Meaning and Nature of

Company
[Sec 2(20)]

A company incorporated under this Act or

under any previous company law.
 Features
•Incorporated association
•Artificial person
•Separate legal entity (soloman, lee)
•Limited liability
•Separate property (Macaure v/s Northern assurance
co ltd)
•Transferability of shares (Sec 44 private companies)
•Perpetual succession
•Common seal
•Company may sue and may be sued in own name
 Lifting the Corporate Veil

• For the protection of revenue

•Company acting as an agent of shareholders
•Formed to avoid their own valid contractual
obligations
• Company formed for fraudulent purpose
• Company formed against public interest
(hold 100% shares in subsidies name)
Classification of Companies
 (i) Classification on the basis of Incorporation:
There are three ways in which companies may be
incorporated.

(a) Charted company: eg – East India Company

(b) Statutory Companies:

These are constituted by a special Act of Parliament or State
Legislature. The provisions of the Companies Act, 2013 do not
apply to them. Examples of these types of companies are eg-
Reserve Bank of India, Life Insurance Corporation of India, etc.

(b) Registered Companies:

The companies which are incorporated under the Companies
Act,2013 or under any previous company law, with ROC fall
under this category.
 (ii) Classification on the basis of Liability:
Under this category there are three types of companies:

(a) Unlimited Liability Companies:

In this type of company, the members are liable for the company's debts in
proportion to their respective interests in the company and their liability is
unlimited. Such companies may or may not have share capital. They may be
either a public company or a private company.

(b) Companies limited by guarantee:

A company that has the liability of its members limited to such amount as the
members may respectively undertake, by the memorandum, to contribute
to the assets of the company in the event of its being wound-up, is known as
a company limited by guarantee. The members of a guarantee company are,
in effect, placed in the position of guarantors of the company's debts up to
the agreed amount.
(c) Companies limited by shares:

A company that has the liability of its members limited by the

memorandum to the amount, if any, unpaid on the shares
respectively held by them is termed as a company limited by
shares. For example, a shareholder who has paid `75 on a share
of face value ` 100 can be called upon to pay the balance of `25
only. Companies limited by shares are by far the most common
and may be either public or private.
 Registered Companies
Registered company: The Companies Act, 2013
provides for the kinds of companies that can be
promoted and registered under the Act.
The three basic types of companies which may
be registered under the Act are:
(a) Private Companies;
(b) Public Companies; and
(c) One Person Company (to be formed as
Private Limited)..
Section 3. (1) of the Companies Act 2013 states that a company
may be formed for any lawful purpose by—

(a) seven or more persons, where the company to be formed is

to be a public company;

(b) two or more persons, where the company to be formed is to

be a private company; or

(c) one person, where the company to be formed is to be One

Person Company that is to say, a private company, by subscribing
their names or his name to a memorandum and complying with
the requirements of this Act in respect of registration.
(2) A company formed under sub-section (1) may be
either—

(a) a company limited by shares; or

(b) a company limited by guarantee; or

(c) an unlimited company.

 (iii) Other Forms of Companies :

(a) Associations not for profit having license under

Section 8 of the Companies Act, 2013 or under
any previous company law;
(b) Government Companies;
(c) Foreign Companies;
(d) Holding and Subsidiary Companies;
(e) Associate Companies/Joint Venture Companies
(f) Investment Companies
(g) Producer Companies.
(h) Dormant Companies
• Producer company
- 10 or more producers
- 2 Or more producers institution.
- Status of pvt ltd have no need to use pvt and no
members make rembursement to promoters (approval in
first GM).
• Dormant Company
Section 455 states , Where a company is formed
and registered under this Act for a future project or to
hold an asset or intellectual property and has no
significant accounting transaction, such a company or an
inactive company may make an application to the
Registrar in such manner as may be prescribed for
obtaining the status of a dormant company. “inactive
company”
 Difference between private and
public
• Minimum number of members : the minimum no
of persons required to form a ‘public company is seven
where as in a private company it is only two.

• Maximum number of members :there is no

maximum limit on the members of a public company
but a private company cannot have more than 200
members .

• Transferability of shares : there is no restriction on

the transfer of shares in the case of public company
where as the article of a private company must restrict
its right to transfer its shares
• Number of its directors: a public company must have
at least three directors where as a private company
must have at least two director
• Quorum: if the article of the company do not otherwise
provide five members personally present in the case of
public company are quorum for a meeting of the company. It
is two in case of a private company
• Managerial remuneration : total managerial
remuneration in the case of a public company cannot exceed
11% of the ent profits but in case of inadequacy of profits a
minimum of 50000 can be paid .these restrictions do not
apply to a private company
• Directors retirement : not less then 2/3 of the total no of
directors of the public company shall – be person whose
period of office is liable to determination by retirement of
directors by rotation .In case it is a private compulsory
retirement is not applicable .
• Invitation to public: a public company must issue a
prospectus or a statement in lieu of prospectus for inviting
public to subscribe to its shares or debentures ,a private
company on the other hand cannot issue such invitation to
the public.
• Paid up capital: paid-up capital is not less then Rs 5 lakh in
case of public companies and not less then 1 lakh in case of
private companies .
 Formation of a company
1) Promotion-
It starts with the conceptualisation of the birth a
a company and determination of the purpose
for which it is to be formed.
The promoters enter into preliminary contracts
with vendors and make arrangements for the
preparation, advertisement and the circulation
of prospectus and placement of capital.
 Promoter
“Promoter” means a person—
(a) who has been named as such in a prospectus or is identified by the
company in the annual return
referred to in section 92; or
(b) who has control over the affairs of the company, directly or
indirectly whether as a shareholder,
director or otherwise; or
(c) in accordance with whose advice, directions or instructions the
Board of Directors of the company is
accustomed to act.
• While the accurate description of a promoter may be difficult, his
legal position is quite clear. A promoter is
• neither an agent of, nor a trustee for, the company because it is not
in existence. But he occupies a fiduciary
• position in relation to the company and therefore requires to make
full disclosure of the relevant facts, including
• any profit made by him
• Duties and liabilities
a)He must not make any secret profit out of the
promotion of the company.
b) He must make full disclosure to the company
of all relevant facts including to any profit made
by him in transaction with the company.
c) A declaration that the liability of the members
is limited in case of the company limited by the
shares or guarantee must be given.
Pre-incoporation contracts
 Registrar of Companies
• The office of the registrar of companies
(ROC) is a public office where companies
are required to fill documents and
returns, and the public is authorized to
inspect the same according to the
provision of law.
• The office of ROC is basically a registry
and a office of record.
(a) Application for Availability of Name of company
(b) (b) Preparation of Memorandum and Article of
Association
(c) Declaration from the professional
(d) Affidavit from the subscribers to the
Memorandum
(e) Furnishing verification of Registered Office
(f) Particulars of subscribers
(g) Particulars of first directors along with their
consent to act as directors(DIN)
(h) Power of Attorney
• Issue of Certificate of Incorporation by
Registrar is Conclusive Evidence
• Case: Moosa v. Ebrahim
(a) Application for Availability of Name of company: Form
No. INC.1 along with the fee as provided in the Companies

According to section 4(2), the name stated in the

memorandum of association shall not—
(a) be identical with or resemble too nearly to the name of an
existing company registered under this
Act or any previous company law; or
(b) be such that its use by the company
(i) will constitute an offence under any law for the time being in
force; or
(ii) is undesirable in the opinion of the Central Government.
These companies have MoA and AoA for internal &
external regulations.Under the Act the companies are
either (i) Companies limited by shares, (ii) Companies
limited by guarantee, or (iii) Unlimited Companies.

Memorandum of Association -It is the document which

contains the rules regarding constitution and activities or
objects of the company.It is a fundamental charter of the
company.The company is governed by it. The company is
allowed to work within the framework of it.
• Section 4(6) of the Companies Act, 2013 provides that
the memorandum of association should be in any one
of
• the Forms specified in Tables A, B, C, D or E of Schedule
I to the Act,
 Memorandum of Association
•Memorandum of Association [Sec. 2 (56)]- It means
memorandum of association of a company as originally formed or
as alter from time to time in pursuance of the Companies act,2013
or any previous company law.
•The Memorandum of association of a company is its principal
document.The Memorandum of association is its charter and
defines the limitation of the powers of a company.

•The Memorandum of Association is the constitution of the

company in its relation to the outside world.

•It states the name of the company, the address of its registered
office, whether the company has a share capital or not, whether it
is limited by Guarantee or otherwise, and defines the scope of
activities within which the company can function.
 Sec 4(6) Schedule - 1
• TABLE -A
MEMORANDUM OF ASSOCIATION OF A COMPANY LIMITED BY SHARES
• TABLE -B
MEMORANDUM OF ASSOCIATION OF A COMPANY LIMITED BY
GUARANTEE AND NOT HAVING A SHARE CAPITAL
• TABLE -C
MEMORANDUM OF ASSOCIATION OF A COMPANY LIMITED BY
GUARANTEE AND HAVING A SHARE CAPITAL
• TABLE -D
MEMORANDUM OF ASSOCIATION OF AN UNLIMITED COMPANY
AND NOT HAVING SHARE CAPITAL
• TABLE -E
MEMORANDUM OF ASSOCIATION OF AN UNLIMITED COMPANY
AND HAVING SHARE CAPITAL
 Sec 3
• Means a company which has only one person as a member
[ Section 2(62)]
• One Person company can be registered only as a Private
Company [3(1)(c) ]
• MoA to name another person who shall become the
member in case of death or incapacity of the subscriber .
• Prior Written consent in the prescribed form of such other
person is required.
• Provisions to change and intimation to Registrar for changes.
• In Case of death of Subscriber , the person so names , shall
become member of OPC
 Sec 3
• Public Companies – Minimum of Seven
persons { 3(1)(a) }, minimum paid up Capital
Rs. 1 lakh or Higher sum as prescribed [
Section 2(71)]
• Private Company – Minimum Two Persons [
3(1)(b) ] and Maximum 200 members,
Minimum Paid Up Capital Rs. 1 lakh or Higher
sum as prescribed [ Section 2(68)]
 Sec 4
Name of company –
 Ltd
 Pvt Ltd
 not identical
 No office
 CG
 Publication of name in front of
office(1000 per day to 1 lakh).
Name of state reg office :
- Within 15 days incorporation(ROC)
- Verification of 30 days(title, lease and utility)

Object :
- Share of activity

Capital :
- Nominal capital
- Preferences
- Equity shares
 MOA: Clauses
Section 4(1) states that the memorandum of a company shall state—
(a) the name of the company with the last word “Limited” in the case of
a public limited company, or the
last words “Private Limited” in the case of a private limited company
(b) the State in which the registered office of the company is to be
situated;
(c) the objects for which the company is proposed to be incorporated
and any matter considered necessary in furtherance thereof;
(d) the liability of members of the company, whether limited or
unlimited, and also state,—
(e) in the case of a company having a share capital,— (i) the amount of
share capital with which the company is to be registered
in the case of One Person Company, the name of the person who, in the
event of death of the subscriber, shall become the member of the
 Ultra Vires
• In the case of a company whatever is not
stated in the memorandum as the objects or
powers is prohibited by the doctrine of ultra
vires. As a result, an act which is ultra vires is
void, and does not bind the company. Neither
the company nor the contracting party can
sue on it. Also, as stated earlier, the company
cannot make it valid, even if every member
assents to it.
Alteration
• Articles of Association - Articles of Association
is another document of paramount
significance in the life of a company. It
contains regulations for the internal
administration of a company’s affairs.
• company prescribed by in Articles of
Association can be altered at any time
according to the wishes of the members.It is
subordinate to the MoA and is under full
control of the members.
• Table G,H,I,J of schedule 1
• Doctrine of indoor management
 Indoor Management
While the doctrine of ‘constructive notice” seeks to protect
the company against the outsiders, the principal of indoor
management operates to protect the outsiders against the
company.
According to this doctrine, as laid down in Royal British Bank
v. Turquand, (1856) 119 E.R. 886, persons dealing with a
company having satisfied themselves that the proposed
transaction is not in its nature inconsistent with the
memorandum and articles, are not bound to inquire the
regularity of any internal proceedings. In other words, while
persons contracting with a company are presumed to know
the provisions of the contents of the memorandum and
articles, they are entitled to assume that the provisions of the
articles have been observed by the officers of the company. It
is no part of the duty of an outsider to see that the company
carries out its own internal regulations.
• DOCTRINE OF ALTER EGO
• It is used by the courts to ignore the status of
shareholders, officers, and directors of a
company in reference to their liability in their
respective capacity so that they may be held
personally liable for their actions when they
have acted fraudulently or unjustly.
 MOA vs AOA
1. Memorandum of association is the charter of the company and defines the fundamental conditions
and objects for which the company is granted incorporation. Articles of association are the rules and
regulations framed to govern this internal management of the company.
2. Clauses of the memorandum cannot be easily altered. They can only be altered in accordance with
the mode prescribed by the Act. In some of the cases, alteration requires the permission of the
Central Government or the Court. In the case of articles of association, members have a right to
alter the articles by a special resolution. Generally there is no need to obtain the permission of the
Court or the Central Government for alteration of the articles.
3. Memorandum of association cannot include any clause contrary to the provisions of the Companies
Act. The articles of association are subsidiary both to the Companies Act and the memorandum of
association.
4. The memorandum generally defines the relation between the company and the outsiders, while the
articles regulate the relationship between the company and its members and between the members
inter se.
5. Acts done by a company beyond the scope of the memorandum are absolutely void and ultra vires
and cannot be ratified even by unanimous vote of all the shareholders. But the acts of the directors
beyond the articles can be ratified by the shareholders.
 Prospectus
• Clause (70) of Section 2 of this Bill define “Prospectus” means any
document described or issued as a prospectus and includes any notice,
circular, advertisement or other document inviting offers from the
public for the subscription or purchase of any securities of a body
corporate.
• A prospectus may be issued by or behalf of a public company either
with reference to its formation or subsequently, or by or on behalf of
any person who is or has been engaged or interested in the formation
of a public company.
• Thus, the following ingredients may be said to constitute a
‘prospectus’—
a. there must be an invitation to the public
b. the invitation 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 relate to shares or debentures or such other
instrument.
 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.
vi. The authority for the issue and the details of the
resolution passed there for.
vii. Procedure and time schedule for allotment and issue
of securities.
viii. Capital structure of the company in the prescribed
manner.
ix. Main objects of public offer, terms of the present
issue and such other particulars as may be prescribed.
x. Main objects and present business of the company
and its location, schedule of implementation of the
project.
xi. Particulars relating to—
• Management perception of risk factors specific to the project.
• Gestation period of the project; Extent of progress made in the
project.
• Deadlines for completion of the project.
• Any litigation or legal action pending or taken by a Government
Department or a statutory body during the last five years
immediately preceding the year of the issue of prospectus
against the promoter of the company.
xii. Minimum subscription, amount payable by way of premium,
issue of shares otherwise than on cash.
xiii. Details of directors including their appointments and
remuneration, and such particulars of the nature and extent of
their interests in the company as may be prescribed.
xiv. Disclosures in such manner as may be prescribed about
sources of promoter’s contribution. The registrar shall not
register a prospectus all requirements has been complied with
and the prospectus is accompanied by the consent in writing of
all the person named in the prospectus.
 Reports with Prospectus
• Every prospectus shall set out following reports for
the purpose of financial information
i. Reports by the auditors of the company with
respect to its profits and losses and assets and
liabilities and such other matters as may be
prescribed
ii. Reports relating to profits and losses for each of
the five financial years immediately preceding the
financial year of the issue of prospectus including
such reports of its subsidiaries and in such manner
as may be prescribed. Where company has not
completed five financial years than such report for
all financial years is required.
iii. Reports made in the prescribed manner by the
auditors upon the profits and losses of the
business of the company for each of the five
financial years immediately preceding issue and
assets and liabilities of its business on the last
date to which the accounts of the business were
made up, being a date not more than one
hundred and eighty days before the issue of the
prospectus. Where company has not completed
five financial years than such report for all
financial years is required.
iv. Reports about the business or transaction to
which the proceeds of the securities are to be
applied directly or indirectly.
 Declaration of Compliance:
Every prospectus shall make a declaration
about the compliance of the provisions of this
Act and a statement to the effect that nothing
in the prospectus is contrary to the provisions
of this Act, the Securities Contracts
(Regulation) Act, 1956 and the Securities and
Exchange Board of India Act, 1992 and the
rules and regulations made there under.
 Statement of an Expert
A statement made by an expert shall be included only if expert is
or was engaged or interested in the formation or promotion or
management of the company and has given his written consent
to the issue of the prospectus. Such consent of expert must not
be withdrawn by his before the delivery of prospectus to the
Registrar for registration and a statement to that effect shall be
included in the prospectus.
• Every prospectus issued shall state that a copy has been
delivered to the Registrar and specify attached documents.
• The registrar shall not register a prospectus all requirements
has been complied with and the prospectus is accompanied by
the consent in writing of all the person named in the
prospectus.
• Prospectus shall not be valid if it is issued more than ninety
days after the date on which a copy thereof delivered to the
Registrar. Prospectus shall not be valid if it is issued more than
ninety days after the date on which a copy thereof delivered to
the Registrar.
 CAUTION
If a prospectus is issued in contravention of the
provisions of section 26, the company shall be
punishable with fine which shall not be less than
fifty thousand rupees but which may extend to
three lakh rupees and every person who is
knowingly a party to the issue of such prospectus
shall be punishable with imprisonment for a term
which may extend to three years or with fine
which shall not be less than fifty thousand rupees
but which may extend to three lakh rupees, or
with both.
 Winding Up of a Company
• Winding up/liquidation represents the last stage
in a company’s life.

• It is a proceeding by which a company is

dissolved.

• The company’s assets are disposed off, the debts

are paid out of the realized assets, and the
surplus, if any is then distributed among the
members in proportion to their holdings in the
company
 Modes of winding up
• There are three modes of winding up:

1. Compulsory winding up by the court – where a

company may be wound up by an order of Court.

2. Voluntary winding up – winding up by the creditors

or members without any intervention of the Court.

3. Winding up under the supervision of the court – the

creditors or members may apply to the Court for
directions or orders.
 1. Compulsory Winding up by court
A company may be wound up in the following
circumstances:

• By Passing a Special Resolution (company may be

wound up by court/tribunal if it resolves so);

• Failure to hold Statutory Meeting (between 1 to 6

months of commencement) or File Statutory Report (at
least 21 clear days before holding a stat. meeting);

• Failure to Commence Business within 1 year of its

incorporation;
• Reduction in Number of Members below Statutory
minimum (minimum no. of members in a public company is
7 and in a private company is 2);

• Inability to Pay its Debts (when a co. owes a creditor a sum

exceeding 1 lakh rupees and is unable to pay within 3
weeks);

• Just and Equitable (when the court is gifted with large

discretion to arrive at a judgment that a company should
be wound up – such as:
1. when there is deadlock in management
2. purpose of the co. is lost
3.company’s objects are illegal or fraudulent
4. in case of oppression of minority shareholders
• Default in filing with the Registrar the
Balance Sheet or Annual Return (not filing it
for 5 consecutive financial years);

• Acting against the Interest of the Country;

• If the Company is a Sick Industrial Company

and is not likely to Become Workable in
Future.
Who can file Petition for winding up?
• An application to the Tribunal for the winding up
of a company is made by a petition . This may be
presented in following cases:

– Petition by the company

– Petition by any creditor/creditors
– Petition by any contributory/contributories
– Petition by Registrar of Companies
– Petition by the Central Government or a State
Government
 Procedure for Winding up
• Issuing a written demand for debt payments to the
target company.
• Present a winding up petition to the court and the
company
• Court hearing for the petition
• Granting of winding up order by the court
• Meeting of creditors and other relevant parties
• Appointment of liquidator.
• Realization and distribution of company’s assets to
the creditors
• Realize of duties for liquidator
• Dissolution of the company.
 2. Voluntary Winding up
A company can be wound up voluntarily:
• By passing an ordinary resolution
• By passing a special resolution

Types of Voluntary winding up:

• Members voluntary winding up - This takes place only when the
company is solvent. Its initiated by the members and is entirely
managed by them.
• Creditors voluntary winding up - This is where the company
proposes to wind up voluntarily and the directors are not in a
position to make the statutory declaration of solvency.
 3. Winding up under the supervision
of Court
• Liberty granted to creditors, contributories or others to apply to
court for some relief.
• The court may also appoint liquidators, in addition to already
appointed, or remove any such liquidator. The court may also
appoint the official liquidator, as a liquidator to fill up the vacancy.
• Liquidator is entitled to do all such things and acts, as he thinks best
in the interest of company. He shall enjoy the same powers, as if
the company is being wound-up voluntarily.
• The court also may exercise powers to enforce calls made by the
liquidators, and such other powers, as if an order has been made
for winding up the company altogether by court.