ELEMENTS OF COMPANY LAW

(Under the COMPANIES ACT, 2013)

Prof. (CS )Monica Suri

Fellow Member of the Institute of
Company Secretaries of India
 TOPICS COVERED

-INTRODUCTION / DEFINITION / FEATURES OF

COMPANY
-MOA AND AOA
-PROSPECTUS,
-SHARE CAPITAL TYPES
-TYPES OF COMPANIES
-REGISTRATION OF COMPANES
 MEANING OF COMPANY
• Section 2(20) of the Companies Act, 2013,
defines the term ‘Company’ as follows:

• “Company means a Company Incorporated

under this Act or under any
previous company”
 Features of Company
• A Company is a Separate Legal Entity
One of the most distinctive features of a Company
is that it acquires a unique character of being a
separate legal entity, different from others.
• Perpetual Succession
Another important feature of a Company is that it
continues to carry on its business notwithstanding
the death of change of its members until it is
wound up on the grounds specified by the Act.
• limited Liability
• One of the important features of a company is the
limited liability of its members.
• Artificial Legal Person
• Another one of the features of a company is that it is
known as an Artificial Legal Person.
• Artificial – because its creation is by a process other
than natural birth.
• Legal – because its creation is by law, and
• Person – because it has similar rights to a human
being.
• Common Seal
• While a company is an artificial person and works through the
agency of human beings, it has an official signature. . This official
signature is the Common Seal.
• However, the Companies (Amendment) Act, 2015 has made the
Common Seal optional. Section 9 of the Act does not have the
phrase ‘and a common seal’ in it. This provides an alternative mode
of authorization for companies who do not wish to have a common
seal.
• According to this amendment, if a company does not have a
common seal, then the authorization shall be done by:
• Two Directors or
• One Director and the Company Secretary (if the company has
appointed a Company Secretary).
 CASE IN POINT….
Saloman VS Saloman and Co.
• Facts of the Case
• Salomon transferred his business of boot making, initially run as a sole proprietorship, to a
company (Salomon Ltd.), incorporated with members comprising of himself and his family.

• The price for such transfer was paid to Salomon by way of shares, and debentures having a floating
charge (security against debt) on the assets of the company.

• Later, when the company's business failed and it went into liquidation,

• Salomon's right of recovery (secured through floating charge) against the debentures stood aprior
to the claims of unsecured creditors, who would, thus, have recovered nothing from the liquidation
proceeds.

• The liquidator sought to overlook the separate personality of

Salomon Ltd., distinct from its member Salomon, so as to
make Salomon personally liable for the company's debt as if
he continued to conduct the business as a sole trader.
 Continued…
• ISSUE:

Whether, regardless of the separate legal identity of a company, a

shareholder/controller could be held liable for its debt, over and above the capital
contribution, so as to expose such member to unlimited personal liability?

• JUDGMENT:

-A company is a separate legal entity distinct from its members and so Mr.
Salomon, the founder of A. Salomon and Company, Ltd., from personal
liability to the creditors of the company he founded.

- The debenture holders had a priority claim over the unsecured

Creditors.HE THUS HAD A PRIORITY CLAIM
MEMORANDUM OF ASSOCIATION(MOA)
ARTICLES OF ASSOCIATION ( AOA)
• Memorandum of association is the charter of the
company and defines the scope of its activities.
• An article of association of the company is a
document which regulates the internal
management of the company.
• Memorandum of association defines the relation
of the company with the rights of the members
of the company interest and also establishes the
relationship of the company with the members.
 CLAUSES UNDER MOA
• Section 4 of the Companies Act,2013 deals with
MOA. The Memorandum of a company shall
contain the following;

• Name Clause
• Domicile Clause
• Objects Clause
• Liability Clause
• Capital Clause
• Subscription Clause
 MOA- DEFINITION

• As per Section 2(56) of the Companies

Act,2013 “memorandum” means the
memorandum of association of a company as
originally framed or as altered from time to time
in pursuance of any previous company law or of
this Act.

• ALTERATION OF ANY CLAUSE THROUGH CONSENT

OF SHAREHOLDERS IN AGM.
 AOA – DEFINITION
• As per Section 2(5) of the Companies Act,2013 “articles”
means the articles of association of a company as originally
framed or as altered from time to time or applied in
pursuance of any previous company law or of this Act.

• Section 5 of the Companies Act,2013 deals with AOA.

• The articles of a company shall contain the regulations for
management of the company.
• The articles shall also contain such matters, as may be
prescribed.
• It shall be not prevent a company from including such
additional matters in its articles as may be considered
necessary for its management.
• Provisions for Retrenchment:
• The articles may contain provisions for
entrenchment to the effect that specified
provisions of the articles may be altered only
if conditions or procedures as that are more
restrictive than those applicable in the case of
a special resolution, are met or complied with.
 PROSPECTUS
• The Companies Act, 2013 defines a prospectus
under section 2(70). Prospectus can be
defined as

• “any document which is described or issued as

a prospectus”. This also includes any notice,
circular, advertisement or any other document
acting as an invitation to offers from the public.
Such an invitation to offer should be for the
purchase of any securities of a corporate body.
Shelf prospectus and red herring prospectus
are also considered as a prospectus.
 Conditions

• For any document to considered as a

prospectus, it
1.The document should invite the subscription
to public share or debentures, or it should
invite deposits.
2.Such an invitation should be made to the
public.
3.The invitation should be made by the
company or on the behalf company.
4.The invitation should relate to shares,
debentures or such other instruments.
Information in Prospectus:
Every prospectus shall state following information:-
i. names and addresses of the registered office of the company,
company secretary, Chief Financial Officer, auditors, legal advisers,
bankers, trustees, if any, underwriters and such other persons as may
be prescribed;
ii. dates of the opening and closing of the issue, and declaration
about the issue of allotment letters and refunds within the prescribed
time;
iii. a statement by the Board of Directors about the separate
bank account where all monies received out of the issue are to be
transferred and disclosure of details of all monies including utilised and
unutilised monies out of the previous issue in the prescribed manner;
 iv. details about underwriting of the issue;
v. consent of the directors, auditors,
bankers to the issue, expert’s opinion, if any, and
of such other persons, as may be prescribed;
 Types of Prospectus
• Types of the prospectus as follows.
• Red Herring Prospectus
• Shelf Prospectus
• Abridged prospectus
• Deemed Prospectus
 Red Herring Prospectus

• Red herring prospectus is the prospectus which

lacks the complete particulars about the
quantum of the price of the securities. A
company may issue a red herring
prospectus prior to the issue of
prospectus when it is proposing to make an
offer of securities.

• This type of prospectus needs to be filed with

the registrar at least three days prior to the
opening of the subscription list or the offer
 Shelf Prospectus Sec 31

• Shelf prospectus can be defined as a prospectus that

has been issued by any public financial institution,
company or bank for one or more issues of securities
or class of securities as mentioned in the prospectus.

• When a shelf prospectus is issued then the issuer

does not need to issue a separate prospectus for each
offering he can offer or sell securities without issuing
any further prospectus.

• The provisions related to shelf prospectus has been

discussed under section 31 of the Companies Act,
2013.
 Abridged Prospectus
• Abridged Prospectus
• The abridged prospectus is a summary of a
prospectus filed before the registrar. It contains
all the features of a prospectus.

• An abridged prospectus contains all the

information of the prospectus in brief so that it
should be convenient and quick for an investor to
know all the useful information in short.
• Section 33(1) of the Companies Act, 2013 also
states that when any form for the purchase of
securities of a company is issued, it must be
accompanied by an abridged prospectus.
 Deemed Prospectus.. Sec 25(1)

• A deemed prospectus has been stated

under

• When any company to offer securities

for sale to the public, allots or agrees to
allot securities, the document will be
considered as a deemed prospectus
through which the offer is made to the
public for sale.
• SEBI v. Kunnamkulam Paper Mills
Ltd.,

• Held by the court …….

• …..that where a rights issue is made to
the existing members with a right to
renounce in the favour of others, it
becomes a deemed prospectus if the
number of such others exceeds fifty.
 Types of capital
• AUTHORISED CAPITAL
• ISSUED CAPITAL
• SUBSCRIBED CAPITAL
• PAID UP CAPITAL
• CALLED UP CAPITAL
• CALLS IN ARREARS
 TYPES OF COMPANIES

• ONE PERSON COMPANY

• PRIVATE LIMITED COMPANY
• PUBLIC LIMITED COMPANY
• SECTION 8 COMPANY
• SOLE PROPRIETORSHIP(UNREGISTERED)
 REGISTRATION PROCESS
• Step 1 – Obtain DIN ( Directors Identification
Number) and DSC( Digital Signatures)

Step 2-NAME AVAILABILITY

• Within one week the ROC initiantes if the
Name has been granted.
• FORM SPICE +--Specified Porform for
Incorporation of Company
• Step 3- Incorporation Stage – Submission of
Documents
• POA
• MOA
• AOA
• Requiste form of Directors Consent/DIR 3/DIR 12
• Within 2 weeks the ROC grants Certificate of
Incorporation if not rejected.
• Step 4- Commencement Stage
• Private Limited Co starts operation after
Incorporation Stage, But Public Limited Co.
Have to obtain CERTIFICATE OF
COMMENCEMENT OF BUSINESS.
WEBSITE DETAILS ….For Incorporation
of Companies

www.mca.gov.in
 MORE TOPICS

• MEETINGS
• AUDIT- TYPES
• CORPORATE SOCIAL RESPONSIBILTY(CSR)
• DIRECTORS – TYPES
• DIRECTORS – POWERS AND FUNCTIONS
• WINDING UP OF COMPANY
 MEETINGS
• Shareholders Meetings….
• ANNUAL GENERAL MEETING
• EXTRA ORDINARY GENERAL MEETING

• Directors Meetings
• BOARD MEETINGS
• COMMITTEE MEETINGS
 Audit Committee

Stakeholders Committee
Types of
Committees Nomination and
remuneration Committee

CSR Committee
 TYPES OF AUDIT
• EXTERNAL AUDIT / STATUTORY AUDIT

• INTERNAL AUDIT

• COST AUDIT

• SECRETARIAL AUDIT
 DIRECTORS TYPES
• Executive directors (ED)
• and non- executive directors.

• Non-executive directors are further sub- categorized

into independent directors (ID) and others (NED).

• Whilst the 2013 Act recognizes the concept of ED, ID

and NED,it prescribes minimum requirement only in
respect of ID. For the balance composition, a
company is free to choose between ED and NED
 INDEPENDENT DIRECTOR
❖Requirement
• Listed Company at least 1/3rd of its total number of
directors as IDs AND Public Companies –

• At least 2 ID’s
• PSC >= 10 crore or

• TO >= 100 Crore or more or aggregate,

• outstanding loans or borrowings or debentures or

deposits > 50 Crore.
❖Tenure - ID shall not hold office for more than 2
consecutive terms of up to 5 consecutive years each.
 WOMAN DIRECTOR

• At least one Woman Director - Listed and

public company having

• PSC Rs. 100 Crore or more

• or TO of Rs. 300 Crore or more

• At least one Woman Director

 RESIDENT DIRECTOR

• At least 1 Resident Director - Every company

• Resident Director shall be a person who has
stayed in India for 182 days or more in the
previous calendar year.
 NOMINEE DIRECTOR

• Subject to AOA,

• the Board may appoint any person as Nominee

Director in pursuance of provision of any law or of
any agreement or by the CG/SG.

• No Provision specified

•
 SHADOW DIRECTORS

• Are the Ones who act as Shadow of Executive

or Non Executive Directors.

• No Specific Provisions
 POWERS AND LIABILITIES OF
DIRECTORS
POWER OF BOARD OF DIRECTORS (SECTION 179):

• The Board of Directors of a company shall be

entitled to exercise all powers, and to do all acts
and things, as the company is authorised to
exercise and do.

• The Board shall be subject to restrictions

imposed under this Act or in Memorandum or
Articles or any regulation of the Company.
• The Board shall not exercise any power which
is required to be exercised by the company in
general meeting.

• No regulation made by the company in

general meeting shall invalidate any act of the
Board done prior to these regulations come
into existence and effect.
 POWERS OF THE BOARD
Powers to be exercise in Board Meeting (Section 179 (3)

The Board shall exercise following powers only by

means of resolution passed in its meeting:
(a) to make calls on shareholders in respect of money
unpaid on their shares;
(b) to authorise buy-back of securities under section 68;
(c) to issue securities, including debentures, whether in
or outside India;
(d) to borrow monies;
(e) to invest the funds of the company;
f) to grant loans or give guarantee or provide
security in respect of loans;
(g) to approve financial statement and the
Board’s report;
(h) to diversify the business of the company;
(i) to approve amalgamation, merger or
reconstruction;
(j) to take over a company or acquire a
controlling or substantial stake in another
company;
 CSR….CORPORATE SOCIAL
RESPONSIBILTY … SECTION 135
• Corporate Social Responsibility defines the
social contribution that a Company has to
make under the CA 2013 and CSR Rules

• Governed by the CSR Committee , headed by

the Independent Director.

• Eg- Girl Child education , PM Relief Fund etc.

 DOCTORINES
• LIFTING OF THE CORPORATE VEIL
• Lifting or piercing of corporate veil
means ignoring the fact that a company
is a separate legal entity and has a
separate identity (Corporate personality).
• The appropriate authority will break this
shell of the company and sue the
individuals who have done or committed
such a crime or offence
• DOCTORINE OF INDOOR MANGEMENT
AND DOCTORINE OF CONSTRUCTIVE NOTICE
• The doctrine of constructive
notice protects the company from the
actions of outsider person and the
doctrine of indoor management protects
the outsider person from the actions of
the company. The interest of the company
and the outsider person has been
protected
 WINDING UP

• STRIKING • WINDING UP • WINDING UP

OFF THE THROUGH • UNDER
COMPANY…. TRIBUNAL… INSOLVENCY
• UNDER • UNDER AND
SECTION SECTION BANKRUPTCY
248(2) 270, 271 CODE 2016
/272
 WINDING UP OF COMPANY
• Winding up means a proceeding by which
a company is dissolved.
• The assets are disposed, the liabilities are
paid, and the surplus, if any, is distributed
among the shareholders/ members in
proportion to their shareholding in the
company.
 MODES OF WINDING UP
1. . Removal / Strike off of name of the
Company.

2. 2. Winding up under the Companies Act,

2013 by the Tribunal.

3. Liquidation of Company under the

Insolvency and Bankruptcy Code, 2016
 SECTION 248(2)
• . Removal / Strike off of name of the Company-
Section 248(2) of the Companies Act, 2013 read
with Companies (Removal of Names of
Companies from the Register of Companies)
Rules, 2016 implies two different modes for
removing the name of the Company from the
Register of Companies-
• I. By the Registrar of Company (ROC) on suo
motu basis, if it has a reasonable cause to believe
that-
• a company has failed to commence its
business within 1 year of its incorporation; or
• a company is not carrying on any business or
operation for a period of 2 immediately
preceding financial years
• the subscribers to the memorandum have not
paid the subscription amount which they had
undertaken to pay at the time of incorporation
of a company
• he company is not carrying on any
business or operations, as revealed after
the physical verification of registered office
of the Company.
• II. By a Company upon filing of an application with
the Registrar on all or any of the grounds in
CLAUSE 1
• A Company may after extinguishing all its
liabilities, pass special resolution or take consent
of seventy-five per cent. members in terms of
paid-up share capital;
• File an application for removal of name of the
company in eForm STK-2 along with the fee of
5,000 rupees and the prescribed list of documents
– given in annexure like NOC etc
.
 SECTION 271
A company can be wound up by a tribunal in the
below mentioned circumstances:
1. When the company is unable to pay its debts
2. If the company has by special resolution resolved
that the company be wound up by the tribunal.
3. If the company has acted against the interest of the
integrity or morality of India, security of the state, or
has spoiled any kind of friendly relations with foreign or
neighboring countries.
4. If the company has not filled its financial statements or annual
returns for preceding 5 consecutive financial years.

5. If the tribunal by any means finds that it is just & equitable

that the company should be wound up.

6. If the company in any way is indulged in fraudulent activities

or any other unlawful business, or any person or management
connected with the formation of company is found guilty of
fraud, or any kind of misconduct.
 SECTION 272.. PERSONS WHO CAN
FILE PETITION
List of persons, who shall be entitled to file an
petition for the winding up of a company-
• the company;
• any contributory or contributories (holder of
partly/fully paid up shares);
• all or any of the persons specified in clauses (a)
and (b);
• the Registrar;
• any person authorised by the Central Government
in that behalf; or
• in case falling under clause (b) of section 271, by
the Central Government or a State Government.
 PROCESS UNDER SEC 271
• A Petition presented by the company shall
be admitted only if accompanied by a
STATEMENT OF AFFAIRS, whereas
if filed by any person other than the
company, the Tribunal on being satisfied
that a prima facie case for winding up of
the company is made out, shall by an
order direct the company to file its
objections along with a statement of its
affairs within 30 days of the order.
• ii. Within 90 days from the date of presentation of
the petition, the tribunal may pass any of the
following orders-
• dismiss it, with or without costs;
• make any interim order as it thinks fit;
• appoint a provisional liquidator of the company till
the making of a winding up order;
• make an order for the winding up of the company
with or without costs;
• any other order as it thinks fit.
• LET US TEST OUR UNDERSTANDING
 LETS LEARN
• Q1. Any one difference between Private ltd
and Public Ltd. Company
• 2. What are the stages for registration of a
Company ?
• 3. who is an Independent Director?
• 4. Is it mandatory for appointment of Listed
company to have Woman Director on Board
• Q5. What is CSR and requirements?
• Q6. What are the various modes for winding
up of Company?
• Q7. What is Lifting of Corporate Veil?
• Q8. What are the contents of Ordinary
Agenda for which Annual General Meeting is
held ?