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COMPANY ACT
Harshit Garg
COMPANY- Definition
• A Company is a association of person united for common
object
• A company is a artificial person created by law
• A company is a legal entity formed by a group of
individuals to operate a business—commercial or
industrial—enterprise.
• A company follows the provisions mentioned in
the Companies Act 2013, which says that a –
“Company” means a company incorporated under
this Act or any previous company law;
•
Definition Of company
• A Company may be defined as an incorporated
association, which is an artificial person, having an
independent legal entity, with a perpetual succession, a
common seal, a common stock capital comprised of
transferable shares and carrying limited liability in relation
to its members
Features of a Company
• 1. Artificial Legal Person
• 2.Separate Legal Entity
• 3.Common Seal
• 4.Perpetual Succession
• 5.Limited Liability
• 6. Transferability of shares
• 7. Separation of Ownership from Management:
• 8. Number of Members
• 9. Capacity of sue and be sued
Features of a Company
1. Artificial Legal Person:
• A company is an artificial person created by law.
• it has no body, no conscience, still it exists as a person.
Like a person, it can enter into contracts in its own name.
2. Separate Legal Entity:
• A company has a distinct entity separate from its
members or shareholders.
• a shareholder of the company can enter into contract with
the company.
• He/she can sue the company and be sued by company.
.
• 3. Common Seal:
• Being an artificial person, company cannot sign the
documents. Hence, it uses a common seal .
• Putting the common seal on papers relating to company’s
transactions makes them binding on the company.
• 4. Perpetual Existence:
• Unlike partnership, the existence of a company is not
affected by the death, lunacy, insolvency or retirement of
its members or directors.
• This is because the company enjoys a separate legal
existence from that of its members.
• It is said, “Members may come, members may go but the
company goes for ever”.
• It is created by law and is dissolved by law itself.
.
• 5. Limited Liability:
• The liability of the members of a company is normally
limited to the amount of shares held or guarantee given by
them.
• 6. Transferability of Shares:
• The member of a public limited company can sell his
shares to others without the consent of other
shareholders.
• Yes, he has to follow the procedure laid down in the
Companies Act for transferring his shares.
• However, there are restrictions for transferring shares to
others in case of a private limited company.
.
• 7. Separation of Ownership from Management:
• The shareholders, i.e., owners being scattered all over
country give right the directors to manage the affairs of the
company. The directors are the representatives of the
shareholders. Thus, ownership is separated from
management.
• 8. Number of Members:
• In case of a public limited company, the minimum number
is 7 and there is no maximum limit. But, for a private
limited company, the minimum number of members is 2
and the maximum number is 200.
• 9. Capacity of sue and be sued
• A company can sue others and be sued in its own name
Companies on the Basis of Liabilities
• we look at the liabilities of members
• a) Companies Limited by Shares
• Sometimes, shareholders of some companies might not
pay the entire value of their shares in one go.
• In these companies, the liabilities of members is limited
to the extent of the amount not paid by them on their
shares.
• This means that in case of winding up, members will be
liable only until they pay the remaining amount of their
shares.
b) Companies Limited by Guarantee
In some companies, the memorandum of association
mentions amounts of money that some members
guarantee to pay.
• In case of winding up, they will be liable only to pay
only the amount so guaranteed. The company or its
creditors cannot compel them to pay any
more money.
c) Unlimited Companies
Unlimited companies have no limits on their members’
liabilities.
• Hence, the company can use all personal assets of
Shareholders to meet its debtswhile winding up.
Their liabilities will extend to the company’s entire debt.
Companies on the basis of members
• a) One Person Companies (OPC)
• These kinds of companies have only one member as their sole shareholder.
• They are separate from sole proprietorships because OPCs are legal entities
distinct from their sole members.
• Unlike other companies, OPCs don’t need to have any minimum share
capital.
• b) Private Companies
• Private companies are those whose articles of association restrict
free transferability of shares.
• In terms of members, private companies need to have a minimum of 2 and
a maximum of 200.
• These members include present and former employees who also hold
shares.
• c) Public Companies
• In contrast to private companies, public companies allow their members to
freely transfer their shares to others.
• they need to have a minimum of 7 members, but the maximum number of
members they can have is unlimited.
BASIS FOR
COMPARISON
PUBLIC COMPANY PRIVATE COMPANY
Meaning A public company is a company which is owned
and traded publicly
A private company is a company
which is owned and traded privately.
Minimum members 7 2
Maximum members Unlimited 200
Minimum Directors 3 2
Suffix Limited Private Limited
Start of business After receiving certificate of incorporation and
certificate of commencement of business.
After receiving certificate of
incorporation.
Statutory Meeting Compulsory Optional
Issue of prospectus Compulsory Not required
Public subscription Allowed Not allowed
Managerial Remuneration cannot exceed 11% of the net profits No limit
Quorum at AGM 5 members must present in person. 2 members must present in person.
Companies on the basis of Control
• a) Holding Companies
• Holding companies exercise control over their subsidiaries by. also
exercise control by owning more than 50% of their subsidiary
companies’ share,
• also exercise control the composition of their board of directors.
• b) Subsidiary Companies –
• A subsidiary company is a company owned and controlled by
another company.
• Ex. If an X company buys 51% shares in Y company, Y becomes
the subsidiary company of X. X company becomes a holding
company.
c)Associate Companies
• Associate companies are those in which other companies have
significant influence.
• This “significant influence” amounts to ownership of at least 20%
shares of the associate company.
Other Types of company
• Listed company
Firm whose shares are listed (quoted) on a stock exchange for
public trading. Also called quoted company.
•
Unlisted company
• An unlisted company means a company whose shares are not
available to general public for trading and not listed to stock
exchanges. An unlisted company can be private
limited company or public limited company.
•
Government Company
• is a company in which at least 51% of the paid up share
capital is held
• by the central government or
• the state government or
• partly by both central and state government.
Small Company
means a company, other than a public company-
(i) paid up share capital of which does not exceed 50 lakh rupees
(ii) turnover of which as per profit and loss account for the immediately preceding
financial year does not exceed 2 crore rupees
• Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act;
Charitable company
The Companies Act defines a Section 8 company as
• one whose objectives is to promote fields
of arts,commerce, science, research, education, sports, charity, social welfare,
religion, environment protection, or other similar objectives.
• These companies also apply their profits towards of their cause and do not pay any
dividend to their members
Foreign company.
• any company or body corporate incorporated outside India which,
has a place of business in India whether by itself or through an agent, physically or
through electronic mode; and
• conducts any business activity in India in any other manner
Conversion of Private Limited Company into Public Limited
Company
• Conduct Board Meeting: The Board meeting shall be convene to discuss the following
Agenda items:
• To approve conversion of Company into Public Company subject to approval of Shareholder
• To adopt new set of Memorandum of Association subject to approval of Shareholder
• To adopt new set of Article of Association subject to approval of Shareholder
• Fix date, time and venue for conducting Extraordinary General Meeting
• Issue notice for General Meeting: The notice shall be issued to the members by
giving 21 days clear notice.
• Convene and hold General Meeting: Convene General meeting. Take necessary
approval from Members by passing Special Resolution for the proposal of conversion
and adoption of new set of Article of Association and Memorandum of Association
(consent of atleast 75% of total persons present).
• File it within 30 days of passing Special Resolution with Registrar of Companies.
• Notice of calling Extraordinary General Meeting
• Certified True Copy of Special Resolution
• Altered copy of MOA and AOA
• Certified Copy of the Board Resolution passed as an optional attachement.
• After approval, if the Registrar of Companies find everything in order, he will issue the
fresh certificate of Incorporation and will close the former registration of Company.
KEY POINTS FOR CONSIDERATION
• Name of the Company to be altered from “Private Limited” to “Public
Limited/Limited” wherever mentioned.
• Conversion to be approved by Shareholders.
• Memorandum of Association must be altered to give effect of
conversion.
• Articles of Association of Company to be altered in such a manner
that Ensure number of members in Company is seven prior to
conversion
• Ensure number of Director to be three .
• Ensure Company has filed annual returns or financial statements due
for filing with the Registrar ,Company has not failed to pay or repay
matured deposits or interest thereon.
• Post conversion Print New set of Memorandum of Association and
Article of Association, arrange for new stationary and letter heads.
• Make application for modification in PAN of Company.
• . Intimate all the concerned authorities like Excise and sales tax etc.
about the status change.
Incorporation of A Company
• The incorporation of a company refers to the legal process that is used to form a corporate entity or a
company.
• Steps in Incorporation of a Company
• 1. Ascertaining Availability of Name –
• A company is identified through the name it registers.
• The name of the company is in the memorandum of association of the company.
• The company’s name must end with ‘Limited’ if it’s a public company
• ‘Private Limited’ if its a private company.
• 2. Preparation of Memorandum of Association and Articles of Association
• The memorandum of association of a company can be referred to as its constitution or rulebook.
The memorandum states the field in which the company will do business, objectives of the company.
• It is further divided into 5 clauses
A. Name Clause
B. Registered Office Clause
C. Objects Clause
D. Liability Clause
E. Capital Clause
• Articles of Association is a document that states rules which the internal management of the company will
follow
• . The article creates a contract between the company and its members.
• The article mentions the rights, duties, and liabilities of the members.
• It is equally binding on all the members of the company.
• .
.• 2. Other Documents to be Filed with the Registrar during registration
• List of Directors-
• -A complete list of directors, their addresses and occupations and age.
• If not separate list is filed, the subscribers to the Memorandum are deemed to be
the first directors.
• Consent of the Directors –
• a written consent to act as directors must be
• 3. Statutory Declaration
• A statutory declaration by any one of the following persons stating that all the
requirements of the Act regarding Registration have been duly complied with:
• An Advocate.
• A Chartered Accountant
• Company’s Director
• Manager
• Company Secretary.
.4.Notices of the Address of the Registered Office –
The notice for the address of the registered office of the company should be
given within 30 days after its incorporation or on the date from which the
company commences its business whichever is earlier.
5. Payment of Registration Fees –
A prescribed fee is to be paid to the Registrar of Companies during the course
of incorporation.
It depends on the nominal capital of the companies which also have share
capital.
6.Certificate of Incorporation
• After the above documents are filed , prescribed fees paid to the Registrar The
Registrar will then issue a certificate known as Certificate of Incorporation
• Enter the name of the company in the Register kept in his office
• This Certificate of Incorporation entitles the company as a legal person.
• In other words, the company is born upon the issue of Certificate of
Incorporation.
• the certificate is conclusive evidence that all the requirements of the Act in regard
to the formation and registration of the company have been complied with
• 1. Neither the Court nor the Registrar can cancel the Certificate of Incorporation
even if the company is formed for an illegal purpose.
• 2. The validity of the Certificate of Incorporation cannot be debated or argued
upon on any grounds whatsoever.
• 3. When a certificate is issued, the new company is born. In other words, a legal
person has come into existence through a legal process.
• 4. The date mentioned in the certificate is the date of incorporation of the
company.
Memorandum of Association
• The Memorandum of Association or MOA of a company defines
the constitution the scope of powers of the company.
• the MOA is the foundation on which the company is built. In
this article,
• MOA is the legal document that has to be filed with the
registrar of companies at the time of incorporation of the
company.
• It is often called as a memorandum and is comprised of
fundamental conditions on the basis of which a company
operates.
• “The memorandum of association of a company is the charter
and defines the limitation of the power of the company
established under the Act”.
• –By Lord Cairns
• .
Clauses of MOA
Name Clause
Situation Clause
Objects Clause
Liability Clause
Capital Clause
Subscription Clause
Contents of Memorandum of Association
• 1. Name Clause –
• The name of the company should be stated in this clause
• . A company is free to select any name it likes.
• But the name should not be identical or similar to that of a company
already registered.
• It should not also use words like King, Queen, Emperor, Government
Bodies and names of World Bodies like U.N.O., W.H.O., World Bank
etc.
• If it is a Public Limited Company, the name of the company should
end with the word ‘Limited’ and
• if it is a Private Limited Company, the name should end with the
words ‘Private Limited’.
2. Situation Clause –
In this clause, the name of the State where the Company’s registered
office is located should be mentioned.
Registered office means a place where the common seal, statutory
books etc., of the company are kept.
3. Objects Clause
The objective clause requires to mention clearly the objective behind
the incorporation of the company, i.e. the purpose for which the
company is being established.
This clause mentions all possible types of business in which a
company may engage in future
.
4. Liability Clause –
This clause states the liability of the members of the company.
The liability may be limited by shares or by guarantee.
This clause may be omitted in case of unlimited liability
.
5. Capital Clause:
Company’s authorized capital along with the nominal value of
all kinds of shares need to be disclosed here.
Also, the company is required to state the list of its assets
over here.
6. Subscription Clause
It contains the names and addresses of the first subscribers.
The subscribers to the Memorandum must take at least one
share.
The minimum number of members is two in case of a private
company
seven in case of a public company.
Memorandum of Association of the
RASTOGI private limited
• I . Name Clause
• The name of the company is RASTOGI Private Limited
• II. Situation Clause
• The registered office of the company will be situated in the state of
Delhi.
• III. Objects Clause
• The objective for which the company is begin established are as
follows:
• a. Main object: running of shopping mall
• b. Ancillary object: opening bank accounts, hiring premises an running
of mall
.
• v. Capital Clause
• The authorized share capital of the company is
RS.2,00,00,000,divided into 20,00,000 shares of Rs. 10
each
• Vi Subscription Clause
Articles of Association
• It is comprised of rules and regulations that govern the
company’s internal affairs.
• They are related to the internal working or management of the
company.
• for the attainment of its object as given in the memorandum.
• It plays a very important role in the affairs of a company. It
deals with the rights of the members of the company between
themselves.
• The articles of association are a subsidiary to the
memorandum of association of the company.
• They define the rights, duties, powers of the management of a
company as between themselves and the company at large
Contents of AOA
: Different classes of shares and their rights;
Alteration of share capital;
Borrowing power of directors
;Procedure of making an issue of share capital & allotment
;General meetings, Proxies and polls;
Voting rights of members;
Procedure of issuing Share Certificates & Warrants
;Payment of dividend & creation of reserves;
Forfeiture of shares & their re-issue
;Appointment, Powers, Duties, Qualification, & Remuneration of Directors
Procedure for transfer & transmission of shares
;Time lag in between Calls on shares;
Use of the common seal of the company;
Conversion of shares into stock;
Keeping books of accounts and their audit
;Lien of shares
;Payment of commission on shares & debentures to underwriters
importance of articles of association
•
1) Binding on members in their relation to the company-
• the members are bound to the company by the provisions of the
articles.
2) Binding on company in relation to its members-
• just as members are bound to the company, the company is bound to
the members to observe and follow the articles.
3) Neither company, nor members bound to outsiders-
• articles bind the members to the company and company too the
members but neither of them is bound to an outsider to give effect to
the articles.
4) Binding between members and company –
• the articles define rights and liabilities of the members.
EMORANDUM OF ASSOCIATION ARTICLES OF ASSOCIATION
morandum of Association (MOA) is a document that
tains all the fundamental data which are required for the
mpany incorporation.
Articles of Association (AOA) is a documen
rules and regulations that govern the compa
A must be registered at the time of incorporation. The articles may or may not be registered.
e Memorandum is the charter, which characterizes and
ts powers and constraints of the organization.
The articles demonstrate obligations, rights
individuals, who are endowed with the resp
running the organization and administration
preme document. It is subordinate to the memorandum.
e memorandum cannot give the company power to do
thing opposed to the provision of the companies act.
The articles are constrained by the act, but
subsidiary to the memorandum and cannot
powers contained therein.
memorandum must contain six clauses.
The articles can be drafted according to the
Company.
e memorandum contains the objectives and powers of the
mpany.
The articles provide the regulations by whic
and powers are to be conveyed into impact
Doctrine of Ultra Vires
The term Ultra Vires means ‘Beyond Powers’.
In legal terms, it is applicable only to the acts performed in
excess of the legal powers of the object clause.
• An act, legal in itself, but not authorized by the object
clause of the Memorandum of Association of a company
or statute, is Ultra Vires the company. Hence, it is null and
void.
• An act ultra vires the company cannot be ratified even by
the unanimous consent of all shareholders.
:
Example
• Q1. The Memorandum of Association of ABC Limited specifies the following objects:
• Make, sell or lend on hire, railway carriages, and wagons
• Carry on the business of mechanical engineers and general contractors.
• Purchase, lease, sell and work mines.
• Purchase and sell as merchants or agents, coal, timber, metals etc.
• The directors of ABC Limited enter into a contract with another company XYZ Limited
for financing the construction of a railway line in Belgium. Further, the company ratifies
this act of the directors by passing a special resolution. Subsequently, the company
repudiated the contract as being ultra vires. However, XYZ Limited sued ABC Limited
for damages for breach of contract since the contract was well within the meaning of
the term ‘general contractors’ and the shareholders had ratified it. Is it a valid and legal
contract?
• Answer: Let’s look at the objects specified in the Memorandum of Association of ABC
Limited. The usage of the term ‘general contractors’ is with reference to mechanical
engineers. Hence, it needs to be read in connection with the company’s business. If the
reference is not made, then the company can make contracts of any kind and
description. (Like marine, biotech, etc.) Hence, the contract between ABC Limited and
XYX Limited for financing the construction of a railway line in Belgium is null and void.
•
PROMOTERS
A PROMOTERIS A PERSON WHO ASSEMBLES THE
MEN,THE MONEY AND THE MATERIALS INTO A GOING
CONCERN
According to Palmer,-
• “Company promoter is a person who originates a scheme for
the formation of the company,
• has the memorandum and the articles prepared, executed and
registered and
• finds the first directors,
• settles the terms of preliminary contracts and prospectus (if
any) and
• makes arrangement for advertising and circulating the
prospectus and placing the capital.”
Position of promoter
• he term ‘promoter’ is a term of business and not of law. It
has not been defined anywhere in the Act
• The promoter is neither a trustee nor an agent of the
company because there is no company yet in existence.
The correct way to describe his legal position is that,
• he stands in a fiduciary position towards the company
about to be form
• A promoter cannot be allowed to make any secret profits.
If it is found that in any particular transaction of the
company,
• he has obtained a secret profit for himself, he will be
bound to refund the same to the company.
Pre-incorporation Contract
• A pre-incorporation contract is entered into by the
corporate promoters, who form the company by filing its
Articles of Incorporation.
• Since the corporation has not been formed yet, it cannot
be a party to the agreement When a promoter enters into
a contract on behalf of a corporation to be formed
• the promoter may be considered personally liable to meet
the obligations of the corporation if for some reason the
corporation is not formed or does not adopt the contract.
principle of lifting the corporate veil
• Corporate veil:
• A legal concept that separates,
• the personality of a corporation from the personalities of its shareholders,
• and protects them from being personally liable for the company’s debts and other
obligations.
• Lifting of Corporate veil:
• At times it may happen that the corporate personality of the company is used to
commit frauds or illegal acts.
• Since an artificial person is not capable of doing anything illegal or fraudulent,
• so corporate personality might have to be removed to identify the persons who are
really guilty. This is known as ‘lifting of corporate veil’.
• It refers to the situation where a shareholder is held liable for its corporation’s debts
despite the rule of limited liability and/of separate personality
• the possibility of looking behind the company’s framework to make the members liable,
• Ignoring separate legal entity of company
Salomon v. A Salomon & Co. Ltd
• In this case, Mr. Solomon had the business of shoe and boots manufacture.
• ‘A Salomon & Co. Ltd.’ was incorporated by Solomon with seven
subscribers-Himself, his wife, a daughter and four sons. All shareholders
held shares of UK pound 1 each.
• The company purchased the business of Salomon for 39000 pounds, the
purchase consideration was paid in terms of 10000 pounds debentures
conferring charge on the company’s assets, 20000 pounds in fully paid 1
pound share each and the balance in cash.
• The company in less than one year ran into difficulties and liquidation
proceedings commenced.
• The assets of the company were not even sufficient to discharge the
debentures (held entirely by Salomon itself) and nothing was left to the
insured creditors.
• The House of Lords unanimously held that the company had been validly
constituted, since the Act only required seven members holding at least
one share each and that Salomon is separate from Salomon & Co. Ltd.
Lifting of corporate veil
Statutory Provision
Reduction
of
membersh
ip
Misrepres
entation in
prospectu
s
Failure to
refund
application
money
Holding
and
subsidiary
company
Fraudulent
Conduct
Ultra
virus
act
Alteration of Memorandum
1. ALTERATION OF NAME CLAUSE
 Special Resolution.
 • Written Approval of Central Government (CG).
 • No Approval of Central Government is necessary if the change of name
involves only the addition or deletion of the word “Private”.
 • Change by ordinary resolution and approval of Central Government when
name is identical or too closely resembles the name of an existing company.
The company shall file registrar
a) Copy of special resolution
b) Copy of order of CG.
 ROC issue Fresh Certificate of Incorporation
• The change of name shall not be allowed to a company which has defaulted
in filing its
 Annual returns
 Financial Statements
 Any document due for filing with Registrar
 repayment of matured deposits or debentures or interest on deposits or
debentures
Alteration of Objects Clause
• special resolution that must be passed.
• For example, Reliance is a telecommunication industry
and wants to expand or change its service, and then it
requires consent from the majority of its shareholders.
• The details of the objective must be published in the
newspaper that too in different languages (one in English
and other in the vernacular language) where the
registered office of the company is situated and also on
the website of the company.
The company shall file registrar Of Company
-Copy of special resolution
ROC issue Fresh Certificate of Incorporation
Alteration of the Situation Clause
• A company may change the situation of its registered office for
the smooth running of its business and the realization of its
objects.
• Such change in the situation can be:
• (a) from one place to another in the same city or town
• (b) from one town to another in the same state and
• (c) from one state to another.
from one place to another in the same city or town
• If the registered office of the company is to be shifted from one
place to another in the same city or town,
• the board of directors must pass a resolution
give the name address of its registered office to the ROC within
30 days after the date of the change of address
.
(b) from one town to another in the same state
IF the company wants to shift its registered office from one town to
another in the state,
it shall pass a special resolution to that effect at its general meeting
send the Copy of SR to the registrar within 30 days
. It shall give the new address of its registered office to the
registrar. [14]
(c) Registered office has to be shifted from one state to
another.
:, a special resolution has to be passed
approval from the Company Law Board has to be obtained by the
company.
The altered memorandum should be filed with the Registrar of the
State from which the company is shifting and also to the Registrar
of the State to which the company is shifted.
Alteration of Capital Clause
1. Alteration of capital may relate to
a) An increase of its share capital by issue of new shares.
b) Consolidation of existing shares into shares of larger
amounts.
c) Conversion of fully paid shares into stock or vice versa.
d) Cancellation of unissued shares.
2. passing an ordinary resolution in a general meeting.
3. Within thirty days of passing a resolution, the altered
Articles and Memorandum have to be submitted to the
Registrar.
ALTERATION OF ARTICLES :
• Being the internal regulations,
• Convey Board Meeting of Directors:, the given resolutions
in respect of alteration in AOA must be passed.
• Fixing the date, time, and venue of the general meeting
• Issue Notice of General Meeting
• the company can alter it by passing a Special Resolution
only,
• copy must be filed with the Registrar within 30 days of
passing the said resolution
• .A copy of Altered Articles must also be filled with
Registrar within 3 months of passing the Resolution. :
ALTERATION OF ARTICLES must not be
inconsistent with
• - The conditions contained in the Memorandum
• Alteration ordered by the Company Law Board
• Must not deprive any person of his right under a contract
• Must not constitute a fraud on the minority
• Must be bonafide for the benefit of the company
• Central Government approval has to be obtained in
certain cases-
Conversion of Public Co. Into Private Company
Appointment or Re-appointment of Directors
 Increase in remuneration of a Director.

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Company act,2013

  • 2. COMPANY- Definition • A Company is a association of person united for common object • A company is a artificial person created by law • A company is a legal entity formed by a group of individuals to operate a business—commercial or industrial—enterprise. • A company follows the provisions mentioned in the Companies Act 2013, which says that a – “Company” means a company incorporated under this Act or any previous company law; •
  • 3. Definition Of company • A Company may be defined as an incorporated association, which is an artificial person, having an independent legal entity, with a perpetual succession, a common seal, a common stock capital comprised of transferable shares and carrying limited liability in relation to its members
  • 4. Features of a Company • 1. Artificial Legal Person • 2.Separate Legal Entity • 3.Common Seal • 4.Perpetual Succession • 5.Limited Liability • 6. Transferability of shares • 7. Separation of Ownership from Management: • 8. Number of Members • 9. Capacity of sue and be sued
  • 5. Features of a Company 1. Artificial Legal Person: • A company is an artificial person created by law. • it has no body, no conscience, still it exists as a person. Like a person, it can enter into contracts in its own name. 2. Separate Legal Entity: • A company has a distinct entity separate from its members or shareholders. • a shareholder of the company can enter into contract with the company. • He/she can sue the company and be sued by company.
  • 6. . • 3. Common Seal: • Being an artificial person, company cannot sign the documents. Hence, it uses a common seal . • Putting the common seal on papers relating to company’s transactions makes them binding on the company. • 4. Perpetual Existence: • Unlike partnership, the existence of a company is not affected by the death, lunacy, insolvency or retirement of its members or directors. • This is because the company enjoys a separate legal existence from that of its members. • It is said, “Members may come, members may go but the company goes for ever”. • It is created by law and is dissolved by law itself.
  • 7. . • 5. Limited Liability: • The liability of the members of a company is normally limited to the amount of shares held or guarantee given by them. • 6. Transferability of Shares: • The member of a public limited company can sell his shares to others without the consent of other shareholders. • Yes, he has to follow the procedure laid down in the Companies Act for transferring his shares. • However, there are restrictions for transferring shares to others in case of a private limited company.
  • 8. . • 7. Separation of Ownership from Management: • The shareholders, i.e., owners being scattered all over country give right the directors to manage the affairs of the company. The directors are the representatives of the shareholders. Thus, ownership is separated from management. • 8. Number of Members: • In case of a public limited company, the minimum number is 7 and there is no maximum limit. But, for a private limited company, the minimum number of members is 2 and the maximum number is 200. • 9. Capacity of sue and be sued • A company can sue others and be sued in its own name
  • 9.
  • 10. Companies on the Basis of Liabilities • we look at the liabilities of members • a) Companies Limited by Shares • Sometimes, shareholders of some companies might not pay the entire value of their shares in one go. • In these companies, the liabilities of members is limited to the extent of the amount not paid by them on their shares. • This means that in case of winding up, members will be liable only until they pay the remaining amount of their shares.
  • 11. b) Companies Limited by Guarantee In some companies, the memorandum of association mentions amounts of money that some members guarantee to pay. • In case of winding up, they will be liable only to pay only the amount so guaranteed. The company or its creditors cannot compel them to pay any more money. c) Unlimited Companies Unlimited companies have no limits on their members’ liabilities. • Hence, the company can use all personal assets of Shareholders to meet its debtswhile winding up. Their liabilities will extend to the company’s entire debt.
  • 12. Companies on the basis of members • a) One Person Companies (OPC) • These kinds of companies have only one member as their sole shareholder. • They are separate from sole proprietorships because OPCs are legal entities distinct from their sole members. • Unlike other companies, OPCs don’t need to have any minimum share capital. • b) Private Companies • Private companies are those whose articles of association restrict free transferability of shares. • In terms of members, private companies need to have a minimum of 2 and a maximum of 200. • These members include present and former employees who also hold shares. • c) Public Companies • In contrast to private companies, public companies allow their members to freely transfer their shares to others. • they need to have a minimum of 7 members, but the maximum number of members they can have is unlimited.
  • 13. BASIS FOR COMPARISON PUBLIC COMPANY PRIVATE COMPANY Meaning A public company is a company which is owned and traded publicly A private company is a company which is owned and traded privately. Minimum members 7 2 Maximum members Unlimited 200 Minimum Directors 3 2 Suffix Limited Private Limited Start of business After receiving certificate of incorporation and certificate of commencement of business. After receiving certificate of incorporation. Statutory Meeting Compulsory Optional Issue of prospectus Compulsory Not required Public subscription Allowed Not allowed Managerial Remuneration cannot exceed 11% of the net profits No limit Quorum at AGM 5 members must present in person. 2 members must present in person.
  • 14. Companies on the basis of Control • a) Holding Companies • Holding companies exercise control over their subsidiaries by. also exercise control by owning more than 50% of their subsidiary companies’ share, • also exercise control the composition of their board of directors. • b) Subsidiary Companies – • A subsidiary company is a company owned and controlled by another company. • Ex. If an X company buys 51% shares in Y company, Y becomes the subsidiary company of X. X company becomes a holding company. c)Associate Companies • Associate companies are those in which other companies have significant influence. • This “significant influence” amounts to ownership of at least 20% shares of the associate company.
  • 15. Other Types of company • Listed company Firm whose shares are listed (quoted) on a stock exchange for public trading. Also called quoted company. • Unlisted company • An unlisted company means a company whose shares are not available to general public for trading and not listed to stock exchanges. An unlisted company can be private limited company or public limited company. • Government Company • is a company in which at least 51% of the paid up share capital is held • by the central government or • the state government or • partly by both central and state government.
  • 16. Small Company means a company, other than a public company- (i) paid up share capital of which does not exceed 50 lakh rupees (ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed 2 crore rupees • Provided that nothing in this clause shall apply to— (A) a holding company or a subsidiary company; (B) a company registered under section 8; or (C) a company or body corporate governed by any special Act; Charitable company The Companies Act defines a Section 8 company as • one whose objectives is to promote fields of arts,commerce, science, research, education, sports, charity, social welfare, religion, environment protection, or other similar objectives. • These companies also apply their profits towards of their cause and do not pay any dividend to their members Foreign company. • any company or body corporate incorporated outside India which, has a place of business in India whether by itself or through an agent, physically or through electronic mode; and • conducts any business activity in India in any other manner
  • 17. Conversion of Private Limited Company into Public Limited Company • Conduct Board Meeting: The Board meeting shall be convene to discuss the following Agenda items: • To approve conversion of Company into Public Company subject to approval of Shareholder • To adopt new set of Memorandum of Association subject to approval of Shareholder • To adopt new set of Article of Association subject to approval of Shareholder • Fix date, time and venue for conducting Extraordinary General Meeting • Issue notice for General Meeting: The notice shall be issued to the members by giving 21 days clear notice. • Convene and hold General Meeting: Convene General meeting. Take necessary approval from Members by passing Special Resolution for the proposal of conversion and adoption of new set of Article of Association and Memorandum of Association (consent of atleast 75% of total persons present). • File it within 30 days of passing Special Resolution with Registrar of Companies. • Notice of calling Extraordinary General Meeting • Certified True Copy of Special Resolution • Altered copy of MOA and AOA • Certified Copy of the Board Resolution passed as an optional attachement. • After approval, if the Registrar of Companies find everything in order, he will issue the fresh certificate of Incorporation and will close the former registration of Company.
  • 18. KEY POINTS FOR CONSIDERATION • Name of the Company to be altered from “Private Limited” to “Public Limited/Limited” wherever mentioned. • Conversion to be approved by Shareholders. • Memorandum of Association must be altered to give effect of conversion. • Articles of Association of Company to be altered in such a manner that Ensure number of members in Company is seven prior to conversion • Ensure number of Director to be three . • Ensure Company has filed annual returns or financial statements due for filing with the Registrar ,Company has not failed to pay or repay matured deposits or interest thereon. • Post conversion Print New set of Memorandum of Association and Article of Association, arrange for new stationary and letter heads. • Make application for modification in PAN of Company. • . Intimate all the concerned authorities like Excise and sales tax etc. about the status change.
  • 19. Incorporation of A Company • The incorporation of a company refers to the legal process that is used to form a corporate entity or a company. • Steps in Incorporation of a Company • 1. Ascertaining Availability of Name – • A company is identified through the name it registers. • The name of the company is in the memorandum of association of the company. • The company’s name must end with ‘Limited’ if it’s a public company • ‘Private Limited’ if its a private company. • 2. Preparation of Memorandum of Association and Articles of Association • The memorandum of association of a company can be referred to as its constitution or rulebook. The memorandum states the field in which the company will do business, objectives of the company. • It is further divided into 5 clauses A. Name Clause B. Registered Office Clause C. Objects Clause D. Liability Clause E. Capital Clause • Articles of Association is a document that states rules which the internal management of the company will follow • . The article creates a contract between the company and its members. • The article mentions the rights, duties, and liabilities of the members. • It is equally binding on all the members of the company. • .
  • 20. .• 2. Other Documents to be Filed with the Registrar during registration • List of Directors- • -A complete list of directors, their addresses and occupations and age. • If not separate list is filed, the subscribers to the Memorandum are deemed to be the first directors. • Consent of the Directors – • a written consent to act as directors must be • 3. Statutory Declaration • A statutory declaration by any one of the following persons stating that all the requirements of the Act regarding Registration have been duly complied with: • An Advocate. • A Chartered Accountant • Company’s Director • Manager • Company Secretary.
  • 21. .4.Notices of the Address of the Registered Office – The notice for the address of the registered office of the company should be given within 30 days after its incorporation or on the date from which the company commences its business whichever is earlier. 5. Payment of Registration Fees – A prescribed fee is to be paid to the Registrar of Companies during the course of incorporation. It depends on the nominal capital of the companies which also have share capital.
  • 22. 6.Certificate of Incorporation • After the above documents are filed , prescribed fees paid to the Registrar The Registrar will then issue a certificate known as Certificate of Incorporation • Enter the name of the company in the Register kept in his office • This Certificate of Incorporation entitles the company as a legal person. • In other words, the company is born upon the issue of Certificate of Incorporation. • the certificate is conclusive evidence that all the requirements of the Act in regard to the formation and registration of the company have been complied with • 1. Neither the Court nor the Registrar can cancel the Certificate of Incorporation even if the company is formed for an illegal purpose. • 2. The validity of the Certificate of Incorporation cannot be debated or argued upon on any grounds whatsoever. • 3. When a certificate is issued, the new company is born. In other words, a legal person has come into existence through a legal process. • 4. The date mentioned in the certificate is the date of incorporation of the company.
  • 23. Memorandum of Association • The Memorandum of Association or MOA of a company defines the constitution the scope of powers of the company. • the MOA is the foundation on which the company is built. In this article, • MOA is the legal document that has to be filed with the registrar of companies at the time of incorporation of the company. • It is often called as a memorandum and is comprised of fundamental conditions on the basis of which a company operates. • “The memorandum of association of a company is the charter and defines the limitation of the power of the company established under the Act”. • –By Lord Cairns • .
  • 24. Clauses of MOA Name Clause Situation Clause Objects Clause Liability Clause Capital Clause Subscription Clause
  • 25. Contents of Memorandum of Association • 1. Name Clause – • The name of the company should be stated in this clause • . A company is free to select any name it likes. • But the name should not be identical or similar to that of a company already registered. • It should not also use words like King, Queen, Emperor, Government Bodies and names of World Bodies like U.N.O., W.H.O., World Bank etc. • If it is a Public Limited Company, the name of the company should end with the word ‘Limited’ and • if it is a Private Limited Company, the name should end with the words ‘Private Limited’.
  • 26. 2. Situation Clause – In this clause, the name of the State where the Company’s registered office is located should be mentioned. Registered office means a place where the common seal, statutory books etc., of the company are kept. 3. Objects Clause The objective clause requires to mention clearly the objective behind the incorporation of the company, i.e. the purpose for which the company is being established. This clause mentions all possible types of business in which a company may engage in future . 4. Liability Clause – This clause states the liability of the members of the company. The liability may be limited by shares or by guarantee. This clause may be omitted in case of unlimited liability .
  • 27. 5. Capital Clause: Company’s authorized capital along with the nominal value of all kinds of shares need to be disclosed here. Also, the company is required to state the list of its assets over here. 6. Subscription Clause It contains the names and addresses of the first subscribers. The subscribers to the Memorandum must take at least one share. The minimum number of members is two in case of a private company seven in case of a public company.
  • 28. Memorandum of Association of the RASTOGI private limited • I . Name Clause • The name of the company is RASTOGI Private Limited • II. Situation Clause • The registered office of the company will be situated in the state of Delhi. • III. Objects Clause • The objective for which the company is begin established are as follows: • a. Main object: running of shopping mall • b. Ancillary object: opening bank accounts, hiring premises an running of mall
  • 29. . • v. Capital Clause • The authorized share capital of the company is RS.2,00,00,000,divided into 20,00,000 shares of Rs. 10 each • Vi Subscription Clause
  • 30. Articles of Association • It is comprised of rules and regulations that govern the company’s internal affairs. • They are related to the internal working or management of the company. • for the attainment of its object as given in the memorandum. • It plays a very important role in the affairs of a company. It deals with the rights of the members of the company between themselves. • The articles of association are a subsidiary to the memorandum of association of the company. • They define the rights, duties, powers of the management of a company as between themselves and the company at large
  • 31. Contents of AOA : Different classes of shares and their rights; Alteration of share capital; Borrowing power of directors ;Procedure of making an issue of share capital & allotment ;General meetings, Proxies and polls; Voting rights of members; Procedure of issuing Share Certificates & Warrants ;Payment of dividend & creation of reserves; Forfeiture of shares & their re-issue ;Appointment, Powers, Duties, Qualification, & Remuneration of Directors Procedure for transfer & transmission of shares ;Time lag in between Calls on shares; Use of the common seal of the company; Conversion of shares into stock; Keeping books of accounts and their audit ;Lien of shares ;Payment of commission on shares & debentures to underwriters
  • 32. importance of articles of association • 1) Binding on members in their relation to the company- • the members are bound to the company by the provisions of the articles. 2) Binding on company in relation to its members- • just as members are bound to the company, the company is bound to the members to observe and follow the articles. 3) Neither company, nor members bound to outsiders- • articles bind the members to the company and company too the members but neither of them is bound to an outsider to give effect to the articles. 4) Binding between members and company – • the articles define rights and liabilities of the members.
  • 33. EMORANDUM OF ASSOCIATION ARTICLES OF ASSOCIATION morandum of Association (MOA) is a document that tains all the fundamental data which are required for the mpany incorporation. Articles of Association (AOA) is a documen rules and regulations that govern the compa A must be registered at the time of incorporation. The articles may or may not be registered. e Memorandum is the charter, which characterizes and ts powers and constraints of the organization. The articles demonstrate obligations, rights individuals, who are endowed with the resp running the organization and administration preme document. It is subordinate to the memorandum. e memorandum cannot give the company power to do thing opposed to the provision of the companies act. The articles are constrained by the act, but subsidiary to the memorandum and cannot powers contained therein. memorandum must contain six clauses. The articles can be drafted according to the Company. e memorandum contains the objectives and powers of the mpany. The articles provide the regulations by whic and powers are to be conveyed into impact
  • 34. Doctrine of Ultra Vires The term Ultra Vires means ‘Beyond Powers’. In legal terms, it is applicable only to the acts performed in excess of the legal powers of the object clause. • An act, legal in itself, but not authorized by the object clause of the Memorandum of Association of a company or statute, is Ultra Vires the company. Hence, it is null and void. • An act ultra vires the company cannot be ratified even by the unanimous consent of all shareholders. :
  • 35. Example • Q1. The Memorandum of Association of ABC Limited specifies the following objects: • Make, sell or lend on hire, railway carriages, and wagons • Carry on the business of mechanical engineers and general contractors. • Purchase, lease, sell and work mines. • Purchase and sell as merchants or agents, coal, timber, metals etc. • The directors of ABC Limited enter into a contract with another company XYZ Limited for financing the construction of a railway line in Belgium. Further, the company ratifies this act of the directors by passing a special resolution. Subsequently, the company repudiated the contract as being ultra vires. However, XYZ Limited sued ABC Limited for damages for breach of contract since the contract was well within the meaning of the term ‘general contractors’ and the shareholders had ratified it. Is it a valid and legal contract? • Answer: Let’s look at the objects specified in the Memorandum of Association of ABC Limited. The usage of the term ‘general contractors’ is with reference to mechanical engineers. Hence, it needs to be read in connection with the company’s business. If the reference is not made, then the company can make contracts of any kind and description. (Like marine, biotech, etc.) Hence, the contract between ABC Limited and XYX Limited for financing the construction of a railway line in Belgium is null and void. •
  • 36. PROMOTERS A PROMOTERIS A PERSON WHO ASSEMBLES THE MEN,THE MONEY AND THE MATERIALS INTO A GOING CONCERN According to Palmer,- • “Company promoter is a person who originates a scheme for the formation of the company, • has the memorandum and the articles prepared, executed and registered and • finds the first directors, • settles the terms of preliminary contracts and prospectus (if any) and • makes arrangement for advertising and circulating the prospectus and placing the capital.”
  • 37. Position of promoter • he term ‘promoter’ is a term of business and not of law. It has not been defined anywhere in the Act • The promoter is neither a trustee nor an agent of the company because there is no company yet in existence. The correct way to describe his legal position is that, • he stands in a fiduciary position towards the company about to be form • A promoter cannot be allowed to make any secret profits. If it is found that in any particular transaction of the company, • he has obtained a secret profit for himself, he will be bound to refund the same to the company.
  • 38. Pre-incorporation Contract • A pre-incorporation contract is entered into by the corporate promoters, who form the company by filing its Articles of Incorporation. • Since the corporation has not been formed yet, it cannot be a party to the agreement When a promoter enters into a contract on behalf of a corporation to be formed • the promoter may be considered personally liable to meet the obligations of the corporation if for some reason the corporation is not formed or does not adopt the contract.
  • 39. principle of lifting the corporate veil • Corporate veil: • A legal concept that separates, • the personality of a corporation from the personalities of its shareholders, • and protects them from being personally liable for the company’s debts and other obligations. • Lifting of Corporate veil: • At times it may happen that the corporate personality of the company is used to commit frauds or illegal acts. • Since an artificial person is not capable of doing anything illegal or fraudulent, • so corporate personality might have to be removed to identify the persons who are really guilty. This is known as ‘lifting of corporate veil’. • It refers to the situation where a shareholder is held liable for its corporation’s debts despite the rule of limited liability and/of separate personality • the possibility of looking behind the company’s framework to make the members liable, • Ignoring separate legal entity of company
  • 40. Salomon v. A Salomon & Co. Ltd • In this case, Mr. Solomon had the business of shoe and boots manufacture. • ‘A Salomon & Co. Ltd.’ was incorporated by Solomon with seven subscribers-Himself, his wife, a daughter and four sons. All shareholders held shares of UK pound 1 each. • The company purchased the business of Salomon for 39000 pounds, the purchase consideration was paid in terms of 10000 pounds debentures conferring charge on the company’s assets, 20000 pounds in fully paid 1 pound share each and the balance in cash. • The company in less than one year ran into difficulties and liquidation proceedings commenced. • The assets of the company were not even sufficient to discharge the debentures (held entirely by Salomon itself) and nothing was left to the insured creditors. • The House of Lords unanimously held that the company had been validly constituted, since the Act only required seven members holding at least one share each and that Salomon is separate from Salomon & Co. Ltd.
  • 41. Lifting of corporate veil Statutory Provision Reduction of membersh ip Misrepres entation in prospectu s Failure to refund application money Holding and subsidiary company Fraudulent Conduct Ultra virus act
  • 42. Alteration of Memorandum 1. ALTERATION OF NAME CLAUSE  Special Resolution.  • Written Approval of Central Government (CG).  • No Approval of Central Government is necessary if the change of name involves only the addition or deletion of the word “Private”.  • Change by ordinary resolution and approval of Central Government when name is identical or too closely resembles the name of an existing company. The company shall file registrar a) Copy of special resolution b) Copy of order of CG.  ROC issue Fresh Certificate of Incorporation • The change of name shall not be allowed to a company which has defaulted in filing its  Annual returns  Financial Statements  Any document due for filing with Registrar  repayment of matured deposits or debentures or interest on deposits or debentures
  • 43. Alteration of Objects Clause • special resolution that must be passed. • For example, Reliance is a telecommunication industry and wants to expand or change its service, and then it requires consent from the majority of its shareholders. • The details of the objective must be published in the newspaper that too in different languages (one in English and other in the vernacular language) where the registered office of the company is situated and also on the website of the company. The company shall file registrar Of Company -Copy of special resolution ROC issue Fresh Certificate of Incorporation
  • 44. Alteration of the Situation Clause • A company may change the situation of its registered office for the smooth running of its business and the realization of its objects. • Such change in the situation can be: • (a) from one place to another in the same city or town • (b) from one town to another in the same state and • (c) from one state to another. from one place to another in the same city or town • If the registered office of the company is to be shifted from one place to another in the same city or town, • the board of directors must pass a resolution give the name address of its registered office to the ROC within 30 days after the date of the change of address
  • 45. . (b) from one town to another in the same state IF the company wants to shift its registered office from one town to another in the state, it shall pass a special resolution to that effect at its general meeting send the Copy of SR to the registrar within 30 days . It shall give the new address of its registered office to the registrar. [14] (c) Registered office has to be shifted from one state to another. :, a special resolution has to be passed approval from the Company Law Board has to be obtained by the company. The altered memorandum should be filed with the Registrar of the State from which the company is shifting and also to the Registrar of the State to which the company is shifted.
  • 46. Alteration of Capital Clause 1. Alteration of capital may relate to a) An increase of its share capital by issue of new shares. b) Consolidation of existing shares into shares of larger amounts. c) Conversion of fully paid shares into stock or vice versa. d) Cancellation of unissued shares. 2. passing an ordinary resolution in a general meeting. 3. Within thirty days of passing a resolution, the altered Articles and Memorandum have to be submitted to the Registrar.
  • 47. ALTERATION OF ARTICLES : • Being the internal regulations, • Convey Board Meeting of Directors:, the given resolutions in respect of alteration in AOA must be passed. • Fixing the date, time, and venue of the general meeting • Issue Notice of General Meeting • the company can alter it by passing a Special Resolution only, • copy must be filed with the Registrar within 30 days of passing the said resolution • .A copy of Altered Articles must also be filled with Registrar within 3 months of passing the Resolution. :
  • 48. ALTERATION OF ARTICLES must not be inconsistent with • - The conditions contained in the Memorandum • Alteration ordered by the Company Law Board • Must not deprive any person of his right under a contract • Must not constitute a fraud on the minority • Must be bonafide for the benefit of the company • Central Government approval has to be obtained in certain cases- Conversion of Public Co. Into Private Company Appointment or Re-appointment of Directors  Increase in remuneration of a Director.