Company Act 2013

An Introduction of Company under the Companies Act

2013
Introduction:
There are many different forms of businesses like Sole Proprietorship, Partnership Firm, Hindu
Undivided Family Business, Limited Liability Partnership, etc. But Company form of business
has certain advantages over another form of business-like limited liability, perpetual
succession, Separate legal identity, etc.
Meaning:
The word ‘Company’ has been derived from the Latin word made from two words i.e. Com
and panies. The word ‘com’ in Latin means ‘with or together’ and the word ‘panies’ in Latin
means ‘bread’. Hence, a company meant an association of persons who took their meal
together.
In common parlance, the meaning of company form of business can be understood as an
association of persons formed for the purpose of carrying on some business or undertaking. A
company is a body corporate having separate legal identity having status separate from
members constituting it.

Introduction to Company Act 2013

The Companies Act 2013 is an Act of the Parliament of India which regulates incorporation of
a company, responsibilities of a company, directors, dissolution of a company. The 2013 Act
is divided into 29 chapters containing 470 sections as against 658 Sections in the Companies
Act, 1956 and has 7 schedules. The Act has replaced The Companies Act, 1956 (in a partial
manner) after receiving the assent of the President of India on 29 August 2013. The Act came
into force on 12 September 2013 with few changes like earlier private companies’ maximum
number of member was 50 and now it will be 200. A new term of “One Person Company” is
included in this act that will be a private company and with only 98 provisions of the Act
notified. A total of another 184 sections came into force from 1 April 2014.

Definition of Company under Company Act 2013.

As per Section 2(20) of the Companies Act, 2013, the term “Company has been defined as a
company incorporated under this Act or under any previous company law.” The definition of
the company under this Act can be more clarify as below:
The persons who form the company and contribute money or money’s worth for the business
of the company are called ‘Members’. They get ‘shares’ in the company in the proportion of
their contribution in the company. The contribution made by members of the company is the
‘Capital’ of the company.
Nature and Characteristics of a Company:
The company is a legal person created by a process of law other than natural birth. For this
reason, a company is also called as an artificial legal person. As a natural person, a company
also enjoys many rights and incurred many liabilities of a natural person.

Following are the characteristics of the company:

Sr.No. Particulars Characteristics
Unlike other forms of business e.g. Partnership Firm,
Association of Persons, etc., the company has an entity
separate from its members constituting it. Once a
company is incorporated under the law, it bears its own
personality, name, property separate from its members,
has contractual rights, right to sue and be sued, etc. in the
same manner as the natural person.
1. Separate Legal Entity:
It is also important to note that, even if the company is a
separate legal entity in the eyes of law but it carries on its
activities through its management. Also in case
of Shiromani Gurudwara Prabandhak Committee vs.
Shri Sham Nath Das, it was held that Company acts like
a natural person but only through its designated persons,
whose acts are proceeded within the ambit of the law.
The Company is called an Artificial Legal Person
because it is invisible, intangible and cannot be touched,
but existing in the contemplation of law, hence, it has
2. Artificial Person:
rights and liabilities same as a natural person.

A company has the nationality of a nation where it is

incorporated and has a residence where it has established
its Registered Office. However, Company cannot be a
Has Nationality and citizen under the Citizenship Act, 1955 or the
3. Residence but no Constitution of India. Section 2(f) of the Citizenship Act,
citizenship 1955, expressly excludes a company or association or
body of individuals from citizenship.

The principal advantage of doing business under

Company form of business is Limited Liability of its
members towards the debts of the company. The liability
of the company is limited to the extent of the amount not
4. Limited Liability
paid on the shares held by them and in case of a company
limited by guarantee, members of such company are also
liable to the amount guaranteed to be paid by them in the
Memorandum of the company at the time of winding up.
 For Example, if a person holds shares of a company
having a nominal value of Rs.1000/- out of which it has
paid to the company only Rs.750/-, then he cannot be
called upon to pay more than balance unpaid amount i.e.
Rs.250/- in this case. However, if he has paid the full
amount on his shares, he will not be further liable to pay,
even if the company is in liquidation.

Perpetual succession means membership and

directorship of the company keep changing but that
doesn’t affect the continuity of the company.
In the words of Professor L.C.B. Gower, Members may
5. Perpetual Succession come and go, but the company can go on forever.
During a war, all members of one private company were
killed by a bomb, but the company survived-not even
hydrogen bomb could have destroyed it.
A company is a legal entity in the eyes of law and hence,
has the capacity to sue and be sued in its own name. Legal
6. Capacity to sue and be sued action or proceeding can be instituted against a company
in its own name and similarly, a company in its own name
file suit against any company in the court of law.
A company is formed for the purpose of earning a profit,
which is further divided among the members or saved for
7
the expansion of the business.
Profit is object
Section 8 company is the exception to this characteristic
.
because Section 8 company is formed with no profit
motive.
A company is an Artificial legal person in the eyes of law,
but it cannot carry its activities on its own. The company
is administered and managed by its managerial
8. Separate Management personnel. Members who form and contribute to the
company, do not carry corporate function, rather they
appoint their representatives as directors of the company
to conduct its activities.
A company is formed for the objects specified in the
Memorandum of Association of the company.
Memorandum of Association is the principal document
9. Limitation of Power of the company which provides the objects which can
carry by the company. A company cannot go beyond its
powers mentioned under its Memorandum of
Association.
A company is a perpetual entity, which cannot be died or
10. Termination by winding up dissolved except by the procedure of law. Hence, the
company is terminated by means of winding up.
Share Capital:-

Meaning of Share Capital:

Share capital denotes the amount of capital raised by the issue of shares,
by a company. It is collected through the issue of shares and remains with the company until
its liquidation.Share capital is owned capital of the company since it is the money of the
shareholder and the shareholder are the owners of the company. The total share capital is
divided into small parts and each part is called a share. Share is the smallest part of the total
capital of a company.

Types of Share Capital:

• Authorized capital:

It is the maximum amount of capital that a company can collect or raise by selling its shares to the
general public. Authorized capital is known as nominal capital or registered capital. For example,
A company wants to sell 100 shares of Rs. 10.00 each, so the total amount collected by the company
is Rs. 1000.00.The capital with which a company is registered is known as its authorized capital.

• Issued capital:

It is that part of the authorized capital which is actually issued to the general public. For example,
A company has issued 80 shares of Rs. 10.00 each so the issued capital is Rs. 800.00

• Unissued capital:

It is that part of the authorized capital which is not being issued to the general public. That is, the
company has not issued 20 shares of Rs. 10.00 each, so the unissued capital is Rs. 200.00.

• Subscribed capital:

It is that part of the issued capital which is actually subscribed by the general public. That is a
company has issued 80 shares out of which 70 shares are being bought by the general public, so the
subscribed capital is Rs. 700.00. That is 70 shares of Rs. 10.00 each.
• Unsubscribed capital:

This is part of the issued capital that is not subscribed to by the general public. That is if the
company has issued 80 shares out of which 70 are bought by the general public and 10 are not being
bought by them, so the unsubscribed capital is Rs. 100. That is 10 shares of Rs. 10 each.

• Called up capital:

It is that part of the subscribed capital that the company actually called up. For instance, if a company
has asked its shareholders to pay Rs. 5.00 per share so on 70 shares, they have to pay Rs. 350.00.
This is the called-up capital.

• Uncalled up capital:

It is that part of the subscribed capital which is not being called up by the company. It may be called
up as and when the company need funds. That is out of Rs. 10.00 per share, Rs. 5.00 per share is
being called up by the company and Rs. 2.00 is being uncalled up and Rs. 3.00 is kept as reserve,
which is yet to be called.

• Reserve capital:

Reserve capital is that part of the uncalled capital that is reserved to be called up only when winding
up or liquidating the company. It cannot be called during the lifetime of a company. It is to be used
only for meeting extraordinary situation such as the liquidation of the company. The purpose of
reserve capital is to meet the interests of the creditors at the time of winding up of the company.

• Paid-up capital:

It is that part of the called-up capital which is actually paid up by the shareholders.

For example, out of 70 shares that were subscribed for 60 shareholders have paid up their call
money, that is Rs. 300.00 is called the paid-up capital of the company.

• Unpaid up capital:

It is that part of the called-up capital which is not being paid by the shareholders.

For example: out of 70 shareholders, 60 shareholders have paid up their call money and 10
shareholders have not paid their call money, so Rs. 50.00 is called unpaid up capital. Unpaid up
capital is also known as Calls in Arrears.

Formation of Company: -
 In the Formation of Company Four major steps are involved

1. Promotion of a Company
2. Registration of a Company
3. Certificate of Incorporation; and
4. Commencement of the Business.

1. Promotion of a Company:

A business enterprise does not come into existence on its own. It comes into existence
as a result of the efforts of an individual or group of people or an institution. That is, it
has to be promoted by some person or persons. The process of business promotion
begins with the conceiving of an idea and ends when that idea is translated into action
i.e., the establishment of the business enterprise and commencement of its business.

Who is a Promoter in a Company?

A successful promoter is a creator of wealth and an economic prophet. The person

who is concerned with the promotion of business enterprise is known as the Promoter.
He conceives the idea of starting a business and takes all the measures required for
bringing the enterprise into existence.

For example, Dhirubhai Ambani is the promoter of Reliance Industries.

The promoters find out the ways to collect money, investigate business ideas arranges
for finance, assembles resources and establishes a going concern.

The company law has not given any legal status to promoters. He stands in a fiduciary
position.

2. Registration of a Company
 It is registration that brings a company into existence. A company is properly formed
only when it is duly registered under the Companies Act.

Procedure of Registration

In order to get the company registered, the important documents required to be filed
with the Registrar of Companies are as follows.

1. Memorandum of Association: It is to be signed by a minimum of 7 persons for a

public company and by 2 in case of a private company. It must be properly stamped.

2. Articles of Association: This document is signed by all those persons who have
signed the Memorandum of Association.

3. List of Directors: A list of directors with their names, address and occupation is to
be prepared and filed with the Registrar of Companies.

4. Written consent of the Directors: A written consent of the directors that they have
agreed to act as directors has to be filed with the Registrar along with a written
undertaking to the effect that they will take qualification shares and will pay for them.

5. Notice of the Address of the Registered Office: It is also customary to file the
notice of the address of the company’s registered office at the time of incorporation. It
is to be given within 30 days after the date of incorporation.

6. Statutory Declaration: A statutory declaration by

a. any advocate of the Supreme Court or

b. of a High Court, or
c. an attorney or pleader entitled to appear before a High Court or
d. a practicing-chartered accountant in India, who engages in the Company formation or
e. by a person indicated in the articles as director, managing director, Secretary or
manager of the company, mentioning that the requisites of the Act and the rules there
under have been complied with. It is to be filed with the Registrar of Companies.

When the required documents have been filed with the Registrar along with the
prescribed fee, the Registrar scrutinizes the documents. If the Registrar is satisfied,
the name of the company is entered in the register. Then the Registrar issues a
certificate known as Certificate of Incorporation.

3. Certificate of Incorporation
 On the registration of Memorandum of Association, Articles of Association and other
documents, the Registrar will issue a certificate known as the ‘Certificate of
Incorporation ‘. The issue of certificate is the evidence of the fact that the company is
incorporated and the requirements of the Companies Act have been complied with.

4. Certificate of Commencement of Business

As soon as a private company gets the certification of incorporation, it can

commence its business. A public company can commence its business only after
getting the ‘certificate of commencement of business ‘. After the company gets the
certificate of incorporation, a public company issues a prospectus for inviting the
public to subscribe to its share capital. It fixes the minimum subscription. Then it is
required to sell the minimum number of shares mentioned in the prospectus.

After completing the sale of the required number of shares, a certificate is sent to the
Registrar along with a letter from the bank stating that all the money is received.

The Registrar then scrutinizes the documents. If he is satisfied, he issues a certificate

known as ‘Certificate of Commencement of Business’. This is the conclusive
evidence for the Commencement of Business.

Memorandum of Association: -

A Memorandum of Association (MoA) represents the charter of the company. It is a

legal document prepared during the formation and registration process of a company
to define its relationship with shareholders and it specifies the objectives for which
 the company has been formed. The company can undertake only those activities that
are mentioned in the Memorandum of Association. As such, the MoA lays down the
boundary beyond which the actions of the company cannot go.

Memorandum of Association helps the shareholders, creditors and any other person
dealing with the company to know the basic rights and powers of the company. Also,
the contents of the MoA help the prospective shareholders in taking the right decision
while thinking of investing in the company.

MoA must be signed by at least 2 subscribers in case of a private limited company,

and 7 members in case of a public limited company.

Memorandum of Association (MoA) consists of the following clauses:

1. Name Clause: This clause specifies the name of the company. The name of the
company should not be identical to any existing company. Also, if it is a private
 company, then it should have the word ‘Private Limited’ at the end. And in case of
public company public company, then it should add the word “Limited” at the end of
its name.

For example, ABC Private Limited in case of the private, and ABC Ltd for a public
company.

2. Registered Office Clause: This clause specifies the name of the State in which the
registered office of the company is situated. This helps to determine the jurisdiction of
the Registrar of Companies. The company is required to inform the location of the
registered office to the Registrar of Companies within 30 days from the date of
incorporation or commencement of the company.

3. Object Clause: This clause states the objective with which the company is formed.
The objectives can be further divided into the following 3 subcategories:
• Main Objective: It states the main business of the company
• Incidental Objective: These are the objects ancillary to the attainment of
main objects of the company
• Other objectives: Any other objects which the company may pursue and are
not covered in above (a) and (b)

4. Liability Clause: It states the liability of the members of the company. In case of an
unlimited company, the liability of the members is unlimited whereas in case of a
company limited by shares, the liability of the members is restricted by the amount
unpaid on their share. For a company limited by guarantee, the liability of the
members is restricted by the amount each member has agreed to contribute.

5. Capital Clause: This clause details the maximum capital that a company can raise
which is also called the authorized/nominal capital of the company. This also explains
the division of such capital amount into the number of shares of a fixed amount each.

Articles of Association ( AoA ) of Company in India:-

An Article of Association( AoA ) lays down the rules and regulations for the internal
management of the company. It specifies the duties, rights, and powers of the
management of the company. An Article of Association is subsidiary to the
Memorandum of Association(MoA).

A Memorandum of Association specifies the objectives of the company whereas, an

Article of Association lays down the internal guidelines to be followed when
achieving these objectives of the company. An Article of Association brings clarity in
the relationship between the shareholders and the company and among the
shareholders themselves. The Article of Association contains the rules regarding the
share capital, transfer of shares, voting rights of the shareholders, the appointment of
directors, accounts, an audit of the company etc.

Different Forms of the Article of Association (AoA)