CHAPTER 1

COMPANY FORMATION
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• Partnership:

It means two are more individual coming together to do any business or profession
and share profit and loss or any one or all of them acting each other.

• Disadvantage of Partnership:

• Unlimited liability
• Death of Partnership
• Cannot transfer ownership.
• Registration not Compulsory

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What is a Company ?

• A Company is a voluntary association of persons formed for the purpose of doing business,
having a distinct name and limited liability.
• They can be incorporated under the Companies Act (it may be any type of company)
• A company is considered as a separate legal entity from its members, which can conduct
business with all powers to contract
• It is independent of its members and shareholders.
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Advantages of a Company ?

• Incorporated association • Limited Liability

• Artificial legal person
• Separate legal entity
• Perpetual succession
• Common seal
• Transferability of shares
• Separate property
• Capacity to sue
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Advantages of a Company ?

• Incorporated association • Limited Liability

• Artificial legal person
• Separate legal entity
• Perpetual succession
• Common seal
• Transferability of shares
• Separate property
• Capacity to sue
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Private Company
Minimum paid up capital of 1 lakh or more as prescribed by the article.
The maximum number of members to be 200 ( it does not include members who
are employed in the company, persons who were formerly employed)
The rights to transfer the shares are restricted in the Private companies
Prohibits any invitation to the public to subscribe the shares and debentures
Cannot Accept any Deposits from the Public
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Public Company
Minimum paid up capital of 5 lakh or more as prescribed by the article.
The maximum number of members to be Unlimited
Shares can be transferred to the Public
Can issue shares to the Public
Can Accept any Deposits from the Public
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Statutory Company
Formed under the special law of parliment.
 Company is formed under company law but governing under special law
Examples :
Banking companies under Banking law
Insurance companies under Insurance law
Electricity companies under Electricity law
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Government Company
More than 51% of the shares are Purchased by
 By central Government
 By State Government
 Both by State and Central Government.
 Examples :
HPCL BPCL ONGC
 NTPC , HAL, MMDC, NMDC
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Charter Company
Formed By
 King on England
Queen of England
 Crown of England.
 Companies will function under British law or rules governed by King
Examples :
East India Company
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Section 25 Company
 A company which is formed for the Purpose of Promoting any
Art
Culture
Religion
 or any charitable Purpose
 Permission of Central Government is required
 Earnings or donations are exempted from tax
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Holding and Subsidiary Company
If “A” Company Holds more than 50% of shares in “B” Company

If “A” Company Majority of directors are also directors of “B” Company

 If “A” Controls the Operations of the “B” Company

THEN “ A” Company Called Holding Company

 “B” Company is Called Subsidiary Company
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Associate Company
If “A” Company Holds more than 20% but less than
50%of shares in “B” Company

THEN “ A” Company Called Holding Company

 “B” Company is Called Associate Company
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Affiliate Company
If “A” Company Holds less than 20% shares
in “B” Company

THEN “ A” Company Called Holding Company

 “B” Company is Called Affiliate Company
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Foreign Company
If a Company registered out side India but Doing business in India.
Every Foreign Company has to submit the following documents
MOA
AOA
Certificate of Incorporation
Place of business
 Annual documents
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MNC Company
If a Company registered out side India but
Doing business more than one country.
Every MNC Company has to submit the following documents
MOA
AOA
Certificate of Incorporation
Place of business
 Annual documents
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Procedure to start a Company
 Apply for Director Identification Number (DIN)
 Apply for Digital signature for Directors
 Apply for Name Availability letter
 Prepare MOA for the Company
 Prepare AOA For the Company
 Pay the required Challan for the Capital
Obtain Certificate of Incorporation
 If Public company obtain Certificate of Commencement of
business.
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MOA Definition
It is the fundamental document of the company
It defines the external Powers of the company
It is the charter of the Company
It contains the Objects of formation of Company
Company has to act within the Objects of the MOA
Beyond the Objects of MOA, the act will be Ultra virus
Ultra virus act cannot be ratified by the shareholders
 MOA is for the purpose External parties who want to transact
with the company
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MOA Clauses

Name Clause
Address Clause
Objects Clause
Liability Clause
Capital Clause
Subscription Clause
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AOA Definition

 It Contains the Bye laws of the Company

It contains internal rules and regulations of the Company
 It is purely relating to Internal affairs of the Company.
Like Procedure to appoint directors, procedure to conduct
meetings, Procedure to borrow loans etc
 If any act which is not in AOA is called as Intra virus.
Intra virus act can be ratified by the shareholders.