Companies Act 1956.pptx

Companies act 1956

1. COMPANY According to sec.3(1) of the companies Act,1956,”Company means a company formed and registered under this act or an existing company.” A Company is defined as a voluntary association of persons formed for the purpose of doing business, having a distinct name and limited liability. Company is an artificial person created by law. It has perpetual succession and a common seal. In response to the changing business environment, the Companies Act, 1956 has been amended from time to time so as to provide more transparency in corporate governance and protect the interests of small investors, depositors and debenture holders, etc.

2. ESSENTIALS FEATURES OF A COMPANY Artificial legal person Separate legal entity Perpetual succession Limited liability of members Common seal Transferability of shares Separate property Capacity to sue and being sued

3. SEPARATE LEGAL ENTITY - A company is in law regarded as an entity separate f rom it s members. It has an independent corporate existence.  Any of its member can enter into contracts with it in the same manner as any other individual can and he cannot be held liable for the acts of the company even if he holds virtually the entire share capital.  The company’s money and property belongs to it and not to the shareholders (although the shareholders own the company)

4. LIMITED LIABILITY -  A company may be a company limited by shares or company limited by guarantee. In a company limited by shares, the liability of members is limited to the unpaid value of the shares. PERPETUAL SUCCESSION-  Being an artificial person a company never dies, nor does its life depend on the life of its members. Members may come and go but the company can go on forever. It continues to exist even if all its members are dead. The existence of company can be terminated only by law.  It means that a company’s existence persists irrespective of the change in the composition of its membership.

5. COMMON SEAL- Since a company has no physical existence, it must act through its agents and all such contracts entered into by its agents must be under a seal of the company. The common seal acts as the official signature of the company. TRANSFERABILITY OF SHARES-  The capital of a company is divided into parts called shares. These shares are, subject to certain conditions, freely transferable, so that no shareholder is permanently wedded to the company. When the join stock companies were established the great object was that the shares should be capable of being easily transferred. 

6. SEPARATE PROPERTY:  As a company is a legal person distinct from its members, it is capable of owning, enjoying and disposing of property in its own name. Although its capital and assets are contributed by its shareholders, they are not the private and joint owners of its property. The company is the legal person in which all its property is vested and by which it is controlled, managed and disposed of.

7. TYPES OF COMPANIES

8. Basis of incorporat i on Statutory comp a ni e s Regist e r ed comp a ni e s Basis of liability Companies limited by guarantee Companies limited by shares Companies with unlimited liability. Basis of no. of members Private comp a ny Public comp a ny

9. BASIS OF INCORPORATION Statutory companies These are the companies which are created by a special Act of the legislature e.g. RBI, SBI, LIC, etc. These are mostly concerned with public utilities as railways, tramways, gas and electricity companies and enterprises of national level importance. Registered companies These are the companies which are formed and registered under the Companies Act,1956 .

10. BASIS OF LIABILITY Companies limited by shares During the existence of the company or in the event of winding up, a member can be called up to pay the amount remaining unpaid on the shares subscribed by him. A company limited by shares may be a public limited company or a private limited company Companies limited by guarantee Companies may or may not have share capital. Each member promises to pay a fixed sum of money specified in the Memorandum in the event of liquidation of the company for payment of debts and liabilities of the company. The amount promised is called ‘Guarantee’. Unlimited Companies Liability of the members is unlimited like an ordinary partnership firm. A company not having any limit on the liability of its members is called an ‘unlimited company.’

11. ON THE BASIS OF NUMBER OF MEMBERS

12. Point of Difference Private Company Public Company N0. of members 2 - 50 members. 7 – no limit members. No. of Directors Min. 2 directors to fill quorum. Min. 3 directors are needed. Invitation to general public Does not invite general public to subscribe to its shares, debentures and public deposits. Does invite general public to subscribe to its shares, debentures, public deposits. Transfer of Shares Prior permission required for transfer of shares Free transfer of shares is permitted. Prospectus Need not issue prospectus. It is compulsory to issue a prospectus or a statement in lieu of prospectus. Statutory meeting and report No compulsion for holding Statutory meeting and filling of statutory report. It needs to hold a statutory meeting and must file a statutory report. Legal formalities Exempted from various legal formalities. Has to comply with many legal formalities. Min. paid up Rs. 1 lakh Rs. 5 lakh. capital

13. ON THE BASIS OF CONTROL Holding companies- A company is known as the holding company of another company if it has the control over that other company. A company is deemed to be the holding company of another if, but only if, that other is its subsidiary. Subsidiary company- A company is known as a subsidiary of another company when control is exercised by the holding company over the former called a subsidiary company.

14. How to form a company?  The whole process of formation of a company may be divided into four stages, namely: Promotion Registration Floatation/Raising of Capital Commencement of Business.

15. Promotion Who is a Promoter? “Promoter is one who undertakes to form a company with reference to a given object and to set it going, and who takes the necessary steps to accomplish that purpose.” However, the persons assisting the promoters by acting in a professional capacity do not thereby become promoters themselves .

16. Legal Position of a Promoter Promoter stands in a fiduciary position towards the company. In other words, he is not allowed to make secret profits .

17. Pre-incorporation contracts  However, pre-incorporation contracts shall be valid if:  The contract is made for the purpose of the company and the contract is warranted by the terms of incorporation. The company adopts the transactions after incorporation.

18. FORMATION OF A COMPANY (Sec.3) 1. Classification of companies as limited companies and unlimited companies Every company formed under the Companies Act, 2013 shall be either a limited company or an unlimited company. A limited company may be further classified as follows: (i) Company limited by shares (ii) Company limited by guarantee having no share capital (iii) Company limited by guarantee and having a share capital An unlimited company may be further classified as. follows: (i) An unlimited company having no share capital. (ii) An unlimited company having a share capital.

19. S te p s A company to be incorporated as a Private Company must have a minimum paid-up capital of Rs. 1, 00,000, and minimum number of members required to form a private company is 2 or more members. For Public Company it must have a minimum paid-up capital of Rs. 5, 00,000 and requires at least 7 or more members. STEP-1 1. Select Name of Person - Under Section-149(1) (a) of Companies Act, 2013. Select the name of directors i.e. who will be directors (At least Three Name for Three for Public Company and Two for Private Company) [Rule-17] (The Companies (Incorporation) Rules, 2014. 

20. Steps … c o n t d . STEP-2 2. Apply for Digital Signature Certificate (DSC) - Digital Signature Certificates (DSC) are the digital equivalent (i.e. electronic format) of physical or paper certificates. Certificates serve as proof of identity of an individual for a certain purpose. Likewise, a digital certificate can be presented electronically to prove your identity, to access information or services on the Internet or to sign certain documents digitally. One can get DSC registered by signing MCA-21 E-forms digitally.

21. Steps … c o n t d . A licensed Certifying Authority (CA) issues the digital signature. Certifying Authority (CA) means a person who has been granted a license to issue a digital signature certificate. The list of licensed CAs along with their contact information is available on the MCA portal (www.mca.gov.in). The Fees for obtaining DSC is different among all the Certifying Authority.

22. Steps … co n t d . STEP-3 3. Apply for Director Identification Number (DIN) It is a unique identification number allotted to the existing director of the company or intending to be appointment as director of a company according to Section-152(3), Section-153 & Section-154 of the Companies Act, 2013. It is only after the DIN is approved, the incorporation documents can be filed with the Registrar Form No.-DIR-3. However, the name approval can be obtained prior to approval of DIN. It takes about 7 days for getting the DIN approved, provided all proper documents are furnished. Fees to be paid for the allotment of DIN is Rs.500.

23. Documents to be furnished for getting DIN application are: · Identity proof: Copy of PAN card is mandatory. · Address proof: Copy of passport or Voter Id or Ration card or Electricity bill or any other address proof. · Passport size photograph (latest) in soft copy (.JPEG format). · Current occupation. · Email address of applicant. · Education qualification and contact number of applicant. · Verification to be signed by the applicant.

24. STEP-4 4. Filing the Proposed Name of Company For Approval to The Registrarof Companies (ROC)- According to Section-4(4) of The Companies Act, 2013 person can make an application to propose the name of the company to be registered with such forms and manner accompanied by fees of Rs. 1,000/- to be paid, as may be prescribed, to the Registrar for the reservation of a name set out in the application. Form No. INC.1 along with the fee as provided in the Companies (Registration offices and fees) Rules, 2014 to the Registrar of Companies (ROC) in the State/Union Territory in which the company will maintain its Registered Office. According to Section-4(5) of The Companies Act, 2013 the application submitted to the registrar will be reserved for a period of 60 days to check and verify the document and information furnished along with the application.

25. 5. Drafting of Memorandum of Association (MoA) - The MoA is the Constitution of the Company which must contain all the fundamental information of the Company. MoA define the relationship of the Company with its shareholder. Therefore, it is important to draft the MoA very carefully with properly incorporating Clauses carefully.

26. Drafting of Memorandum must be done in which: · Name of the Company lasts with word “Limited” in case of a public limited or the last words “Private Limited” in case of a private limited company. · State in which the registered office of the company is to be situated. · Object of the company for which it is proposed. · Liabilities of the members of the company Limited/Unlimited. · Mention the amount of share capital in case of company having a share capital. · In case of the One Person Company the name of the person who in the event of death of the subscriber shall become the member of the company.

27. 6. Drafting of Articles of Association (AoA)- AoA which is an important document explains the operation of the company, purpose for which Company is incorporated along with the information for the process of Appointment of Directors and also management of the financial Record of the company. In drafting of the AoA of company it shall contain- · Regulation for management of the Company. · It shall also contain such, matter as may be prescribed.

28. 7. Application for Incorporation of Company- According to Section-7 of The Companies Act, 2013 shall be filed with the registrar within whose jurisdiction the registered office of a company is proposed to be situated. [Rule No.-12] of Companies (Incorporation) Rules, 2014- An application shall be filed, with the Registrar within whose jurisdiction the registered office of the company is proposed to be situated, in Form No.INC.2 (for One Person Company) and Form no. INC.7 (other than One Person Company) along with the fee as provided in the Companies (Registration offices and fees) Rules, 2014 for registration of a company.

29. Fee for filing Form INC-7 (in case of company not having share capital) Fee applicable - Rupees 200 per document Fee for filing form INC-7 (in case of company having share capital)- Nominal Share Capital Fee applicable 1,00,000 Rupees 200 1,00,000 to 4,99,999 Rupees 300 5,00,000 to 24,99,999 Rupees 400 25,00,000 to 99,99,999 Rupees 500 1,00,00,000 or more Rupees 600

30. File with Registrar Form No. INC.7 [Rule 12 to 18] along with Documents - (a) The Memorandum and Articles of the company duly signed by all subscribers; (b) A declaration in Form No.INC.8 by an Advocate or Practicing professional (CA, CS, CA) who is engaged in incorporation, and a person named in director as Director, Manager or Secretary, that all requirements related to incorporation has been complied with; (C) The address for correspondence till its registered office is established; (d) The particulars of every subscriber along with proof of identity. List of poof required Listed under [Rule-16.]; (e) The Particulars of first directors along with proof of identity and his interest in other firms or bodies corporate along with his consent to act as director;

31. C e rtifi c a t e of Inco r po r ati o n  Effect of Certificate of Incorporation (Section 34) On incorporation, the association of persons becomes a body corporate by the name contained in the memorandum, capable forthwith of exercising all the functions of an incorporated company and having perpetual succession and a common seal but with such liability on the part of the members to contribute to the assets of the company in the event of its being wound-up as is mentioned in the Act.

32. Provisional Contracts   Contracts entered into by company after incorporation but before getting the certificate to commence business are called ‘provisional contracts’. Provisional contracts are, therefore, relevant to public companies only. Such contracts become void, if company fails to obtain certificate to commence business and automatically become valid, and binding if company obtains the certificate.

33. 8. Commencement of Business According to S.11 of the Companies Act, 2013. – Company having a share capital shall not commence any business or exercise any borrowing power unless- Director should file Declaration with Registrar in Form No. INC.21 [Rule 24] in such a manner as may be prescribed, with the Registrar that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him and the paid up capital is not less than 5 Lakh Rupees in case of Public Company and not less than One Lakh in case of Private Company.

34. 9. Registered Office Section-12 of The Companies Act, 2013 that the company on and from the 15 days of its incorporation and at all times thereafter, have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it and company shall furnish to the registrar verification of its registered office within a period of 30 days of its incorporation in such manner as may be prescribed.

35. Share and Share Capital According to Section 2(46), A ‘Share’ represents a unit into which capital of a company is divided. However, courts have held that a share is not merely a unit of capital, it represents a bundle of rights and obligations. Holder of a share is entitled to certain rights (say, right to receive dividends, to receive notice of meetings, to participate in the proceedings of a meeting, to elect directors) and is also subjected to a number of obligations (say, to abide by Articles of Association, to maintain decorum of the meetings).