COMPANY ACT 2013

UNIT-I to II
Priyadarshini Gaur
WHAT IS COMPANY?
 It may be described to imply an association of persons
for some common object or objects such as business,
charity, research etc.

 Company is a voluntary association of persons formed

for the purpose of doing business, having a distinct
name and limited liability.
 According to Haney, “ A company is an incorporated
association, which is an artificial person created by the
law, having a separate entity, with a common seal.

 Section 2(20) of the companies act 2013, “ the company

means a company incorporated under this act or under
any previous company law.”
 Characteristics of a company
 Incorporated association
 Separate legal entity
 Limited liability
 Separate property
 Perpetual succession
 Transferability of shares
 common seal
 Capacity to sue and be sued
 A company is not a citizen
 Incorporated association :- A company needs to be
registered under the Companies Act, 2013. Any other
organisation incorporated with the Registrar of
Companies, and subsequently not registered cannot be
considered as a company. As per the Companies Act,
2013, the minimum number of members required to
start a public limited company is seven while for a
private limited company, it is two. The maximum
number of members for a public limited company can
be unlimited while it is restricted to 200 for a private
limited company.

 Separate legal entity:- A company exists as a separate
legal entity which is different from its shareholders
and members. Due to this feature, shareholders can
enter into a contract with the company and can also
sue the company and be sued by the company.
Case:- Saloman v. Saloman and co. Ltd (1897)
 Limited liability:- As the company exists as a separate
entity, members of the company are not liable for the
debts of the company. Liability of members of a
company is limited to the extent of the shares that are
held by them or by the extent of the guarantee
amount.
 Separate property:- the company is capable of
owning, enjoying and disposing of property in its own
name. the property of the company will not be
considered as the joint property of the members
constituting the company.
 Perpetual succession:- Unlike a natural person a
company never dies. In simple words, a company is an
artificial person. Therefore, it does not have any
restrictions on age. The factors like death, insolvency,
retirement or the insanity of one or all of the members
do not impact the company status.
 Transferability of shares:- under section 56 of the
companies act 2013, the shares of a company are freely
transferable and can be sold or purchased in the share
market.
 common seal:- The firm is an artificial entity or a
person, and therefore cannot sign its name by itself. It
creates the necessity of a common seal that can be
used for representing the decisions made on behalf of
the company.
 Capacity to sue and be sued:- On incorporation a
company acquires a separate and independent legal
personality. As a legal person it can sue and be sued in
its own name.
 A company is not a citizen:- A company is a legal
person in the eyes of law. It can hold property and can
be sued in its own name. But unlike a natural person it
cannot acquire citizenship. A company does not enjoy
the fundamental rights which are enjoyed by a citizen.
TYPES OF COMPANY

One person
company
Chartered companies
 A company/ corporation which is formed by the grant
of a charter by the crown and which is regulated by
that charter is called as a chartered company.
 These companies are very rare to see these days and it
can be said that they don’t exist anymore.

Example:-
 East India company, Royal African company etc.
 Statutory companies:- a company may be
incorporated by mean of a special Act of parliament or
any state legislature. Such companies are called
statutory companies. These companies are generally
formed to carry out some special public undertaking,
for example, railway, LIC, RBI, Food corporation of
India etc.

 Registered companies:- companies registered under

the companies Act 2013 or the earlier companies Acts
are called registered companies. Such companies came
into existence when they are registered under the
companies act and certificate of incorporation is
granted to them by registrar.
On the basis of liability
 Limited liability company
1. Companies limited by shares { sec. 2(22)}:- in the
company limited by shares the liability of the
members is limited by the memorandum to the
amount, if any, unpaid on the shares respectively
held by them.
 The liability can be enforced during the existence of
the company as well as during the winding up.
 Where the shares are fully paid up, no further liability
rests on them.
2. Company limited by guarantee:- {sec.2(21)}:- it is
registered company public or private, in which the
liability of members is limited to such amounts as they
may respectively undertake in the memorandum to
contribute to the assets of the company in the event of
its being wound up.
 In the case of such company, the liability of its
members is limited, to the amount of guarantee
undertaken by them.
• Unlimited company
 (sec. 2(92) of companies act 2013)
 A company not having any limit on the liability of its
members is termed as unlimited company.

 In such a company the liability of each member

extends to the whole amount of the company’s debts
and liabilities.
 On the bases of number of
members
 Private company {sec. 2(68)}:- a private company is a
very suitable form for carrying on the business of
family and small concern as the minimum number of
members required is only 2.
Note:- companies ( Amendment) Act 2015 has amended
section 2(68) of the companies Act 2013. now there is no
requirement of minimum paid up capital for a private
company. [ w.e.f. 29-5-15].
It means a company which has a minimum paid up
capital as may be prescribed, by its articles:-
 Restricts the right to transfer it shares,
 Limits the number of its members to 200.
 Prohibits any invitation to the public to subscribe for
any shares or debentures of the company.
Public company[ sec. 2(71)]
 According to the section 2(71) of the companies act
2013, A public company means a company which
A. Is not a private company
B. Has a minimum paid up capital, as may be
prescribed
C. Is a private company is one that is a subsidiary of a
public company.
Thus, a public company is one that is not a private
company.
Note:- as per companies act 2015, there is no
requirement of minimum paid up capital for a public
company( w.e.f. 29/5/2015)
One person company
{sec. 2(62)}
 As the name suggests, it means a company which has
only one person as a member and where legal and
financial liability is limited to the company only and
not to that person.
 Section 2(68) of the act provides for the definition of a
private company to include one person company. This
implies that all the provisions of the Act applicable to a
private company shall be applicable to an one person
company.
Government companies
Section 2(45) of the companies act defines a
government company to mean any company in which
not less than 51% of the paid up share capital Is held by:
 The central government or
 Any state government
 Partly by the central government and partly by one or
more state governments. A subsidiary of a government
company will also be treated as a government
company.
Foreign companies {sec. 2(42)}
 Any company or body corporate incorporated outside
India which-
a) Has a place of business in India whether by itself or
through an agent, physically or through electronic
mode and,
b) Conduct any business activity in India in any other
manner.
 Difference between private and
public company
Basis Public company Private company
Meaning A public company is a company which is A private company is a
owned and traded publicly. company which is owned
and traded privately.
Minimum 7 2
members
Maximum Unlimited 200
members
Minimum 3 2
Directors
Suffix Limited Private Limited
After receiving certificate of
Start of After receiving certificate of
incorporation and certificate of
business incorporation.
commencement of business.
Statutory Compulsory Optional
Meeting
Issue of
Obligatory Not required
prospectus
Public Allowed Not allowed
subscription
5 members must present in 2 members must present in
Quorum at AGM
person. person.
Transfer of shares Unrestricted Restricted

Inspection of The Annual Reports are public They are not open for inspection
annual accounts documents. Any body can inspect by non-members.
them.
 Conversion
Conversion of a public company into a private
company:
 Section 14 of the companies Act 2013 lays down the
following procedure for conversion of a public
company into a private company.

1. Special resolution:- a) special resolution shall be

passed (b) altering the articles so as to remove the
restrictions contained in section 2(68).

2. Name of the company:- company’s name shall be

changed by adding the words ‘private’ before the
word ‘limited’.
3. Approval of the Tribunal:- section 14(1) provides
that any alteration made in the articles which has the
effect of converting a public company into a private
company shall have effect unless such alteration has
been approved by the Tribunal.

4. Filing with the Registrar:- section 14(2) provides

that a copy of the approval along with a printed copy of
the altered Articles are to be file with the registrar within
a period of fifteen days in the prescribed manner and
registrar shall register the same.
Conversion of a private company into a public
company:
 Section 14 of the companies Act 2013 lays down the
following procedure for conversion of a private
company into a public company.

1. Special resolution:- a) special resolution shall be

passed (b) altering the articles so as to remove the
restrictions contained in section 2(68).

2. Name of the company:- company’s name shall be

changed by deleting the words ‘private’ before the
word ‘limited’.
3. Approval of the Tribunal:- section 14(1) provides
that any alteration made in the articles which has the
effect of converting a private company into a public
company shall have effect unless such alteration has
been approved by the Tribunal.

4. Filing with the Registrar:- section 14(2) provides

that a copy of the approval along with a printed copy of
the altered Articles are to be file with the registrar within
a period of fifteen days in the prescribed manner and
registrar shall register the same.
 Promotion And Incorporation Of
Companies

A company is a separate legal entity which is formed and

registered under the Companies Act. It may be noted
that before a company is actually formed certain
persons, who wish to form a company, come together
with a view to carry on some business for the purpose
of earning profits.
 Promotion of a
company

Incorporation/
registration of a
company

Floatation or raising of
capital

Commencement of business

Stages in formation of a company

 Stage 1:- Promotion of a
company
 It is the first important stage where in necessary steps
are taken for the registration of a company.

 It is the discovery of business opportunities and

subsequent organization of fund, property, and
managerial ability into a business concern for the
purpose of making profits.
Who is promoter?
U/S 2(69) of the companies Act 2013,
Promoter means :-
1. A person who has been named as such in a
prospectus
2. A person identified by the company in the annual
return
3. A person who has control over the affairs of the
company or
4. A person in accordance with whose advice, direction
or instructions the board of directors of the company
is accustomed to act.
Functions of a promoter
 Discovery of idea
 Detailed investigation
 Assembling of resources
 Preparing preliminary documents
 Entering into preliminary contracts
 Naming a company
Registration stage:
 Registration stage is the second part of the formation
process. In this stage, the company gets registered,
which brings the company into existence.
 A company is said to be in existence, if it is registered
as per the Companies Act, 2013. In order to get a
company registered, some documents need to be
provided to the Registrar of Companies.
 There are several steps involved in the registration
phase, and are as follows:
 Memorandum of Association: A memorandum of
association (MoA) must be signed by the founders of
the company. A minimum of 7 members are required
in case of a public company and 2 in case of a private
company. The MoA must be properly registered and
stamped.
 Article of Association: Article of Association (AoA)
is also required to be signed and submitted. All
members who previously signed MoA, should also be
signing the AoA.
 The next step is preparing a list of directors which
should be filed with the Registrar of Companies.

 Directors of the company should provide a written

consent agreeing to be directors, should be filed with
the Registrar of Companies (ROC).

 The notice of address of the office needs to be filed.

 A statutory declaration should be made by any
advocate of either the High Court or Supreme Court,
or chartered accountant, company secretary in
practice, who engaged in formation of company and by
a person of the capacity of Director, Secretary or
Managing Director. This declaration shall be filed with
the ROC.

 Registration by ROC & Certificate of

Incorporation: when the registrar is satisfied with
the documents provided, he will register the company
and place its name on the register of company. And
after that Certificate of incorporation is issued This
certificate validates the establishment of the company
in the records.
Capital subscription/ floatation
stage
 When a company has been registered and has received
certificate of incorporation, it is ready for floatation
i.e. it can go ahead with the raising capital necessary to
commence business and to carry on its operations
satisfactory.

 It may be noted that a private company is prohibited

from inviting public to subscribe to its share capital. It
has to raise the necessary capital form friend and
relatives by private agreement.
 Commencement of business
stage
W.e.f. 29/5/2015, as per the companies (Amendment)
Act, 2015 section 11 regarding commencement of
business has been completely abolishes from the 2013
Act, thereby all companies ( private or public or OPC)
can commence business immediately after obtaining the
certificate of incorporation.
Memorandum of Association
 MOA is one of the documents which has to be filed
with the Registrar of companies at the time of
incorporation of a company.

 The memorandum of association of a company

contains the fundamental conditions upon which
alone the company has been incorporated.
 Memorandum of Association
Sec. 2(56), memorandum means,
 “MOA of a company As originally framed or altered
from Time to Time As per Previous Company Law or
this Act.”

Notes :
It define the scope of companies activity
In both ways (what company can do & what company
cannot do)
 Form of memorandum
4(6) it can be any of the following form (given in
Tables….of schedule I of companies Act 2013)
A. Company limited by Share capital
B. Company limited by Guarantee
C. Company limited by Guarantee having a share
capital
D. Unlimited company
E. Unlimited company with share capital
How to remember table A to E =
S
G
GS
U
US
Contents of memorandum
4(1) MOA of limited company must state
 Name clause [4(1)(a)]
 Registered office clause [4(1)(b)]
 Object clause [4(1)(c)]
 Liability clause [4(1)(d)]
 Capital clause [4(1)(e)]
 Subscription clause [4(1)(f)]
Note:
In case of one person company additional clause
“Nominee clause”
 Name clause [4(1)(a)]
Must have its own name
4(2) name should not
a) Be identical or too nearly resemble the name of
existing company or registered trade mark which is
subject matter of an application for registration.
b) Use word which is
 Offence under any law
 Undesirable in opinion of CG
Application for name approval
 ROC reserve the name for 60 Days
Publication of name
 Ends with “Pvt. Ltd. or Ltd.” in case of private or public
 For OPC ( one person company)
 Display name and the registered office, outside every
office (English + local)
 Engraved on common seal
 Along with telephone number, fax, number, if any, e-
mail and website addresses if any,
 Print in all its business letters, bills, letterhead, notice
and other official publications.
 Situation clause [4(1)(b)]
 State in which registered office is situated (not exact
address)
 Must have registered office within 15 days of
incorporation
 company furnished its verification within 30 days of
incorporation
 Object clause
Specify the objects for which it is formed
Note :
 Every persons dealing with it to know what types of
business the company can do
 Put the limit beyond cannot travel (laxman rekha )
 Beyond it ultra vires ( it is void and illegal)
 Unrestricted freedom to choose (except illegal)
 Doctrine of ultra vires
 Any act beyond powers = void
 Such act doesn’t binds the company
 No one can sue on it
 Acts beyond object clause cannot be ratified
Acts beyond agents authority but within powers of
company = can be ratified
 Liability clause 4(1)(d)
 The fourth clause of MOA, the liability clause declares
the liability of members of the company to be either
limited or unlimited.
 It specifies the company’s members’ responsibility.

 In a company limited by shares, the members’ liability

is limited by the balance outstanding on their
share. The members’ responsibility in a corporation
limited by guarantee is limited by the amount each
partner has agreed to pay.
 Capital clause
The fifth clause of the MOA, the capital clause, states
the company’s share capital. The clause must specify
the total number of share capital with which the
company must be registered, the number of shares of
each kind and the face value of each share.
The capital of the company (also called Authorised,
nominal or registered capital)
Also state shares into which capital is divided
Eg. Capital of company is Rs. 10,00,000 divided into
equity share of Rs. 10 each
 Subscription clause
This clause provides the details of the first subscribers of
the company. The details include their names,
signatures, addresses, etc. These details are provided
via a document known as the ‘subscriber sheet’.
“we desirous of being formed into a company….& agree
to take …share…”
 It contain: name, address, occupation, signatures &
number of share taken.
 Signature must be attested by witness
 Each subscriber must taken at least one share
Nominee clause( in case of one
person company)
 In case of a one person company, there is a
requirement to have 7th clause to describe the nominee
in the event of the death of the subscriber.
 Nomination, the written consent shall be filed with
ROC at the time of incorporation of the OPC along
with the memorandum and articles.
Alteration of Memorandum
 The provisions of memorandum of association may be
altered by a special resolution [Sections 13(1)]
Articles of Association
 Rules and regulation (internal proceeding)
 Should be Printed
 Should be divided into Paragraph, and Consecutive
numbers.
 Signed by subscriber of memorandum
 One witness
 Second most important document
 AOA is subordinate to MOA
 In case of controversy in MOA and AOA, MOA will
prevail.
For AOA Public company limited by shares
 Adopt its own AOA or
 Adopt table A
Other type of company
 Adopt table C,D,E
C- company limited by guarantee without share capital
D- company limited by guarantee with share capital
E- unlimited company
Difference between MOA & AOA
 Prospectus
 A Prospectus is a legal document describing a
company's security that has been put on sale.
 It is a legal disclosure document that provides
information about an investment offering to the
public, and that is required to be filed with the
Securities and Exchange Commission (SEC) or local
regulator.
 The Prospectus contains information about the
company, its management team, recent financial
performance, and other related information that
investors would like to know.
 According to section 2(70) of Company's Act 2013,
Prospectus can be defined as "any document which is
described or issued as a Prospectus" and also any
notice, circular, advertisement or any other document
acting as an invitation to offers from the public. Such
an invitation to offer should be for the purchase of any
securities of a corporate body. Shelf Prospectus and
red herring Prospectus are also considered as a
Prospectus.
Any document to be called a prospectus
must have the following ingredients:-
 There must be written invitation offering to the public;
 The invitation must be made by or on behalf of the
company;
 The invitation must be to subscribe or purchase;
 The invitation must relate to shares or debentures.
Note:- a prospectus is not an offer in itself but an
invitation to make an offer.
 Types of prospectus

PROSPECTUS

RED ABRIDGED DEEMED

HERRING PROSPECTUS SHELF PROSPECTUS
PROSPECTUS PROSPECTUS
SEC. 2(1)
SEC. 32 SEC. 31
SEC. 33 SEC. 25
 RED HERRING PROSPECTUS
 A red herring prospectus is defined under Section 32
of the CA, 2013.
 It contains all the material facts and information
excluding the price or quantum of the securities
offered for sale.
 It contains information concerning the company’s
operations and future prospects, but the relevant
details about the offering are not mentioned.
 It is used for the book-building process.
 The process through which an issuer seeks to identify
the price at which an initial public offering will be
offered is known as book building.
 A company that intends to offer securities to the public
can issue a red herring prospectus before issuing the
original prospectus.
 It must be filed with the Registrar at least three days
prior to the opening of the subscription list and offers.
Abridged Prospectus:
 Section 2(1) of the CA, 2013 outlines an abridged
prospectus.
 An abridged prospectus as the name signifies is the
summarized offer document containing salient
features of an ordinary prospectus.
 As per sec. 33 no form of application for the purchase
of any of the securities of a company shall be issued
unless such form is accompanied by an abridged
prospectus.
 Shelf Prospectus
 The shelf prospectus is outlined under Section 31 of
the CA, 2013.
 Shelf prospectus can be defined as a prospectus that
has been issued by any public financial institution,
company or bank for one or more issues of securities
or class of securities as mentioned in the prospectus.
 It offers securities for subscription in one or more
issues over a specific period of time without the need
for a fresh prospectus to be issued.
 This is done especially in projects where the large
sums of money are required to be raised in order to
save on the expense of filing a new prospectus every
time.

 Any company may file a shelf prospectus with the

Registrar at the stage of the first offer of securities, and
the validity period of such prospectus shall not exceed
one year, which shall begin from the date of opening of
the first offer of securities under the prospectus.
Deemed Prospectus
 Section 25 of the CA, 2013 discusses deemed
prospectuses.
 A deemed prospectus is a document that is assumed to
represent a company’s prospectus.
 A deemed prospectus is a document that contains an
offer for sale made by the intermediary or issuing
house on behalf of a company that allots or agrees to
allot its shares or securities through an intermediary,
such as a merchant bank, another business, or an
issuing house.
 The document is deemed to be a prospectus of a
company for all purposes and all the provision of
content and liabilities of a prospectus will be applied
upon it.
 Contents of prospectus sec. 26

 Details of the company, such as name, registered office

address, and main objects and present business,
 Details of signatories to the Memorandum and their
shareholding particulars,
 Details and consent of the directors,
 Details of shares offered and the class of the issue as
well as voting rights,
 Minimum subscription amount,
 The amount payable on application, on allotment, and
on further calls,
 Underwriters of the issue
 Auditors of the company
 Audited reports regarded profit and losses of the
company
 Misstatement In Prospectus

 Misstatement in the document occurs when the

company includes false information, which misleads
investors. Misstatement happens when information
like location, address, contact details, financial
information, and management details like their
designation and role in the business needs to be stated
correctly or concealed.
 However, a misstatement is the responsibility of
various organization members.
 The liability may be in the form of:-
LIABILITY

CIVIL CRIMINAL

 the following people face them:

 Every director at the time of issue.
 Every person named as a director or who agreed to
become so and whose name is mentioned in the
document will face it.
 Every promoter of the company.
 Every other person who is authorized to issue the
document also has to face it.
Criminal liability (sec. 34)
 U/s 34 where prospectus contains any untrue
statement every person who has authorized the issue
of the prospectus shall be punishable under section
447 of the Act, which provides punishment for fraud as
following:-
1. Imprisonment for a term which may not be less than
six months but which may extend to 10 years or;
2. Fine which shall not be less than the amount
involved in the fraud, but which may extend to three
times the amount involved in the fraud or;
3. Both imprisonment and fine.
Civil liability [sec. 35(1)]
 A person has subscribed for securities of a company
acting on any statement included in the prospectus
which is misleading and has sustained any loss or
damage as a consequence thereof, the company and
every person who—
A. Is a director of the company at the time of the issue
of the prospectus,
B. Has authorized himself to be named and is named in
the prospectus as a director of the company,
C. Is a promoter of the company
Shall be liable to pay compensation to every person who
has sustained such loss or damage.