COMPANY LAW 1956

A company is defined as a voluntary association of person formed for the purpose of doing business
with the capital divisible into transferable shares, limited liability, a distinctive name having a
corporate body , a personality separate and common seal (“According to company law A company
law 1956 ‘A company formed and registered as per 156 Act ’).

FIRST INDUSTRY MINISTER UNION –SYAM PRASAD MOOKHERJEE/ANAND SHARMA

KERALA –K.P GOPALAN/K.P.KUN.

CHARACTERSTICS OF A COMPANY

1 VOLUNTARY ASSOCIATION : - It is a voluntary association of persons who have joined together

for a common object which is generally to earn profit.

2 ARTIFICIAL LEGAL PERSON :- A company is an artificial person created by law. Law recognizes
company as a person. It can enter into contracts with third parties in its own name.

3 SEPARATE LEGAL ENTITY :- A company is an artificial person created by law. It has an independent
legal entity a part from the members who constitute it. A company can own property and deal with
it as it likes. No one can claim any ownership rights in the assets of a company.

4 LIMITED LIABILITY: - A company may be either limited by shares or limited by guarantee.

5 PERPECTUAL SUCCESION: - Member may come and members may go out But a company goes
own. The death or insolvency does not affect the company’s entity or continuity. The law creates a
company and it along can dissolve it.

6 TRANSFERABILITY OF SHARES: - Shares in a company are transferable. In a public company shares

are fully transferable.

7SEPARATE PROPERTY: - Company can earn separate property.

8 COMMPN SEAL: - it represents the company.

9 CAPACITY OF SUE AND BE SUED :- A company being a body corporate can enforce its legal rights.
Similarly it can be sued for breach of its legal duties.

KINDS OF COMPANY
 ➢ STATUTORY COMPANY: - which are created by a special Act of legislature. Example
RBI, SBI, LIC etc.
➢ REGISTERED COMPANIES: - which are formed and registered under companies Act
1956 or were registered under the earlier companies Acts.
➢ PRIVATE COMPANY: - One which can be formed by a minimum of 2 members and a
maximum number of members 50. It does not invite public to subscribe the shares or
debentures and it does not permit a free transfer of its shares (Section 3).
➢ PUBLIC LIMITED COMPANY:-A company which is not a private limited company

GOVERNMENT COMPANY

A government company means any company in which not less than 51% of the
paid up share capital is held by

➢ The central government , or

➢ Any state government or governments or
➢ Partly by central government & partly by one or more state governments

OTHERS……..ONE MAN COMOANY….HOLDING COMPANY…….SUBSIDIARY COMPANY ETC…

DISTINCTION BETWEEN PRIVATE LIMITED COMPANY AND PUBLIC LIMITED COMPANY.

PRIVATE LIMITED PUBLIC COMPANY

1. Minimum number of members is 2. 1. Minimum number of members is 7.

2. Maximum number of members is 50. 2. Unlimited.

3. Cannot invite public to subscribe share and 3. Can invite.

debentures.

4.Transfer of shares are Restricted. 4. No Restriction.

5.The name of the company should end with ‘PVT 5. Ltd is enough.
LTD’.

6.Minimum number of Directors is 2. 6. Minimum number of Directors is 3.

7.No need to issue prospectus . 7. Company has to issue prospectus.

8.Not necessary to hold statutory meeting. 8. Compulsory.

9.Quorum required for meeting is 2. 9.5 members physically present.

10.No restriction regarding remuneration. 10. Cannot Exceed 11% of Net Profit.

11.Company can enjoy special privileges. 11. No Chance.

 12.Minimum Capital Rs 1 Lakh. 12. Minimum Capital Rs 5 lakh.

13.Can start business after incorporation. 13. Can start business only after getting certificate
of incorporation.

PRIVILEGES OF A PRIVATE COMPANY

1. Minimum number of members for the formation of a company is 2.

2. A private company can allot shares before the minimum subscription is subscribed or paid.
3. No Prospectus.
4. Can start business immediately after incorporation.
5. No need to keep index of members.
6. No limit for managerial remuneration.
7. Minimum Number of Directors is 2.
8. Director can be a permanent member.
9. All directors can be appointed by a single resolution.
10. Quorum for a meeting is 2.
11. Director can receive loans without the approval of the government.

PROMOTION AND INCORPORATION

PROMOTION: - It is the first stage in the formation of the company (promotion ).in this stage
,first the idea of a carrying on a business conceived by a person or by a group of person called
promoters. They make detailed investigations about the workability of the idea ,the amount of
capital required, the operating expenses and probable income. To arrive at correct conclusion,
they may seek the help of experts and technicians’ .When the promoters are satisfied ,the idea
conceived be put into practice profitably, they take necessary steps for assembly the
proposition.

PROMOTERS: - is a person who does the necessary preliminary work incidental to the formation
of company.

FUNCTION OF A PROMOTER

1. Promoter of a company decides the name of the company.

2. Promoter settles the MOA (Memorandum of Association).
3. Promoter nominates directors, solicitors, bank Auditors and secretary.
4. Arranges for printing of MOA.
5. Steps for the Registration of the company.
6. Issue of Prospectus.
7. Responsible for the Company into Existence
 DUTIES

1. Work with good faith

2. He must faithfully disclose all facts relating to the property and contracts.
3. Verifying the prospectus

Promoter is liable for his activities …both civil liability and criminal liability

INCORPORATION

A company is said to be incorporated when it’s registered with the registrar of the company.

PROCEDURE

To obtain registration of a company application has to be filed with the registrar of the company of
the state in which the registered office of the company is to be situated .The application must be
accompanied by the following documents & necessary fees.

1. MOA signed by members

2. AOA similarly signed
3. Statement of nominal capital
4. A list of directors &their consent
5. Details of qualification shares
6. Declaration by appropriate person stating that all requirements of the companies
Act & other formation to the registration of a company.

CERTIFICATE OF INCORPORATION

This is a certificate issued by registrar of companies Act in accommodation of its registration.

According to Section 35, the certificate of incorporation given by the registrar shall be conclusive
evidence that all requirements of the Act have been compiled within respect of registration. Once a
company is registered the incorporation cannot be challenged even through there are irregularities
prior to its registration.

MEMORANDUM OF ASSOCIATION (MOA)

It is a document which contains the rules regarding the contribution and activities or objects of the
company is governed by MOA. Its relation towards the members and outsiders are determined by
this important document. MOA is designed to make the outside world to know the state of affairs of
the company. It is a public document & can be inspected by anybody.

CONTENTS OF MOA (SECTION 13)

CLAUSES

1. Name clause
 2. Registered office clause
3. Object clause
4. Liability clause
5. Capital clause
6. Subscription clause.

ALTERATION OF MEMORANDUM OF ASSOCIATION (SECTON 16)

MOA is a principle document of a company. The clause of MOA cannot be

easily changed. In fact, until 1890 there was no provision for altering MOA. Section 16 of companies
Act recognizes the unalterable character of MOA & provides for alteration in exceptional cases &
with certain laid down procedure. It reads as “A company shall not alter the conditions contained in
MOA except in cases, in the mode & the extend for which express provision is made in this Act.”

DOCTRINE OF ULTRA VIRES

The term Ultra Vires means beyond the power. ULTRA means beyond & VIRES means power.
Beyond the power denotes very important legal principle applicable to companies. If any Act done
which is not authorized by object clause in memorandum of association of the company, such Act
shall not be valid &is said to be Ultra Vires of the company. Such Act is void &cannot be validated
even by the common consent of members on general meeting.

ARTICLES OF ASSOCIATION (AOA)

Articles of association are rules & regulations by laws for the internal management
of the company. AOA are the rules & regulations framed for the purpose of managing its internal
affairs & for the benefits of share holders.

CONTENTS OF ARTICLES OF ASSOCIATION

1. Shares capital, Different clauses of shares etc.

2. Lien on shares.
3. Halls on shares
4. Transfer of shares
5. Forfeiture of shares
6. Conversion of shares into stock.
7. Share warrants.
8. Alteration of capital.
9. General meetings & proceedings.
10. Transmissions of shares.
11. Voting rights.
12. Directors, their appointment, remuneration, qualification, powers, proceeding of board of
directors.
13. Manager.
14. Secretary.
15. Dividends & reserves.
16. Accounts, Audit & borrowing powers.
17. Capitalization of profit.
18. Winding up.

SHARES

The share capital of a company is usually divided into certain indivisible units of definite sum.
These units are called shares. Act defines a share as “ A share is the share capital of the company &
includes stock except when a distinction between stock & shares is expressed or implied.” [Share
represents the interest of a share holder in a company measured in terms of money.]

CLAUSES OF SHARES

1. Preference shares
2. Equity shares.

COMPANY MEETINGS

Companies meeting are meetings of directors or shareholders or the creditors or debenture

holders who discuss matter relating to the affairs of the company & talking decision affecting the
company.

KINDS OF MEETINGS

1. Meetings of directors
2. Meetings of shareholders
A. Statutory meeting
B. Annual general meeting
C. Extra ordinary general meeting
D. Class meeting
3. Meetings of creditors or debenture holders

STATUTORY MEETING

It is first general meetings of shareholders of a public company. It must be held within a period of
not less than one month and not more than 6 months from the date of commencement of business.
It is held only once in the lifetime of the company. A private company Ltd by guarantee & not having
share capital need not held such meeting. The main object of calling a statutory meeting is to give the
members a general idea about the progress made by the company since its formations. The board of
directors forward a report called statutory report at least 21 days before the day on which meeting to
be held by the members of the company.

ESSENTIALS OF VALID MEETING

A general meeting of shareholder s is said be valid when it is properly convened & legally
constituted. Section 171 of Companies Act explains the provisions related with valid general meeting.

1. PROPER AUTHORITY: - The first important requisition of a valid meeting is that it must be called
by the right person normally, the board of directors is the convening authority for every general
meeting. They should pass a resolution to call a meeting, at a duly convened board meeting.
 Convened board meeting. If they fail to call the meeting the members of the company laws board
or central government may call the meeting.
2. NOTICE: - A notice with required length of time must be given to every member entitled to
receive, stating the kind of meeting, day, time & place of meeting & business etc. In case of
general meeting notice must be given at least 21 days before the date of meeting (21+2).
3. REQUIRED QUORUM: - Quorum is the number of person that should be present at the meeting
either in person or by proxy. As per the Articles of the company. The quorum may be fixed by
AOA.
4. GENERAL BUSINESS OR SPECIAL BUSINESS (SECTION 173): - The notice shall contain a statement
of the business to be translated at the meeting. The business may be ordinary business or special
business.

CHAIRMAN OF MEETING
For conducting a meeting a chairman is necessary and he is generally appointed by Articles of
Association. If the articles do not designate any person to be a chairman, the members may
personally elect one of themselves to be the chairman. So, the chairman must be a member of
the company.

MINUTES
Every company must keep a record of all proceedings of its general meetings and the meetings
of its board of directors or of a committee of the board. The record of business transacted at
meetings is known as minutes (section 193). Separate minute’s books are kept for different types
of meeting. The minute must be signed by the chairman.

WINDING UP

Winding up means the process by which the life of the company is ended and it’s properly is
administered for the benefit of the creditors and share holders. It represents the last stage in its life.
At the time of winding up assets & properties of the company are realized. The assets are distributed
among the creditors & shareholders in the manner laid down in the Act.

MODES OF WINDING UP

1. Winding up by the court (compulsory winding up).

2. Voluntary winding up
A. Members voluntary winding up.
B. Creditors voluntary winding up.
3. Winding up under supervision of court (compulsory winding).

WINDING UP BY THE COURT (COMPULSORY WINDING UP)

A winding up of a company under the order of a court is called compulsory winding up.
Section (433) explains the grounds on which a company may wound up by the court. They are: -
 1. SPECIAL RESOLUTION: - If a company passes a special resolution for winding up of a company,
then the court may issue an order of winding up. It is a discretionary power of court.
2. Default in holding statutory meeting.
3. Failure to commence business within one year of its incorporation.
4. Reduction in membership below statutory minimum.
5. In ability to pay the debt.
6. JUST AND EQUITABLE GROUNDS: - When the court feels that it is just an equitable to windup
the company, then it can issue the order of winding up. It is purely the discretionary power of
the court. In the following cases, court may issue winding up order on just and equitable grounds
:-
A. The main purpose have failed or become impossible of achievement.
B. Complete deadlock in the management.
C. Fraud or illegal business.
D. Perpetual loss.

PERSONS ENTITLED TO APPLY FOR WINDING UP OF COMPANY

1. The company itself by passing of a special resolution.

2. Any creditor or creditors.
3. A contributory or contributors.
4. Any combination of creditors or contributors.
5. Registrar.
6. Any person authorized by government as per the Act.

POWER OF COURT ON HEARING PETITION

On hearing a winding up petition, the court may exercise any of the following process:-

1. Dismiss the petition.

2. As adjourned hearing or make interim orders.
3. Make an order for winding up of the company.

COMMENCEMENT OF WINDING UP

The winding up of winding up of a company by the court is deemed to commence from the time
of the presentation for the winding up.

CONSEQUENSES OF WINDING UP OF A COMPANY

1. Immediate intimation to the official liquidator & registrar.

2. A copy of winding up order to be filed with registrar within 30 days from the date of making
the order.
3. The order of winding up shall deemed to be a notice of discharge to offices & employees of
the company.
4. Any suit or proceeding in any other court shall be transferred to the court in which the winding
up of the company is proceeding.

OFFICIAL LIQUIDATOR
 An official liquidator is an officer who helps the court in conducting and completing the
winding up proceedings.

VOLUNTARY WINDING UP

It means winding up by creditors or members without any intervention by the court.

The purpose behind is that is members as well as creditors are left free to settle their affairs without
going to the court of law.

KINDS OF VOLUNTARILY WINDING UP

1. MEMBER VOLUNTARILY WINDING UP:- Section 488, A member voluntary winding up is

possible only when the company is solvent & is liable to pay its debts. The directors or a
majority of them may at a meeting of the board make a declaration of company’s solvency.
Such declaration must be made within 5 weeks prior to the date of winding up resolution &
delivered to the registrar of companies Act Copies of the report of auditors regarding profits
& loss accounts & balance sheet must also be enclosed with declaration. If there is no such
declaration, the winding up becomes the creditors voluntary winding Up.

CREDITORS VOLUNTARILY WINDING UP

The company is not in a position to pay debts and the directors make no declaration of insolvency,
the winding up is called Creditor Winding Up (Section 488).

WINDING UP SUBJECT TO SUPERVISION OF COURT ****

After the company has passed resolution for a voluntarily winding up, the court may pass
an order to the effect that the voluntary winding up should continue, subject to the supervision of
court.

NEGOTIABLE INSTRUMENTS ACT 1881

Negotiable instrument means a promissory note , bill of exchange , cheque payable either to
the order of or to the bearer.

Valid essentials or Legal rules

• Must be in writing.

• Signed by the maker.

• Must contain an unconditional promise or order to pay some money.

• Must be freely transferrable.

 On the transfer of a N.I from one person to another , who receives in good faith, for
consideration has the Right to Recover the amount mentioned in instrument

Promissory Note

A promissory note is an instrument in writing containing an unconditional undertaking signed

by the maker to pay a certain sum of money only to or to the order of a certain person or to
the bearer of document

Parties

• Maker /drawer– the person who makes the promissory note.

• Payee – the person to whom the amount written on the PN is payable

Bill of Exchange

According to section 5 of this act , a bill of exchange is an instrument in writing containing an

unconditional order signed by the maker directing a certain person to pay a certain sum of money only
to or to the order of a certain person or the bearer of document

• Drawer – the person who draws the bill of exchange.

• Drawee – who has been ordered by the drawer to pay the amount.

• Payee – to whom the drawee has been ordered to pay the amount

Cheque

• A cheque is a bill of exchange which is drawn upon a specified banker and payable on demand.

parties

Drawer – the person who draws the cheque.

Banker – who has been ordered by the drawer to pay the amount / bank on which a cheque is
drawn.

Payee – the person on whose form the cheque is drawn. The payee may be a third party or the
drawer himself.