Companies Act 1956

Meaning Characteristics & Types of Companies Incorporation of a Company Company Meetings Meeting of Board of Directors Annual General Meeting Statutory Meeting & Extra Ordinary General Meeting Company Management Directors Whole Time Directors Manager Company Secretary Case studies
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Meaning

Company is a voluntary association for , common purpose & profit with capital divisible into transferable shares with limited liability, having a corporate body and common Seal. U/s 3(1) of Companies Act - Company means formed and registered under this Act or an existing company. It is a separate legal entity. Its existence is distinct and separate from of its members ie it has perpetual succession. For debts of the company only its creditors can sue it and not its members.
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Meaning

A voluntary association of persons. An Artificial Person On incorporation a company becomes a body corporate or corporation with a perpetual succession and a common seal. It also acquires a personality distinct from its members.
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Characteristics & Types of Companies

Separate Legal entity : A company is in law regarded as an entity separate from its members. The company's money and property belong to the company and not to the shareholders. Hence X and Ltd is an entirely different person from X even X holds practically all shares in the company. Its property is not the property of X. Limited liability : A company may be a company limited by shares or a company limited by guarantee. Liability of members is limited to unpaid value of share in case of limited by shares and liability of members is limited to such amount as the members may undertake to contribute to the assets of the company in the case of its wound up.
5/3/2012 S&S 4

Characteristics & Types of Companies

Perpetual succession : Company's existence persists irrespective of the change in the composition of its membership. ( Even during the war all the members of a private company , while in a general meeting , were killed by a bomb, the company survived.)

Common Seal : Common seal represent the company since company has no physical existence. Company acts through its agent and common seal acts as the official signature of the company.
Transferability of shares: Divisible capital of the company is called shares and these shares are freely transferable.
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Characteristics & Types of Companies

Separate Property:

As a company is a legal person , it can own , enjoy and dispose of property.

Capacity to sue :

A company can sue and be sued in its corporate name.

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Characteristics & Types of Companies

On basis of incorporation: Statutory Companies : Companies which are created by a special Act of legislature e g RBI, SBI LIC etc . These are mostly concerned with public utilities like gas , electricity , railways etc Registered Companies : Companies formed and registered under the companies Act 1956 or any of earlier company Law.
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Characteristics & Types of Companies

On Basis of Liability : Limited by Shares : Where the liability of members of a company is limited to the amount unpaid on shares. This liability is enforceable during the existence of company as well as during winding up of the company. It can be public or private company ( 7 or 2) Limited by Guarantee: Liability of the members is limited to a fixed amount which members undertake to contribute to the assets of the company in the event of winding up of he company.

Basically these companies are not formed for the purpose of profit but for the promotion of art , science , commerce, sports etc.
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Characteristics & Types of Companies

Unlimited Companies: A company with out limited liabilites is known as unlimited company, in such company every memebr is liable for the debts of the company.

Private company : Sec 3 (1) (iii) , a private company means a company which has a minimum paid up capital of Rs 100000/- or such higher paid up capital as may be prescribed by and its AOA Restricts the right of transfer of its share if any. Limits the number of its members to 50 not including its employee - members ( present or past). Numbers of debenture holders may exceed 50 as there is no restriction on their number, however private company can not issue debentures to the public at large. Prohibits any invitation to the public to subscribe for an shares in and debentures of, the company. Prohibits any invitation or acceptance of the deposits from persons other than its members , directors or their relatives.

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S&S

Characteristics & Types of Companies

Public Company: A company has minimum paid up capital of Rs. 5 lakhs or higher. A private company which is a subsidiary of a company which is not a private company.

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S&S

10

Characteristics & Types of Companies

Holding Company : Sec 4 ( 4) - A company is known as the holding company of another company if it has control over that other company. Subsidiary Company : Sec 4 (1) - A company is known as subsidiary of another company when control is exercised by the latter ( H) over the former ( S).
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Characteristics & Types of Companies

Company Controlling Composition of Board of Directors: The composition of company S's Board of Directors is deemed to be controlled by company H if Company H can appoint or remove all or a majority of Directors of Company S. Hence when a company controls the compositions of BOD of another company it becomes Holding Company. Majority of shares: Controlling company exercise or controls more than half of the total voting power of existing subsidiary company in which the holders of preference shares issued before April 1 1956, have same voting rights as equity shareholders.

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S&S

12

Characteristics & Types of Companies

Holds more than half in nominal value of the equity share capital of a subsidiary which is the holding company of another Subsidiary Company Subsidiary of another Subsidiary: H - S1S2- S3 ( S2 and S3 are subsidiary of H) Govt. Company : Company in which not less than 51% of paid up share capital is held by ,1) Central Govt.2) Any state Government (s), partly by CG or SG (s).

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S&S

13

Characteristics & Types of Companies

Foreign Company: Any company incorporated outside India which has an established place of business in India. One Man Company: Usually these companies are private companies in which one man holds practically the whole of the share capital of the company , and in order to meet the statutory requirement of minimum number of members, some dummy members who are mostly his relatives or friends , hold 1 or 2 shares each.
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Incorporation of a Company
Any 7 or more persons ( 2 or more in case of private company ) associated for any lawful purpose may form an incorporated company, with or without limited liability. They shall Subscribe their names to MOA and comply with other formalities. Company formed so may be of limited by shares / Guarantee or an unlimited company.
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Incorporation of a Company
Process and Documentation:

Promoters should decide at least 3 proposed names of the company to be formed and registered. MOA should be signed by Subscriber. AOA , if any , signed by the subscriber to the MOA. The agreement. if any , which the company proposes to enter in to with any individual for the appointment of it Managing or whole time Director or manager.
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5/3/2012

Incorporation of a Company

A list of directors who have agreed to become 1st directors of the company and their written consent to act as directors and take up qualification shares.

A declaration stating that all the requirements of the companies Act and other formalities relating to registration have been complied with and it shoud be signed by any of : an advocate of supreme court or High Court , An Attorney or a pleader entitled to appear before court , A secretary or CA in whole time practice in India, a person named in the articles as director , manager , or secretary of the company.

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S&S

17

Incorporation of a Company

With is 30 days of incorporation of the company , a notice of the Situation of the registered office of the company shall be given to Registrar who shall record the same. Registrar, up to his satisfaction towards compliance of statutory requirements, he retains and registered MOA , AOA and other Documents and issue a certificate of incorporation.
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Company Meetings
Meeting of Share holders or members Statutory Meeting Annual General Meeting Extraordinary General Meeting Class meetings. Meeting of debenture Holders
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Company Meetings

Meeting of Creditors and contributors in winding up. Meeting of creditors otherwise than in winding up. Meeting of Directors: Board meeting Committee meeting.
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Company Meetings
Statutory Meeting : Sec 165

This meeting is held once during the lifetime of a company and it is the first meeting generally held after incorporation. The purpose of the meeting is to enable and apprise the members of company regarding the financial affairs of the company immediately after date of incorporation. Every public company limited by shares or limited by Guarantee and having share capital must hold a general meeting of the members of the company, which may be called the statutory meeting.

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21

Company Meetings

It is to be conveyed after not less than one month but with in 6 months from the date , which the company is entitled to commence business. Private and Govt. companies are not required to hold such meetings.
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Company Meetings
Statutory Report:

The Board of Directors shall, at least 21 days before the day on meetings to be held , forward a report , called the statutory report , to every member of the company. If the report is forwarded later than 21 days before the day of the meeting, it shall deemed to have been duly forwarded if it is so agreed to by all the members entitled to attend and vote at the meeting. The notice of the meeting shall mention than meeting is a statutory meeting.
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Company Meetings
Contents of Statutory Meetings:

Total Share Allotted ( Total shares allotted , distinguishing shares allotted as fully or partly paid etc) Cash received Abstract of receipts and payments ( up to a date with in 7 days of the report) Directors and auditors ( for any change etc) Contacts ( for approval or modification) Arrears of calls ( from director and manager ) Commission and brokerages ( Issue or sale of shares) Underwriting contract

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24

Company Meetings
Annual General Meeting:

Sec 166 - Every company must hold annual general meeting in addition to any other meetings at stipulated intervals specifying the meetings as such in the notice calling the meeting. A company may hold its 1st AGM within a period of 18 months from the date of incorporation. And so long as the company holds its 1st AGM with in that period, the company need not hold any general meeting in the year of incorporation or in the following year. There shall not be an interval of more than 15 months between one AGM and the next.

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S&S

25

Company Meetings

Registrar of companies may for any special reason extend the time with in which any AGM ( not being 1st AGM ) shall be held , by a period not exceeding 3 months. A company incorporated on Oct 1, 2005 may hold its 1st AGM by April 1 2007 and then no other meeting will be necessary either for 2006 or 2007. Similarly , a company incorporated on jan 2006 may hold its 1st AGM within 18 months ie up to july 1 2007. If a meeting is held say in may 07, the company need not hold any other meeting in years 2006 & 7.
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Company Meetings
Rules for AGM.

The meeting must be held in each year. It must not held later than 15 months from the date of previous annual meeting It must not held later than 6 months of date of balance sheet
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Company Meetings
Extra Ordinary General Meeting ( sec 169)

An extra ordinary general meeting is any general meeting of a company other than Statutory and AGM or any adjournment thereof. Such meeting may held subject to the terms of AOA at any Time the directors think fit, and when they desire to transact the business of a special character.

An EGM may be convened:

5/3/2012

By the Board of directors on its own or on the requisition of members By the requisitions on the failure of the Board to call the meeting By Company Law Board
S&S 28

Company Meetings
By the Board of Directors:

On Its own: When ever some special business is to be transacted , which in the opinion of Board of Directors can not be postponed till next AGM , An EGM can be called. Like for issue of right Shares, increase in remuneration of managing directors , whole time directors etc. On requisition of members: The requisite numbers of members of a company may also ask for an EGM to be held. in such case BOD shall proceed to call such a meeting. The requisition for such meeting by the members shall be signed :-

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S&S

29

Company Meetings

In the case of a company having a share capital , by holders of not less than 1/10th of paid up capital of the company having the right of voting in regard to the matter of requisition: or In the case of company not having share capital , by members representating not less than 1/10th of the total voting power in regard to the matter of requisition. The board shall proceed to call a meeting with in 21 days from the date of deposit of a valid requisition and meeting shall be held with in 45 days from the date of deposit of requisition.

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S&S

30

Company Meetings
EGM by requisitionists: If the BOD fails to call a meeting as required by the requisitions , the meeting may be called :By the requisitionists themselves In the case of company having share capital , by such requisitionists as represent either a majority in the value of the paid share capital held by all of them or not less than 1/10th of the paid up share capital of the company having the right of voting, which ever is less or
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Company Meetings

In case of company not having a share capital , by the requisitions representing not less than 1/10th of the total voting powers of all the members of the company.

Meeting shall not be held after expiration of 3 months from the date of deposited of requisition however a meeting commenced before the expiry of 3 months may be adjourned to some day after the expiry of that period.

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32

Company Meetings
BY CLB: If for any reason it is impossible for a company to call, hold or conduct an EGM the CLB may call an EGM meeting either of its own motion , or on an application from any Director of the company or of any member of the company who would entitled to vote at the meeting.
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Company Meetings
Meeting of Board of Directors:

Every company whether public or private , a meeting of its BOD's shall be held at least once in a every quarter and at lease 4 such meetings shall be held in every year. Notice of every meeting of the BODs of company shall be given in writing to every director for the time being in India and at his / her usual address in India. Quorum for a meeting of the Board shall be 1/3rd of its total strength ( fraction rounded off to one) or 2 directors whichever is higher.
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5/3/2012

Company Management
Director:

A person having control over the direction , conduct , management or superintendence of the affairs of a company can be defined as director. Any person in accordance with whose directions or instructions , the Board of Directors of a company is accustomed to act is deemed to be director of the company. But such person shall not be deemed to be a director if the Broad acts on advice given by him in a professional capacity.
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5/3/2012

Company Management

Every public company shall have at least 3 directors and every other company at least 2 directors. Sec 252(1).

However a public company having: a paid up capital of Rs. 5 Cr or more; one thousand or more small shareholders , may have one director elected by such small shareholders in the manner as may be prescribed. Small shareholder means a shareholder holding shares of nominal value of Rs. 20 k or less in a public company to which sec 252(1) applies.
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Company Management
Managing Director / Whole time-director:

A MD means a director who is entrusted with substantial powers of management which would not otherwise be exercise able by him. The powers may be conferred upon him by virtue of an agreement with the company or a resolution passed by the company in general meeting or by its BODs or by virtue of its MOA or AOA. Further MD shall exercise his powers subject to
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5/3/2012

Company Management
superintendence,control and direction of its Board of Directors [ Sec 2 (26)]. He is whole time director or chief executive of company.

Every public company , or a private company which is subsidiary of a public company having a paid up share capital of Rs 5 crs or more shall have a Managing Director / whole time director or a manager.
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Company Management
Manager:

Sec 2 ( 24) : An Individual who has the management of the whole or substantially the whole of the affairs of a company. He is subject to the superintendence, control and direction of the board of directors. Manager includes a director or any other person occupying the position of a manager by what ever name called and whether under a contract of service or not.

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Company Management
Company Secretary:

Sec 2(45) Defines secretary as a company secretary with in the meaning of clause (c) of sub section (1) of sec 2 of Company secretaries Act 1980 and includes any other individual possessing the prescribed qualifications and appointed to perform the duties which may be performed by a secretary under this act and any other ministerial or administrative duties. Only an individual can be secretary. Every company having a paid up capital of Rs. 25 lacs or more must have a whole time secretary, and where the board of directors of any such company , comprises only two directors, either of them can be the secretary of the company.
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5/3/2012