WHAT IS A “COMPANY”?

• The word company is derived from the Latin words

Com= with/together & Panis= Bread
• A company can be defined as an “ Artificial person”,
invisible, intangible created under Law with a dicrete
Legal Entity, Perpetual succession and a Commom
Seal.
 CHARACTERISTICS OF A COMPANY
 Corporate responsibility
 Common seal
 Limited liability
 Perpetual Succession
 Separate Property
 Transferbility of Shares
 Capacity to sue and can be sued
HISTORY & TIMELLINE OF COMPANIES ACT IN
INDIA
• 1850 The first Companies Act was passed in India in the year 1850. Thereafter the
Companies Act, 1866 was enacted, followed by the Companies Act 1913 which was
replaced by the present Companies Act, 1956.
• The Companies Act 1956 has been amended several times. The Companies
(Amendment) Act, 1999, 2000 & 2002 has drastically amended the Companies Act,
1956, to respond to the changed economic environment and liberalisation and
globalisation policies of the Government.
• A new Companies Act is in the offing and the new company law bill has already been
presented before the Parliament.
 Ministry of Corporate Affairs

• In 2004 a new Ministry of Company Affairs (renamed Ministry of

Corporate Affairs since 9th May 2007) was created for the first time
under the charge of an independent Minister.
• MCA-21 – This is the biggest e- governance initiative taken by the
Ministry of Corporate Affairs in 2006. All manual filing of returns and
documents have been abolished and e-filing has been introduced.
 NUMBER OF COMPANIES IN INDIA AS OF
SEPTEMBER 2019
• There are close to 1.9 million companies registered in India.
• 95% are private limited companies.
• Among 1.9 million companies, only around 11 lakh companies
are active.
• 7 lakh companies are complied with MCA filings on regular
basis
 Meaning of a Company
MEANING OF A COMPANY
A COMPANY IS AN ASSOCIATION OF PERSONS

FOR SOME COMMON PURPOSE VIZ. BUSINESS,

CHARITY, RESEARCH ETC.

REGISTERED OR INCORPORATED UNDER THE COMPANIES

ACT WHERE BY IT AQUIRES CERTAIN ATTRIBUTES

Separate Legal Entity Transferable Shares

Limited Liability Separate Property

Perpetual Succession Common Seal

7
 HIGHLIGHTS OF COMPANIES ACT 2013
Passed in lok Sabha : December 18, 2012
Passed in Rajya Sabha: August 08, 2013
Total number of sections: 470
Total number of chapter: 29
Total number of Schedules: 7
Effective from September 12, 2013
COMPARISON BETWEEN 1956 & 2013 ACT
 DEFINITION OF COMPANY AS PER 2013 ACT

• According to the Sec 2(20) of the Companies Act 2013

“A company is a Company formed under the companies
act 2013 or under any of the previous acts relating to
companies”.
TYPES OR KINDS OF COMPANIES
 BASIS ON INCORPORATION
• Royal Charter or Chartered Companies: Treated as foreign
companies. eg: East India company
• Statutory Companies: Formed under Special Statutory Act of
Parliament or State Legislature. For e.g., RBI, SBI, IFCI, etc.
• Registered Companies: Are registered under the Companies
Act. These companies have MoA and AoA for internal &
external regulations.
 BASIS ON LIABILITY
• Companies limited by shares: During the existence
of the company or in the event of winding up, a member can be called up to
pay the amount remaining unpaid on the shares subscribed by him.
Such a company is company is called company limited by shares. A
company limited by shares may be a public limited company or a private
limited company.
The former has a minimum paid-up capital of Rs. 5lac. Members
minimum 7, maximum unlimited to form a company. The latter has a
minimum paid-up capital of Rs. 1 lac. Members limited to 50 not including
former and present employees.
• Companies limited by guarantee: Companies may or may not have
share capital. Each member promises to pay a fixed sum of money
specified in the Memorandum in the event of liquidation of the company
for payment of debts and liabilities of the company.
• The amount promised is called ‘guarantee’.
• Depend on entrance and subscription fees for
• their existence.
• Unlimited Companies: Liability of the members is unlimited like an
ordinary partnership firm. Section 12 gives choice to promoters to form a
company with or w/o limited liability. A company not having any limit
on the liability of its members is called an ‘unlimited company.’
• The articles of such a company shall state the
• number of members with which the company
• is to be registered.
ON THE BASIS OF NUMBER OF MEMBERS

PRIVATE COMPANY-
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 its articles
a. Restricts the right to transfer its shares, if any
b. Limits the number of its members to 50.
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 or their relatives.
PUBLIC COMPANY:
A public company means a company which-
(a) has a minimum paid-up capital of Rs. 5 lakh or such higher paid-up
capital, as may be prescribed;
(b) is a private company which is a subsidiary of a company which is not a
private company;
Every public company, existing on the commencement of the
Companies Act, 2000, with a paid-up capital of less than Rs. 5 lakh,
within a period of two years from such commencement, enhance its
paid-up capital to Rs. 5 lakh.
ON THE BASIS OF CONTROL

Holding companies-
A company is known as the holding company of
another company if it has the control over that other
company. A company is deemed to be the holding
company of another if, but only if, that other is its
subsidiary.
Subsidiary company-
A company is known as a subsidiary of another
company when control is exercised by the holding
company over the former called a subsidiary
company.
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-
a) The central government, or
b) Any state government, or governments, or
c) Partly by central government and partly by one or more state
government.
Foreign company-
It means any company incorporated outside India which has
an established place of business in India.Where a minimum of
50% of the paid up share capital of a foreign company is held
by one or more citizens of India or/and by one or more bodies
corporate incorporated in India, whether singly or jointly,
such company shall comply with such provisions as may be
prescribed as if it were an Indian company.
ONE MAN COMPANY

• Where one man holds practically the whole of the shares capital of a
company and takes a few more dummy members simply to meet the
statutory requirements of the minimum number of persons such a
company is “one man company”
• A one man company can be incorporated under Sec 2(62) of the
Companies Act 2013.
 HOW TO FORM A COMPANY?
• The whole process of forming a company may be
classified into four stages, Namely:
i. Promotion
ii. Registration
iii. Floatation / Raising of capital
iv. Commencement of the Business
Certificate of Incorporate

22
 Company Documents
1 Memorandum of Association
2 Articles of Association
3 Prospectus

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 MOA
 It is the document which contains the rules regarding constitution and
activities or objects of the company.
 It is a fundamental charter of the company.
 The company is governed by it.
 The company is allowed to work within the framework of it. By it
outside world knows the state of affairs.
 It defines the extent and powers of the company.
 If the acts of the company are beyond the limits of the MoA, such acts
would be void and ultra vires.
 Doctrine of Ultra Vires
 It means ‘beyond powers’. That is, any act done by the company beyond
its legal powers and authority.
 Any act done by the company which is neither authorized by its objects
nor by the Act, that act is ultra vires the powers and authority of the
company.
 Such an act is void and cannot bind the company. And since it is void, it
cannot be ratified by shareholders either.
 Format of Memorandum of Association (MOA)

• According to Section 4 of the Companies Act, 2013, companies must

draw the MOA in the form given in Tables A-E in Schedule I of the Act.
Table A: Form for the memorandum of association of a company limited by shares.
Table B: Form for the memorandum of association of a company limited by guarantee
and not having a share capital.
Table C: Form for the memorandum of association of a company limited by guarantee
and having a share capital.
Table D: Form for the memorandum of association of an unlimited company.
Table E: Form for the memorandum of association of an unlimited company and having
share capital.
 Contents of MoA [Sec.13]
• Name of company(Name Clause) with ‘Limited’ suffixed in case of
public company and ‘Private Limited’ suffixed for a private company.
• Registered office of the company.
• Objects of the company.
• Liability of the members.
• Details of share capital of the company.
• Subscription or Association clause.
 Articles of Association
 Regulations of the company are prescribed by the Articles of
Association.
 It can be altered at any time according to the wishes of the members.
 It is subordinate to the MoA and is under full control of the members.
Members can make their regulations through AoA subject to Companies
Act.
 It contains rules & regulations for the internal management of the
company subject to provisions of the Companies Act.
 Memorandum of Articles of Association
Association
Charter of Company Regulations for interal management

Defines the scope of the activities Rules for carrying out the objects of
company.

Supreme document Subordinate to the memorandum.

Must for every company Company limited by shares need

not have it (Table ‘A’ applies)

Strict restrictions, alteration only Can be altered by special

with sanction of central govt./ resolution.
tribunal.

Act, ‘Ultra Vires’ is wholly void & Act ‘Ultra Vires’ (but intra vires the
cannot be ratified. memorandum) can be ratified.
 Prospectus
• A public company invites public to subscribe towards its share capital
through the issue of a Prospectus.
• A prospective investor would naturally like to know the financial
background of the company, its activities, future programmes, nature of
investment, risk, etc.
• Every investor would like to receive reasonable but sure returns.
• Prospectus of a company provides this information.
 Definition
• Section 2(36): “Prospectus means any document described or issued as a
prospectus and includes any notice, circular, advertisement or other
document inviting deposits from the public or inviting offers from the
public for the subscription or purchase of any shares in, or debentures of
abody corporate.”
• An “abridged prospectus” means a memorandum containing such salient
features
 WINDING UP OF A COMPANY
 Winding up:
 Winding up/liquidation represents the last stage of a company’s life.
 Process of putting an end to the life of the company
 It is a proceeding by which a company is dissolved.
 Here the assets of the company are disposed of , the debts are paid off
out of the realized assets , and the surplus , if any is then distributed
among the members in proportion to their holdings in the company
 Persons entitled to apply for winding up Sec. 439
1. Company itself by passing of a special resolution
2. Any Creditor or Creditors
3. Contributory/s
4. The Registrar
5. Any Person authorized by Central Govt.as per sec. 243
6. The official liquidator
 Modes of Winding up

Three modes of winding up :-

1. Compulsory winding up by the court
2. Voluntary winding up
3. winding up under the supervision of the court.