Incorporation of a Company

Incorporation of Company

• Definition: A company is incorporated when it is registered under the Companies Act, 2013.
• Process of Incorporation:
  1. Application for name approval
  2. Filing of Memorandum of Association (MOA) and Articles of Association (AOA)
  3. Payment of registration fee
  4. Issue of Certificate of Incorporation
• Types of Companies:
  • Public Company: Minimum 7 members, no limit on maximum number of members
  • Private Company: Minimum 2, maximum 200 members
  • One Person Company (OPC): Single member, limited liability
• Characteristics of a Company:
  • Separate Legal Entity
  • Limited Liability
  • Perpetual Succession
  • Common Seal
  • Transferability of Shares

Shares and Share Capital

• Definition: Share Capital is the amount of money raised by a company through the issue of shares.
• Types of Shares:
  • Equity Shares: Represent ownership, carry voting rights, and are entitled to dividend
  • Preference Shares: Carry preferential dividend, have priority over equity shares, and limited voting rights
  • Debentures: Represent debt, carry fixed rate of interest, and have priority over shares
• Characteristics of Shares:
  • Transferable
  • Divisible
  • Alienable
  • Can be issued at a premium or discount
• Share Capital:
  • Authorized Capital: Maximum amount of capital a company can raise
  • Issued Capital: Amount of capital actually raised
  • Subscribed Capital: Amount of capital subscribed by shareholders
  • Paid-up Capital: Amount of capital actually paid by shareholders

Directors and Their Powers

• Definition: Directors are appointed to manage the day-to-day affairs of a company.
• Types of Directors:
  • Executive Director: Involved in day-to-day management
  • Non-Executive Director: Not involved in day-to-day management, provides guidance and oversight
  • Independent Director: Not related to the company, provides independent guidance
• Powers of Directors:
  • Management of Company
  • Representation of Company
  • Borrowing Powers
  • Power to Issue Shares
• Duties of Directors:
  • Act in Good Faith
  • Exercise Due Care and Skill
  • Avoid Conflict of Interest
  • Disclose Interest in Contracts

Meetings and Resolutions

• Types of Meetings:
  • Annual General Meeting (AGM): Held annually, discusses financial statements and dividend declaration
  • Extraordinary General Meeting (EGM): Held for specific purposes, such as alteration of articles
• Notice of Meeting:
  • 21 clear days' notice for AGM, 14 clear days' notice for EGM
  • Notice to be given to all members, directors, and auditors
• Resolutions:
  • Ordinary Resolution: Passed by simple majority (50% + 1)
  • Special Resolution: Passed by 3/4th majority
  • Unanimous Resolution: Passed by 100% majority

Winding Up of Company

• Definition: Winding up is the process of dissolving a company and distributing its assets.
• Modes of Winding Up:
  • Compulsory Winding Up: By court order, due to inability to pay debts or just and equitable grounds
  • Voluntary Winding Up: By company's decision, solvent or insolvent
• Consequences of Winding Up:
  • Dissolution of Company
  • Realization of Assets
  • Distribution of Assets
  • Discharge of Liabilities

Incorporation of Company

• A company is incorporated when it is registered under the Companies Act, 2013.
• Process of incorporation involves four steps: application for name approval, filing of MOA and AOA, payment of registration fee, and issue of Certificate of Incorporation.
• Companies can be classified into three types: Public Company (minimum 7 members, no limit on maximum number), Private Company (minimum 2, maximum 200 members), and One Person Company (OPC) (single member, limited liability).
• Characteristics of a company include: separate legal entity, limited liability, perpetual succession, common seal, and transferability of shares.

Shares and Share Capital

• Share capital is the amount of money raised by a company through the issue of shares.
• There are three types of shares: equity shares (represent ownership, carry voting rights, and are entitled to dividend), preference shares (carry preferential dividend, have priority over equity shares, and limited voting rights), and debentures (represent debt, carry fixed rate of interest, and have priority over shares).
• Characteristics of shares include: transferable, divisible, alienable, and can be issued at a premium or discount.
• Share capital is comprised of four types: authorized capital (maximum amount of capital a company can raise), issued capital (amount of capital actually raised), subscribed capital (amount of capital subscribed by shareholders), and paid-up capital (amount of capital actually paid by shareholders).

Directors and Their Powers

• Directors are appointed to manage the day-to-day affairs of a company.
• There are three types of directors: executive director (involved in day-to-day management), non-executive director (not involved in day-to-day management, provides guidance and oversight), and independent director (not related to the company, provides independent guidance).
• Directors have the power to manage the company, represent the company, borrow, and issue shares.
• Directors' duties include: acting in good faith, exercising due care and skill, avoiding conflict of interest, and disclosing interest in contracts.

Meetings and Resolutions

• There are two types of meetings: annual general meeting (AGM) (held annually, discusses financial statements and dividend declaration) and extraordinary general meeting (EGM) (held for specific purposes, such as alteration of articles).
• Notice of meeting must be given 21 clear days before AGM and 14 clear days before EGM, and must be sent to all members, directors, and auditors.
• There are three types of resolutions: ordinary resolution (passed by simple majority), special resolution (passed by 3/4th majority), and unanimous resolution (passed by 100% majority).

Winding Up of Company

• Winding up is the process of dissolving a company and distributing its assets.
• There are two modes of winding up: compulsory winding up (by court order, due to inability to pay debts or just and equitable grounds) and voluntary winding up (by company's decision, solvent or insolvent).
• Consequences of winding up include: dissolution of company, realization of assets, distribution of assets, and discharge of liabilities.