Companies’ Act 1956

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Companies Act 1956. Arun Kumar Davay. Indian companies Act 1956. According to section 3(1) (i) of The Companies Act, 1956, Company means a company formed and registered under this Act or an existing company. - PowerPoint PPT Presentation

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    Meaning of the CompanyAccording to section 3(1) (i) of The Companies Act, 1956, Company means a company formed and registered under this Act or an existing company. A "Company" may be defined as a voluntary association of persons who have come together to carry on some business and sharing the profits, there from. It is an artificial person created by law, formed for the purpose of business, registered under law having an independent legal entity, a distinctive name, common seal and perpetual succession Company - an association of many persons who contribute money or moneys worth to a common stock and employ it in some common trade or business (for common purpose) and who share the profit or loss arising there from

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    Characteristics of a CompanyIncorporated AssociationAn artificial person created by law Separate Legal Entity:: Perpetual Existence /SuccessionCommon SealLimited Liability : By Shares, By GuaranteeFree Transferability of shares One Share-One Vote Capacity to sue and being sued Separate PropertySeparate Management

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    Merits of a Companyi. Collection of huge financial resourcesii. Limited liabilityiii. Free transferability of sharesiv. Durability and stabilityv. Growth and expansionvi. Efficient managementvii. Public confidenceviii. Social benefitsa. Democratization of managementb. Dispersal of ownershipc. Assumption of social responsibilities

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    Limitations of Company Organizationi. Lengthy and expensive legal proceduresii. Excessive government regulationsiii. Lack of incentiveiv. Delay in decision makingv. Conflict of interestvi. Oligarchic managementvii. Speculationviii. Growth of monopolistic tendenciesix. Influence government decisions

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    Lifting the Corporate VeilMisrepresentationInvestigationsFradulent ConductProtection of RevenueEconomic OffencesImproper UsesMere Sham or Fly by Night

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    Company Vs Partnership

    Company PartnershipRegulated under Companies Act 1956Partnership Act 1932Exits after registration under Co.Act 1956Registration not mandatoryManaged by Directors, Board of DirectorsEvery partner should take part in the managementProperty and rights is nontransferable to shareholdersTransferable to any or all partners

  • Company Vs Partnership

    Shares are transferable when the transferee becomes the memberShares cannot be transferred without the consent of all partnersShareholders is not the agenthas no powerEach partner is an agenthas power Min-2Max- banking 10 others 20Bound by law and audited annuallyNo statutory provisionsOnly it can be dissolved (Wound by provisions of companies Act 1956)Dissolved by death/ insolvency of partner or wound if it is for fixed period.

    MembersPublicPvtMin72MaxNo limit50

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    Types of Companiesi. Private CompanyIi. Public Companyiii. Government Companyiv. Holding and Subsidiary companies V. Foreign Companies

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    Types of Companies1. Basis of incorporation: Chartered company :The royal prerogative has power to create a corporation by the grant of a charter to persons assenting to be incorporated. E.g. Bank of England, East India CompanyStatutory Company : These are companies created by a special act of the Legislature E.g. Reserve Bank of India, State Bank of India, Life Insurance Corporation -- Registered or Incorporated Company: These are companies which are formed and registered under the companies Act, 1956. Private Company Public Company

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    2.Based on Liabilitya company limited by sharesa company limited by guaranteean unlimited company

    3. On the basis of Number of members 1) Private Limited Company 2) Public Limited Company

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    4. Based on Control Government Company Foreign Company Holding and Subsidiary Company Multi National Company

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    Government Company

    Features of Government Companyi. Registered under Indian Companies Actii. Government holding of majority sharesiii. Board of Directors representing the Governmentiv. Relatively free from Government proceduresv. Overall control of the Government

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    I. Promotion

    Meaning of PromotionPromotion is the first stage in the formation of a company. Promotion involves identification of a business opportunity or idea, analysis of its prospects and taking steps in implement it through the formation of a Company. A company may have more than one promoter. The promoter may be an individual, firm, an association of persons or a body corporate.

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    Functions of a PromoterTo Conceive Business Idea To make Detailed Investigation To Organize the Resources To Obtain the Consent of Persons Willing to Act as First Directors To Decide about the Name of the Company To Get the Necessary Documents Prepared To Arrange for Filling of the Necessary Documents with the Registrar

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    II. Incorporation by Registration 1) Memorandum of Association: Document that governs the relationship between the company and the outside world a) Name clause: Governed by Emblems and Names Act 1950Seal to be present on all business letters, notices etc b) Domicile clause: Ascertains domicile and nationality of a company c) Objects clause: Explains the utilization of shareholders funds Enables the person dealing with the company to ascertain its powers d) Liability clause: It states the liability of the members of the company is limited e) Capital clause: It must state the authorized of nominal share capital f) Association or Subscription Clause: It specifies the willingness of the subscribers to associate and form a company

    Violation of MoA: Doctrine of the ultra-vires

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    Alteration of the MemorandumChange of nameChange of registered officeChange of the Objects clause To carry on its business more economically To attain its main object by new or improved means To enlarge or change the local area of its operation To restrict or to abandon any of the objects specified in the memorandumTo sell or dispose of the whole or any part of the undertaking of the company To amalgamate with any other company or body of persons

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    2) Articles of Association The Articles of Association (AA) contain the rules and regulations of the internal management of the company. 1. Powers, duties, rights and liabilities of Directors and Members2. Rules for Meetings of the Company 3. Dividends 4. Borrowing powers of the company 5. Calls on shares 6. Transfer & transmission of shares 7. Forfeiture of shares 8. Voting powers of members, etc

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    Contents of ArticlesThe business of the company;The amount of capital issued and the classes of shares into which the capital is divided, the increase and reduction of share capital;The rights of each class of shareholders and the procedure for variation of their rights;The execution or adoption of a preliminary agreement, if any;The allotment of shares; calls and forfeiture of shares for non-payment of calls;Transfer and transmission of shares;

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    Contents of ArticlesCompanys lien on shares;Exercise of borrowing powers including issue of debentures;General meetings, notices, quorum, proxy, poll, voting, resolution, minutes;Number, appointment and powers of directors;Dividends interim and final and general reserves;Accounts and audit;Keeping of books both statutory and others.

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    Articles of AssociationMeaning and purpose:Articles of Association of a company and its bye laws are regulations which govern the management of its internal affairs and the conduct of its business.They define the duties, rights, powers and authority of the shareholders and the directors in their respective capacities and of the company is to be carried out.They are framed with the object of carrying out the aims & objects as set out in the memorandum of association.

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    Articles of AssociationThe articles of association of a company have a contractual force between the members inter se in relation to their rights as such members.Articles cannot supersede the objects as setout in the memorandum of association.The articles must be: (i) printed, (ii) divided into paragraphs, numbered consecutively,(iii) signed by subscribers to the memorandum in the presence of at least one witness who shall attest the signatures. Also, articles are to be stamped with requisite stamp and filed along with the memorandum.

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    Distinction between Memorandum of Association & Articles of Association

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    Distinction between Memorandum of Association & Articles of Association

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    Inspection and copies of the ArticlesA company shall, on being so required by a member, send to him within seven days of the requirement, on payment of five rupees, a copy of the articles.if a company makes default, the company and every officer of the company, who is in default, shall be punishable with fine up to Rs 5000 (s.39).

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    Alteration of Articles.Section 31 provides that subject to the provisions of the Act and to the conditions contained in its memorandum, a company may, by special resolution alter or add to its articles must be filed with the Registrar within 30 days of the passing of the special resolution.

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    Limitation on power to alter ArticlesMust not exceed the powers given by the memorandum or conflict with the other provisions of the memorandum.Must not be inconsistent with any provision