company laws

7/31/2019 Company Laws

1/21

COMPANY LAWS INTRODUCTION

As per sect. 3 of Company Act, the company means a companyformed and registered under the Act, or an existing companyformed and registered under any of the previous Company Laws.

Further Sec 12 allows the formation of various types of companiesas follows:

Companies limited by shares

Companies limited by guarantees and

Unlimited companies

Most of the Companies in India are the companies limited by


2/21

COMPANY LAWS Main characteristic features of a company:

Incorporated Association

A company is required to be incorporated or registered under theCompanies Act.

The minimum number of members should be seven. There is noupper limited.

A public limited company may have unlimited number of itsshareholders (members).(reliance industries , L&T)

In case of Pvt. Ltd company, minimum number is two andmaximum number of 50.(PWC , ernst & young)

1. A company is an artificial person. It can be sued as well can sue


3/21

COMPANY LAWS Common seal. Since company is an artificial person, it

cannot sign on its own.

The common seal of a company is known as its officialsignature on the documents.

And it such Directors, who are authorized on this behalfby its Board, affix the common seal on its behalf, undertheir own signatures, too, which means the documentsare, in fact, singed by the company.

It has separate legal entity.

Since it is an artificial person, it is so by virtue of being a

separate legal entity.


4/21

COMPANY LAWS

Limited liability.

In a limited company, limited by shares ,the liability of the shareholders are limited

only up to the extent of their respectiveshares in the company.

Transferability of Shares.

Perpetual Existence (Company never dies)

May sue and be sued in its own name. Nationality and Domicile.

No fundamental rights.


5/21

COMPANY LAWS

Lifting of a Corporate Veil.

In the case of dishonest and fraudulent use of thefacility of incorporation, the corporate veil is lifted bylaws.

And the law identifies the person (member) who isbehind such dishonest and fraudulent use of thefacility of incorporation.


6/21

TYPES OF COMPANIES

1. Companies Limited by shares.

It is a registered company where inthe liability of its shareholders islimited by its Memorandum ofAssociation up to the maximumamount of the paid up shares, or up to

the extent of the amount of unpaidshares, if any, held by them.


7/21

TYPES OF COMPANIES

Company Limited by Guarantees. It is a registered company wherein the

liability of shareholders is limited by itsMOA up to such amount as the members

will respectively undertake to theMemorandum to contribute to the assets ofthe company in the event of it being wouldup.

Such company is known as the GuaranteeCompany.

Guarantee Company does not have sharecapital.


8/21

TYPES OF COMPANIES

Unlimited Company.

The liabilities of the shareholders of suchcompanies are not limited up to the sharecapital only, as is the case with limited

liability companies. Instead, the liabilities of the shareholders are

unlimited.

In the case of winding up of the company,

the members of such companies are liable tothe full extent of their total assets, to meetthe liability of the company.


9/21

PUBLIC COMPANY & A PRIVATECOMPANY

Distinguishing features of Public and PrivateCompanies

Public. Minimum no. of shareholders must be seven.No upper limit. Private Co. Minimum number of

shareholders should be two and maximum numbershould be 50.

Public Co. May be formed with a minimum paid upcapital of Rs 5 lakh. A private company may beformed with a minimum paid up capital of Rs 1 lakh.

Shares are freely transferable in public companywhere as there are certain restrictions imposed onthe transferability of shares of a private company.


10/21


Public company required issuing prospectus to thegeneral public to invite subscriptions to its publicissue of shares and debentures. Whereas no suchprospectus is required to be issued as its

maximum number of shareholders is limited to 50only.

Public company can accept term deposits from thepublic whereas a private company cannot accept.

It cannot commence business until it receives the

certificate to commence business where as privatecompany can commence its business immediatelyafter receiving the certificate of incorporation.


11/21


Public company is required to hold a statutory meeting andfile a statutory report to the respective Registrar ofCompanies. A private company is not required to hold anystatutory meeting.

In a public company directors are required to file with theROC their written consent to act as directors of the companyand must sign the Memorandum and must entered into acontract for their qualifying shares of the company. Whereasdirectors are not required to the any of such things.

1. In public company, the directors of the companymay not be appointed by single resolutionwhereas the directors of the a private companymay be appointed by a single resolutions.


12/21


1. In public company, the directors of the companymay not be appointed by single resolutionwhereas the directors of the a private companymay be appointed by a single resolutions.


13/21

PROMOTION OF A COMPANY

The term, promotion pertains to the preliminary steps that are takenfor the registration and floatation of the company.

The person who takes the charge and responsibility of promoting thecompany are referred to as the promoters of the company.

The promoter may be an individual, association, syndicate,partnership or company.

REGISTRATION

As per sec 12, any seven or more persons in the case of apublic company, an any two or more persons (not exceeding 50members) in the case of a private com-any, associated for any

lawful purpose may, by subscribing their names to amemorandum of Association, and otherwise complying withrequirements of the Act in respect of registration, form anincorporated company with or without limited liability.


14/21

As per sec 33, the following three documents arerequired to be submitted to the

Registrar of Companies of the State in which theregistered office of the company is to be situated:

Memorandum of the Company Articles of the company, if any and

The agreement, if any, which the company proposesto, enter into with any individual for the appointment

as its managing or whole time director or manager. MOA of a company is its Charter.

It contains fundamental conditions upon which alonethe company can be incorporated.


15/21

It contains its objects of the formation of thecompany and the maximum possible scope of itsoperation beyond which it cannot act or operate.

Thus, it defines as also restricts (confines) the powerof the company.

Accordingly if any thing is done beyond thesepowers, that will be declared ultra vires (i.e. beyondthe powers of) of the company and, thus, void.

Thus, the MOA of a company enables theshareholders, creditors and suppliers and so on, toknow whether the company is acting within thepowers granted by its MOA, or it is indulging insome activities which are ultra vires.


16/21

ALTERATION IN MEMORANDUM OF ASSOCIATION

Sec. 16 provides that the company cannot changethe conditions contained in the MOA except in thecases and in the mode and to the extent the expressprovision have been made in the Act.

Thus, a company can change its, name, change itsregistered office, change its objects clause, andchange its capital clause, by following theprocedures laid down in these regards.

A company limited by shares, can increase itsauthorized share capital by passing an ordinaryresolution, if its Articles of association soauthorizes.


17/21

Within 30 days of the passing o the resolution for theincrease in the authorized capital, the company isrequired to file a notice in this regard with the ROC.

After receiving the notice, the ROC shall record theincrease and also make any alterations that may benecessary in the companys MOA or AoA or both.


18/21

ARTICLE OF ASSOCIATION

MOA spells out the scope and powers of thecompany.

AOA governs the ways in which the objects of the

company are required to be carried out andachieved.

Alteration in AOA involves a detailed and lengthyprocedure.

The AOA can be formed and altered by the membersof the com-any by passing a special resolution.

Thus, the AOA of the company and its by-laws arethe regulations which govern the management of theinternal affairs an carrying on the business of the

company.


19/21

These define the duties, rights, powers, andauthority of the shareholders and the directors intheir respective capacities as also of the company.

This also explains the mode and form in which the

business of the company is to be conducted. In other words, the AOA have a contractual force

between the company and its members.

The AOA of a company are subordinate to and, thus,are controlled by the MOA.

Therefore, the AOA cannot supersede the objects aslaid down in the memorandum of Association.


20/21

One the required documents are filed with the ROCand the required fees has been deposited in hisoffice.

Once Registrar is satisfied, he enter the name of the

company in the Register of Companies, maintainedby him for the purpose.

Thereafter, he will issue a Certificate of Incorporationunder his signature

The Certificate of Incorporation serves the samepurpose in the case of company as the birthcertificate does in the case of natural person.


21/21

company laws

Documents