Companies Act 1956

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Text of Companies Act 1956

Companies act 1956

By Akash Saxena

Companies Act 1956INTRODUCTION: INTRODUCTION: This law will represent the basic legal provisions governing a company. Every corporate executive needs to company. have knowledge of basic provisions of company law. law. MEANING OF COMPANY; COMPANY; The word company has no strictly technical or legal meaning. meaning. It implies association of persons for some object. object. This act runs into 658 sections and 15 schedules. schedules.


Section 3(1) of the Companies Act 1956 merely states that a company means a company forms and registered under this act. act. As defined in Section 3(1)(ii) lays down an existing company means a company formed and registered under the companies act. act. According to Prof Haney: A company is an artificial person Haney: created by law, having separate entity, with perpetual succession and common seal. seal.



By Akash Saxena

Characteristics of company1. 2. 3. 4. 5. 6. 7. 8.

Incorporated Association. Association. Artificial Legal Person. Person. Separate Legal Entity. Entity. Perpetual Succession. It does not die & life is not dependant on Succession. its members. members. Limited Liability. Liability. Common Seal. Seal. Separate Property. Property. Capacity to sue and being sued. sued.

By Akash Saxena

Incorporation of CompanyStages of Incorporation: Incorporation: The complete process of formation of a company may be divided into four stages: stages:1. 2. 3. 4.

Promotion. Promotion. Registration/Incorporation. Registration/Incorporation. Floatation/ Raising of Capital. Capital. Commencement of Business. Business.

By Akash Saxena


It means preliminary steps taken for the purpose of registration. registration. Gerstenberg has defined the term promotion as the discovery of business opportunities and the organization of fund, property and managerial ability for the purpose of making profits. profits. Person who perform the task of promotion are called promoters. promoters. Promotion means a number of business operations familiar to the commercial world by which a company is brought into exixtence. exixtence.


3 4

By Akash Saxena

RegistrationThe promoter of the company will submit the following documents with the registrar of the Companies for the registration of the company: company: Memorandum of association Articles of Association List of persons who have consented to act as directors of the company. company. A statutory declaration of compliance. compliance. Any agreement with the relevant persons of the proposed company. company.

By Akash Saxena


The registrar of companies is to allot a Corporate Identity Number (CIN) to each company registered on or after Nov 1, 2000. 2000. After scrutiny of all these documents and if they are in order, the registrar of companies shall issue a certificate of incorporation. incorporation. This certificate of incorporation given by the registrar shall be conclusive evidence that all the requirements of the Act have been compiled with. with.

By Akash Saxena


A private company is prohibited from inviting public to subscribe to its share capital. capital. Therefore, when a private company is formed, the requisite capital is obtained from friends and relatives by making its own arrangement. arrangement. The company can take any of the following steps: steps: Issue a prospectus in case public is to be invited to subscribe to its capital. capital. Deliver a statement in lieu of prospectus where the company has either not issued a prospectus. prospectus.

By Akash Saxena

Commencement of Business

Every private company can commence business immediately on receipt of certificate of incorporation. incorporation. Where a company has issued a prospectus it has to satisfy the following conditions: conditions: The minimum subscription in cash has been received. received. Every director of the company has paid in cash his qualification shares, a proportion payable on application and allotment of shares offered for public subscription. subscription. No money is liable to be repaid to applicants for any shares or debentures which have been offered for public by reason of any failure to apply. apply.

By Akash Saxena

Memorandum of Association

For the formation of company the first step is to prepare a document called Memorandum of Association. Association. According to the act memorandum means the memorandum of association of a company as originally framed or altered from time to time. time. It defines the limitation and powers of company. company. It contains the fundamental condition upon which the company is allowed to be incorporated. incorporated. It has to be printed, divided into paragraphs, numbered and signed by at least 7 persons in the presence of at least one witness, who will attest the signature. signature.

By Akash Saxena

Contents of MOAContents of MOA: MOA:1. 2. 3. 4. 5. 6.

Name of the company. company. Registered office. office. Objects of company. company. Liability. Liability. Capital. Capital. Association

By Akash Saxena

Articles of AssociationMeaning: Meaning: It governs the rules and regulations and management of the company. company. It defines the powers of its officers. officers. They establish a contract between the company and the members. members.

By Akash Saxena

Contents of AOA1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Different classes of shares and their rights. rights. Procedure of making an issue of share capital and allotment. allotment. Procedures of issuing share certificates and share warrants. warrants. Directors, their appointment, remuneration, qualifications. qualifications. Accounts and audits. audits. Powers of directors. directors. General meetings. meetings. Voting rights of members. members. Winding up. up. Dividend and reserves. reserves.

By Akash Saxena

ProspectusDefinition: Definition: According to the act prospectus means any document described or issued as a prospectus and includes any notice, circulars, advertisement or other document inviting deposits from public or inviting offers from public for subscription or purchase of any shares, debentures, . Essentials of definition: definition: 1. Document 2. Subscription 3. Invitation to public 4. Offer to public 50 or more personsBy Akash Saxena

Necessary Pre requisites of Prospectusa) b) c)

It must be dated. dated. It must be signed. By directors signed. It must be registered. It is issued within 90 days from registration. registered. registration.

Contents of prospectus: prospectus: 1. Matters specified in Part I of schedule II: II: a. Name and address of company, b. Its objects, c. Particulars of directors and auditors, d. Details regarding securities being issued. issued.

By Akash Saxena

By Akash Saxena