Companies Act 1956

Companies act Companies act 19561956

By Akash SaxenaBy Akash Saxena

Companies Act 1956Companies Act 1956INTRODUCTION:INTRODUCTION:

This law will represent the basic legal provisions This law will represent the basic legal provisions governing a company. Every corporate executive needs to governing a company. Every corporate executive needs to have knowledge of basic provisions of company law.have knowledge of basic provisions of company law.

MEANING OF COMPANY;MEANING OF COMPANY; The word company has no strictly technical or legal The word company has no strictly technical or legal meaning.meaning.It implies association of persons for some object.It implies association of persons for some object.This act runs into 658 sections and 15 schedules.This act runs into 658 sections and 15 schedules.

DEFINITION OF COMPANYDEFINITION OF COMPANY

1.1. Section 3(1) of the Companies Act 1956 merely states that “ a Section 3(1) of the Companies Act 1956 merely states that “ a company means a company forms and registered under this act.company means a company forms and registered under this act.

22 As defined in Section 3(1)(ii) lays down “ an existing company As defined in Section 3(1)(ii) lays down “ an existing company means a company formed and registered under the companies means a company formed and registered under the companies act.act.

33 According to Prof Haney: “ A company is an artificial person According to Prof Haney: “ A company is an artificial person created by law, having separate entity, with perpetual succession created by law, having separate entity, with perpetual succession and common seal”.and common seal”.


Characteristics of companyCharacteristics of company

1.1. Incorporated Association.Incorporated Association.

2.2. Artificial Legal Person.Artificial Legal Person.

3.3. Separate Legal Entity.Separate Legal Entity.

4.4. Perpetual Succession. It does not die & life is not dependant on Perpetual Succession. It does not die & life is not dependant on its members.its members.

5.5. Limited Liability.Limited Liability.

6.6. Common Seal.Common Seal.

7.7. Separate Property.Separate Property.

8.8. Capacity to sue and being sued.Capacity to sue and being sued.


Incorporation of CompanyIncorporation of Company

Stages of IncorporationStages of Incorporation::

The complete process of formation of a company may be divided The complete process of formation of a company may be divided into four stages:into four stages:

1.1. Promotion.Promotion.

2.2. Registration/Incorporation.Registration/Incorporation.

3.3. Floatation/ Raising of Capital.Floatation/ Raising of Capital.

4.4. Commencement of Business.Commencement of Business.


PromotionPromotion

1.1. It means preliminary steps taken for the purpose of registration.It means preliminary steps taken for the purpose of registration.

2.2. Gerstenberg has defined the term promotion as “ the discovery of Gerstenberg has defined the term promotion as “ the discovery of business opportunities and the organization of fund, property and business opportunities and the organization of fund, property and managerial ability for the purpose of making profits.managerial ability for the purpose of making profits.

33 Person who perform the task of promotion are called promoters.Person who perform the task of promotion are called promoters.

44 Promotion means a number of business operations familiar to the Promotion means a number of business operations familiar to the commercial world by which a company is brought into exixtence.commercial world by which a company is brought into exixtence.


RegistrationRegistration

The promoter of the company will submit the following documents The promoter of the company will submit the following documents with the registrar of the Companies for the registration of the with the registrar of the Companies for the registration of the company:company:

Memorandum of associationMemorandum of association Articles of AssociationArticles of Association List of persons who have consented to act as directors of the List of persons who have consented to act as directors of the

company.company. A statutory declaration of compliance.A statutory declaration of compliance. Any agreement with the relevant persons of the proposed company.Any agreement with the relevant persons of the proposed company.


Cond.Cond.

The registrar of companies is to allot a Corporate Identity Number The registrar of companies is to allot a Corporate Identity Number (CIN) to each company registered on or after Nov 1, 2000.(CIN) to each company registered on or after Nov 1, 2000.

After scrutiny of all these documents and if they are in order, the After scrutiny of all these documents and if they are in order, the registrar of companies shall issue a “ certificate of incorporation”.registrar of companies shall issue a “ certificate of incorporation”.

This certificate of incorporation given by the registrar shall be This certificate of incorporation given by the registrar shall be conclusive evidence that all the requirements of the Act have been conclusive evidence that all the requirements of the Act have been compiled with.compiled with.


FloatationFloatation

A private company is prohibited from inviting public to subscribe to A private company is prohibited from inviting public to subscribe to its share capital.its share capital.

Therefore, when a private company is formed, the requisite capital Therefore, when a private company is formed, the requisite capital is obtained from friends and relatives by making its own is obtained from friends and relatives by making its own arrangement.arrangement.

The company can take any of the following steps:The company can take any of the following steps: Issue a prospectus in case public is to be invited to subscribe Issue a prospectus in case public is to be invited to subscribe

to its capital. to its capital. Deliver a statement in lieu of prospectus where the company Deliver a statement in lieu of prospectus where the company

has either not issued a prospectus.has either not issued a prospectus.


Commencement of BusinessCommencement of Business

Every private company can commence business immediately on Every private company can commence business immediately on receipt of certificate of incorporation.receipt of certificate of incorporation.

Where a company has issued a prospectus it has to satisfy the Where a company has issued a prospectus it has to satisfy the following conditions:following conditions:

The minimum subscription in cash has been received.The minimum subscription in cash has been received. Every director of the company has paid in cash his qualification Every director of the company has paid in cash his qualification

shares, a proportion payable on application and allotment of shares shares, a proportion payable on application and allotment of shares offered for public subscription.offered for public subscription.

No money is liable to be repaid to applicants for any shares or No money is liable to be repaid to applicants for any shares or debentures which have been offered for public by reason of any debentures which have been offered for public by reason of any failure to apply.failure to apply.


Memorandum of AssociationMemorandum of Association

For the formation of company the first step is to prepare a document For the formation of company the first step is to prepare a document called Memorandum of Association.called Memorandum of Association.

According to the act memorandum means the memorandum of According to the act memorandum means the memorandum of association of a company as originally framed or altered from time association of a company as originally framed or altered from time to time.to time.

It defines the limitation and powers of company.It defines the limitation and powers of company. It contains the fundamental condition upon which the company is It contains the fundamental condition upon which the company is

allowed to be incorporated.allowed to be incorporated. It has to be printed, divided into paragraphs, numbered and signed It has to be printed, divided into paragraphs, numbered and signed

by at least 7 persons in the presence of at least one witness, who by at least 7 persons in the presence of at least one witness, who will attest the signature.will attest the signature.


Contents of MOAContents of MOA

Contents of MOA:Contents of MOA:

1.1. Name of the company.Name of the company.

2.2. Registered office.Registered office.

3.3. Objects of company.Objects of company.

4.4. Liability.Liability.

5.5. Capital.Capital.

6.6. AssociationAssociation


Articles of AssociationArticles of Association

Meaning:Meaning:

It governs the rules and regulations and management of the It governs the rules and regulations and management of the company.company.

It defines the powers of its officers.It defines the powers of its officers.

They establish a contract between the company and the members.They establish a contract between the company and the members.


Contents of AOAContents of AOA

1.1. Different classes of shares and their rights.Different classes of shares and their rights.

2.2. Procedure of making an issue of share capital and allotment.Procedure of making an issue of share capital and allotment.

3.3. Procedures of issuing share certificates and share warrants.Procedures of issuing share certificates and share warrants.

4.4. Directors, their appointment, remuneration, qualifications.Directors, their appointment, remuneration, qualifications.

5.5. Accounts and audits.Accounts and audits.

6.6. Powers of directors.Powers of directors.

7.7. General meetings.General meetings.

8.8. Voting rights of members.Voting rights of members.

9.9. Winding up.Winding up.

10.10. Dividend and reserves.Dividend and reserves.


ProspectusProspectus

Definition:Definition:

According to the act “ prospectus means any document According to the act “ prospectus means any document described or issued as a prospectus and includes any notice, described or issued as a prospectus and includes any notice, circulars, advertisement or other document inviting deposits from circulars, advertisement or other document inviting deposits from public or inviting offers from public for subscription or purchase of public or inviting offers from public for subscription or purchase of any shares, debentures, .”any shares, debentures, .”

Essentials of definition:Essentials of definition:

1.1. DocumentDocument

2.2. SubscriptionSubscription

3.3. Invitation to publicInvitation to public

4.4. Offer to public 50 or more persons Offer to public 50 or more persons


Necessary Pre requisites of Necessary Pre requisites of ProspectusProspectus

a)a) It must be dated.It must be dated.

b)b) It must be signed. By directorsIt must be signed. By directors

c)c) It must be registered. It is issued within 90 days from registration.It must be registered. It is issued within 90 days from registration.

Contents of prospectus:Contents of prospectus:

1.1. Matters specified in Part I of schedule II:Matters specified in Part I of schedule II:

a.a. Name and address of company,Name and address of company,

b.b. Its objects,Its objects,

c.c. Particulars of directors and auditors,Particulars of directors and auditors,

d.d. Details regarding securities being issued.Details regarding securities being issued.


Companies Act 1956

Documents

Transcript of Companies Act 1956