INSTITUTE FOR EXCELLENCE IN

HIGHER EDUCATION, Bhopal (mp)

Session 2019-20

Submitted To: Submitted By:

Manan
Miss Kritika
Prakash Saxena
B.Com Accounts (Hons.)
Dept. of Section ‘C’ III Year
Commerce Roll No. 117117
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 CERTIFICATE

This is to certify that Manan Saxena , student of B.Com

Accounts Honours (III Year) of Institute for Excellence in
Higher Education, Bhopal has prepared the assignment for
Company Law and Secretarial Practice (Subsidiary).

He has put his sincere efforts to complete this assignment for

the partial fulfillment of B.Com Accounts Honours
Examination.

Signature
Miss Kritika Prakash
(Dept. of Commerce)

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 Acknowledgement

In preparation of my assignment, I had to take the help

and guidance of some respected persons, who deserve my
deepest gratitude. Firstly, I would like to thank Director of
our Institute Dr. S.S Vijaywargia, who introduced this in
the course curriculum. In addition, a thank you to Dr. V.K
Shukla, Head of Commerce Department.

As the completion of this assignment gave me much

pleasure, I would like to show my gratitude to Kritika
Prakash, Professor, IEHE for giving me good guidelines
for assignment throughout numerous consultations.

Lastly,I would like to extend my gratitude to all those who

have directly and indirectly guided me in writing this
assignment.

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 INDEX

S no. Particulars Page No.

1 Introduction 5

2 Definition 6

3 Characteristics of a Company 7-9

4 Types of Companies 10-15

5 Difference between Public and Private Company 16

6 Promotion 17-19

7 Incorporation 20-22

8 Commencement of Business 23

9 Role of SEBI 24-26

10 Summary 27

11 Bibliography 28

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 Introduction

Indian Companies Act 1956 was an Act of the Parliament of India, enacted in
1956, which enabled companies to be formed by registration, sets out the
responsibilities of companies, their directors and secretaries and also provides
for the procedures for its winding.

Enacted by: Parliament of India

Assented to: 30 August 2014

Signed: 29 August 2013

Commenced: 12 September 2013 (98 Sections)

1 April 2014 (184 Sections)

The various section of the Companies Act,2013 were made effective from
different dates. However, the Act as a whole came into force on 1st April 2014.

The Companies Act 2013 is an act of the Parliament of India on Indian

Company Law which regulates incorporation of a company, responsibilities of a
company, directors, dissolution of a company.

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 Definition

Section 2(20) of the Companies Act, 2013 defines a company as follows:

"Company means a company incorporated under this Act or under any previous
Company Law."

The above definition brings out only one feature of a company that it exists only
in the eyes of the law and its corporate personality is granted to it by the law,
though it does not exist physically.

In a nutshell, a company is a voluntary association of persons for a common

purpose assuming the status of an artificial person after its incorporation and
having an independent legal entity separate from its members, with a perpetual
succession and a common seal and with a common capital divided into
transferable shares, and carrying limited liability.

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 Characteristics of a
COMPANY
1. Voluntary Association:
A company is a voluntary association of two or more persons. A single person
cannot constitute a company. At least two persons must join hands to form a
private company. While a minimum of seven persons are required to form a
public company. The maximum membership of a private company is restricted
to fifty, whereas, no upper limit has been laid down for public companies.

2. Incorporation:
A company comes into existence the day it is incorporated/registered. In other
words, a company cannot come into being unless it is incorporated and
recognised by law. This feature distinguishes a company from partnership
which is also a voluntary association of persons but in whose case registration is
optional.

3. Artificial Person:

Legally, a company has got a personality of its own. Like human beings it can
buy, own or sell its property. It can sue others for the enforcement of its rights
and likewise be sued by others.

4. Separate Entity:
The law recognizes the independent status of the company. A company has got
an identity of its own which is quite different from its members. This implies
that a company cannot be held liable for the actions of its members and vice

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versa. The distinct entity of a company from its members was upheld in the
famous Salomon Vs. Salomon & Co case.

5. Perpetual Existence:
A company enjoys a continuous existence. Retirement, death, insolvency and
insanity of its members do not affect the continuity of the company. The shares
of the company may change millions of hands, but the life of the company
remains unaffected. In an accident all the members of a company died but the
company continued its operations.

6. Common Seal:
A company being an artificial person cannot sign for itself. A seal with the
name of the company embossed on it acts as a substitute for the company’s
signatures. The company gives its assent to any contract or document by the
common seal. A document which does not bear the common seal of the
company is not binding on it.

7. Transferability of Shares:
The capital of the company is contributed by its members. It is divided into
shares of predetermined value. The members of a public company are free to
transfer their shares to anyone else without any restriction. The private
companies, however, do impose some restrictions on the transfer of shares by
their members.

8. Limited Liability:
The liability of the members of a company is invariably limited to the extent of
the face value of shares held by them. This means that if the assets of a
company fall short of its liabilities, the members cannot be asked to contribute

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anything more than the unpaid amount on the shares held by them. Unlike the
partnership firms, the private property of the members cannot be utilized to
satisfy the claims of company’s creditors.

9. Diffused Ownership:
The ownership of a company is scattered over a large number of persons.
According to the provisions of the Companies Act, a private company can have
a maximum of fifty members. While, no upper limit is put on the maximum
number of members in public companies.

10. Separation of Ownership from Management:

Though shareholders of a company are its owners, yet every shareholder, unlike
a partner, does not have a right to take an active part in the day to day
management of the company. A company is managed by the elected
representatives of its members. The elected representatives are individually
known as directors and collectively as ‘Board of Directors’.

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 Types of COMPANIES

On the basis On the basis On the basis On the basis of

of number and On the basis of place of
of liability of of control or Ownership
invitation to the members influence incorporation
public

Companies Government
limited by Companies
shares
Companies Non
limited by Government
guarantee Companies

Unlimited
Private Company
Holding
Companies Company
Domestic
Public Subsidiary Company
Companies Company
Foreign
One Person Associate Company
Companies Company

I. On the basis of number and invitation to the public:

a. Private Companies: The term "private company" has been defined
under section 2(68) of Companies act 2013. A private company
means a company, which has a minimum paid up share capital of Rs.
1 lakh and which provides the following restrictions through its
Articles of Association and Memorandum.

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 • Restricts the transfer of shares by its members
• Limits the maximum number of members to 50
• Prohibits any invitation or acceptance of public deposits
• Prohibits invitation to public for debentures of the company

It enjoys special privileges also -

➢ It can be started with only 2 members (minimum members) .
➢ It is not required to prepare certificate of incorporation,

b. Public Companies: The term 'public company' has been defined

under section 2(71)of the Companies act 2013. A public company'
means a company which has minimum paid up share capital of Rs. 5
lakh and which is not a private company.
It has the following features -

• It does not restrict transferability of shares.

• At least 7 members are required to form a public company.
• There is no restrictions on the number of members It has atleast 3
directors
• Its name end with the word "limited"
• It can accept public deposits and invite public for subscription of
its shares and debentures
A private company which is a subsidiary of a public company will also be
considered a public company under this Act.

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 c. One Person Companies: One Person company popularly known
as OPC, which can be incorporated by only one person as its owner,
however, it can have many directors subject to limits prescribed by the
act. A nominee of the owner of one Person Company must be declared
with the consent of such nominee.
The concept of One person company is quite revolutionary. It gives
the individual entrepreneurs all the benefits of a company, which
means they will get credit, bank loans, access to the market, limited
liability, and legal protection available to companies.

II. On the basis of liability of members:

a. Company Limited by shares: It is a company in which the
liability of the members (shareholders) limited i.e. they are only liable
for the unpaid value of shares held by the member. The unpaid amount
can be called upon any time during the life time or winding up of the
company. If the shares of a member are fully paid up then his liability
will be nil.
b. Company limited by guarantee: In such a company the
Liability of shareholders is limited up to the amount guaranteed or
invested by the shareholder towards the assets of the company in the
event of its being wound up. The amount guaranteed can be only
demanded at the time of its wound up, hence it is a reserve capital.
Such companies are generally formed to promote art, science,
commerce, sports etc.and are not for profit making.
c. Unlimited Company: A company having no limit on the liability
of its Shareholders is an unlimited company. Thus the liability may
extend to the personal property of the Shareholders in case the

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 company is not able to satisfy its claims at the time of winding up.
This liability of members is like a partnership where they have to
contribute according to the ratio of amount invested in the company.

III. On the basis of control or influence:

a. Holding Company: Defined under Section 2(46) of the
Companies Act 2013. The relationship of holding or subsidiary
companies is established either with the control of Board of Directors
or control of share capital. A company will be a holding company of
another in the following scenarios:
• Controls the composition of the Board of Directors of the other
company.
• Exercises or controls more than 50% of the total share capital
either on its own or together with one or more of its subsidiary
companies.

b. Subsidiary Company: : Defined under Section 2(87) of the

Companies Act 2013. It is a company owned and controlled by
another company. The owning company is called a parent company or
sometimes a holding company.

c. Associate Company: Defined under Section 2(6) of the

Companies Act 2013 lays down that ‘associate company’, in relation
to another company, means a company in which that other company
has a significant influence but which is not a subsidiary company of
the company having such influence and includes a joint venture
company.

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 IV. On the basis of Ownership:
a. Government Companies: A Company of which not less than
51% of the paid up capital is held by the Central Government of by
State Government or Government singly or jointly is known as a
Government Company. It includes a company subsidiary to a
government company. The share capital of a government company
may be wholly or partly owned by the government, but it would not
make it the agent of the government . The auditors of the government
company are appointed by the government on the advice of the
Comptroller and Auditor General of India. The Annual Report along
with the auditor’s report are placed before both the House of the
parliament. Some of the examples of government companies are -
Mahanagar Telephone Corporation Ltd., National Thermal Power
Corporation Ltd., State Trading Corporation Ltd. Hydroelectric Power
Corporation Ltd. Bharat Heavy Electricals Ltd. Hindustan Machine
Tools Ltd. etc.
b. Non Government Companies: All other companies, except the
Government Companies, are called non-government companies. They
do not satisfy the characteristics of a government company as given
above.

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 V. On the basis of place of incorporation
a. Domestic Companies: These companies are registered in India
under the Companies Act. 1956 and have their registered office in
India. Nationality of the members in their case is immaterial.

b. Foreign Companies: Companies which are incorporated outside

India but, have an established business in India are known as Foreign
Companies.

As per the Companies Act,

• The company must have a place of operation in India, either

by itself or by an agent.

• Manage any business activity in India in any other manner.

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Difference between Public and Private
Company

Basis Private Company Public Company

No. of Minimum: 2 Minimum: 7
members Maximum: 200 Maximum: No Limit
Minimum Rs 1 Lakh Rs 5 Lakhs
paid up
share capital
Invitation to Prohibits invitation to public Through Prospectus
Public
Suffix Private Limited Public Limited
Quorum of Only 2 members must be 5-30 members must be
the meeting personally present. personally present.
Transfer of Restricted Free
shares

Minimum Two Three

Directors
Meaning A private company is a company A public company is a
which is owned and traded company which is owned and
privately. traded publically.
Start of After receiving certificate of After receiving certificate of
business incorporation incorporation and certificate of
commencement of business.

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PROMOTION

Refers to the entire process by which a company is brought into existence. It

starts with the conceptualization of the birth as a company and determination of
the purpose for which it is to be formed. The persons who conceive the
company and invest the initial funds are known as the promoters of the
company. The promoters enter into preliminary contracts with vendors and
make arrangements for the preparation, advertisement and the circulation of
prospectus and placement of capital. However, a person who merely acts in his
professional capacity on behalf of the promoter (eg lawyer, CA, etc) for
drawing up the agreement or other documents or prepares the figures on behalf
of the promoter and who is paid by the promoter is not a promoter.

The promoters have certain basic duties towards the company formed:

1) He must not make any secret profit out of the promotion of the company.
Secret profit is made by entering into a transaction on his own behalf and then
sell to concerned property to the company at a profit without making disclosure
of the profit to the company or its members. The promoter can make profits in
his dealings with the company provided he discloses these profits to the
company and its members. What is not permitted is making secret profits i.e.
making profits without disclosing them to the company and its members.

2) He must make full disclosure to the company of all relevant facts including to
any profit made by him in transaction with the company.

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In case of default on the part of the promoter in fulfilling the above
duties, the company may :-

1) Rescind or cancel the contract made and if he has made profit on any related
transaction, that profit also may be recovered

2) Retain the property paying no more for it then what the promoter has paid for
it depriving him of the secret profit.

3) If these are not appropriate (eg cases where the property has altered in such a
manner that it is not possible to cancel the contract or where the promoter has
already received his secret profit), the company can sue him to for breach of
trust. Damages upto the difference between the market value of the property and
the contract price can be recovered from him.

A promoter may be rewarded by the company for efforts undertaken

by him in forming the company in several ways. The more common
ones are :-

1) The company may to pay some remuneration for the services rendered.

2) The promoter may make profits on transactions entered by him with the
company after making full disclosure to the company and its members.

3) The promoter may sell his property for fully paid shares in the company after
making full disclosures.

4) The promoter may be given an option to buy further shares in the company.

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5) The promoter may be given commission on shares sold.

6) The articles of the Company may provide for fixed sum to be paid by the
company to him. However, such provision has no legal effect and the promoter
cannot sue to enforce it but if the company makes such payment, it cannot
recover it back.

If the promoter fails to disclose the profit made by him in course of promotion
or knowingly makes a false statement in the prospectus whereby the person
relying on that statement makes a loss, he will be liable to make good the loss
suffered by that other person. The promoter is liable for untrue statements made
in the prospectus. A person who subscribes for any shares or debenture in the
company on the faith of the untrue statement contained in the prospectus can
sue the promoter for the loss or damages sustained by him as the result of such
untrue statement

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Incorporation

The promoters must make a decision regarding the type of company i.e a pulic
company or a private company or an unlimited company, etc and accordingly
prepare the documents for incorporation of the company. In this connection the
Memorandum and Articles of Association (MA and AA) are crucial documents
to be prepared.
The incorporation of a company refers to the legal process that is used to form a
corporate entity or a company. An incorporated company is a separate legal
entity on its own, recognized by the law. These corporations can be identified
with terms like ‘Inc’ or ‘Limited’ in their names. It becomes a corporate legal
entity completely separate from its owners.

Any seven or more persons (two or more in the case of a private company) may
form an incorporated company for a lawful purpose, by subscribing their names
to the memorandum of association and complying with other requirements in
respect of registration.

Such an incorporated company may be a company:

(a) Limited by shares

(b) Limited by guarantee or

(c) an unlimited company.

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The application for registration of a company should be presented to the
Registrar of the State in which the business office of the company is to be
situated.

The application for registration shall be accompanied by the following

documents:
1. The Memorandum of association

2. The Articles of association

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.

4. A statement of nominal capital

5. A notice of the address of the registration office of the company. This may be
done within 30 days of registration if it cannot be filed at the time of
registration.

6. A list of directors and their consent to act signed by each.

7. An undertaking in writing signed by each such director to take and pay for his
qualification shares.

8. A declaration that all the requirements of the Act have been complied with.
Such a declaration may be signed by an advocate to the Supreme Court or High
Court, an attorney or pleader entitled to appear before a High Court, or a
Secretary or Chartered Accountant in the whole time practice in India who is

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engaged in the formation of the company or by a person named in the articles as
director, manager or secretary of the company.

If the Registrar of companies is satisfied that all the aforesaid requirements have
been complied with he will register the company and place its name on the
register of companies. On registration the Registrar will issue a certificate of
incorporation whereby he certifies that the company is incorporated and in the
case of a limited company the company is limited.

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Commencement of Business

A private company may commence its business immediately on incorporation

but a public company cannot commence business immediately after
incorporation unless it has obtained a certificate of commencement from the
Registrar.

Certificate of commencement of business will be issued only

when:

(a) Shares payable in cash have been allotted up to the amount of minimum
subscription.

(b) The directors have paid in cash the application and allotment moneys in
respect of shares agreed to be taken by them in cash;

(c) No money is or may become liable to be refunded to the applicants for any
share or debenture by reason of failure to apply for or to obtain permission for
the shares or debentures to be dealt in on any recognized stock exchange;

(d) The company has filed a prospectus or statement in lieu of prospectus;

(e) A statutory declaration signed by any director or secretary of the company

that the above requirements have been complied with, has been filed with the
Registrar of companies.

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Role of Securities
Exchange Board of India
(SEBI)

What is SEBI?
Initially, SEBI acted as a watchdog and lacked the authority of controlling and
regulating the affairs of the Indian capital market. Nonetheless, in the year 1992,
it got the statutory status and became an autonomous body to control the
activities of the entire stock market of the country. The statutory status of the
SEBI authorized it to conduct the following activities:-

1.SEBI got the power of regulating and approving the by-laws of stock
exchanges.

2.It could inspect the accounting books of the recognized stock exchanges in the
country. It could also call for periodical returns from such stock exchanges.

3.SEBI became empowered to inspect the books and records of financial

Intermediaries.

4.It could constrain companies for getting listed on any stock exchange.

5.It could also handle the registration of stockbrokers.

SEBI is headquartered in Mumbai and having its regional offices in New Delhi,
Chennai, Kolkata, and Ahmedabad. You can also find SEBI’s local offices in
Jaipur, Guwahati, Bangalore, Patna, Bhubaneswar, Chandigarh, and Kochi.

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Functions of SEBI:

The three main functions of SEBI are as follows:

1. Protective function
2. Developmental function
3. Regulatory function

1. Protective functions are performed by SEBI to protect interest of

investors and provide safe investments. This entails:
• Checks on prices rigging: Price rigging refers to manipulating the prices
of securities.
• Prevents insider trading: Insider refers to directors, promoters of the
company. These people have sensitive information which they can use to
make profit. SEBI keeps a stringent check whether insiders are buying
securities of the company.
• Prohibits fraudulent and unfair practices: SEBI does not allow
companies to make misleading statements.

2. Developmental functions are performed by the SEBI to develop

activities in stock exchange to increase the business in stock exchange.
Under this category, following functions are performed by SEBI:
• Promoting training of intermediaries of the securities market
• Promote activities of stock exchange by adopting flexible methods such
as internet trading
• Initial public offer of primary market is permitted through stock
exchange.

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 3. Regulatory functions are performed by SEBI to regulate the business
in stock exchange.
• SEBI registers and regulates the working of mutual funds and other
investment options.
• SEBI regulates takeover of the companies.
• SEBI conducts inquiries and audit of stock exchanges.

Organizational Structure of SEBI:

SEBI consists of one chairman and other board members. The honorable
chairman is nominated by the Central Government. Out of the eight board
members, two members are nominated by the Union Finance Ministry and one
member is nominated by the RBI. The rest five members of the board are
nominated by the Union Government.

Objectives of SEBI:
The objectives of SEBI are:
• To regulate activities in stock exchange and ensure safe investments
• To prevent fraudulent practices by striking a balance between business
and its statutory regulations

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Summary

Hence, from this thorough study we can ascertain that Company may be defined
as group of persons associated together to achieve some common objective. A
company formed and registered under the Companies Act has certain special
features, which reveal the nature of a company. These characteristics are also
called the advantages of a company because as compared with other business
organizations, these are in fact, beneficial for a company. Companies can be
classified into five categories according to the mode of incorporation on the
basis of number of members, on the basis of control, on the basis of ownership
and on the basis of nationality of the company.

Also,Securities Exchange Board of India (SEBI) was established in 1988 to

regulate the functions of securities market.
SEBI promotes orderly development in the stock market.

SEBI was set up with the main idea to keep a check on malpractices and protect
the interest of investors.

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BIBLIOGRAPHY

Books:
➢ Company Law and Secretarial Practice (2019)
-Dr G K Varshney
(Sahitya Bhawan Publication)
[Pg 1- Pg 60]

Websites:
➢ https://www.yourarticlelibrary.com/

➢ https://keydifferences.com/

➢ http://www.legalserviceindia.com/

➢ https://tradebrains.in/

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