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Companies act

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Snigdhangshu Banerjee
Snigdhangshu Banerjee

1. A company is an artificial legal entity created under law with an independent existence separate from its owners. It allows for limited liability and perpetual succession. 2. The key documents required to form a company are the Memorandum of Association, which outlines the company's name, objectives, capital structure, and limitations of liability, and the Articles of Association, which contains the internal rules and regulations of the company. 3. Companies are classified based on ownership and control, number of members, liability, and incorporation. The key doctrines governing companies include the corporate veil, ultra vires, constructive notice, and indoor management.

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. Meaning and Definition of Company In common parlance, a company refers to an assemblage of people who have come together for some specific purpose; economic, or otherwise; and who have incorporated themselves into a distinct legal entity in the form of a corporation for that purpose. Definition as per Companies Act, 2013 Sec 2(20) merely reads, ‘a company means a company formed and registered under this Act or under any previous company law’. Lord Justice Lindley definition A Company is an association of many persons who contribute money or monies worth to a common stock and employ in some trade or business and who share the profit and loss arising therefrom. The common stock so contributed is denoted in money and is the capital of the company. The persons who contributed to it or whom it pertains are members. The proportion of capital to which each member is entitled is his share. The shares are always transferable albeit the right to transfer is often more or less restricted. A company is an artificial person created by law, having a separate entity, with a perpetual succession and common seal. Prof. Haney
Nature / Features of Company An artificial person created by law, having a separate entity, with a perpetual succession and common seal. 1. Independent legal entity 2. Limited liability 3. Everlasting existence/Perpetual succession 4. Separate property of company 5. Flexibility of investment 6. Capacity to sue 7. Separation of ownership & Management 8. Proportionate representation 9. Right to own property
Kinds of Companies 1. Classification on the basis of Incorporation a) Statutory companies : These are the companies which are created by a special act of the Legislature, e.g. Reserve Bank of India, the State Bank of India, LIC. b) Registered Companies: These are the companies which are formed and registered under the Companies Act. 2. Classification on the basis of Liability 1. Companies with limited liability a) Companies Limited by Shares: Where the liability of the members of a company is limited to the amount unpaid on the shares, such a companies is known as a company limited by shares. b) Companies limited by guarantee: Where the liability of the members of a company is limited to a fixed amount which the members undertake to contribute to the assets of the company in the event of its being wound up, the company is called a company limited by guarantee. 2. Unlimited companies: A company without limited liability is called unlimited company.
3. Classification on the basis of number of members a) Private company: which has a minimum paid-up capital of Rs.1,00,000 and which by Articles: 1. Restricts the right to transfer its shares, if any. 2. Limits the number of its members to 200 3. Prohibits any invitation or acceptance of deposits from persons other than its members 4. Prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives. b) Public company : a company to which the above restrictions does not apply. The minimum paid up capital is Rs.5,00,000. A private company, which is a subsidiary of a public company, shall be deemed to be a public company. Minimum number of members Public company – 7 Private company – 2 Maximum number of members Public company – unlimited Private company – 200
4. On the basis of Control 1. Holding company: A company which has control over other company. 2. Subsidiary company: A company which is being controlled by holding company. Other types 1. Small company: A company (other than public company) whose paid up capital does not exceed Rs.50 lacs and turnover as per last profit and loss account does not exceed Rs.2 crore. 2. One Person Company 3. Government company: where Central/State/Partly Central and State governments share in the company is not less than 51 percent. 4. Dormant company: A company that does not trade and has no significant business transactions. 5. Foreign company: A company which is incorporated under the laws of a different nation but conducts any of its business activities in India.
For the incorporation or registration of a company two important documents are required to be prepared and filed with the Registrar of Companies namely: 1. Memorandum of Association 2. Article of Association Contents of Memorandum 1. The name of the company, with the last word ‘Limited’ in the case of a public limited company, or the last words ‘Private Limited’ in the case of a private limited company.(Name Clause) 2. The State in which the registered office of the company is to be situated (Registered office Clause) 3. The objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof. (Objects clause) 4. Limited liability (Liability Clause) 5. Share capital (Capital Clause) 6. The memorandum shall conclude with an ‘Association clause’ which states that the subscribers desire to form a company and agree to share in it.
Articles of Association or just Articles are the rules, regulations and bye-laws for the internal management of the affairs of a company. They are framed with the object of carrying out the aims and objects as set out in the Memorandum of Association. Contents of Articles 1. Share capital and variation of rights 2. Lien 3. Calls on shares 4. Transfer of shares 5. Transmission of shares 6. Forfeiture of shares 7. Alteration of capital 8. Capitalization of profits 9. Buy-back of shares 10. General meetings 11. Proceedings at general meetings 12. Adjournment of meeting 13. Voting rights 14. Proxy 15. Board of Directors 16. Proceedings of the Board
Doctrine of Corporate veil (Disregarding the Corporate entity) implies that : •A company has a separate personality distinct from its members or shareholders. •This signifies that the company has a life and existence of its own •Can possess a property and deal with it the way it desires •Can sue and be sued in its personal capacity. •Moreover, no shareholder can either individually or jointly claim any ownership rights in the assets of the company during its continuance of business or on its winding up. Doctrine of Ultra Vires – Ultra means beyond and Vires means the powers. The Latin term ultra vires, means to describe an act which is beyond the powers. Any transaction (or act) which is not set out in the object clause of the company’s memorandum, and is not necessarily or reasonably incidental to the attainment of the object(s), is ultra vires the company, and therefore, void, i.e of no legal effect and does not bind the company.
Doctrine of Constructive notice: Every outsider deal with a company is deemed to have notice of the contents of the Memorandum and the Articles of Association. These documents, on registration with the Registrar assume the character of public documents. This is known as “Constructive notice of Memorandum and Articles’. The Memorandum and the Articles are open and accessible to all. It is the duty of every person dealing with the company to inspect these documents and see that it is within the powers of the company to enter into the proposed contract. Doctrine of Indoor management: The outsiders dealing with the company are entitled to assume that as far as the internal proceedings of the company are concerned, everything has been regularly done. They are presumed to have read these documents and to see that the proposed dealing is not inconsistent therewith, but they are not bound to do more; they need not inquire into the regularity of the internal proceedings as required by the Memorandum and the Articles.

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Companies act

  • 1. . Meaning and Definition of Company In common parlance, a company refers to an assemblage of people who have come together for some specific purpose; economic, or otherwise; and who have incorporated themselves into a distinct legal entity in the form of a corporation for that purpose. Definition as per Companies Act, 2013 Sec 2(20) merely reads, ‘a company means a company formed and registered under this Act or under any previous company law’. Lord Justice Lindley definition A Company is an association of many persons who contribute money or monies worth to a common stock and employ in some trade or business and who share the profit and loss arising therefrom. The common stock so contributed is denoted in money and is the capital of the company. The persons who contributed to it or whom it pertains are members. The proportion of capital to which each member is entitled is his share. The shares are always transferable albeit the right to transfer is often more or less restricted. A company is an artificial person created by law, having a separate entity, with a perpetual succession and common seal. Prof. Haney
  • 2. Nature / Features of Company An artificial person created by law, having a separate entity, with a perpetual succession and common seal. 1. Independent legal entity 2. Limited liability 3. Everlasting existence/Perpetual succession 4. Separate property of company 5. Flexibility of investment 6. Capacity to sue 7. Separation of ownership & Management 8. Proportionate representation 9. Right to own property
  • 3. Kinds of Companies 1. Classification on the basis of Incorporation a) Statutory companies : These are the companies which are created by a special act of the Legislature, e.g. Reserve Bank of India, the State Bank of India, LIC. b) Registered Companies: These are the companies which are formed and registered under the Companies Act. 2. Classification on the basis of Liability 1. Companies with limited liability a) Companies Limited by Shares: Where the liability of the members of a company is limited to the amount unpaid on the shares, such a companies is known as a company limited by shares. b) Companies limited by guarantee: Where the liability of the members of a company is limited to a fixed amount which the members undertake to contribute to the assets of the company in the event of its being wound up, the company is called a company limited by guarantee. 2. Unlimited companies: A company without limited liability is called unlimited company.
  • 4. 3. Classification on the basis of number of members a) Private company: which has a minimum paid-up capital of Rs.1,00,000 and which by Articles: 1. Restricts the right to transfer its shares, if any. 2. Limits the number of its members to 200 3. Prohibits any invitation or acceptance of deposits from persons other than its members 4. Prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives. b) Public company : a company to which the above restrictions does not apply. The minimum paid up capital is Rs.5,00,000. A private company, which is a subsidiary of a public company, shall be deemed to be a public company. Minimum number of members Public company – 7 Private company – 2 Maximum number of members Public company – unlimited Private company – 200
  • 5. 4. On the basis of Control 1. Holding company: A company which has control over other company. 2. Subsidiary company: A company which is being controlled by holding company. Other types 1. Small company: A company (other than public company) whose paid up capital does not exceed Rs.50 lacs and turnover as per last profit and loss account does not exceed Rs.2 crore. 2. One Person Company 3. Government company: where Central/State/Partly Central and State governments share in the company is not less than 51 percent. 4. Dormant company: A company that does not trade and has no significant business transactions. 5. Foreign company: A company which is incorporated under the laws of a different nation but conducts any of its business activities in India.
  • 6. For the incorporation or registration of a company two important documents are required to be prepared and filed with the Registrar of Companies namely: 1. Memorandum of Association 2. Article of Association Contents of Memorandum 1. The name of the company, with the last word ‘Limited’ in the case of a public limited company, or the last words ‘Private Limited’ in the case of a private limited company.(Name Clause) 2. The State in which the registered office of the company is to be situated (Registered office Clause) 3. The objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof. (Objects clause) 4. Limited liability (Liability Clause) 5. Share capital (Capital Clause) 6. The memorandum shall conclude with an ‘Association clause’ which states that the subscribers desire to form a company and agree to share in it.
  • 7. Articles of Association or just Articles are the rules, regulations and bye-laws for the internal management of the affairs of a company. They are framed with the object of carrying out the aims and objects as set out in the Memorandum of Association. Contents of Articles 1. Share capital and variation of rights 2. Lien 3. Calls on shares 4. Transfer of shares 5. Transmission of shares 6. Forfeiture of shares 7. Alteration of capital 8. Capitalization of profits 9. Buy-back of shares 10. General meetings 11. Proceedings at general meetings 12. Adjournment of meeting 13. Voting rights 14. Proxy 15. Board of Directors 16. Proceedings of the Board
  • 8. Doctrine of Corporate veil (Disregarding the Corporate entity) implies that : •A company has a separate personality distinct from its members or shareholders. •This signifies that the company has a life and existence of its own •Can possess a property and deal with it the way it desires •Can sue and be sued in its personal capacity. •Moreover, no shareholder can either individually or jointly claim any ownership rights in the assets of the company during its continuance of business or on its winding up. Doctrine of Ultra Vires – Ultra means beyond and Vires means the powers. The Latin term ultra vires, means to describe an act which is beyond the powers. Any transaction (or act) which is not set out in the object clause of the company’s memorandum, and is not necessarily or reasonably incidental to the attainment of the object(s), is ultra vires the company, and therefore, void, i.e of no legal effect and does not bind the company.
  • 9. Doctrine of Constructive notice: Every outsider deal with a company is deemed to have notice of the contents of the Memorandum and the Articles of Association. These documents, on registration with the Registrar assume the character of public documents. This is known as “Constructive notice of Memorandum and Articles’. The Memorandum and the Articles are open and accessible to all. It is the duty of every person dealing with the company to inspect these documents and see that it is within the powers of the company to enter into the proposed contract. Doctrine of Indoor management: The outsiders dealing with the company are entitled to assume that as far as the internal proceedings of the company are concerned, everything has been regularly done. They are presumed to have read these documents and to see that the proposed dealing is not inconsistent therewith, but they are not bound to do more; they need not inquire into the regularity of the internal proceedings as required by the Memorandum and the Articles.