Companies Act 2013

Dr. Ranjul Rastogi

 SALIENT FEATURES
The entire act has been divided into 29 chapters.

COMPANIES ACT 1956 COMPANIES ACT 2013

13 Parts 29 Chapters

658 Sections 470 Sections

15 Schedules 7 Schedules
 What is a company
• A company means a group of persons
associated together for the attainment of a
common objective (Smith vs. Anderson)
• A company is an artificial person created by
law.
 What is a company
• According to Lindley, “A company is an
voluntary association of persons who
contribute money or money’s worth to a
common stock and employ it in some trade
or business and who share the profit or loss
arising there from. The common stock is so
denoted in money and is the capital of the
company. The persons who contribute it or to
whom it belongs are the members . The
proportion of capital to which each member is
entitled is his share.”
 What is a company
• A company is a voluntary association of persons
formed to achieve some common objectives
having a separate legal entity created by law
(artificial person), independent and separate from
its members with a perpetual succession and a
common seal and capital divisible into
transferable shares. It has right and duties at law.
No body and no soul not a fictitious person .
• Salomon vs. Salomon and Company Ltd.(Case law)
 Definition
• Companies Act, 2013 defines a company as:
“a company formed and registered under this
Act or an existing Company”. ‘Existing
Company’ means a company formed and
registered under any of the earlier Company
Laws
 Characteristics or Advantages of the company
• VOLUNTARY ASSOCIATION
• SEPERATE LEGAL ENTITY
• ARTIFICIAL PERSON
• PERPETUAL EXISTENCE
• COMMAN SEAL
• LIMITED LIABILITY
• TRANSFERABILITY OF SHARE
• PROPERTY IN ITS OWN NAME
• SUE AND BE SUED
• AUTONOMY AND INDEPENENCE
• PROFESSIONAL MANAHEMENT
 Disadvantages of the company
• Company’s formation requires many
formalities and is expensive
• Not a citizen and can not have advantage of
fundamental rights
• Social responsibility is greater
• Members cannot have effective control
• Tax burden is heavy
• Winding up procedure is complex
• Lifting the corporate veil.
 Lifting the corporate veil
Judicial Interpretation
• Determination of character of the company
• (Daimler Co. Ltd. v. Continental Tyres Rubber Co. )
• Protection of revenue( In Re Sir Dinshaw Manikjee
Patit
• Protection of companies own justified interest
• Avoidance of legal Obligation imposed by Welfare
legislations
• Prevention of fraud
• Avoidance of contractual obligation
• Misuse of exemption given by the govt.
 Lifting the corporate veil
Express Statutory Provision
• Reduction of membership
• Misdescription of company’s name
• Fraudulent conduct of business
• Misstatement in the prospectus
• Failure to repay application money
• Directors with unlimited liability
• Non payment of income tax
• Ultra vires acts
 Classification of Companies
Companies

incorporation no. of control

liability
members Ownership

Statutory co. Cos. With limited

liability Private Holding
company company govt
Ltd. Ltd.
Registered co. By By
shares guarantee
Subsidiary
Chartered Co. Public Non-
company
company government
Unlimited liability

Jurisdiction

national Foregin
 Classification on the basis of
incorporation
• Statutory companies: These are created by special
act of the legislature
– E.g.: The Reserve bank of India
– The Life Insurance corporation
– The Unit Trust Of India
• Registered Companies: These are the companies
which are formed and registered under the
companies Act, 1956 or were registered under any
of the earlier companies act.
 Classification on the basis of
liability
• 1. Companies with limited liability:
• A. Companies limited by shares
• E.g.:Infrastructure Corporation of Andhra Pradesh Limited,
• MSEB Holding Company Limited,
• Maharashtra State Power Distribution Company Limited,
• Maharashtra State Power Generation Company Limited and
• Maharashtra State Power Transmission Company Limited.
• B. Companies limited by guarantee
• E.g.:
• Schools & Educational Establishments
• Clubs & Associations
• Charities and Organisation intending to apply for charitable status
• Churches & other Places of Worship
• Trade or Research Associations

• 2. Unlimited companies
• E.g.: Jonathan Rose co.,
– Wicks Group of companies
– Suyog system and Software pvt. Ltd.
 Classification on the basis of number of members
• Private company
– A private company means a company which has a minimum
paid up capital or such higher paid up capital as may be
prescribed , and by articles-
• (a) restricts the right to transfer its shares, if any. This restriction Is
meant to preserve the private character of the company
• (b) limits the number of its members to 200 not including its
employee-members
• ( C) prohibits any invitation to the public to subscribe for any shares
in or debentures of the company
• (d) prohibits any invitation or acceptance of deposits from persons
other than its members, directors and their relatives
• Public company
– A public company means a company which Is not a private
co.
• Has a minimum paid up capital or such high paid-up capital, as may
be prescribed
 Small company
• 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 50 lakh INR
or such higher amount as may be prescribed which shall not be
more than five crore INR
• (ii) Turnover of which as per its last profit-and-loss account
does not exceed two crore INR or such higher amount as may
be prescribed which shall not be more than 20 crore INR:
• As set out in the 2013 Act, this section will not be applicable to
A holding company or a subsidiary company , A company
registered under section 8
• A company or body corporate governed by any special Act
[section 2(85) of 2013 Act]
 Classification on the basis of control
• Holding company
– A company is known as the holding company of another
company if it has control over that other company.
• Subsidiary company
– A company is known as a subsidiary of another company
when control is exercised by the latter over the former
called a subsidiary company.
• Company controlling composition of Board of Directors
• Holding of majority of shares
• Subsidiary of another subsidiary
• Holding, Subsidiary and Associate companies
• Holding company = itself owns 20% or more shares
of another company.
• that “Another company” is further classified into:
• subsidiary companyIf 50% shares owned by holding
company.
• associate company
• If 20% or more shares owned by holding company.
 Classification on the basis of ownership
• Government company
– A Government Company means any company in
which not less than 51% of the paid-up share
capital is held by
• The central government or
• Any state government or governments or
– Partly by the central government and partly by one
or more state governments.
• E.g.: State Trading Corporation of India Limited
• Minerals and Metals Trading Corporation of India limited
• Non-government company
– Foreign companies
 Difference
PRIVATE LTD.
• No. of members can be 2 to
200 Minimum paid up
capital. Cannot invite public
to subscribe for shares or
debentures Can accept
deposit only from
members, directors or their
relatives
• Further issues are not
required to be right issues
to existing shareholders
PUBLIC LTD.
• No. of members can be 7 to
unlimited. Minimum Paid
up capital .Can invite public
to subscribe for shares or
debentures Can accept
public deposits
• Further issues should be
rights issues to existing
shareholders, unless special
resolution is passed
 Difference
PRIVATE LTD
• Should contain words Private
Limited‘ at the end of its name
Statement in lieu of prospectus not
required even for first issue Can
issue any type of shares having
varying and disproportionate rights
in respect of voting/dividend
• Does not require certificate to
commence business after
incorporation Statutory meeting
and statutory report is not
required
PUBLIC LTD.
• Should contain words Limited‘
at the end of its name
Statement in lieu of prospectus
OR prospectus required Can
issue only equity and
preference shares (as per rules).
Requires certificate to
commence business after
incorporation Statutory meeting
and statutory report is required
•
 Difference
PUBLIC LTD.
PRIVATE LTD

• Annual accounts and • Annual accounts and

documents can be seen by a documents can be seen by
member any person and a copy can
• Can restrict transfer of also be obtained.
shares • Shares are freely
transferable
 CHANGES REGARDING INCORPORATION
RELATING MATTERS

Sr Particular Provisions under Provisions under

no Companies Act 1956 Companies Act
2013
1 Types of Companies Public company Public company
Private company Private company
One Person company

2 Maximum no of A private company can A private company can

members for private have maximum of 50 have maximum of 200
companies members members
3 One person No provision for OPC New Concept
company Introduced

4 Commencement of Provisions applicable to Now applicable to all

business public limited company companies having
only share capital
INCORPORATION OF COMPANIES
 The concept of “One Person Company” has been
introduced and the said company will be formed as a
private limited company. This will be called as “OPC
Limited” [Section 2(62)].
 A Company may be an OPC having a sole member.
 The memorandum of such OPC is required to indicate
the name of the person who shall become member in the
event of death or incapacity of the sole member.
 OPC is required to specifically mention the word “one
person company” below the name wherever it is used.

Continued….
 Continued….

 2013 Act provides additional flexibility to OPC. Some of

the relaxations provided to OPC are as under:
– Cash flow statement is not required.
– Annual Return can be signed by CS or one director if
there is no CS.
– Provisions of board meeting, quorum and interested
director shall not apply to OPC.
– OPC should have minimum 1 director.
– OPC need not hold an AGM.
– Financial Statements can be signed by only one director.
 Formation of a Company
• Promotion
• Registration and incorporation
-Memorandum
-Articles of association
-Letter of Approval (company’s name)
-Declaration
-Agreements
-List of Directors
-consent of directors
-undertaking by the directors to take qualifying shares
• Certificate of incorporation
• Commencement of business
 OBJECT CLAUSE OF MOA

Provisions under Companies Act Provisions under Companies Act

1956 2013

Object Clause is bifurcated MOA to contain the objects for

into – which the company is
 Main Objects, proposed to be incorporated
 Incidental or Ancillary and any matter considered
Objects and necessary in furtherance
 Other Objects. thereof.
 Memorandum of Association
• The first step in the formation of the company is to prepare
memorandum of association. it is one of the documents which has to
be filed with registrar of the companies at the time of incorporation
of a company. It is vital document, tell about the object of the
company’s formation ,the power of the company as well as the
boundaries beyond which the action of the company can not go.

Imporatance of memorandum :
• Importance of memorandum It defines and confines the power of the
company and beyond that is ultra vires. It defines the rights and
liabilities of the members. It shows the capital structure of the
company It shows the object of the company It specifies the state in
which the registered office of the company is situated. It shows the
constitution of the company It specify the conditions under which the
company has been incorporated.
 Memo
• The memorandum is the area beyond which
the action of the company cannot go ; inside
that area the shareholders may make such
regulations for their own governance as they
think fit. Lord Cairns
• Ashbury rail Carriage & Iron Company v. Riche
• Clauses of Memo
- Name, Registered office, Object, liability,
capital and association or subscription clause
 Alteration of Memo
• Name by passing a special resolution and
approval from central government in writing
• Registered office Within city( board resolution)
• From one city to another city in the same state
(special resolution )
• From one city to another city in the different
state (special resolution and confirmation from
company law board. )
• Object special resolution and filing with registrar
 Alteration of Memo
• Liability ( if concerned members agree in
writing)
• Capital (alteration if authorised by its AOA
otherwise alter the AOA and then alter the
capital) ordinary resolution and in some cases
special resolution.
•
 Doctrine of Ultra Vires
• See Supplimentary notes in word file
 Articles of Association
• “The articles defines the duties,rights, and the powers
of the governing body as between themselves and the
company at large, and the mode and the form in which
the business of the company is to be carried on, and
the mode and form in which changes in the internal
regulations of the company may,from time to time, be
made .” Lord Cairns
• Ashbury Railways Carriage and Iron & Co. V. Riche
• Obligatory or legally compulsory for Pvt.Ltd, Unlimited,
Public companies ltd. By guarantee companies, public
ltd by share can either frame on its own or adopt the
rules and regulations given in Table A of Schedule 1 of
the Companies Act.
 Alteration of AOA
•
• effected by passing a special resolutions .
• A company cannot divest itself of the power to
alter the AOA.
Limitations
 Prospectus
• Section2(36) denies a prospectus as “any
documentdescribed or issued as a prospectus
that include anynotice ,circular,advertisement
or other documentinviting deposits from the
public or the subscription or purchase of any
shares in or debentures of a bodycorporate
 Ingredients may be said to
constitute a ‘prospectus’
• (a)There must be an invitation to the
public(b)The invitations must be made “by or
on behalf of the company or in relation to an
intended company.(c)The invitation must be
“to subscribe or purchase”(d)The invitation
must refer to shares or debentures or such
other instrument.