Companies Act Of 1956

A Brief History of The Companies Act

In India, various Acts relating to Companies have been passed at different times. They are –

1) Registration of Joint Stock Companies , 1850. 2) Registration of Joint Stock Companies , 1857.3) Registration of Joint Stock Companies , 1860.4) And thereafter in 1882 ,1895,1910 & in 1913 the Acts

relating to Companies were passed. All these Companies Acts followed the

English Companies Acts with necessary modifications, suitable to Indian Conditions. However, The Companies Act of 1913 remained in force till 1956. After the Second World War, it was felt that the Companies Act , 1913 was inadequate to

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deal with the various problems of Indian industrial as well as business organisations which were growing more complex with the passage of time. Therefore, the Government of India appointed a Committee under the Chairmanship of Mr. C.H.Bhaba in 1950. And thus as a result the Companies Act of 1956 came into force.

Later on this Act was amended extensively on the recommendations of Sachar Committee Report. And thus the Companies (Amended) Act of 1988 is made applicable. Even after that certain provisions of the Act have been modified. At present, The Govt. is thinking to amend the Act thoroughly and bring a new form of this Act suitable to the new scenario. The Companies Act, 1956 extends to the whole of India [Section 1 (3) ] .

What is a Company ?

A Company is –● one of the forms of business organisation ,● a voluntary association of persons formed for a certain

common purposes ,● whose capital is raised by selling shares and the

persons holding such shares are known as shareholders ,

● where the liability of shareholders is limited to the extent of the shares they hold ,

● an artificial person with a perpetual succession and a common seal.

Definitions . . .

● Section 3 of the Act - A Company means a Company formed and registered under this Act or an exciting Company as defined in clause (ii).

● Lord Justice Lindley - By a company is meant an association of many persons who contribute money or money’s worth to a common stock and employ it for a common purpose. The common stock so contributed is denoted in money and is the capital of the company. The persons who contribute it or to whom it belongs are members. The proportion of capital to which each member is entitled is his share. Such shares are always transferable although the right of such transfer can be more or less restricted.

Main Features of A Company . . .

Separate Legal Entity An Artificial Person But Not A Citizen Perpetual Succession Common Seal Separate Name Limited Liability Transferability of Shares Separate Property Number of Members

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Main Features of A Company . . .

13) Raising of Capital On Large Scale14) Capacity To Sue15) Statutory Requirements

Incorporation of Company

Documents to be filed with the registrar. Certification of incorporation Promoter Fiduciary position of a promoter1. Not to make any profit at the expense of the

company.2. To make a full disclosure of interest or profit.If the promoter fails to perform this duty-1. He may be sued for damages.

He may be sued for compensation for misrepresentation He may be sued for damages by shareholders who have

suffered by reason of his non-compliance with the statutory requirements as to the contents of the prospectus.

He may become liable to criminal proceeding.Memorandum of association.Fundamental document. Charter of company. Regulates the

external affairs of the company in relation to outsiders.Purpose ,scope, object of company. Lays down the area of operation.

Purpose of memorandum-To know the prospective share holders purpose for which their

money is going to be used. What risk they are undertaking in making investment.

Outsiders should know the objects. Articles of associationIt contains rules, regulations and byelaws for the internal

management of the affairs of a company.It is next in importance to the memorandum of association

which contains the fundamental conditions upon which alone a company is allowed to be incorporated.

Types of Companies

Classification of Companies On The Basis of Liability :

Companies Limited By Shares Companies Limited By Guarantee Unlimited Companies

Classification on the Basis of Mode of Incorporation :

Statutory Companies Registered Companies Under the Act

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Intel Co. HQ

Types of Companies

Classification on the Basis of Ownership :I. Private Company II. Public Company

Oracle Co. HQ.

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Types of Companies

Classification on the Basis of Control / Share holding :

I. Holding Company [Section 4(4) ]II. Subsidiary Company

General Motors HQ.

NOKIA HQ.

Kinds of companies

(A)Classification on the basis of incorporation:-

(1)STATUATORY COMPANIES:- by special act of legislature .

ex.-R.B.I,S.B.I,LIC,the industrial finance corporation , the unit trust of india .

(2)REGISTERED COMPANIES:-registered under companies act ,1956

(C)Classification based on the basis of number of members (1)private company SEC 3(1) Minimum paid up capital of 1lacks. Restricts the right to transfer its shares. Minimum member is two & maximum upto fifty Prohibits any invitation or acceptance of profit other than its

member (2)public company Minimum paid up capital 5lacks. Every public company existing under company's

(amendment) act ,2000 with a paid up capital less 5lacks has to enhance its paid up capital to 5lacks with in two year of commencement.

Minimum member can be seven maximum member is un limited

(B)Classification based on basis of liability

(1)Companies with limited liabilities:-

(a)companies limited by shares.

(b)companies limited by guarantee.

(2)Companies with unlimited liablity[sec.12(2)]

Memorandum of Association

The name clause The registered office clause The objects clause The liability clause The capital clause The association or subscription clause

Contents of Articles●Capital clause specifying the different classes into which the

share capital of the company will be divided and defining the rights if respective classes regarding dividends, bonuses.

Allotment of sharesFixation of minimum subscriptionShare certificates and share warrants

Call on shares Forfeiture , surrender and lien Transfer and transmission of shares Increase and reduction of capital Consolidation and sub division of shares Borrowing General meeting, proceeding thereof and votes, proxies and

polls. Board meeting Dividends, reserves and depreciation funds Accounts and audits Common seal Notices Special provisions in the winding up Arbitration

Articles and Memorandum- Their relation

The articles are subordinate t memorandum. The articles cannot give powers to a company which are not conferred by the memorandum nor can they purport to create rights which are inconsistent with the memorandum. This is so because the object of the memorandum is to state the purpose for which the company has been established. While the articles provide the manner in which the internal management of the company is to be carried.

The memorandum must be read in combination with articles. This is the case when it is necessary-

a) to explain any ambiguity in the terms of the memorandum, B) to supplement the memorandum upon any matter about which it

is silent except as regards matters which must by statute be provided by the memorandum.

The terms of the memorandum cannot be modified or controlled by the Articles. If ,however there is any ambiguity in the memorandum, the articles may be referred to for clarification.

Distinction between memorandum And Articles

Memorandum of Association

It is the charter of the company indicating the nature of its business, its nationality and capital.It also defines the company’s relationship with outside world.

It defines the scope of the activities of the company or the area beyond which the actions of the company cannot go.

Every company must have its own memorandum.

Articles of Association They are the regulations

for the internal management of the company and are subsidiary to the memorandum.

They are the rules for carrying out the objects of the company as set out in the memorandum.

They are subordinate to the Memorandum.

There are strict restrictions on its alteration. Some of the conditions of incorporation contained in it cannot be altered except with the sanction of the company law board.

Any act of the company which is ultra vires the memorandum is wholly void and can not be ratified even by the whole body of shareholders.

They can be altered by a special resolution,o any extent,provided they don’t conflict with the memorandum and the company act.

Any act of the company which is ultra vires the articles can be confirmed by the shareholders.

Prospectus

In order to finance its activities , a company needs capital which is raised by a public company by the issue of a prospectus inviting deposits or offers for shares and debentures from the public. A private company is prohibited from making any invitation to the public to subscribe for any shares in, or debentures of, the company. Hence it need not issue a prospectus.

Definition- Any document described or issued as a prospectus and includes any notice, circular, advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares in or debentures of a body corporate.

It must be in writing. Invitation to public. Dating and signing of prospectus. Registration of prospectus

Objects of registration of prospectus. Contents of Prospectus

Statement in lieu of prospectus- Where a public company does not invite public to subscribe for its shares, but arranges to get money from private sources, it need not issue a prospectus to the public. In such a case the promoters are required to prepare a draft prospectus known as a statement in lieu of prospectus,which should contain the information required to be disclosed by schedule III of the act.