THE COMPANY ACT 1956

GROUP 1

INDEX OF PRESENTATION
COMPANY NATURE OF COMPANY TYPES OF COMPANIES PRIVATE Vs PUBLIC COMPANY PRIVILEGES OF PRIVATE COMPANY DOCTRINE OF CONSTRUCTIVE NOTICE PROSPECTUS MEMORANDAM OF ASSOCIATON. ACTICLE OF ASSOCIATION. CASES

COMPANY
In a simple words a company may be defined as a

association of persons who contribute money or moneys worth to a common stock and employ it in some trade or business , and who shares the profit or loss there from. Section 3(1)(i) of the Companies Act, 1956 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. Legal definition Incorporated association , which is an artificial legal person, having a separate legal entity , with a perpetual succession, a common seal, a common capital comprised of transferable shares and

NATURE OF COMPANY
1 SEPERATE LEGAL ENTITY 2.ARTIFICIAL PERSON 3.PERPETUAL EXISTENCE 4.COMMON SEAL 5.LIMITED LIABILITY 6.CAPACITY TO SUE OR TO BE SUED 7.TRANSFERABILITY OF SHARE

Separate legal entity

A company is an separate legal entity means it is

different from its members. It works as a individual body. It can make contracts, open a bank account, can sue and be sued by others. The law has recognised that even if a person holds virtually all the shares, the right and obligations of the company shall be different from its members.

Artificial person

A company is a purely a creation of law. It is

invisible, intangible and exists only in the eyes of law. It has no soul, no body, but has a position to enter or exit into a contract, to appoint a people as its

Perpetual existence [sec 34(2)]

Section 34(2) of the act states that an incorporated

company has perpetual life. The life of the company is not related to the life of the members . Law create the company and law alone can dissolve it. The existence of the company is not affected b y death, insolvency, retirement or transfer of share of members.

Limited liability

It means that the liability of a member shall be

limited to the value of the share held by him, he cannot be called upon to bear the loss from his personal property.

Common seal
A company being an artificial person can not work

Transferability of share sec(82)

as a natural being. Therefore, it has to work through its directors, officers and other employees. Common seal used as a official signature of a company.

The share of a company are freely transferable.

The shareholder can transfer his share to any person without the consent of other members. A company cannot impose absolute restrictions on the rights of member to transfer their shares

Capacity to sue and be sued

When a company incorporated it acquire a

separate and independent legal personality. As a legal person it can be sue and be sued in its own name.

Types of companies (Registered under company act 1956)

Definition : Private & Public Company

A private company is one which, by its Article

of association restricts the right to transfer its share, limits the maximum number of its member to fifty, prohibits any invitation to the public to subscribe for any share or debenture of the company.
A public company means a company which is

not a private company. In other words, a public company, means a company which by its article does not limit the number of its member & does not prohibit any invitation to the public to subscribe for any share or

Private Vs Public Company

Minimum paid up 5 Lacs capital Minimum no of 2 7 members Maximum no of 50 No limit members Minimum no of 2 3 Directors Transfer of Restricted AOA & Shareholders can Shares requires the prior transfer shares permission of freely Board of Directors Private Company 1 Lac Public Company

Private Vs Public Company ..Contd..

Private Company Public Company Public Subscription AOA prohibits any Can invite public to invitation to public to subscribe to its subscribe to its shares & debentures sharess & debentures Acceptance of public AOA prohibits Can acceptance of Deposits acceptance of deposits from public deposits from public Commencement of Immediately after Only after getting Business Certificate of the Certificate of Incorporation commencement of Business Issue of prospectus Need not prepare or Must prepare or file file 'Prospectus' or Prospectus with 'statement in lieu of registrar prospectus' with

Private Vs Public Company Contd..

Statutory meeting Private Company Public Company Not required to hold Must hold after one month and before 6 months from date of obtaining the Certificate of commencement of business No Central Govt Central Govt approval is approval for must for appointing and appointing and reappointing of MD or reappointing of MD Whole time director or Whole time director No restriction on Remuneration is fixed payemnt of at 11 % of net profits remuneration to directors & MD's

Provisions regarding directors

Managerial remuneration

PRIVILEGES OF PRIVATE COMPANY

Sec.
58A

Privileges
For Pvt.Co., amount received from its shareholders by a private company is not included in the meaning of deposit. If the depositor ceases to be a shareholder, the deposits made by him cease to qualify for exemption from the date of such cessation

77(2 & 3) There is no prohibition on a Pvt. Co., which is not a subsidiary of a public company, to provide financial assistance to anyone for purchasing or subscribing for its own shares or of its holding company. 81 A Pvt. Co. can issue further shares in any manner; i.e. rights shares to the existing shareholders need not be offered. The provisions of these sections requiring that there should be only two kinds of share capital and that voting rights should be proportional to the capital paid up and prohibiting and terminating disproportionately excessive voting rights are not made applicable to a private company which is not subsidiary of a public company

85 to 90

PRIVILEGES ..Contd
Sec.
111 (13)

Privileges
The right of appeal to the Company Law Board against rejection of a transfer of shares is not available as long as the private company is only enforcing the provisions of its articles in rejecting a particular transfer

170 to 186 The provisions of these sections relating to general meetings do not apply to such a private company to the extent to which the company makes its own provisions by its articles 192A 220 224(1B) 252 & 252A 255 Passing of resolution by Postal Ballot not relevant for Pvt. Co. P & L A/c. of a Pvt. Co. is not open for inspection by Public. The ceiling, on number of companies an auditor can audit, does not include audit of Pvt. Cos. Minimum Directors for Pvt. Co. is 2 (two) against 3 (three) in case of Public Co. Requirement of Independent Directors or Small Shareholders Directors not applicable to Pvt. Co. Retirement of Directors by rotation not mandatory.

PRIVILEGES ..Contd
Sec.
256

Privileges
A Pvt. Co. need not adopt the procedure relating to appointment, retirement, re-appointment of directors etc. applicable to a public company. The provision requiring the giving of 14 days notice by new candidates seeking election as directors and deposit of certain amount (Rs. 500) are not mandatory for Pvt. Cos. Central Government approval for increasing number of directors beyond the permissible maximum (presently 12) not required. The provision relating to manner of filling casual vacancy among directors and the duration of the period of office of those so appointed do not apply to Pvt. Co. Appointment of two or more persons as directors by a single resolution can be done by Pvt. Co. No requirement of filing consent by the directors to be filed with the Registrar to act as a director. Restrictions on appointment of director and subscription to qualification shares not applicable to Pvt. Co.

257

259 262

263(1) 264 266(5)

PRIVILEGES ..Contd
Sec.
268, 269

Privileges
Central Government approval for amendment relating to appointment/reappointment of a whole-time director/ director not liable to retire by rotation. Requirements of qualification shares holding by directors the time within which the qualification shares to be acquired and filing of a declaration by each director of the qualification shares held, is not applicable to Pvt. Co.

270-273

274(1)(g) The disqualification u/s. 274(1) clause (g) does not include directorships of Pvt. Co.. 275 to 279 The Directorships of Pvt. Cos. not to be considered for the limit on no. of companies a person can be director. 292A 293 Provisions relating to formation of Audit Committee not applicable. Restrictions on certain powers of Board of directors regarding selling, leasing, remitting or giving time for payments of debts, investing or borrowing moneys, or contributing to charities other than for political purpose are not applicable to Pvt. Co.

PRIVILEGES ..Contd
Sec.
295 300 316, 317 349, 350 372A 386, 388

Privileges
Restriction on loans to directors/relatives etc. does not apply to Pvt. Co. No restriction on interested directors from participating in the proceedings of the Board and exercising their votes. No restriction on period of appointment of managing director/manager for more than 5 years at a time. Provision relating to the determination of net profits and ascertainment of depreciation shall not apply. No restrictions on giving loans or guarantees to other companies or on making investment in the shares of the other companies. No. of companies on which a person may be appointed manager, the remuneration of a manager and the application of sections 269, 310 to 312 and 317 in relation to managers do not apply. Powers given to the Central Government to prevent change in the Board of directors not applicable to Pvt. Co. Restrictions on Contract by agents of the company in which the company is the undisclosed principal shall not apply.

409(3) 416(1)

DOCTRINE OF CONSTRUCTIVE NOTICE

Every person dealing with the company was

treated as having the knowledge of the contents of the memorandum. (Public documents of the company). It seeks to protect the company against the outsider. Imputation of knowledge whether the party concerned has actual knowledge or not. A member of the company can sue for an injunction to restrain the company or its directors from doing an ultra vires act. All contracts made by the company for an ultra vires purpose are void and can not be ratified and validated by any kind of resolution passed by the

PROSPECTUS
Prospectus is the basic document for raising

funds from the public.

Prospectus means any document described or

issued as prospectus and includes any Notice, Circular, Advertisement inviting deposits or offers from the public for the subscription or purchasing any shares in , or debentures of the company.
Thus prospectus is a general invitation to the

public to subscribe to the capital of the company on the conditions specified in the application from

MEMORENDUM OF ASSOCIATION (MOA)

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. MOA of a company is its character and defines the limitation of the power of the company . MOA contains the fundamental condition upon which the company is allowed to incorporated. The purpose of MOA is to enable the Shareholders, creditors and those who deal with the company to know what is permitted

IMPORTANCE OF MOA
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.

ARTICLES OF ASSOCIATION (AOA)

CONTENTS OF AOA
Rights of different classes of shareholder. Use of common seal of the company. Different classes of shares and their right. Appointment , powers, duties, salary of MD,

manager, and secretary. Borrowing power of directors. Voting rights of member . Board meetings and proceedings. Winding up company.

Case 1
ABDUL AZIZ BIN ATAN & 87 ORS V LADANG RENGO MALAY ESTATE SDN BHD (1985) 2 MLJ 165.
Facts

All the shareholders of the company sold and transferred their entire share holdings to a certain buyer Issue The court had to determine whether a change of employer took place
Held

An incorporated company is a legal person separate and distinct from its shareholders. The company, from the date of incorporation, has perpetual succession and did not change its identity or personality even though the entire share holding of the company changed hands.

Case 2
LEE V LEES AIR FARMING LTD (1961) AC 12 Fact Lee who was a pilot who conducted an aerial top-dressing business, formed a company to conduct the business. Lee hold 2999 shares of the 3000 shares in the company. The remaining one share was taken by his solicitor as nominee for Lee. Under the articles of association, Lee was governing director with very wide powers. Workers compensation insurance was taken out, naming Lee as an employee. Lee was killed when his aeroplane crashed while engaged in aerial top-dressing. Issue His widow made a claim for payment under the Workers Compensation Act 1922. Her claim was initially rejected on the ground that as Lee had full control of his company he could not be a "worker" within the meaning of the Act. "Worker was defined under the Act as a person "who has entered onto or works under a contract of service ... with an employer." Held By Privy Council The company was a separate legal entity distinct from its founder,