Submitted by: -Shruti Pendharkar

CONTENTS

Introduction

Types of Companies

Memorandum of Association (MOA)

Article of Association (AOA)

Shareholder & Debenture Holders

Winding up

INTRODUCTION

Company Act 1956

It is the most important piece of legislation that empowers the Central Government to regulate the formation, financing, functioning and winding up of companies.

The Act contains the mechanism regarding organisational, financial, managerial and all the relevant aspects of a company.

The Companies Act is administered by the Central Government

through the Ministry of Corporate Affairs and the Offices of Registrar of Companies, Official Liquidators, Public Trustee, Company Law Board, Director of Inspection, etc.

The Registrar of Companies (ROC) controls the task of incorporation of new companies and the administration of running companies.

OBJECTIVES

A min. standard of good behaviour and business honesty in company promotion and management.

Provision for greater and effective control over and voice in the management for shareholders.

A fair and true disclosure of the affairs of companies in their annual published balance sheet and profit and loss accounts.

Proper standard of accounting and auditing. Recognition of the rights of shareholders to receive reasonable

information and facilities for exercising an intelligent judgement with reference to the management.

A check on their transactions where there was a possibility of conflict of duty and interest.

COMPANY

According to sec.3(1) of the companies Act,1956,”Company means a company formed and registered under this act or an existing company.”

A Company is defined as a voluntary association of persons formed for the purpose of doing business, having a distinct name and limited liability.

Company is an artificial person created by law. It has perpetual succession and a common seal.

In response to the changing business environment, the Companies Act, 1956 has been amended from time to time so as to provide more transparency in corporate governance and protect the interests of small investors, depositors and debenture holders, etc. 

ESSENTIALS FEATURES OF A COMPANY

Artificial legal person

Separate legal entity

Perpetual succession

Limited liability of members

Common seal

Transferability of shares

Separate property

Capacity to sue and being sued

TYPES OF COMPANIES

Basis of incorporation

Statutory companies

Registered companies

BASIS OF INCORPORATION

Statutory companies

These are the companies which are created by a special Act of the legislature e.g. RBI, SBI, LIC, etc. These are mostly concerned with public utilities as railways, tramways, gas and electricity companies and enterprises of national level importance.

Registered companies

These are the companies which are formed and registered under the Companies Act,1956 .

BASIS OF LIABILITY

 Companies limited by shares During the existence of the company or in the event of winding up,

a member can be called up to pay the amount remaining unpaid on the shares subscribed by him.

A company limited by shares may be a public limited company or a private limited company

 Companies limited by guarantee Companies may or may not have share capital. Each member promises to pay a fixed sum of money specified in

the Memorandum in the event of liquidation of the company for payment of debts and liabilities of the company.

The amount promised is called ‘Guarantee’. Unlimited Companies

Liability of the members is unlimited like an ordinary partnership firm.

A company not having any limit on the liability of its members is called an ‘unlimited company.’

ON THE BASIS OF NUMBER OF MEMBERS

Point of Difference

Private Company Public Company

N0. of members

2 - 50 members. 7 – no limit members.

No. of Directors

Min. 2 directors to fill quorum.

Min. 3 directors are needed.

Invitation to general public

Does not invite general public to subscribe to its shares, debentures and public deposits.

Does invite general public to subscribe to its shares, debentures, public deposits.

Transfer of Shares

Prior permission required for transfer of shares

Free transfer of shares is permitted.

Prospectus Need not issue prospectus. It is compulsory to issue a prospectus or a statement in lieu of prospectus.

Statutory meeting and report

No compulsion for holding Statutory meeting and filling of statutory report.

It needs to hold a statutory meeting and must file a statutory report.

Legal formalities

Exempted from various legal formalities.

Has to comply with many legal formalities.

Min. paid up capital

Rs. 1 lakh Rs. 5 lakh.

MEMORANDUM OF

ASSOCIATION (MOA)

The Memorandum of Association is the principal document of a company. It is considered as the charter of the company.

It contains the powers and objectives of the company. It also describes the scope of operations of the company.

It can be altered only according to provisions made in the Companies Act regarding its alterations.

Memorandum of Association provides information to outsiders such as creditors, suppliers etc. to know the limitations and scope of company’s dealings. It is also known as Doctrine of Outdoor Management.

Contents of Memorandum of Association

Name Clause:

This clause contains the complete name of the company. The company can choose any name subject to the following restrictions: The name of the company must end with the word

‘Limited’ in case of public limited company and with the word ‘Private Limited’ in case of Private Limited Company.

The name should not be similar or identical to the name of any other company.

The name should not convey any connection or link of company with a government department.

Registered office Clause: This clause contains the name of the state in which the

registered office of the company is to be situated. It is necessary because company gets the registration from

the state only.

Objects Clause: It contains the main object of the company and other

secondary objectives which the company may pursue. This clause defines the scope and limitations of the activities

of the company.

Liability Clause:

This clause defines the liability of the members of the company.

In case of companies limited by shares, the liability of the members is limited to the extent of unpaid amount of their share capital.

In case of a company limited by guarantee the liability is limited to the amount of guarantee given by each member.

Capital Clause:

This clause specifies the amount of share capital with which company is to be registered.

The capital with which a company is registered is called registered/authorised or nominal capital.

Association Clause:

This clause contains the declaration by the directors stating that “We, the several persons whose names and addresses are submitted, are desirous of being formed into a company in accordance with MOA, and we undertake to take the qualification shares.

This declaration must be signed by all the directors of the company.

ARTICLES OF

ASSOCIATION (AOA)

AOA contains rules and regulations regarding the management of company’s internal affairs.

It defines the powers, duties and rights of managers, officers and board of directors.

Generally, all the companies prepare their own Articles of Association.

In case companies do not want to prepare their own articles of association then they can select any one article of association given in Table A of Companies Act.

Companies Act contains 99 sets of AOA. The AOA must be signed by all the directors of the

company. It must be duly attested by any two witnesses.

CONTENTS OF ARTICLES OF ASSOCIATION

The amount of share capital and different classes of shares. Rights of each type of shareholders. Procedure for making allotment of shares. Procedure for issuing share certificates. Procedure for transfer of shares. Procedure for forfeiture of shares. Procedure for conducting meetings. Procedure for declaration and payment of dividend. Duties, powers and remuneration of directors. Procedure regarding winding up of company. Procedure regarding keeping of books of accounts and their

audit. Seal of-the company.

SHAREHOLDERS &

DEBENTURE HOLDERS

SHAREHOLDER

A shareholder or stock holder is an individual or institution ( including a corporation ) that legally owns a share of stock in a public or private corporation .

Shareholder are the owners of a limited company. The buy share which represent part ownership of company.

Stockholders are granted special privileges depending on the class of stock.

These rights may include: The rights to sell their shares. The right to vote on the directors nominated by the board. The right to dividends if they are declared. The right to purchase new shares issued by the company.

DEBENTURE HOLDERS

Debenture holders or Bondholders are the persons, firms or companies who purchase the debentures of other company. If they give debt to govt. by buying bond, they will be bondholders.

Rights of debenture holders To transfer the bearer debentures. To get interest on given loan. To take legal action against company, if they did not get interest or their

principle amount. To obtain annual reports , Auditor’s report, profit and loss account and

balance sheet’s copies . Convertible debentures or with special resolution and acceptance of

debenture holders, debentures can be converted in equity shares. After this , they can vote for taking any decision in annual general meeting.

WINDING UP

Winding Up of a Company

Last stage in company’s life.It is the proceeding by which a company is dissolved.“ Winding up of a company is a process whereby its life is ended

and its property administered for the benefit of its creditors and members.

An administered, called liquidator, is appointed and he takes control of the company, collects its assets, pays its debt and finally distributes any surplus among the members in accordance with their rights.”

MODES OF WINDING UP

WINDING UP

COMPULSORY WINDING UP

(Winding up by tribunal)

VOLUNTARY WINDING UP

Members Voluntary

winding up

Creditors voluntary

winding up

WINDING UP UNDER SUPERVISION OF

COURT

GROUND’S FOR COMPULSORY WINDING UP(Section 433 &434)

If the company has, by a Special Resolution, resolved that the company be wound up by the Tribunal.

If the company fails to commence its business within one year of its incorporation, or suspends its business for a whole year.

If the number of members is reduced below the statutory minimum i.e. below seven in case of a public company and two in the case of a private company.

If the company is unable to pay its debts. If the tribunal is of the opinion that it is just and equitable that

the company should be wound up. If the company has made a default in filing with the Registrar

its balance sheet and profit and loss account or annual return for any five consecutive financial years

If the company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality.

VOLUNTARY WINDING UP(Section 484)

Acc. To section 484, When a company is wound up by the members or the creditors without the intervention of Tribunal, it is called as voluntary winding up.

It may take place by:- By passing an ordinary resolution in the general meeting if :-

(i) the period fixed for the duration of the company by the articles has expired; or

(ii) some event on the happening of which company is to be dissolved, has happened.

By passing a special resolution to wind up voluntarily for any reason whatsoever.

MEMBERS & CREDITORS VOLUNTARY WINDING UP

MEMBERS VOLUNTARILY WINDING UP  

Directors of the company shall call for a Board of Directors Meeting, and make a declaration of winding up, accompanied by an Affidavit, stating that: The company has no debts to pay, or   The company will repay it's debts; if any, within 3 years from the

commencement of winding up, as specified in declaration 

CREDITORS VOLUNTARILY WINDING UP 

Where the resolution for winding up has been passed, but the Board of Directors are not in a position to give a declaration on the liability of company, they may call a meeting of creditors, for the purpose of winding up.

 It is the duty of Board of Directors, to present a full statement of company’s affairs, and list of creditors along with their dues, before the meeting of creditors.

Whatever resolution, the company passes in creditor's meeting, shall be given to the Registrar within ten days of its passing.

WINDING UP UNDER SUPERVISION OF COURT (Section 522)

Acc. To section 522, when a company is wound up voluntarily and the process of winding up is completed under the supervision of court, it called as winding up under supervision of court.

The creditors /contributors/ liquidator request the court to supervise the process of winding up.

Ground’s for it are: -

If the liquidator is negligent in realizing the assets, or

The rules regarding winding up are not being duly observed or

The majority shareholders are working in fraudulent manner, against the interest of minority shareholders.