The document defines a company and outlines its key characteristics such as registration, separate legal entity status, transferable shares, and limited liability. It also describes the different types of companies (public, private, limited by shares or guarantee, unlimited) and key company documents like the memorandum of association and articles of association. Finally, it covers various company concepts like members, meetings, share capital, and prospectus.

1. The Companies Act 1956

2. COMPANY: What is it? [Sec.3]
 Section 3 (1) (i) of the Act defines: “A
company means a company formed and
registered under this Act or an existing
company.”
 That is, a company is an association of
persons united for a common object.
 It is a form of business organization where
the funds of a large number of investors are
managed by a few persons for the purpose of
earning profits which are shared by all the
investors.

3. Essential Features of a Company
 Registration: Compulsory
 Separate legal entity: Distinct person
 Perpetual succession
 Artificial person: But not a Citizen
 Transferable shares
 Limited liability
 Common seal: Separate and independent legal
existence
 Separate property: Can dispose property in its name.
 Capacity to sue and be sued

4. Types of Companies
 Royal Charter or Chartered Companies: Treated
as foreign companies.
 Statutory Companies: Formed under Special
Statutory Act of Parliament or State Legislature. For
e.g., RBI, SBI, IFCI, etc.
 Registered Companies: Are registered under the
Companies Act. These companies have MoA and
AoA for internal & external regulations.
 Under the Act the companies are either (i)
Companies limited by shares, (ii) Companies limited
by guarantee, or (iii) Unlimited Companies.

5.  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.
 Such a company is company is called company
limited by shares. A company limited by shares may
be a public limited company or a private limited
company.
 The former has a minimum paid-up capital of Rs. 5
lac. Members minimum 7, maximum unlimited to
form a company. The latter has a minimum paid-up
capital of Rs. 1 lac. Members limited to 50 not
including former and present employees. Minimum

6.  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’.
 Depend on entrance and subscription fees for
their existence.
 The amount guaranteed by each member is in

7.  Unlimited Companies: Liability of the
members is unlimited like an ordinary
partnership firm.
 Section 12 gives choice to promoters to form
a company with or w/o limited liability.
 A company not having any limit on the
liability of its members is called an ‘unlimited
company.’
 The articles of such a company shall state the
number of members with which the company
is to be registered.

8. Memorandum of Association
 It is the document which contains the rules regarding
constitution and activities or objects of the company.
 It is a fundamental charter of the company.
 The company is governed by it.
 The company is allowed to work within the
framework of it. By it outside world knows the state
of affairs.
 It defines the extent and powers of the company.
 If the acts of the company are beyond the limits of
the MoA, such acts would be void and ultra vires.
 Directors are personally liable to make good the
Company’s loss if company’s money is spent on an

9. Contents of MoA [Sec.13]
 Name of company with ‘Limited’ suffixed in
case of public company and ‘Private Limited’
suffixed for a private company.
 Registered office of the company.
 Objects of the company.
 Liability of the members.
 Details of share capital of the company.
 Subscription or Association clause.

10. Articles of Association
 Regulations of the company are prescribed by
the Articles of Association.
 It can be altered at any time according to the
wishes of the members.
 It is subordinate to the MoA and is under full
control of the members.
 Members can make their regulations through
AoA subject to Companies Act.
 It contains rules & regulations for the internal
management of the company subject to
provisions of the Companies Act.

11. Doctrine of Ultra Vires
 It means ‘beyond powers’. That is, any act
done by the company beyond its legal powers
and authority.
 Any act done by the company which is
neither authorized by its objects nor by the
Act, that act is ultra vires the powers and
authority of the company.
 Such an act is void and cannot bind the
company. And since it is void, it cannot be
ratified by shareholders either.

12.  An act ultra vires the powers of Directors but
not ultra vires the company can be ratified by
the shareholders.
 Similarly and act ultra vires the Articles of
the company but within the powers of the
Memorandum can be ratified by altering the
articles.
 Essentially, an act ultra vires the company is
void and cannot be ratified.
 Any act ultra vires but intra vires the
Memorandum can be ratified, as such an act is

13. Membership of a Company
 Members (Section 41): A company when
incorporated is an artificial person. It is a
constitution of natural persons called members of a
company.
 Who are the members of a company?
(1) Subscribers to the memorandum of a company and
entered as members in the Register of Members;
(2) Every other person who agrees in writing to become a
member of a company and whose name is entered in its
Register of Members;
(3) Every person holding equity share capital and whose
name is entered as beneficial owner in the records of the
depository.

14.  How is membership acquired? (In any of the
following ways)
By subscribing to the MoA before registration.
By agreeing in writing and name is entered in the register
of members.
By subscribing to the shares.
By purchase of shares in his own name and when entered
in the register of members.
By succession.
On insolvency of a member where official assignee or
receiver is entitled to be member in his place.
By allowing his name to appear in register of members.
By entry as beneficial owner in the records of the

15.  How membership ceases?
By transfer of shares.
By forfeiture of shares.
By surrender of shares.
By insolvency.
By death; name of deceased member continues till
shares are registered in the name of his legal
representative.
By rescission of the contract to take shares on the
ground of misrepresentation in the prospectus.
By sale of shares by company after it exercises its
right of lien on the shares or in other legal way.

16. Rights of a Member/Shareholder
 To receive notices of all general meetings.
 To attend & vote at general meetings, appoint directors & auditors.
 To receive copies of accounts of company.
 Entitled to a copy of report of a statutory meeting.
 To inspect the minutes of proceedings of any general meeting.
 To inspect the register, index of members, debenture holders.
 To transfer his shares.
 Priority to have shares offered if there is increase of capital by the
company.
 To receive share certificate.
 To receive dividends in case of preference shares.
 To make an application to the Central Government for ordering
investigation into the affairs of the company.
 To apply to CG to convene the AGM when Board of Directors fail to
convene the same.
 To present a petition to the Court for winding up of company.

17. Liabilities & Duties of Member
 To pay calls on the shares whenever
demanded by the company.
 To pay the full nominal value of the shares
held by him in case of a company limited by
shares.
 To pay all the debts of the company, in case
of a company with unlimited liability.
 All moneys payable by any member to the
company under the Memorandum or Articles
shall be a debt due from him to the company
[Sec. 36(2)]

18. Other Concepts
 Depositories: Were established to record
ownership details of every person holding
equity shares in the share capital of the
company in the book entry form.
 A depository is nothing but an agent of the
beneficial owner, a link between the issuer
and the beneficial owner to facilitate record of
allotments and transfer of securities.

19.  Register of Members: Every company must
keep a register of members with the following
particulars:
i) Name, address & occupation.
ii) Shares held by each member,
distinguishing each share by its number, and
the amount paid on those shares.
iii) Date at which each member was entered in
the register.
iv) Date on which any person cease to be
member.

20.  Index of Members: Every company having
more than 50 members shall keep an index in
the form of a ‘Card-index’ of the names of the
members of the company.
 The index, shall at all times, be kept at the
same place as the register of members.
 On payment of a fee of Re. 1 for each
inspection, any member may make extracts
from any register or acquire a copy of any
register.

21.  Foreign Registers: A company which has a
share capital or which has issued debentures
may keep in any State or country outside
India a branch register of members or
debenture holders resident in the State or
country.
 Annual Returns: Every company has to file
every year with the Registrar annual returns
containing certain particulars. Shall give the
particulars as on the date of holding the
annual general meeting.

22. Prospectus
 A public company invites public to subscribe
towards its share capital through the issue of a
Prospectus.
 A prospective investor would naturally like to
know the financial background of the
company, its activities, future programmes,
nature of investment, risk, etc.
 Every investor would like to receive
reasonable but sure returns.
 Prospectus of a company provides this
information.

23. Definition
 Section 2(36): “Prospectus means any
document described or issued as a prospectus
and includes any notice, circular,
advertisement or other document inviting
deposits from the public or inviting offers
from the public for the subscription or
purchase of any shares in, or debentures of a
body corporate.”
 An “abridged prospectus” means a
memorandum containing such salient features

24. Contents of the Prospectus
 Dating of prospectus (Section 55)
 Registration of Prospectus (Section 60)
With every prospectus shall be attached the following documents when filed with
the Registrar:
1. Expert’s consent. For e.g., engineer, valuer, lawyer,
accountant, etc.
2. Delivery for registration.
 Where any prospectus is published as a newspaper
advertisement, it shall not be necessary in the
advertisement to specify the contents of the
memorandum or the signatories, or the number of
shares subscribed for by them.

25. Issue of Capital
 Shares: Section 2(46) defines “A Share
means ‘share’ in the Share Capital of a
company”.
 Share capital is divided into shares of
different denominations. These denominations
are called ‘shares’ which are issued by the
company to the public for subscription.
 The holder of a share is issued a Share
Certificate.
 A Certificate shall be prima facie evidence of
the title of the member to such shares.

26.  Stock: Shares can be converted into Stock
when they are fully paid up.
 A sum total of fully paid up shares is Stock.
 Fully paid up shares may be converted into
stock for purposes of convenience, as stock
can be divided into fractions of any amount;
irrespective of the original value of the share.
 If any shares are converted into stock,
company shall, within 30 days after doing so,
give notice thereof to the Registrar.

27. Allotment of Shares
Rule to be observed
 A prospectus shall be filed with Registrar.
 No allotment of shares shall be made to public unless the
minimum subscription amount stated in the prospectus is
raised and received by the company.
 Application for shares should be made in prescribed
form.
 No allotment shall be made until the beginning of the 5th
day after a date on which prospectus is issued.
 Companies intending to offer must make an application to
one or more stock exchanges for permission.
 The whole of the application money should have been
paid and received by company in cash.
 All moneys received shall be deposited in a Scheduled
Bank until the certificate to commence business is

28. Transfer of Shares
 A share is a movable property, transferable in
the manner provided by the articles.
 A share holder has a statutory right, in the
absence of restrictions in the articles, to
transfer shares to any person without consent
of anybody.
 A private company with share capital may
restrict the right to transfer its shares by its
articles. Transfer of shares is less strict in a
public company.

29. Transmission of Shares
 Where shares pass by operation of law from
one person to another.
 For example, by holder’s insolvency, or
lunacy or by death and inheritance.
 The person to whom shares are transmitted
shall make an application to the company for
transmission of shares in his name.
 In case if the company refuses to register
transmission, right of appeal arises in the
same manner as in case of transfer.
 No instrument of transfer is required.

30. Blank and Forged Transfer
 Blank Transfer: Where the transferor only
signs the instrument of transfer and the rest of
the instrument is left blank.
Transferee has an implied authority to
complete the instrument either by entering his
own name or anyone else’s for registering as
a shareholder.
 Forged Transfer: Where signature of
transferor is forged on the instrument of
transfer. A forged transfer gives no title to the
transferee, as it is void.

31. Forfeiture of Shares
 The articles generally give powers to Board of
Directors to forfeit shares as under:
i) If a member fails to pay any call or installment of a call,
and
ii) Any other circumstance which the articles may
provide.
 The articles may also provide that the failure
by a member to fulfill any engagement with
any other member would forfeit his share.
 Power of forfeiture is not inherent in a
company and therefore this power exists only
when it is given by the articles.

32. Share Warrants
(Sec. 114 & 115)
 It is a document which shows that the bearer
of the warrant is entitled to shares specified
therein.
 It is a substitute to the share certificate.
 A public company limited by shares may
issue it under its common seal in the
following circumstances:
i) if it is authorized by its articles;
ii) shares are fully paid up;
iii) previous approval of Central Government

33. Issue of Sweat Equity Shares
(Sect. 79 A)
 The Companies (Amendment) Act, 1999 has
introduced this concept of issuing shares. It
means equity shares issued by the Company
to employees or directors at a discount or for
consideration other than cash.
 Issued for providing know-how or making
available rights in the nature of IPRs or value
additions, by whatever named called, by the
employees or directors.

34. Meetings
 GENERAL MEETINGS: Such meetings are
the meetings of the share holders.
i) Statutory meeting (Sec. 165): Every
company within a period not less than 1
month nor more than 6 months from the date
at which the company is entitled to commence
business, will hold a general meeting of the
members of the company.

35. ii) Annual general meeting (Sec. 166, 167 & 171):
Every company shall in each year hold in addition to
any other meeting an annual general meeting.
Such meeting shall be specified in the notice calling
it.
Not more than 15 months shall elapse between the
date of one general meeting and that of the next.
The directors are responsible for calling a general
meeting.
A company may hold its first annual general meeting
within 18 months from the date of its incorporation.

36.  If default is made in holding an AGM, the
Company Law Board may, on the application
of any member of the company, call or direct
the calling of the meeting.
 Such a meeting shall be deemed to be an
annual general meeting of the company.
 By Companies (Amendment) Act, 2002, this
power is conferred on Central Government
instead of Company Law Board.
 The same power is vested with a ‘Tribunal’ in

37.  Proceedings at AGM (Sec. 173): Following business
is transacted in the AGM by passing ordinary
resolutions:
i) Considerations of accounts, and the reports of the
Board of Directors and the auditors;
ii) Appointment of auditors and fixing their
remuneration;
iii) Declaration of a dividend;
iv) Appointment of directors in place of those
retiring;
v) Any other business can be transacted in the AGM
as a special business, by passing a special resolution.

38. iii) Extraordinary general meeting (Sec. 169):
This type of meeting is convened to transact
any urgent or special business.
All business transacted at an EGM shall be
deemed special.
The EGM may be called by the Board of
Directors; or by the same on the requisition of
not less than 1/10th of members holding paid-
up capital and having voting rights; or by the
requisitionists themselves.

39.  CLASS MEETINGS: The company may vary
the rights attached to the shares of any class.
Such rights can be varied by convening
separate meeting of holders of different
classes of shares, whose rights are so
proposed to be varied, and obtaining their
consent.
Class meetings are held in cases where their
rights are sought to be affected.

40.  MEETINGS OF CREDITORS &
DEBENTURE HOLDERS:
Such meetings are generally held in case of
winding up of the company; or
In case of proposed scheme of arrangement
and compromise to obtain their consent; or
By the Court where company desires to
reduce its share capital.
 BOARD MEETINGS (Sec. 285 & 286):
A meeting of the BoDs of every company

41.  It is a right and duty of a director to attend
every Board meeting.
 Though he may not attend all meetings, it
would amount to negligence, if w/o sufficient
cause, he fails to attend the Board meeting.
 A Board meeting can be held on a public
holiday or outside business hours for the
convenience of the directors. Normally should
be held on working days.
 Board meeting may be held at the registered
office or at any place convenient to the

42. Essentials of a Valid Meeting
 To be convened by Board.
 Notice: Contents of notice; Service of notice.
 Explanatory Statement.
 Ordinary business and/or Special business.
 Quorum: 5 members from public company
and 2 members from any other company.
 Chairman of the meeting.

43. Other Concepts
 Proxies: Rules as applicable – shall have no
right to speak at the meeting; a member of a
private company shall not be entitled to
appoint more than one proxy to attend on
same occasion; not entitled to vote except on
a poll.
 Voting: Every equity shareholder has a right
to vote, while preference shareholder has a
right to vote only on resolutions directly
affecting rights attached to his preference
shares. A resolution proposed is decided by

44.  Resolutions: Matters in a company are decided by
resolutions in the meetings.
Items listed in the agenda to the notice of the
meetings are decided by resolutions.
Kinds of Resolutions: i) Ordinary resolutions; ii)
Special resolutions; iii) Resolutions requiring special
notice; iv) Board resolutions.
 Minutes of the Meeting: Every company shall keep
the following books at the registered office of the
company for purposes of recording the minutes:
i) General meetings minute book; ii) Board meetings
minute book; iii) Minutes of proceedings of

45. Appointment of Directors
Through Board Meetings
 Casual vacancies: A casual vacancy arises
when the office of any director appointed by
the company in a general meeting is vacated
before his term of office expires in the normal
course.
 Additional directors: BoDs may appoint the
same to hold office only upto the date of the
next AGM. However, the number of the
directors and additional directors shall not
exceed maximum strength fixed for the Board

46.  Alternative directors: BoDs may, if
authorized by the articles, or by a resolution
passed in a general meeting, appoint the same
to act for the original director during his
absence for a period not less than 3 months.
An alternative director is in the same position
as any other director as regards his rights,
duties and liabilities as a director. He acts on
his own.

47. Share Qualification of a Director
 It means the shares to be taken by a director
to qualify him as a director of the company.
 It shall be the duty of every director to hold a
specified share qualification within two
months after his appointment as director.
 The nominal value of the qualification shares
shall not exceed Rs.5000.
 A failure to acquire the specified share
qualification will result in the vacation of the
office of the director.

48. Removal of Directors
 By Shareholders (Sec.284): A company may
by ordinary resolution remove a director
before the expiry of his period of office by:
i) special notice of any resolution;
ii) on receipt of notice of a resolution, the
company shall forthwith send a copy thereof
to the director concerned.
 Exceptions: Directors cannot be removed – if
appointed by Central Government; if director
holding office for life in case of private
company; or if appointed by company in

49.  By Central Government (Sec. 388B-388E): The
CG may state a case against the director and refer the
same to the Company Law Board with a request to
enquire into the case and record a decision as to
whether or not the director is fit or proper to hold
office connected with the conduct and management
of any company.
 The case against the director may be initiated by the
CG under the circumstances of fraud, persistent
negligence, defaulting on obligations and functions,
lack of sound business/commercial practices,
causing damage to the interest of trade, industry or

50.  By Company Law Board (Secs. 402 & 407): On
application by any member in cases of oppression, or
mismanagement, the CLB may terminate, set aside
or modify any agreement between the company and
a director, MD, and the manager.
 The same whose agreement is so terminated shall,
for a period of 5 years be appointed as director or
MD or manager of the company.
 Such a director/manager shall not be entitled to any
claim for damages or for compensation for loss of
office.

51. Reconstruction & Amalgamation
(Section 394)
Where it is shown to the Court that the
compromise or arrangement has been
proposed in connection with a scheme for the
reconstruction or the amalgamation of any
two or more companies, the Court may by
order, sanctioning the compromise or
arrangement, make provision for all or any of
the following matters.

52.  The transfer to transferee of the whole or any part of
the undertaking, property or liabilities of any
transferor company;
 The allotment or appropriation by the transferee
company of any shares, debentures, or policies;
 The continuation by or against the transferee
company of any legal proceedings pending or
against any transferor company;
 The dissolution, without winding-up, of any
transferor company; and
 The provision to be made for any persons who,

53. Reconstruction or Amalgamation
Condition Prohibiting it
Companies (Amendment) Act, 2000, by substitution of
Section 376 provides that where any provision:
i) In the MoA or AoA of a company; or
ii) In any resolution passed in general meeting by, or
by the BoDs of the company; or
iii) In an agreement between the company and any
other person,
Prohibits the reconstruction or amalgamation of
company with any body corporate or bodies
corporate shall be void.

54. Power of Central Government
To Provide for Amalgamation in National Interest
Where the CG is satisfied that it is essential in
the public interest that 2 or more companies
should amalgamate, it may, by order provide
for the amalgamation of those companies into
a single company with such constitution, with
such property, powers, rights, interests,
authorities and privileges and with such
liabilities, duties and obligations as may be
specified in the order.

55. The order may provide for the continuation by or
against the transferee company of any legal
proceedings pending by or against any
transferor company and may also contain
such consequential, incidental and
supplemental provisions as in the opinion of
the CG may be necessary to give effect to the
amalgamation.
Every member or creditor of each of the
companies before the amalgamation shall
have, as nearly as may be, the same interest in
or rights against the company resulting from
the amalgamation as he had in the company of
which he was originally a member or creditor
of a company.