Company Law & Practice (2024) PDF - Quick Revision Guide

CS EXECUTIVE CHART BOOK QUICK REVISION GUIDE COMPANY LAW MODULE - I Summarised Tab- Point-wise Summa- Full-coverage of ular Chart Format ries of each chapter the New Syllabus for revising the are provided in a for CS-Executive subject matter in an nutshell June 2024/Dec easy-to-learnformat 2024 exams EDITION: 2024-25 Published By: Physicswallah Private Limited Physics Wallah Publication ISBN: 978-93-6034-252-4 MRP: ???/- Mobile App: Physics Wallah (Available on Play Store) Website: www.pw.live Youtube Channels: Physics Wallah - Alakh Pandey Commerce Wallah by PW (@CommerceWallahPW) CA Wallah by PW (@CAWallahbyPW) CA Intermediate by PW (@CAintermediatebyPW) Email: [email protected] RIGHTS All rights are reserved with the Publisher. No part of this book may be used or reproduced in any manner whatsoever without written permission from the author or publisher. 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The publication has designed the content to provide accurate and authoritative information with regard to the subject matter covered. This book and the individual contribution contained in it are protected under Copyright Act by the publisher. (This book shall only be used for educational purposes.) Contents 1. Introduction to Company Law............................................................................................................................................................................................................................................................. 1-3 2. Legal Status and Types of Registered Companies............................................................................................................................................................................................................................... 4-5 3. Memorandum and Articles of Associations and its Alteration............................................................................................................................................................................................................ 6-9 4. Share and Share Capital - Concepts................................................................................................................................................................................................................................................ 10-16 5. Members and Shareholders............................................................................................................................................................................................................................................................. 17-19 6. Debt Instruments - Concepts........................................................................................................................................................................................................................................................... 20-22 7. Charges............................................................................................................................................................................................................................................................................................ 23-25 8. Distribution of Profits...................................................................................................................................................................................................................................................................... 26-28 9. Accounts and Auditors..................................................................................................................................................................................................................................................................... 29-32 10. Compromise, Arrangement and Amalgamations - Concepts........................................................................................................................................................................................................... 33-35 11. Dormant Company.......................................................................................................................................................................................................................................................................... 36-37 12. Inspection, Inquiry and Investigation.............................................................................................................................................................................................................................................. 38-41 13. General Meetings............................................................................................................................................................................................................................................................................. 42-46 14. Directors.......................................................................................................................................................................................................................................................................................... 47-51 15. Board Composition and Powers of the Board................................................................................................................................................................................................................................. 52-54 16. Meetings of Board and its Committees........................................................................................................................................................................................................................................... 55-56 17. Corporate Social Responsibility - Concepts.................................................................................................................................................................................................................................... 57-58 18. Annual Report - Concepts............................................................................................................................................................................................................................................................... 59-61 19. Key Managerial Personnel (KMP’s) and their Remuneration......................................................................................................................................................................................................... 62-64 1 Introduction to Company Law TOPICS TO BE COVERED (iv) It can hold property in its own name. Effects of Illegal Association Introduction - Jurisprudence of Company Law (v) It can sue & be sued in its own name. (a) Cannot enter into a contract. Meaning and definition of Company (vi) Perpetual succession. (b) Cannot wound up. (vii) Common seal. (c) Disregard the entity. Nature and characteristics of a Company (viii) Limited liability of members. (d) Taxable. Doctrine of Ultra Vires and Indoor Management Doctrine of Constructive Notice Whether a company is a citizen of India? (e) Cannot sue to any member/creditor. Doctrine of lifting of or piercing the corporate veil Company is not a citizen because citizenship can only granted to natural person. Company (f) Cannot be sued by members/creditors. has residential status which depends upon place of incorporation. In general company The Companies Act, 2013 received the assent of the President on August 29, 2013 and was DOCTRINE OF ULTRA VIRES cannot claim fundamental right because it is given to citizen however few fundamental notified in the Gazette of India on August 30, 2013. rights which is available to any person, company can claim such rights. Ultra vires is a Latin term made up of two words “ultra” which means beyond and “vires” SECTION 2(20) meaning power or authority. Ultra vires acts are any acts that lie beyond the authority of LIFTING / PIERCING OF CORPORATE VEIL a company to perform. Company means a company registered Under this Act (2013) Where the fraudulent intension to misuse the veil for benefit of their own or conducting Any activity done in contrary to or in excess of the scope of activity of the Companies Act, OR Any of the previous Companies law. illegal act, such person will not get the benefit of acting behind veil. Memorandum of Association or Articles of Association will be ultra vires. The word “Company” is derived from the Latin words ‘Com & panis’ Com means In simple words, if any person committing fraud or illegal activity inside the company then ‘Together’ and Panis means ‘Bread’. Company means association of person who took such person shall held personally liable. CASE LAW: ASHBURY RAILWAY CARRIAGE AND IRON CO. LTD. V. their meal together. To prevent dishonest practice court can lift corporate veil and look behind the corporate RICHE (1878) face. As per Judicial Pronouncement The memorandum of the company in the said case defined its objects thus: “The objects Company means a voluntary organization of persons who are contributing their money in In following cases court can lift corporate veil. for which the company is established are to make and sell, or lend or hire, railway plants the common stock of the company and who agree to invest the same for a common goal/ to carry on the business of mechanical engineers and general contractors. The company (i) Fraudulent application for removal of name: Company fraudulently files the purpose, and to share the profits & the losses arising therefrom. application to remove the name of the company so that creditors cannot claim in entered into a contract with M/s. Riche, a firm of railway contractors to finance the Such persons are called as shareholders or members and the common stock is called as the such situation court can lift the corporate veil. construction of a railway line in Belgium. Riche brought a case for damages on the ground share capital of the company. of breach of contract, as according to him the words “general contractors” in the objects (ii) Criminal activity: If company is carrying any criminal activity under the corporate name then court can lift the veil. clause gave power to the company to enter into such a contract and, therefore, it was within SECTION 2(11) BODY CORPORATE (iii) Conflict of public policy religious sentiments: Company is carrying such activities the powers of the company. More so because the contract was ratified by a majority of Means a company and it includes foreign company and any corporation establish under shareholders. which is against the public policy or which hurt the religious sentiments. special Act however it excludes (iv) Submission of false information: Company is incorporated by submitting the false The House of Lords held that the contract was ultra vires the company and, therefore, Registered co-operative society information. null and void. The term “general contractor” was interpreted to indicate as the making generally of such contracts as are connected with the business of mechanical engineers. Body corporate- specified by central government. (v) Avoidance of welfare legislation: Where the sole purpose of the company was to use it as a device to reduce the amount to be paid by way of bonus to workmen, the The Court held that if every shareholder of the company cannot ratify such a contract, NOTE: Every Company is a Body Corporate but every Body Corporate is not a Company. as the contract was ultra vires the objects clause, which by Act of Parliament, they were corporate veil should be pierced to look at the real transaction. The provision of this Act shall apply to prohibited from doing. (vi) Prevention of fraud: The formation of the company is to do fraud then court can lift (a) Company incorporated under this Act or any previous company law the corporate veil. Exceptions to the doctrine of ultra vires (b) Insurance Companies (vii) Determination of enemy character: To determine the enemy character of the (i) Any act which is performed irregularly, but otherwise it is intra-vires the company, company court can break the corporate veil. (c) Banking Companies can be validated by the shareholders of the company by giving their consent in (viii) Protection of revenue: Formation of the company is to evade the taxes then court (d) Electricity Companies general meeting. can lift the veil. (e) Corporations establish under special act (ii) If any act is deemed to be within the authority of the company by the companies Act, (f) Body corporate SECTION 464 ILLEGAL ASSOCIATION 2013 then they will not be considered as ultra-vires even if they are not expressly Any unregistered association or partnership having more than 50 persons working for stated in the MOA. Basic Characteristics of a Company acquisition of gain shall be treated as illegal association. (iii) Any incidental or consequential effect of the ultra-vires act will not be invalid unless (i) It is a voluntary organisation. It does not include Hindu undivided family or partnership firm formed by professional the companies Act,2013 expressly prohibits such act. (ii) It is a Separate legal entity. who are governed by special Act. If partnership firm formed by HUF having more than 50 (iv) Any act which is outside the authority of the directors of the company but otherwise (iii) It is an artificial person in the eyes of law. major members shall be treated as illegal association. it is intra-vires the company can be ratified by the shareholders of the company. DOCTORINE OF INDOOR MANAGEMENT DOCTRINE OF ALTER EGO E-GOVERNANCE (MCA-21) - MEANING While the doctrine of, ‘constructive notice” seeks to protect the company against the The term “Alter Ego” is a Latin word. Literally translated, it means the “Other I”. It can E-Governance or Electronic governance is the application of Information Technology outsiders, the principal of ‘indoor management’ operates to protect the outsiders against be understood as the identical copy or a person’s clone. It means that a company is a to the government functioning. MCA-21 stands for e-governance initiative of Ministry the company. This doctrine emphasizes on the concept that an outsider whose actions are separate legal entity from its shareholders and directors. This common law principle grants of Corporate Affairs (MCA) of the 21st century. The project is named MCA-21 as it in good faith and has entered into a transaction with a company can have a presumption immunity to the shareholders and directors from being held liable for the debts as well as aims at repositioning MCA as an organization capable of fulfilling the aspirations of its that there are no irregularities internally and all the procedural requirements have been stakeholder in 21st century. criminal liabilities of the corporation. complied with by the company. The Doctrine of alter ego is based on lifting of the corporate veil between the directors/ The doctrine of indoor management, which protects outsiders against the actions done by AGENCIES UNDER MCA-21 shareholders and the corporation and treating both as one entity. the company. The Ministry of Corporate Affairs (MCA) is primarily concerned with administration of In Case: Lennards Carying Co. Ltd. v. Asiatic Petroleum Co. Ltd. AC 705, Viscount the Companies Act 2013, the Limited Liability Partnership Act, 2008 & other allied Acts CASE LAW: ROYAL BRITISH BANK V. TURQUAND Haldane propounded the “alter ego” theory and distinguished it from vicarious liability. along with rules & regulations framed there-under mainly for regulating the functioning The directors of a banking company were authorized by the articles to borrow on bonds The House of Lords stated that the default of the managing director who is the “directing of the corporate sector in accordance with law. such sums of money as should from time to time, by resolution of the company in general mind and will” of the company, would be attributed to him and he be held for the wrong meeting, be authorized to borrow. The directors gave a bond to Turquand without the Registrar of Companies (ROC) as defined under Section 2 (75) of the Companies Act, doing of the company. authority of any such resolution. It was held that Turquand could sue the company on the 2013 means a Registrar, an Additional Registrar, a Joint Registrar, a Deputy Registrar or strength of the bond, as he was entitled to assume that the necessary resolution had been Advantages of Corporate Form of Enterprise an Assistant Registrar, having the duty of registering companies and discharging various passed. Lord Hatherly observed: “Outsiders are bound to know the external position of the functions under this Act. 1. Corporate Personality 2. Limited Liability company but are not bound to know its indoor management. Regional Director (RD) is in-charge of the respective region, each region comprising a 3. Perpetual Succession 4. Transferable Shares number of States and Union Territories. They supervise the working of the offices of the Exceptions to the Doctrine of Indoor Management 5. Separate Property 6. Capacity to Sue Registrars of Companies and the Official Liquidators working in their regions. (i) Where the outsider had knowledge of irregularity: The rule does not protect any Official Liquidators (OL) means an Official Liquidator appointed under sub-section (1) person who has actual or even an implied notice of the lack of authority of the person Disadvantages of Corporate Form of Enterprise of section 359 of the Companies Act, 2013. acting on behalf of the company. Thus, a person knowing fully well that the directors 1. Formalities and expenses 2. Corporate disclosures do not have the authority to make the transaction but still enters into it, cannot seek Serious Fraud Investigation Office: As per the Companies Act, 2013, Serious Fraud 3. Separation of control from ownership 4. Greater social responsibility protection under the rule of indoor management. Investigation Office (SFIO) has been established through the Government of India. It is 5. Greater tax burden in certain cases 6. Detailed winding-up procedure (ii) No knowledge of Memorandum and Articles: the rule cannot be invoked in favour a multi-disciplinary organization under the Ministry of Corporate Affairs, consisting of experts in the field of accountancy, forensic auditing, banking, law, information technology, of a person who did not consult the memorandum and articles and thus did not rely DIFFERENCE BETWEEN COMPANY AND A FIRM on them. investigation, company law, capital market and taxation, etc. for detecting and prosecuting (iii) Forgery: The rule of indoor management does not extend to transactions involving Basis of distinction Company Partnership firm or recommending for prosecution white-collar crimes/frauds forgery or to transactions which are otherwise void or illegal ab initio. In the case of 1. Mode of A company comes into A firm comes into existence The National Financial Reporting Authority (NFRA) was constituted on 01st October, forgery it is not that there is absence of free consent but there is no consent at all. creation existence only when it is by an agreement between the 2018 by the Government of India under Sub Section (1) of section 132 of the Companies (iv) Negligence: The ‘doctrine of indoor management’, in no way, rewards those who incorporated under the partners. Registration of a firm is Act, 2013. Monitor and enforce compliance with accounting standards and auditing behave negligently. Thus, where an officer of a company does something which shall company Act. optional. standards; not ordinarily be within his powers, the person dealing with him must make proper 2. Separate Legal A company has an identity of A firm is merely a collection of National Company Law Tribunal/National Company Law Appellate Tribunal enquiries and satisfy himself as to the officer’s authority. entity its own. partners. It has no separate. It has (NCLT/NCLAT): The setting up of the NCLT and NCLAT are part of the efforts to move (v) This Doctrine is also not applicable where a pre-condition is required to be fulfilled no separate identity. to a regime of faster resolution of corporate disputes, thus improving the ease of doing before company itself can exercise a particular power. business in India. The Ministry of Corporate Affairs (MCA) on 1st June, 2016 notified the 3. Perpetual A company enjoys the benefit A firm has no perpetual (vi) Again, the doctrine of indoor management does not apply where the question is in Constitution of National Company Law Tribunal (NCLT) & The National Company Law Succession of perpetual succession. succession. A firm is close down regard to the very existence of an agency. Death or insolvency of in case of death or insolvency of Appellate Tribunal (NCLAT) in exercise of powers conferred under section 408 and 410 shareholder(s) does not affect all the partners (or of all except of the Companies Act, 2013. DOCTORINE OF CONSTRUCTIVE NOTICE the continuity of the company. one partner). In companies law the doctrine of constructive notice is a doctrine where all persons dealing MCA SERVICES with a company are deemed (or “construed”) to have knowledge of the company’s Articles 4. Transfer of A member of the company A partner can also transfer his (1) Register Digital Signature Certificate of Association and Memorandum of Association. shares can transfer his share. On share to an outside. But, the such transfer, the transferee transfer does not become a (2) Apply for Director Identification Number (DIN) Every person dealing with the company is deemed to have a “constructive notice” of the becomes a member of the partner in a firm, although he (3) View Master details of any Company/LLP registered with Registrar of Companies contents of its memorandum and articles. In fact, he is regarded not only as having read company. become entitled to share the those documents but also as having understood them according to their proper meaning. (4) Index of Charges profit and property transferred [Case Law: Griffith v. Paget, (1877)]. to him (5) LLP Services A common example of Constructive Notice is when a court is unable to directly reach (6) LLP E-Filing 5. Management A company is managed by the A firm is managed by the partners someone and publishes summons in the public newspaper and it is assumed that everybody (7) Company E-filing Services directors. themselves. has read it. (8) Complaints 2 Company Law P W (9) Fee and Payment Services PREREQUISITES FOR E-FILING ON MCA-21 Adobe Acrobat 11 or above version; (10) Independents Director Database Services Digital Signature certificate (DSC) of either Class 2 and Class 3 signing certificate category Scanner for scanning paper attachments; (11) Public Search of Trademark. issued by a licensed Certifying Authority (CA) needs to be obtained for e-Filing on the Printer for printing bank challan or service fee payment receipt; MCA Portal. Pop-ups from MCA21 Portal must be enabled in your browser ALL ABOUT FILING AND FILING OF E-FORMS Digital Signatures are legally admissible in a Court of Law, as provided under the An e-form is only a re-engineered conventional form notified and represents a document in provisions of IT Act, 2000. The Certifying Authorities are authorized to issue a Digital Necessity of Pre-certification of E-Forms electronic format for filing with MCA authorities through the Internet. This may be either a Signature Certificate with a validity of one or two years. Introduction of pre-certification by an independent professional in the e-form aimed at form filed for compliance or information purpose or an application seeking approval from reducing the workload of the Registrar of Companies. Once an e-form has been pre- Hardware and Software Requirements under e-filing the MCA. Due to technical updates, these forms updates regularly, even though their user certified by a professional. The minimum system requirement for e-filing on MCA-21 are as under: interface may not change. User always uses latest e-forms from the MCA Portal. Professionals are responsible for submitting/certifying documents (to be signed digitally Cmputer System/laptop with Windows 2000 or later installed; Filling and filing of forms is an important part of the secretarial function of a Company by them) and system would accept most of these documents online without approval by Secretary. Normally, where Company appoints a Company Secretary, he is designated JRE (Java Runtime Environment) -Java version 8 is suggested; Registrar of Companies or other officers of the Ministry. as the officer responsible for compliance under the Companies Act and other allied Internet connection to access the MCA website; If a professional gives a false certificate or omits any material information knowingly, he legislations. Internet Explorer 10 or above / Chrome 49 or above /Firefox 45 or above; is liable to punishment under Section 447 and 448 of the Companies Act, 2013. Introduction to Company Law 3 2 Legal Status and Types of Registered Companies TOPICS TO BE COVERED (c) The shares are subject to certain conditions levied by law on free transferability. 10. Contractual Rights: A company, being a legal entity different from its members, Nature and characteristics of a Company (d) No shareholder is permanently or necessarily weeded to company. can enter into contracts for the conduct of the business in its own name. A 6. Capacity to Sue or Be Sued: A company being a body corporate can sue and be sued shareholder cannot enforce a contract made by his company; he is neither a party Types of Companies in its own name. to the contract, nor be entitled to the benefit derived from it, as a company is not Characteristics of Private Company a trustee for its shareholders. Likewise, a shareholder cannot be sued on contracts To sue, means to institute legal proceedings against (a person) or to bring a suit in a Privileges and exemptions of Private Companies court of law. made by his company. Public Company All legal proceedings against the company are to be instituted in its name. Similarly, the company may bring an action against anyone in its own name. DISADVANTAGES OF REGISTERED COMPANIES Characteristics of Public Company 7. Company is Not a Citizen: The company, though a legal person, is not a citizen Formality and Expense: Registration of a company involves a lot of statutory formalities Meaning of Small Company, Dormant Company, Government Company under the Citizenship Act, 1955 or the Constitution of India. and the consequent expense. LEGAL STATUS OF REGISTERED COMPANIES The reason as to why a company cannot be treated as a citizen is that, citizenship is Privacy Loss: Another form of disadvantage of a company of loss of privacy. Various available to individuals or natural persons only and not to juristic persons. returns, resolutions and documents are to be uploaded and filed with the Registrar of 1. Corporate Personality: A company incorporated under the Act is vested with a 8. Company has Nationality and Residence: It is established through judicial Companies. corporate personality. decisions that a company cannot be a citizen, yet it has nationality, domicile and Diversified Control: The members of the company cannot have as effective control over (a) It bears its own name and acts. residence. the workings of company as in sole proprietorship and partnership business models. (b) Its assets are separate and distinct from its members. 9. Limited Liability: “The privilege of limited liability for business debts is one of the Public Accountability: The Company cannot work in contravention to public interest, (c) It is a different person from the members who compose it. principal advantages of doing business under the corporate form of organisation.” because as and when the public interest will come in conflict with corporate working, (d) It can incur debts, borrow money, have a bank account, employ people, enter into The company, being a separate person, is the owner of its assets and bound by its intervention by regulatory authorities will be triggered. contracts and can sue or be sued. liabilities. Fraud Possibilities: The company operates through control of economic resources in a (e) It is capable of owning property. The liability of a member as shareholder, extends to the contribution to the capital of few hands, there is a possibility that the other people who have contributed funds to the the company up to the nominal value of the shares held by him. company either as shareholder or debenture holder or creditor or lender, those few hands The case of Salomon v. Salomon and Co. Ltd., (1897) Exceptions to the principle of limited liability may defraud by diverting funds of the company to their private channels. The above case has clearly established the principle that once a company has been validly constituted under the Companies Act, it becomes a legal person distinct from its members Members are severally liable in certain cases- The following are the prerequisites for attracting the provisions of Section 3A: TYPES OF COMPANIES and for this purpose it is immaterial whether any member holds a large or small proportion 1. The number of members of the Company is reduced to below seven in case of Statutory Company: A company may be incorporated by means of a special Act of the of the shares, and whether he holds those shares as beneficially or as trustee. public company or below two in case of private company; Parliament or any State legislation. These companies are generally formed to carry out 2. Company as an Artificial Person: A Company is an artificial person created by law. some special public undertakings, e.g. railways, waterways, electricity generation etc. It is not a human being but it acts through human beings. It is considered as a legal 2. The company carries on business for more than six months with such less number person who can enter into contracts, possess properties in its own name, sue and can of members; Registered Companies: The companies registered under the companies Act, 2013 or earlier be sued by others etc. It is called an artificial person since it is: 3. The members are cognizant of fact that the company is carrying business with companies Acts are called registered companies. Such companies come into existence such less number of members. when they are registered under the companies Act and a certificate of incorporation is (a) Invisible In such case the remaining members so continuing in the company shall be liable for the granted to them by the Registrar. (b) Intangible payment of whole debts of the company contracted during that time. Unregistered Companies: An unregistered company is a company which is not registered (c) Existing in the contemplation of law or covered under the provisions of the companies Act, 2013. It includes partnership firms, When the company is incorporated as an Unlimited Company under Section 3(2)(c) (d) It is capable of enjoying rights and being subject to duties. of the Act. society or co-operative society, railway company incorporated under any Act of Parliament 3. Perpetual Succession: Perpetual Succession means that the membership of the or any other Indian law or registered under any previous law. Where a company has been got incorporated by furnishing any false or incorrect company may change from time to time, but this does not affect its continuity. An In India, the two common types of companies which may be registered are: information or representation or by suppressing any material fact or information. incorporated company never dies, except when it is wound up as per law. Under Section 35(3), where it is proved that a prospectus has been issued with intent (a) Private Company “Members may come and go, but the company can go on forever.” to defraud the applicants for the securities of a company or any other person or for (b) Public Company (a) A company, being a separate legal person is unaffected by death/insolvency/ any fraudulent purpose. Section 3 of the Companies Act, 2013 read with the Companies (Incorporation) Rules, retirement or departure of any member or director. As per section 75(1), where a company fails to repay the deposit or part thereof or any 2014, states that: (b) It remains the same entity, despite total change in the membership. interest thereon within the time specified and it is proved that the deposits had been 1. A company may be formed for any lawful purpose by– 4. Separate Property: A company being a legal person and entirely distinct from its accepted with intent to defraud the depositors or for any fraudulent purpose. members, is capable of owing, enjoying and disposing off property on its own name. (a) seven or more persons, where the company to be formed is a public company; Section 224(5) states that where the report made by an inspector states that fraud 5. Transferability of Shares: (b) two or more persons, where the company to be formed is a private company; or has taken place in a company and due to such fraud any director, key managerial (a) The capital of a company is divided into parts, called shares. personnel, other officer of the company or any other person or entity, has taken undue (c) one person, where the company to be formed is a One Person Company. (b) The shares are said to be movable property. advantage or benefit, whether in the form of any asset, property or cash. 2. A company formed under sub-section (1) may be either (a) Company limited by Shares: Section 2(22) of the Companies Act, 2013 provides business or operation, or has not made any significant accounting transaction during A number of directors: When it comes to directors, a private company needs to have that “Company limited by shares” means a company having the liability of its the last two financial years, or has not filed financial statements and annual returns minimum two directors. With the existence of 2 directors, a private company can members limited by the memorandum to the amount, if any, unpaid on the shares during the last two financial years. come into existence and can start with its operations held by them. (f) Small Company: Section 2(85) “Small company” means a company, other than a (b) Company limited by guarantee: Section 2(21) of the Companies Act, 2013 public company PUBLIC COMPANY provides that a company that has the liability of its members limited to such (i) paid-up share capital of which does not exceed four crores rupees or such higher Section 2(71), a public company means a company which: amount as the members may undertake, by the memorandum, to contribute to the amount as may be prescribed which shall not be more than ten crore rupees; and (a) Is not a private company assets of the company in the event of its being wound-up, is known as a company (ii) turnover of which as per profit and loss account for the immediately preceding (b) has a minimum paid-up share capital, as may be prescribed limited by guarantee. financial year does not exceed forty crore rupees or such higher amount as may (c) Subsidiary of a public company shall be deemed to public company. (c) An Unlimited Company: Section 2(92) of the Companies Act, 2013 provides be prescribed which shall not be more than one hundred crore rupees: As per section 3(1)(a), a public company may be said to be an association consisting of not that unlimited company means a company not having any limit on the liability of its members, such companies may or may not have share capital. They may Advantages of a Small Company less than 7 members, which is registered under the Act. The securities of a public company be either a public company or a private company. The members is liable to the may be quoted on a Stock Exchange. company and to any other person. Lesser number CHARACTERISTICS OF PUBLIC COMPANY Such company, the liability of members of the company is unlimited. of Board meetings Lenient (a) Board of Directors: The Board of the Public company comprises of a minimum Abridged OTHER FORMS OF COMPANIES Annual Record compliance number of three directors and a maximum of 15. requirements (a) Section 8 Company/Non-Profit Oriented Company: A company whose sole (b) Limited Liability: Shareholder liability for the losses of the company is limited to objective is to promote commerce, art, science, sports education, research, social their share contribution only. This is what makes it a separate legal entity from its welfare, religion, charity, protection of environment or any other useful purpose and shareholders. The business can be sued on its own and not involve its shareholders. Lesser no. of not having any profit motive will be termed as a not for profit company. Such a certifications No need to (c) Transferable shares: Shares of a public limited company are bought and sold by enclose cash company must apply its profits or other incomes in promoting its objects. by flow statements the shareholders, however, in case of listed company the shares are traded on a stock (b) Government Companies: As per section 2(45) of the Companies Act, 2013 the professionals exchange where the shares of the company are listed. They are freely transferable “Government Company” means any company in which not less than fifty-one per between its members and people trading in the stock exchange. cent of the paid-up share capital is held by the Central Government, or by any State (g) Domestic Company: A domestic company is a company that conducts its affairs (d) Financial Privacy: Public limited companies are strictly regulated and are required Government or Governments, or partly by the Central Government and partly by one in its home country. It should be registered under the provisions of the Companies by law to publish their complete financial statements annually. This ensures that they or more State Governments, and includes a company which is a subsidiary company Act, 2013 or earlier law applicable in India. The domestic company shall have reveal their true financial position to their owners and to potential investors so that of such a Government company. registered office in India. Domestic Company means an Indian Company, has made they can determine the true worth of its shares. the prescribed arrangements for the declaration and payment, within India, of the (c) Holding and Subsidiary Companies: As per section 2(46) of the Companies Act, dividends (including dividends on preference shares) payable out of such income. ADVANTAGES OF A PUBLIC COMPANY 2013, the “holding company”, in relation to one or more other companies, means a company of which such companies are subsidiary companies and the expression PRIVATE COMPANY (a) Raising capital through public issue of shares “company” includes any body corporate. (b) Prestigious profile and confidence As per Section 2(68) of the Companies Act, 2013, “private company” means a company As per section 2(87) of the Companies Act, 2013 “subsidiary company” or (c) Growth and expansion opportunity having a minimum paid-up share capital as may be prescribed, and which by its articles: “subsidiary”, in relation to any other company (that is to say the holding company), (i) restricts the right to transfer its shares; (d) Widening the shareholder base and spreading risk means a company in which the holding company (ii) except in case of One Person Company, limits the number of its members to two hundred: (e) Transferability of shares (i) controls the composition of the Board of Directors; or (ii) exercises or controls more than one-half of the total voting power either at its own Provided that where two or more persons hold one or more shares in a company DISADVANTAGES OF PUBLIC COMPANIES or together with one or more of its subsidiary companies: jointly, they shall, for the purposes of this clause, be treated as a single member: What is a Wholly Owned Subsidiary Company? Provided further that - Increased government & regulatory scrutiny A wholly owned subsidiary company is a company that is incorporated under the (a) persons who are in the employment of the company; and provisions of the Companies Act, 2013 and in which hundred percent share capital (b) persons who, having been in the employment of the company, were members of More vulnerable to takeovers Lack of confidentiality of such company is held by another Indian or foreign company. the company while in that employment and have continued to be members after Example: Reliance Industrial Investment and Holdings Limited (RIIHL), is a wholly the employment ceased, shall not be included in the number of members; and owned subsidiary of the Reliance Group of Company. (iii) Prohibits any invitation to the public to subscribe for any securities of the company. Higher levels of transparency Ownership and control issues (d) Associate Companies/Joint Venture Company: As per section 2(6) of the The words ‘Private Limited’ must be added at the end of its name by a private limited company. Companies Act, 2013 the “associate company”, in relation to another company, As per section 3(1), a private company may be formed for any lawful purpose by two or Difference between Associate and Subsidiary Company means a company in which that other company has a significant influence, but which more persons, by subscribing their names to a memorandum. Associate Company Subsidiary Company is not a subsidiary company of the company having such influence and includes a Section 149(1) provides that a private company shall have a minimum number of two joint venture company. The parent company holds a minimum of 20% Parent company holds more than 50% directors. The only two members may also be the two directors of the private company. but less than 50% of the total voting power. of the total voting power. (i) the “significant influence” means control of at least twenty per cent. of total voting power, or control of or participation in business decisions under an agreement; Characteristics of Private Limited Company The parent company has significant influence, The Parent company has controlling (ii) the “joint venture” means a joint arrangement whereby the parties that have joint Limit on Members: To start a company, minimum number of 2 members is required and that is, the power to participate in the financial power over the financial and operating control of the arrangement have rights to the net assets of the arrangement. a maximum number of 200 members as per the provisions of the Companies Act, 2013. and operating decisions of the Associate decisions of the subsidiary company. (e) Dormant Companies covered under Section 455 of the Companies Act, 2013 and company. Limited Liability structure: The liability of each member or shareholders is limited. includes a company which is formed and registered under the Act for a future project It means that if a company faces loss under any circumstances then its shareholders There may be presence of certain number of The parent company controls the or to hold an asset or intellectual property and which has not been carrying on any are not liable to sell their own assets for payment. common promoters/directors. management of the subsidiary company. Legal Status and Types of Registered Companies 5 3 Memorandum and Articles of Associations and its Alteration WHAT IS MEMORANDUM OF ASSOCIATION? 1. NAME CLAUSE 3. OBJECT CLAUSE According to Section 2(56) of the Act “memorandum” means the memorandum First Clause in MOA. of association of a company as originally framed and altered, from time to time, in pursuance of any previous company law or this Act. Company being a legal entity must have a name of its own to establish its separate It contains the objects It states affirmatively the identity. for which the company scope & extent of power of company & states Memorandum is a Memorandum of Association is a legal document which describes the purpose for has been formed. It also Name shall not- negatively nothing should limit beyond which a which the company is formed determines purpose and be done beyond such scope company can’t travel. It is constitution of a company on which structure of a company is built the capacity of company. Be identical or too nearly to name of an existing company, be such name which constitutes & extent. First step in the formation of company is to prepare documents called MOA. an offence if used, or undesirable in operation of CG. FORM OF MOA Company can apply of name on RUN. Such name will be reserved for period of 20 days 4. LIABILITY CLAUSE Table A - Applicable in case Company Limited by Shares. CG has power to direct any company to rectify its name if it is identical or too nearly to Liability of members of company of company is to be specifically mentioned in MOA. name of existing company & company have to change its name within 3 months from Table B - Company limited guarantee not having share capital. issue of above direction after passing ordinary resolution. Liability of members may either be limited or unlimited, further shall also state that CG has another power to rectify the name of company which in his opinion constitutes In case of company limited by shares, liability of members is limited upto Table C - Company Limited by Guarantee having share capital. an infringement of registered trademark. Proprietor of such trademark may make an unpaid amount of shares, application to CG within 3 years from the date of incorporation of company then CG In case of company limited by guarantee, liability of member become to held. may direct company to change its name within a period of 6 months from issue of such up to unpaid amount of shares & amount of guarantee which will be called by Table D – Unlimited Company not having share capital. direction after passing ordinary resolution. company at the time of its winding up. When company changes its name notice has to be given to registrar along with order of Table E – Unlimited Company Having share capital. CG within15 days from such change. 5. CAPITAL CLAUSE This clause states the amount of capital with which company is registered 2. REGISTER OFFICE CLAUSE/ SITUATION CLAUSE CONTENTS OF MEMORANDUM [SECTION 4 READ WITH SCHEDULE I] Capital value which is registered in MOA is known as Nominal / Authorized / registered Name of state in which registered office of company is to be situated must be given capital. in MOA. Company cant issue shares exceeds amount of nominal capital. Object Name Exact address of registered office is not required. Clause Clause 6. DECLARATION FOR SUBSCRIBERS This clause states that,” we several people whose names and address are subscribed Company must have to inform registrar of its Register Office within 30 days from below, desire to form in to a company & agrees to take numbers of shares stated opposite Subscription Registered incorporation of company. to respective names.” Clause office Clause Then, names, address description, occupation of subscribers & number of shares taken Name and address of its Register Office is printed or affixed on every document of & their signature is entered. company. Capital Liability Requirements: Clause Clause Each subscriber must take at least one share Negotiable instruments like hundis, promissory notes, BOE, etc. and other document Each subscriber must write opposite to his name also contains it. number of shares which he agrees to take. 7. OPC B. A LTERATION OF SITUATION/REGISTERED OFFICE CLAUSE IN 9. Get the new name of the Company painted on all the signboards or name boards In case of OPC, name of person who in the event of death of subscriber shall become wherever they are displayed. THE MOA the member of company is entered in MOA is known as NOMINEE CLAUSE. (a) Change within the local limits of same town 10. Correct all records, registers including the Register of Members, every copy of ALTERATION OF MEMORANDUM OF ASSOCIATION (MOA) Memorandum and Articles of Association A company by passing Board Resolution can change the situation of its registered office within the limits of same city, town or village Alteration of MOA 11. It is also to be noted that in every document as above-mentioned the company shall paint, affix or print as may be the former name or names so changed during An intimation of the change of registered office and verification of registered the period of last two years. address shall be given to the Registrar Alteration of Alteration of Alteration of Name Clause Methods of changing the name E-Form INC-22 is required to be filed within 30 days of such change Objects Clause Capital Clause After incorporation, a company can change their name through following methods: Alteration of Registered Alteration of This does not involve alteration of memorandum Liability Clause Conversion of private limited company into public limited company and Office Clause thereby change in the name from private to public; or (b) Change outside the local limits of any city, town or village A. ALTERATION OF MOA DUE TO CHANGE IN NAME CLAUSE Conversion of public limited company into private limited company and In the case of an existing company, outside the local limits of any city, town or SECTION 13 thereby change in the name from public to private; or village pass special resolution by the company; and Alteration of MOA In the case of any other company, outside the local limits of any city, town or village pass special resolution by the company. Change of name from ABC limited to XYZ limited. Change in Change of name on a direction (c) Change within the same State from the jurisdiction of one Registrar Name Clause from the Central Govt. Change in name of listed entity of Companies to the jurisdiction of another Registrar of Companies Change of name at the Take approval from the Regional Director. Following conditions should be fulfilled: instance of the Company The Regional Director, after hearing the parties shall pass necessary orders within a Time period of at least 1 year has elapsed from last name change. period of thirty days from the date of the receipt of the application. Procedure for Alteration in Name Clause of Memorandum The company concerned shall file a copy of the said order with the ROC within a 1. Calling of Board Meeting and Pass a Board resolution. period of 60days from the date of the order by Regional Director. At least 50% of total revenue in last 1 year from new activity suggested in new name. 2. Seeking name availability for proposed new name from the ROC application for the The said ROC shall record the ordered changes in its records. reservation of name shall be in Form RUN along with prescribed fee of Rs. 1,000/- The ROC of the state where the registered office of the company was previously At least 50% of total assets invested in new activity. situated, shall transfer all the documents and papers to the new ROC. 3. Obtaining ROC Approval and Name Availability Letter. Company shall filed Form No.INC.23 with the Regional Director along with the fee and 4. Issue of Notice of Extra-ordinary General Meeting (EGM), Hold EGM and pass the documents as prescribed. Special Resolution. Then only file an application for name availability Board Resolution for shifting of registered office; 5. ROC filings and file Form MGT14 within 30 days to ROC. Special Resolution of the members of the company approving the shifting of 6. After scrutiny of the documents filed, the ROC shall issue a fresh certificate of registered office; incorporation digitally signed in Form INC-25. Must take approval from stock exchange also. A declaration given by the Key Managerial Personnel or any two directors authorised by the Board, that the company has not defaulted in payment of dues to its workmen 7. Intimate all concerned authorities about the changed name of the Company. and has either the consent of its creditors for the proposed shifting. If changed activity is not reflected in name of co. shall change name according 8. Arrange for a new Common Seal and have the same adopted at a meeting of the A declaration not to seek change in the jurisdiction of the Court where cases for to activity within 6 months from change of activities. Board of directors and keep it under safe custody. prosecution are pending. Memorandum and Articles of Associations and its Alteration 7 Acknowledged copy of intimation to the Chief Secretary of the state as to the (c) If company raised any amount through prospectus and have unutilized portion 3. Issue notice to member auditor, director. proposed shifting and that the employee interest is not adversely affected by then Pass special resolution to alter MOA proposed shifting. Regional Director shall examine the application the order either approving or (d) Publish an advertisement of SR. 4. Hold annual general meeting & pass ordinary resolution. rejecting the application shall be passed within 15 days of the receipt of application The certified copy of order of the Regional Director, shall be filed in Form (e) Opportunity to dissenting member to exit from promotor. No.INC-28 along with fee with the Registrar of State within 30 days from the 5. Filling with roc– date of receipt of certified copy of the order. (f) Pass special resolution in general meeting. MGT 14 if passed special resolution (d) Change of Registered office from one State to another (g) File with ROC in MGT-14 within 30 days. SH-7 within 30 days from passing resolution. Board meeting will be called & BR will be passed for shifting of RO from 1 State to (h) Special resolution passed by postal ballot in following company another. ARTICLES OF ASSOCIATION Company having more than 200 members. Amount raised through prospectus is unutilized. AOA contains regulation for management of the company. These are the bye-law or EGM notice will be given to shareholders (21 clear days). Publish notice of EGM in rules that will govern the functioning of company. newspaper & also send copy of such publication to stock exchange. ALTERATION OF LIABILITY CLAUSE AOA defines duties, rights & powers of governing body & subordinate to MOA. SR will be passed at EGM & intimation will be given to stock exchange within 24 Can change by passing special resolution as per sec 13 (1). hours of conclusion of EGM. DEFINITION ALTERATION OF CAPITAL CLAUSE As per section 2(5),” ‘articles’ means article of association of a company as originally MGT-14 will be field with ROC within 30 days of passing such resolution. Sec 61 (1) provides that, company may alter its share capital by passing ordinary resolution framed & altered from time to time in pursuance of any previous company law or this in following ways. act.” INC- 23 will be filed to RD along with necessary attachments. Increase in authorized share capital. FORMAT OF AOA Minimum 30 days before date of filling form INC-23. Consolidation and division of share capital. Table F – AOA of Company limited by shares. Publish a notice at least once in daily newspaper published in English & in principle language of that district in which RO is situated Serve individual notice to each debenture holder, depositor & creditor of the co. Sub- division of shares. Table G – limited by guarantee having share capital. clearly indicating that any person who’s interest in likely to be affect may oppose & give his intimation to Regional director along with the copy to co. within 21 days Cancellation or determination of share capital. Table H – Limited by Guarantee not having share capital. from date of publication of notice. CG shall dispose the application within 60 days & he will satisfy itself that alteration has consent of creditors debenture holders, or all dues of creditor is discharged or adequate Sub- division of share.

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