This document provides an overview of key aspects of company law in India according to the Companies Act of 1956. It begins with an introduction to the Act and objectives. It then discusses the different types of companies according to basis of incorporation, liability, and number of members. The document outlines the essential contents and features of a Memorandum of Association and Articles of Association. It also describes shareholders, debenture holders, and the different modes of voluntary and compulsory winding up of a company.

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CONTENTS
 Introduction
 Types of Companies
 Memorandum of Association (MOA)
 Article of Association (AOA)
 Shareholder & Debenture Holders
 Winding up
INTRODUCTION
Company Act 1956
 It is the most important piece of legislation that empowers the Central
Government to regulate the formation, financing, functioning and
winding up of companies.
 The Act contains the mechanism regarding organisational, financial,
managerial and all the relevant aspects of a company.
 The Companies Act is administered by the Central Government through
the Ministry of Corporate Affairs and the Offices of Registrar of
Companies, Official Liquidators, Public Trustee, Company Law Board,
Director of Inspection, etc.
 The Registrar of Companies (ROC) controls the task of incorporation of
new companies and the administration of running companies.
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OBJECTIVES
 A min. standard of good behaviour and business honesty in company
promotion and management.
 Provision for greater and effective control over and voice in the
management for shareholders.
 A fair and true disclosure of the affairs of companies in their annual
published balance sheet and profit and loss accounts.
 Proper standard of accounting and auditing.
 Recognition of the rights of shareholders to receive reasonable
information and facilities for exercising an intelligent judgement with
reference to the management.
 A check on their transactions where there was a possibility of conflict of
duty and interest.
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 limitedliability.
 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.
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
TYPES OF COMPANIES
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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
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 .
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.’
ON THE BASIS OF NUMBER OF MEMBERS
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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
MEMORANDUM
OF
ASSOCIATION (MOA)
 The Memorandum of Association is the principal document
of a company. It is considered as the charter of the company.
 It contains the powers and objectives of the company. It also
describes the scope of operations of the company.
 It can be altered only according to provisions made in the
Companies Act regarding its alterations.
 Memorandum of Association provides information to
outsiders such as creditors, suppliers etc. to know the
limitations and scope of company’s dealings. It is also known
as Doctrine of Outdoor Management.
Contents of Memorandum of Association
 Name Clause:
This clause contains the complete name of the company. The
company can choose any name subject to the following
restrictions:
 The name of the company must end with the word
‘Limited’ in case of public limited company and with the
word ‘Private Limited’ in case of Private LimitedCompany.
 The name should not be similar or identical to the name of
any other company.
 The name should not convey any connection or link of
company with a government department.
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 Registered office Clause:
 This clause contains the name of the state in which the registered office
of the company is to be situated.
 It is necessary because company gets the registration from the state
only.
 Objects Clause:
 It contains the main object of the company and other secondary
objectives which the company may pursue.
 This clause defines the scope and limitations of the activities of the
company.
 Liability Clause:
 This clause defines the liability of the members of the company.
 In case of companies limited by shares, the liability of the members is
limited to the extent of unpaid amount of their share capital.
 In case of a company limited by guarantee the liability is limited to the
amount of guarantee given by each member.
 Capital Clause:
 This clause specifies the amount of share capital with which
company is to be registered.
 The capital with which a company is registered is called
registered/authorised or nominal capital.
 Association Clause:
 This clause contains the declaration by the directors stating that
“We, the several persons whose names and addresses are
submitted, are desirous of being formed into a company in
accordance with MOA, and we undertake to take the qualification
shares.
 This declaration must be signed by all the directors of the
company.
ARTICLES
OF
ASSOCIATION (AOA)
 AOA contains rules and regulations regarding the
management of company’s internal affairs.
 It defines the powers, duties and rights of managers, officers
and board of directors.
 Generally, all the companies prepare their own Articles of
Association.
 In case companies do not want to prepare their own articles
of association then they can select any one article of
association given in Table A of Companies Act.
 Companies Act contains 99 sets of AOA.
 The AOA must be signed by all the directors of the company.
It must be duly attested by any two witnesses.
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CONTENTS OF ARTICLES OF ASSOCIATION
 The amount of share capital and different classes of shares.
 Rights of each type of shareholders.
 Procedure for making allotment of shares.
 Procedure for issuing share certificates.
 Procedure for transfer of shares.
 Procedure for forfeiture of shares.
 Procedure for conducting meetings.
 Procedure for declaration and payment of dividend.
 Duties, powers and remuneration of directors.
 Procedure regarding winding up of company.
 Procedure regarding keeping of books of accounts and their audit.
 Seal of-the company.
SHAREHOLDERS
&
DEBENTURE HOLDERS
SHAREHOLDER
 A shareholder or stock holder is an individual or institution ( including a
corporation ) that legally owns a share of stock in a public or private
corporation .
 Shareholder are the owners of a limited company. The buy share which
represent part ownership of company.
 Stockholders are granted special privileges depending on the class ofstock.
 These rights may include:
 The rights to sell their shares.
 The right to vote on the directors nominated by the board.
 The right to dividends if they are declared.
 The right to purchase new shares issued by the company.
DEBENTURE HOLDERS
 Debenture holders or Bondholders are the persons, firms or companies who
purchase the debentures of other company. If they give debt to govt. by buying
bond, they will be bondholders.
 Rights of debenture holders
 To transfer the bearer debentures.
 To get interest on given loan.
 To take legal action against company, if they did not get interest or their
principle amount.
 To obtain annual reports , Auditor’s report, profit and loss account andbalance
sheet’s copies .
 Convertible debentures or with special resolution and acceptance of
debenture holders, debentures can be converted in equity shares.After this ,
they can vote for taking any decision in annual generalmeeting.
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WINDING UP
Winding Up of a Company
 Last stage in company’s life.
 It is the proceeding by which a company is dissolved.
 “ Winding up of a company is a process whereby its life is ended
and its property administered for the benefit of its creditors and
members.
 An administered, called liquidator, is appointed and he takes
control of the company, collects its assets, pays its debt and
finally distributes any surplus among the members in accordance
with their rights.”
MODES OF WINDING UP
WINDING UP
COMPULSORY WINDING
UP
(Winding up by tribunal)
VOLUNTARY WINDING
UP
Members Voluntary
winding up
Creditors voluntary
winding up
WINDING UP UNDER
SUPERVISION OF
COURT
GROUND’S FOR COMPULSORY WINDING UP
(Section 433 &434)
 If the company has, by a Special Resolution, resolved that the company
be wound up by the Tribunal.
 If the company fails to commence its business within one year of its
incorporation, or suspends its business for a whole year.
 If the number of members is reduced below the statutory minimum i.e.
below seven in case of a public company and two in the case of a private
company.
 If the company is unable to pay its debts.
 If the tribunal is of the opinion that it is just and equitable that the
company should be wound up.
 If the company has made a default in filing with the Registrar its balance
sheet and profit and loss account or annual return for any five
consecutive financial years
 If the company has acted against the interests of the sovereignty and
integrity of India, the security of the State, friendly relations with foreign
States, public order, decency or morality.
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VOLUNTARY WINDING UP
(Section 484)
 Acc. To section 484, When a company is wound up by the members or
the creditors without the intervention of Tribunal, it is called as
voluntary winding up.
 It may take place by:-
 By passing an ordinary resolution in the general meeting if :-
 (i) the period fixed for the duration of the company by the articles
has expired; or
 (ii) some event on the happening of which company is to be
dissolved, has happened.
 By passing a special resolution to wind up voluntarily for any reason
whatsoever.
MEMBERS & CREDITORS VOLUNTARY
WINDING UP
 MEMBERS VOLUNTARILY WINDING UP
 Directors of the company shall call for a Board of Directors Meeting, and make a
declaration of winding up, accompanied by an Affidavit, stating that:
 The company has no debts to pay, or
 The company will repay it's debts; if any, within 3 years from the
commencement of winding up, as specified in declaration
 CREDITORS VOLUNTARILY WINDING UP
 Where the resolution for winding up has been passed, but the Board of Directors
are not in a position to give a declaration on the liability of company, they may
call a meeting of creditors, for the purpose of winding up.
 It is the duty of Board of Directors, to present a full statement of company’s
affairs, and list of creditors along with their dues, before the meeting of creditors.
 Whatever resolution, the company passes in creditor's meeting, shall be given to
the Registrar within ten days of its passing.
WINDING UP UNDER SUPERVISION OF
COURT (Section 522)
 Acc. To section 522, when a company is wound up voluntarily and the
process of winding up is completed under the supervision of court, it
called as winding up under supervision of court.
 The creditors /contributors/ liquidator request the court to supervise the
process of winding up.
 Ground’s for it are: -
 If the liquidator is negligent in realizing the assets, or
 The rules regarding winding up are not being duly observed or
 The majority shareholders are working in fraudulent manner, against
the interest of minority shareholders.
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