Subject Name: Company Law BBA 4th Sem ( Sri Dev Summan Uiversity, Uttarakhand) Unit 1: • Introduction : Evolution of India Companies Act, 1956, Meaning and Characteristics of Company, Definition of a Company Under the Company Act, 1956, Type of Company difference a Company and Other Associations of Person. Promotion of a Company : Availability of Names, Duties and Liabilities of Promoters.

1. Company Law
Prepared by – Dipankar Dutta
Assistant Prof, JBIT Group of Institutions, Dehradun
dipankarpharma1@gmail.com

2. Unit 1:Introdution of Company Act
• Evolution of India Companies Act, 1956,
• Meaning and Characteristics of Company,
• Definition of a Company Under the Company Act, 1956,
• Type of Company
• Difference a Company and Other Associations of Person.
• Promotion of a Company : Availability of Names, Duties and
Liabilities of Promoters.
Topic for discussion

3. Meaning of Company
• The word ‘company’ is derived from the Latin word (Com = together;
pany = bread)
• Traditional meaning of company: The group of person who eat together
and discuss the affairs f business over lunch or dinner.
• Present time company means: A association in which there is joint
investment of capital and earn a profit.
• According to L.H. Henry, “ Company is an incorporated association
which is an artificial person created by law, having a separate legal entity
with perpetual succession and a common seal”

4. Incorporated Association:
It is necessary for a company that is formed to be registered & it needs
to be incorporated.
In case of Banking Company minimum no of member is 10 & for
other business activity its 20.
Artificial Person
As it is created by law and windup by law only.
A company is called as an artificial person because its birth is not
natural, it is invisible , intangible that has an identity only in the eyes
of law only
But it can not be treated as Frictional person.
Characteristic of a Company

5. Separate Legal Entity
A company is law generated entity and it is separated from its members. It
has an independent corporate existence.
Any of its members can enter into contracts with it in the same manner as
any other individual can & he cannot be held liable for the acts of the
company even if he holds the entire share capital.
The company’s money & property belong to the company & not to the
shareholders.
Ram & Co Ltd is an entirely different person from Ram even if he holds
practically all the shares in the company. Its property is not the property of
Ram.
Referance Case : Salmon vs Salmon
https://www.youtube.com/watch?v=GRs3QAxJW_o

6. Limited liability:
Shareholders is liable to pay only limited liability not use his personal
property to pay off the company loss or liability.
A company may be a company limited by shares or a company limited by
guarantee. In a company limited by shares, the liability of members is
limited to the unpaid value of the shares.
If the face value of a share in a company is Rs. 10 & a member has already
paid Rs. 7 per share, he can be called upon to pay not more than Rs.3 per
share during the lifetime of the company.
In a company limited by guarantee, the liability of members is limited to
such amount as the members may undertake to contribute to the assets of
the company, in the event of its wound-up.

7. Perpetual Succession
Company existence is not depended on its shareholders or directors .
In a company shareholder or director may change due to various
cause like death, insolvency, lunacy etc. but company operation will
goes on.
Member may come or member may go but company will go forever.
Common seal
As company is an artificial person created by law So a company can
not put it signature on a document by itself.
Common seal is a symbol of the company's identity.
When seal is put on a document the company became bound by the
content of the documents.

8. Number of Member
Company
Pvt. Company
Min 2 member
Max 200 member
Public Company
Min 7 member
Shared issued by
the company (Max
no. is not specified)

9. Limited Action:
Every company is incorporated under the Company Act 2013 for some
specific objectives.
This objectives are written in the prospectus .
No company can cross this limit.
Representative Management
The representative for management of the company is selected / elected
by the shareholders.
Transferability of Shares
According to the section 44 of Company Act 2013 any member in a
company shall be movable property ( e.g.- Shares, Interest, debentures)
transferable in manner provided by the articles of the company.

10. Types of Company

11. CHARTERED
COMPANY 1
2
3
Knowledge
STATUTARY
COMPANY
REGISTERED
COMPANY
On the basis of Incorporation
1  This is one of the earliest form
of company incorporation
 Authorities of that companies
are handed of few people.
 Company members are not
liable of any debt.
 E.g.- East India Company, Bank
of England
 Such company are not prevalent
in India today.

12. • Statutory Company: This
company incorporated by
an especial Act of
parliament.
• Example : RBI, LIC, SBI
• The purpose of Statutory
company to perform or
control activities which
are beneficial for the
country.
2
• Registered Company :
All the company who
registered themselves
under Company Act
1956 or Company Act
2013.
3

13. On the basis of Liability
Unlimited liability
of company
 Liability of member is not limited.
 In this type of company members are
personally liable for the debt of the
company
Limited liability of
company
Limited by Guarantee
• Member fix amount guarantee: Member may
undertake to contribute fix amount of assets to the
company in the event of wind up.
• It must be recorded in the MOA
Company limited by Shares
• Public Company
• Pvt. Company

14. On the basis of transferability of shares Pvt. Company are having three
restrictions
1. Restriction: Members of Pvt. Company can not share its share to the
outsiders.
2. Limitations: Minimum number of member is 2 and Maximum is 200.
3. Prohibition: Can not issue share from public.
Whereas for public company
1. Restriction: No restriction
2. Limitations: Minimum number of member is 7 and Maximum is
Unlimited.
3. Prohibition: Can issue share from public.

15. On the basis of Ownership
Government Companies:
• Central Govt. company, state govt. company
• If Govt. holds minimum 51 % shares in any company then this type of company are
considered as Govt. company.
• Example – ONGC, Coal India
Holding Company:
• A holding company is a company or firm that owns other companies outstanding stock.
• It usually refers to a company which does not produce goods or service itself rather than
owing shares of other company. Also known as Parent Company.
Subsidiary Company
A company that belongs to another company.

16. Inland Company:
 All those type of company which are incorporated in India as the Company
Act.
 Some Inland company though incorporated under the company act are
govern by separate act. Example – Banking, Insurance , Charitable
Company
Foreign Company:
 All those type of company which are incorporated Outside India.
On the basis of Nationality

17. Brain storming Question !!
Incorporated – India
Business Carries – Non Citizen
Member – Non citizen
Company type ?
Incorporated – Outside
Business Carries – India
Member – Indian
Company type ?
Incorporated – USA
Business Carries – China
Member – Indian
Company type ?

18. Brain storming Question !!
Incorporated – India
Business Carries – Non Citizen
Member – Non citizen
Company type ? Indian
Incorporated – Outside
Business Carries – India
Member – Indian
Company type ? Foreign
Incorporated – USA
Business Carries – China
Member – Indian
Company type ? Not a Foreign
company

19. Other Companies
Multinational Company (MNC)
 Whose spare of activities is spread over more than one country.
 Management Head office is in one country which is called as Home
country.
 Operate in several other countries also known as Host country.
Unregistered Company or Illegal Association:
 Each person of the association fined up to 1lac.
 Each person is personally liable
Defunct Company:
 A defunct company is one that has ceased to be operative and is no more
doing any business.

20. • Under section 248 of Company Act 2013 the name of such company will
deleted from ROC.
One person company ( OPC)
• OPC is a new concept introduced by Company Act 2013.
• OPC is formed with one person member.
Features of OPC :
• Incorporated as Pvt. Ltd company
• May have only one director.
• No perpetual succession.
• The word OPC is mentioned below the company name.
• The memorandum of OPC shall indicate the name of the other person as a
nominee.

21. Small Company
 It is privately owned and operated
 Small company may have small no. of employee with small scale.
 Status of small company: the present year benefit may be withdraw in
the next year. And the aim / objectives of business can be changed easily.

22. Difference a Company and Other Associations of Person

23. Company promotion and incorporation is a long exercise.
Promoters of a company have to fulfil many requirement before the
formation of a company.
Promoter give the company entity and making it functional.
Promotion of a Company

24. Stage of formation of a company
Promotion of a
company
Incorporation /
registration of a
company
Its capital
subscription
Commencement
of Business

25. • Before the formation of a company the idea Born in their mind.
• They investigate the potential and make a plan
• They define their field of activity and plan how to get required capital.
• They also plan how and where to start the plant.
• According to L.H.Henry, “Promotion is the process of organizing
and planning the finances of a business enterprise under the
corporate form”
Stage 1 : Promotion of a Company

26. Stages of Promotion
Discovery of
Idea
Details
investigation
Assembling
the
proposition
Financing the
Proposition

27. • The promotion start within the mind of a person.
• The main concept of the business idea may be service to the society or
to earn profit.
• If the idea is doing business in large scale then big amount of
infrastructure as well as big amount of capital is needed.
Discovery of Idea

28. • After the idea is garneted in the mind of a person he should investing the idea
weather it is commercially feasible or not.
• The person should investigate the following –
Capital – How will bring the capital?
Raw material- Sources and its price
Premises- kind of business industrial
Workers- level of skill needed for the operation of business
Govt. Policy- Find the suitable govt. policy to support the project.
Detailed Investigation

29. • After investigation is complete collect the facts and necessary information
to give the proposition a shape
• Promoter and promoters need to consult expertise and institution who are
specialist in this filed.
Assembling the proposition
Financing the proposition
• This is one of the most crucial phase of a company promotion, because lack
of finance may lead to not being worked out for the company. And adequate
finance will definitely leads to the success of a venture.

30. Promoters
• Promoter is the person who convenience the idea of a particular company
and transfer into a working reality.
• Promoter make the basic plan, arrange the basic infrastructure, incur the
initial expenses and manage affaires of the company.
• Promoter takes a lot of risk.
• According to Guthmann , “Promoter is a person who assembles the money,
men, and material into a going concern”

31. 1. Promoter is a person. ( Here the person may include – Company,
individual person, firm, association)
2. Promoter organizes the idea for the company.
3. Promoter give practical shape to the idea.
4. Not the name but function of a promoter is very much important.
5. The membership of the promoter in the company is not necessary.
• He may handover the affairs of the company to others after incorporation.
Characteristic of Promoters

32. 1. Planning the formation of company.
2. Considering the pre-start problems like – Place of business, Sources of
raw material, skill of men power, Govt. policy
3. After buying an existing business or property the making an agreement
with the seller.
4. Selecting the first directors for the company and getting their consent to
act as an director.
5. Selecting the name and defining the company activity and its capital.
6. Selecting the bankers, signatories to the AOA, technical experts
underwriters.
7. Preparing the prospectus, AOA & MOA.
8. Being present at the time of registration of a company.
Function of Promoter

33. 9. Getting the certificate of Incorporation from ROC.
10. Getting the company prospectus published and advertising.
11. Meeting the initial expenses.
12. Arranging for the investment of capital.
13.Arranging the minimum subscription.
14. Issuing shares and debentures.
15. Making proper arrangement for company office.
Function of Promoter

34. 1. Right to get legitimate preliminary expenses: Those expenses which
incurred before the existence of the company.
2. Right to get proportionate amount from co-promoters : If any
person incur an expenditure towards the formation of company, then he
is entitled to proportionate reimbursed by the other promoter.
3. Right to get remuneration:
 The remuneration of a promoter is consideration of his service in the
formation of the company may be paid in cash, in shares, in the form of
debentures etc.
 He does not have a legal right to remuneration till such he made a
contract with the company to receive remuneration.
Right , liability and duties of a Promoter

35. Liability of Promoter
1. Liability due to fiduciary relationship:
 Relationship based on trust and confidence.
 If the promoter has made any secret profit in his capacity as promoter
then he must return that to the company.
 If he has made any secret profit by selling his personal property to the
company, then company reserve the right to repudiate or ratify the
contract of sale.
 Repudiate = the company can sue him for breach of trust.

36. 2. Liability for misstatement in prospectus:
 If the promoter has written any false, fake , wrong information or settlement
in prospectus then all liability will be taken by the promoter.
 Agreed party may sue the promoter for compensation for any loss.
3. Liability for fraud, misstatement or breach of duty
 If the promoter has do any fraud or breach of duty then court may restrain a
promoter from taking part in the company management for a period of 5years.
4. Liability of insolvency.
 If the promoter become insolvent then his property shall be liable for his debts
to the company.
5.Liability on death of a promoter
 In the event of death of a promoter the company may recover the damages or
compensation from his property.

37. 6. Liability on winding up a company
 If the company is being wound up by the order of court and the liquidator
report found any fraud in the company promotion and the formation phase.
Then only promoter will be liable.

38. Duties of Promoter
1. To disclose private agreement: If any private agreement to earn a
profit he must disclose the same to the company.
2. To disclose secret profit:
 A promoter is duty bound to disclose any profit which are not known to
the company.
 Promoter does not make any secret profit from the company.
 He must give an account of the same to the company.
2. To disclose all material facts:
 All facts and material facts are properly disclose because he is bound by
law.
 He can not sell any property to the company without such disclosure.

39. 3. To disclose the profit which he has earned as trustee: If any special
relationship based on trust and confidence , he must disclose the profit which
he has earned as a trustee.
4. To show goodwill towards future shareholders: It is the duty of
promoter to show goodwill towards future shareholders of a company.

40. • Company formation is done by getting the company registered with ROC.
• Specified fee for registration must be paid to the ROC.
• Certificate of registration must be obtained from the ROC.
1. Preliminary activities
 To decide where the resisted office of the company will be located.
 To decide name of the company
 To make appointments . ( Underwriters, Broker, Banker, Solicitors,
Auditors, Signatories , Directors )
 To make important documents ( MOA, AOA, )
 To send application to the registered.
Formation or incorporation of a company

41. 2. Documents to be filled with the ROC.
 To decide where the resisted office of the company will be located.
 To decide name of the company
 To make appointments . ( Underwriters, director , members etc.)
 The consent of directors are also very much essential ,
 MOA, AOA & Prospectus
 Some person sign on MOA , so the signatories must be physically present
at the time of incorporation and also must submit their address, occupation
and number of share subscribe by him.
3. Statutory declaration
 A declaration in prescribe form by an advocate, Chartered Accountant, Cost
Accountant , Company Secretary who are engaged in the formation of the
company.

42. Can be done through following to methods:
• Conversion by Default ( Section 14)
• Conversion by Choice ( Section 14)
When a Pvt. company makes a default in compliance with the statutory
requirements as laid down in Section 2(68)
1. If its member exceeds 200 or
2. It permits free transferability of Shares
3. Extends invitation to public to subscribe to share or debentures.
4. Extends invitation to accept deposits from persons other than its members ,
directors or their relatives.
Conversation of a Pvt. Company into Public Company

43. As per section 2(68) of companies act, 2013 "private
company" means a company having a minimum paid-
up share capital of one lakh rupees or such higher
paid-up share capital as may be prescribed and restrict
any invitation to the public to subscribe for any
securities of the company having maximum of 200
members.

44. Conversion by Choice ( Section 14)
1. Alteration of Articles
2. Change of Name ( By passing Special Resolution u/s 13)
3. Increase the number of member ( Min. 7)
4. Increase the number of directors ( Al least of 3)
5. Filing of documents with ROC ( within 30 days of passing resolution)
Altered AOA & MOA
A copy of Special Resolution
A prospectus or a statement in lieu of prospectus
6. Effective date of conversion ( The company became a Public company from
the date of passing the special resolution), However the change in names
becomes effective only after issue of fresh certificate of incorporation from
ROC.

45. After conversation following points must be care of-
• Issue of Fresh Certificate of Incorporation by ROC
• Change to be noted in MOA & AOA, Letterheads, Bills, invoices, seals, etc.
• Effective date of Conversation ( The company becomes a Public Company
from the date of passing the special Resolution )

46. The following procedure prescribed u/s 14 of this Act to change a Public
company into Pvt. Company-
 Alteration of AOA by passing a Special Resolution.
 Petition u/s 14 : within 3 moth from the date of passing the SR with
necessary documents.
 Change by Name: By passing a Special resolution u/s 13.
 The name of the company must be change from Public Ltd. to Pvt. Ltd.
 Approval from the Central Govt.
 Approval to be filled with Registrar.
Within 15 days of the approval received from the Central Govt.
Along with printed copies of Altered Articles.
Conversation of a Public Company into Pvt. Company