Unit 4
The Companies (Amendment)
Act,2015
A Company means a company formed &
Registered under this Act or an existing
company as defined in clause (ii)(sec 3(1)
(i)while clause (ii) of Sec 3 (1)implies that
an existing company means any company
formed & Registered under any of the
previous Companies Act.
Lord Justice Lindley & Haney
Company means an association of many
persons who contribute money or money’s
Worth to a common Stock & employ it for
common purpose
The company stock so contributed is denoted in
money & is the capital of the company . The
person who contribute it or to whom it belongs
are members.
The proportion of capital to which each member
is entitled is his share, Such shares are always
transferrable although the right of such transfer
can be more or less restricted
A company is an incorporated association which is
an artificial company created by Law having a
separate entity with a perpetual succession & a
common seal.
created
artificial by Law
incorporated company
association
common
seal.
perpetual
separate succession
entity
Main Characteristics /Features of A
company
[Link] Incorporated Association—Compulsorily registered under
the companies Act
[Link] Legal Entity- A company is a distinct person which
possesses its own Identity
[Link] artificial Person –It is created by Law & not by natural
birth
[Link] succession-its life is not affected by death , Lunacy,
Insolvency or retirement of its shareholders or
directors .Members may come & go but the company can
continue its existence
[Link] Seal : It is not a natural person .It cannot sign
documents hence every company by Law must have common Seal
on which its Name is engraved .It gives an independent existence
[Link] Name: Must have a specific name which must be
registered. The name of the company must be engraved on the seal
& mentioned in all Notices, Advertisements, negotiable
instruments & other official publications etc. sec (147)
7. Limited Liability: The Liability of the members is limited upto
the face value of the share or upto the unpaid amount on the
shares. Followed with example……
Example:
The Face value of a share of a company is
Rs 10/- which has been fully paid by its
shareholders. On the winding up of a
company the Shareholder cannot be asked
to pay any amount. But if the Shareholder
has paid Rs 6/- only then he can be asked
to pay the balance Rs 4/- only & not more
than that.
A company can be a company
Limited
[Link] by B Limited By
Shares Guarantee
If it is limited by guarantee the
Liability of the Share liability of its members is limit
to that amount as the members
holders is limited to the
may undertake to contribute
extent of the unpaid towards the assests of the
amount of the shares company in the event of its
being wound up
8. Separation of ownership & Management:-In
a company organization ownership and
management are separated .
[Link] of Shares: The ownership
capital of a company is divided into a number
of shares. Such shares are transferrable.
10. Separate property: A company is a distinct
and legal personality and as such it can own,
enjoy & dispose of its property in its own
name.
[Link] of Members
In Private Limited Company In Public Limited Company
Minimum-2 Minimum-7
Maximum--50 There is no maximum limit
12. Shareholders & Actual Owners: Share holders they
contribute towards the capital of the company they participate
in the management of the company directly or indirectly.
13. Raising of Capital at the Large Scale: By selling shares
to the people
[Link] to Sue: A company can sue and also be
sued in its corporate name as any natural person can.
[Link] of Objects: without changing the objective
clause no company can take any new business.
[Link] Requirements: the company has to carry
on its business according to the statutory
requirements & can conduct that business which is
stated in MOA. a company is governed by the
provisions of the companies Act & should folow the
rules & regulations to maintain discipline & smooth
flow in working.
[Link] is a body corporate: Corporation is
derived from the Latin word Corpus which means
a body sec 2(7) The Term Body corporate or
corporation is used for a company in the
companies Act of 1956.
Important Types of Companies
On the Basis of
Liability
[Link] [Link]
Limited by Limited by [Link]
Shares Guarantee : Companies :
Liability of the Liability of Members
is Always limited to a The Liability
SH is limited to fixed amount agreed of members is
the extent of the by its members to
unpaid amount contribute towards the
unlimited
of the shares assets of the company
Companies on the basis of Mode of
Incorporation
[Link]
[Link]
Companies
Incorporated under the [Link] Companies
Royal Charter granted Companies Companies which
by the King or the Which is are registered or
Queen . Given incorporated with
incorporated
exclusive powers rights
& privileges under the by a special the registrar of
Royal Charter. Act passed by companies .In India
Eg: either Central almost all
[Link] East India or state companies are
Company . registered under the
Legislature
[Link] of England
Companies Act,1956
Companies Based on the Basis of Ownership
[Link]
Company Sec 617
[Link] Any company in which
Company Sec [Link] lass than 51% of the
3(1) (iii) Company Sec paid up share capital is
Means a company 3(1) (iv) held by the central or
Has a minimum by any state
which has a minimum
paid-up capital of 5 government. In India
paid up capital of Rs
Lack rupees or such there are many
1 Lack of such higher
higher paid-up companies in which
paid up capital as
capital as may be 100% paid up share
may be prescribed by
prescribed capital or more than
its Articles . Restricts
51% of the paid up
the right to transfer its
share capital is
shares
provided by the central
or the state government.
Classification of Companies Based on the
Jurisdiction of Functioning
1.A National [Link] [Link]
Company Company Company
Operations of a Operations of Is the ones which is
company are company are extended incorporated
confirmed only beyond the boundaries outside India but
within the of the country where
has a place of
in it is registered such
boundaries of the a company is called business in
country in which Multinational or India .Part XI of the
the company is Transnational Companies Act
registered Company 1956 deals with it.
Companies on the basis of Control & or share
holding
[Link] Company [Link] Company
Sec 4(4) of the companies Act A company is a subsidiary
1956 Implies that a company is of a holding company if a
deemed to be holding company of holding company controls
another if that other is its the majority composition
Subsidiary Thus a holding of its board of directors
company which has a control having an object to control
over a subsidiary company the management of the
through any one of the several subsidiary
methods as explained in sec 4(1)
Example
Company “A” is a subsidiary of Company “B “&
company C is a subsidiary of Company “A” , Company
C is a subsidiary Of Company B also.
Further if
Company X is a subsidiary of Company C ,Company X is
also the subsidiary of Company A & Consequently also
of Company B
Thus
1 B is the Holding Company
2 While A,C,X are the Subsidiaries of B.
Other Types of Companies
1. One Man Company 3. Existing
It is usually a private Company
company where in one man 2. Associations Sec 391) (ii)
holds the whole of the share not for Profit Means a company
capital of the company . If Limited companies
one man satisfies all the formed and
can be formed for
conditions & requirements of
promoting commerce, registered under
incorporation it becomes a
legal personality art, science, religion, any of the
charity etc. certain previous
Example: provisions have been companies Laws.
X&Y register their company as a made relating to such
Example:
private company with share capital companies in sec 25 of
of Rs 7 lack divided into 70,000 the companies Act of 1. The Indian
shares of Rs 10/- each Y Holds 1956. Companies
69,999 shares while X holds only 1 Act,1866 ,1882,
share . This is one man company
1913….
Stages Involved in the process of Formation of a
company
2. 3.
1. 4.
Registratio Floatation & Commenceme
Promotion Raising of
n nt of Business
Capital
Procedure for Registration of a company
1. Mode of forming incorporated Company
2. Registration of Memorandum & Articles
3. Certificate of Incorporation
4. Effects of Incorporation
Registration of Memorandum of Articles
a. Memorandum of the company
b. Its Articles if any
c. The agreement which the company proposes to enter into with
any individual for appointment as its managing or whole time
director or manager
a. Memorandum
It is a fundamental primary & Supreme document for Registration.
[Link] Name clause
2. The Registration office clause
3. The objects Clause No company can be registered unless the MOA is
4. The capital clause submitted to the Registrar , must be according to
the provisions , memorandum duely signed by
5. The liability Clause atleast 7 persons in public company & 2 persons
6. The Association Clause in Private company
b. Articles of Association
a. It contains the rules, regulations bye-laws etc for the internal management of
the affairs of the company.
b. Rules regulations are framed for carrying out the aims & objects as set out in
MOA.
Following companies required to have their own articles:
c. Unlimited Companies
d. Companies limited by guarantee
e. Private companies limited by shares
C. A Letter of Approval : -
f. The registrar issues a letter of approval to that effect that the proposed name
of the company has been approved.
d. Declaration :
a. Sec (392) making clear that all the requirements of the company’s Act 1956
relating to registration have been compiled with
[Link] of Directors:
a. A list of persons
b. Duly signed by them along with their consent to act as directors
c. Consent must be in writing accompanied with the signed agreement with
d. Every such director to take the number of shares required to qualify himself
as a director (sec 266)
e. It is not required in case of pvt companies & companies not having a share
capital.
F. Sanction of the Controller of Capital Issue:
f. If the capital exceeds Rs 1 cr.
G. Challan:
g. Registration fee
h. Filing fee have been duly paid as per the provisions of the Act.
Distinction Between Prospectus &
Statement in Lieu of Prospectus
Point of Distinction Prospectus Statement in Lieu of
Prospectus
Purpose It is prepared to filing It is prepared only for
with the registration filing purpose
of Companies &
Publicity
Approach It does publicity & It is prepared for
has a selling fulfilling the legal
approach formality of filing
with the Registrar of
the companies & has
an informative
Approach.
Suitability Publication of It is suitable for
prospectus is companies which
necessary for theraise the capital
companies of from known
raising capital sources where
from public shares are not
offered to the
public for
subscription
Necessity Prospectus is It is not meant for
necessary when a general public . It
company wants is to be filled with
to raise the the registrar of
capital from the companies.
general public
Corporate Management
Ownership Management Control
Share Holders B.O.D
Annual General Meeting (Every
year) Decision Making
Extraordinary General Without consent of With consent of
SH
Meeting (can be held any SH
time)
General
Board Meeting Meeting
Share Capital & Types of Share Capital
Two basic kinds of Capital
Owned Capital (Dividend) Burrowed Capital
a. Shares are owners of the (Interest)
company a. Debentures
b. Stocks b. Bonds
A company raises capital by issuing either preference shares or
equity shares. When it raises capital by issuing shares it is known
as owned capital . Besides issuing shares a company issues
debentures & bonds & raises the capital it is known as burrowed
capital.
Classification of Share Capital
1. Authorized Capital 2. Issued Capital may 3. Subscribed Capital
Nominal or registered issue certain shares Shares offered to the
capital is Rs 5 lak you according to its public for subscription
cannot raise the capital requirements it can be
beyond the authorized defined as the nominal
capital (maximum limit) value of shares
4. Called up & paid up capital 6. Reserve Capital
5. Un-called capital It is available for
that part of the issued capital
That part of issued & the creditors on the
which has been called up on
subscribed which has not winding up of the
the shares issued for
been called up company
subscription
Distinction between Shares & Stock
1. Share means share in the share capital of a company & it also
includes stock except where a distinction between stock &
shares is expressed or implied sec 2(46)
2. A share has a nominal or face value while stock has no such
nominal value
3. Shares need not be fully paid up , they can be fully or partly
paid up while stock is always fully paid up .
4. Only fully paid up shares can be converted into stock
5. Shares cannot be issued or transferred in fragments while stock
can be divided into equal amount & can be issued &
transferred in fragments .
6. All shares are always of equal denominations while stock may
be of different denominations or of unequal amounts
7. Shares are issued directly to the public stock cannot be directly
issued.
Types of Shares
[Link] Shares 2. Preference share capital
1. Normally 99% by normal 1. Normally purchased by
public promoters
2. May get higher dividend 2. At the time of dissolution of
than preference share company they enjoy the
preference over the equity
holders shares in case of distribution of
3. With voting rights Assets at the time of liquidity
4. With differential rights as 3. They get the fixed dividend
to dividend 4. They get both benefits both
dividends & distribution of
Assets.
Buy-back shares
Purchasing of its own shares by company is Buyback
of Shares of course buyback of their own shares by
the companies is subject to certain conditions which
are given by the SEBI guidelines
Objectives
1. To increase the current share price of the company
2. To return the surplus cash to the shareholders of
the company when paid up share capital becomes
more than necessary
3. To increase the rate of dividend
In case of buy-back through a resolution passed in the meeting
of the BOD , the buy-back must not exceed 10% of the total
paid up equity capital & free reserves of the company . The
resolution of the BOD must be filed with the SEBI & the stock
exchanges where the specified securities of the company buying
back the shares are listed within two working days of the
passing of the date of resolution. Working day means any
working day of SEBI
A. The ratio of the debt owned by the company buying back
the shares should not be more than twice the capital & free
reserves of the company after such buyback. Here debt
includes all amounts of secured & unsecured debts
B. All shares or other specified securities must be fully paid up
. Only fully paid up shares or securities can be brought
back
C. Buyback of shares must be accordance with regulations
made by SEBI .
Resident Director:-
Should have stayed for 182 days in India in
previous Calendar Year
Independent Director: 1/3rd of the total board of
Directors should not be related to companies
Board , they must be independent, impartial &
Rational decision making , to keep check on the
promoters aslo known as the watch dog of the
company.
As per sub-section 6 of Section 149 of the Act, Independent
Director means a director other than a managing director or
whole time director or a nominee director,
a) Who, in the opinion of the Board, is a person of integrity
and possesses relevant expertise and experience;
b) - 1. Who is or was not a promoter of the company,
2. Who is not related to promoters or directors in the company
c) Who has or had no pecuniary relationship with the company
d) None of whose relative has or had pecuniary relationship or
transaction with the company.
e) Who, neither himself nor any of his relative
i. Holds or has held the position of a key managerial personnel
ii. Is or has been an employee or proprietor or a partner, in any
of the three financial years proceeding.
iii. Holds together with his relative two per cent or more of the
total voting power of the company; or
iv. Is a Chief Executive or director, of any nonprofit
organization, or who possesses such other qualifications as
may be prescribed.
Additional Director:
In case of urgency BOD can appoint additional Director
without Approval of Shareholders only till next Annual
General Meeting, but have to pass the resolution & take
Approval of shareholders by Next Annual General meeting.
Alternate Director:
The Director who has been frequently travelling out of
country to deal with different business cases , due to
official work is outside India for a period of not less than 3
months & One who is not able to attend the Board meeting
& on his behalf another temporary /Alternate Director is
appointed to handle the business .
Number of Directorship:
One person can be a director in maximum 20
companies (Including alternate directorship)
The Companies Act,2013 Provisions relating
Women Director
As per second Proviso to Section 149(1) read with Rule 3 of
The
Companies (Appointment and Qualification of directors) Rules,
2014
(Chapter 11), the following class of companies are required to
appoint at least one Woman Director-
(i) every listed company;
(ii) every other public company having –
(a) paid–up share capital of 100 crore rupees or more; or
(b) turnover of 300 crore rupees or more.
Time Frame for appointment:
The Companies which were incorporated under The
Companies Act 1956 and companies which were covered
by Section 149 (1) were provided with the time limit to
comply with such provisions within a period of 6 months
from the date of its incorporation. Further as per
interpretation other existing Companies were required to
appoint Women Director within a period of 1 year as
mentioned under Section 149(2).
Duties and Liabilities:
The following duties and liabilities have been imposed on the
directors of companies, by the Companies Act of 2013
1.A director of a company shall act in accordance with the Articles of
Association (AOA) of the company.
2.A director of the company shall act in good faith, in order to promote the
objects of the company, for the benefits of the company as a whole, and in the
best interests of the stakeholders of the company.
3.A director of a company shall exercise the duties with due and reasonable
care, skill and diligence and shall exercise independent judgment.
4. A director of a company shall not involve in a situation in which she may
have a direct or indirect interest that conflicts, or possibly may conflict, with
the interest of the company.
5.A director of a company shall not achieve or attempt to
achieve any undue gain or advantage either to herself or
to her relatives, partners, or associates and if such
director is found guilty of making any undue gain, she
shall be liable to pay an amount equal to that gain to the
company.
[Link] a director of the company contravenes the provisions
of this section such director shall be punishable with fine
which shall not be less than Rs.1,00,000/- but which may
extend to Rs.5,00,000/-.
-
Dormant Company under Companies Act, 2013
The Companies Act, 2013 introduces a concept of a dormant company
within its ambit. It is the first time that such a concept is thought of, i.e.
company which is not active. There is no definition of what constitutes a
dormant company under the definition clause.
Section 455 states
(1) Where a company is formed and registered under this Act 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 Registrar in such manner as
may be prescribed for obtaining the status of a dormant company.
Dormant Company
“inactive company” means a company which has not been
carrying on any business or operation, or has not made any
significant accounting transaction during the last two financial
years, or has not filed financial statements and annual returns
during the last two financial years;
However a dormant company is still required to have minimum
directors, hold minimum two Board meetings and file minimum
one annual financial document with the Registrar.
A dormant company can apply to revert back to Active status
company.
Procedure for Incorporation of a Company under CA,
2013
[Link] Digital Signatures.
[Link] Director Identification Number [Section 153]
[Link] availability for proposed company.
4. Preparation of the Memorandum of Association (MOA) and
Articles of Association (AOA)
1. Obtain Digital Signatures
Nowadays various document prescribed under the Companies Act, 2013, are
required to be filed with the digital signature of the Managing Director or
Director or Manager or Secretary of the Company, therefore, it is compulsorily
required to Obtain a Digital Signature Certificate from authorized DSC issuing
authority for at least one director to sign the E-forms related to incorporate
like form and other documents.
2. Obtain Director Identification Number [Section 153]
As per 153 of the Companies Act, 2013, every individual intending to be
appointed as director of a company shall make an application for allotment of
Director Identification Number in form DIR.3 to the Central Government in
such form and manner and along with such fees as may be prescribed.
Therefore, before submission of e-Form for availability of name, all the
directors of the proposed company must ensure that they are having DIN and if
they are not having DIN, it should be first obtained.
3. Name availability for proposed company
As per section 4(4) read with Rule-9 of Companies (Incorporation) Rules,
2014, application for the reservation/availability of name shall be in Form no.
1 along with prescribed fee of Rs. 1,000/-. In selection of Company name
should be in accordance with name guidelines given in Rule-8 of Companies
(Incorporation) Rules, 2014.
Note: prescribed certain rules for name availability so it is advisable to check
guidelines for the same before applying for name. Refer Rule-8 of Companies
(Incorporation) Rules, 2014.
After approval of name ROC will issue a Name availability letter & approval
for availability of name for a proposed company.
Note: The applicant cannot start business or enter into any agreement,
contract, etc. in the name of the proposed company until and unless a
certificate of registration is issued by the registrar of companies as per the
provisions of the Companies Act, 2013 and the rules made there under.
4. Preparation of the Memorandum of Association (MOA) and Articles of
Association (AOA)
Drafting of the MOA and AOA is generally a step subsequent to the
availability of name made by the Registrar. It should be noted that the main
objects should match with the objects shown in e-Form. These two documents
are basically the charter and internal rules and regulations of the company.
Therefore, it must be drafted with utmost care and with the advice of the
experts and the other object clause should be drafted in a very broader sense.
5. Application for incorporation of a private company
As per Rule-12 of Companies (Incorporation) Rules, 2014, application for
incorporation of a private and Public company, with the Registrar, within
whose jurisdiction the registered office of the company is proposed to be
situated, shall be filed in Form no. INC 7 [Rule 12 to 18] along with Form no.
INC.22 for situation of registered office of the Company, (as the case selected
in form no. INC 7) and DIR -12 with the following attachments:
Form no. Attachments:
i. Memorandum of Association as per Table A of schedule I
ii. Articles of association as per Table F of Schedule I
iii. Declaration in Form No. -8 by Professionals. (As per Rule-14
of Companies (Incorporation) Rules, 2014, A declaration in the
prescribed form by an advocate, a CA, CMA or CS in practice
who is engaged in the formation of the company, and by a person
named in the articles as a director, manager or secretary of the
company, that all the requirements of this Act and the rules made
there under in respect of registration and matters precedent or
incidental thereto have been complied with;)
iv. Affidavit from each of the subscriber to the Memorandum in
Form No. -9 as per rule.
Rule-15 of Companies (Incorporation) Rules, 2014, (an affidavit from each
of the subscribers to the memorandum and from persons named as the first
directors, if any, in the articles that he is not convicted of any offence in
connection with the promotion, formation or management of any company, or
that he has not been found guilty of any fraud or misfeasance or of any
breach of duty to any company under this Act or any previous company law
during the preceding five years and that all the documents filed with the
Registrar for registration of the company contain information that is correct
and complete and true to the best of his knowledge and belief;)
v. Proof of residential address (the address for correspondence till its
registered office is established;)
vi. For verification of signature of subscribers [Pursuant to rule 16 (1)(q) of
companies (Incorporation) Rules, 2014 in form no. INC – 10
vii. NOC in case there is change in the promoters (first
subscribers to Memorandum of Association)
viii. Proof of Identity (the particulars of name,
including surname or family name, residential address,
nationality and such other particulars of every
subscriber to the memorandum and the particulars of
the persons mentioned in the articles as the first
directors of the company along with proof of identity, as
may be prescribed, and in the case of a subscriber
being a body corporate, such particulars as may be
prescribed;)
Assignment questions
Q1. Explain the provisions of MOA of a company according to the
Companies Act ,2013?Distinguish between Private & public Company?
Q2) Explain the features & Types of Company according to the companies
Act,2013?
Q3) Elaborate the Stages of Incorporation & Commencement of Business
under the Companies Act,2013?
Short Notes
a. Women Director
b. AOA
c. Prospectus
d. Share Capital & Types
e. Certificate of Incorporation
Thank you
