SYNOPSIS FOR COMPANIES ACT 2013

1 INTRODUCTION
Main objective: CSS - Corporate governance, Simplify the regulations and Strengthening the interest of
investors
- It has 470 Sections: 29 Chapters & 7 Schedules

2 APPLICABILITY
- Applicable to whole of india including state of J&K and also applicable for companies incorporated under this
act or earlier law

- As regards BANKING, INSURANCE & ELECTRICITY COMPANIES - When the coy act provisions are
inconsistent with provisions of the respective act, then the provisions of the respective act to be followed

3 FEATURES OF COMPANY
- Separate legal entity -owning, enjoying and disposing of property in its OWN NAME

- Perpetual Succession: - existence of company is not affected by the death or insolvency of its members.
- Limited Liability - The liability of members is LIMITED TO THE AMOUNT REMAINING UNPAID ON
SHARES
- Artififical legal person -It is a person since it is clothed with all the rights of an individual
- Common Seal - Official signature of the company. As per coy amendment act 2015, the same is made
optional

4 CORPORATE VEIL & LIFTING OF CORPORATE VEIL

CORPORATE VEIL - The members of a company are shielded from liability
connected to the company’s actions. Company liability is different from member liability - SOLOMON VS
SOLOMN Case law
LIFTING OF CORPORATE VEIL - 1. Looking behind the company as legal person and paying regard to
the realities behind real façade
2. Façade means appearance
3. In nutshell - DISREGARD : COMPANY STATUS
REGARD ? - Realities behind real facade (WHAT HAS REALLY HAPPENED BEHIND THE LIABILITY
)

CIRCUMSTANCES WHERE CORPORATE VEIL CAN BE LIFTED

- To determine TRUE CHARACTER OF COMPANY -
- To Protect REVENUE/ TAXES
- To Avoid a LEGAL OBLIGATIONS
- Formation of subsidiaries to act as agents
- Company formed for fraudulent or to defeat the law
 4 - TYPES OF COMPANIES
1 2 3 4 5
On the basis of Access
Based on Liability Based on Members Based on Control to Capital Other Companies

1.Section 8 companies - Note below

1. Holding company - That controls 1. Listed Company -listed in

1.Company Limited By shares 1. OPC - NOTES BELOW one or more subsidiary company Recognized stock exchange 2 Government Companies
2. Subsidiary company -
A company in which
2. Private Limited Company - 1. More than one half of its Total voting 3. Foreign Companies -
1. Limit no of members to 200 power is held by other coy or one more Incorporated outside india and having
2. Company Limited By Guarantee - 2. Restriction in Transfer of shares companies OR 2. Unlisted Company - Not place of business in India and
Members contribute fixed sum at the time 3. Prohibit to invite / accept deposits from 2. controls COMPOSITION OF listed in Recognized stock conduct activity in India in any other
of winding up public BOARD OF DIRECTORS exchange manner

3. Associate Company - exercises

3.Unlimited company - Liability of 3. Public Limited company - Not a private SIGNIFICANT INFLUENCE ( 20% 4. Dormant company - No
members is unlimited company: of total voting power of the company) significant accounting transactions
5. Nidhi Company - to encourage the
4. Small company -PSC - not exceed 50 lakhs habit of Thrift / savings among
AND Turnover not exceeding 2 crores members
6. PUBLIC FINANCIAL
INSTITUTIONS
 5- OPC
Natural person who is resident in India or otherwise and has
stayed in India for a period of not less than 120 days or more
in the immediately preceeding financial year
Objective of OPC To encourage sole proprietorship business in
1 corporatization Such person - is eligible to incorporate OPC and shall be nominee of OPC

OPC is a private limited company and no minimum paid up

2 capital prescribed. The MOA should have nominee clause
Nominee can be changed from time to time and consent of
3 nominee can also be withdrawn Such change in nominee clause Does not amounts to alteration of MOA
4 A member cannot act as OPC for not more than 1 company
5 A nominee of OPC cannot act as nominee for more than 1 company

6 MINOR Cannot become a member of OPC Or can hold shares in beneficial interest
7 OPC cannot engage in NBFC business
8 CONVERSION
- OPC cannot converted to section 8 company
- OPC can be converted in to Public and private companies in
certain cases
Limited liability: Exceptional cases like lifting of corporate veil
9 cases where personal assets can also be sued

PENALTY
If OPC contravene the provisions, FINE - up to Rs 10,000
10 and further fine which may extends to 1000 PER DAY
 6- HOLDING COMPANY AND SUBSIDIARY COMPANY - BASICS
EXAMPLE -1 EXAMPLE -3
A LTD 90% B LTD A LTD 60% B LTD
A LTD Is a HOLDING COMPANY B LTD 60% C LTD
B LTD is a SUBSIDIARY COMPANY
Between A &B LTD
EXAMPLE -2 A LTD Is a HOLDING COMPANY
A LTD 90% B LTD B LTD is a SUBSIDIARY COMPANY
B LTD 90% C LTD
Between A &B LTD Between B LTD & C LTD
A LTD Is a HOLDING COMPANY B LTD Is a HOLDING COMPANY
B LTD is a SUBSIDIARY COMPANY C LTD is a SUBSIDIARY COMPANY

Between B LTD & C LTD Between A LTD & C LTD

B LTD Is a HOLDING COMPANY 60 * 60% = 36%
C LTD is a SUBSIDIARY COMPANY A LTD 36% C LTD
A LTD Is a HOLDING COMPANY
Between A LTD & C LTD C LTD is a SUBSIDIARY COMPANY
90 * 90% = 81% NOTE:
EVENTHOUGH A LTD IS HOLDING ONLY 36%( which is less than 51%), it is
A LTD 81% C LTD still a subsidiary company
A LTD Is a HOLDING COMPANY BECAUSE -
"SUBSIDIARY'S SUBSIDIARY IS ALWAYS SUBSIDIARY TO ITS
C LTD is a SUBSIDIARY COMPANY HOLDING COMPANY"

EXAMPLE -4
A LTD 40% B LTD
B LTD 40% C LTD

Between A &B LTD

B LTD is an associate company

Between B LTD & C LTD

C LTD is an associate company

Between A LTD & C LTD

???????????
No relationship in terms of HOLDING SUBSIDIARY OR ASSOCIATE
- As the holding component has not exceeded 20%
 7 - SECTION 8 COMPANY
1 License granted by CG and application should be made to MCA for whom CG has delegated powers
2 PURPOSE - ACS, SES, R2 CP - MNEMONIC - Kindly go through class notes for explanation
3 Can be formed without addition of word/ Private Ltd or LTD
4 Reasons when LICENSE WILL BE REVOKED
- Contravene the license conditions
- Prejudicial to the public interest
- violate the objects of the company
- Affairs of company conducted fraudulently
After REVOCATION: CG shall give OBH - OPPORTUNITY OF BEING HEARD and take following
5 actions
- Convert status of section 8 company to Private/Public
- Amalgamate with another company having similar object.
- Winding up
6. Prohibition and Exceptions
- Prohibit to declare dividend to members
- Members notice can be called For 14 days instead of 21 days
- Requirement of minimum number of directors, independent directors etc. does not apply
-Need not constitute NRC & SRC (Nomination and Remuneration Committee and Shareholders Relationship
Committee.
- Partnership firm can become a member of company
8- EFFECT OF REGISTRATION OF COMPANY
1 Body corporate
2 Perpetual succession

3 Power to purchase property in own name and Open bank account in its name
4 Company can sue and sued in its own name

5 There becomes binding contract between company and members by MOA & AOA
SECTION 10 - if MOA and AOA is registered, it shall bind the company and members thereof to same extent
as if they respectively signed by each member. It becomes an agreement to observe all proviions of MOA and
AOA
9- PROMOTERS - 3 POINTS
1 - person who is named In prospectus as such
- who has control over the a airs of the company, directly or indirectly whether as a shareholder, director or
2 otherwise;
- in accordance with whose advice, directions or instructions the Board of Directors of the company is
3 accustomed to act.
PROFESSIONALS engaged in fornation of company are not promoters
9 - INCORPORATION OF COMPANY - FORM SPICE - Simplified Proforma for Incorporating Company
Electronically
6 points- to be remembered and to be uploaded in form called SPICE ( Simplifed proforma for
incorporation of company electronically)
1. MOA AOA,
2. Declaration by CA/CS/CMA - Engaged in formation of company
3. Declaration by subscribers to MOA and person named in articles
4. Registered office - Address for correspondence
5. ID proof and address proof of subscribers to MOA
6. Consent by directors who is acting as a partner/director in any other firm/ body corporate
FRAUD DONE UNDER COY ACT 2013- Penalty U/s-447 of companies act 2013
ORDER OF TRIBUNAL - if company got incorporated by furnishing false of incorrect information or
suppression of any material facts
- Pass such orders as they deem fit
- Direct the members liability as unlimited
- Direct the removal of company name from register of companies
- Pass order for winding up of company
 10-MOA - MEMORANDUM OF ASSOCIATION

MOA -It talks about powers of company

1. Scope of its operations beyond which its actions cannot go
2. To know what its powers are and what activities it can engage in
3.The shareholders must know the purposes for which money is invested

It has 6 CLAUSES - NAME, SITUATION, OBJECT, CAPITAL & LIABILITY CLAUSE

TABLE A TO TABLE E - deals with - MOA

Note:: If any company has changed its activities which are not reflected in its name, it shall
change its name in line with its activities within a period of six months
11- AOA - ARTICLES OF ASSOCIATION
- It’s a rules and regulations of the company
- it plays a subsidiary part to memorandum
- It’s a business document and it has to be construed strictly
- It’s a bye laws of the company
- A company can adopt model articles (Table F to J) or they can have their own AOA
AOA - Entrenchment- To protect something
The provisions for entrenchment shall only be made either on formation of a company, or by even after the coy
is formed,. special resolution required in the case of public company

Eg: for understanding the ENTRENCHMENT PROVISION

If MURALI AGRO LTD Company invested 10% shares of DRF Private Ltd. company. Balance 80% shares
are held by their family members of promoters. Tomorrow if XYZ private limited approaches any Bank for a
loan, the bank officials would read the Articles & would ask to get the consent of MURALI AGRO LTD. Now,
if there is no entrenchment provision, then ‘XYZ’ may, after passing a special resolution remove the minority
right and can borrow beyond the limit.

In order to control it, the entrenchment provisions are usually compelled by the minority to make the majority
responsible and the minority in these provisions can get incorporated a clause saying that borrowing beyond a
particular limit or issuances of shares is to be done only after the requisite consent of minority has been
obtained.
Difference between MOA & AOA

- Nature: MOA- Talks about powers of company: AOA - rules and regulations of company

- Relationship: MOA- relationship of company with external world AOA - relationship between company and
members
- Alterations - MOA - Alterations can be done under special circumstances where even Regional director
approval is required: AOA - It can be altered by passing Special resolutions ( 75 % majority of members)
- ULTRA VIRES - MOA - Act which is ultra vires becomes void and it cannot be ratified
- AOA - Act which is ultra vires can be ratified by Special resolution passed by
members
 12-DOCTRINE OF CONSTRUCTIVE NOTICE -

1. As memorandum and article is a public document so it is considered that every person dealing with the
company is deemed to have notice of the contents of memorandum and articles of the company
2. It is presumed that person have not only read these documents but have also understood their proper
meaning
13- DOCTRINE OF ULTRA VIRES
1 If a company goes beyond its scope or its powers specified in MOA- It is called doctrine of ultra vires
2 An act which is ultra vires is void - cannot be enforceable in the court of law
3 An act which is ultra vires is incapable of ratification
4 Neither the company nor the contracting party can sue
5 The rule is meant to protect the shareholders and creditors of the company

6 An ultra vires can never become INTRA VIRES by the reason of Estoppel, lapse of time or ratification
7 If an act is ultra vires the directors, the shareholders can ratify
If an act is ultra vires the articles, it can be rati ed by altering the Articles by a Special Resolution at a
8 general meeting.
14-DOCTRINE OF INDOOR MANAGEMENT
Any person dealing with company need not be assumed to have knowledge on the internal problems of the
1 company
2 They can assume that all the internal things that is required to be made has been done properly
The outsiders are entitled to take it for granted that the company had gone through all these proceedings in a
3 regular manner
4 The doctrine helps to protect the external members from the company
5 Doctrine of indoor management is opposed to role of doctrine of constructive notice

Exceptions
1 Knowledge of irregularity
2 Negligence
3 Forgery