COMPANIES ACT 1956

Prof. Navin Shrivastava

n.shrivastava@bimtech.ac.in
 COMPANIES ACT 1956
 Defining ‘Company’
 Amalgamation of the Latin word 'Com'
meaning "with or together" and ‘Panis’
meaning "bread". Originally, it referred
to a group of persons who took their
meals together.
 Definition of a company
 Section3(1)(ii)
 “An existing company means
accompany formed and registered
under any of the previous companies

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 Meaning:

 A company is nothing but a

group of persons who have
come together or who have
contributed money for some
common purpose and who
have incorporated themselves
into a distinct legal entity in
the form of a company

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 By Scholars
Lord justice lindley
"A COMPANY IS AN ASSOCIATION OF
MANY PERSONS WHO CONTRIBUTE
MONEY OR MONEY’S WORTH TO A
COMMON STOCK AND EMPLOYED IN SOME
TRADE OR BUSINESS AND WHO SHARE
THE PROFIT AND LOSS ARISING THERE –
FROM. THE COMMO STOCK SO
CONTRIBUTED IS DENOTED IN MONEY
AND IS THE CAPITAL OF THE COMPANY.
THE PERSONS WHO CONTRIBUTE TO IT OR
TO WHOM IT PERTAINS ARE MEMBERS.
THE PROPORTION OF CAPITAL TO WHICH
EACH MEMBER IS ENTITLED IS HIS SHARE.
THE SHARES ARE ALWAYS TRANSFERABLE
ALTHOUGH THE RIGHT TO TRANSFER IS
OFTEN MORE OR LESS RESTRICTED”
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 Characteristics of a
Company
 Separate Legal Entity
 Limited Liability
 Perpetual Succession
 Separate Property
 Transferability of Shares
 Common Seal
 Capacity to sue and being sued
 Separate Management

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 Distinction between
Company and Partnership
 PARTNERSHIP
 No separate legal entity
 Unlimited liability
 Property --> partner
 Shares not freely transfered.
 Death of partner: partnership is dissolved
 COMPANY
 Separate legal entity
 Limited liability
 Property --> Company
 Shares freely trans.
 Perpetual succession
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 Types of Companies

 Public limited companies

 Private limited Companies
 Limited Co. & Unlimited Companies:
Limited by shares
Limited by Guarantee
 Section 25 companies
 Holding & Subsidiary Companies
 Government Companies
 Foreign Companies

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 Private Limited company
 Restricts the right of members to
transfer its shares.
 Limits the number of its members to
fifty.
 Prohibits an invitation to the public
to subscribe to any shares in or the
debentures of the company.
 must have minimum paid up capital
of Rs. 1 lakh or such higher amount
which may be prescribed.
 prohibit any invitation or acceptance
of deposits from persons other than
its members, directors or their
relatives.
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 Capital of a Company
 Authorized Capital
 Issued capital
 Subscribed capital
 Called-up capital
 Paid-up capital

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 FORMATION OF COMPANY
1. Promotion
2. Registration /incorporation of company
3. Memorandum of association
4. The article of association
5. A list of persons who have consented to act as directors of
the proposed company.
6. A statutory declaration of compliance
7. Any agreement with the relevant persons of the proposed
company.

8. R.O.C(REGISTRAR OF COMPANY) WILL ALLOT-

CORPORATE IDENTITY No.(C.I.N.)
(for co’s registered after Nov 1 ,2000)
certificate of registration will be conclusive evidence –
(Jubilee cotton mills Vs Lewis)
9. Floatation/ raising of capital
10. Commencement of business

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 Memorandum of Association
(The charter that contains the powers
of the co.)

 Name Clause
 Registered Office Clause
 Object Clause - Main Object, ancillary
objects & other objects.
 Liability Clause
 Capital Clause
 Association Clause
 Doctrine of Ultra Vires

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 Articles of Association
 Rules and regulations of the internal
management
 Contract between the company and
its members and also between the
members themselves.
 Specifies the rights and duties of the
members and directors.
 Can be altered by passing a special
resolution in GM.

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 Winding up of a Company
 "Winding up of a company is the
process whereby its life is ended and its
property administered for the benefit of
its creditors and members. An
administrator called a liquidator, is
appointed and he takes control of the
company, collects its debts and finally
distributes any surplus among the
members in accordance with their
rights".

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  All the affairs of the company
are wound up
 All its assets are realized, its
liabilities paid off
 The balance if any is distributed
to its shareholders in
proportion to their holding in
the company.

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 Modes of Winding Up

 A Company may be wound up in any of the

following modes:
 1.By the Court i.e. compulsory winding
 2.Voluntary winding up, which may be
 (a)Member's voluntary winding up;
 (b)Creditor's voluntary winding up;
 3. Winding up subject to supervision of the
Court
 The Company cannot be dissolved except by
order of dissolution by the Court.

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 Some more points…
 A public company must have at
least 7 members and a private
company must have at least 2
members.
 Every public company must have at
least 3 directors and every private
company must have at least 2
directors.
 Annual General Meeting must be
held by every type of company,
once a year. Every company must in
each year hold an AGM. Not more
than

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  15 months must elapse
between two annual general
meetings.
 Resolutions mean decisions
taken at a meeting. An ordinary
resolution is one, which can be
passed by a simple majority.
 A special resolution is one in
regard to which is passed by a
75 % majority only. 15 months
must elapse between two
annual general meetings.
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 Lifting of corporate veil
 Under statutory provisions
1. Reduction of membership
2. Misrepresentation in prospectus
3. Fraudulent conduct of business
4. Failure to return application money
5. Mis-description of name
6. Non – payment of tax
7. Liability of ultra –vires acts
8. Liability of promoters for pre-incorporation
contracts
9. Directors with unlimited liability
10. Holding-subsidiary company

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 Under Judicial Interpretations

1. For determining the enemy

character of company
2. For the benefit of revenue
3. For preparation of fraud and
improper conduct
4. Others-(DDA vs skipper
construction co.(P)ltd
Tejwant singh case

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 Doctrine of constructive notice

 The memorandum and articles when

registered with the registrar become
public documents and accessible to all.
they can be inspected on payment of a
nominal fee. Therefore ,there is a
presumption that any outsider dealing
with company has read and understood
these documents.

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 Doctrine of Indoor Management
 The rule of constructive notice proved too inconvenient for
business transactions. Particularly where the directors or
other officers of the company were empowered under the
articles to exercise certain powers subject only to certain prior
approvals or sanctions of the shareholders. Whether those
sanctions and approvals had actually been obtained or not
could not be ascertained .
 Meaning: -
Persons dealing with the company in good faith have a right to
assume that the internal requirements prescribed in public
documents(Memorandum and articles)have been observed. In
other words, persons are not bound to enquire into regularity
of internal proceedings. There are certain exceptions to this
doctrine and they can be summarized as:
a) where the outsider had knowledge of irregularity.
b) in case of forgery
c) negligence on the part of the outsider
d) acts outside scope of apparent authority

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