Companies Act 2013

-Heli Shah
Company
According to Lindley, L.J.
“ an association of many persons who contribute money or money’s
worth to a common stock and employ it in common trade, who shares
profit and loss arising out of it. The proportion of capital to which each
member is entitled is his share, which are always transferable although
the right to transform them is often more restricted. “

Section 2(20) of the Companies Act, 2013, defines the term ‘Company’
as follows: “Company means a company incorporated under this Act or
under any previous company law.”
Features of Company
1. Separate Legal Entity
2. Limited liability
3. Perpetual succession
4. Common seal
5. Transferability of shares
6. Separate property
7. Capacity to sue
8. Separate Management
9. One share – One vote
Kind of Companies
Kind of Companies
• Royal Chartered Companies
Royal Chartered Companies are companies created by the Royal Charter. This means
they are granted power or a right by the monarch or by special order of a king or a
queen. Examples of Royal Chartered Companies are East India Company, BBC, Bank Of
England, etc.

• Statutory Companies
Statutory Companies are companies incorporated by means of a special act passed by
the central or state legislature. They are mostly invested with compulsory powers and
are responsible to carry out some special business of national importance. Some
examples of statutory companies are The Reserve Bank of India (formed under RBI act,
1934), Life Insurance Corporation of India (formed under LIC Act, 1956).
Kind of Companies
• Registered Or Incorporated Companies
All the other companies which are incorporated under the companies act passed by the
government comes under this head. These companies come under existence only after they register
themselves under the act and the certificate of incorporation is passed by the Registrar of
companies. Google India Pvt Ltd is an example of incorporated companies.

• Companies Limited By Shares

The liability of the shareholders is limited to the extent of the face value of shares held by them.
Most Pvt Ltd companies are of this type.

• Companies Limited By Guarantee

In these companies, in case of liquidation, the shareholders promise to pay a certain fixed amount
to cover the liabilities of the company.
Kind of Companies
• Unlimited Companies
There is no limit on the liability of the shareholders. In case of liquidation, they
might have to pay even from their personal assets to cover the liabilities of the
company. This type of company is quite uncommon today due to obvious
reasons.

• Holding and Subsidiary Company

A subsidiary company is the one that is controlled by another company, better
known as a parent or holding company. The control is exerted through
ownership of more than 50% of the voting stock of the subsidiary. Subsidiaries
are either set up or acquired by the controlling company
Kind of Companies
• Public Company
A company whose securities are traded on a stock exchange and can be bought
and sold by anyone. Public companies are strictly regulated, and are required
by law to publish their complete and true financial position so that investors
can determine the true worth of its stock (shares). Also called publicly held
company.

• Private Company
Business firm in the private (non-public) sector of an economy, controlled and
operated by private individuals (and not by civil servants or government-
employees). Used also as an alternative term for private limited company.
Difference between Public Company and
Private Company (Sec. 2(68))
No Topic Private Company Public Company

1 Minimum Capital Min 1,00,000 paid up before Companies Act Min 5,00,000 paid up before Companies Act, 2013
2013

2 Min. and Max. Members Min. 2 and Max. 200 members Min. 7 Members and no upper limit

3 No. of Directors At least 2 directors At least 3 directors

Difference between Public Company and
Private Company (Sec. 2(68))
4 Restrictions on appointment There is no restrictions. Must have to file a consent letter to Registrar
of directors

5 Public Issue By its articles prohibits any such invitation to It can invite the general public to subscribe shares and
the public debentures

6 Share Transfers Right to transfer is restricted by its Shares are freely transferrable. (Sec. 82)
articles

7 Special Privileges They can enjoy certain privileges It has no such privileges
Kind of Companies
• Government Company [Sec. 2(45)]:
Any company which is not less than 51 % paid up share capital held by
I. State Government or
II. Central Governments
III. Partly by Central Govt. and partly by any state Govts

• Foreign Company [Sec. 2(42)]

Any company incorporated outside India which has an established place of business in
India.
Where not less than 51% of capital shares of a foreign company is held by one or more
citizens of India or by any corporate bodies in India, whether singly or in the
aggregated, such company shall comply with the provisions of this act.
Kind of Companies
• One Person Company
It has one man which holds practically the whole share capital of a company.
Some dummy members usually holds 1 or 2 shares each. They are usually
nominees of principal shareholder. It has also a legal identity.

It can be only incorporated as private limited company

It can have one member at a period of time
It may have one director, though higher no is also allowed.
One person Company word should be included
Exemptions are available from holding company from holding board meeting
Name of nominees should be provided in the event of death of sole director.
Incorporation of Companies ( Sec. 7)
1. There shall be filed with the Registrar, within whose jurisdiction the registered office of a
proposed company is situated, following documents and information for the registration is
required
a. The memorandum and articles of the company duly signed by all the subscribers to the memorandum
in prescribed manner
b. A declaration in the prescribed form by an advocate, a chartered accountant, cost accountant or
company secretary who is engaged in the formation of the company.
c. An affidavit from each of the subscribers to the memorandum and from persons named as the first
directors, if any in the articles that he is not convicted of any offence in connection with promotion,
formation or management of company.
d. The address for correspondence till it is registered.
e. The particulars of name including surname or family name, residential address, nationality and such
other particulars of every subscribers with proof of identity as may be prescribed.
f. The particulars of the persons mentioned in the articles as the first directors of the company, their
names including surnames or family names, as may be prescribed.
Incorporation of Companies ( Sec. 7)
2. The Registrar on the basis of documents and information filed under sub-section (1) shall
register all the documents and information referred to and issue a certificate of incorporation
in the prescribed form to the effect.
3. On and from the date mentioned in the certificate of incorporation issued under sub
section (2), the Registrar shall allot to the company a corporate identity number which shall
also be included in the certificate.
4. The company shall maintain and preserve at its registered office copies of all documents
and information as originally filed under sub-section (1) till its dissolution under this act.
5. If any person furnishes any false or incorrect particulars shall be liable for action under
section 477.
6. At any time after the incorporation of company, it is proved that company has been got
incorporated by furnishing any false information the first persons making declaration shall be
liable for action under section 477.
Incorporation of Companies ( Sec. 7)
7. Against any fraudulent act the Tribunal may done following things:

a. pass such orders for regulation of the management of company including changes in its
memorandum and articles.

b. direct that liability of the members shall be unlimited

c. direct removal of the name of the company from the register of companies.

d. pass an order for the winding up of company.

e. pass such other order as it may deem fit after giving a reasonable opportunity of being heard.
Memorandum of Association : Sec. 2(56)
• ‘memorandum’ means the memorandum of association of a company
as originally framed or as altered from time to time in pursuance of any
previous company law or of this Act.

 It is a document of great importance in relation to the proposed compexistance)

 It also regulates the external affairs of the company.
 The purpose is to enable shareholders and those who deals with company to know what
permitted range of enterprise is.
 It contains fundamental conditions upon which alone the company is allowed to be incorporated.
 It is the charter of the company and defines its raison d’etre (reason for)
Objectives of Memorandum
The purpose of the Memorandum is two-fold.

The prospective shareholders shall know the field in, or the purpose for, which their money is going to be used by the
company and what risk they are undertaking in making investments.

The outsiders dealing with the company shall know with certainty as to what the objects of the company are and as to
whether the contractual relation into which they contemplate to enter with the company is within objects of the company.

The Memorandum of Association of a company shall be-

(a) printed,

(b) divided into paragraphs numbered consecutively and

(c) Signed by 7(2 in case of Private company) subscribers

Contents of MOA
The memorandum of every company shall contain the following clauses.

1. The name of company, with the last word ‘Limited’ in the case of a public limited company, or the last
words ‘Private Limited’ in the case of private limited company.
2. The state in which the registered office of the company is to be situated.
3. The objects for which the company is proposed to be incorporated and any matter considered necessary
in furtherance thereof.
4. Limited Liability – The memorandum of a company limited by shares, that liability of its members is
limited to the amount unpaid. If any, on the shares held by them.
5. Share capital - In the case of a company having a share capital, the amount of share capital with which
the company is to be registered and the division thereof into shares of a fixed amount.

• The Memorandum shall conclude with an ‘association clause’ which states that the subscribers desire to
form a company and agree to take shares in it.
Articles of Association (AOA) : Sec. 2(5)
• Articles of association is the second document which has to be
registered along with memorandum. Articles as defined in section
2(5) means the articles of association of a company as originally
framed or as altered from time to time or applied in pursuance of any
previous company law or of act.

• The articles may have to contain matters that may be prescribed from
time to time. They may also contain any additional matter that may
be requisite for the need of the company.
Articles of Association (AOA) : Sec. 2(5)
According to Section 5 of the Companies Act, 2013, the AOA must have the following
components:
Regulations

• The AOA must contain the regulations for the management of the company.

Inclusion of matters

• The Articles must specify all matters, in accordance with the rules. Furthermore, a company can include additional matters deemed necessary
for its management.

Provisions for entrenchment

• Entrenchment means fortification or protection. The AOA can contain provisions for entrenchment for specific provisions. The provisions
for entrenchment can ensure that the specified provisions are altered only if certain conditions or procedures are met or complied with. These
conditions are usually more restrictive than those applicable for a special resolution.
Articles of Association (AOA) : Sec. 2(5)
Forms of AOA

• Schedule I of the Companies Act, 2013 provides forms for AOA in tables F, G,
H, I and J for different types of companies. Further, the articles must be in the
respective form.

Model Articles

• A company can adopt all or any of the regulations specified in the model
articles. Company registered after the commencement of the Act
STEPS FOR ALTERATION IN ARTICLE
OF ASSOCIATION
STEP I:
Convey Board Meeting of Directors: (As per section 173 and SS-1)
To alter the Article of association of Company By giving Notice of at least 7 days.

STEP II:

 Held Board Meeting: (As per section 173 and SS-1)

 At the Board meeting, the given resolutions in respect of alteration in AOA must be passed.
Get Approval to Alteration in Article of Association and recommending the proposal for
members' consideration by way of special resolution. Fixing the date, time, and venue of the
general meeting and authorizing a director or any other person to send the notice for the
same to the members.
STEPS FOR ALTERATION IN ARTICLE
OF ASSOCIATION
STEP III:

Issue Notice of General Meeting: (Section 101)

Notice of EGM shall be given at least 21 days before the actual date of EGM.
EGM can be called on Shorter Notice with the consent of atleast majority in number and ninety-five percent of such part of
the paid-up share capital of the company giving a right to vote at such a meeting: All the Directors. Members Auditors of
Company
The notice shall specify the place, date, day and time of the meeting and contain a statement on the business to be
transacted at the EGM

STEP IV:

Hold General Meeting: (Section 101)

Check the Quorum. Check whether auditor is present, if not. Then Leave of absence is Granted or Not. (As per Section- 146).
Pass Special Resolution.[Section-114(2)]
Approval of Alteration in AOA.
STEPS FOR ALTERATION IN ARTICLE
OF ASSOCIATION

STEP V:

Filing of form with ROC: (Section 117)

File Form MGT-14 (Filing of Resolutions and agreements to the Registrar
under Section 117) with the Registrar along with the requisite filing within 30
days of passing the special resolution, along with given documents:- Certified
True Copies of the Special Resolutions along with explanatory statement;
Copy of the Notice of meeting send to members along with all the annexure;
A printed copy of the Altered Article of Associations
SHARE CAPITAL
• The Joint Stock Company is a big form of business organization. The
amount required by the company for its business activities is raised by
the issue of shares.
• The amount so raised is called ‘Share Capital’ (or capital) of the
company. It may be noted that a company limited by shares will have
share capital.
• A company limited by guarantee or an unlimited company may not
have any share capital.
• The persons who buy the shares of company are called ‘Shareholders’.
 Classification of Share capital
Nominal Share Capital
It is the share capital which the company is authorized to issue by its memorandum of association.
It is the maximum amount up to which a company is authorized to issue shares to the public without altering the memorandum of association

Issued Share Capital

It is the nominal value of shares which are offered to the public for subscription through initial public offering

Subscribed Share Capital

It is the value of the shares taken up by the public through initial public offering, it will be equal to issued capital when all the shares offered to
the public are taken by the public.

Called Up Share Capital

It is that part of the capital which has been called up.
Sometimes company takes the money in installments like 20 percent on application remaining after some time.
It will be equal to subscribed capital if company takes all money at one go.

Paid Up Capital
It is that part of the called up capital which has been paid by the shareholders of the company.
• Example:

Suppose ABC Ltd. is registered with a capital of Rs 1 crore divided into

shares of Rs 10 each. It issues 8 lakh shares to raise a fund of Rs 80 lakh but
investors subscribe for 6 lakh shares. The company calls for Rs 4 per share
out of Rs 10 (Nominal value of shares) and it receives payment for only 5
lakh and 50 thousands shares.
• Authorized share capital (10 lakh shares of 10 each) = 1 crore
• Issued share capital (8 lakh shares of 10 each) = 80 lakh
• Subscribed share capital (6 lakh shares of 10 each) = 60 lakh
• Called up share capital (6 lakh × 4) = 24 lakh
• Paid up share capital (5 lakh and 50 thousand × 4) = 22 lakh
• Call in arrears (50 thousand × 4) = 2 lakh
Transferring shares
• Transfer of shares means the voluntary handing over of the rights and possibly, the duties of a member (as represented in a
share of the company) from a shareholder who wishes to not be a member in the company any more to a person who wishes
of becoming a member. Thus, shares in a company are transferable like any other movable property in the absence of any
expressed restrictions under the articles of the company.

• Shares can be transferred from a shareholder to another person (either a new or existing shareholder). Shares are transferred
by way of gift or sale. Typically, shares are transferred to introduce a new shareholder. So long as a company has enough
shares, it’s possible to transfer shares in a limited company any time after incorporation.

 Persons involved in the transfer

• Subscribers to the memorandum.

• Legal Representative, in case of a deceased.
• Transferor.
• Transferee.
• Company (whether listed/ unlisted).
Share Certificates
• A share Certificate refers to a document which is issued by a company evidencing that a person named in such
certificate is the owner of the shares of Company as stated in the share certificate.
• The Indian Companies Act mandates companies for issuing share certificates post their incorporation.

Every share certificate issued in India should contain the below mentioned:

1. Name of issuing Company

2. CIN no. (Corporate Identification Number) of such Company
3. Address of the company’s registered office
4. Name of owners of such shares
5. Folio number of member
6. Number of shares which is represented by such share certificate
7. An amount which is paid on such shares
8. Distinct number of the shares
Procedures for issuing share certificates
 Board Meeting & Allotment of shares
 Register of members
 Preparing and Printing Share Certificates
 Intimation and dispatch of share certificate
 Penalty for breach
 Dematerialization of shares
 It is a process of getting your share physical certificate into electronic format which is maintained in an account, known as the demat account
with the depository participant (DP), who is basically an agent between the company and the depository.

 A company should amend its Articles of Association by passing a special resolution in the general meeting of the company, thereby allowing
the company to issue shares in dematerialised form.

 Private companies should register with both the central depositories i.e., National Securities Depository Limited (NSDL) and Central
Securities Depository Limited (CDSL). These depositories have their own terms of registration, so it is necessary for a company to meet
those criteria. If registration is successful depositories will be providing companies with an International Securities Identification Number
(ISIN) for each of the shares. “ISIN” is a unique 12 digit alphanumeric code given to a security, shares, Debentures, Bonds etc. when the
security is admitted in the depository system. First two digits of the ISIN code indicate country of registration for the security. For all
securities registered on depository in India, first two digits of the ISIN code are ‘IN’.

 If the private company wants to transfer its dematerialized shares it may arrange demat connectivity from depositories like NSDL or CDSL
along with a Registrar and Transfer Agent (RTA) by entering into a tripartite agreement between the company, the depositories and the
transfer agent. An RTA i.e. Registrar and Transfer Agent is an agent of the issuer. RTA act as an intermediary between the issuer and
depository for providing services such as Dematerialization, Rematerialisation, Initial Public Offers and Corporate actions. Benificiary
owner (Investor) and Registered Owner (Depository).
• The general steps involved in the process are as follows:
Step1: Beneficiary Owner (BO) has to open a demat account with a Depository participant (DP) and obtain an
account number.
Step 2: BO need to fill in a Demat Request Form (DRF) and submit the same with the physical certificate/s to
the depository participants for dematerialization. For each ISIN, a separate DRF has to be used. If the BO has
free as well as lock-in shares of the same ISIN, separate demat request has to be set up for free shares and
lock-in shares.
Step 3: DP would verify that the DRF has been filled correctly.
Step 4: DP would setup a demat request on the CDSL or NSDL system and send the same to the Company and
the Registrar and Transfer Agent.
Step 5: Issuer/ Registrar and Transfer Agent (RTA) would verifies the genuineness of the certificates and
confirms the request.
Step 6: Once the request has been successfully made, DP would deface and mutilate the physical certificates,
generate a Demat Request Number (DRN) and send an electronic communication to the depository and
courier the DRF and the share certificate to the company by courier.
Step 7: On receiving confirmation, depository will credit an equivalent number of securities in the demat
account of the BO maintained with CDSL or NSDL.
Step 8: The depository will electronically download the details of the demat request and communicate the
same to the electronic registry maintained by the Registrar of Companies. 
Prospectus
• Sec. 2(70) of the Companies Act describes a prospectus as “any
document issued as a prospectus and includes any notice, circular,
advertisement or other document inviting deposits from the public or
inviting offers from the public for the subscription or purchase of any
share in, or debentures of a body corporate.”
• In other words, it is a document which invites deposits from the
public or invites offers from the public for the subscription of shares
in, or debentures of, a company. The words “inviting deposits from
the public” were added by the Companies (Amendment) Act, 1974.
Features and characteristics of the prospectus
I. It is a document issued as a prospectus;

II. It is an invitation to the member of the public;

III. The public is invited to subscribe to the shares or debentures of the company;

IV. It includes any notice, circular, advertisement inviting deposits from the public;

V. It is a document by which the company procures its share capital needed to carry on
its activities.
Matters to be Specified
The contents of the Memorandum
The qualification shares of the Directors:
No. of redeemable preference shares
Remuneration of the Directors and Promoters:
The names, descriptions and addresses of the Directors and Managing
Directors
The Minimum Subscription
Names and Addresses
Names of the auditors with their addresses
 Definition
• Shelf Prospectus: As mentioned in Section 31 of the Companies Act, 2013, the expression “shelf prospectus”
means a prospectus in respect of which the securities or class of securities included therein are issued for
subscription in one or more issues over a certain period without the issue of a further prospectus.
• Dividend: A dividend is the distribution of reward from a portion of the company's earnings and is paid to a
class of its shareholders. Dividends are decided and managed by the company’s board of directors, though
they must be approved by the shareholders through their voting rights. Dividends can be issued as cash
payments, as shares of stock, or other property, though cash dividends are the most common. Along with
companies, various mutual funds and exchange traded funds (ETF) also pay dividends.
• Audit: The term audit usually refers to a financial statement audit. A financial audit is an objective
examination and evaluation of the financial statements of an organization to make sure that the financial
records are a fair and accurate representation of the transactions they claim to represent. The audit can be
conducted internally by employees of the organization or externally by an outside Certified Public Accountant
(CPA) firm.
• Debentures: Debentures are a debt instrument used by companies and government to issue the loan. The
loan is issued to corporates based on their reputation at a fixed rate of interest. Debentures are also known
as a bond which serves as an IOU between issuers and purchaser. Companies use debentures when they need
to borrow the money at a fixed rate of interest for its expansion. Secured and Unsecured, Registered and
Bearer, Convertible and Non-Convertible, First and Second are four types of Debentures.
Types of Debenture
A. Secured and Unsecured: Secured debenture creates a charge on the assets of the
company, thereby mortgaging the assets of the company. Unsecured debenture does
not carry any charge or security on the assets of the company.
B. Registered and Bearer: A registered debenture is recorded in the register of debenture
holders of the company. A regular instrument of transfer is required for their transfer.
In contrast, the debenture which is transferable by mere delivery is called bearer
debenture.
C. Convertible and Non-Convertible: Convertible debenture can be converted into equity
share after the expiry of a specified period. On the other hand, a non-convertible
debenture is those which cannot be converted into equity shares.
D. First and Second: A debenture which is repaid before the other debenture is known as
the first debenture. The second debenture is that which is paid after the first
debenture has been paid back.
Fixed and floating charges
• Fixed and floating charges are used to secure borrowing by a company. Such borrowing is often
done under the terms of a debenture issued by the company. Charges on a company's assets
must be registered at Companies House and may also need to be registered in some other way,
e.g. a charge on land and buildings must also be registered at the Land Registry.

• A fixed charge is a charge or mortgage secured on particular property, e.g. land and buildings, a
ship, piece of machinery, shares, intellectual property such as copyrights, patents, trade marks,
etc.

• A floating charge is a particular type of security, available only to companies. It is an equitable

charge on (usually) all the company's assets both present and future, on terms that the company
may deal with the assets in the ordinary course of business. Very occasionally the charge is over
just a class of the company's assets, such as its stock.
Thank You