Company which has been
granted license under Section 25 of the Act.

Yes, Sec.25 of the Companies Act permits a firm to be a member of any

association or Company licensed under this section. In fact this is the only
one case which permits the partnership firm to become a member of a
Company.
Q3. The Registrar of Companies issued a Certificate of Incorporation
actual on 8th January, 1999. However, by mistake, the certificate was
dated 5th January, 1999. An allotment of shares was made before
the Company was incorporated?

If allotment of shares was made on 5th or after 5th Jan, then it is valid, but
if allotment was made before 5th then it is void. In the given question
proper date of allotment was not mentioned, so we have to take
assumption.
Q4. Two joint Hindu families carry on a business as joint-owners. The
first family consists of 3 brothers and their respective sons being 12
in number. The second family consists of the father, 4 major sons
and 2 minor sons. Is the association illegal?

The first family consists of 15 members (3 brothers + 12 sons) and the

second family that of 5 members (1 father + 4 sons and ignoring 2 minor
sons). The total number of the members of the two families constituting the
association thus comes to 20. The association is not an illegal Association.
Q5. It is not necessary to present a copy of Articles of Association to
the Registrar of the Companies at the time of incorporation of the
Public Company limited by shares. Is it Correct?

Sec.26 provides that the Companies limited by guarantee, private limited

Companies, and unlimited Companies must have their own articles of
association, while a public Company limited by shares may or may not
have its own articles. Since, in this case it is a public company limited by
shares it is not necessary to present a copy of articles of association to
ROC and in such a case Table A of Schedule I (Model articles) shall be
deemed to be the Companys articles