COMPANY
ACT 1956
PRESENTED BY:
Anitika katoch
Rajat Kumar
COMPANY
The word company is derived from a Latin word
`companies` it means a group of persons who took their
need together.
Is an Artificial Person created by Law.
In India law relating to companies are contained in The
companies Act 1956.
Meaning and definition
A company is a voluntary association of persons formed
for some common purpose with capital divisible
intoparts known as shares .
Justice Lindlay defines company as an association of
many persons who contribute money or moneys worth to
a common stock and employ it in some trade or business
and who share the profits arising there from
According tocompanies acta company means a company
formed and registered under companies act.
FEATURES OF COMPANY
1.VoluntaryAssociation
A company is voluntary association of persons who have come together for a
common object which generally is to earn profit. The activities of this association
are governed by the law and are limited by its memorandum of association
2.Incorporatedassociation
A company comes into existence on incorporation or registration under the
companies act. Minimum number of persons required for the purpose of
incorporation is seven in case of a public company and two in case of a private
company.
3.Separatelegalentity
On incorporation company gets personality which is separate and distinct from
those of its members. Company is an artificial person created by law.
4.Separateproperty
The company can own , enjoy and dispose off its property in its own name
5.Legalrestrictions
The formation, working and winding up of a company are strictly governed by
laws, rules and regulations
CONTI
6.Perpetualsuccession
Unlike a person a company never dies. Its existence is not affected in any way
by the death or insolvency of any shareholder. Members may come and members
may go , but the company continues its operations until it is wound up.
7.Commonseal
As a company is an artificial person it cannot sign its name on a contract. So it
function with the help of seal. All contract entered into by the members will be
under the common seal of the company.
8.Sharecapital
A company mobilizes its capital by selling its shares. Those persons who buy
these shares become its share holders and thereby become members in it
9.LimitedLiability
In case of limited companies liability of members will be limited to the amount
unpaid on the shares.
10.Transferabilityofshares.
Members can freely transfer and sell their shares .The right to transfer share is a
statutory right of members.
OWNERSHIP AND MANAGEMENT
The owners of a company are its share holders.
The affairs of the company are managed by their
representatives known as Directors
TYPE OF COMPANIES
Companies can be classified on the basis of ;
A.Incorporation
B.Liability of members
C.Number of members
D.Ownership
A.INCORPORATION
1.Charteredcompany
The company which have formed and incorporated under a special charter
granted by the king or queen.
Eg:East India company.
Bank of England.
2.Statutorycompany
These are companies which are created by means of a special Act of
Parliament or any state legislature. Main motive is public utility services.
Eg: RBI, Railway
3.Registeredcompany
Company formed and registered under companies Act 1956 is called
Registered companies.
B.LIABILITY OF MEMBERS
1.Companylimitedbyshare
Majority of registered companies will be company limited by shares. In case
of limited companies liability of members will be limited to the amount unpaid
on the shares.
2.Companylimitedbyguarantee
Here liability of each member is limited by the memorandum to such amount
as he may guarantee by the memorandum to contribute to the assets of the
company in the event of its winding up.
Such companies are formed for the promotion of art science, culture, sports
etc.
3.Unlimitedcompany
A company not having any limit on the liability of its members is termed as
unlimited company.
The members are liable for the debts of the company at the time of winding up.
C. NUMBER OF MEMBERS
1.Privatecompany
A private company is a company
-which restricts the right to transfer its shares.
-limits the number of its members to 50.
-prohibits any invitation to public to subscribe its shares.
2.Publiccompany
A public company means a company which is not a private
company
D.OWNERSHIP
1.Governmentcompany
A company is said to be government company when 51% of the
paid up capital is held by the central government or by any state
government or partly by central govt or partly by one or more
state govt.
2.Foreigncompany
A foreign company is a company incorporated outside India and
having a place of business in India.
3.Holdingandsubsidiarycompany
company which controls another company is known as the
holding company and the so controlled company is known as
subsidiary company.
FORMATION OF
COMPANY
STEPS INVOVED:Promotion
Incorporation
Raising of Capital
In case of PUBLIC LIMITED COMPANY,
securing a certificate for commencement of
business.
INTRODUCTION..
It may be noted that before a company is actually formed,
certain persons, who wish to form a company, come together
with a view to carry on some business. Such persons have to
decide various questions
a) which business they should start
b) They should form a company
c) Which type of company they required
d) What should be the capital of company.
There are various stages in formation of company.
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STAGESINFORMATIONOFACOMPANY
Promotion of a Company : The promotion of a
company refers to all those steps which are
taken from the time of having an idea of
starting a company to the time of actual
starting of the company business.
Who is a promoter?
1.
2.
People who think of forming a company
and take necessary steps in its formation
are known as Promoters or Company
Promoters.
The person who conceives such an idea is
called Company Promoter.
FUNCTIONS OF PROMOTERS:
To discover an idea for establishing a company.
To make detailed investigations about the demand for the
product, availability of power, labour, raw material.
To investigate the idea and know whether the formation
of the company is possible and profitable.
To find out suitable persons who are willing to act as
first directors of the company.
To settle the name of company.
To select bank, legal advisor, auditor, underwriter
for the company.
To submit all the documents required for
incorporation with the registrar.
To meet all the preliminary expenses for floating
of a company.
To make contracts with vendors, underwriters,
and managing directors of the company.
To arrange for the loan etc. from various financial
resources.
To make proper arrangement for the office of the
company.
DUTIES AND OBLIGATION OF
PROMOTERS
The promoters must disclose fully all the material
facts regarding the formation of a company.
The promoters must faithfully disclose all the facts
relating to the property which they want to sell to the
company.
The promoters must not make an unfair use their
position.
To disclose the liability and pay the secret profits if
promoters have earned.
The prospectus of the company should contain the
true statements.
Liability on statutory mistakes or frauds in the
property.
REMUNERATION OF
PROMOTERS:
He may be paid a certain lump sum.
He may be given shares of the company.
He may be given commission of the shares sold by
the company.
He may be given an option to buy the shares of
the company at par when their market price is
higher.
He may sell his own property to the company at
higher price and earn profit.
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IMPORTANT DOCUMENTS BEFORE
APPROACHING THE REGISTRAR :An industrialist license if the proposed business
is covered by industries act 1951
An important license is required if machinery is
imported
Approval of govt. In case of foreign collaboration
Approval of govt. Under monopolies and
restrictive trade practice act 1961, if necessary
REGISTRATION AND
INCORPORATION OF A COMPANY:
The second stage for establishment of a company
is to get the company incorporated or registered.
The promoters have to prepare and file a number
of documents with the registrar.
1-The memorandum of association signed by at least
seven persons
2-The articles of association signed by at least seven
persons
3-Promoters have to file a prospectus or statement in
lieu of prospectus with the registrar.
4-A list of directors and their willingness to act, duly
signed by each of them.
5-Notice of address at which the registered office of the
company will be situated.
All the director whose names are in the list have
to submit a declaration certificate that they have
taken up qualifying shares and have paid up the
money.
DOCUMENTS NEEDED :Memorandum of association
Articles of association
List of the directors
Consent letter from directors
Statement of capital
Statutory declaration
MEMORANDUM OF ASSOCIATION
Memorandum of association for a company is like the
constitutional law for a country. It is the document which
contains the rules regarding constitution and activities of the
company. It is a fundamental charter of the company.
It defines the extent of powers of the company, beyond that it
cannot go. It is a document filed at the time of incorporation.
It is a public document ie any interested public can get a
copy on payment of prescribed fees.
CLAUSES (CONTENTS) OF
MEMORANDUM OF ASSOCIATION
1.
2.
3.
4.
5.
6.
Name Clause.
Registered Office clause.
Objective Clause.
Liability Clause.
Capital Clause.
Association Clause.
NAMECLAUSE:The first clause of memorandum requires a
company to state its name
Rules: Should not adopt identical with or resembles that
of an existing company.
Ltd for public company and Pvt Ltd for private
company.
Should not use a name prohibited by the Name
and Emblems Act.
SITUATIONCLAUSE:The company is required to state the name of the
province in which the office is situated.
To give the exact address and name of the
company where the company is located.
A person can know through this the jurisdiction
of the court under which the company operates.
It also indicates the place for holding annual
meeting of the company.
The creditors, customers, government, know the
whereabouts of the company.
All correspondence is done at the office of the
company.
OBJECTIVE CLAUSE :This is the most important clause of the
memorandum of association. It defines the object
of the company and the extent of its powers.
The object of the company must be state very
clearly and a company cannot do anything beyond
object clause.
The objects of the company shall not be illegal or
against public policy.
LIABILITYCLAUSE:
The extent and nature of the liability of sharesholders
should be stated like
Limitedliability
Limitedbygaurantee
Unlimited
CAPITALCLAUSE:-This clause contains
the total amount of capital with which the company is
registered. This capital is known as authorized capital
or nominal capital or registered capital.
ASSOCIATIONOR SUBSCRIPTION
CLAUSECLAUSE:
The memorandum concludes with subscription
clause. The memorandum must be subscribed by
at least7 persons in case of public company and
2 in case of private company. Each subscriber
must sign the document and write the number of
shares taken by him.
REQUIREMENT AS TO
MEMORANDUM:
The memorandum of every
company must be:
Printed
Divided
into paragraphs numbered
consecutively
Signed by subscribers and witnessed
Dated
SIGNING OF MEMORANDUM:
The memorandum must be:
Be signed by each member
Who shall add his name and surname in full, any
former name or surname in full
His occupation; and
Fathers name; or
In the case of a married woman or widow, her
husbands name, in full
His nationality of origin; and
His usual residential address in full
ALTERATION OF MEMORANDUM
1. Alteration
of Name Clause:
A company can change its name at any time by adopting the
following procedure:
By passing a special resolution: Company name
can be changed only if two thirds (70%) of
shareholders vote for it.
By obtaining the approval of Central
Government in writing: A name which is
identical with the name of an existing company.
By passing an ordinary resolution: Government
urges the company to change its name because of
some lawful reasons, in this case only 51% votes
of shareholders are needed to change its name.
By obtaining the previous approval of Central
Government
2. ALTERATION OF REGISTERED OFFICE CLAUSE:
Change
of registered office from one place
to another within the same city: Pass
ordinary resolution
Change
of registered office from one city
to another within the same state: pass
special resolution
Change of registered office from one State to
another: by passing special
resolution (find about special and
ordinary resolutions in previous page
please)
3. ALTERATION OF OBJECTS
CLAUSE:
The company may change its objects by adopting
the following procedure
By passing a special resolution
By filing the special resolution with the Registrar
of Companies within one month from the date of
such resolution
4. ALTERATION OF CAPITAL
CLAUSE:
Following types of alterations can be made simply
by passing an ordinary resolution:
Increase of share capital by issue of new shares.
Consolidation or sub-division of existing shares into
shares of larger or smaller amount.
Cancellation of unissued shares.
DOCTRINE OF ULTRA-VIRES
The
term ultra means beyond and the term
vires means powers
An
act ultra-vires the directors: It is
an act which is beyond the powers of the directors.
An
act ultra-vires the memorandum of
association: It is an act which is beyond the powers
given by the memorandum of association.
An
act ultra-vires the articles of
association: It is an act which is beyond the
powers given by the articles of association.
ARTICLESOFASSOCIATION
After memorandum of association, Articles of
Association is the most important document to prepare
and present to registrar for incorporation or registration.
Article of Association explains about the rules and
regulation of a company, it discusses the internal points
and boundaries that the company cant go beyond that.
Articles of association is a legal document second in
importance to memorandum.
The articles of association are regulations which governs
the internal organization and conduct of the company.
The articles of association describe powers of the directors,
other officers and shareholders as to voting etc.
It also describes the mode and form in which changes in
the internal regulations of the company may from time to
time be made.
The articles are subordinate to the memorandum and they
cannot go beyond the scope of the companies act and
memorandum of association.
OR
Articles of association are the internal regulations of the
company and are for the benefit of shareholders. These are
the rules and regulation relating to the internal management
of a company. The article define the mode and form on which
the business of the company is to be carried on.
CONTENTS OF ARTICLES OF
ASSOCIATION
1. Amount of share capital: company calculates
the face value of shares and mentions in the
Article of Association. For example: value of
shares (face value) in a company is $10, if
company sells share for $25, 10 is the face value
and 15 is earning, its also called premium. But
if you sell below face value of $10, its called
discount.
2. Transmission: it means transfer according to
law, example: shareholder mentions in Article
of Association that if he/she dies, his shares
should be transferred to son/daughter etc. OR:
in case of bankruptcy, if shareholder loses
everything, the court will decide to sell his/her
shares pay creditors.
3- Rights of share holders regarding vote, dividend, return of
capital.
4- Rules regarding the issue of shares and debentures.
(Debenture is a certificate that is issued by a company
when it is in need of money, so investors buy it for a
specific period of time and get interest after maturity date).
5- Procedure as well as regulations in respect of making calls
on shares.
(Making calls: A company issues 1000 shares for $10per
share, so people write applications in order to buy some
share & pay an amount of $2 for application, then
company call on those people who applied to buy shares
and ask them to come and pay & get the shares, that is
called Making Calls. Sometimes companies receive more
application comparing to the number shares issued for
market, company selects that number of applications to sell
the specific number of shares issued for sell, and rejects
the rest, rejected applicants will get their $2 application fee
back).
6- Manner of transfer of shares. (means different
method/ways to issue different shares)
7- Rules regarding appointment of directors,
managing directors, agents, secretaries.
8- Number, qualification, remuneration, powers and
liabilities of directors. (Number of directors differs
in public and private companies. Qualification:
Eligibility of person like age, capability to work,
experience, education, should be free of criminal
charges etc. Remuneration: it is the amount of
money paid to directors since directors are not
employees of company so that is why dont receive
salaries but instead receive a specific percentage
amount from the income of a company, for
example 5% of income)
9- Declaration of dividends. (It should be clearly
defined in Article of Association that how
dividends should be distributed among share
holders.)
10-Convening and conduct of meetings with
reference to notice, quorum, poll, proxy, resolutions.
(CONVENING: it clarifies how participants should
be informed for meetings etc. it is reference to notice
for meeting. QUORUM: it mentions the minimum
number of participants in meetings as some
important decisions taken during meetings so most
of members of a company should be present in a
meeting. POLL: Rules and regulation of voting, vote
casting, polling station etc. PROXY: If a participant
cant attend a meeting, he/she writes a formal letter
introducing someone else to attend meeting on
his/her behave, its called proxy. RESOLUTION:
Any decision which is taken in a meeting.)
11-Forfeiture of shares.
12-Matters relating to account and audit, (Clarifies
how audit should take place or control accounts)
13-Rules for winding up of the company.
ALTERATION OF ARTICLES OF
ASSOCIATION
Permission of court is not necessary
Special resolution and approval of government is
required
But in some cases they should follow companies act as
well as memorandum
COMPARISON BETWEEN
MEMORANDUM AND ARTICLES
OF ASSOCIATION
Memorandum of Association
It contains conditions upon
which the company is
granted registration.
It contains objects and
powers of the company
It can not be easily altered.
The company has to follow
strict procedure for the
alteration.
It regulates the relationship
of the company with the
outsiders, as the objects and
powers of the company are
made known to the outsiders
Article of Association
These are internal regulations of the
company
It provides the regulation by which those
objects and powers are to be carried into
effect.
It can be easily altered as compared to
memorandum of association.
It regulates the internal management of
the company, as the rules and
regulations contained in it describe the
internal procedure to be followed by the
company
PROSPECTUS
Definition: A prospectus means any document
described or issued as prospectus and includes
any notice or circular, advertisement or other
document inviting deposits from the public or
inviting offers from the public for the subscription
or purchase of any shares in, or debentures of a
body corporate.
CONTENTS OF PROSPECTUS
1.
2.
3.
4.
5.
6.
7.
Name and registered address of the company.
The main objects of the company.
Information regarding listing of shares on a
recognized stock exchange.
Particulars pertaining to different classes of
shares and extent of interest of holders.
The number of shares (if any) fixed by the
articles as the qualification of a director and
the remuneration of directors.
The date of opening and closing of the issue.
The names and addresses of auditors and lead
managers.
8. Amount payable on application and allotment
of shares.
10. Details regarding debenture.
11. Amount of premium or discounts on shares.
12. Details regarding property purchased or
acquired against issue of shares.
13. Preliminary expenses.
14. The promoters and their background.
15. Benefit paid to any promoters or officer and
consideration thereof.
16. Details regarding contract or appointment of
Chief Executive, Managing Agent, Secretary
and every other material contract.
17. Name and address of legal advisors.
18. Full particulars of nature and extent of the
interest of every director or promoter.
19. Voting rights and rights in respect of capital
and dividend.
20. The authorized, issued, subscribed and paid
up capital of the company.
21. The size of present issue. Out of this, the
shares reserved for preferential allotment to
promoters and other should also be stated.
22. Restrictions imposed upon the members of the
company.
23. Quorum of general meeting.
24. The location of the plant.
25. Information about projects, plant and its
machinery raw material.
LIST OF DIRECTORS :The list of directors who have agreed to act as a
directors should filed with registrar
They should submit their
- names
- Age
- Occupation
- Full addresses
In case when the list is not ready memorandum
will be deemed to be the directors
CONSENT LETTER OF DIRECTORS :Every person who is ready to act as director must
give a written undertaking stating that he is
willingly agreed to act as a directors of the
company
Along with the letter the must subscribe the
qualification of shares as mentioned in articles of
association and have paid yhe amount
accordingly
NAME APPROVAL CERTIFICATE :
A copy of letter from the registrar announcing
that the name of company was approved without
any objection
STATEMENT OF AUTHORISED
CAPITAL :The company should prepare and submit a statement of
proposed capital which is authorised to collect from the
public
It contain the number of shares and debenturesand the
amount of each category
STATUTORY DECLARATION :A copy of statutory declaration should be enclosed
stating to that all the formalities have duly compiled with
as per the provisions of companies act.
It should be signed by an advocate of high court or the
supreme court or a charted accountant or a director or a
secretary or manager .
RECEIPT OF REGISTRATION FEE :
It is necessary to attach the recipt of the registration
which is paid to registrar office of which it is calculated
basis on the authorised capital of the company
ISSUE OF CERTIFICATE OF
INCORPORATION
ISSUE OF CERTIFICATE
After the receipt of the all the documents , the
registrar will scrutanise the documents .
After everything is satisfied , the registrar wil
issue the certificate of incorporation
With this certificate, the company gets its
recognition as a body of corporate.
APRIVATECOMPANYCANSTART
ITSOPERATIONSIMMEDIATELY
AFTEROBTAININGTHE
CERTIFICATEOFINCORPORATION
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4.COMENCEMENT OF BUSINESS
1.
2.
3.
A certificate of incorporation is one which
certifies that the company is incorporated. It is
issued by the registrar of companies. It
contains :Name of company.
Date of its issue.
Signature of registrar with seal.
