COMPANIES ACT

Company Act
• Agenda:

• What is a Company?
• Types of Companies
• Th e Promoters.
• Directors in a Company.
• The Shareholding Pattern
 Definition of a Company:

• It mean an association of individuals formed

for some common purpose.
• It is an artificial person created by law , with a
fixed capital, divided into transferable shares,
with perpetual succession and common seal.
• As defined in Companies Act 1956, Section
3(1) (i) and (ii): ³A company formed and
registered under this Act or an existing
company. An µexisting company means a
company formed and registered under any of
the former Companies Act

• A voluntary incorporated association which is

an artificial person, created by law with limited
liability having common seal and perpetual
succession
• Company : Characteristics
• Separate Legal Entity.
• Limited Liability.
• Perpetual Succession.
• Common Seal.
• Transferability of Shares.
• Capacity to Sue.
 Classification of Companies

Classification of
companies

On the basis of On the basis of On the basis of On the basis of

On the basis of Ownership
incorporation Liability Number of members Control o
• Classification (Contd.)
• On the Basis of INCORPORATION.
• 1.Statutory Companies.
• 2.Registered Companies.

• On the basis of LIABILITY.

• 1.Limited by Share.
• 2.Limited by Guarantee.
• 3.Unlimited Liability.
• Classification (Contd.)
• On the Basis of MEMBERS:
• 1.Private Companies.
• 2.Public Companies.

• On the basis of CONTROL

• 1.Holding Company.
• 2.Subsidiary Company.
• Classification (Contd.)
• On the Basis of OWNERSHIP:
• 1.Government2.
• 2.Non Government.
 Promoters.

• Promotion
• Legal position of promoters.
• Promoters Liability.
• Promoters remuneration.
• Pre-incorporation contract.
 Directors: Definition
• Sec. 2 (13) defines director as ³any person
occupying the position of authority to act on
behalf of the company´
• The directors of a company are collectively
known as board of directors'. On the analogy
of the representative form of government, they
are elected representatives of shareholders.
•
First Directors
• Appointment by the company.
• Appointment by the directors.
• Appointment by third parties.
• By proportional representation.
• By the central government.
•
 Position of Directors
• As agents
• As employees.
• As officers
• As trustees.
 Disqualifications of Directors.

• Unsound Mind.
• Undischarged Insolvent
• Applied to be adjudicated.
• Convicted by Court.
• Calls in respect of shares, been in arrear .
• Sec. 203 : Fraud or misfeasance.
• All ready a director of a public company.
 SHARES Definition:

• A share is an interest of a shareholder in a company.

The capital of a company is divided into certain
indivisible units of a fixed amount called shares.
• an interest having a money value & made up of
diverse rights specified under Articles of
Association.´
• It includes stock except where a distinction between
astock & a share is expressed or implied. [ Sec.2
(46)]
 SHARES
• A share is evidenced by a share certificate.
[Sec. 84]
• Each share is distinguished by appropriate
• number. [S ec. 83]
• A bundle of rights and obligations.
• Shares • Stocks
• Have a nominal Value. • Have no nominal Value
• May not be so. • Always full paid up.
• Equal denomination. • Can be of Unequal
• Directly issued to the public. Denomination.
• Transferable in whole • Cannot be issued directly.
numbers.
• Transferable is small
• Always bear a distinctive
number. fractions.
• Fractions does not bear
•
distinctive number
 Preference shares
• Have Preferential right • Preferential right to the
to be paid return of
• dividend during the life • capital when the
time of a company goes into
• company. • liquidation.
Equity Shares
[Sec 85 (2) ]
With reference to any Sweat Equity Shares
company limited by shares.
 Preference Sh ares (Types)

• Cumulative Prefrence Shares
• Non-Cumulative prefrence shares.
• Participating prefrence shares.
• Non participating prefrence shares.
• Convertible prefrence shares.
• Non-Convertivle prefrence shares.
• Redeemable prefrence shares. [Sec. 80]
 Application & Allotment of
Shares
• 1.Minimum subscription [Sec. 69 (1) ].
• 2.Application Money [ Sec 69 (3) to (6) ].
• 3.Effect of irregular allotment [ Sec. 7].
• 4.Opening up of subscription list [ Sec. 72]..
• 5.Shares and debentures to be listed on stock
exchange [Sec 73].
• 6.Return as to allotments [Sec 75].
 Buy-back of shares
[Sec. 77-A]
• Company is allowed to purchase its own shares from:
• Its free reserves.
• Securities premium account.
• Proceeds of earlier issue.
• Conditions for buy back.
• Authorized by its Articles.
• Resolution passed in its general meeting.
• Must not exceed 25 % of reserves.
• Must be listed on stock exchange and regulated by
SEB I.