Introduction to Corporate Accounting

DEFINITION OF A COMPANY

• As per Sec. 2(20) of the Companies Act, 2013,

‘company’ means a company incorporated
“under this Act”; or “under any previous
company law”.
• A company is an artificial person created by
law, having “separate identity” and
“perpetual succession”.
 NATURE OF A COMPANY

A company has a dual nature, as an

association of its members but also as a
person separate from its members. As soon as
necessary formalities of incorporation are
satisfied, a new entity comes into existence
which is separate and distinct from its
directors and shareholders.
 CHARACTERISTICS OF A COMPANY

• Incorporated association
• Independent legal entity
• Limited liability
• Perpetual existence
• Common seal
• Transferability of shares
 INCORPORATED ASSOCIATION

• Every company must be compulsorily

registered or incorporated under the
company’s Act.

• According to sec 3 the minimum number of

persons required for forming a private company is
two, seven for a public company and one for one
person company. These persons are also known as
the subscribers to the memorandum.
 INDEPENDENT LEGAL ENTITY

• A company is a legal entity quite distinct and separate

from its members. It can enter into any kind of
contracts, can be sued and can sue it’s members as well
as outsiders.
 LIMITED LIABILITY

• In a company limited by shares, the liability of

member is limited to the unpaid value of the
shares.
• Company limited by guarantee is a incorporated firm
without share capital, and in which the liability of its
members is limited to the amount each one of them
undertakes to contribute at the time the firm is
wound up.
 PERPETUAL SUCCESSION

Member may come and go but the company can go on

forever. It continues to exist even if all its members are
dead. The existence of company can be terminated
only by law.
 COMMON SEAL

• Common seal is the official signature of the

company.

• Any document on which common seal is

affixed, is deemed to be signed by the
company.
 TRANSFERABILITY OF SHARES

In case of a public company the shares are freely

transferable but in the case of a private company
there will be certain restriction on the transferability
of shares.
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Types of Companies
• Statutory Companies -
When a Company is incorporated/formed by passing a Special Act at
the Legislature, it is called as a Statutory Company.
• Such companies are governed by their respective acts and are not
required to make MoA and AoA.
• These companies are also known as the Statutory corporations or
public corporations.
• The examples of such companies in India would be : Reserve Bank of
India, Food Corporation of India, Life Insurance Company etc.

• Registered Companies – A Company which is formed and registered

under the Companies Act, 2013, including the companies which are
earlier registered under any of the previous company, are called as the
Incorporated or Registered Company.

* All those companies which don't fall under the above categories are
called 'Unregistered Company'
• Private company:

The 2013 Act introduces a change in the definition for a private

company, inter-alia, the new requirement increases the limit of the
number of members from 50 to 200. [section 2(68) of 2013 Act].
• Private Company limited by shares
• Private Company limited by guarantee and having share capital
• PrivateCompany limited by guarantee and
having no share capital
• Private Company Unlimited and having share capital
• Private Company Unlimited and having no share capital
• Public Company: [Section 2(71) of 2013 Act]

“public company” means a company which—

(a) is not a private company;
(b) has a minimum paid-up share capital of five lakh rupees or such higher
paid-up capital, as may be prescribed:
*Provided that a company which is a subsidiary of a company, not being a
private company, shall be deemed to be public company for the purposes of
this Act even where such subsidiary company continues to be a private
company in its articles.
 Public Company limited by shares
 Public company limited by guarantee and having share capital
 Public Company limited by guarantee and having no share capital
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• One-person company:
The 2013 Act introduces a new type of entity to the existing list i.e. apart
from forming a public or private limited company, the 2013 Act enables the
formation of a new entity a ‘one-person company’ (OPC). An OPC means a
company with only one person as its member [section 2(62) of 2013 Act].
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• Dormant company:

The 2013 Act states that a company can be classified as dormant when it is
formed and registered under this 2013 Act for a future project or to hold
an asset or intellectual property and has no significant accounting
transaction. Such a company or an inactive one may apply to the ROC in
such manner as may be prescribed for obtaining the status of a dormant
company.[Section 455 of 2013 Act]
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• Small company:

A small company has been defined as a company, other than a public

company.
(i)Paid-up share capital of which does not exceed 50 lakh INR or such
higher amount as may be prescribed which shall not be more than
five crore INR
(ii)Turnover of which as per its last profit-and-loss account does not
exceed two crore INR or such higher amount as may be prescribed
which shall not be more than 20 crore INR:
As set out in the 2013 Act, this section will not be applicable to the
following:
• A holding company or a subsidiary company
• A company registered under section 8
• A company or body corporate governed by any special Act
[section 2(85) of 2013 Act]
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• Unlimited Company [Section 2(92) of 2013 Act] –

“unlimited company” means a company not having any limit on the liability of its
members.

• Charitable Company [Section 8 of 2013 Act] –

(1) Where it is proved to the satisfaction of the Central Government that a person
or an association of persons proposed to be registered under this Act as a
limited company—
(a)has in its objects the promotion of commerce, art, science, sports, education,
research, social welfare, religion, charity, protection of environment or any
such other object;
(b)intends to apply its profits, if any, or other income in promoting its objects; and
(c) intends to prohibit the payment of any dividend to its members,
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• Listed company- if shares listed on any Indian stock exchange

e.g. Infosys, TCS etc.

• Unlisted company:the companies whose shares are not listed on

renowned stock exchanges

• Holding, Subsidiary and Associate companies

Holding company = itself owns 20% or more shares of another company.
that “Another company” is further classified into:

Subsidiary company Associate company

If 50% shares owned by holding If 20% or more shares owned by holding
company. company.
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(c) Arun Verma

• Government Company [section 2(45) of 2013 Act] -

“Government company” means any company in which not less than
fifty one per cent. of the paid-up share capital is held by the Central
Government, or by any State Government or Governments, or partly
by the Central Government and partly by one or more State
Governments, and includes a company which is a subsidiary
company of such a Government company;

• Foreign Company [section 2(42) of 2013 Act] –

“foreign company” means any company or body corporate
incorporated outside India which—
(a)has a place of business in India whether by itself or through an
agent, physically or through electronic mode; and
(b)conducts any business activity in India in any other manner.
 Stages in the Formation of a Company

• PROMOTION

• INCORPORATION OF A COMPANY
•COMMENCEMENT OF BUSINESS
PROMOTION OF A COMPANY

• First stage in the formation of a company.

• Promotion means the initial work involved in bringing a business

concern into existence and making arrangements for its proper
running
 PROMOTER

• Promoter is a person who undertakes to form a new

company and carries out all the preliminary work in
connection with its establishment as a going concern.
FUNCTION OF A PROMOTER

•Identification of Business Opportunities

•Feasibility Studies
•Name Approval
•Fixing up signatories to the Memorandom of Association
•Appointment of Professionals
•Preparation of Necessary Documents
INCORPORATION

Second stage in the company formation

• A company is said to be incorporated when it is registered with

the Registrar of Companies.

• The following documents are required to be submitted to the

Registrar of Companies:

• Memorandum of Association

• Articles of Association
MEMORANDOM OF ASSOCIATION

• It is the Charter of the company.

• It is the most important document of the company with

which a company is registered
• It defines the company’s objects, capital and power

• It governs the outside relationship of the company

 CONTENTS OF MEMORANDOM OF
ASSOCIATION

•Name Clause
•Registered Office Clause
•Objects Clause
•Liability Clause
•Capital Clause
•Association Clause
ARTICLES OF ASSOCIATION

• It is to be filed with the registrar to get the company

registered.

• It contains the rules and regulations for internal

management and administration of the company
CAPITAL SUBSCRIPTION

• Third stage in the company formation

• Here, the public company can raise the required funds from the public
by means of issue of shares and debentures
 The following steps are required for raising funds from the
public:

• SEBI Approval

• Filing of Prospectus

• Appointment of bankers, brokers and underwriters

• Minimum subscription

• Application to stock exchange

• Allotment of shares
PROSPECTUS

The Companies Act defines prospectus as “any prospectus, notice,

circular, advertisement or other document inviting deposits from
the public or inviting offers from the public for subscription or
purchase of any shares or debentures of a body corporate”
COMMENCEMENT OF BUSINESS

Last stage in the formation of a company

• At this stage, the ROC issue a Certificate of Commencement

of Business to a public company

• After getting this certificate, the company can start its

business