Define Company Law?

COMPANY LAW

The word company is derived from a Latin word `companies`

it means a group of persons who took their need together.

 In India law relating to companies are contained in The companies Act 1956.

Meaning and definition

 A company is a voluntary association of persons formed for some common purpose with capital divisible into  parts known as shares .

Justice Lindlay defines company “as an association of many persons who contribute money or money’s worth to a common stock and employ it in some trade or business and who share the profits arising there from”

According to companies act a company means a company formed and registered under companies act.

Features of a Registered comapny

1.      Voluntary Association

A company is voluntary association of persons who have come together for a common object which generally is to earn profit.

The activities of this association are governed by the law and are limited by its memorandum of association

2.      Incorporated association

A company comes into existence on incorporation or registration under the companies act. Minimum number of persons required for the purpose of incorporation is seven in case of a public company and two in case of a private company.

3.      Separate legal entity

 On incorporation company gets personality which is separate and distinct from those of its members. Company is an artificial person created by law. 

4.      Separate property

The company can own , enjoy  and dispose off its property in its own name.

5.      Legal restrictions

The formation, working and winding up of a company are strictly governed by laws, rules and regulations

6.      Perpetual succession

 unlike a person a company never dies. Its existence is not affected in any way by    the death or insolvency of any shareholder. Members may come and members may go , but the company continues its operations until it is wound up.

7.      Common seal

As a company is an artificial person it cannot sign its name on a contract. So it function with the help of seal. All contract entered into by the members will be under the common seal of the company.

8.      Share capital

A company mobilizes its capital by selling its shares. Those persons who buy these shares become its share holders and thereby become members in it

9.      Limited Liability

In case of limited companies liability of members will be limited to the amount unpaid on the shares.

10. Transferability of shares.

Members can freely transfer and sell their shares .The right to transfer share is a statutory right of members.

 Ownership and management

The owners of a company are its share holders.

The affairs of the company are managed by their representatives known as Directors

Type of companies

Companies can be classified on the basis of ;

A.    Incorporation

B.     Liability of members

C.     Number of members

D.    Ownership

A.   Incorporation

1.       Chartered company

2.       Statutory company

3.       Registered company

1. Chartered company

 The company which have formed and incorporated under a special charter granted by the king or queen.

Eg East India company.

Bank of England.

2. Statutory company

These are companies which are created by means of a special Act of Parliament or any state legislature.

Eg RBI, Railway

3. Registered company

Company formed and registered under companies Act 1956 is called Registered companies.

B.   Liability of members

1.      Limited company

2.      Company limited by guarantee

3.      Unlimited company

1.      Limited company or company limited by share

Majority of registered companies will be company limited by shares. In case of limited companies liability of members will be limited to the amount unpaid on the shares.

     2. Company limited by guarantee

Here liability of each member is limited by the memorandum to such amount as he may guarantee by the memorandum to contribute to the assets of the company in the event of its winding up.

Such  companies are formed for the promotion of art science, culture, sports etc.

3. Unlimited company

A company not having any limit on the liability of its members is termed as unlimited company.

The members are liable for the debts of the company at the time of winding up.

      C. Number of members

1.      Private company

2.      Public company

1. Private company

A private company is a company

            -which restricts the right to transfer its shares.

            -limits the number of its members to 50.

           -prohibits any invitation to public to subscribe its shares.

2. Public company

A public company means a company which is not a private company

E.   Ownership

1.      Government Company

2.      Foreign company

3.      Holding and subsidiary company

1. Government company

A company is said to be government company when 51% of the paid up capital is held by the central government or by any state government or partly by central govt or partly by one or more state govt.

2. Foreign company

A foreign company is a company incorporated outside  India and having a place of business in India.

3. Holding and subsidiary company

            À company which controls another company is known as the holding company and the so controlled company is known as subsidiary company.

One Man Company

This is a company in which one man holds practically the whole of the share capital of the company, and in order to meet the statutory requirement of minimum number of members some dummy members like his wife and son holds one or two shares each.

Distinction between public company & private company.

No.	Private Co.	Public Co.
1.	Minimum no of members is 2	Minimum no of members is 7
2.	Maximum no members is 50	No maximum limit
3.	Minimum paid up capital is Rs 1 lakh	Minimum paid up capital is 5 lakh
4.	Name must end with the word ‘Pvt Ltd’	Name must end with the word ‘Ltd’
5.	Can commence business immediately after incorporation	It shall have to wait until it receive the certificate for commencement of business.
6.	It cannot invite public to subscribe its shares and debentures	It can invite public to subscribe its shares and debentures
7.	Minimum subscription is not required for allotment of shares. 9	Minimum subscription is required for allotment of shares.
8.	Need not hold statutory meeting of the members.	It has to hold a statutory meeting and file a stat: report.
9.	Quorum required for a meeting is 2.	Quorum required for a meeting is 5
10.	There is restriction of transfer of shares	Shares can be freely transferred.
11.	Not required to issue prospectus.	Must issue prospectus.
13.	Two directors	Three directors

Formation of a company

The procedure or formation of a company may be divided into four stages;

1. Promotion

2. Incorporation

3. Raising of capital

4. Commencement of business

I. Promotion

 It is the first stage in the formation of a company.

In this stage the idea of carrying on a business is conceived by a person or a group of persons called promoters. They make detailed investigation about the workability of the idea, amt of capital required, operating expense etc etc..

Before a company an be formed, there must be some persons who have an intention to form a company and who take the necessary steps to carry that intention into operation. Such persons are called promoters.

The promoter is the person who brings a company into existence.

II. Incorporation

A company is said to be incorporated  when it is registered with the registrar under the companies act. The certificate of incorporation is the birth certificate of the company. A company comes into existence from the date mentioned in the certificate.

Procedure for registration

The promoter has to first decide the proposed form of company as whether it is to be a public company or a private company.

They may form the company with limited liability , unlimited liability  or limited by guarantee.

 They have to decide the name of the company agreeable and desirable to all. For eg if the name proposed is identical with or closely resembles the name of an existing company , it is undesirable.

For getting registration an application has to be made to the registrar. The application shall be accompanied by the following documents:

1.      Memorandum of association

2.      Articles of association

3.      A statement of nominal capital

4.      A notice of address of the registered office of the company.

5.      A list of directors and their consent to a act signed by them

6.      A declaration that all the requirements of the act have been complied with. Such declaration shall be signed by an advocate of high court or supreme court or a chartered accountant who is engaged in the formation of company

Certificate of incorporation

If the registrar is satisfied that all the requirements of the act have been complied with he shall register the company and issue a certificate of incorporation.

Conclusive proof

Once a company is registered incorporation cannot be challenged subsequently. The certificate of incorporation is a conclusive evidence of the fact that-

1. all the requirements of the act have been complied with.

2. company is duly registered.

3. company came into existence on the date of certificate.

Advantages of incorporation

1.      Transferability of shares

2.      Separate legal entity

3.      Perpetual succession

4.      Common seal

5.      Separate property

6.      Capacity to sue

III. Raising of capital

After incorporation a company can raise capital by issuing shares. A private company cannot issue shares to public.

In case of public company a copy of prospectus is filed with the registrar and it will be issued to the public. Those who are intended in purchasing share are required to send their application money to company's  banker.

 On the last date fixed for the receipt of application if the company has received application equal to minimum subscription the directors will start with allotment of shares.

IV. Commencement of business

A private company may commence its business immediately after incorporation.

But a public company cannot commence business immediately after incorporation but it has to obtain a certificate of commencement from the registrar.

MEMORANDUM OF ASSOCIATION

Memorandum of association for a company is like the constitutional law for a country. It is the document which contains  the rules regarding constitution and activities of the company. It is a fundamental charter of the company.

It defines the extent of powers of the company, beyond that it cannot go. It is a document filed at the time of incorporation.

It is a public document ie any interested public can get a copy on payment of prescribed fees.

Contents of memorandum

1. Name clause

2. Registered office clause

3. Object clause

4. Liability clause

5. Capital clause

6. Association clause or subscription clause.

1. Name clause

The first clause of memorandum requires a company to state its name

Rules:-Should not adopt identical with or resembles that of an existing company.   Ltd for public company and Pvt Ltd for private company. Should not use a name prohibited by the Name and Emblems Act. 

2. Registered office clause

The memorandum must specify the state in which the registered office of the company is to be situated.

3. Object clause

This is the most important clause of the memorandum of association. It defines the object of the company and the extent of its powers. The object of the company must be state very clearly and a company cannot do anything beyond object clause. The objects of the company shall not be illegal or against public policy. 

4. Liability clause

This  clause state the nature of liability of members.

5. Capital clause

This clause contains the  total amount of capital with which the company is registered. This capital is known as authorized capital or nominal capital or registered capital.

6. Association clause or subscription clause

The memorandum concludes with subscription clause. The memorandum must be subscribed by at least  7 persons in case of public company and 2 in case of private company. Each subscriber must sign the document and write the number of shares taken by him.

ALTERATION OF MEMORANDUM

The alteration of the memorandum is possible only by strictly following the procedure laid down in the Act

1. Alteration of a name clause

The name of a company can be changed by passing a special resolution and with approval of central govt. If a company is registered with a name which is in the opinion of central govt is identical with or too closely resemble to the name of an existing company, it can be changed by passing an ordinary resolution but with the approval of central govt .

2. Alteration of registered office clause

If the shift of office is within local limits, ie from one place to another place in the same city , town or village that can be done by giving a notice of change to registrar.

If the shift is outside local limits, a special resolution has to be passed.

If the shift is from the jurisdiction of one registrar to another's the special resolution should be confirmed by the regional director of the state. (new sec 17 A Amendment Act 2000)

3. Alteration of object clause

•The alteration of object clause is subject to so many restrictions. A company may change its objects for the following purposes;

1. To carry business more economically or more efficiently.

2.To attain its main purposes by new or improved means.

3. To enlarge or change local area of operation

4. To restrict or abandon any of its objects specified in the memorandum.

5. To amalgamate the company with any other company.

6. To sell or dispose of the whole or any part of the undertaking of the company.

–A special resolution and approval of company law board is necessary for alteration.

4. Alteration of liability clause

Liability clause cannot be altered so as to make the liability of members unlimited.

5. Alteration of capital clause

Alteration can be made to

1.To increase share capital

2.To convert fully paid share to stock

3.Cancellation of shares  etc

Doctrine of ultra vires

  Memorandum contains  the rules regarding constitution and activities of the company. It is a fundamental charter of the company. It defines the extent of powers of the company, beyond that it cannot go.

A co can act and function within the limits of memorandum. Any act which is beyond the memorandum is ultra vires the company. Such acts are void .

Ultra means beyond and vires means powers. So ultra vires means ‘beyond powers’.

The purpose of this doctrine is to helps the shareholders , creditors and every third person dealing with the company to ensure that their investment are not diverted to unauthorized objects.

ARTICLES OF ASSOCIATION

Articles of association are the internal regulations of the company and are for the benefit of shareholders. These are the rules and regulation relating to the internal management of a company. The article define the mode and form on which the business of the company is to be carried on.