Indian Company Act 1956 vis-à-vis

Companies Bill, 2011

Dr. K Ashok Anand

 Back Ground of Indian Company Act 1956
vis-à-vis Companies Bill, 2011
2008
Companies Bill, 2008 was introduced on 23 October 2008 in the Lower
House (Lok Sabha) to replace existing Companies Act 1956 (the Act)
Due to the issolution of the 14th Lok Sabha, the Companies Bill, 2008 had
lapsed

2009
Companies Bill, 2009 (Bill) was reintroduced on 3 August 2009 in the Lok sabha
to replace existing Companies Act 1956 (with minor modifications to the
Companies Bill, 2008)
Bill was referred to the Standing Committee on Finance of the Parliament (the
SCF) for examination and report on 9 September 2009
2010
  Report of the SCF on Companies Bill, 2009 was
introduced in the Lok Sabha on 31 August 2010
 
2011
Companies Bill 2011 introduced in the Lok Sabha on
14 December 2011
 Definition of Company
The Companies Act, 1956 defines the word
“company‟ as a company formed and registered
under the Act or an existing company formed
and registered under any of the previous
company laws (Sec.3). This definition does not
bring out the meaning and nature of the
company into a clear perspective
Lord Justice Lindley.
"an association of many persons who contribute money or
money's worth to a common stock and employed it in some
trade or business and who share the profit or loss arising
there from. The common stock so contributed is denoted in
money and is the capital of the company. The persons who
contributed it or to whom it belongs are members The
portion of capital to which each member is entitled is his
share The shares are always transferable although the right
to transfer them may be restricted".
From the above definition it is clear that, a
company is an incorporated association,
which is an artificial person created by law,
having an independent legal entity, with
capital divisible into transferable shares
carrying limited liability, having a common
seal and perpetual succession. 
Incorporated association.
Section 11 provides that an association of more than
ten persons carrying on business in banking or an
association or more than twenty persons carrying on
any other type of business must be registered under the
Companies Act and is deemed to be an illegal
association, if it is not so registered.
For forming a public company at least seven persons
and for a private company at least two persons are
persons are require
Artificial legal person
A company is an artificial person. It was
rightly pointed out in Bates V Standard Land
Co. that “The board of directors are the brains
and the only brains of the company, which is
the body and the company can and does act
only through them”
Separate Legal Entity

A company has a legal distinct entity and is independent of its

members. The creditors of the company can recover their
money only from the company and the property of the
company. They cannot sue individual members. Similarly, the
company is not in any way liable for the individual debts of its
members.
The principal of separate of legal entity was explained and
emphasized in the famous case of
Salomon v Salomon & Co. Ltd
Perpetual Existence

A company is a stable form of business

organization. Its life does not depend upon
the death, insolvency or retirement of any or
all shareholder (s) or director (s). Law
creates it and law alone can dissolve it.
Common Seal

The company having a legal personality,

(8)
it can be bound by only those documents
which bear its signature. Therefore, the law
has provided for the use of common seal
Limited Liability
A company may be company limited by shares or a
company limited by guarantee. In company limited by
shares, the liability of members is limited to the
unpaid value of the share.

A company limited by guarantee the liability of

members is limited to such amount as the member
may undertake to contribute to the assets of the
company in the event of its being wound up
Transferable Shares.
In a public company, the shares are freely
transferable. The right to transfer shares is a statutory
right and it cannot be taken away by a provision in
the articles. However, the articles shall prescribe the
manner in which such transfer of shares will be made
But absolute restrictions on the rights of members to
transfer their shares shall be ultra vires.
However, in the case of a private company, the articles
shall restrict the right of member to transfer their
shares in companies with its statutory definition
 Lifting the Corporate Veil
The main advantage of forming a company is to have a
separate legal entity courts do not interfere and
essentially go by the principle of separate entity as laid
down in the Salomon’s case.
Exception to the RULE
In the interest of members and in public interest to
identify and punish the persons who misuse the medium
of corporate personality. The circumstances under which
the courts may lift the corporate veil may
 Lifting the Corporate Veil
Broadly grouped under the following two heads.
A. Under Statutory Provisions
1. Reduction of Membership
2. Misrepresentation in Prospectus
3. Fraudulent Conduct of Business
4. Failure to Return Application Money:
5. Mis-description of Name
6. Non-payment of Tax
7. Liability of Ultra-vires Acts
b) Under Judicial Interpretations
1. For Determining the Enemy Character of a
Company
2. For the Benefit of Revenue:
Sir Dinshaw Maneckjee Petil
3. For Prevention of Fraud and Improper
Conduct
4. In order to avoid any other law
Classification of Companies
On the Basis of Incorporation

Chartered Companies
Incorporated under a special charter by a
monarch. The East India Company and The
Bank of England are examples of chartered
incorporated in England
Statutory Companies
These companies are incorporated by a Special Act passed
by the Central or State legislature. Reserve Bank of India,
State Bank of India, Industrial Finance Corporation, Unit
Trust of India, State Trading corporation and Life Insurance
Corporation are some of the examples of statutory
companies. Such companies do not have any
memorandum or articles of association. They derive their
powers from the Acts constituting them and enjoy certain
powers that companies incorporated under the Companies
Act have. Alternations in the powers of such companies
can be brought about by legislative amendments.
 Registered or incorporated
companies

These are formed under the Companies Act, 1956

or under the Companies Act passed earlier to this.
Such companies come into existence only when
they are registered under the Act and a certificate
of incorporation has been issued by the Registrar
of Companies
On the Basis of Liability
• Unlimited Companies
• Companies limited by Guarantee
• Companies limited by shares
• Companies limited by shares and Guarantee
 On the Basis of Membership

• Private Company
• Public Company
• Holding Company
• Subsidiary Company
 Private Company
• A company which has a min. paid-up capital of
Rs.100,000 and by its Articles –
• (a) restricts the right to transfer its shares;
• (b) limits the number of its members to fifty;
• (c) prohibits any invitation to subscribe for any shares
in, or debentures of the company; and
• (d) prohibits any invitation or acceptance of deposits
from public. [Sec 3(1)(iii)]
• Must necessarily have its own Articles of Association.
• Should have at least two directors.
• The word 'Private Limited' must be added at the end of
its name.
 Public Company
• A Public Company means a company which -
is not a Private Company;
• has a minimum paid-up capital of Rs 5 lakhs or
such higher capital as may be prescribed;
• is a private company which is a subsidiary of a
company which is not a private company. [S. 3 (1)
(iv)]
• It consists of not less than seven members and
three directors.
• Distinction between a public company and a privat
e company
. (Assignment -1)
 Holding & Subsidiary Company
• A company is deemed to be the holding company of
another if, but only if, that other is its subsidiary." [Sec
4(4)]
• Where a company controls the composition of Board of
Directors of another company, the latter becomes the
subsidiary of the former; or
• When a company holds more than half of the equity
capital of another company, the latter becomes the
subsidiary company of the former; or
• Where a company is subsidiary of another company
which is itself a subsidiary of the controlling company,
the former becomes the subsidiary of the controlling
company.
 Government Company
• A Government Company means any company in
which not less than 51 per cent of the paid-up share
capital is held by
• (a) the Central Government, or
• (b) any State Government or Governments, or
• (c) partly by the Central Government and partly by
one or more State Governments.
• A subsidiary of a Government company is also
called a Government company.
 Foreign Companies
• Incorporated in a country outside India and has a place
of business in India.
• Every foreign company shall, within 30 days, file with
RoC the following documents:
• A certified copy of the Charter, Statutes, Memorandum
and Articles of the company in English.
• The full address of the registered or principal office of
the company.
• A list of the directors and secretary of the company.
• The names and addresses of any person/s resident in
India, authorised to accept notices.
 Section 8 Companies previously called sec 25
companies
• The object is to promote a social cause.
• May earn profits but not allowed to distribute it as
dividend to members.
• License granted by Central Government.
• Not required to use the word Ltd. or Pvt. Ltd.
• Registered without paying stamp duty on
Memorandum and Articles.
• Cannot alter its object without previous approval
of Central Government.
The End

Dr. K Ashok Anand