Corporate administration Introduction part 1

company , meaning, types

1. Unit 1: Introduction Dr. riya singh

2. What is Company A legal entity formed by people. Owners are usually shareholders. Most are profit making entity.

3. Definition of Company Prof. Haney – “A company is an artificial person created by law, having separate entity, with a perpetual succession and common seal.”

4. Characteristics Common seal Incorporated association Perpetual succession Artificial person Transferability of shares

5. Limited liability If the company is limited by shares In the case of unlimited liability companies In case of companies limited by guarantee

6. Lifting the corporate veil The chief advantage of incorporation from which all others follow is, of course, the separate legal entity of the company. However, it may happen that the corporate personality of the company is used to commit frauds or improper or illegal acts. Since an artificial person is not capable of doing anything illegal or fraudulent, the facade of corporate personality might have to be removed to identify the persons who are really guilty. This is known as ‘lifting the corporate veil’.

7. Elements of lifting of corporate veil Where it was found that the sole purpose for which the company was formed to evade taxes. Avoidance of welfare legislation is as common as avoidance of taxation. Where it is found that company has abused its corporate personality for an unjust and inequitable purpose.

8. By Liability By Type By Listing status Unlimited Limited Private Public By Shares By Guarantee Small Listed Unlisted One Person TYPE OF COMPANIES

9. Mode of Incorporation

10. Chartered Companies Such companies are incorporated under a Royal Character (order) issued by the King or Queen or Head of the State. Such companies have exclusive rights, powers and privileges under the royal charter. Example: East India Company, Bank of England 2) Statutory Companies Such companies are formed under the special act passed by the Parliament or State Legislature. The powers which can be exercised by such companies are defined by the Acts that constitute them.

11. Registered Companies A company incorporated under the Indian Companies Act, 1956 is called Registered Company. The powers exercised by such companies are defined by the Companies Act and Memorandum of Association. A registered company can be a Private Ltd. Company or a Public Ltd. Company

12. Ownership of companies

13. Government Company Company in which not less than 51% of the paid – up share capital is held by the Central Government and / or by any State Government(s) or partly by the Central Government and partly by one or more State Governments . Follows provisions of the Indian Companies Act, 1956. Examples: Hindustan Machine Tools, Oil and Natural Gas Commission etc. Foreign Companies: company which is registered in one country but carries out its operations in India.

14. Nationality of the Company

15. SMALL COMPANY ‘‘Small Company’’ means a company, other than a public company,— 2(85) Turnover of which as per its last profit and loss account does not exceed two crores rupees or such higher amount as may be prescribed which shall not be more than twenty crores rupees: Paid-up Share Capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crores rupees; or and

16. ONE PERSON COMPANY “One Person Company” means a company which has only one person as a member; 2(62) Now Private Company of Special Character can now have only one Member and Director Only one Person can now Form a Company A new provision of Nominee of lone Shareholder of the Company, in case of his/her death or insanity OPC may be of three types : A company limited by shares; or A company limited by guarantee; or An unlimited company

17. Number of Members

18. PRIVATE COMPANY 2(68) ACT OF 2013 “ Private Company” means a company having a minimum paid-up share capital as may be prescribed, and which by its articles,— restricts the right to transfer its shares; except in case of One Person Company, limits the number of its members to two hundred :

19. PUBLIC COMPANY ACT OF 2013 “ Public Company” means a company which— is not a private company; has a minimum paid-up share capital as may be prescribed: Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles ;

20. Private Limited Company Public Limited Company 1. Membership: Minimum membership 2, Maximum membership 50 Minimum membership 7, Maximum membership unlimited 2. Formation Comparatively simple, certificate of incorporation is adequate Comparatively difficult as the procedure is lengthy. 3. Number of Directors: It must have at least two directors It must have at least three directors 4. Transfer of Shares: The shares are not freely transferable Shares are freely transferable.

21. 5. Issue of Prospectus: It is allowed to issue prospectus It can issue prospectus 6. Commencement of Business: I t can s ta r t t h e bu s i n e s s a f ter t h e receipt of certificate of incorporation. It requires trading certificate for starting business 7. Suitability: Suitable for business on a small scale Suitable for large – scale business. 8. Invitation: It cannot invite public to subscribe for securities of the company It invites public to purchase securities of the company.

22. 9. Allotment: It can allot shares immediately after incorporation Shares cannot be allotted unless minimum subscription is collected. 10. Qualification shares: T h e d ire c t o r s n e e d n o t h o ld qualification shares The directors have to purchase some qualification shares to become the director. 11. Directorship: There is no restriction on the number of directorship A director cannot be a director of more than 20 companies 12. Quorum: Two members present in the meeting is a quorum at general meeting Five members present in the meetings is a quorum at general meeting.

23. On the basis of Control

24. On the basis of Shareholding Holding Companies A company which controls another company by holding a minimum 51% of shares and thereby controlling the composition of the board of the company. Subsidiary Companies A company in which another company holds a minimum of 51% of share capital i.e. holding company is known as subsidiary company.

25. DORMANT COMPANY 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 . Explanation.—For the purposes of this section,— “Inactive Company” means a company which has not been carrying on any business or operation, or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years; “Significant Accounting Transaction” means any transaction other than— payment of fees by a company to the Registrar; payments made by it to fulfil the requirements of this Act or any other law Allotment of shares to fulfil the requirements of this Act; and payments for maintenance of its office and records. 455 (1)

26.  A J oint S tock C ompany is a type of corporation or partnership involving two or more individuals that own shares of stock in the company.  Certificates of ownership (" shares ") are issued by the company in return for each financial contribution .  The shareholders are free to transfer their ownership interest at any time by selling their shareholding to others.

27.  A voluntary association of persons who generally contribute capital to carry on a particular type of business .  Persons who contribute capital become members of the company.  Company has a legal existence separate from its members , which means even if its members die, the company remains in existence.  This type of company needs huge capital investment .  The total capital of a JSC is called share capital and it is divided into a number of units called shares .  Members are also called shareholders .

28. 2% of average net profits * made during the 3 immediately preceding financial years Every Financial Year to be calculated in accordance with provisions of section 198 CORPORATE SOCIAL RESPONSIBILTY

29. Net Worth ≥ Rs.500 crore EVERY COMPANY * To constitute CSR Committee of the Board Turnover ≥ Rs.1,000 crore Net Profit ≥ Rs.5 crore * during any financial year CSR - APPLICABILITY

30. Min. 1 Independent Director The Board Report to disclose the composition of CSR Committee 3 or more Directors CSR Committee CSR COMMITTEE

31. Recommend the amount of expenditure to be incurred on CSR activities ** activities to be undertaken as specified in Schedule VII of the Companies Act, 2013 ROLE OF CSR COMMITTEE Formulate and recommend to the Board, a CSR Policy ** Monitor CSR Policy of the Company

32.  SHARE Indian Companies Act 1956 defines share as “a share in the share capital of a company and includes stock except when a distinction between stock and shares is expressed and implied”.  Owned capital of a company divided into a large number of equal parts or units. Each such part having the same face value is called share.

33. 1.Equity Shares( Ordinary shares ): Equity shares are those shares which do not have, preferential rights with regards to Payment of dividend Repayment (return) of capital, in case of winding up of the company. 2.Preference Shares: Preference shares are those shares which have preferential rights over the equity shares with regards to: Repayment of capital in the event of liquidation / winding up of the company. Payment of dividend.

34. Bonus Shares: A part of the company‟s profit is transferred to reserves. Out of such reserves a company issues bonus shares. Such shares are issued to the equity share holders of the company free of charge. Infact bonus shares are also equity shares. Deferred Shares / Founder Shares / Management Shares: These shares are issued to the promoters of the company. They rank last of all shares in respect of payment of dividend and repayment of capital. Deferred shares are usually of a lower face value. Only private companies can issue deferred shares.

35. 5.Qualification Shares: The articles of a company usually require a director to hold certain number of shares to be eligible as a director. Such shares are called qualification shares. The directors must obtain qualification shares within 6 months from his appointment as a director. If he does not purchase the qualification shares within the prescribed period he ceases to be the director of the company. He can purchase the shares from the company itself or from the stock market.

36. Preference Shares, as its name suggests, gets precedence/Priority over equity shares on the matters like distribution of dividend at a fixed rate and repayment of capital in the event of liquidation /bankruptcy of the company . The preference shareholders are also the part owners of the company like equity shareholders, but in general, they do not have voting rights. However , they get right to vote on the matters which directly affect their rights like the resolution of winding up of the company, or in the case of the reduction of capital. Definition of Preference Shares

37. On the basis of participation: Participating Preference Shares Non – participating Preference Shares On the basis of right to accumulate dividend: Cumulative Preference Share Non–Cumulative Preference Shares: Classification of Preference Shares:

38. On the basis of Redemption: Redeemable Preference Shares Irredeemable/Non – redeemable Preference Shares On the basis of Conversion: Convertible Preference Shares Non – Convertible Preference Shares Classification of Preference Shares: (Contd.)

39. Formation of the Company Dr. Riya Singh

40. Steps for formation of a company Types of Company Availability of Name The Memorandum and Articles of Association duly signed, and stamped. The agreement, if any with any individual for appointment as its Managing or whole-time director. Consent of directors in Form 29. Notice of Registered address in Form 18 to be given within 30 days of the date of incorporation. Particulars of Directors in Form 32.

41. Steps for formation of a company Payment of Registration Fees. Power of attorney, to fulfill various legal and other formalities. Statutory Declaration in Form No. 1 that all requirements of the Companies Act and the rules thereunder have been complied with. The declaration should be made by either an advocate of Supreme Court / High Court, a practicing Chartered Accountant or a director, or a manager or a secretary named in the Articles of the proposed company. [Section 33 (2)]

42. PROMOTER