Companies act 1956

2. COMPANY
According to sec.3(1) of the companies Act,1956,”Company
means a company formed and registered under this act or an
existing company.”
A Company is defined as a voluntary association of persons
formed for the purpose of doing business, having a distinct
name and limited liability.
Company is an artificial person created by law. It has
perpetual succession and a common seal.
In response to the changing business environment, the
Companies Act, 1956 has been amended from time to time so
as to provide more transparency in corporate governance and
protect the interests of small investors, depositors and
debenture holders, etc.

3. ESSENTIALS FEATURES OF A COMPANY
 Artificial legal person
 Separate legal entity
 Perpetual succession
 Limited liability of members
 Common seal
 Transferability of shares
 Separate property
 Capacity to sue and being sued

4. SEPARATE LEGAL ENTITY-
A company is in law regarded as an entity separate from its
members. It has an independent corporate existence.
Any of its member can enter into contracts with it in the
same manner as any other individual can and he cannot
be held liable for the acts of the company even if he
holds virtually the entire share capital.
The company’s money and property belongs to it and
not to the shareholders (although the shareholders own
the company)

5. LIMITED LIABILITY-
A company may be a company limited by shares or
company limited by guarantee. In a company limited
by shares, the liability of members is limited to the
unpaid value of the shares.
PERPETUAL SUCCESSION-
Being an artificial person a company never dies,
nor does its life depend on the life of its members.
Members 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.
It means that a company’s existence persists
irrespective of the change in the composition of its
membership.

6. COMMON SEAL-
Since a company has no physical existence, it must act
through its agents and all such contracts entered into by its
agents must be under a seal of the company. The common
seal acts as the official signature of the company.
TRANSFERABILITY OF SHARES-
The capital of a company is divided into parts called shares.
These shares are, subject to certain conditions, freely
transferable, so that no shareholder is permanently wedded
to the company. When the join stock companies were
established the great object was that the shares should be
capable of being easily transferred.

7. SEPARATE PROPERTY:
As a company is a legal person distinct from its members, it is capable of
owning, enjoying and disposing of property in its own name. Although its
capital and assets are contributed by its shareholders, they are not the
private and joint owners of its property. The company is the legal person in
which all its property is vested and by which it is controlled, managed and
disposed of.

8. TYPES OF COMPANIES

9. Basis of
incorporation
Statutory
companies
Registered
companies
Basis of liability
Companies limited by
guarantee
Companies limited by
shares
Companies with
unlimited liability.
Basis of no. of
members
Private
company
Public
company

10. BASIS OF INCORPORATION
Statutory companies
These are the companies which are created by a special Act
of the legislature e.g. RBI, SBI, LIC, etc. These are mostly
concerned with public utilities as railways, tramways, gas
and electricity companies and enterprises of national level
importance.
Registered companies
These are the companies which are formed and registered
under the Companies Act,1956 .

11. BASIS OF LIABILITY
Companies limited by shares
 During the existence of the company or in the event of winding up, a
member can be called up to pay the amount remaining unpaid on the
shares subscribed by him.
 A company limited by shares may be a public limited company or a
private limited company
Companies limited by guarantee
 Companies may or may not have share capital.
 Each member promises to pay a fixed sum of money specified in the
Memorandum in the event of liquidation of the company for payment
of debts and liabilities of the company.
 The amount promised is called ‘Guarantee’.
Unlimited Companies
 Liability of the members is unlimited like an ordinary partnership firm.
 A company not having any limit on the liability of its members is called
an ‘unlimited company.’

12. ON THE BASIS OF NUMBER OF MEMBERS

13. Point of
Difference
Private Company Public Company
N0. of members 2 - 50 members. 7 – no limit members.
No. of Directors Min. 2 directors to fill quorum. Min. 3 directors are needed.
Invitation to
general public
Does not invite general public
to subscribe to its shares,
debentures and public
deposits.
Does invite general public to
subscribe to its shares,
debentures, public deposits.
Transfer of
Shares
Prior permission required for
transfer of shares
Free transfer of shares is
permitted.
Prospectus Need not issue prospectus. It is compulsory to issue a
prospectus or a statement in
lieu of prospectus.
Statutory
meeting and
report
No compulsion for holding
Statutory meeting and filling of
statutory report.
It needs to hold a statutory
meeting and must file a
statutory report.
Legal formalities Exempted from various legal
formalities.
Has to comply with many legal
formalities.
Min. paid up Rs. 1 lakh Rs. 5 lakh.
capital

14. ON THE BASIS OF CONTROL
Holding companies-
A company is known as the holding company of
another company if it has the control over that other
company. A company is deemed to be the holding
company of another if, but only if, that other is its
subsidiary.
Subsidiary company-
A company is known as a subsidiary of another
company when control is exercised by the holding
company over the former called a subsidiary company.

15. How to form a company?
 The whole process of formation of a
company may be divided into four
stages, namely:
(i) Promotion
(ii) Registration
(iii) Floatation/Raising of Capital
(iv) Commencement of Business.

16. Promotion
 Who is a Promoter?
“Promoter is one who undertakes to form a
company with reference to a given object and to
set it going, and who takes the necessary steps
to accomplish that purpose.”
However, the persons assisting the promoters
by acting in a professional capacity do not
thereby become promoters themselves.

17. Legal Positionof a Promoter
 Promoter stands in a fiduciary position
towards the company.
 In other words, he is not allowed to make
secret profits.

18. Pre-incorporation contracts
 However, pre-incorporation contracts
shall be valid if:

 The contract is made for the purpose of
the company and the contract is
warranted by the terms of incorporation.
The company adopts the transactions
after incorporation.

19. FORMATION OF A COMPANY (Sec.3)
 1. Classification of companies as limited companies and
unlimited companies
 Every company formed under the Companies Act, 2013 shall be
either a limited company or an unlimited company.
 A limited company may be further classified as follows:
 (i) Company limited by shares
 (ii) Company limited by guarantee having no share capital
 (iii) Company limited by guarantee and having a share capital
 An unlimited company may be further classified as. follows:
 (i) An unlimited company having no share capital.
 (ii) An unlimited company having a share capital.

20. Steps
1. A company to be incorporated as a Private Company must
have a minimum paid-up capital of Rs. 1, 00,000, and minimum
number of members required to form a private company is 2
or more members.
2. For Public Company it must have a minimum paid-up capital
of Rs. 5, 00,000 and requires at least 7 or more members.
3. STEP-1
4. 1. Select Name of Person - Under Section-149(1) (a) of
Companies Act, 2013. Select the name of directors i.e. who will
be directors (At least Three Name for Three for Public
Company and Two for Private Company) [Rule-17] (The
Companies (Incorporation) Rules, 2014.


21. Steps …contd.
 STEP-2
 2. Apply for Digital Signature Certificate (DSC) -
 Digital Signature Certificates (DSC) are the digital equivalent (i.e.
electronic format) of physical or paper certificates. Certificates serve as
proof of identity of an individual for a certain purpose. Likewise, a digital
certificate can be presented electronically to prove your identity, to access
information or services on the Internet or to sign certain documents
digitally. One can get DSC registered by signing MCA-21 E-forms
digitally.

22. Steps …contd.
 A licensed Certifying Authority (CA)
issues the digital signature. Certifying
Authority (CA) means a person who has
been granted a license to issue a digital
signature certificate. The list of licensed
CAs along with their contact information
is available on the MCA portal
(www.mca.gov.in). The Fees for
obtaining DSC is different among all the
Certifying Authority.

23. Steps …contd.
 STEP-3
 3. Apply for Director Identification Number (DIN)
 It is a unique identification number allotted to the existing
director of the company or intending to be appointment as
director of a company according to Section-152(3), Section-
153 & Section-154 of the Companies Act, 2013.
 It is only after the DIN is approved, the incorporation
documents can be filed with the Registrar Form No.-DIR-3.
However, the name approval can be obtained prior to approval
of DIN. It takes about 7 days for getting the DIN approved,
provided all proper documents are furnished. Fees to be paid
for the allotment of DIN is Rs.500.

24. Documents to be furnished for getting DIN application
are:
· Identity proof: Copy of PAN card is mandatory.
· Address proof: Copy of passport or Voter Id or Ration card or
Electricity bill or any other address proof.
· Passport size photograph (latest) in soft copy (.JPEG format).
· Current occupation.
· Email address of applicant.
· Education qualification and contact number of applicant.
· Verification to be signed by the applicant.

25. STEP-4
4. Filing the Proposed Name of Company For Approval to The
Registrarof Companies (ROC)-
According to Section-4(4) of The Companies Act, 2013 person can make an
application to propose the name of the company to be registered with such
forms and manner accompanied by fees of Rs. 1,000/- to be paid, as may be
prescribed, to the Registrar for the reservation of a name set out in the
application.
Form No. INC.1 along with the fee as provided in the Companies
(Registration offices and fees) Rules, 2014 to the Registrar of Companies
(ROC) in the State/Union Territory in which the company will maintain its
Registered Office.
According to Section-4(5) of The Companies Act, 2013 the application
submitted to the registrar will be reserved for a period of 60 days to check
and verify the document and information furnished along with the
application.

26. 5. Drafting of Memorandum of Association (MoA) -
The MoA is the Constitution of the Company which must contain
all the fundamental information of the Company. MoA define the
relationship of the Company with its shareholder. Therefore, it is
important to draft the MoA very carefully with properly
incorporating Clauses carefully.

27. Drafting of Memorandum must be done in which:
· Name of the Company lasts with word “Limited” in case of a public
limited or the last words “Private Limited” in case of a private limited
company.
· State in which the registered office of the company is to be situated.
· Object of the company for which it is proposed.
· Liabilities of the members of the company Limited/Unlimited.
· Mention the amount of share capital in case of company having a share
capital.
· In case of the One Person Company the name of the person who in the
event of death of the subscriber shall become the member of the
company.

28. 6. Drafting of Articles of Association (AoA)-
AoA which is an important document explains the operation of the
company, purpose for which Company is incorporated along with the
information for the process of Appointment of Directors and also
management of the financial Record of the company.
In drafting of the AoA of company it shall contain-
· Regulation for management of the Company.
· It shall also contain such, matter as may be prescribed.

29. 7. Application for Incorporation of
Company-
According to Section-7 of The Companies Act, 2013 shall be
filed with the registrar within whose jurisdiction the registered
office of a company is proposed to be situated.
[Rule No.-12] of Companies (Incorporation) Rules, 2014- An
application shall be filed, with the Registrar within whose
jurisdiction the registered office of the company is proposed to
be situated, in Form No.INC.2 (for One Person Company) and
Form no. INC.7 (other than One Person Company) along with
the fee as provided in the Companies (Registration offices and
fees) Rules, 2014 for registration of a company.

30. Fee for filing Form INC-7 (in case of company not having
share capital)
Fee applicable - Rupees 200 per document
Fee for filing form INC-7 (in case of company having
share capital)-
Nominal Share Capital Fee applicable
1,00,000 Rupees 200
1,00,000 to 4,99,999 Rupees 300
5,00,000 to 24,99,999 Rupees 400
25,00,000 to 99,99,999 Rupees 500
1,00,00,000 or more Rupees 600

31. File with Registrar Form No. INC.7 [Rule 12
to 18] along with Documents -
(a) The Memorandum and Articles of the company duly signed by
all subscribers;
(b) A declaration in Form No.INC.8 by an Advocate or Practicing
professional (CA, CS, CA) who is engaged in incorporation, and a
person named in director as Director, Manager or Secretary, that
all requirements related to incorporation has been complied with;
(C) The address for correspondence till its registered office is
established;
(d) The particulars of every subscriber along with proof of
identity. List of poof required Listed under [Rule-16.];
(e) The Particulars of first directors along with proof of identity
and his interest in other firms or bodies corporate along with his
consent to act as director;

32. Certificate of Incorporation
 Effect of Certificate of Incorporation
(Section 34)
On incorporation, the association of persons
becomes a body corporate by the name
contained in the memorandum, capable
forthwith of exercising all the functions of an
incorporated company and having perpetual
succession and a common seal but with such
liability on the part of the members to
contribute to the assets of the company in the
event of its being wound-up as is mentioned in
the Act.

33. Provisional Contracts


 Contracts entered into by company after
incorporation but before getting the
certificate to commence business are
called ‘provisional contracts’.
Provisional contracts are, therefore,
relevant to public companies only.
Such contracts become void, if company
fails to obtain certificate to commence
business and automatically become valid,
and binding if company obtains the
certificate.

34. 8. Commencement of Business
According to S.11 of the Companies Act, 2013. – Company
having a share capital shall not commence any business or
exercise any borrowing power unless- Director should file
Declaration with Registrar in Form No. INC.21 [Rule 24] in such
a manner as may be prescribed, with the Registrar that every
subscriber to the memorandum has paid the value of the shares
agreed to be taken by him and the paid up capital is not less
than 5 Lakh Rupees in case of Public Company and not less than
One Lakh in case of Private Company.

35. 9. Registered Office
Section-12 of The Companies Act, 2013 that the company on and
from the 15 days of its incorporation and at all times thereafter,
have a registered office capable of receiving and acknowledging all
communications and notices as may be addressed to it and
company shall furnish to the registrar verification of its registered
office within a period of 30 days of its incorporation in such
manner as may be prescribed.

36. Share andShareCapital
 According to Section 2(46), A ‘Share’ represents
a unit into which capital of a company is divided.
However, courts have held that a share is not
merely a unit of capital, it represents a bundle of
rights and obligations. Holder of a share is
entitled to certain rights (say, right to receive
dividends, to receive notice of meetings, to
participate in the proceedings of a meeting, to
elect directors) and is also subjected to a number
of obligations (say, to abide by Articles of
Association, to maintain decorum of the
meetings).