The Companies Act, 1956 (Now Companies Act, 2013)

The Companies Act, 1956 (Now Companies Act, 2013)

1. Definition

  • As per section 2(20) of the Companies Act, 2013 a “company” means 
  • ‘A company incorporated under this Act (Companies act, 2013) or under any previous company law (Companies Act, 1956 or any previous law)’ 

2. Features

  1. Company has separate legal entity from its members 
  2. Members have limited liability in case of company limited by share or guarantee. Unlimited company can also be there. 
  3. Company enjoy perpetual succession until wind-up, irrespective of fact member may come and go. 
  4. Company is having right to acquire properties on its own name. 
  5. Company used to have it common seal, but now it become optional. 
  6. Members can transfer their shares freely, except in the private company, 
  7. Company can sue and be sued 
  8. Company is managed by professional manager called Board of Directors, instead of member themselves 

3. Types of companies

4. Memorandum and Articles of Association (MOA & AOA);

  • The memorandum and articles of association of a company are the principle documents for the formation of a company and its functioning thereafter. 
  • The memorandum of association contains the clauses of name, situation of registered office, objects, capital and liability. (It define how company will deal with external matters) 
  • The articles are kind of bye-laws or rules and regulations that operate the management and internal affairs of its business. (It define the powers of various organ of companies and their internal relation) 
  • Both the documents are needed to subscribe by promoters of company, who usually become members also and required to be registered with the Registrar of Companies during incorporation. 
  • Note; Company must have MOA, although if company don’t have AOA then model form of AOA given in Schedule 1 of Companies Act 2013 will auto apply. Also note, Doctrine mentioned in point 5, applies to MOA and AOA 

5. Doctrine of Ultra Vires, Constructive Notice, Indoor Management;

  • Doctrine of Ultra Vires (out of power) – Any act perform by director, on his own or on behalf of company, for which he is not authorised by MOA/AOA of Company. 
  • Doctrine of Constructive Notice (Presumed to be known) – It is presumed that who so ever deals with company having prior notice & knowledge of Its Principle documents i.e. MOA/AOA 
  • Doctrine of Indoor Management (Inside the doors of companies everything is going fine) – One who is dealing with company can presume internal management of company is performed in the manner, in which it is required. Every action is performed by competent authority and have legal validity. 

6. Membership of Company- Acquisition, Cessation, Register, Rights & Duties of Members, Prospectus;

  • Acquisition of Membership – One can be the member of company by subscribing (purchasing) it share either from the company (in case of IPO or FPO in primary market operations) or from existing member (in secondary market operations) 
  • Cessation of Membership – Cessation of membership took place either through sale/surrender of share or at winding – up of company. In case of public company, member can at any point of time sell his share in open market. In case of private company shares can sold to other existing member. 
  • Register of Members – This register carries the name, address, shares and date on which they become members of all the members of companies who own company’s share/s and kept at registered office of company. This helps to identify members for distribution of dividend, serving notice of Annual General Meeting (AGM) etc. 

Rights & Duties of Members

Rights – Members of company enjoys certain rights as follows;
  • To transfer the shares(in case of public companies) 
  • To inspect books of account of company
  • To participate in dividend distribution (if declared) 
  • To participate in AGM & notice of same (with annual report) 
  • To vote in AGM 
Major Duty is pay the balance of uncalled money on share as and when called by company
Prospectus – Prospectus is a document that invites the public to subscribe to the share capital or debentures of a company. It contains all the information regarding the issue of shares or debentures. It is authorised by at least two directors of companies. A statement in lieu of prospectus can be issued in certain cases.

7. Directors;

  • The company is artificial person hence require someone human to manage. Members can be those, but they may or may not be professionally qualified to manage the affairs of company, hence they hire professional managers to run the company. These are known as ‘Board of Directors’ collectively and ‘Director’ individually. 
  • Director plays pivot role in management of company. They perform day to day function of the company with support of middle and lower level of management. It is the board, who is responsible of the company’s overall performance. Board of director usually take decision by majority, unless otherwise provided. 
  • Powers are provided to directors in the Memorandum or Articles of the company, subject to provision of Companies Act, 2013. Except where express provisions are made that the powers of a company in respect of any matter are to be exercised by the company in general meeting, in all other cases the Board is entitled to exercise all its powers. 
  • Companies act 2013, also suggest guidelines on eligibly, disqualifications, appointment, retirement, vacation of office of directors in detail. 

8. Winding up of Companies

  • At point of Winding-up company loses its perpetual secession and with liquidation its existence. Now the properties of company are administered for the benefit of its creditors and members by liquidator. A liquidator takes control of the company assets to realise them and distribute among the creditor and if any surplus left then among the members in accordance with their rights. 
  • The main purpose of winding up of a company is to realize the assets and pay the debts of the company expeditiously and fairly in accordance with the law. 
  • Winding up can be order by court on application my creditors of company or members of company
  • After liquidator finishes with task of liquidation, name of company kept in abeyance and then strike–off from register of Registrar of companies.

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