13-04-2025

Companies Act, 2013

Faculty:
Dr. Shinu Vig

Meaning and Nature of

Company
[Sec 2(20)]

A company incorporated under this Act or

under any previous company law.

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Features
Incorporated association

Artificial person
Separate legal entity
(Soloman, Lee)
Limited liability

Separate property

Transferability of shares

Perpetual succession

Common seal
Company may sue and
may be sued in own name

Lifting the Corporate Veil

• For the protection of revenue

•Formed to avoid their own valid contractual
obligations
• Company formed for fraudulent purpose
• Company formed against public interest

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Example 1
• D was a rich man having dividend and interest
income. He wanted to avoid tax. For this purpose, he
formed four private companies, in all of which he
was the majority shareholder. The companies made
investments and whenever interest and dividend
incomes were received by the companies, D applied
to the companies for loans which were immediately
granted and never repaid. In a legal proceeding the
corporate veils of all the companies were lifted, and
the incomes of the companies treated as if they were
of “D”
[In re Dinshaw Maneckjee Petit (1927) Bom. 371].

Example 2

• A sold his business to B and agreed not to compete

with him for a given number of years within
reasonable local limits. A, desirous of re-entering
business, in violation of the contractual obligation,
formed a private company with majority
shareholdings. B filed a suit against A and the private
company and the Court granted an injunction
restraining A and his company with going ahead in
the competing business
[Gilford Motor Co. vs Home (1933) 1 Ch. 935].

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Classification of Companies

Common Types of companies

Listed
companies
Public limited
companies
Unlisted
Registered companies
companies
Private limited One person
companies company

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(i) Classification on the basis of Incorporation:

There are following ways in which companies may be
incorporated.

(a) Statutory Companies:

These are constituted by a special Act of Parliament or State
Legislature. The provisions of the Companies Act, 2013 do not
apply to them. Examples of these types of companies are eg- Life
Insurance Corporation of India, etc.

(b) Registered Companies:

The companies which are incorporated under the Companies
Act,2013 or under any previous company law, with ROC fall
under this category.

(ii) Classification on the basis of Liability:

Under this category there are three types of companies:

(a) Unlimited Liability Companies:

In this type of company, the members are liable for the company's debts in
proportion to their respective interests in the company and their liability is
unlimited. Such companies may or may not have share capital. They may be
either a public company or a private company.

(b) Companies limited by guarantee:

A company that has the liability of its members limited to such amount as the
members may respectively undertake, by the memorandum, to contribute
to the assets of the company in the event of its being wound-up, is known as
a company limited by guarantee. The members of a guarantee company are,
in effect, placed in the position of guarantors of the company's debts up to
the agreed amount.

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(c) Companies limited by shares:

A company that has the liability of its members limited by the

memorandum to the amount, if any, unpaid on the shares
respectively held by them is termed as a company limited by
shares.
For example, a shareholder who has paid Rs. 75 on a share of
face value Rs. 100 can be called upon to pay the balance of Rs.25
only. Companies limited by shares are by far the most common
and may be either public or private.

Registered Companies
Registered company: The Companies Act, 2013 provides for the
kinds of companies that can be promoted and registered under
the Act.

The three basic types of companies which may be registered

under the Act are:
(a) Private Companies;
(b) Public Companies; and
(c) One Person Company (to be formed as Private Limited)..

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Section 3. (1) of the Companies Act 2013 states that a company

may be formed for any lawful purpose by—

(a) seven or more persons, where the company to be formed is

to be a public company;

(b) two or more persons, where the company to be formed is to

be a private company; or

(c) one person, where the company to be formed is to be One

Person Company that is to say, a private company, by subscribing
their names or his name to a memorandum and complying with
the requirements of this Act in respect of registration.

(2) A company formed under sub-section (1) may be

either—

(a) a company limited by shares; or

(b) a company limited by guarantee; or

(c) an unlimited company.

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Difference between private and

public
• Minimum number of members : The minimum no of
persons required to form a ‘public company is seven
where as in a private company it is only two.

• Maximum number of members: There is no

maximum limit on the members of a public company but
a private company cannot have more than 200 members .

• Transferability of shares : There is no restriction on

the transfer of shares in the case of public company
where as the article of a private company must restrict its
right to transfer its shares.

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• Number of its directors: A public company must have

at least three directors where as a private company
must have at least two director.
• Quorum: If the article of the company do not otherwise
provide five members personally present in the case of
public company are quorum for a meeting of the company. It
is two in case of a private company.
• Managerial remuneration : Total managerial
remuneration in the case of a public company cannot exceed
11% of the ent profits but in case of inadequacy of profits a
minimum of 50000 can be paid .these restrictions do not
apply to a private company.

• Directors retirement : Not less then 2/3 of the total no of

directors of the public company shall – be person whose
period of office is liable to determination by retirement of
directors by rotation .In case it is a private compulsory
retirement is not applicable .
• Invitation to public: A public company must issue a
prospectus or a statement in lieu of prospectus for inviting
public to subscribe to its shares or debentures ,a private
company on the other hand cannot issue such invitation to
the public.
• Paid up capital: Paid-up capital is not less then Rs 5 lakh in
case of public companies and not less then 1 lakh in case of
private companies .

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Examples for classification of companies

Public sector Private sector

Public Limited ONGC Ltd., NTPC Ltd. Reliance Industries Ltd.,

Co. Tata Motors Ltd.

Private Limited NTPC BHEL Power Malabar Gold Private

Co. Projects Private Ltd., Parle Products Pvt
Limited Ltd., Reliance
Animation Studios Pvt.
Ltd.

Answer-Which type of Companies?

• Infosys Ltd.
• JSW Steel Ltd.
• Bharat Heavy Electricals Ltd. ( BHEL)
• HDFC Bank Ltd.
• Lifestyle International Pvt Ltd.
• Bharat Petroleum Corporation Ltd (BPCL)
• Jaguar & Company Pvt Ltd

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One Person Company

• A new concept has been introduced in the Company’s Act
2013, about the One Person Company (OPC).
• OPC is a company incorporated by a single person.
• It can be formed with just 1 Director and 1 member.
• Only natural persons who are Indian citizens and residents*
are eligible to form a one-person company in India.
• A unique feature of OPCs that separates it from other kinds of
companies is that the sole member of the company has to
mention a nominee while registering the company.
• Example: Fashtoons Apparel (OPC) Private Limited, Purpledew
Flora (OPC) Private Limited

*"resident in India" means a person who has stayed in India for a period of not
less than 182 days during the immediately preceding one financial year.

Advantages of OPC
• Legal status
• Easy to obtain funds
• Easy to obtain funds
• Easy incorporation
• Easy to manage
• Perpetual succession

Disadvantages of OPC
• Suitable for only small business
• Restriction of business activities
• No distinction between ownership and management

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(iii) Other Forms of Companies :

(a) Associations not for profit having license under

Section 8 of the Companies Act, 2013 or under
any previous company law;
(b) Government Companies;
(c) Foreign Companies;
(d) Holding and Subsidiary Companies;
(e) Associate Companies/Joint Venture Companies
(f) Investment Companies
(g) Producer Companies.
(h) Dormant Companies

Foreign Companies

• As per section 2(42) of the Companies Act, 2013 the

“foreign company” means any company or body
corporate incorporated outside India which:
• (i) has a place of business in India whether by itself or through an
agent, physically or through electronic mode; and
• (ii) conducts any business activity in India in any other manner.

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Investment Companies

• The term "investment company” includes a company whose

principal business is the acquisition of shares, debentures or
other securities and a company will be deemed to be
principally engaged in the business of acquisition of shares,
debentures or other securities,
• if its assets in the form of investment in shares, debentures or other
securities constitute not less than fifty per cent of its total assets, or
• if its income derived from investment business constitutes not less
than fifty per cent as a proportion of its gross income.

Producer company

• In the Companies Act 2013, a Producer Company is

defined as a company that is formed and registered under
the Companies Act, with the objective of production,
harvesting, procurement, grading, pooling, handling,
marketing, selling, and export of primary produce of its
members or import of goods or services for their benefit.

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Producer company

• An farmer producer company is a hybrid between private

limited companies and cooperative societies, registered
under the Act.
• They have democratic governance and each member or
producer has equal voting rights irrespective of the
number of shares held.

Producer company
Any of the following combinations of producers can incorporate a
producer company:
• 10 or more producers, or
• 2 Or more producers institution, or
• A combination of the above

All Producer companies are private limited companies.

These companies are termed “Companies with Limited Liability”
and the liability of the members will be restricted to the amount, if
any, unpaid on the shares.
The name of the company has to end with “Producer Company
Limited”
For example: Vanilla India Producer Company Limited.

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• Dormant Company
Section 455 states , Where a company is formed and
registered under this Act for a future project or to hold an
asset or intellectual property and has no significant
accounting transaction, such a company or an inactive
company may make an application to the Registrar in such
manner as may be prescribed for obtaining the status of a
dormant company.

Small Company

• “Small company” means a company, other than a public

company-
• (i) paid-up share capital of which does not exceed two crores
rupees or such higher amount as may be prescribed which shall
not be more than ten crore rupees; and
• (ii) turnover of which as per profit and loss account for the
immediately preceding financial year does not exceed twenty
crore rupees or such higher amount as may be prescribed which
shall not be more than one hundred crore rupees.

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Section 8 Companies:
Company with Charitable Objects
• A person or an association of persons proposed to be registered
under this Act as a limited company and proved to the satisfaction
of the Central Government that the company –
• (i) has in its objects the promotion of commerce, art, science, sports,
education, research, social welfare, religion, charity, protection of
environment or any such other object;
• (ii) intends to apply its profits, if any, or other income in promoting its
objects; and
• (iii) intends to prohibit the payment of any dividend to its members,
such person or association of persons may be allowed to be registered
as a limited company without addition to its name of the word
“limited” or "private limited" by the Central Government by issuing a
license and by prescribing specified condition.

Examples: Section 8 Companies

• Some examples of Section 8 Companies are Infosys

Foundation, Reliance Foundation, Tata Foundation,
Reliance Research Institute, FICCI, CII.

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Formation of a Company

The whole process of formation of a company may be

roughly divided, for convenience, into three parts.
These are:
A. Promotion
B. Registration
C. Floatation

Formation of a company

1) Promotion-
It starts with the conceptualisation of the birth
of a company and determination of the purpose
for which it is to be formed.
The promoters enter into preliminary contracts
with vendors and make arrangements for the
preparation, advertisement and the circulation
of prospectus and placement of capital.

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Stages in promotion

‘Promotion’ involves the following 4 stages:

• Generation of idea of starting a new company
• Registration of the company
• Floatation, i.e. raising of capital or arranging
the financial resources so as to carry on its
business operations.
• Obtaining the certificate of commencement of
business,

Promoter
“Promoter” means a person—
(a) who has been named as such in a prospectus or is identified by the
company in the annual return referred to in section 92; or
(b) who has control over the affairs of the company, directly or indirectly
whether as a shareholder, director or otherwise; or
(c) in accordance with whose advice, directions or instructions the Board of
Directors of the company is accustomed to act.

While the accurate description of a promoter may be difficult, his legal

position is quite clear. A promoter is neither an agent of, nor a trustee for, the
company because it is not in existence. But he occupies a fiduciary position in
relation to the company and therefore requires to make full disclosure of the
relevant facts, including any profit made by him

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Duties and liabilities of Promoters

a)He must not make any secret profit out of the promotion of
the company.
b) He must make full disclosure to the company of all relevant
facts including to any profit made by him in transaction with the
company.
c) A declaration that the liability of the members is limited in
case of the company limited by the shares or guarantee must be
given.

Remedies against the promoters

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Ministry of Corporate Affairs (MCA)

• Ministry of Corporate Affairs is primarily concerned with

administration of the Companies Act, 2013, and rules &
regulations framed there- under, for regulating the
functioning of the corporate sector in accordance with law.
• In 2006, keeping in tune with the e-Governance initiatives the
world over MCA initiated an e-Governance project called
MCA21. The project was aimed at enabling an easy and
secure access of MCA services to the corporate entities,
professionals and the public.

Registrar of Companies

• The office of the registrar of companies (ROC) is a

public office where companies are required to fill
documents and returns, and the public is authorized
to inspect the same according to the provision of law.
• The office of ROC is basically a registry and a office of
record.

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How to register a company in India?

• Incorporating a company through Simplified

Proforma for Incorporating Company electronically
(SPICe -INC-32), with eMoA (INC-33), eAOA (INC-34),
is the default option and most companies are
required to be incorporated through SPICe only.

Process of Incorporation of a company

(a) Application for Availability of Name of company

(b) Preparation of Memorandum and Article of Association
(c) Declaration from the professional
(d) Affidavit from the subscribers to the Memorandum
(e) Furnishing verification of Registered Office
(f) Particulars of subscribers
(g) Particulars of first directors along with their consent to act as
directors(DIN)
(h) Power of Attorney

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(a) Application for Availability of Name of company:

According to section 4(2), the name stated in the
memorandum of association shall not—
(a) be identical with or resemble too nearly to the name
of an existing company registered under this Act or any
previous company law; or
(b) be such that its use by the company
(i) will constitute an offence under any law for the time being
in force; or
(ii) is undesirable in the opinion of the Central Government.

Memorandum of Association

•Memorandum of Association [Sec. 2 (56)]- It means

memorandum of association of a company as originally formed or
as alter from time to time in pursuance of the Companies act,2013
or any previous company law.
•The Memorandum of association of a company is its principal
document. The Memorandum of association is its charter and
defines the limitation of the powers of a company.

•The Memorandum of Association is the constitution of the

company in its relation to the outside world.

•It states the name of the company, the address of its registered
office, whether the company has a share capital or not, whether it
is limited by Guarantee or otherwise, and defines the scope of
activities within which the company can function.

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These companies have MoA and AoA for internal &

external regulations. Under the Act the companies are
either (i) Companies limited by shares, (ii) Companies
limited by guarantee, or (iii) Unlimited Companies.

• Section 4(6) of the Companies Act, 2013 provides

that the memorandum of association should be in
any one of the Forms specified in Tables A, B, C, D or
E of Schedule I to the Act.

MOA: Clauses
Section 4(1) states that the memorandum of a company shall state—
(a) the name of the company with the last word “Limited” in the case of
a public limited company, or the
last words “Private Limited” in the case of a private limited company
(b) the State in which the registered office of the company is to be
situated;
(c) the objects for which the company is proposed to be incorporated
and any matter considered necessary in furtherance thereof;
(d) the liability of members of the company, whether limited or
unlimited, and also state,—
(e) in the case of a company having a share capital,— (i) the amount of
share capital with which the company is to be registered
In the case of One Person Company, the name of the person who, in the
event of death of the subscriber, shall become the member of the
company

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Sec 4(6) Schedule - 1

• TABLE -A
MEMORANDUM OF ASSOCIATION OF A COMPANY LIMITED BY SHARES
• TABLE -B
MEMORANDUM OF ASSOCIATION OF A COMPANY LIMITED BY
GUARANTEE AND NOT HAVING A SHARE CAPITAL
• TABLE -C
MEMORANDUM OF ASSOCIATION OF A COMPANY LIMITED BY
GUARANTEE AND HAVING A SHARE CAPITAL
• TABLE -D
MEMORANDUM OF ASSOCIATION OF AN UNLIMITED COMPANY
AND NOT HAVING SHARE CAPITAL
• TABLE -E
MEMORANDUM OF ASSOCIATION OF AN UNLIMITED COMPANY
AND HAVING SHARE CAPITAL

Doctrine of Ultra Vires

• In the case of a company whatever is not stated in

the memorandum as the objects or powers is
prohibited by the doctrine of ultra vires. As a result,
an act which is ultra vires is void, and does not bind
the company. Neither the company nor the
contracting party can sue on it. Also, as stated earlier,
the company cannot make it valid, even if every
member assents to it.

• Ultra vires means “beyond one's legal power or

authority.”

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Example 1

The objects clause of a company included making of costumes, gowns

and similar things within the clothing trade. However, it extended its
activities to the manufacture of veneered panels and became indebted
to three parties:
(i) builders of the veneered panels factory,
(ii) suppliers of veneers, and
(iii) fuel merchants.

In the meantime the company went into liquidation. The liquidator

rejected the claims of the three creditors. The creditors filed suits for
the recovery of money.

Held: The contention of the liquidator was correct as all the three
contracts were clearly ultra vires.

Example 2

• The company has the power to borrow money, but the

Articles of the company provide that in case the directors
borrow more than Rs. 50,000, they should get prior approval
by the company in general meeting. However, the directors
issue debentures to the extent of Rs. 75,000 without getting
the approval from the shareholders.
• The company in general meeting may ratify the act of
directors as it is intra vires the company, though ultra vires the
powers of the directors of the company.

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Doctrine of Constructive Notice

• The doctrine of constructive notice is a legal principle
in corporate law that assumes anyone dealing with a
company is aware of its public documents, such as the
Memorandum of Association (MOA) and Articles of
Association (AOA). These documents are filed with the
Registrar of Companies and are publicly accessible.
• This doctrine protects companies by placing the
burden on third parties to familiarize themselves with
the company's constitution before entering into
contracts or other dealings.
• Even if a party has not actually read the MOA or AOA,
the law assumes they have "constructive notice" of the
contents.

Articles of Association
• Articles of Association is another document of
paramount significance in the life of a company. It
contains regulations for the internal administration
of a company’s affairs.
• Articles of Association can be altered at any time
according to the wishes of the members. It is
subordinate to the MoA and is under full control of
the members.
• Table G,H,I,J of schedule 1
• Doctrine of Indoor Management

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Doctrine of Indoor Management

The principal of indoor management operates to protect the
outsiders against the company.
According to this doctrine, as laid down in Royal British Bank v.
Turquand, (1856) 119 E.R. 886, persons dealing with a company
having satisfied themselves that the proposed transaction is not
in its nature inconsistent with the memorandum and articles, are
not bound to inquire the regularity of any internal proceedings.

The doctrine of indoor management is a legal principle that

protects external parties (like customers, creditors, or
contractors) who enter into transactions with a company in good
faith, assuming that the company has complied with its internal
procedures and regulations.

Key Points of the Doctrine:

• Good Faith Protection: External parties are not

required to verify whether the company's internal
formalities (like obtaining board resolutions or
adhering to Articles of Association) have been
completed correctly.
• Assumed Compliance: It is presumed that the
company has followed its own internal rules while
entering into contracts or other dealings.
• Limited Investigation Duty: Third parties are only
expected to verify publicly available documents; they
are not obligated to investigate internal processes.

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MOA vs AOA
1. Memorandum of association is the charter of the company and defines the fundamental conditions
and objects for which the company is granted incorporation. Articles of association are the rules and
regulations framed to govern this internal management of the company.
2. Clauses of the memorandum cannot be easily altered. They can only be altered in accordance with
the mode prescribed by the Act. In some of the cases, alteration requires the permission of the
Central Government or the Court. In the case of articles of association, members have a right to
alter the articles by a special resolution. Generally there is no need to obtain the permission of the
Court or the Central Government for alteration of the articles.
3. Memorandum of association cannot include any clause contrary to the provisions of the Companies
Act. The articles of association are subsidiary both to the Companies Act and the memorandum of
association.
4. The memorandum generally defines the relation between the company and the outsiders, while the
articles regulate the relationship between the company and its members and between the members
inter se.
5. Acts done by a company beyond the scope of the memorandum are absolutely void and ultra vires
and cannot be ratified even by unanimous vote of all the shareholders. But the acts of the directors
beyond the articles can be ratified by the shareholders.

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