Professional Documents
Culture Documents
Characteristics of Company
Registration: Companies act 1956 says that a firm has to get itself registered under the
companies act with the ROC otherwise, it will be classified as an illegal association.
Distinct person- separate legal entity: The Company is different and distinct from its
members in law. It has its own name and its own seal, its assets and liabilities are
separate and distinct from those of its members. It is capable of owning property,
incurring debt, borrowing money, having a bank account, employing people, etc
Perpetual succession: A company does not die or cease to exist unless it is specifically
wound up or the task for which it was formed has been completed. Membership of a
company may keep on changing from time to time. Death or insolvency of member does
not affect the existence of the company.
Limited liability: In a joint stock company, the liability of a member is limited to the
amount he has invested. That is, even if there is liquidation of the company, the personal
property of the investor can not be used to pay the debts and he will lose his investment.
Common seal: A company is an artificial person and does not have a physical presence.
Therefore, it acts through its Board of Directors for carrying out its activities and entering
into various agreements. Such contracts must be under the seal of the company& name of
the company must be engraved on the common seal. Any document not bearing the seal
of the company may not be accepted as authentic and may not have any legal force.
Separate property: The Company’s property is its own. A member cannot claim to be
owner of the company's property during the existence of the company.
Capacity to sue and to be sued
Property: Property of the firm belongs to the partners and they are collectively entitled
to it. In case of a company, the property belongs to the company and not to its members.
Management: Members of a company are not entitled to take part in the management of
the company unless they become directors.
Existence, Death: On the death of any partner, the partnership is dissolved unless there is
provision to the contrary. On the death of the shareholder the company' existence does
not get terminated.
Creditors: Creditors of a company can proceed only against the Co. and not against its
members. Creditors of partnership firm are creditors of individual partners.
Types of Companies
Royal chartered company: formed for the purpose of trade, exploration, etc e.g. East
India Company
Statutory companies: A statutory company is a company formed by special Act
of parliament. E.g. State Bank of India, Industrial Finance Corporation of India.
Registered companies under the Companies Act
Companies limited by shares: is a "company in which the liability of each
shareholder is limited to the amount individually invested". Member’s personal
assets cannot be called upon for the payment of liabilities of the company.
Companies limited by guarantee: The liability of the members is limited to a
stipulated sum. The guaranteed amount can be called up at the company on when
it is winding up & if its liabilities exceeds it assets.
Unlimited company: A company where the liability of members for the debts of
the company are unlimited. Shareholders personal assets can be called upon for
the payment of liabilities of the company.
Foreign company :
Government company
One man company
Holding company, subsidiary company
Company registered for promoting commerce, art, science etc.
Memorandum of Association
The MOA is designed to communicate to the public the state of affairs of the company and its
purpose of being and operating. This aids various stakeholders of the company (creditors,
suppliers, shareholders, etc.) to evaluate the extent of their risk and also possibilities of the
company to overcome them at a future date.
Contents of MOA
Name clause: includes name of company & whether it is a private of public company.
Registered office of the company: should state the name of the State in which the
registered office of the company will be situated. And a notice of exact place registered
office must be given to Registrar within 30 days after the day of incorporation,
Object clause: Defines the objectives of the company & indicates the sphere of activities
Capital clause: States the amount of the nominal capital of the company and the number
value of the shares into which it is divided.
Liability clause: states the nature of liability that members incur.
Subscription or association clause: Memorandum concludes with the subscription
clause where the subscribers to the memorandum declare that they respectively agree to
take the number of shares in the capital of the company set opposite their respective
names.
Prospectus
Any document described or issued as a prospectus and include any notice, circular,
advertisement, or other document inviting deposits from the public or inviting offer from
public for the subscription or purchase of any shares in or debentures of a body corporate
Contents of Prospectus
Date: It is necessary because the date of publication is used to determine the various
time limits that are to be met mandatorily under the various provisions of the Act.
Registration: No prospectus can be issued unless it is registered with the Registrar
(NOTE: date of publication is different from date of issue)
Experts consent: Section 58 makes it mandatory for the company to seek written
consent of an expert to include his statement in the prospectus. However by consenting to
the issue the expert does not undertake liability in respect of the anything in the
prospectus except, his own statement.
Delivery for registration: A prospect once registered must be issued within 90 days.
Upon registration it becomes a public document (not too sure about this)
Mis-statements in prospectus
Untrue statements
Statement which gives wrong impression
Mis-leading statement
Concealment of material facts
Omission of facts
Who are liable for mis-statement in prospectus
Director at the time of issue of prospectus
Every person who has authorized himself to be named in the prospectus
Promoter of the company
Any person who has authorized issue of prospectus
Prospectus
Director
Number of Directors: Companies Act lays down that a public limited company shall
have at least 3 directors. Other companies shave have at least 2 directors.
However PLC having, (1) a paid-up capital of 5 crore or more, (2) 1,000 or more small
shareholders may have a director elected by such small holders in the manner as prescribed.
First Director: The first Directors of the Company( generally subscribers) will govern
the affairs of the Company until the new Directors are elected.
Appointment of Director
In general meeting: 2/3 of total no. of directors is liable to retire by rotation at an
AGM. New director may be appointed in the general meeting.
In Board meeting
Casual vacancy ( means any reason except vacancy due to retirement on
rotation)
Additional director
Alternate director
Appointment by Central Government: for the purpose of prevention of oppression and
mismanagement. But this happens only when a petition has been made to the Nation
Company Law Tribunal
Removal of Directors
By Shareholders: a company may by ordinary resolution , remove a director
before expiry of his period in office, provided he is not appointed by Central
Government. Special notice shall be required in that case.
By Central Government: this can be done on the recommendation of NCLT.
However, the CG can also make a reference to NCLT by stating a case against
any person concerned or connected with the conduct & management of the
company.
By Company Law Board (NCLT): Can be done on the grounds of prevention of
oppression and mismanagement. In such case the person cannot serve any
company in a managerial capacity for a period of 5 years, except with the leave of
NCLT.