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. 
