Companies Act - 1956

By Team 4
 What is a company ?

• According to The Companies Act - 1956, a company means, a

company formed and registered under companies act.

• A company is a voluntary association of persons, formed for

some common purpose with capital divisible into parts known
as shares.
 Features of a company
• Voluntary Association
• Incorporated Association
• Separate legal entity
• Legal restrictions
• Perpetual succession
• Common seal
• Limited Liability
• Share capital
• Transferability of shares
 Classification
of companies

Members Number of
Incorporation Ownership
Liability members
 On the basis of
Incorporation

Chartered Statutory Registered

company company company
1. Chartered Company
The company which have formed and incorporated under a special
charter granted by the king or queen.
Eg: East India company.

2. Statutory company
These are companies which are created by means of a special Act of
Parliament or any state legislature.
Eg: RBI, Railway

3. Registered company
Company formed and registered under Companies Act 1956 is called
Registered companies.
 On the basis of
Member’s Liability

Limited by Unlimited
Limited Company
Guarantee Company
1.  Limited company or company limited by share:
Majority of registered companies will be company limited by shares. In
case of limited companies liability of members will be limited to the
amount unpaid on the shares.
2. Company limited by guarantee:
A company limited by guarantee does not usually have a share capital or
shareholders, but instead has members who act as guarantors. The
guarantors give an undertaking to contribute a nominal amount (typically
very small) in the event of the winding up of the company.
Such  companies are formed for the promotion of art science, culture,
sports etc.
3. Unlimited company
A company not having any limit on the liability of its members is termed
as unlimited company.
The members are liable for the debts of the company at the time of
winding up.
 On the basis of
number of Members

Private Company Public Company

1. Private company
A company whose shares may not be offered to the public for sale and
which operates under legal requirements less strict than those for a
public company.

2. Public company
A public company means a company which
• Is not a private company
• Has a minimum paid up capital of 5 Lakh rupees.
Basis of Private Company Public Company
difference
No. of Minimum = 2 Minimum = 7
Members Maximum = 50 Maximum = Unlimited
Min. Capital 1 lakh 5 lakhs
Law for Must end with the name “Pvt. Must end with the name “Ltd”
Name Ltd.”
Commencem Can commence immediately It should wait until it receive the
ent after incorporation. certificate for commencement of
business.
Invitation to It cannot invite public to It can invite public to subscribe
Public subscribe to its shares & to its shares & debentures
debentures
Minimum Not required Required
Subscription
Transfer of There is restrictions on Shares can be transferred
Shares transfer of shares easily
 On the basis of
Ownership

Government Holding and

Foreign Company
Company Subsidiary Company
1. Government company
A company is said to be government company when 51% of the paid up
capital is held by the central government or by any state government or
partly by central government and partly by one or more state
governments.
Example : LIC of India.

2. Foreign company
A foreign company is a company incorporated outside India and having a
place of business in India.
Example : Apple.

3. Holding and subsidiary company

À company which controls another company is known as the holding
company and the so controlled company is known as subsidiary company.
Example : TATA – Jaguar.
Formation of Company

Promotion Incorporation

Raising of Commencement
Capital of Business
I. Promotion
 
It is the first stage in the formation of a company.
In this stage the idea of carrying on a business is conceived by a person or a
group of persons called promoters. They make detailed investigation about
the workability of the idea, amount of capital required, operating expense
etc.

Before a company can be formed, there must be some persons who have an
intention to form a company and who take the necessary steps to carry that
intention into operation. Such persons are called promoters.
Basically the promoter is the person who brings a company into existence.
II. Incorporation
A company is said to be incorporated  when it is registered with the
registrar under the companies act. The certificate of incorporation is the
birth certificate of the company. A company comes into existence from
the date mentioned in the certificate.

Procedure for Incorporation

•The promoter has to first decide the proposed form of company as
whether it is to be a public company or a private company.
•They may form the company with limited liability , unlimited liability  or
limited by guarantee.
• They have to decide the name of the company agreeable and desirable
to all.
For example: If the name proposed is identical with or closely resembles
the name of an existing company , it is undesirable.
For getting registration an application has to be made to the registrar. The application
shall be accompanied by the following documents:
1.      Memorandum of Association(MoA).
2.      Articles of Association(AoA).
3.      A statement of nominal capital.
4.      A notice of address of the registered office of the company.
5.      A list of directors and their consent.
6.    A declaration that all the requirements of the act have been complied. Such
declaration shall be signed by an advocate of high court or supreme court or a
chartered accountant who is engaged in the formation of company.

Certificate of incorporation
If the registrar is satisfied that all the requirements of the act have been complied
with, he shall register the company and issue a certificate of incorporation.
The certificate of incorporation is a conclusive evidence of the fact that-
• company is duly registered.
• company came into existence on the date of certificate.
III. Raising of capital
After incorporation a company can raise capital by issuing shares. A
private company cannot issue shares to public.
In case of public company a copy of prospectus is filed with the registrar
and it will be issued to the public. Those who intend to purchase the
shares of a company are required to send their application money to
company's  banker.
 On the last date fixed for the receipt of application, if the company has
received application equal to minimum subscription, the directors will
start with allotment of shares.

IV. Commencement of business

A private company may commence its business immediately after
incorporation.
But a public company cannot commence business immediately after
incorporation as it has to obtain of a certificate commencement from the
registrar.
 Memorandum of Association
• Contains rules regarding constitution and activities or objects 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.

Contents of MoA [Sec.13]

• Name of company 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.
 Articles of Association
• Articles are the rules and regulations framed by a company for its own
governance.

• 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.
 Prospectus
• A prospectus is a legal document issued by companies that are offering
securities for sale. A company prospectus is a document that provides
comprehensive information about a company. This information can be
used by investors to decide whether they want to invest, and what kinds
of investments they would like to make.

Which companies are required to issue prospectus ?

 
• Every public limited company who intends to offer shares or debentures of
the company to the public.
 
• Every private company who ceases to be a private company and converts
into a public company and intends to offer shares or debentures of the
company to the public.
Matters to be specified in prospectus
 
1. Contents of the Memorandum with the names, addresses and
occupations of the signatories of the memorandum, and the number
and value of shares subscribed by them and their interest in the
property and profits of the company.
2. This content is not required if the prospectus is published in newspaper
or issued after 2 years from the commencement of business.
3. Description of the business and time duration of the company.
4. Names, addresses and occupation of proposed or existing Chief
Executive, Directors, Secretary and any other Company in which they
hold office.
5. Remuneration to Chief Executive Officer and Director.
 Shares & Debentures
According to [Sec.2(84)], ‘Share’ means a share in the share
capital of a company.
Share is the smallest unit into which the share capital of a
company is divided.

Debentures
Debenture are bonds issued as an acknowledgement of the
amount borrowed by a company.
 Distinction b/w Shares & Debentures
Basis
of Shares Debentures
Differe
nce
Capital Amount raised by issue of shares Amount raised by issue of
v/s represents the capital of the debentures represents the
Debt company. indebtness of the company
Voting Share holders have voting rights. Debenture holders do not have
Rights voting rights

Form Return paid is in form of Return paid is in form of interest.

of dividend.
return
Securit No security is in favour of share Security is in favour of debenture
y holders. holders.
Conver Shares cannot be converted into Debentures may be converted into
sion any other securities. shares provided if they are
convertible debentures.
 Who is a DIRECTOR?
According to the Sec.2(13) of INDIAN COMPNIES ACT 1956,
”Director includes any person occupying the position of the
director by whatever name called”

•Director may be defined as an individual who directs ,

controls or manages the affairs of the company.

•The directors of the company collectively are referred to as

the “board of directors” or “board”
 Number of Directors
• As per section 252, every public company shall have 3 directors and every
private company shall have at least 2 directors.
• Maximum no. of directors in case of private company shall be as specified
by the articles. It could be 7 or 8 or even 20 or 25.Central Government
approval not required in case of any increase in number.
• The act does not prescribe any maximum number of directors for public
company also but if the maximum no of directors exceed 12, prior
approval of Central Government would be required.
 Appointment of DIRECTORS

Directors may be appointed in following ways:

• By the articles as regard first directors.

• By the company in general meeting.
• By the directors.
• By third parties.
• By the central government.
 Powers & Duties of a Director
Powers:
• To make calls to shareholders in respect of the money unpaid on their shares.
• To issue debentures.
• To borrow money otherwise than on debentures
• To invest funds of the company

Duties:
• Approval & Authentication of annual accounts.
• Directors report to shareholders.
• Highlighting performance of the company.
• Investment of the funds and Borrowings.
• Appointment of first auditors.
• Issue of notices & holding of Board meetings and Shareholders’ meetings.
• Passing of resolution at board meetings.
 General Meetings
I. Statutory meeting (Sec. 165): Every company within a period not less than 1
month not more than 6 months from the date at which the company is entitled
to commence business, will hold a general meeting of the members of the
company.
II. Annual general meeting (Sec. 166, 167 & 171): Every company shall in each
year hold an Annual General Meeting in addition to any other meeting.
• Such meeting shall be specified in the notice calling it.
• Not more than 15 months shall elapse between the date of one general
meeting and that of the next.
• The directors are responsible for calling a general meeting.
• A company may hold its first annual general meeting within 18 months
from the date of its incorporation.
• If default is made in holding an AGM, the Company Law Board may, on the
application of any member of the company, call or direct the calling of the
meeting.
 • Such a meeting shall be deemed to be an annual general meeting of the company.
• The same power is vested with a ‘Tribunal’ in case of revival and rehabilitation of sick
industrial companies.

iii) Extraordinary general meeting (Sec. 169): This type of meeting is

convened to transact any urgent or special business.
• All business transacted at an EGM shall be deemed special.
• The EGM may be called by the Board of Directors; or by the same on the
requisition of not less than 1/10th of members holding paid-up capital and having voting
rights; or by the requisitionists themselves.
 Essentials of a Valid Meeting
• To be convened by Board.
• Notice: Contents of notice; Service of notice.
• Explanatory Statement.
• Ordinary purpose and/or Special purpose.
• Quorum: 5 members from public company and 2 members
from any other company.
• Chairman of the meeting.
 Proceedings

• Proxies: Rules as applicable – shall have no right to speak at the meeting;

a member of a private company shall not be entitled to appoint more than
one proxy to attend on same occasion; not entitled to vote except on a
poll.

• Voting: Every equity shareholder has a right to vote, while preference

shareholder has a right to vote only on resolutions directly affecting rights
attached to his preference shares. A resolution proposed is decided by
voting (i) by show of hands, or (ii) by poll.
• Resolutions:
Matters in a company are decided by resolutions in the meetings.
Items listed in the agenda to the notice of the meetings are decided by resolutions.
– Kinds of Resolutions:
– Ordinary resolutions
– Special resolutions
– Resolutions requiring special notice
– Board resolutions.

• Minutes of the Meeting:

Every company shall keep the following books at the registered office of the
company for purposes of recording the minutes:
– General meetings minute book
– Board meetings minute book
– Minutes of proceedings of Committee of Directors.
 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 surplus, if any amount is remaining, then it will
be distributed to the share holders in proportion to their holdings in the
company.
 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.
1. Compulsory winding up by the court
The winding up of a company under the order of a court is called the
compulsory winding up. Sec 433

Following circumstances of winding up by order of court—

• Special resolution by the company (on a petition by the co.)
• Default in holding statutory meeting and not delivering the statutory
report to the Registrar
• Failure to commence business within one year of its incorporation
• Reduction in membership below statutory minimum
• Inability to pay debts (Current Liabilities)
 2. Voluntary Winding Up
Voluntary winding up means winding up by the members or creditors of a
company without interference of the court.

A company may be winding up voluntarily by

• Passing an ordinary resolution in the general meeting if the period fixed
for the duration of the company has expired or some event by which the
company has to be wound up
• By passing a special resolution for any reason whatsoever.

Within 14 days of passing any resolution it must be advertised in the official

gazette and the regional newspapers.
3. Winding up subject to supervision of the
court.
• Court only supervises winding up procedure.
• Resolution for winding up is passed by members in the general meeting.
• The court may also appoint liquidators, in addition to already appointed,
or remove any such liquidator. The court may also appoint the official
liquidator, as a liquidator to fill up the vacancy.
• Liquidator is entitled to do all such things and acts, as he thinks best in the
interest of company. He shall enjoy the same powers, as if the company is
being wound-up voluntarily.
• The court also may exercise powers to enforce calls made by the
liquidators, and such other powers, as if an order has been made for
winding up the company altogether by court. (Section 526)
 Amendments of the Act - 2013
Particular Provisions contained in the CA Provisions contained in the CB –
s – 1956 2013
Types of • Public • Public
Companie • Private • Private
s • OPC
Members’ Maximum = 50 Maximum = 200
limit for
Pvt co.
OPC Did not exist OPC has been introduced which is a
private company
CoC Only Public company was Every company having a share capital
bound to get the CoC before need to get the CoC.
starting business.
Registere Details to be furnished in A company is entitled to have a
d Office Form 18 at the time of registered office capable of receiving
Incorporation. & acknowledging communications and
notices on the 15th day of
Incorporation.
Registrar verification – 30 days.
Changes – 15 days.
 Amendments of the Act - 2013
Particula Provisions contained in CA - Provisions contained in the CB –
rs 1956 2013
First No specific time. First meeting of Board of Directors
Board within 30 days of Incorporation.
Meeting
Length of No specific length. Not less than 7 days notice.
notice
Penalty In case of failure in sending Now the penalty is extended to
notice, penalty of upto Rs.25000/-
Rs.1000/- may be charged.
First AGM 18 months from 9 months from closure of accounts.
Incorporation or 9 months
from closure of accounts
whichever is earlier.
Day, Time AGM – Business hours and • AGM – Business hours and not to be
& Mode not to be held in public held in public holidays.
of notice holidays. • 21 days notice to be compulsorily
given.
• Can be in writing or in electronic
 Amendments of the Act - 2013
Particula Provisions contained in CA - Provisions contained in the CB –
rs 1956 2013
Quorum Pvt Co. <= 2 • Same if no. of members <1000.
Public Co. <= 5 • 15 if no. of members >1000.
• 30 if no. of members >5000.

Maximum 12 15. More can be appointed by

no. of passing Special Resolution.
directors
Compositi Pvt – 2 Minimum 1 woman director for
on of Public – 3 prescribed class of companies.
board Maximum = 12 At least 1 director should be a
person who has stayed in India for a
period of not less than 182 days in
the previous year.
Resignati No specific provisions. Except A copy of resignation letter along
on of for any change in directors to with the reason for it to be sent to
directors be filed with ROC within 30 ROC within 30 days.
days.
Particula Provisions contained in CA - Provisions contained in the CB –
rs 1956 2013
Key No such provisions. Should have:
Manageri CEO / MD / Manager
al Person CS
WTD – Whole Time Director
CFO
And other such officers as prescribed.
Thank You
Prepared by :

Sagar Jain
Samir Bedi
Rishabh Sethia
Rajath Vadgal
Rahul R
Ranganath Gowda
Shahid Fazal
Shehzad Ahmed