COMPANIES ACT 1956 :

COMPANIES ACT 1956

What is a company:
What is a company A company is an artificial person created by law. A company means a group of persons
associated together for the attainment of a common end, social or economic. According to Sec (1), A company
formed and registered under the act. According to Sec (3) of the act, on incorporation a company becomes a body
corporate or a corporation with a perpetual succession and a common seal.

CHARACTERSTICS OF A COMPNAY:
CHARACTERSTICS OF A COMPNAY Separate legal entity Limited liability Perpetual succession Common seal
Transferability of shares Separate property Capacity to sue

Classification of Companies:
Classification of Companies Companies On the basis of incorporation On the basis of l iability On the basis Of no. of
members On the Basis Of control On the Basis Of ownership Statutory companies Registered companies Cos. With
limited liability Ltd. By shares Ltd. By guarantee Unlimited liability Private company Public company Holding company
Subsidiary company government Non- government

Classification on the basis of incorporation:
Classification on the basis of incorporation Statutory companies : These are created by special act of the legislature
E.g.: The Reserve bank of India The Life Insurance corporation The Unit Trust Of India Registered Companies :
These are the companies which are formed and registered under the companies Act, 1956 or were registered under
any of the earlier companies act.

Classification on the basis of liability:
Classification on the basis of liability Companies with limited liability A. Companies limited by shares E.g.:
Infrastructure Corporation of Andhra Pradesh Limited, MSEB Holding Company Limited, B. Companies limited by
guarantee E.g.: Schools & Educational Establishments Clubs & Associations Charities and Organisation intending to
apply for charitable status Churches & other Places of Worship Trade or Research Associations Unlimited
companies E.g.: Jonathan Rose co., Wicks Group of companies Suyog system and Software pvt. Ltd.

Classification on the basis of number of members:
Classification on the basis of number of members Private company A private company means a company which has
a minimum paid up capital of Rs.1,00,000 or such higher paid up capital as may be prescribed , and by articles- (a)
restricts the right to transfer its shares, if any. This restriction Is meant to preserve the private character of the
company (b) limits the number of its members to 50 not including its employee-members ( C) prohibits any invitation
to the public to subscribe for any shares in or debentures of the company (d) prohibits any invitation or acceptance of
deposits from persons other than its members, directors and their relatives Public company A public company means
a company which Has a minimum paid up capital of Rs.5 lakh or such high paid-up capital, as may be prescribed

Private vs. Public Companies:
Private vs. Public Companies Difference Private Company Public Company Members Minimum 2 Maximum 50
Minimum 7 Maximum Unlimited Transfer of shares Strict and regulated by its articles Freely transferable Invitation
Cannot invite public to subscribe to its share capital Can invite Name It has to use words Private Limited Limited
Number of directors 2 3 Legal control Less legal controls Regulations are more Strict Minimum paid up capital 1 lakh
rupees Five lakhs rupees 8

Classification on the basis of control:
Classification on the basis of control Holding company A company is known as the holding company of another
company if it has control over that other company. Subsidiary company A company is known as a subsidiary of
another company when control is exercised by the latter over the former called a subsidiary company. Company
controlling composition of Board of Directors Holding of majority of shares Subsidiary of another subsidiary

Classification on the basis of ownership:
Classification on the basis of ownership Government company A Government Company means any company in
which not less than 51% of the paid-up share capital is held by The central government or Any state government or
governments or Partly by the central government and partly by one or more state governments. E.g.: State Trading
Corporation of India Limited Minerals and Metals Trading Corporation of India limited Non-government company
Foreign companies

MNCS/ TRANSNATIONAL COMPANY:
MNCS/ TRANSNATIONAL COMPANY A multinational corporation is a business enterprise that retains direct
investments overseas and that maintains value-added holdings in more than one country. A firm is not really
multinational if it just engages in overseas trade or as a contractor to foreign firms They are also called
transnational companies

BLUE CHIP COMPANIES:
BLUE CHIP COMPANIES A blue chip stock is the stock of a well-established company having stable earnings and
no extensive liabilities. The term derives from casino, where blue chips stand for counters of the highest value. Most
blue chip stocks pay regular dividends, even when business is faring worse than usual. They are valued by investors
seeking relative safety and stability, though prices per share are usually high. Typically, such stocks are perceived to
offer reliable returns, low yield, and low risk.

Registration & Certificate of incorporation:
Registration & Certificate of incorporation 13 A Company obtains separate legal existence only after it is registered
under the companies Act and is issued a certificate of incorporation by the Registrar of Companies of the State where
registered office of the Company is situated. Certificate of Incorporation is a document which certifies that the
company has been registered with the Registrar of Companies under the Companies Act on a particular date.

Incorporation of a Company or Procedure for Registration:
Application for availability of name under which the company proposes to be incorporated is to be made to the
Registrar of Companies in the prescribed form in the state where the registered office of the company is to be
situated.Incorporation of a Company or Procedure for Registration 14 The following formalities shall be complied
with to enable the Registrar of Companies to issue a certificate of Incorporation.

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Statement of nominal capital : If the nominal capital exceeds 50 lakhs, a certified copy of the permission of the
controller of capital issues should be filed After the name is made available, Memorandum and Articles of
Association is to be filed with Registrar of Companies with necessary stamp duty and filing fees according to the
authorised capital of the company (with in 30 days of obtaining the certificate of incorporation). 15

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List of Directors : It consists the name, addresses16 & Undertaking : A written undertaking to take up Consent of
the Directors : If the directors are appointed by the articles or named in the prospectus their written consent to act as
directors should be filled. occupation of the persons who have agreed to act as the first directors of the company.
&pay for the qualification shares by directors should be filed

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Certificate of commencement of business: A Pvt Ltd company can start it business as soon after receiving the
certificate.Statutory declaration : The registrar will examine the documents if they found to be correct and in order he
will issue a certificate known as Certificate of incorporation which contains name of the company, the date of its
issue and signature of the registrar with his seal 17

Certificate of commencement of Business:
Certificate of commencement of Business 18 A Public Company cannot do any business and cannot exercise any
borrowing powers Filing of prospectus Receipt of minimum subscription Payment of directors Filing of declarations

Memorandum of Association (Sec 2 (28)):
Memorandum of Association (Sec 2 (28)) 19 According to Sec of C.A Memorandum of Association of a company as
originally framed or as altered from time to time in pursuance of any previous companies law or of this Act. MOA is
the document which contains the rules regarding constitution and activities or objects of the company. It is a
fundamental charter of the company Its relations towards the members and outsiders are determined by this
important document.

Contents of MOA (sec 13):
Contents of MOA (sec 13) 20 Name of the Company. (Ltd, Pvt Ltd) Registered office of the Company Objects of the
company Capital clause Liability of the members Details of share capital of the company Subscription or Association
clause

Forms of MOA (Sec 14 & 15):
Forms of MOA ( Sec 14 & 15) 21 The MOA of a company shall be in any onr of the forms in Table B,C,D and E in
Schedule I as maybe applicable to the company Table B : Contains MOA of a company Limited by shares. Table C :
Contains MOA of a company limited by Guarantee and not having a share capital. Table D : Contains MOA of a
company limited by Guarantee and not having a share capital. Table E : Contains MOA of an un limited company

Articles of Associations Sec 2(2) & 26 to 29:
Articles of Associations Sec 2(2) & 26 to 29 22 Articles of Association is another contract document which provides
the detail of working of the company. AOA are the rules and regulations of a company framed for the purpose of
internal management of its affairs. AOA deals with the rights of the members of the company The articles are framed
for carrying out the aims and objects of the MOA

Contents of AOA :
Contents of AOA 23 Articles usually contain provisions relating to the following amongst other matters Share capital
and alteration thereof Payment, call, transfer, forfeiture of shares Share certificate and warrants Rights of
shareholders Meetings of the company Appointment, remuneration, qualification, power, etc of BOD

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24 Accounts and audit Dividends Indemnity Winding up The AOA & MOA shall be Printed Divided into paragraphs
numbered consecutively Signed by each subscriber of the MOA in the presence of at least one witness.

MOA VS AOA:
MOA VS AOA S.No Memorandum of Association Articles of Association 1 It is a charter of a company or it is life
giving document I t contains rules and regulations regarding internal management 2 I t is a fundamental charter It is
subsidiary to memorandum 3 Every company must Public Company limited by shares may or may not have 4
Alteration of Memorandum is much difficult and strictly regulated Articles can be easily altered by a special resolution
25

Prospectus - sec 2(36):
Prospectus - sec 2 (36) Prospectus mans any document described or issued as a prospectus and includes any
notice, circular, advertisement or other document inviting deposits form the public for the subscription or purchase of
any shares in, or debentures of a body corporate Merely Prospectus is a document by which an invitation is issued to
the public to take shares or debentures of the company.

Contents of the Prospectus - Sec 44(2)(a)&56:
Contents of the Prospectus - Sec 44(2)(a)&56 27 Every prospectus issued by or on behalf of a company who is or
has been engaged or interested in the function of a company shall state the matters . Dating of prospectus (sec.55) :
Prospectus shall be dated and that date shall be taken as the date of publication of the prospectus. Registration of
Prospectus (sec 60) : No prospectus shall be issued unless on or before

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28 the date of its publication. A copy of the prospectus has been delivered to the Registrar for registration duly signed
by every person who is named therein as a director or proposed director of the company. With every prospectus shall
be attached the following documents when filed with the Registrar Experts consent Delivery of registration
Newspaper advertisement of prospectus

SHARE CAPITAL:
SHARE CAPITAL 29 Share capital mans that amount which the company raises by issue of shares. It is classified as
Authorised or Nominal Capital : This is the capital with which the company is registered Issued capital : The entire
authorised capital may not be required to be raised by the company initially. It is less than the Authorised or Nominal
Capital.

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30 Subscribed capital : That part of the issued capital which is agreed to be taken up by the public. Paid-up capital :
The amount actually paid up by the subscribers towards the capital accepted by them. Un-called capital : The
company may not require the full amount of the subscribed capital. It may call up only a part of the capital subscribed
and that part which has not been called up (the remainder of the subscribed capital is un called capital)

KINDS OF MEETINGS:
KINDS OF MEETINGS 31

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32 Statutory Meeting (Sec165): Every Company limited by shares &every company limited by guarantee &having a
share capital, shall within a period of not less than one month nor than 6 months. Annual General Meeting (Sec
166,167,&172): A Company may holds its first annual general meeting within 18 months from the date of its
incorporation. A company cannot hold more than one annual general meeting in any year.

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33 Extra Ordinary Meeting (Sec 169 ): Any Meeting other than Statutory Meeting & annual general meeting is called
an Extra Ordinary Meeting. The Extra Ordinary Meeting is convinced to transact any urgent or special business. By
the board of directors. By the board of directors on the requisition of not less than 1/10 th of members holding paid
up capital of the company the right of voting. By the board of directors in case of the company not having share
capital on the requisition of the members holding 1/10 th of the total voting power.

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34 Class Meeting: A company has often 2 class of share equity and preference shares. The company may vary the
rights of any class. Such rights can be varied by convening separate meeting of holders of different classes of shares.
Board Meeting (Sec 285 -286): It must held at least once in 3months & atleast 4 such meetings shall be held in every
year. Notice of every meeting of the board of directors of a company shall be given in writing, usual address in India

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35 Quorum for meeting (Sec 287&288) : It shall be 1/3 rd of its total strength. Quorum means a minimum numbers
present who are competent to transact and vote on any business. Meetings of Creditors and Debenture holders
Meetings of Creditors and Debenture holders are generally held in case of winding up of the company or in case of
proposed scheme of arrangement.

Company Management Board of Directors [Sec 2(13)]:
Company Management Board of Directors [ Sec 2(13) ] 36 The company being an artificial person carries on its
activities and business through individuals called Directors. Director includes any person occupying the position of a
director by whatever name called The directors of a company collectively are referred to as Board of Directors or
Board

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37 Every public company, other than a public company which has become such by virtue of section 43A shall have at
least 3 directors. Every other company shall have at least 2 directors [Sec 252]. Section 253 is amended by insertion
of a provision and section 266A to 266G are inserted, which provide for DIN to every individual director. DIN means a
Director Identification Number which the Central Govt. may allot to any individual to be appointed as director.

Position of Directors:
Position of Directors 38 It is very difficult to define the position of directors in a company as the Companies Act,1956
is silent on this issue. Generally Director acts as Agents of the company Officers in certain matters Trustees
Managing partners

Appointment of Directors:
By the central Government [Sec 408]. By the third party [sec 255] By the directors Sec 260,262,313 By the
Company in general meetings [Sec 255,257,263,264] By the articles as regard first directors [Sec 254]
Appointment of Directors 39

Qualification of Directors:
Qualification of Directors 40 The directors must obtain qualification shares with in 2 months after their appointment
The nominal value of qualification share must not exceed Rs. 5000 The director should not obtain shares by way of
gift from a promoter. The director should make the payment for his qualification of shares. The director is required to
hold Q.S in his own right.

Rights or Power of Director:
Rights or Power of Director 41 Statutory Powers The power to make on shares To invest fund To issue debentures
To borrow money otherwise than on debentures To make loans

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42 Managerial Powers Power to contract with the third party on behalf of the company To recommend dividend To
allot forfeit & transfer shares of the company. Rights To attend meetings of the company To participate in the
management of the companys affairs To receive remuneration, if any , fixed

Duties of Directors :
Duties of Directors 43 Act honestly Employ reasonable degree of skill and diligence in the interest of the company
Must not make secret profits Attend Board Meetings Send his consent of his appointment as a director to the
Registrar where applicable. Obtain Q.S Pay Call amount

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44 Disclose his interest in the contract etc., Disclose his name, occupation, nationality Not to delegate his functions
except to the extent authorised by the Act or Articles of the company . It should be noted that the duties of a director
vary according to the nature and size of the company.

Managing Director Sec 2(26):
Managing Director Sec 2(26) 45 A director who is entrusted with substantial powers of management which would not
otherwise or exercisable by him, and includes a director occupying the position of a Managing Director by whatever
name called. He is an agent of the company with capacity to bind the company within the sphere of management
authorised to him.

Appointment of MD:
Appointment of MD 46 A Managing Director may be appointed in any of the following ways: By agreement with the
company By a resolution passed by the company in general meeting By a resolution passed by the BOD By
memorandum of association By articles of association

Powers of MD:
Powers of MD 10/11/08 47 A MD of a company shall exercise his powers subject to the superintendence, control and
direction of its BOD. He is entrusted with substantial powers of management and administration of the affairs of the
company

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48 The following powers to do administrative acts of a routine nature shall not be deemed to be included within
substantial powers of management Power to affix the common seal of the company to any document to draw and
endorse any cheque on the account of the company in any bank To draw and endorse any negotiable instrument To
sign any certificate of shares To direct registration of transfer of any share