company law - basics

8/2/2019 Company Law - Basics

1/29

Companies Act-1956Companies Act-1956Definition:Definition: an association of a number of an association of a number ofpersons for some common objectives e.g.persons for some common objectives e.g.

1. to carry on a business concern,1. to carry on a business concern,

2. to promote art, science or culture in2. to promote art, science or culture in

the societythe society3. to run a sport club etc.3. to run a sport club etc.

however every association may not be termedhowever every association may not be termed

as company as its legal import is differentas company as its legal import is different

from its common parlance.from its common parlance.

In legal parlance-company is an association ofIn legal parlance-company is an association of

persons registered as a company under thepersons registered as a company under the

company law of the land.company law of the land.


2/29

Characteristics of aCharacteristics of a

companycompany1. Artificial person: law treat it as a legal

person as it can conduct lawful business &enter into contracts with other persons inits own name. it can sell or purchaseproperty. It can sue & be sued in its name.

2. Independent Corporate Existence:Ithas a separate independent corporateExistence in the eyes of law, is always

separate from its members, has separateproperty. Can't be held liable for the actsof its members. It can enter into contractwith its members also & vice versa.

3. Perpetual succession:It has aer etual succession. its life remain


3/29


companycompany4. Separate property: It can buy & ownproperty in its own name & such propertybelongs to its own. its members are notthe joint owners of the companysproperty. Even though it is purchased out

of the funds contributed by them, hencethey can not have a insurable interest inthe property of the company.

5. Limited liability: Company isincorporated with the limited liability ascompared to the partnership firm. It canbe of two type as:

a) Limited by shares &

b) Limited by guarantee


4/29


companycompany6. Common seal:As being a legal &

artificial person, a company can not signon documents, so it has to act through ahuman agency known as director.

Therefore every company must have a

seal with its name engraved on it. Thus,official seal is a signature of the company.

7. Transferability of shares:The shareof the company are freely transferable

and can be sold or purchased in the stockexchange. A share holder can transfer hisshares to any persons without theconsent of the other members.

8. Capacity to sue and be sued: Acom an bein a bod cor orate can

f


5/29

Types of aypes o a

companycompanyRoyal or charteredcompany

Statutory companyRegistered Company

Unlimited companyLimited company

public company


6/29

Other types of theOther types of the

companycompany

Section 25companiesGovernmentCompaniesForeign Companies

Holding &


7/29

Royal or CharteredRoyal or Chartered

CompanyCompany

These companies areincorporated under aspecial charter. These

companies are created &regulated by the king orqueen. Such companies

are formed in England &do not exist in India.

For Example:

S


8/29

Statutorytatutory

CompanyCompanyThese companies are formedunder a special act of parliament,or the state legislature. These aregoverned by the act constituting

them, & therefore M.O.A. is notrequired. These companies aremostly public undertakings andare formed with the main object of

public utilities and not for profit.They also need not to use wordlimited with their names.

For Example:


9/29

RegisteredRegistered

CompaniesCompaniesCompanies registered under thecompany act 1956 or any other earlieract.

Types of registered Company:

# Unlimited company: Thesecompanies has no limit on the liabilityof its members. In case of the debtmembers are liable in proportion to

their respective interest. Even if theassets of such company are notsufficient to pay off its liability , theprivate assets of its members can be

utilized for this purpose. Such acompany needs to have its A.O.A. &


10/29

Public CompanyPublic Company Sec. 3(1) Defines: a companywhich is not a privatecompany.

Essentials:No restrictions ontransferability of shares.

No limit on max. no. ofmember.

Can issue prospectus & invite

public for shares and

iP i t


11/29

PrivatePrivate

Company:Company: A private company is definedby sec. 3 (1) (iii) of the Act as acompany which, by its articles

of association:(a) restricts the right of themembers to

transfer the shares, if any,

(b) limits the no. of its membersas 50

c Prohibit to issue an


12/29

Companies limited byshares:

When the liability of themembers is limited up to theunpaid value of the shares.

Companies limited byguarantee:

The liability of a member islimited to the amountundertaken to be contributed

by him in the M.O.A. Such -


13/29

SubsidiarySubsidiary

Company:Company: A company whichcontrols another

company is known asHolding company and

the company socontrolled is termed as

a subsidiary company. GG t


14/29

GovernmentGovernment

CompanyCompany When more than 51 % of theshare capital is held by1. Central Govt., or2. State Govt.

3. Partly by the CentralGovernment

and partly by one or moreState

Government. A companywhich is a

subsidiary company of any

government.

iF i


15/29

ForeignForeign

CompanyCompany Foreign companies are thosecompanies which are incorporatedoutside India but which have a

place of business in India.

If 50% or more of the paid up

share capital of a foreign co. isheld by Indian citizens and or bycompanies incorporated in India

whether singly or jointly, it shall be

S ti 25S ti 25


16/29

Section 25Section 25

CompaniesCompaniesformed for the promotion of the

-Charity-Science

-commerce-sports-art, or-culturenot of a commercial nature & notaimed for profit motive


17/29

Formation of a company:Formation of a company:four stages are therefour stages are there

1. Promotion1. Promotion

2.Incorporation or2.Incorporation orregistrationregistration

3.Capital Subscription3.Capital Subscription4. Commencement of4. Commencement of

businessbusiness


18/29

Promotion:Promotion:

it is they who conceive the idea ofit is they who conceive the idea of

forming it & it is they who take theforming it & it is they who take thenecessary steps to incorporate itnecessary steps to incorporate it

by registration.by registration.

It is the 1st stage of the formationIt is the 1st stage of the formationof the company.of the company.

The promoter: does the necessaryThe promoter: does the necessary

preliminary work incidental to thepreliminary work incidental to theformation of a company. No whereformation of a company. No where

define din the company act-1956define din the company act-1956


19/29

Incorporation of aIncorporation of a

companycompany

7 or more in public com. & 2 ormore in case of a private comp.

may subscribe their name to aM.O.A. or in other compliances ofthis act for the lawful object to

get a company to be registered.


20/29

Document to filed withDocument to filed with

registration:registration:

M.O.A.A.O.A.

Copy of proposed agreement

Consent of the directors


21/29

Certificate of commencement ofCertificate of commencement of

businessbusiness

Private company can commenceits business just after

incorporation, but in case of apublic company it is necessary toobtain a certificate of

commencement of business.


22/29

M.O.A. Sec. 2(28)M.O.A. Sec. 2(28)

Memorandum of Association of a company :Is the constitution or charter of the company and

contains the powers of the company. No company canbe registered under the Companies Act, 1956 withoutthe memorandum of association. Under Section 2(28)of the Companies Act, 1956 the memorandum means

the memorandum of association of the company asoriginally framed or as altered from time to time inpursuance with any of the previous companies law orthe Companies Act, 1956.

The memorandum of association should be in any of the

one form specified in the tables B,C,D and E ofSchedule 1 to the Companies Act, 1956. Form in TableB is applicable in case of companies limited by theshares , form in Table C is applicable to thecompanies limited by guarantee and not having sharecapital, form in Table D is applicable to companylimited by guarantee and having a share capital

whereas form in table E is applicable to unlimitedcompanies.


23/29

Contents of MemorandumContents of Memorandum ::

The memorandum of association of every company mustThe memorandum of association of every company must

contain the following clauses :-contain the following clauses :-

Name clauseDomicile clauseObjects clauseDoctrine of the ultra-viresLiability clauseCapital clauseAssociation clause


24/29

Name ClauseName Clause

The name of the company is mentioned in thename clause. A public limited company must endwith the word 'Limited' and a private limitedcompany must end with the words 'PrivateLimited'. The company cannot have a name

which in the opinion of the Central Government isundesirable.A name which is identical with or the nearly

resembles the name of another company inexistence will not be allowed. A company cannot

use a name which is prohibited under the Namesand Emblems (Prevntion of Misuse Act, 1950 oruse a name suggestive of connection togovernment or State patronage.


25/29

Domicile clauseDomicile clause

The state in which the registered office of company is to besituated is mentioned in this clause. If it is not possible tostate the exact location of the registered office, the companymust state it provide the exact address either on the day onwhich commences to carry on its business or within 30 days

from the date of incorporation of the company, whichever isearlier. Notice in form no 18 must be given to the Registrar ofComapnies within 30 days of the date of incorporation of thecompany. Similarly, any change in the registered office mustalso be intimated in form no 18 to the Registrar of Companieswithin 30 days. The registered office of the company is the

official address of the company where the statutory booksand records must be normally be kept. Every company mustaffix or paint its name and address of its registered office onthe outside of the every office or place at which its activitiesare carried on in. The name must be written in one of thelocal languages and in English.


26/29

Objects clauseObjects clause

This clause is the most importantclause of the company. It specifies theactivities which a company can carryon and which activities it cannot carry

on. The company cannot carry on anyactivity which is not authorised by itsMA. This clause must specify :-

Main objects of the company to bepursued by the company on its

incorporation Objects incidental or ancillary to the

attainment of the main objects Other objects of the company not

included in (i) and (ii) above.


27/29

Doctrine of the ultra-Doctrine of the ultra-

viresviresAny transaction which is outside the scope of the

powers specified in the objects clause of theMA and are not reasonable incidentally ornecessary to the attainment of objects isultra-vires the company and therefore void.

No rights and liabilities on the part of thecompany arise out of such transactions and itis a nullity even if every member agrees to it.

Consequences of an ultravires transaction :-

1. The company cannot sue any person for

enforcement of any of its rights.2. No person can sue the company for

enforcement of its rights.

3. The directors of the company may be heldpersonally liable to outsiders for an ultra

vires


28/29

Liability clauseLiability clause

A declaration that the liability of themembers is limited in case of thecompany limited by the shares orguarantee must be given. The MA of acompany limited by guarantee must alsostate that each member undertakes tocontribute to the assets of the companysuch amount not exceeding specifiedamounts as may be required in the eventof the liquidation of the company. Adeclaration that the liability of the

members is unlimited in case of theunlimted companies must be given. Theeffect of this clause is that in a companylimited by shares, no member can becalled upon to pay more than theuncalled amount on his shares. If hisshares are already fully paid up, he has


29/29

Association clauseAssociation clause

A declaration by the personsfor subscribing to theMemorandum that they

desire to form into a companyand agree to take the sharesplace against their respective

name must be given by thepromoters.

company law - basics

Documents