COMPANIES ACT 2013

 The company act,2013 which replaced the 56

years old companies act,1956 substantially
differs from previous act in many respects.
MEANING
 A company is an association of many persons
who contribute money or money’s worth to a
common stock and employ it for a common
purpose. The common stock so contributed is
denoted in money and is the capital of the
company.
 The persons who contribute to it or to whom it

belongs are its members. The proportion of

capital to which each member is entitled to his
share.
Essential Characteristics of company
1. Incorporated Association- A company is legally recognized as a
company only when its is incorporated or registered under the
companies act. Minimum 7 member in case of Public company and
two in case of private company.
2. Separate legal entity- A company is a legal entity distinct and
separate from its members. It can enter into any contracts, open
bank account in its own name, sue etc. case- Salomon vs
salomon & co. ltd., Lee v.lee’s Air
3. Perpetual succession- The existence of a company can be
terminated only by law. Members may come and go but the
company can go on forever.
.
4.Common Seal-The common seal is the official signature of the
company. A document not bearing the common seal of the
company will not be binding on the company.

5.Transferability of shares-shares transfer easily except in the case

of a private limited company.

6.Separate Property-a company is a legal entity distinct from its

member, Members cannot claim to be owners of the company
property.
7.limited liability- The liability of the members of a company having
share capital is generally limited to the extent of the unpaid amount
on the shares held by them.
 8.Capacity to sue-A company can sue and can
be sued in its own corporate name
 9.Separate management.-A company is

administered and managed by its managerial

personnel, i.e the board of director.
TYPES OF COMPANY
 Statutory Companies: A company formed by a
special Act passed either by the central or state
legislature is called a Statutory company.
 Registered Companies: Companies formed by

registration under the companies Act are known

as Registered Companies.The working of such
companies is regulated by the provisions of
the Companies Act,MOA,AOA.
  Holding Company-A company of which such
companies are subsidiary companies.
Basic condition
a) Control the composition of the Board of
Directors.
b) Exercises or control more than one-half of
the total share capital.
 Government Company
Any company in which not less than fifty one
percent of the paid up share capital is held by the
central government or state government.
 Foreign Company

Any company or body corporate incorporate

outside india.
A foreign company is required to register with ROC
within 30 days from the date of establishing a
place of business in india.
 One man company or family company
A private company can be formed with two
members and a public company with seven.
In case if any body constitute the company
less than the required number and hold the
substantial number of shares so as to have
controlling power over the company. such
company may be regarded as one man
company.
A company may be formed by a person by
involving other family members, are family
company.
Small Company
Two condition for small company.
1.Its paid up share capital does not exceed 50
lac or such higher amount as may be
prescribed by the Central Government,not
exceeding 5 cr.
2.Its turnover as per its last profit and loss
account does not exceed 2 cr. Or such higher
amount as may be prescribed by the central
govt. not exceeding 20 cr.
 Dormant company
An inactive company termed as a dormant
company.
A company which has not been carrying on
business or operation or has not made any
transactions.
 Associate Company- In relation to another

company, other company has a atleast 20%

of total share capital.
 Global Company
. A company which plans its activities on a
global basis but market its products through
the use of some coordinated image brand in
all market.
 Multinational Company- A company which
is having its headquarters in one country but
have business operations in other countries.
 Charitable or Non-Profit Making Companies

A company may be formed for a charitable or

non-profit making objective. For promote
education,social welfare, charity etc.
PRIVATE CO.VS PUBLIC CO.
1.Private co.- minimum number is two or
more.
Public co.– atleast 7 persons are required.
2.Private co.-maximum number of member is
not more than 200
Public co.- unlimited member.
3.Private co.-minimum paid up capital of Rs.1
lac.
Public co.- minimum paid up capital of Rs.5
lac.
4.Private co.- private limited co. cannot invite
public to subscriber to its share capital.
Public co.-public limited co. cannot proceed
to allot shares until it files a copy of the
prospectus.
5.Private co.- less legal formalities
Public co.- more legal formalities.
6.Private co.- AOA of a private company
imposes Restrictions on the transfer of
shares.
Public co.-shares of a public co. are freely
transfer.
7. Private co.- only 2 director
Public co.- atleast 3 director
Formation of company
Three important principal stages
a) Promotion/ Promoter
b) Incorporation
c) Commencement of business
 Promotion
A person who conceives the idea of starting a
business, plans the formation of a company
and actually brings it into existence.
He may be said to be ‘ the father of the
company who sees the prospects of gain in
a business which he wishes to set up.
 Incorporation
It is the incorporation which brings a company
into existence as a separate corporate entity.
a) Application to registrar in a prescribed form
with prescribed fee.
b) Application for licence , if falls within the
category of those industries where licence is
necessary.
c) Issue of prospectus incase, raise capital by
issue of shares
Commencement of Business
Under the new act there is no requirement of
formally obtaining a certificate of
commencement of business in a company.
As per sec.11 of the act every company is
required to file a declaration in the prescribed
form.
MEMORANDUM OF ASSOCIATION
MOA is the main document of the company, which
defines its constitution and objects and lays down
the fundamental conditions upon which the
company is allowed to be form.
The constitution of the company since it governs
the relationship of the company with outside world.
MOA is a public document ,every person who
deals with the company is presumed to have
sufficient knowledge of its contents. It is kept open
for public inspection.
CLAUSES OF MEMORANDUM
 Name clause
 Situation clause
 Objects clause
 Liability clause
 Capital clause
 Association clause
Name clause – A company is a legal entity and
it must have a name to establish its identity.
Address clause- MOA must state the name of
the state in which the registered office of the
company is to be situated.
Object clause-It defined and limits the scope
of the operations of the company.
Liability clause- MOA must have a clause to
the effect that the liability of the members is
limited.
Capital clause-MOA of a company limited by
shares must also state the amount of share capital
with which the company is to be registered.
Association clause- All the member put their
signature at the end of memorandum are
desirous of forming themselves into an
association in pursuance of the memorandum.
ARTICLE OF ASSOCIATION
AOA are the regulations and bye-laws for
governing the internal affairs of the
company.
They may be described as the internal
regulations of the company governing
its management and the powers of the
directors and officers of the company as
well as the powers of the shareholders.
PROSPECTUS
It is essential for a public company to
issue a prospectus if it intends to
appeal to the public for capital to
carry out the objects for which it has
been constituted.
Prospects is a document inviting offers
from the public for the subscription or
purchase of any securities of a body
corporate.
Statement in lieu of prospectus
If a company does not want to issue a prospectus to
the public for subscription of the shares, this
statement in lieu of prospectus is required to be
issued to the public for necessary information. It must
be signed by every person named in it as director or
by his agent authorized in writing: The nature of the
information of this document is more or less similar to
that given in the prospectus. A copy of this statement
must be filed with registrar within prescribed time.
This provision does not apply to private company.
SHARES

 The capital of a company is split into a specific

indivisible units of a fixed amount, which are called
shares.

 Acc.to sec 2(46) of the act, the term share means

“share in the share capital of a company”
In the words of justice farewell- A share is the interest
of a shareholder in the company, measured by a sum
of money for the purpose of liability and dividend in
the first place and interest in the second.
Kinds of share
 Preference share- in relation to a company by
shares refers, that carry preferential rights with
respect to (1) the payment of dividend at the fixed
rate, during the lifetime of the company.

 Equity share- those share which are not

preference shares, that is, these share do not
enjoy any preferential rights.
Allotment of share
 A public limited company by shares issues a
prospectus inviting offers from the general public
for the subscription of shares in the company.
Allotment is the acceptance of that offer by the
company. result binding contract between the
company and the applicant.

 Share certificate- a share certificate is a document

issued under common seal of the company to the
share holder, specifying the shares held by him.
 Transfer of shares
 The shares held by a member in a company are in
the nature of movable property.
However, unlike movable property, the share are
not transferable by mere delivery but only in
accordance with the procedure laid down in the
act.

Debenture- A debenture is a medium to long-term

debt instrument used by large companies to
borrow money, at fixed rate of interest. Debenture
are freely transferable by the debenture holder.
Essential condition of valid meeting
 Meeting- Meeting are office vital significance in the
working of a company. This is because all the
major decision in a company are taken in meeting.
 Types of meeting- Statutory meetings, Annual

general meetings, Extraordinary meeting.

Essential condition of valid meeting
 Proper Authority- The proper authority to
convene a general meeting (whether statutory,
annual general or extraordinary) of a company is
the board of director.
 Notice of meeting- An appropriate notice of the

meeting should be given to the members and all

others who are entitled to attend the meeting.
 Quorum for Meeting-The minimum number of

member legally required to be present at a

meeting in order to constitute the proceedings.
 Chairman of the Meeting-in order to be valid
must be presided over by a duly appointed
chairman.
 Minutes of Meeting-Minutes may be defined as

the written record of the proceeding of a meeting.

Resolutions
 Decisions finally taken at a meeting are called
resolutions.
 Two kinds of resolution

A) Ordinary Resolution-Decision taken in normal

general meeting of a company.
B) Special Resolution-A resolution passed at a duly
convened general meeting of a company by a
special majority of member.
Director and Remuneration

 Director- any person in accordance with whose

directions or instructions, the Board of Directors of
a company is accustomed to act is deemed to be
a director of the company.
 No. of Director- every public company shall have

at least 3 director and every other company must

have atleast 2 Director.
APPOINTMENT OF Director
 Appointment of First Directors by the
Promoters.
 Appointment of Subsequent Directors
 Appointment by Board of Directors
 Appointment of Directors by third Party.(by

share holder under Article of Association)

Qualification of Director
 A director need not be a shareholder of the
company. Articles usually provide for a minimum
share qualification for appointment of Directors.

 The nominal value of the qualification shares

must not exceed rs.5000 except where the value
of one share of a company itself exceeds rs.5000.
MANAGERIAL REMUNERATION
 The term managerial remuneration includes
remuneration payable to a company’s managing
director, whole –time /part-time directors or
manager.
 Remuneration shall not exceed 11 percent of the

net profit of the company for that financial year.

Duties of Directors
 Duty NOT to misapply company assets
 Duty NOT to make secret profits
 Duty of confidentiality
 Duty to NOT permit conflict of interest
 Duty to attend meetings
 Duty NOT to exceed powers
Lifting the corporate veil
 Lifting the corporate veil under the Companies Act,
2013 means ignoring that a company is a separate legal
entity and has a corporate personality. Lifting of
corporate veil as per Companies Act, 2013 ignores the
separate identity of the company and looks back at the
true owners who are in control of the company.
Doctrine of Indoor Management
 The doctrine of indoor management, also known as the
Turquand rule is a 150-year old concept, which protects
outsiders against the actions done by the company. Any
person who enters into a contract with the company
shall ensure that the transaction is authorised by the
articles and memorandum of the company.
DOCTRINE OF ULTRA VIRES
MOA of a company defines and confines
the power of a company. Any act don
contrary or in excess to the scope of
the activity of the company will be ultra
virus the company.
In other words- beyond the legal powers
and authority of the company, shall be
wholly void and not binding on the
company.
Power of Director
 Board of directors of a company to exercise
the following powers on behalf of company
only by passing a resolution in respect
thereof at a duly convened meeting of the
Board:
A) The power to make calls on shareholder
regarding money unpaid on their shares.
B) The power to issue debenture
C) The power to borrow money otherwise than
on debenture
Prevention of oppression and Mismanagement.

 Oppression and Mismanagement of a company

mean that the affairs of the company are being
conducted in a manner that is oppressive and
biased towards the minority shareholder or any
members of the company.
Winding up’ of a Company

 Meaning of ‘Winding up’ of a Company Winding

up of a company refers to the process by which a
company is dissolved, and its assets are sold off
to pay its debts and distribute any remaining
assets to the shareholders. This process may be
initiated voluntarily by the company’s members or
creditors, or by the court on certain specified
grounds.
 Grounds of Winding up of Company Under the
Companies Act, 2013, there are various grounds on
which a company can be wound up by the Tribunal
(previously known as the Court) through compulsory
winding up. These grounds are as follows:
1. Inability to pay debts: A company can be wound
up if it is unable to pay its debts.
2. Just and equitable: The Tribunal can also order
the winding up of a company if it is of the opinion that
it is just and equitable to do so. This means that the
company is unable to carry on its business in
accordance with its memorandum and articles of
association
3.Oppression and mismanagement: If the affairs of a
company are being conducted in a manner that is
oppressive or prejudicial to the interests of any
member or members or the company as a whole,
4.Regulatory non-compliance: A company may be
wound up by the Tribunal if it has failed to comply with
any of the provisions of the Companies Act or any
other law applicable to it.
5. Public interest: The Tribunal can also order the
winding up of a company in the public interest. This
means that if the company’s activities are detrimental
to the public interest,