Companies’ Act 1956 Arun Kumar Davay. Indian companies Act 1956

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Companies Act 1956 Arun Kumar Davay Slide 2 Indian companies Act 1956 Slide 3 Meaning of the Company 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. 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 Slide 4 Characteristics of a Company 1.Incorporated Association 2.An artificial person created by law 3.Separate Legal Entity:: 4.Perpetual Existence /Succession 5.Common Seal 6.Limited Liability : By Shares, By Guarantee 7.Free Transferability of shares 8.One Share-One Vote 9.Capacity to sue and being sued 10.Separate Property 11.Separate Management Slide 5 Merits of a Company i. Collection of huge financial resources ii. Limited liability iii. Free transferability of shares iv. Durability and stability v. Growth and expansion vi. Efficient management vii. Public confidence viii. Social benefits a. Democratization of management b. Dispersal of ownership c. Assumption of social responsibilities Slide 6 Limitations of Company Organization i. Lengthy and expensive legal procedures ii. Excessive government regulations iii. Lack of incentive iv. Delay in decision making v. Conflict of interest vi. Oligarchic management vii. Speculation viii. Growth of monopolistic tendencies ix. Influence government decisions Slide 7 Lifting the Corporate Veil Misrepresentation Investigations Fradulent Conduct Protection of Revenue Economic Offences Improper Uses Mere Sham or Fly by Night Slide 8 Company Vs Partnership CompanyPartnership Regulated under Companies Act 1956 Partnership Act 1932 Exits after registration under Co.Act 1956 Registration not mandatory Managed by Directors, Board of Directors Every partner should take part in the management Property and rights is nontransferable to shareholders Transferable to any or all partners Slide 9 Shares are transferable when the transferee becomes the member Shares cannot be transferred without the consent of all partners Shareholders is not the agenthas no power Each partner is an agenthas power Min-2 Max- banking 10 others 20 Bound by law and audited annuallyNo statutory provisions Only 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. MembersPublicPvt Min72 MaxNo limit50 Company Vs Partnership Slide 10 Types of Companies i. Private Company Ii. Public Company iii. Government Company iv. Holding and Subsidiary companies V. Foreign Companies Slide 11 Types of Companies 1. 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 Company Statutory 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 Slide 12 2.Based on Liability a company limited by shares a company limited by guarantee an unlimited company 3. On the basis of Number of members 1) Private Limited Company 2) Public Limited Company Slide 13 4. Based on Control Government Company Foreign Company Holding and Subsidiary Company Multi National Company Slide 14 Government Company Features of Government Company i. Registered under Indian Companies Act ii. Government holding of majority shares iii. Board of Directors representing the Government iv. Relatively free from Government procedures v. Overall control of the Government Slide 15 DifferencePrivate CompaniesPublic Companies Min no. of members Minimum number of members in private company is two Minimum number of members in public company is seven of members Maximum number of members in private company is 50 No maximum limit of membership in public companies Number of directors Minimum number of directors is two. Minimum number of directors is three Issue of shares to public Not allowed to issue public invitation for investing in the company Public invitation of prospectus and public issue of shares, debentures and deposits allowed. Transfera bility of shares Private co restricts the transfer of shares. The shares cannot be listed in stock exchanges A public company cannot put any restriction on the transfer of shares. Theyre freely transferable Minimum Capital The minimum paid up capital for a private company is Rs.100,000. The minimum paid up capital of a public company is Rs.500,000 Holding director ship Directorships held in private companies are excluded A person cannot hold directorship in more than 20 public companies Slide 16 I. Promotion Meaning of Promotion Promotion 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. Slide 17 Functions of a Promoter 1.To Conceive Business Idea 2. To make Detailed Investigation 3.To Organize the Resources 4.To Obtain the Consent of Persons Willing to Act as First Directors 5.To Decide about the Name of the Company 6.To Get the Necessary Documents Prepared 7.To Arrange for Filling of the Necessary Documents with the Registrar Slide 18 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 1950 Seal 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 Slide 19 Alteration of the Memorandum Change of name Change of registered office Change 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 memorandum To 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 Slide 20 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 Members 2. 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 Slide 21 Contents of Articles 1.The business of the company; 2.The amount of capital issued and the classes of shares into which the capital is divided, the increase and reduction of share capital; 3.The rights of each class of shareholders and the procedure for variation of their rights; 4.The execution or adoption of a preliminary agreement, if any; 5.The allotment of shares; calls and forfeiture of shares for non-payment of calls; 6.Transfer and transmission of shares; Slide 22 Contents of Articles 7.Companys lien on shares; 8.Exercise of borrowing powers including issue of debentures; 9.General meetings, notices, quorum, proxy, poll, voting, resolution, minutes; 10.Number, appointment and powers of directors; 11.Dividends interim and final and general reserves; 12.Accounts and audit; 13.Keeping of books both statutory and others. Slide 23 Articles of Association Meaning 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. Slide 24 Articles of Association The 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. Slide 25 Distinction between Memorandum of Association & Articles of Association Memorandum of AssociationArticles of Association 1.It is the charter of the company indicating the nature of its capital. It also defines the companys relationship with outside world. 1.They are the regulations for the internal management of the company & are subsidiary to the memorandum 2.It defines the scope