Main Provisions of Companies Act 1956

Presented By:Group 1Aarti Singh, Azhar Hussain, Jyoti Nawlani, Nemchand Meena, Renuka Sharma

Companies Act

• The Companies Act is a successor to the Indian Companies Act of 1913 and is a consolidation of many successive Amendment Acts, statutory rules and principles laid down in decisions of the courts in India and England.

Objectives of Compa

nies Act

Provide a minimum standard of good

behaviour &

business honesty

Safeguard the

interest of

stakeholders

To facilitate control

A fair disclosur

e of company in their annual

published accounts

High standard

of accountin

g and auditing

Provide a ceiling on the share of profits

to managem

ent as remunera

tion

Check transaction where there is a possibilit

y of conflict of interest

Protection of

Minority Rights

Meaning of Company

Sec.3 of Companies Act, 1956 defines company as- A company formed and registered under the Act or an existing company formed and registered under any of the previous company laws.

Features of a Company:

• Incorporated Association

• Artificial Person • Separate Legal Entity • Limited Liability • Transferability of

Shares • Perpetual Existence • Common Seal

Company may sue and be sued in its own name 

Classification of Companies• In the Companies Act, companies are

classified as follows:Types of Companies

Companies limited by shares

Public Companies

Deemed public Companies

Private Companies

Companies limited

by guarante

e

Companies with

unlimited liability

The Companies Act also maintains three special types

of companies namely:• Holding and Subsidiary

companies• Government Companies• Investment Companies

LIMITED COMPANIES

• A company in which the liability of its members is limited to the amount of share capital subscribed by them or standing in their names in the event of winding up.

• There are three types of limited companies:

Public limited company

Private companyDeemed public

company

Public compan

y

not a privat

e compa

ny

has a minim

um paid-

up capital

of `5,00,000

or such

higher paid-

up capital

, as may be

prescribed;

minimum of

7 subscribers.

no limit

to the numbe

r of shareholders

Eg; INDIAN OIL CORPORATION LIMITED

Private compan

y

Eg; Jet

Airways

3) Deemed public company:

a private company incorporated in India, which is a subsidiary of a public company, can be called as deemed public company in india

Unlimited companies

• A company not having any limit on the liability of its members is termed as unlimited company.

• The members of an unlimited company are liable, like the partners of a firm, for all its trade debts without any limit.

• An unlimited company must have Articles of Association, stating the number of members with which it is registered and the amount of registered share capital if it has any.

Guarantee Companies• The liability of the members of

a guarantee company is limited by a fixed sum which is specified in the memorandum and beyond which they cannot be called upon to contribute.

Government Companies• The Companies Act

defines Government Company as a company in which –not less than 50% of the

paid up share capital is held by the central Government, or

–by any State Government or governments, or

–partly by the Central Government and partly by one or more State Governments, and

– includes a company which is a subsidiary of a government company thus defineed.

Eg; Mahanagar Telephone Nigam Limited

Holding and Subsidiary Companies

• 1. Holding Companies:- The Company which holds more than half of the nominal value of share capital of another company or controls the composition of board of directors of another company is known as Holding company.2. Subsidiary Companies:- A company whose more than half of the nominal value of share capital is held by another company or another company controls the composition of board of directors of such company is known as Subsidiary Company.

Foreign companies:- A company incorporated outside the region of a nation but has a place of business in the nation is known as Foreign Company.

Investment Companies:- A company whose principal business is acquisition of shares, debentures or other securities.

Formation of Company

• Company comes existence when a number of persons come together with an intention to do some business. These persons are called promoters

Process of Formation of Company . Name for the company

Location of registered of the company

Drawing up of Memorandum of Association

Drawing up of Articles of Association

Submitting documents to the Registrar

Getting the company registered

Memorandum of Association

• A Memorandum of Association is a fundamental document of a company which is also known as the Charter of the company. It lays down objects, scope of activities, limitations,power of a company beyond which a company cannot go.

Essential to prepare MOA for

registration.

It should be

originally framed.I t cannot be adopted.

It lays objects,

limitations of the

company.

serves as a basis of contract between

the company and the

outsiders.

It is usually

unalterable.

It enable those who deal with

the company to know

about the permitted range of activities.

Characteristics Of Memorandum of Association

Contents of MOA

• THE NAME CLAUSE: Name which is confirmed by the Registrar should be stated in this clause. The name with “Limited” as the last word of the name in case of public limited company and with “Private Limited” as the last word of the name in case of private limited company.

• REGISTERED OFFICE CLAUSE: This clause states the name of the state in which the Registered office of the company is to be situated.

• THE OBJECT CLAUSE: Main objects to be pursued by the company on its incorporation andObjects incidental or ancillary to the attainment of main objects.

THE LIABILITY CLAUSE: the nature and extent of liability of its members.

THE CAPITAL CLAUSE: The amount of share capital with which the company is to be registered. It shall also give the number and face value of the shares.

THE ASSOCIATION OR SUBSCRIPTION CLAUSE:, the subscribers express their desire and agreement to form a company, agree to sign the memorandum and take specified number of shares

Articles of Association• The Articles of Association is a

document of a company which contains the rules, regulations or bye –laws for regulating the internal affairs of a company.

• It defines the mode and form in which the business of the company is to be carried on.

• They are framed with the object of carrying out the aims and objects as set out in Memorandum of Association.

IMPORTANCE

OF AOA

AOA is subsidiary to MOA

Regulate the

internal affairs

of a compan

y.

Define powers

and duties

of director

s and officers

It is a public

document

which is subject

to public

inspection.

It is an alterabl

e docume

nt.

It is not essential for a public

company to

have its own

articles.

If it does not

register its

articles the

table A of

Schedule I to

the act applies to it.

Contents of ArticlesThe articles of a company usually contain

regulations relating to the following maters:

»Share Capital and rights attached to different classes of shares.

»Calls on shares.»Forfeiture of shares.»Transfer and Transmission of

shares.»Redemption of Preference shares.»Rights of members.»General Meetings.»Rights of members in General

meetings.»Constitution of Board of Directors.

Prospectus• According to Companies Act,

“prospectus" means 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.

• If No Public Issue, then a company shall issue a “Statement in lieu of Prospectus”

• A private company does not issues prospectus because is prohibited from making any invitation to the public

Certificate of Commencement of Business

• A certificate of commencement of business is issued by registrar after filing of a declaration by a director or secretary stating that the company has collected the minimum subscription stated in the prospectus and that the directors have taken the qualification shares

Registration of Company

• The MOA and AOA, if any, have to be submitted to the Registrar of Companies of the state in which it is proposed to locate the registered office of the company.

• Following documents should also be submitted:– Form1 declaration of compliance

with the requirements of Companies Act 1956

– Form 10- notice of situation/ change of situation

– Form 32- Appointment of Directors

– Form 29- Consent to act as Director

Board of Directors

• The company being an artificial person, its activities have to be carried out by persons authorised for that purpose.

• The executive authority is usually exercised by Board of Directors, most of whom are normally elected by the shareholders.

• The Board of a public company should consist of minimum 3 members and 2 in case of a private company

A person shall not be capable of being appointed director of a company,

Of unsound mind Undischarged insolventApplied to be adjudicated as an

insolvent and his application is pending.

Convicted by a court of any offence involving moral turpitude and sentenced thereof to imprisonment for not less than six months and not less than five years has elapsed from the date of expiry of the sentence.

Not paid call moneyznd six months have elapsed from the date of payment

An order has been passed from court in pursuance of section 203

Meeting of Directors

• Number of Meetings: In the case of every company a meeting of its board of directors shall be held at least once in every 3 months and at least 4 such meetings shall be held in every year.

• Notice of Meetings: Notice of every meeting of the board of directors of a company shall be given in writing to every director for the time being in India and at his usual address in India.

• Quorum of Meetings: The quorum of the board shall be 1/3 of its strength or two directors which ever is higher.

The companies Act contains the following provisions relating to board meeting.

Powers of the Board of Directors

GENERAL POWERS• The BODs may exercise all

powers of the Company and can do all such acts and things that the Company can do. But these powers must be according to provisions of Companies Act., MOA, AOA and the resolutions of the Company.  

POWERS

• Power to- Make calls on shareholders in respect of money unpaid

• To buy-back its shares • To issue debentures • To borrow other than debentures

• To invest funds of the Co., and To make loans. Powers only at the meetings: To fill casual vacancies in the Board, additional directors or alternate directors.

• To sanction a contract in which a director is interested

• To recommend the rate of dividend to be declared.

Restrictions on Powers of Directors

The BODs of a public Co. cannot exercise the following powers without the consent of the shareholders in general meeting:

»Sell or lease the undertaking of the Co.

»Remit or give time for the re-payment of any debt

»Invest otherwise than in trust securities.

»Borrow money exceeding the aggregate of the paid-up capital and free reserves.

»Contribute to any charitable not directly related to the business of the Co.

Inter-Corporate Investments

• According to section 372 of the Companies Act, the BOD of a company is entitled to invest in any shares of any other body corporate upto 10% of the subscribed capital of such other body corporate subject to following:– The aggregate of investments

made in all other companies shall not exceed 30% of the subscribed capital of investing company

– The aggregate of investments made in all other companies in same group(under same management) shall not exceed 20% of the subscribed capital of investing company

Winding Up of Companies

A company registered under Companies Act can cease to exist by any one of the following legal methods:

»If a company transfers its undertaking(s) to any other company under a scheme of reconstruction or amalgamation.

»The name of a defunct company may be removed from the register of companies of registrar

»A company may be wound up under Part VII of the Companies Act.

• There are two principal modes of winding up of a company:– Voluntary wind up– Compulsory wind upVoluntary wind up:

A declaration of insolvency by the Board at its meeting is necessary for Voluntary wind up of a company by its members. Voluntary wind up may be:o At the instance of members or creditors oro Under the provision of court

Compulsory wind up

• A company may be wound up by court, if the company:

»By special provision resolved that it be wound by court

»Made default in delivering the statutory report to the registrar or in holding the statutory meeting

»Does not commence its business within a year from date of its incorporation

»Number of members is reduced; less than 2 in case of private company and less than 7 in case of public company

»Unable to pay debts

Any Questions….?