The document discusses the concept of a company. It defines a company as a legal entity formed by individuals to operate a business. It then discusses key characteristics of companies like separate legal entity status, limited liability, perpetual succession, and common seals. It also discusses the concept of lifting the corporate veil in situations where a company's legal personality is misused. Finally, it briefly outlines different types of companies based on mode of incorporation, ownership, control, nationality, and number of members.

1. Presented by
Nishant Kumar
MBA (Previous)
1911006

2. What Is a Company?
 A company is a legal entity formed by a group of individuals to
engage in and operate a business commercial or industrial enterprise.
Definitions:
 Section 3(1)(i) of the Indian Companies Act, 1956,“A company
means a company formed and registered under this act or an existing
company .”
 According to Kimball and Kimball, “A corporation is by nature an
artificial person created or authorized by the legal stature for some
specific purpose.”
 According to Prof. Haney, “A company is an artificial person created
by law having a separate entity with a perpetual succession and a
common seal.”

3. Separate Legal Entity
Limited Liability
Perpetual Succession
Common Seal
Representative Management
Limitation of Action
Transferability of Shares

4. Lifting the 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 and improper or illegal
acts. Since an artificial person is not capable of doing
anything illegal or fraudulent, the façade of corporate
personality might have to be removed to identify the
persons who are really guilty. This is known as ‘lifting of
corporate veil’.

5. Conditions
Statutory
Provisions
Reduction of
members below
limit
Investigation of
Company’s
Ownership
Non-return of
application money
Mis-statement in
prospectus
Judicial
Provisions
Protection of
Revenue
Prevention of Fraud
Determination of
enemy character of
company

6. Classification of
companies
Ownership
Control
Nationality of
the companies
Incorporation
Number of
members

7. On the basis of Mode of Incorporation
Chartered
company
Companies created by royal charter. This means they are
granted power or a right by the monarch or by special order
of king & Queen .
Example- East India Company, BBC, Bank of England, etc.
Statutory
Company
Companies incorporated by the means of a special act
passed by the central or state legislature. These companies
are generally formed to meet the social needs and not for the
purpose of earning profits.
Example- RBI, LIC.
Registered
company
All the other companies which are incorporated under the
companies act passed by the govt. Comes under this head.
These companies come under existence only after they
register themselves under the act and the certificate of
incorporation is passed by the registrar of companies.
Example- Google India Pvt. Ltd.

8. Companies limited by
shares
The liability of the shareholders is limited to the
extent of the face value of shares held by them.
Most Pvt. Ltd. Companies are of this type.
Companies limited by
guarantee
In these companies, in case of liquidation, the
shareholders promise to pay a certain fixed
amount to cover the liabilities of the company.
Unlimited companies There is no limit on the liability of the
shareholders. In case of liquidation, they might
have to pay even from their personal assets to
cover the liabilities of the company
On the basis of Liability

9. On the basis of Number of Members
One
person
company
One Person Company as a company type was introduced in the
Companies Act of 2013 in India. It is similar to a sole proprietorship
but the owner shall have limited liability and thus his personal assets
would not be at risk if losses need to be recovered or if the company is
liquidated.
Public
company
A minimum of 7 members is needed to form a Public Ltd company
but there is no maximum limit on this. The company collects its
capital by the sale of its shares to the shareholders. The shareholders
of a company do not have the right to participate in the day-to-day
management of the company, thus separating ownership from
management. All the major decisions of the company are taken by the
Board of Directors.
Private
company
Private Limited companies have more than 2 and less than 200
members and their liability is limited or unlimited depending on the
type of the company it is. Unlike Public Limited companies, here the
transfer of shares is limited to its members and the general public
cannot subscribe to its shares and debentures.

10. On the basis of Control
Holding
company
A company is known as the holding company of another
company if it has control over the other company. A
company qualifies as a holding company when it has the
power to control the composition of the board of directors
of another company or holds a majority of its shares.
According to Sec 4(4) a company is deemed to be the
holding company of another if, but only if that other is its
subsidiary.
Subsidiary
company
A company is known as a subsidiary of another company
when its control is exercised by the latter (called holding
company) over the former called a subsidiary Company. It
is a company whose parent is a majority shareholder51. For
the purposes of liability, taxation and regulation,
subsidiaries are distinct legal entities.

11. On the basis of Ownership
Government
companies
A Company of which not less than 51% of the paid up
capital is held by the Central Government of by State
Government or Government singly or jointly is known as
a Government Company.
Example- Mahanagar Telephone Corporation Ltd
Non-
government
companies
All other companies, except the Government Companies,
are called non-government companies. They do not
satisfy the characteristics of a government company as
given above.
Some of the example of Non-Government Companies
are- Reliance Industries Limited, WIPRO
Limited etc.

12. On the basis of Nationality
Indian company These companies are registered
in India under the Companies
Act. 1956
and have their registered office
in India.
Foreign company It means any company
incorporated outside India
which has an
established place of business in
India

13. PROMOTION
CERTIFICATION OF INCORPORATION
CAPITAL SUBSCRIPTION
CERTIFICATE OF COMMENCEMENT

14. WHO IS A PROMOTER?
 Functions of promoter
 Duty of promoter as regards prospectus
• Contains the necessary particulars
• Does not contain any untrue or misleading statements.
 If the promoter fails to perform his part:-
 He may be sued for damages
 He may be sued for compensation for misrepresentation
 He may become liable to criminal proceedings

15. Preliminary activities
• Decide the name of the company
• Licence under industry development and regulation
act1951
Documents required for Registration
 Memorandum of Association
 Article of Association
 Prospectus
 List of directors
 Written consent of directors

16. Certificate of Incorporation
Certificate of incorporation is a legal document which is
issued by the registrar of companies upon the submission
of required documents which is an evidence that company
is in life.
Registrar issues a Company Identity Number (CIN) to each
registered company

17. Capital Subscription
Minimum subscription refers to the minimum amount which
a company should raise at the time of issuing capital. The
requirement for minimum subscription applies to all companies
which raise funds from the public. The company may
successfully procure the amount of minimum subscription. In
such circumstances, the company is allowed to retain the capital,
which has been collected from the investors.
Alternatively, the company may not be able to obtain the
minimum subscription successfully. Hence, according to the
Companies Act, there is an inadequacy in the minimum
subscription. In such cases, the company should refund the
application deposit.
The provisions relating to minimum subscription are available in
Section 39 of the Companies Act.

18. COMMENCEMENT OF
BUSINESS
 A private company can commence business immediately
after the incorporation. Company gets the certificate of
incorporation it can start its business. If all the
formalities are done then the registrar issues a certificate
known as “Certificate of Commencement of
business”.

19. Memorandum of Association
Section 2(28) of the companies Act, “Memorandum means
the memorandum of association as originally framed or as
altered from time to time in pursuance of any previous
companies act ”
Clauses
 Name clause
 Situation clause
 Object clause
 Capital clause
 Liability clause
 Association clause

20. Alteration of Memorandum
Change of name
Change of registered office
Alteration of objects
Change in liability clause
Change in capital clause

21. ARTICLES OF ASSOCIATION
 Contents of articles
• Share capital, rights of shareholders, variation of these rights, payment of
commissions, share certificates.
• Lien of shares
• Calls on shares
• Transfer of shares
• Transmission of shares
• Forfeiture of shares
• Conversion of shares into stock
• Share warrants
• Alteration of capital
• General meetings and proceedings
• Voting rights of members,
• Directors their appointments, remuneration, qualification, powers and proceedings
• Mangers
• Secretary
• Dividends and reserves
• Accounts, audit and borrowing powers
• Capitalization of profits
• Winding up

22. ALTERATION OF AOA
 Procedure of alteration: A company may pass a special
resolution, alter its article of association any time. A copy of every special
resolution altering the Articles shall be filled to the registrar within 30days.
 Limitations to alteration
 Must not be inconsistent with the act
 Must not conflict with the memorandum
 Must not sanction anything illegal
 Must be for the benefit of the company
 Must not increase liability of members
 Alteration by special resolution only
 Approval of central government when a public company is converted into a
private company

23. Comparison between MOA &AOA

24. Doctrine of Constructive Notice
The memorandum of association and articles of association
of every company needs to register with Registrar of
companies. After registering the documents with registrar of
company, it becomes public documents
So, its necessary for every person dealing with a company to
inspect and understand the memorandum and Articles of
Association. Even if person does not read the public
documents of company, its assumed he has read the public
documents of the company
Case: Oakbank Oil Co. Vs Crum

25. Doctrine of Indoor Management
The doctrine of indoor management is an exception to the earlier
doctrine of constructive notice. It is important to note that the
doctrine of constructive notice does not allow outsiders to have
notice of the internal affairs of the company.
Hence, if an act is authorized by the Memorandum or Articles of
Association, then the outsider can assume that all detailed
formalities are observed in doing the act.
This is the Doctrine of Indoor Management or the Turquand
Rule. This is based on the landmark case between
The Royal British Bank and Turquand

26. Doctrine of ultra vires
 The term ultra vires a company means that the doing of
the act is beyond the legal power and authority of the
company.
 The purpose of these restrictions is to protect-
 Investors in the company so that they may know the
objects in which their money is to be employed.
 Creditors by ensuring that the company’s funds are the
wasted in unauthorized activities.

27. EXCEPTIONS OF THE DOCTRINE OF ULTRA
VIRES
 If an act is ultra vires the directors of a company but is intra virus the
company, the company may rectify it.
 If an act is ultra vires the Articles of a company, the articles may be altered to
include the act within the powers of the company.
 If an act is intra virus (with in the powers of) a company, but is irregularly
done, the shareholders may rectify it.
 If a person borrow money from a company under a contract which is ultra
vires the company, the company can sue him for the recovery of the money.
 If an act is ultra vires the company, the rights arising independently of the act
are not affected. Further the rights over the property acquired by ultra vires
expenditure are protected.

28. Continue…
 If a company has purchased some property from a third party under an ultra
vires contract or has taken an ultra vires loan, the third party has the right to
follow his property or money if it exists in specie. He may also obtain an
injunction form the court restraining the company from parting with that
property or money. But he must act before the identify of the property is lost or
the money is spent.
 If a company takes an ultra vires loan and uses it to pay off intra virus debts, the
lender who has lent money under the ultra vires contract is substituted in palce
of the creditors who has paid off and as such he can recover the money.
 If a company has taken an ultra vires loan through some misrepresentation of
fact by the directors, the lenders has the right to make the directors personally
liable on the ground of breach of implied warranty of authority.
 If a director of a company makes ultra vires the company, the company can
compel him to refund the amount. The director however has the right to be
indemnified by the person receiving the money, providing he knew of the
transaction to be ultra vires the company.

29. PROSPECTUS
 The Companies Act, 2013 defines a prospectus
under section 2(70).Prospectus can be defined as
“any document which is described or issued as a
prospectus”. This also includes any notice, circular,
advertisement or any other document acting as an
invitation to offers from the public. Such an
invitation to offer should be for the purchase any
securities of a corporate body .

30. Continued…
For any document to considered as a prospectus, it
should satisfy the following conditions.
 The document should invite the subscription to public
share or debentures, or it should invite deposits.
 Such an invitation should be made to the public.
 The invitation should be made by the company or on
the behalf company.
 The invitation should relate to shares, debentures or
such other instruments.

31. STATEMENT IN LIEU OF PROSPECTUS
 Every public company either issue a prospectus or file a
statement in lieu of prospectus. This is not mandatory
for a private company. But when a private company
converts from private to public company, it must have
to either file a prospectus if earlier issued or it has to
file a statement in lieu of prospectus.
 The provisions regarding the statement in lieu of
prospectus have been stated under section 70 of the
Companies Act 2013.

32. Shelf Prospectus
• Shelf prospectus can be defined as a prospectus that has
been issued by any public financial institution, company or
bank for one or more issues of securities or class of
securities as mentioned in the prospectus. When a shelf
prospectus is issued then the issuer does not need to issue
a separate prospectus for each offering he can offer or sell
securities without issuing any further prospectus.
Red Herring Prospectus
• Red herring prospectus is the prospectus which lacks the
complete particulars about the quantum of the price of the
securities. A company may issue a red herring
prospectus prior to the issue of prospectus when it is
proposing to make an offer of securities.

33. Abridged prospectus
• The abridged prospectus is a summary of a prospectus
filed before the registrar. It contains all the features of a
prospectus. An abridged prospectus contains all the
information of the prospectus in brief so that it should be
convenient and quick for an investor to know all the useful
information in short.
Deemed Prospectus
• When any company to offer securities for sale to the public, allots
or agrees to allot securities, the document will be considered as a
deemed prospectus through which the offer is made to the public
for sale. The document is deemed to be a prospectus of a company
for all purposes and all the provision of content and liabilities of a
prospectus will be applied upon it.

34. Golden Rule of Framing Prospectus
 The Golden Rule of framing prospectus has a meaning
and moral in it, which says whatever information
comes from the company to public, through the
medium of prospectus, must be true , fair and
accurate.

35. SHARE CAPITAL
 The Joint Stock Company is a big form of business
organization. The amount required by the company
for its business activities is raised by the issue of
shares. The amount so raised is called ‘Share Capital’
(or capital) of the company. It may be noted that a
company limited by shares will have share capital. A
company limited by guarantee or an unlimited
company may not have any share capital. The persons
who buy the shares of company are called
‘Shareholders’.

37. ALTERATION OF SHARE CAPITAL
 A change in the number of authorized
shares a company may issue. Authorized shares are the
total shares a company is permitted by its charter to is
sue, as opposed to the number it actually has issued. T
o alter share capital, a company must amend its charte
r and/or bylaws and register the change with the appro
priate regulatory authority.
 Section 61 of Companies Act, 2013 deals with power of
limited company to alter its share capital.

38. THE PROCEDURE INVOLVED IN
ALTERING THE SHARE CAPITAL
 It has to be confirmed whether a company is authorized to increase its
share capital according to the Articles of Association (AOA) and if it
does not authorize then the procedure for such alteration has o be
carried out.
 A board meeting should be called for an Extraordinary General
Meeting (EGM) to get the approval of the shareholders for such
alteration.
 The EGM should be called comprising of the shareholders by sending a
notice mentioning the purpose of the scheduled meeting regarding the
alteration of the MOA and AOA thus altering the Share capital of the
company.
 The Special resolution shall be passed to alter the MOA and AOA thus
altering the Share Capital of the Company.
 Authorizing the board to file necessary forms and resolutions with
Registrar of Companies (ROC) having jurisdiction.
 The e- form SH-7 with ROC on payment of a stipulated fee.

39. REDUCTION IN SHARE CAPITAL
 Reduction of share capital is regarded as one of the
process of decreasing company’s share capital (apart
from Redemption of preference shares and Buy Back of
shares which are governed by other provisions
separately). The Reduction of Share Capital means
reduction of issued, subscribed and paid up share
capital of the company. In simple words it can be
regarded as ‘Cancellation of Uncalled Capital’ i.e.
part of subscribed share capital.
 Section 66 of Companies Act, 2013 deals with power of
limited company to reuce its share capital.

40. THE PROCEDURE INVOLVED IN
REDUCTION THE SHARE CAPITAL
1. Convene a Board Meeting to approve the reduction of
share capital and fixing the date of general meeting of the
company.
2. Hold the general meeting and have the Special
Resolution passed.
3. File MGT-14 with ROC within 30 days of passing of
Special Resolution.
4. Apply to NCLT by filing an application in Form RSC-
1 along with prescribed fee of Rs. 5,000/- to confirm
reduction.
5. The NCLT shall within 15 days of submission of the
application give a notice to ROC and SEBI in Form RSC-
2 and to every creditors of the company in Form RSC-3.

41. Continued…
 The notice shall be sent to all the creditors within 7
days of the directions given by the NCLT.
 The company shall file an affidavit in Form RSC-
5 confirming the dispatch and publication of the
notice within seven days from the date of issue of such
notice.

42. Members of Company
The Companies Act divides the members into three classes.
According to Sec. 41 of the Companies Act, the three
classes of members are:
o The persons who have subscribed to the Memorandum
of a company.
o Every other person who has agreed in writing to become
a member of the company and whose name has been
entered in the Register of Members.
o Every person holding equity share capital of a company
and whose names are recorded as beneficial owner in the
depository records are considered as members of the
concerned company.

43. Who can be a Member
The company law does not prescribe any disqualification,
which would depart a person from becoming a member of a
company.
Individual
Joint Hindu Family
Partnership Firm
Foreigners
Company
Minor

44. Rights of Members
Statutory Rights
• Right to receive notice of meetings, attend, to take part in the
discussion and to vote.
• Right to transfer the shares [in case of public companies].
• Right to receive copies of the Annual Accounts of the company.
• Right to inspect the documents of the company
• Right to apply to the Court for winding up of the company.
• Right to apply to the National Company Law Tribunal for relief
in case of oppression and mismanagement under Secs. 397 and
398.
Documentary Right
Legal Rights

45. Liabilities of Members
Companies limited by shares: Companies limited by
shares are the most common and may be a public
company or a private company, where the liability of
members of a company is limited to amount unpaid on
the shares.
Companies limited by guarantee: In this type of
companies liability of members of a company is limited
to a fixed amount which members undertake to
contribute to the assets of company in the event of its
being would up.
Unlimited companies: Unlimited companies are those
companies without limited liability. Section 3 specifically
provides that any 7 or more persons (2 or more in case of
a private company) may form an incorporated company,
with or without limited liability.

46. Board of Directors
Section 2 (10) of the Companies Act, 2013 defined that
“Board of Directors” or “Board”, in relation to a company,
means the collective body of the directors of the company.
Section 149(1) of the Companies Act, 2013 requires that
every company shall have a minimum number of 3 directors
in the case of a public company, two directors in the case of
a private company, and one director in the case of a One
Person Company.

47. Appointment of Directors
First Director
The first directors of most of the companies are named in their articles. If they
are not so named in the articles of a company, then subscribers to the
memorandum who are individuals shall be deemed to be the first directors of
the company until the directors are duly appointed.
Appointment of Additional Director- Section 161 (1)
The board of directors can appoint additional directors, if such power is
conferred on them by the articles of association. Such additional directors hold
office only up to the date of next annual general meeting or the last date on
which the annual general meeting should have been held, whichever is earlier.
Appointment of Directors in causal vacancy- Section 161 (4)
If any vacancy is caused by death or resignation of a director appointed by the
shareholders in General meeting, before expiry of his term, the Board of
directors can appoint a director to fill up such vacancy. The appointed director
shall hold office only up to the term of the director in whose place he is
appointed.

48. Meetings of Companies
An assembly of number of people for entertainment,
discussion or the like.
Proper Convening Authority
• Board of Directors
Notice
• Duration of Notice: Twenty-one day prior notice to
shareholders
• Subject matter of notice
Quorum
• Public Company: Five members
• Private Company: Two members
Chairman

49. Annual General Meeting
Time Interval for calling the meeting
• Not more than 15 months shall pass after previous meeting
Notice and place of meeting
Sending copies of Balance Sheet & Auditor’s report
Consequence of not calling a meeting
• Central government will call a meeting on application made by a
member
• In case of default every officer will be fined that may extend to
fifty thousand rupees

50. Extra-ordinary General Meeting
An extra ordinary general meeting is any meeting of
shareholders which is called during the period between its
two consecutive AGMs.
It maybe called:
To alter MoA and AoA
To issue fresh debentures
To increase, reduce or reorganize share capital of company