This document provides information on companies and their formation. It begins by defining a company as a group of persons associated to achieve common objectives. It then lists the key characteristics of a company including that it is an artificial person, has separate legal entity, limited liability, and perpetual existence. The document further discusses the types of companies based on incorporation, liability, number of members, control, and ownership. It also covers the differences between public and private companies. The formation process of a company involving promotion, incorporation, capital subscription, and commencement of business is outlined. The key primary documents of incorporation namely the memorandum of association, articles of association, and prospectus are explained. Finally, the document discusses winding up of companies.

1. UNIT 4

2. A company means a group of persons associated to achieve some common
objectives.
“A company formed and registered under this act or an existing company.” an
“existing company means a company formed and registered under any of the
former companied act”
“A company is an artificial person created by law having separate entity, with a
perpetual succession and common seal”

3. Characteristics of Company
1) Incorporated Association:- (minimum number required for the purpose is 7, in case
of public company, and 2,in case of private company)
2) Artificial Person:- (a company is created with the sanction of law and is not itself a
human being, it , is therefore called artificial; and since it is clothed with certain
rights and obligations, it is called a person)(Company has the right to acquire and
dispose of property)
3) Separate Legal Entity:- (the company’s money and property belong to the company
and not to the shareholders)

4. 4) Limited Liability:- (a company may be a company limited by shares and
limited by guarantee. In a company limited by shares the liability of
members is limited to the unpaid value of shares. In a company limited by
guarantee, the liability of members is limited to such amount as the
members may undertake to contribute to the asset of the company, in the
event of its being wound-up)
5) Perpetual Existence:- (member may come and go but the company can go
forever)

5. 6) Common Seal:- (Common seal is the official signature of a company)
7) Capacity to sue:- (a company can sued in its corporate name.)
8) Separate Property:- (a company can own, enjoy and dispose of any
property in its own name.)
9) Transferability of shares :- (the shares of a company are transferable in the
manner provided in the article of company. However in a private company,
certain restriction are placed on such transfer of shares but the rights to
transfer is not taken away absolutely)

6. Basic of Difference Company Partnership
Regulating act Companies act 1956 Indian Partnership act 1932
Legal Entity Separate legal existence Not enjoy separate legal existence
Agency A member is not an agent of another
member
Every partner as an agent
Liability Liability of member is limited to the
extend of the value of shares held by
them.
Each partner has unlimited
liabilities and is per sonly liable for
all the debts of the firm.
Number of Membership Private 50 but not less than 2. Public
any number of member not less than 7.
Other than banking not exceed 20
and in bank not exceed 10.
Transfer of Share Public Company, Private Company Cannot transfer without the
consent of all partners.

7. Basic of Difference Company Partnership
Distribution of Profit No compulsion that profit must be
distributed
As per deed
Management Board of Directors elected by
Shareholders
All partners entitled to take part in
management of business
Registration A company registration is essential A partnership firm may or may not be
registered
Winding-up Winding-up required legal formalities A partnership firm can be wound up
at any time by any partner, if it is at
will without any legal formalities.

8. KINDS OF COMPANY
A] On the basis of Incorporation:-
1) Chartered Companies:- (incorporated under a special charter granted by the
king of England)
2) Statutory Companies :- (Special Act of Parliament, RBI, SBI, LIC)
3) Registered Companies :- (Registered under company act 1956)
B] On the Basis of Liability:-
1) Companies limited by share:- (extend of a face value of share held by him)
2) Unlimited Companies:- (7 in case of public and 2 or more person incorporated
company without limited liability)
3) Companies Limited by Guarantee:- (Where the liability of the members
contribute to the asset of the company in case of winding up)

9. C] On the basis of Number of Members:-
1) Private Company :- ( limit is 50 member)
2) Public Company :-
D] On the basis of Control :-
1) Holding Company :- (control over that other company)
2) Subsidiary Company:-
E] On the basis of Ownership :-
1) Government Companies:- (51 percent held by central or state gov)
2) Foreign Company :- (50 percent share capital held by one or more citizen of
India)

10. Private Company
 Limits of number of member of its member to 50, excluding employees who are member
or ex-employee who were and continue to be member.
 Restricts the right of transfer of shares.
 Prohibits any invitation to the public to subscribe for any shares or debenture or the
company.
Characteristic or Feature of Private Company
 Limits of number of member of its member to 50, excluding employees who are member
or ex-employee who were and continue to be member.
 Restricts the right of transfer of shares.
 Prohibits any invitation to the public to subscribe for any shares or debenture or the
company.
 Where two or more persons hold share jointly, they are treated as a single member.

11. Public Company
“A public company which is not a Private company”
 Do not restrict the transfer of share of the company.
 No restriction on the maximum number of the member on the company.
 Invites general public to purchase the shares and debenture of the company.
Characteristics or Features
1. Minimum number of member is seven.
2. No restriction to maximum numbers.
3. Can invite public for subscription of shares.
4. Freely transferable.
5. Limited at the end of its name.
6. Minimum paid up capital is Five Lac rupees.

12. Conversion of Private Company into Public Company
1) Conversion by Default:- (where a default is made by a private company in complying
with the essentials requirements of a private company)
2) Conversion by Operation of Law:-
Where at least 25 percent o fits paid-up share capital is held by one or more corporate
bodies.
 Where its average annual turnover during the relevant period is Rs. 10 crore or more.
 Where the private company holds at least 25 per cent share capital of a public
company, having a share capital.
 Where a private company invites deposits from the public, private company become
deemed public company.

13. 3) Conversion by Choice :-
 File a copy of the resolution altering the articles, within 30 days of passing thereof, with
the Registrar.
 Take steps to raise its membership to at least 7 if it is below that number on the date of
conversion and also increase the number of directors to 3 if it is below that number.
 Alter the regulations contained in the Articles, which are inconsistent with those of a
public company.

14. Points Public Private
Minimum Paid up capital Rs. 5 Lac at the time of
incorporation
Rs. 1 Lac.
Number of Members Minimum 7, no maximum
no.
Minimum 2, maximum 50
Name of the company Limited Pvt. Limited
Transfer of shares Freely transferable No freedom
Public Subscription Invite public to purchase
share and debenture
Can not invite
Acceptance of public
deposit
Accept from public Prohibit any invitation
Difference Between Private and Public Company

15. Points Public Private
Issue of Prospectus Issue Prospectus No issued
Allotment of shares Cannot allot share without
raising minimum capital
A private company can
proceed to allot shares even
before the minimum capital
is subscribed or paid
Issue of Rights shares required to offer to its
existing shareholders
Not required
Issue of Share Warrants Can issue share warrants Cannot
Commencement of Business Certificate of
commencement
Certificate of incorporation

16. Formation Of A Company
A] Promotion :- “the discovering of business opportunities and the subsequent organization
of funds, property, and management ability into business concern for the purpose of
making profit there form”
1) Promoters:- (who conceive the idea of exploiting a business opportunity, arrange men,
money, material and machines and forming profitable enterprise)
2) Role and Duties of Promoters:-
a) Ideation :-
b) Preliminary Investigation:-
c)Arranging Resources/Factors of Production:-
d) Arranging Finances:-

17. e) Preparing Preliminary Documents:-
f) Preliminary Contracts:-
g) Naming the Company:-
h) Appointment Bankers, Brokers, Solicitors :-
i) Obtaining License :-
B] Incorporation and Registration of Company
1) Approval of the Name:-
2) Filling of Documents:-
a) Memorandum of Association :- (object of the company and its relationship with outside
world)
b) Articles of Association :- (bylaws of company concerning its internal management)
c) Notice :- (regarding situation of the office)
d) Agreements :- (firm or company)
e) Return Containing the particulars of First Directors of the company:- (with in 30 days
from the appointment)

18. f) List of Directors:-
g) Written consent of the Directors:- (they have not objection in working as Director)
h) Statutory Declaration:- (signed by Director, Manager)
i) Undertaking of a Director to take and pay for qualification shares with Necessary stamp
Duty:-
3) Payment of Fees:- (registration and stamp)
4) Registration:-
5) Certificate of Incorporation :-

19. C] Capital Subscription/ Flotation:-
D] Commencement of Business:-
1) Prospectus:-
2) Minimum Subscription:-
3) Qualification Shares:- (compulsory for the Directors of public company to take
qualification shares)
4) Return of Allotment:-
5) Declaration:- (to stock exchange)
6) Statutory Declaration :- (director of the company “ that necessary legal formalities
have been complied)

20. Primary Documents of Incorporation
 Memorandum of Association
 Articles of Association
 Prospectus
Memorandum of Association
“The Memorandum of Association of a company is its charter and defines the limitations of
power of the company established under the act. The Memorandum contains the
fundamental conditions upon which alone the company is allowed to be incorporated”

21. A] Clauses in Memorandum of Association
1] Name Clause :-
a) Undesirable Name to be Avoided:- (Too similar to the name of another company ,
Misleading)
b) Injunction if Identical Name Adopted:- (restrain the new company for adoption the
identical name)
c) Limited or Private Limited:-
d) Prohibition of Use of Certain Names:-
e) Use of some key words according to authorized capital :- (Corporation- 5 crore,
international, Global, Universe – 1 crore)

22. 2) Registered Clause:- (an office registered from the day on which it begins to carry on
business)
3) Object Clause :- (confines the spheres of business activities that the company would
engage in)
4) Liability Clause:- (Liability of members is limited by the face value of shares)
5) Capital Clause :- (state the amount of share capital with which the company is registered
and the mode of its division into shares of fixed values)
6) Association Clause:- (Declaration of Clause)

23. Doctrine of Ultra Virus
“Ultra means beyond and Virus means Power. An action outside the Memorandum is ultra
virus the company”
 Company cannot protect its interest therefore shareholders and creditors of the
company is concerned the Doctrine. It restrict the misuse of corporate funds.
 Activities and transactions which are beyond the objects of the company would be
ultra virus the company and shall be entirely void.
 All action against Memorandum will be ultra virus.
 All ultra virus act will not bind the company.
 The act ultra virus the company that it becomes wholly void and cannot be ratified and
validated in any event.

24. Alteration of Memorandum
1) Change of Name:-
i) Special Resolution :- (with the approval of Central Government)
ii) Ordinary Resolution :- (with previous approval of Central Gov)
2) Change of Registered Office:-
i) Change of Registered office form One Town to Another Town:- (notice within 30 days to
registrar)
ii) Change of Registered Office from One State to Another State :- (special resolution by
shareholders and copy send to registered within 30 days)

25. 3) Alteration of Object Clause:-
i) To carry on its business more economically or more efficiently.
ii) To attain its main purpose by new improved means.
iii) To enlarge or change the local area of its operations.
iv) To restrict or abandon any of the object specified in the Memorandum.
v) To sell or dispose of the whole or a part of the undertaking, or nay of the undertaking
of the company.
vi) To amalgamate with any other company or body of persons.
4) Change in Liability Clause:-
(a company limited by shares or guarantee cannot change Its Memorandum so as to
impose any additional liability on the members or to compel them additional liability)

26. 5) Changes in Capital Clause:-
i) To increase its authorized share capital by such amount as it thinks expedient by issuing
fresh shares.
ii) To consolidate and divide all or nay of its share capital into shares of large amount than
its existing shares.
iii) To convert all or any of its fully paid-up shares into stock, and reconvert the stock into
fully paid up shares of any denomination.
iv) To cancel shares which at the date of the passing of the resolution in that behalf, have
not been taken or agreed to be taken by any person.

27. Articles of Association
The Articles of Association of a company and its bylaws are regulations, which govern the
management of its internal affairs and the conduct of its business.
Contents of Articles
1)Share capital, rights of shareholders, variation of these rights, payments of underwriting
commission.
2) Lien on shares
3) Call on shares
4) Procedure for making allotment of shares.
5) Procedure for transfer of shares.
6) Procedure for issuing share certificate.
7) Transmission of shares.
8) Conversion of shares into stock.

28. 9) Share warrants.
10) Alteration of capital.
11) General meeting and proceeding.
12) Voting rights of members, voting an poll.
13) Director, their appointment, remuneration, qualification, powers and proceedings or
Board of Directors.
14) Manager
15) Secretary.
16) Procedure for declaration and payment of Dividends and reserves.
17) Matters relating to keeping of statutory books.
18) Accounts, audit and borrowing powers.
19) Capitalization of profits.
20) Winding up.

29. Companies which must have their Own Articles
 Unlimited Companies.
 Companies Limited by Guarantee.
 Private companies limited by shares.
Registration of Articles
1) Public Company Limited by shares:- (registered articles of association signed by the
subscribers to the memorandum)
2) Company Limited by Guarantee and Unlimited Liability Company and , a Private
Company Limited by shares:- ( compulsory registration of Articles Prescribing
regulations for the company)

30. Alteration of Articles
 Special resolution alter or add to its articles.
 Must filled to Registrar within 30 days from the date of resolution.
Limitation or Restriction on Power to Alter Articles
1) Not to be inconsistent with the Companies Act:-
2) Not to be inconsistent with the Memorandum:-
3) Not to be Illegal:-
4) Special Resolution:-
5) Bona Fide for the Benefit of the company as a whole:-
6) Not to Increase the Liability of Members:-
7) Not to Constitute a Fraud on the Minority:-
8) Not to Increase Liability of Members:-
9) Central Government Approval in Certain Case:-
10) Alteration in Breach of Contract:-
11) No Retrospective Operation:-

31. Distinction between Articles and Memorandum
Basis of Distinction Memorandum Articles
Status Fundamental Condition and
Objectives
Rules and Regulations
Necessity Must prepare and File it. A public company limited by shares
adopt Table A.
Scope Define its objectives and power Rules and regulations for day to day
working
Purpose Define objects and power of
company
Rules and regulation for
management of internal affairs.
Alteration Can not easily altered Members has right to alter the
articles by special resolution.

32. Basis of Distinction Memorandum Articles
Provision Memorandum is subordinate to
Companies Act.
Subordinate to Companies Act as
well as Memorandum of
association
Relationship Relationship between company
and outsiders
Company and its members
Legal Effects Act done by a company beyond the
scope of the memorandum are
absolutely void.
The act of the Directors beyond the
Articles it is simply irregular and
can subsequently ratified by
shareholders.
Dependent Depend upon Company Law Depend upon Memorandum of
Association
Supremacy It is not governed by Articles of
Association. It is Supreme
It is governed by Memorandum of
Association

33. WINDING UP OF THE COMPANY
“Winding up of a company is the process whereby its life is ended and its property
administered for the benefits of its creditors and members”
Who may apply for Winding up
1] Petition by company :-
2] Creditors petition :-
3] Contributory petition :- (members)
4] Registrar Petition :-
5] Central Govt. Petition :-

34. Kinds of Winding up
1] Compulsory Winding up by court :-
i) Special Resolution :-
ii) Default in filing statutory report or Holding statutory meeting :-
iii) Failure to commence business within time:-
iv) Reduction of membership :-
v) Inability to pay Debts :-
vi) Default in filing P/L Accounts and B/S :-
vii) Acted against Sovereignty and Integrity of India :-
viii) Sick Industrial Company :-
ix) Just and Equitable :-

35. 1.1]Consequences of Winding-up Order by the court :-
i) Intimation to official Liquidator and Registrar:-
ii) Copy of winding up order to be filed with the Registrar :-
iii) Order for winding up deemed to be notice of Discharge:-
iv) Suits stayed :-
v) Power of the court :-
vi) Effect of Winding-up order :-
vii) Official Liquidator to be Liquidator :-

36. 2] Voluntary winding up
i) Ordinary Resolution:-
ii) Special Resolution:-
2.1] Effect or Consequences of Voluntary Winding up :-
i) Effect on status of company:-
ii) Corporate powers to continue until Dissolution :-
iii) Avoidance of Transfer of Shares:-
iv) Effect on Company’s Employees:-
v) Board’s power to cease on Liquidator’s Appointment:-
2.2] Types of Voluntary Winding up:-
i) Members Voluntary Winding up:-
ii) Creditors Voluntary Winding up :-

37. Difference between Members and Creditors winding up
Basic Members' Creditors
Declaration of Solvency Declaration of solvency No such declaration
Control of winding up Members control directly Creditors control
Meetings There is no meeting of creditors Meetings of contributors
Appointment of Liquidators Appointed by the company Appointed by the creditors
Committee of Inspection No committee inspection Appoint committee of
inspection
Powers of Liquidators Liquidator can exercise certain
powers with the sanction of a
special resolution of the company
Sanction of the court or the
committee of inspection or of
a meeting of the creditors.

38. 3] Winding up under the supervision of Court :-
Winding up versus Dissolution
Winding up Dissolution
Winding up precedes dissolution Final step
Legal status of the company continue Legal status comes to an end
Conducted by liquidators No proceeding are conducted
Liquidator represent the company No such representation
Creditors may prove their debts Cannot
Court order is not necessary Court order is necessary