2. A Brief History of The Companies Act
In India, various Acts relating to Companies have been
passed at different times. They are –
2) Registration of Joint Stock Companies , 1850.
3) Registration of Joint Stock Companies , 1857.
4) Registration of Joint Stock Companies , 1860.
5) And thereafter in 1882 ,1895,1910 & in 1913 the Acts relating
to Companies were passed.
All these Companies Acts followed the English
Companies Acts with necessary modifications, suitable to
Indian Conditions. However, The Companies Act of
1913 remained in force till 1956. After the Second
World War, it was felt that the Companies Act , 1913 was
inadequate to
3. Continued . . .
deal with the various problems of Indian industrial as well as
business organisations which were growing more complex with
the passage of time. Therefore, the Government of India
appointed a Committee under the Chairmanship of Mr.
C.H.Bhaba in 1950. And thus as a result the
Companies Act of 1956 came into force.
Later on this Act was amended extensively on the
recommendations of Sachar Committee Report. And
thus the Companies (Amended) Act of 1988 is made
applicable. Even after that certain provisions of the Act have
been modified. At present, The Govt. is thinking to amend the
Act thoroughly and bring a new form of this Act suitable to the
new scenario. The Companies Act, 1956 extends to the
whole of India [Section 1 (3) ] .
4. What is a Company ?
A Company is –
● one of the forms of business organisation ,
● a voluntary association of persons formed for a certain
common purposes ,
● whose capital is raised by selling shares and the persons holding
such shares are known as shareholders ,
● where the liability of shareholders is limited to the extent of the
shares they hold ,
● an artificial person with a perpetual succession and a common
seal.
5. Definitions . . .
● Section 3 of the Act - A Company means a Company
formed and registered under this Act or an exciting Company as
defined in clause (ii).
● Lord Justice Lindley - By a company is meant 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 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 transferable although the right of such transfer can be
more or less restricted.
6. Main Features of A Company . . .
Separate Legal Entity
An Artificial Person But Not A Citizen
Perpetual Succession
Common Seal
Separate Name
Limited Liability
Transferability of Shares
Separate Property
Number of Members
Continued…
7. Main Features of A Company . . .
1) Raising of Capital On Large Scale
2) Capacity To Sue
3) Statutory Requirements
8. Incorporation of Company
Documents to be filed with the registrar.
Certification of incorporation
Promoter
Fiduciary position of a promoter
5. Not to make any profit at the expense of the
company.
6. To make a full disclosure of interest or profit.
If the promoter fails to perform this duty-
1. He may be sued for damages.
9. He may be sued for compensation for misrepresentation
He may be sued for damages by shareholders who have
suffered by reason of his non-compliance with the statutory
requirements as to the contents of the prospectus.
He may become liable to criminal proceeding.
Memorandum of association.
Fundamental document. Charter of company. Regulates the
external affairs of the company in relation to
outsiders.Purpose ,scope, object of company. Lays down the
area of operation.
Purpose of memorandum-
To know the prospective share holders purpose for which their
money is going to be used. What risk they are undertaking in
making investment.
10. Outsiders should know the objects.
Articles of association
It contains rules, regulations and byelaws for the internal
management of the affairs of a company.
It is next in importance to the memorandum of association
which contains the fundamental conditions upon which
alone a company is allowed to be incorporated.
11. Types of Companies
Classification of Companies On The Basis of Liability :
Companies Limited By Shares
Companies Limited By Guarantee
Unlimited Companies
Classification on the Basis of Mode of Incorporation :
Statutory Companies
Registered Companies Under the Act Continued..
.
Intel Co. HQ
12. Types of Companies
Classification on the Basis of Ownership :
II. Private Company
III. Public Company
Continued…
Oracle Co. HQ.
13. Types of Companies
Classification on the Basis of Control / Share holding :
II. Holding Company [Section 4(4) ]
III. Subsidiary Company
General Motors HQ.
NOKIA HQ.
14. Kinds of companies
(A)Classification on the basis of
incorporation:-
(1)STATUATORY COMPANIES:- by
special act of legislature .
ex.-R.B.I,S.B.I,LIC,the industrial finance
corporation , the unit trust of india .
(2)REGISTERED COMPANIES:-
registered under companies act ,1956
15. (C)Classification based on the basis of number of members
(1)private company SEC 3(1)
Minimum paid up capital of 1lacks.
Restricts the right to transfer its shares.
Minimum member is two & maximum upto fifty
Prohibits any invitation or acceptance of profit other than its
member
(2)public company
Minimum paid up capital 5lacks.
Every public company existing under company's
(amendment) act ,2000 with a paid up capital less 5lacks
has to enhance its paid up capital to 5lacks with in two year
of commencement.
Minimum member can be seven maximum member is un
limited
16. (B)Classification based on basis of liability
(1)Companies with limited liabilities:-
(a)companies limited by shares.
(b)companies limited by guarantee.
(2)Companies with unlimited
liablity[sec.12(2)]
17. Memorandum of Association
The name clause
The registered office clause
The objects clause
The liability clause
The capital clause
The association or subscription clause
Contents of Articles
●Capital clause specifying the different classes into which the
share capital of the company will be divided and defining the
rights if respective classes regarding dividends, bonuses.
Allotment of shares
Fixation of minimum subscription
Share certificates and share warrants
18. Call on shares
Forfeiture , surrender and lien
Transfer and transmission of shares
Increase and reduction of capital
Consolidation and sub division of shares
Borrowing
General meeting, proceeding thereof and votes, proxies and
polls.
Board meeting
Dividends, reserves and depreciation funds
Accounts and audits
Common seal
Notices
Special provisions in the winding up
Arbitration
19. Articles and Memorandum- Their relation
The articles are subordinate t memorandum. The articles cannot
give powers to a company which are not conferred by the
memorandum nor can they purport to create rights which are
inconsistent with the memorandum. This is so because the object of
the memorandum is to state the purpose for which the company
has been established. While the articles provide the manner in
which the internal management of the company is to be carried.
The memorandum must be read in combination with articles. This is
the case when it is necessary-
a) to explain any ambiguity in the terms of the memorandum,
B) to supplement the memorandum upon any matter about which it
is silent except as regards matters which must by statute be
provided by the memorandum.
The terms of the memorandum cannot be modified or controlled by
the Articles. If ,however there is any ambiguity in the
memorandum, the articles may be referred to for clarification.
20. Distinction between memorandum And Articles
Memorandum of Articles of Association
Association They are the regulations
It is the charter of the for the internal
company indicating the management of the
nature of its business, its company and are
nationality and capital.It subsidiary to the
also defines the company’s memorandum.
relationship with outside They are the rules for
world. carrying out the objects of
It defines the scope of the the company as set out in
activities of the company or the memorandum.
the area beyond which the They are subordinate to
actions of the company the Memorandum.
cannot go.
Every company must have
its own memorandum.
21. There are strict restrictions on They can be altered by a
its alteration. Some of the special resolution,o any
conditions of incorporation extent,provided they don’t
contained in it cannot be conflict with the
altered except with the memorandum and the
sanction of the company law company act.
board.
Any act of the company which Any act of the company which
is ultra vires the memorandum is ultra vires the articles can
is wholly void and can not be be confirmed by the
ratified even by the whole shareholders.
body of shareholders.
22. Prospectus
In order to finance its activities , a company needs capital
which is raised by a public company by the issue of a
prospectus inviting deposits or offers for shares and debentures
from the public. A private company is prohibited from making
any invitation to the public to subscribe for any shares in, or
debentures of, the company. Hence it need not issue a
prospectus.
Definition- Any document described or issued as a prospectus
and includes any notice, circular, advertisement or other
document inviting deposits from the public or inviting offers
from the public for the subscription or purchase of any shares
in or debentures of a body corporate.
It must be in writing.
Invitation to public.
Dating and signing of prospectus.
Registration of prospectus
23. Objects of registration of prospectus.
Contents of Prospectus
Statement in lieu of prospectus- Where a public company does not
invite public to subscribe for its shares, but arranges to get money
from private sources, it need not issue a prospectus to the public.
In such a case the promoters are required to prepare a draft
prospectus known as a statement in lieu of prospectus,which
should contain the information required to be disclosed by
schedule III of the act.
