COMPANIES ACT 1956

UNIT - 2
 Definition
• The Companies Act 2013 of India defines a
company as- A registered association which is
an artificial legal person, having an
independent legal entity with a perpetual
succession, a common seal for its signatures, a
common capital comprised of transferable
shares and carrying limited liability.
 Meaning
• A voluntary association formed and organized to
carry on a business. Types of companies include
– sole proprietorship,
– partnership,
– limited liability,
– corporation, and
– public limited company.
 Characteristics of Company
• Incorporated association
• Artificial Legal Person
• Separate Legal Entity
• Perpetual Existence
• Common Seal
• Limited Liability
 Incorporated association
• A company comes into existence when it is
registered under the Companies Act (or other
equivalent act under the law).
• A company has to fulfil requirements in terms of
documents
– Memorandum Of Association,
– Articles Of Association
– shareholders,
– directors, and
– share capital to be deemed as a legal association.
 Artificial Legal Person
• In the eyes of the law, A company is an
artificial legal person which has the
– rights to acquire or
– dispose of any property,
– to enter into contracts in its own name, and to sue
and be sued by others.
 Separate Legal Entity
• A company has a distinct entity and is
independent of its members or people controlling
it.
• A separate legal entity means that only the
company is responsible to repay creditors and to
get sued for its deeds.
• The individual members cannot be sued for
actions performed by the company.
• Similarly, the company is not liable to pay
personal debts of the members.
 Perpetual Existence
• Unlike other non-registered business entities,
a company is a stable business organisation.
Its life doesn’t depend on the life of its,
– shareholders,
– directors, or
– employees.
– Members may come and go but the company goes
on forever.
 Common Seal
• A company being an artificial legal person,
uses its common seal (with the name of the
company engraved on it) as a substitute for its
signature.
• Any document bearing the common seal of
the company will be legally binding on the
company.
 Limited Liability
• A company may be
– limited by guarantee or
– limited by shares.
• In a company limited by shares, the liability of
the shareholders is limited to the unpaid value
of their shares.
• In a company limited by guarantee, the liability
of the members is limited to the amount they
had agreed upon to contribute to the assets of
the company in the event of it being wound up.
 Types of Company
• Classification of Companies by Mode of Incorporation
– Royal chartered companies – East India company, BBC, Bank of England etc.
– Statutory companies – RBI was formed under RBI act 1934
– Registered or incorporated companies
• Classification of Companies based on the liability of the members
– Limited by shares
– Limited by guarantee
– Unlimited company
• Classification of Companies based on The Number of Members
– Public company or Public Limited company
• A public company should have at least 7 members and 3 directors, and issue a
prospectus or file a statement in lieu of prospectus with the Registrar before allotting
shares.
– Private company or Private Limited company
– One person company
– Holding company & subsidiary company
 Public Ltd. Company & Private Ltd. Company
• PLC is a joint stock company formed and registered
under The Indian Companies Act 1956 or any other
previous act.
• It is an association of persons formed voluntarily,
having a minimum paid up capital of Rs. 500000.
• Private limited company is a joint stock company,
incorporated under The Indian Companies Act 1956
or any other previous act.
• It is an association of persons formed voluntarily,
having a minimum paid up capital of Rs. 100000. The
maximum number of member is 50.
 Comparison Chart
S.No Comparison Public Company Private Company
1 Meaning Owned & traded publicly Owned & traded privately

2 Minimum members 7 2

3 Maximum members Unlimited 50

4 Minimum directors 3 2

5 Minimum paid up capital Rs. 500000 Rs. 100000

6 suffix Limited Private Limited

Start of business After receiving certificate of incorporation and certificate After receiving certification of
7 of commencement of business incorporation

8 Statutory meeting Compulsory Optional

Issue of prospectus / Obligatory Not required

9 statement in lieu of
prospectus

10 Public subscription Allowed Not allowed

Quorum of AGM 5 members must present in person 2 members must present

11 in person

12 Transfer of shares Unrestricted Restricted

Basic Difference between PLC & Pvt. LC
Features Public limited company Private limited company
Minimum members 7 2
Minimum directors 3 2
Maximum members Unlimited 200
Minimum capital 500000 100000
Invitation to public Yes No
Issue of prospectus Yes No
Quorum at AGM 5 Members 2 Members

Certificate for commencement of

Yes No
Business ( Mandatory)

Term used at the end of name Limited Private Limited

Can not exceed more than 11% of

Managerial remuneration No restriction
Net Profits

Statutory meeting (Mandatory) Yes No