Meaning and Definition of a Company

 ‘A registered association which is an artificial legal person, having an independent legal

entity with perpetual succession, a common seal for its signatures, a common capital
comprised of transferable shares and carrying limited liability.’’
 In terms of the Companies Act, 2013 a “company” means a company incorporated
under this Act or under any previous company law [Section 2 (68)]
Characteristics of a Company
 Corporate Personality – Has its own name – Has a seal – Capable of owning property,
borrowing money, having bank account, employ people, enter into contract, file a case etc.
 An Artificial Person - Created by law – Not a human being but a legal person – Enter into
contract
 Not a Citizen – Voluntary Association – Having Common Seal
 Nationality and Residence
 Limited Liability – Owner of its assets & bound by its liabilities – Members are not liable
for Company’s debts
 Perpetual Succession – Never dies except when it is winded up – Unaffected by death or
departure of any member
 Separate Property/Legal Entity – Distinct from its members – Capable of owning,
enjoying & disposing of property.
 Shares are freely transferable
Benefits of Joint Stock Company
 Huge Financial Resources/Large Capital
 Efficient Management
 Limited Liability
 Transferability of Share
 Diffusion of Risk
 Stability of Existence/Perpetual Succession
 Public Confidence
 Scope for Expansion
 Professional Management
 Tax Benefits
 Promotes Savings and Investments
 Greater borrowing capacity etc.

About the Companies Act, 2013

 The Companies Act, 2013 received the assent of the President on August 29, 2013
 Notified in the Gazette of India on 30.08.2013.
 The Companies Act, 2013 has undergone amendments four times so far.
 According to section 1 of the Companies Act, 2013, the Act extends to whole of India
 The provisions of the Act shall apply to the following:-
(a) companies incorporated under this Act or under any previous company law; (b) insurance
companies (c) banking companies (d) companies engaged in the generation or supply of
electricity (e) any other company governed by any special act (f) such body corporate
incorporated by any Act
 The Act shall is not applicable to unincorporated companies
Key Concepts in the Companies Act, 2013
 ONE PERSON COMPANY:
The Act enables the formation of a new entity a ‘one-person company’ (OPC). An OPC means a
company with only one person as its member [section 3(1)].
 PRIVATE COMPANY
The Companies Act, 2013 introduces a change in the definition for a private company, inter-alia,
the new requirement increases the limit of the number of members from 50 to 200. [section
2(68)].
 SMALL COMPANY
A small company has been defined as a company, other than a public company. (i) paid-up share
capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed
which shall not be more than ten crore rupees; and (ii) turnover of which as per profit and loss
account for the immediately preceding financial year does not exceed two crore rupees or such
higher amount as may be prescribed which shall not be more than one hundred crore rupees.
(Not applicable to Holding/Subsidiary Company, Company registered u/s 8 and a
Company/Body Corporate governed by any Special Act)
DORMANT COMPANY
A company formed and registered under this 2013 for a future project or to hold an asset or
intellectual property and has no significant accounting transaction such a company or an inactive
company may make an application to the Registrarfor obtaining the status of a dormant
company. (Section 455)
NIDHI COMPANY
Company means a company which has been incorporated as a Nidhi with the object of
cultivating the habit of thrift and savings amongst its members, receiving deposits from, and
lending to, its members only, for their mutual benefit, and which complies with such rules as are
prescribed by the Central Government for regulation of such class of companies. (section 406)

Formation of a COMPANY
Section 3(1) states that a company may be formed for any lawful purpose by –
 (a) seven or more persons, where the company to be formed is to be a public company;
 (b) two or more persons, where the company to be formed is to be a private company; or
 (c) one person, where the company to be formed is to be One Person Company that is to
say, a private company by subscribing their names or his name to a memorandum and
complying with the requirements of this Act in respect of registration.
A company formed under Section 3(1) may be either –
(a) a company limited by shares; or
(b) a company limited by guarantee; or
(c) an unlimited company.
 Differences between Partnership and Company

Differences between Private Limited Company and Public Limited Company

PRIVATE LIMITED COMPANY PUBLIC LIMITED COMPANY

Meaning Refers to the company which is Implies a company that is listed on a

not listed on a stock exchange and recognized stock exchange and
the shares are held privately by whose shares are traded openly by
the members concerned. the public.
Minimum number of 2 7
members
Maximum number of 200, except in case of one person Unlimited
members company
Minimum number of 2 3
directors
Articles of Association It must frame its own articles of It can frame its own articles of
association. association or adopt Table F.
Transfer of Shares The shares of a private company The shares of a public company
are not freely transferable, as there are freely transferable, i.e. freely
are restrictions in Articles of traded in an open market called a
Association. stock exchange.
Public Subscription Issue of shares or debentures to It can invite the public to subscribe
the public is prohibited. to its shares or debentures.
Issue of prospectus Prohibited from issuing a It can issue a prospectus or it can
prospectus. also opt for private placement.
Minimum amount of The company can allot shares, The company cannot allot shares
allotment without obtaining minimum unless the minimum subscription
subscription. stated in the prospectus is
obtained.
Commencement of It can start a business just after It requires a certificate of
Business receiving a certificate of commencement of business after it
incorporation. is incorporated.
Appointment of Two or more directors can be One Director can be appointed by
Director appointed by a single resolution. a single resolution.
Filing of Consent to act Directors need not require the Directors must file their consent to
as Director filing of their consent to act as a act as a director, within 30 days of
director. appointment with the Registrar.
Retirement of Directors The directors are not required to 2/3rd of the total number of
by rotation retire by rotation. The directors directors must retire by rotation.
can be permanent.
Place of Holding AGM AGM can be held anywhere. AGM is held at the registered
office or any other place where the
registered office is situated.
Statutory Meeting Optional Compulsory
Meaning and Definition of Share
• According to Section 2(84) of the Companies Act, 2013, ’share’ means a share in the share
capital of a company and includes stock.
As per Section 43 of the Companies Act, 2013, a company’s share capital is of two types of shares,
namely – equity shares and preference shares.

EQUITY SHARES
• Equity Shares are those shares which are not preference shares
• Main source of raising the funds for the firm
• All equity shareholders are collectively owners of the company
• They have the authority to control the affairs of the business.
• It is a form of partial or part Ownership in the company in which shareholders bear the
highest business risk.
• Ownership in the company is depending on the % of shares they hold.
• Equity shares are also called as ordinary shares.
• A share is a unit of ownership in a company
• Has an exchangeable value which is influenced by market forces.
• The Equity shareholders get the profit of the company in the form of dividend but the rate of
dividend is not fixed.

PREFERENCE SHARES
• Preference Shares are those shares which have two preferential rights:
– (1) Preference Shareholders get the profit of the company in form of dividends before
Equity shareholders
– (2) In case of company insolvency issues, Preference shareholders are paid first from
company assets.
• Preference shareholders are also partial owners of a company.
• Not entitled to voting rights and do not really possess the power to control or influence
company-oriented decisions.
• Shareholders do not have a claim over the bonus shares
• The decision to declare dividend on preference shares lies with the management, and it is not
mandatory in case of loss.
• Types of Preference Shares:
– Redeemable and Irredeemable Shares
– Cumulative and Non Cumulative Shares
– Participating and Non Participating Shares
– Convertible and Non Convertible Shares

DEBENTURES
• A variant of debt instruments issued by an organisation
• An official authentication that an organisation has borrowed a certain sum of money from the
public - Debenture holders are known as creditors
• The borrowed sum comes with a promise:
– Regular return
– Repayment of the amount on or before a specified date
 Few Types of Debentures:
• Redeemable and Irredeemable Debentures
• Convertible and Non Convertible Debentures
• Secured and Unsecured Debentures
• Registered and Unregistered/Bearer Debentures
• Fixed Rate and Floating Rate Debentures
Differences between Shares and Debentures
SHARES DEBENTURES
Meaning - Owners’ Funds - Borrowed Funds
- Capital - Debt
Holder Shareholder Debenture holder
Status of Holder Owner Creditor
Form of Return Dividend Interest
Payment Only out of profit Regular
Deduction Not allowed Allowed
Voting Rights Yes No
Conversion Cannot be converted Can be converted
Repayment After all liabilities Gets priority