It empowers the Central Government to inspect the books of accounts of a company, to direct special audit, to order investigation into the affairs of a company and to launch prosecution for violation of the Act. These inspections are designed to find out whether the companies conduct their affairs in accordance with the provisions of the Act, whether any unfair practices prejudicial to the public interest are being resorted to by any company or a group of companies and to examine whether there is any mismanagement which may adversely affect any interest of the shareholders, creditors, employees and others. If an inspection discloses a prima facie case of fraud or cheating, action is initiated under provisions of the Companies Act or the same is referred to the Central Bureau of Investigation.
Business law company act 1956
Submitted by: -
Types of Companies
Memorandum of Association (MOA)
Article of Association (AOA)
Shareholder & Debenture Holders
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.
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.
According to sec.3(1) of the companies Act,1956,”Company
means a company formed and registered under this act or an
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.
ESSENTIALS FEATURES OF A COMPANY
Artificial legal person
Separate legal entity
Limited liability of members
Transferability of shares
Capacity to sue and being sued
Basis of liability
Companies limited by
Companies limited by
Basis of no. of
BASIS OF INCORPORATION
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
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’.
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.’
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.
Does not invite general public
to subscribe to its shares,
debentures and public
Does invite general public to
subscribe to its shares,
debentures, public deposits.
Prior permission required for
transfer of shares
Free transfer of shares is
Prospectus Need not issue prospectus. It is compulsory to issue a
prospectus or a statement in
lieu of prospectus.
No compulsion for holding
Statutory meeting and filling of
It needs to hold a statutory
meeting and must file a
Legal formalities Exempted from various legal
Has to comply with many legal
Min. paid up
Rs. 1 lakh Rs. 5 lakh.
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
This clause contains the complete name of the company. The
company can choose any name subject to the following
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 Limited Company.
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.
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
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
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.
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.
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
This declaration must be signed by all the directors of the
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
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.
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.
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
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 of stock.
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 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
To obtain annual reports , Auditor’s report, profit and loss account and balance
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 general meeting.
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
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 by tribunal)
WINDING UP UNDER
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
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.
VOLUNTARY WINDING UP
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
MEMBERS & CREDITORS VOLUNTARY
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.