WELCOME TO

THE INDIAN COMPANIES ACT

1956
 DEFINITIONS
(i) "company" means a company formed
and registered under this Act or an
existing company as defined in clause (ii);

(ii) "existing company" means a company

formed and registered under any of the
companies laws that have been in force
from time to time.
 DEFINITIONS
• (iii) "private company" means a company which has a
minimum paid-up capital of one lakh rupees or such
higher paid-up capital as may be prescribed, and by its
articles,-
• (a) restricts the right to transfer its shares, if any;

(b) limits the number of its members to fifty not including-

• persons who are in the employment of the company, and

(c) prohibits any invitation to the public to subscribe for

any shares in, or debentures of, the company;
 Definitions

(iv) "public company" means a company which-

(a) is not a private company;

(b) has a minimum paid-up capital of five lakh

rupees or such higher paid-up capital, as may be
prescribed;

(c) is a private company which is a subsidiary of

a company which is not a private company.
 Joint Stock Companies
These Private and Public Limited Companies are
also know as “joint stock companies”.
The Act defines a company as an artificial
person created by law, having a separate
legal entity, with perpetual succession and a
common seal.
 Joint Stock Company
What this means is that,
the company “is different” from the
investors. The investors put in money and
capital is raised.
But the company is treated as a virtual
person. The company is treated as a person
who is different from it’s investors.
The company has an identity of it’s own.
If some one sues the company, he does not
sue the investors, he sues the virtual person
that is the company
 Features of a Company
Legal formation:

No single individual or a group of individuals can

start a business and call it a joint stock
company.
A joint stock company can come into existence
only when it has been registered after
completion of all the legal formalities required by
the Indian Companies Act, 1956
 Features of a Company
Artificial person:

Just like an individual takes birth, grows,

enters into relationships and dies, a joint
stock company takes birth, grows,
enters into relationships and dies.
However, it is called an artificial person as
it’s birth, existence and death are
regulated by law.
 Features of a Company
Separate legal entity:
Being an artificial person, a joint stock
company is independent of it’s investors.
This means that a joint stock company can own property, enter
into contracts and conduct any lawful business in it’s “own”
name. It can sue and can be sued by others in
the court of law. ]
The shareholders are “not” the owners of the
property owned by the company. Also, the
shareholders cannot be held responsible for any
of the acts of the company.
 Features of a Company
Common seal:
A joint stock company has a “seal”, which is
used while dealing with others or entering into
contracts with outsiders.
It is called a common seal as it can be used by
any officer at any level of the organization
working on behalf of the company.
Any document, on which the company's seal is
put and is duly signed by any official of the
company, becomes binding on the company
 Features of a Company
Perpetual existence:
A joint stock company continues to exist as
long as it fulfills the requirements of law.
It is not affected by the death, lunacy,
insolvency or retirement of any of it’s
investors
[For example, in case of a private limited company having four
members, if all of them die in an accident, the company will “not” be
closed. It will continue to exist. The shares of the company will be
transferred to the legal heirs of the members]
 Features of a Company
Limited liability:

In a joint stock company, the liability of a member is

limited to the amount he has invested.

• While repaying debts, for example, if a person has

invested only Rs.10,000 then only this amount that he
has invested can be used for the payment of debts. That
is, even if there is liquidation of the company, the
personal property of the investor can not be used to pay
the debts and he will lose his investment worth
Rs.10,000.
 Features of a Company
• Democratic management:
Joint stock companies have democratic
management and control.
Since in joint stock companies there are
thousands and thousands of investors, all of
them cannot participate in the affairs of
management of the company.
Normally, the investors elect representatives
from among themselves known as ‘Directors’ to
manage the affairs of the company.
 Special characteristics of
Public Limited Companies
• A minimum of seven members are required to form a
public limited company.
• It must have minimum paid-up capital of Rs 5 lakhs.
• There is no restriction on maximum number of members.
• The shares allotted to the members are freely
transferable.
• These companies can raise funds from general public
through open invitations by selling its shares or
accepting fixed deposits.
• These companies are required to write either ‘public
limited’ or ‘limited’ after their names.
[Examples: Hyundai Motors India Limited, Jhandu
PharmaceuticalsLimited, etc.]
 “Holding Company" and
“Subsidiary"
• A company shall be deemed to be a subsidiary
of another if, but only if,-
(a) that other controls the composition of its
Board of directors; or
(b) where the first-mentioned company is any
other company, holds more than half in nominal
value of its equity share capital; or
(c) the first-mentioned company is a subsidiary
of any company which is that other's subsidiary.
 Illustration
Company B is a subsidiary of Company A, and
Company C is a subsidiary of Company B.
Company C is a subsidiary of Company A, by
virtue of clause (c) above.
If Company D is a subsidiary of Company C,
Company D will be a subsidiary of Company B
and consequently also of Company A, by virtue
of clause (c) above; and so on.
End of Part 1

THANK YOU!