The word companies has no strictly technical or legal meaning.

In the terms of the section 3(1) (i) of the Companies Act, 1956, a company means a company formed and registered under the Companies act or an existing company. It is used to describe an association of a number of persons, formed or some common purpose and registered according to the law relating to companies. A Company is a voluntary association of interested and competent people established for a distinct business objective, name, and range of liabilities. A company commands a legal existence, and is a juristic body or person. Hence, a company is duly empowered to file a suit, and can be represented by a competent authority or person before a Court of law or any other place of justice. However, since a company is not considered as a citizen, it cannot claim any fundamental rights given to citizens. A company is formed and registered under the rules and regulations of The Company Act, 1956. A Company is a separate legal entity quite distinct from its members and shareholders. There is a distinguished and concrete difference between the ownership and the control over the affairs of the company. Members and shareholders are undoubtedly the legitimate owners of the company, but a company is actually managed, directed, and governed, by the directors who are elected unanimously by all the members of the company. CHARACTERISTICS OF A COMPANY: Any Company Private or Public formed and registered according to The Company Act of 1956 has the following salient features: A separate legal entity An artificial legal body or person An organized and incorporated body Perpetual succession Limited range of liabilities Common seal Right to enter in contracts Right to own property Right to sue Flexibility of investment Advantages: The outstanding advantages of a Company over other forms of business associations or organizations are as follows: 1. A Company, private or public, is a separate legal entity, independent from the right of ownership of its members from time to time.

2. All members of company are not empowered to commit any act or omission, or take any action personally on behalf of the company, as a company commands an independent legal personality and identity. 3. Since a company is a rightful legal entity, therefore it can preferably sue, and also be sued in its registered name. 4. A company commands the power to own, acquire, sale, or alienate any property in its registered name. No members of the company can ever make any claim over such property of the company, as long as the company is a going concern. 5. A company is fortified by law to follow the continuity and perpetual succession. And therefore, a company continues to perform it functions naturally and unaffectedly despite the changes, retirement, death, or disability of one or more of its members, in the course of time. 6. Changes or modifications in the members interest and in the memorandum of the company are possible to be made but, without affecting adversely the property, activities, business or existence of the company. 7. Transferability of the companys shares supports and encourages its liquidity and investment, as long as by doing so, there is no any harm to the economic stability of the company. 8. The members and shareholders of the company can share the profit equitably in precise proportions by way of dividends, and also the company assets, as per their contributions to the company, in the case of winding up of the company. 9. Larger the number of shareholders, greater the companys fund, and better the growth opportunities. 10. Highly productive, prolific, and efficient incorporation of the company, results in better professionalism, requisite banking and financial assistance, management, lenient taxation, and well-rounded administration of the company. 11. A registered company can be dissolved but only according to the provisions of law. 12. There can be legally recognized interactions and transactions between the company and any of its members or employees, depending on and varying according to the arrangements and provisions of the company Act. DISADVANTAGES: 1) Lifting the corporate veil: The business of the legal person is always carried on by and for the benefit of some individuals. In the ultimate analysis, some human beings are the real beneficiaries of the corporate advantages, for while, the fiction of law, a corporation is a distinct entity, yet in reality it is an association of persons who are the beneficial owners of all the corporate property. 2) Liability of Directors and Members: Statutory Provisions: The Act also imposes personal liability on the directors or members of a company in certain cases. Independent existence of the company is maintained and the company may

also be liable. But also from liability of the company, those cloaked behind it are also made available. Following are some such provisions of the act: i) Reduction of membership ii) Misdescription of name iii) Fraudulent conduct of business iv) Holding and subsidiary companies 3) Formality and Expense: Another disadvantage of incorporation is its expense and formality. It is a very expensive affair and requires a number of formalities to be complied with. 4) Company is not a citizen: A company, though a legal person, is not a citizen either under the Constitution of India or under the Citizenship Act. A company is however a person in the eyes of law and it can claim the protection of such fundamental rights as are guaranteed to all persons whether citizens or not. A company incorporated in a particular country has the nationality of that country though, unlike a natural person, it cannot change its nationality. 5) Sham democracy: A company though democratic in theory, is oligarchic in practice. The shareholders are practically powerless or indifferent to control and influence the board of management and in many cases; the group controlling the management overrides its opponents and thus neglects the interest of the share holders for their personal gains. DIFFERENT TYPES OF COMPANY: The following is an important classification: COMPANY CHARTERED UNLIMITED COMPANY AGAIN, REGISTERED COMPANIES STATUTORY COMPANY LIMITED BY GURANTEE REGISTERED COMPANY LIMITED BY SHARES

PUBLIC COMPANY

PRIVATE COMPANY

The above companies may also be divided into 2 types: I) Government Company II) Non-Government Company Public Company Formation OVERVIEW According to the section 3(1)(iv) of the Companies Act of 1956, a company is said to be a Public Company if: 1. It is not a private company 2. It has a minimum paid-up capital of Rs. 5 Lakhs and above 3. It is a private company which is a subsidiary of any public company According to section 43A, a Private company is deemed to be a Public company when: 1. At least 25% of its paid-up share capital is held by one or more corporate bodies 2. Its annual turnover has been exceeding Rs. 25 crores since last three consecutive years 3. It holds at least 25% of the paid-up share capital of any public company 4. It accepts or renews deposits from the public after making invitation and advertisement. Also, the minimum number of members in a public company is seven and such a company must have the word Ltd as last part of its name. Steps to set up a Public Limited Company Entrepreneurs, enterprises, or corporate bodies desirous of forming a new company, should follow the following step by step procedures. The additional steps to be taken along with what are requisite for the formation of the Private Limited Company, for the formation of the Public Limited Company are: Consent of Directors to act as such in Form No.29. Arrange for payment of application and allotment money by Directors on shares taken or agreed to be taken. File the Statement in Lieu of Prospectus with the ROC in schedule-iv of the Companies Act. File a declaration in Form-20 duly signed by one of the Directors. Obtain the Certificate of Commencement of Business. 1. Selection of the type of the company. 2. Selection of name for the proposed company. 3. Applying for Directors Identification Number (DIN) and Digital Signatures. 4. Drafting of Memorandum and Articles of Association. 5. stamping , digitally signing and e-filing of various documents with the concerned Registrar. 6. Payment of Fees.

7. Obtaining the Certificate of Incorporation. 8. Preparation and filing of Prospectus/Statement in lieu of Prospectus and e-Form 19/20 (in case of public companies) for obtaining the certificate of commencement of business. 9. Obtaining Certificate of Commencement of business (in case of public limited companies). Private Company Formation What is a private limited company? Section 3.(1)(iii) of the company Act of 1956, defines a private limited company as-(a) One which has a minimum of Rs. one Lakh paid-up share capital or more (b) One which by its Articles Association: 1. restricts the right of the transfer of its share; 2. limits the number of its members to 50 which will not include:A. members who are employees of the company; and B. members who are ex-employees of the company and were members while in such employment and who have continued to be members after ceasing to be employees; 3. Prohibits any invitation to the public to subscribe for any shares or debentures of the company; and 4. Prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives. Also, the minimum number of members in a private company is two, and such a company must have the words Pvt Ltd as the last part of its name. Steps to set up a Pvt. Ltd. Company Entrepreneurs, enterprises, or corporate bodies desirous of forming a new company, should follow the following elegant step by step procedures:1. Selection of the type of company. According to the objectives of the company, proposed scale of operations & activities, capital involved, etc. the promoters have to decide exactly and precisely the type of company as the private company, public company, non-profit making company, etc. 2. Selection of name for the proposed company. A minimum of six proposed names of the company to be formed is selected by the promoters after scrupulous observation of various provisions, circulars, and rules of the Ministry of Corporate Affairs (MCA). On receipt of the completed application in e-Form 1A, filled in up by the promoters, the concerned Registrar of Companies confirms the possibility of adoption of the sent proposed names, such confirmation remains valid only for a period of six months. Failure of submission of the required documents from the

promoters side within this time period of six month necessitates the submission of another application together with proposed names, and payment of the requisite fees. 3. Apply for the Directors Identification Number (DIN) and Digital Signatures. Before the submission of completed e-Form1A, the directors of the proposed company must ensure that they have legitimate DIN. In case they do not have the DIN, they are required to apply for the same as per the new section 266A of the Companies (Amendment) Act, 2006. Again, every document prescribed under the Companies Act, 1956, is required to be filed with the digital signature of the managing director, or director, or manager, or secretary of the proposed company. 4. Drafting of Memorandum and Articles of Association. Drafting of the Memorandum (M.O.A) and Articles of the Association (A.O.A), is the very next step after getting confirmation of name by the Registrar. These two documents are of the paramount importance as these contain ultimate objectives (as also shown in the e-Form) and cherished & ideal rules & regulations of the company. It should be noted that the main objects should match with the objects shown in e-Form. The M.O.A and A.O.A must be drafted very scrupulously with great care and concern, after a comprehensive and elegant counsel of the concerned experts. 5. Stamping, digitally signing and e-filing of various documents with the Registrar. For the incorporation of company the documents submitted to the Registrar along with the mandatory registration fees, may include Memorandum and Articles of the Association, Declaration in e-Form1, Power of Attorney, e-Form 18, e-Form 32, and copies of any other agreements. 6. Payment of Fees. The registration fees vary depending upon the authorized capital of the proposed company, which can be effortlessly calculated from the Ministry of Companies Affairs portal. 7. Obtaining Certificate of Incorporation . After the censorious observation of the required documents specified in sections 33(1) and 33(2) from the company side, the Registrar registers the memorandum and articles of the association and issues a certificate of incorporation within a period of 7 days of receipt of the documents, as per the section 34(1). 8. Preparation and filing of Prospectus/Statement in lieu of Prospectus and e-Form 19/20 (in case of public companies) for obtaining the certificate of commencement of business. 9. Obtaining Certificate of Commencement of business (in case of public limited companies).

DISTINCTION BETWEEN A PRIVATE LIMITED COMPANY AND A PUBLIC COMPANY: The minimum number of members in case of a private ltd. Company is 2 whereas it is 7 in case of public limited company. The maximum number of members in case of a private limited company is 50 exclusive of employee-shareholders, but it is limited by the number of shares in case of private ltd. Company. A private ltd. Company does not issue prospectus, but a public limited company is required to issue prospectus or a statement in lieu of prospectus. A private ltd. Company restricts the rights of its shareholders to transfer shares, but no such restriction is imposed by the public limited company upon its shareholders. A private ltd. Company is entitled to commence business after its incorporation, but a public limited company is not empowered to do so unless it gets certificate of commencement from the registrar. A private ltd. Company need not hold any statutory meeting, but a public limited company is required by law to hold such a meeting. A public limited company must have at least 3 directors, whereas in case of a private ltd. Company, it must have at least 2 directors. A private ltd. Company can allot shares without waiting for minimum subscription but a public limited company must not allot shares unless minimum subscription is applied for. A private ltd. Company is to add the words Private Ltd after its name but in case of a public limited company the word Ltd is sufficient. A private ltd. Company may issue different kinds of shares but a public limited company can issue only 2 kinds of sharesPreference shares and Equity Shares.

Company Registration: In India, the incorporation of a company is governed by the Companies Act 1956, which is administered by the Central Government of India. It applies to whole of India and to all types of companies, whether registered under this Act or an earlier Act. But it does not apply to universities, co-operative societies, unincorporated trading, scientific and other

societies. Incorporation is the most important piece of legislation which empowers the Central Government to regulate the formation, financing, functioning and winding up of all types of companies. Under the Companies Act, an entrepreneur can form two types of companies, namely a private company or a public company. The Registrar of Companies (ROC) primarily controls the task of incorporation of new companies and the administration of running companies. For registration and incorporation of a company, an application has to be filed with the Registrar of companies of the State in which the company is proposed to be incorporated. The Application for the registration is to be accompanied by the list of selected names, Memorandum of Association, Articles of Association, and other requisite documents. The Registrar of Companies (ROCs) appointed under Section 609 of the Companies Act 1956, covering various States and Union Territories, are vested with the primary duty of registering companies floated in the respective States and the Union Territories, and ensuring that such companies comply scrupulously with the statutory requirements under the Act. COMPANY PROMOTION IN INDIA: The company promotion in India is generally under taken in any of the following ways: 1. by individual or collective initiative 2. by converting sole proprietorship or partnership business into a joint stock company 3. by a group of persons who form themselves into a joint stock company, for the purpose of starting one or more concerns.

Any 7 persons in case of public limited company & any 2 persons in case of a private ltd. Company can form themselves into a company, no doubt, but certain legal formalities are to be observed for bringing the company into existence. Moreover, the initiative for the formation of such a company must come from the Promoter. There may be 1 or more promoters. He is responsible for bringing into existence a company & opens out opportunities for profitable investment. He takes the necessary steps for lawfully ushering in of the company. The 1st step to be taken in this direction is to get the company registered with the Registrar of companies. From the date of registration the company will have its lawful existence. For registration, the preparation and filing of certain documents are necessary. These documents are to be filed with the Registrar together with the registration fee. THE DOCUMENTS & NECESSARY PARTICULARS TO BE FILED ARE:

1. Memorandum of association which defines the objects and powers of the company. 2. Articles of association which contains rules & regulations for internal management 3. A list of directors. 4. Consent of the Directors to act as such 5. a contract of the directors to take qualifying shares 6. A declaration by an advocate, attorney, or a pleader of the High Court or by a Chartered Accountant, that all the requirements of the companies Act in respect of registration have been complied with. 7. intimation of the address of the registered office(this may be done within 30 days of registration) The Memorandum of association & the Articles of Association must be printed & signed by each original subscriber in the presence of at least 1 witness who will attest his signature. When the submission of all these documents & particulars together with the requisite registration fee will be complete, the Registrar will issue a Certificate of Registration, also known as Certificate of Incorporation. The names of the subscribers to the Memorandum shall thereupon be entered as members in the companys Register of members. After such registration, every private ltd. Company & every other company not limited by shares can straightway commence business. But public companies limited by shares cannot commence business or exercise any borrowing power without obtaining from the Registrar a Certificate of Commencement of business. To be eligible for such a certificate the company must issue a prospectus or file with the Registrar a statement in lieu of prospectus. The prospectus denotes an invitation to the public to subscribe to the share capital of the company. After such steps the company will be entitled to commence business provided the following conditions are fulfilled: the shares amounting at least to a minimum subscription must be prescribed for The directors must have paid for the shares to the same extent as the public The Secretary or the Directors must have filed with the Registrar a declaration that such conditions have been complied with. The Registrar will then issue a Certificate of Commencement of business after which the company will be entitled to start business.

The Memorandum of association is a document which forms the Charter of the company & defines its objects & powers. It contains the fundamental rules regarding the constitution & activities of the company. It is the basic document which lays down how the company is to be constituted & what work will it undertake. The purpose of the Memorandum is to enable the members of the company, its creditors, & the public to

know what its powers are & its range of activities. The Memorandum contains rules regarding the capital structure, the liability of the members, the objects of the company, & all other important matters relating to the company. The Memorandum can be altered only after certain formalities are observed. ITS IMPORTANCE: The Memorandum shows the range of enterprise. The Memorandum is the foundation on which the superstructure of the company has been built up. It enables the shareholders, creditors, & the outsiders to show the permitted activities of the company. THE FORM & CONTENTS OF THE Memorandum: Section 13: The ACT lays down that the Memorandum of association of every company must contain the following particulars: NAME CLAUSE: The name of the company with the word limited at the end of a public company & the words private limited at the end of a private company. SITUATION CLAUSE: The Memorandum must mention the State in which the registered office of the company is situated. This is necessary to determine the jurisdiction of the Court & of the Registrar of companies. The intimation of the registered office may be given at the time of registration or within 30 days of registration or incorporation of the business to which all communications & notices might be addressed. OBJECT CLAUSE: The Memorandum must contain the objects of the company. The Companies (Amendment) Act, 1956, provides that in case of companies formed after the said amended act, the Memo must state separately (i) the main objects & the objects incidental & ancillary to the main objects, & (ii) other objects not included in (i). Any activity which is beyond the provisions of the OBJECT CLAUSE is considered ULTRA VIRES(beyond the powers of the company) & cannot be made INTRA VIRES(within the powers of the company), even by the ratification with the assent of the shareholders. But the objects which have not been stated in the Memorandum but are conducive or incidental to the main purpose are within the implied jurisdiction of the company. AREA OF OPERATION CLAUSE: Except in the case of trading corporations, the State or States to whose territories the objects extend. LIABILITY CLAUSE: A limited company must declare in its Memorandum that the liability of its members is limited. A guarantee company must state the amount of guarantee undertaken by each member towards the liability of the company in case it is wound up.

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CAPITAL CLAUSE: In case of a company having share capital --- unless the company is an unlimited company, the Memorandum shall state the amount of share capital & the division thereof into shares of a fixed amount. The ASSOCIATION & SUBSCRIPTION CLAUSE:

The Memorandum must contain this clause which states the consent of the members as regards the formation of the company & the number of shares taken by each. It is the declaration of the signatories of the Memorandum of association. Each of the members is required to take at least 1 share of the company & to state his name, address, & description of the number of shares taken together with the name, address, & description of the witness. Section 14: The Act lays down that the Memorandum shall be according to the prescribed form or as near to it as circumstances admit. The memo must be drafted, as described, to suit the needs of the company concerned. But the particulars mentioned must be included & there must be nothing contrary to the provisions of the act. In Schedule I to the Act 4 model forms are given. They relate to the following 4 types of companies: Table Bcompany limited by shares Table C-- Company limited by guarantee and not having share capital. Table D -- company limited by guarantee and not having share capital. Table E--- unlimited company Section 15: The act provides that the Memorandum must be printed, divided into paragraphs numbered consecutively, by each subscriber. The signature of the subscriber shall be attested by 1 witness who shall likewise add his name, address, & description & occupation. In case of public companies the memo must be signed by at least 7 persons; in case of private companies at least 2 persons.

The ARTICLES OF ASSOCIATION contains rules, bye laws & regulations for the internal management of the company & cannot go beyond the terms of the Memorandum of Association. The Articles must not violate any provision of the Memorandum or any provisions of the Companies Act. The rules laid down in the Articles must always be

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read subject to the rules contained in the Memorandum. It generally gives details of the rules & regulation on the following matters: 1. The amount of share capital& the division thereof: This clause states the authorized capital of the company & the kind of shares the company is authorized to issue. This clause enables the persons interested as shareholders or otherwise in the affairs of the company to know the exact position of the company in this respect. 2. Application, allotment& calls on shares: This clause explains how the company proposes to receive money company payable for the subscription of shares. This clause removes the doubts & misunderstanding of the subscribers in regard to the mode of payment. 3. Forfeiture of shares in case of non-payment of calls; This clause reserves the right of the company with due notice to shareholders to forfeit shares for the non-payment of calls & re-issue those shares according to the discretion of the company. 4. Transmission & transfer of shares & fee, if any, payable thereof: This clause makes clear the rules & regulations of the company in these respects & the shareholders in such a situation know how they will proceed in the matter in such circumstances. 5. Meetingsgeneral & extraordinary: When & how company meetings are to be held & how the shareholders will be informed about the meetingsall these are clearly stated in the clause. Meetings are important matters because they are the only forum through which the shareholders are expected to exercise necessary control over the affairs of the company. 6. Proceedings to the meeting: It is one company of the duties of the company to keep in record the proceedings of the meetings & how this record is to be kept & preserved is stated in this clause. 7. Votes of the members: this clause explains the voting rights of different classes of shares in conformity to the company law. 8. Rights of the members, inter se: Rights of the members among themselves are determined through voting powers & the rules & regulations of the company are binding on them. The violation of the regulations of the company by a member would give rise to a cause for action against him 9. Directors, their qualification, disqualification, powers & remuneration: this clause informs shareholders how to become a director, when to vacate his office & what is the implication of such directorship.

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10. Proceedings of the meetings of the Directors: Directors meet from time to time to pass resolution regarding the basic objectives & policies on different matters of company management. These proceedings & resolutions are vital for the company executives & how these proceedings & resolutions are to be kept in record should be stated under such a clause. 11. Common Seal: it is the name of the company engraved in legible letters. This seal is the official signature of the company to be affixed to all important documents of the company & how this seal is used & who are to attest affixing of such seal are stated in this clause. 12. Accounts & audit: this clause states the procedure & the details of Accounts & audit & is an important clause for ascertaining the companys financial position. 13. Dividend & reserve: this clause gives an indication how profits of the company are to be appropriated. 14. Notices: These are necessary to intimate the date & the time of the meetings of the shareholders & Directors & the procedure of serving such notices is stated in this clause 15. Winding up: this clause states winding up procedure of the company. So the Articles remove any doubt regarding the rules & regulations for internal management of the company.

RULES: An unlimited company, a company limited by guarantee & a private company limited by shares must file their Articles at the time of registration of the company section 26. A public company may or may not file Articles. If it does not, the regulations contained in TABLE A will apply to it. (TABLE A is a set of model articles printed in Schedule I to the Companies Act). The Articles of a private company must contain the restrictive features peculiar to private companies (viz., limitation of the number of members to 50 , restrictions on the transfer of shares ; prohibition of invitation to the public for the purchase of shares & debentures) section 27(3).

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In case of a company limited by guarantee, the Articles shall state the number of members with which the company is to be registered section 27(2). In case of an unlimited company, the Articles shall state the number of members with which the company is to be registered & if the company has a share capital, the amount of such share capital-- section 27(1) FORM OF Articles: Model forms of Articles, for use in case of companies not limited by shares, are given in Schedule I to the Act The Articles shall: Be printed Be divided into paragraphs numbered consecutively Be signed by each subscriber of the Memorandum of association (who shall add his address, description & occupation, if any), in the presence of at least 1 witness who shall attest the signature & shall likewise add his address, description & occupation.Section 30. CONTENTS OF the Articles of Association: Articles OF A PUBLIC company usually contain the following rules arranged in paragraphs numbered consecutively; 1. exclusion or partial exclusion of Table A 2. preliminary contracts if any 3. number & value of shares 4. share certificates 5. lien on members shares 6. transfer, transmission & forfeiture of shares 7. alteration of capital 8. general meetings 9. Director, their remuneration etc. 10. dividends & reserves 11. account & audit 12. winding up INTERPRETATION: The Articles of Association are commercial documents & they should not be interpreted very strictly. The Articles should be construed so as to give the company a reasonable business efficacy & make them workable. Distinction between the Articles of Association & the Memorandum of Association: The Memorandum is the fundamental charter which defines the objects & powers of the company, but the Articles are the Articles are the rules & regulations which

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govern the internal management of the company. The rules & regulations of the Articles cannot go beyond the terms of the Memorandum The procedure of altering Articles is simple & no consent of the Court or Company Law board is required. In order to allot the Memorandum, the company must pass a special resolution, subject to sanction of the Court or Company Law Board as required by the Act. The Memorandum must be registered but the Articles may or may not be registered. If there is a conflict between the Memorandum & Articles, the provisions of the Memorandum will prevail. When the Memorandum contains any ambiguous provision, the Articles will be of great help to remove such ambiguity. The Memorandum is in nature of a contract between the company & the outside world dealing with the company, but the Articles create a binding contract between the company & its shareholders only. The Memorandum may be compared with the constitution of a democratic state & the Articles with the legislative enactments. The regulations of the Memorandum are of the first order & more vital & far reaching than those of the Articles which are of the second order. The Memorandum is governed by the Companies act but the Articles are governed by the Memorandum as well as the Companies act.

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