The Companies Act1 , 1956

8/3/2019 The Companies Act1 , 1956

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The first Indian Act, regarding companies , was the Joint StockCompanies Act, 1850. This was based upon the English

Companies Act, 1844.

The Act of 1850 was replaced by Joint Stock Companies Act

1857 which introduced the principle of limited liability for the

first time in India. Acts relating to companies were passed in 1860, 1866, 1882,

1895, 1910 and 1913

The Act of 1913 remained in force upto 1956.

The Govt. of India appointed in 1950 , an expert committee

under the chairmanship of Sri C.H.Bhaba to suggest how the

Company Law can be reformed.

The Companies Act of 1956 is based on the recommendations

of the committee which has been amended several times since

1960.


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The Companies Act extends to the whole of

India except that

It shall apply to the state of Nagaland subject to such

modifications, if any, as the Central Government may, by

notification in the official gazette specify.---Sec. 1(3) The Central Govt. can modify the Act in its application to

Nidhis or a Mutual Benefit Society, subject to issuing

notification on this subject.-- Sec. 620A.

Subject to issuing a notification, the Central Govt. can modify

and provide special provisions as to companies in Goa, Damanand Diu.Sec. 620 B

The same provisions have been applied to Jammu and

Kashmir.Sec. 620C.


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According to Sec.3(1)(i) of the Companies Act, 1956, Company means a company formed and registered under this

Act or an existing company.

Existing Company means a company formed and registered

under any of the earlier Company Laws.

A Company may be defined as a voluntary association of

persons who have come together to carry on some business and

sharing the profit there from.

It is an artificial person created by law, formed for the purpose

of business, registered under law having an independent legal

entity, a distinctive name, common seal and perpetual

succession.


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Lord Justice Lindley defines a company as anassociation of many persons who contribute

money or moneys worth to a common stock andemploy it for a common purpose. The common

stock is the capital of the company, the personswho contribute it are members and theproportion of capital to which each member is

entitled is his share.


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Registration

A company comes into existence only after registration under Companies Act.

But a statutory corporation is formed by an Act of the Legislature. In case of

partnership , registration is not compulsory.

Voluntary Association

A Co. is formed by choice and consent of the members.

Management

A Co. is managed by the Board of Directors, MD or Manager. A shareholder

cannot participate in the management .

Capital

A company cannot work without a capital.

Registered office

It must have a registered office.


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Separate legal entityA company is a separate legal entity means it is different from its members. Itworks as a individual body.

It can make contracts, open a bank account, can sue and be sued by others.

Artificial personA company is a purely a creation of law. It is invisible, intangible and exists onlyin the eyes of law.

It has no soul, no body, but has a position to enter or exit into a contract.

In short it can do every thing just like a natural person.

Perpetual existence sec 34(2)Section 34(2) of the act states that an incorporated company has perpetual life.

The life of the company is not related to the life of the members . Law createthe company and law alone can dissolve it.

The existence of the company is not affected by death, insolvency, retirementor transfer of share of members.


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Common seal

A company being an artificial person can not work as a natural being.

Therefore, it has to work through its directors, officers and other

employees. Common seal used as a official signature of a company.

Limited liability

It means that the liability of a member shall be limited to the value of

the share held by him, he cannot be called upon to bear the loss from his

personal property

Transferability of share (Sec 82) The share of a company are freely transferable. The shareholder can

transfer his share to any person without the consent of other members.

A company cannot impose absolute restrictions on the rights of member

to transfer their shares


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Not a citizen

Residence

No fundamental rights

Social objective

Separate property


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1. CHARTERED COMPANIES

These companies are incorporated under a special charter such

as the East India company, The Bank of England. The Company

Act does not apply to it.

2. STATUTORY COMPANIESThese companies are incorporated by special act of legislature(

act of parliament or state legislature)

e.g. municipal councils, universities, central banks and

government regulators. RBI, UTI , SBI

3. REGISTERED COMPANIES

These companies registered under the Indian Companies Act,

1956 are called registered companies.

To become a registered company one has to take thecertification of incorporation from the registrar.


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COMPANY LIMITED BY SHARE [sec12(2)a]companies in which the liability of its members is limited to the extentof the amount unpaid on the shares held by a particular member.

COMPANY LIMITED BY GUARANTEE

The liability of members is limited to a fixed amount which members

undertake to contribute to the assets of the company in case of itswinding up.

UNLIMITED COMPANIES

wherein members are liable for the debts of the company irrespective oftheir interest in the company


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PRIVATE COMPANIES [sec 3(1)(iii)]A private company is one which has a minimum paid-up capitalof Rs. 1,00,000 and by its Article of association

- restricts the right to transfer its share, if any

- limits the maximum number of its member to 50 and min of 2

- prohibits any invitation to the public to subscribe for anyshare or debenture of the company.

PUBLIC COMPANY [SEC 3(1)(iv)]

A public company means a company which has a paid-up

capital of Rs.5 lakh and by its article -(i) Does not limit the max number of its member but min must be

7.

(ii)Does not prohibit any invitation to the public to subscribe forany share in, or debentures, of the company.


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HOLDING AND SUBSIDIARY COMPANY (Sec 4)

If a company can control the policies of another companyi) through the ownership of more than 50% of its sharesor

ii) through control over the composition of its Board ofDirectors, the former (i.e. the controlling company) iscalled holding company

The company over which control is exercised (i.e. thecontrolled company) is called the subsidiary company.

e.g. P Co. holds 20 shares of Q Co. The subscribed share

capital of Q Co. consists of 50 shares. By an agreementbetween the companies P Co. has the power to appoint 3directors in Q Co. The articles of Q Co. provides that thereshall be only 4 directors. P Co. is a holding Company and QCo. is its subsidiary.


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GOVERNMENT COMPANY (sec617)

a government company means any company in which at

least 51% of the paid up share capital is held by the central

government or by any state government or partly by one or

more state Government. Foreign Company [Sec. 591(1)]

It means any company incorporated outside India which

has an established place of business in India.

Where a min of 50 % of the paid-up share capital of a

foreign company is held by one or more citizens of India orby one or more bodies corporate in India.


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Association not for profit (Sec. 25)

According to Sec. 13, the name of a limited company mustend with the word Limited in case of a public company, and

with the words Private Limited in the case of a privatecompany.

Sec 25 of the Act, permits the registration , under the licencegranted by the Central Government, of an association not forprofit with limited liability without using the word Limitedor the words Private limited to its name.

One Man CompanyThis is usually private in which one man holds practically the

whole of the share capital of the company, and in order tomeet the statutory requirement of minimum number ofmembers, some dummy members who are mostly his relationsor friends, hold just 1or 2 shares each.

e.g. A private company is registered with a share capital of Rs.5,00,000 divided into 5,000 shares of each. Of these shares4,999 are held by A and one share is held by As wife, B. Thisis a one-man company.


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Prohibition of LARGE PARTNERSHIPS (Sec.11)

Illegal association: A company, association or partnership consisting

of more than 10 persons for the purpose of carrying on bankingbusiness and of more than 20 persons for the purpose of carrying onany other business with the object of earning profits can be legallyformed only when it is registered under the Companies Act, 1956.

If it is not registered under the Companies Act, it is an illegalassociation and has no legal existence.

An association of more than 20 persons which exist not for acquisitionof gain but for some other purpose such as the promotion of art,charity, religion, science, etc., does not require registration.

Penalty for improper use of words limited and PrivateLimited(Sec.631):

If any person or persons carry on business under any name of which

the word limited or private limited is or are the last words, thatperson oreach of these persons, unless duly registered public orprivate company, may be punishable with fine which may extend toRs. 500 for every day upon which that name has been used.


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The first step in the formation of the

company is to prepare memorandum of

association. It is one of the documents which

has to be filed with registrar of the

companies at the time of incorporation of a

company.

It is a vital document, tells about the object

of the companys formation ,the power ofthe company as well as the boundaries

beyond which the action of the company can

not go.


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It defines the rights and liabilities of the

members.

It shows the capital structure of the company

It shows the object of the company It specifies the state in which the registered

office of the company is situated.

It shows the constitution of the company

It specify the conditions under which the

company has been incorporated.


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Rights of different classes of shareholder.

Use of common seal of the company.

Different classes of shares and their right.

Appointment , powers, duties, salary of MD,manager, and secretary.

Borrowing power of directors.

Voting rights of member .

Board meetings and proceedings.Winding up company.


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MCA-21 ELECTRONIC FILING OF FORMS

Ministry of Corporate Affairs (MCA) has launched a programmefor managing the work relating to filing of documents, etc with

Registrar of Companies (ROCs), and getting approval from the

Ministry of Affairs.

The physical filing of all forms has been discontinued and

converted into electronic filing. It is almost a paperlessworking of MCA except in a few cases where paper work is

unavoidable due to legal and statutory requirements.

Presently, winding up procedures have not been covered in the

programme. This project is termed as MCA-21. This project

became fully operational on 15-9-2006. MCA-21 project is designed to fully automate all process

related to enforcement and compliance of legal requirements

under Companies Act, 1956.


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The following nine matters are covered under MCA-21 project

since 15-9-06:

Registration and incorporation of new companies

Filing of annual returns and balance sheets.

Filing of forms for change of name/address/directors details

Registration, modification and verification of charges.

Inspection of documents.

Issue of certified copies.

Application for permissions required under various provisions ofCompany Law.

Approvals from Central Govt. Regional Director and ROC.(It will

be sent physically by post) Investor grievance redressal.

MCA-21 Scheme does not cover matter relating to liquidation ofCompanies.


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Companies (Amendment) Act, 2006 has been passed to make

legislative changes for introduction of e-filing. New Sections 610B to610 E have been inserted to and made effective from 16-09-2006.

Sec. 610B: Provisions relating to filing of applications, documents,inspection, etc., through electronic form

Sec. 610 C : Power to modify Act in relation to electronic records

(including the manner and form in which electronic records shall befiled)

Sec. 610D: Providing of value-added services through e-form

Sec. 610E: Application of provisions of Information Technology Act,2000

Secure Electronic Data:A Data Centre has been set up at Delhi to

serve as Secure Electronic Registry for storage and retrieval of all

records. A Disaster Recovery Centre has been set up at Chennai for

back up of electronic registry in event of technical breakdown or

man-made or natural disaster. The operation can be revived in 12

hours.

Website to be accessed: User has to access www.mca.gov.in to uploadthe forms, inspect the documents and get other details.


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If the proposed name of the company is approved, then the following

documents duly stamped together with the necessary fees are to befiled with the Registrar of Companies(for the State in which the

registered office of the company is to be situate):

1. The Memorandum of Association duly signed by the subscribers.

2.

The Articles of Association, if any, signed by the subscribers to theMoA. A public company limited by shares need not have its own

Article of Association instead may adopt Table A in Schedule I to the

Act.

3. The agreement, if any which the company proposes to enter into

with any individual for appointment as its managing or whole-time

director or manager[Sec. 33(1)].4. A list of directors who agreed to become the first directors of the

company and their written consent to act as directors and take up

qualification shares (Sec.266)


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5. A declaration stating that all the requirements of theCompanies Act and other formalities relating toregistration have been complied with. Such declarationshall be signed by any of the following persons:

an Advocate of the Supreme Court or of a High Court; or

an attorney or a pleader entitled to appear before a HighCourt: or

a secretary or a chartered accountant in whole-timepractice in India, who is engaged in the formation of thecompany: or

A person named in the Articles as a director, manager or

secretary of the company[Sec. 33 (2)]

Then within30 days of the date of incorporation of thecompany, a notice of the situation of the registered officeof the company shall be given to the Registrar who shallrecord the same (Sec.146)


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If the Registrar is satisfied as to the compliance of statutory

requirements, he retains and registers the Memorandum, theArticles and other documents filed with him and issues a Certificate of Incorporation, i.e., of the formation of thecompany [Sec. 33(3)]

By issuing certificate of incorporation, the Registrar certifiesunder his hand that the company is incorporated and in the

case of a limited company, that the company is limited.(Sec.34)

Conclusiveness of certificate of incorporation (Sec.35)

A Certificate of Incorporation is conclusive evidence that

the requirements of the Act have been complied with in

respect of registration the association is a company authorised to be registered

under the act and has been duly registered.

the date borne by the certificate of incorporation is the dateof birth of the company, i.e., the date on which the companycomes into existence.


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When a company is registered and a

certificate of incorporation is issued by the

Registrar, three important consequences

follow:

1. The company becomes a distinct legal

entity.

2. The company acquires a perpetual

succession.3. The companys property is not the property

of the shareholders.

The Companies Act1 , 1956

Documents

Transcript of The Companies Act1 , 1956