CENTRE FOR DISTANCE AND ONLINE EDUCATION

CENTRE FOR DISTANCE AND ONLINE EDUCATION

Live Session – Session No. 5

BCOM103 – Corporate Legal Environment

Unit No. 5: Companies Act, 2013
B.Com. Semester-I
SURAJ AGARWAL
M.COM, M.B.A, UGC NET
(Qualified)
FACULTY CDOE, SMU
Learning Outcomes

1 2 3 4
Describe joint Describe the Distinguish between Know accounting
venture. features of joint joint ventures and treatment in joint
ventures. consignment sales. ventures.
Meaning of Company.
According to Section 2(20) of the Companies Act‚ a ‘company’ means a company incorporated under this
Act or any previous company law. Prof. Haney – “A company is an artificial person created by law, having
separate entity, with a perpetual succession and common seal.”
Characteristics of a company:
A company has the following characteristics –
1) Incorporated association: A group of people or associations has to get themselves registered as a
company under the Companies Act.
2) Artificial legal person: A company is an artificial legal person created by a legal process.
3) Separate legal entity: Upon incorporation under law, a company becomes a separate legal entity as
compared to its members. It is capable of owning property, incurring debt and borrowing money, having
a bank account, employing people, entering into contracts and suing and being sued separately.
4) Perpetual succession: Membership of a company may keep on changing from time to time, but that
does not affect the life of the company.
6) Limited liability: Most companies have a limited liability;
7) Transferability of shares: The shares of a public company are freely transferable.
8) Common seal: The common seal is the official signature of the company. The name of the company
must be engraved on the common seal.
Classification of Company.
On the basis of formation:
a. Registered company: A registered company is formed and registered under the Companies Act or any
previous company law. The working of such companies is regulated by the provisions of the Companies
Act.
b. Statutory company: This is a company formed by a special Act of Parliament or State Legislature.
Some examples are LIC of India, Reserve Bank of India, Industrial Financial Corporation of India, and
Delhi State Finance Corporation are statutory companies.

On the basis of liability:

a. Company limited by shares: The liability of the members of such companies is limited to the face
value of their shares.
b. Company limited by guarantee: The liability of each member of such a company is limited to the
extent of the guarantee undertaken by the member.
c. Unlimited company: An unlimited company does not have any limit on the liability of its members.
Classification of Company.
On the basis of ownership:
a. Private company: A private company is one that, by its Articles of Association, limits the right of
members to transfer its shares and prohibits any invitation to the public to subscribe to its shares and
debentures. In this, the number of its members is limited to 200 (excluding its past and present
employees). The minimum paid-up capital of such companies depends on the amount prescribed in this
regard by the Central Government. Private companies do not actively allow the participation of the
public in general.
b. Public company: A company that is not a private company is a public company. Its Articles of
Association do not contain the restrictions mentioned above. A few main characteristics of a public
company are as follows: the minimum number of members is seven; there is no restriction on the
maximum number of members; it can invite the public to subscribe to its shares; and its shares are freely
transferable. It has to add the word ‘Limited’ at the end of its name.
c. Government company: A company in which at least 51% of the paid-up capital is held by the Central
Government or State Government or jointly by both is called a government company. Examples of
Government companies are Hindustan Machine Tools Limited (HMT) and State Trading Corporation
(STC).
Classification of Company.
On the basis of ownership:
d. Foreign company: A foreign company is one which is incorporated outside India but has a place of
business in India. Place of business means an identifiable location where it carries on business, such as
an office, storehouse, etc.
e. Listed company and unlisted company: For listing its securities, a company is required to apply with
the Securities and Exchange Board of India. When it qualifies for the admission and continuance of the
said securities upon listing on the stock exchange, it is known as a listed company. An unlisted company
is one whose securities are not freely tradeable on a stock exchange.
f. Holding company and subsidiary company: A holding company is a company which controls another
company (called a subsidiary company) either by acquiring more than half of the equity shares of
another company or by controlling the composition of the board of directors of another company or by
controlling a holding company which controls another company.
g. Company under Section 8: A company created under Section 8 aims to promote art, culture and
societal aims. Such companies need not use the term “limited” at the end of their names. Haryana,
Punjab and Delhi Chambers of Commerce are examples of such companies.
Incorporation Of Company
First, one has to get the name of the proposed company approval from the Registrar of Companies
(ROC). After name approval, along with the application for incorporation, the Memorandum and Articles
of Association, in addition to other necessary prescribed documents, has to be submitted to the ROC.
After getting the name approved, the following documents are prepared for incorporating a company in
India:
1. Memorandum of Association
2. Articles of Association
3. Letter of authority to a person for carrying out corrections
4. Declaration by the promoter Directors
5. Demand Draft in favour of the Registrar of Companies for the prescribed amount towards the
registration fee
6. Memorandum and Articles of Association duly stamped before filing with the Registrar of Companies
All the above documents are also filed in original with the Registrar of Companies.
Incorporation Of Company
Memorandum of Association: According to Section 2(56), a 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 the Act. The contents of the memorandum of association (Section 4) include the following:
a. Name clause: A company may have any name which is not undesirable in the view of the Central
Government.
b. Situation clause: It shows the state in which the registered office of the company is situated.
c. Object clause: It states separately the main objects and objects ancillary or incidental to the main objects to
be pursued by the company and other objects. It defines the powers of the company beyond which the
company cannot act.
d. Liability clause: It states whether the liability of the member is limited to the extent of the nominal value of
the shares or the extent of the amount guaranteed by the members or is unlimited.
e. Capital clause: It states the amount of the company’s capital and the way in which it is to be divided into
shares.
f. Association and subscription clause: All the signatories of the memorandum make a declaration that they
are desirous of forming themselves into a company and that they agree to take the number of shares
mentioned against their respective names given therein, along with their address and occupations.
Incorporation Of Company

Articles of Association: These are the rules, regulations and by-laws for the internal management of the
company. They bind the company and its members. It deals with the rights of the member of the company
inter- se Article of Association is filed with the registered for the incorporation of a company. The usual
contents of the Articles of Association includes the following:
a. Share capital and variation of rights
b. The company’s lien on the shares
c. Calls on shares
d. Transfer and transmission of shares
e. Forfeiture and reissue of forfeited shares
f. Conversion of shares into stocks and reconversion of stock into shares
g. Rules regarding the holding and conducting of the general meetings and board meeting
h. Rules regarding the appointment of Directors, Managing Agents, Secretaries and Treasurers, Managing
Director and Secretary and their remuneration, power and duties, etc.
i. Provision regarding the share capital
 Incorporation Of Company

• After having obtained the certificate of incorporation, the promoters of a public company will have to
take steps to raise the necessary capital for the company. A public company may invite the public to
subscribe to its shares or debentures.
• For this purpose, a document known as a prospectus has to be issued. According to section 2(70) of the
Companies Act, a prospectus means any document described or issued as a prospectus. It includes a red
herring prospectus or shelf prospectus or any notice, circular, advertisement or other document inviting
offers from the public for the subscription or purchase of any securities of a corporate body.
Types of Share Capital
Types of Share Capital
Share capital refers to the capital issued by a company by the issue of shares. The share capital of a
company may be classified as follows:
1. Authorised capital or Nominal capital: It means such capital as is authorised by the memorandum of
a company to be the maximum amount of share capital of the company
2. Issued capital: It is that part of the authorised capital which is actually offered (issued) to the public
for subscription.
3. Subscribed capital: It is that part of the issued capital which has been actually subscribed to by the
public.
4. Called-up capital: It is that part of the nominal value of issued capital that has been called up or
demanded by the company.
5. Paid-up capital: It is that part of the called-up capital which has actually been received from the
shareholders.
6. Reserve capital: It is that part of the uncalled capital which cannot be called by the company, except
in the event of its winding up.
Types of Share
Preference shares are those which have the following features:
1. A right to be paid a fixed amount of dividend or the amount of dividend calculated at a fixed rate.
2. A right to be paid the amount of capital paid for such shares, in the event of winding up of the
company.
The various types of preference shares are:
a) Non-cumulative and cumulative: A non-cumulative - In the event that no dividend is declared in any
year because of the absence of profit, the holders of preference shares get nothing, nor can they claim
unpaid dividends in the subsequent years, in respect of that year. On the other hand, cumulative
preference shares give the right to demand the unpaid dividend.
b) Redeemable and non-Redeemable: Redeemable preference shares are preference shares which have
to be repaid by the company after the term for which the preference shares have been issued.
Irredeemable preference shares refer to those preference shares which need not be repaid by the
company except on the winding up of the company.
c) Participating and non-Participating: Participating preference shares are entitled to a preferential
dividend at a fixed rate, with the right to participate further in the profits. A non-participating share is
one which does not provide such a right to participate in the profits of the company.
Types of Share

Equity shares
Equity share capital refers to all share capital, which is not preference share capital in nature. Equity
shareholders receive a dividend out of profits after preference shares have been paid their fixed
dividend. They have the right to vote on every resolution placed in the meeting, and the voting right is in
proportion to the paid-up equity capital. The holder of equity shares can vote on all matters affecting the
company. A company may issue sweat equity shares , rights shares or bonus shares to the existing
equity shareholders of the company
Company Management

Director: Section 2 (34) of the Companies Act defines ‘Director’ as a director appointed to the Board of a
company. A director is a person who manages the affairs of the company, along with his fellow directors.
He is a member of the governing body of the company and takes part in planning, conducting and
controlling its business affairs.
Managing Director: According to Section 2 (54), a ‘Managing Director’ means a director who, by virtue
of the articles of a company or an agreement with the company or a resolution passed in its general
meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs
of the company and includes a director occupying the position of managing director, by whatever name
called.
Managers: According to Section 2 (53), a Manager means an individual who, subject to the
superintendence, control and direction of the Board of Directors, has the management of the whole, or
substantially the whole, of the affairs of a company, and includes a director or any other person
occupying the position of a manager, by whatever name called, whether under a contract of service or
not.
Types of Meeting
MEETINGS
A meeting may be generally defined as a gathering or assembly or getting together of a number of
people for transacting any lawful business. Company meetings can broadly be classified as follows:
1. Shareholders’ meetings: Such meetings are known as general meetings. The members meet to
exercise their collective rights. The meetings of the shareholders may be of the following types –
statutory meetings, annual general meetings, extraordinary general meetings, or class meetings of
shareholders
2. Meeting of directors: These meetings may be of two types – board meetings and meetings of the
board committees.
3. Other meetings: These meetings may be either of the following – meetings of the debenture holders
and meeting of creditors.
Types of Meeting

a) Annual general meeting (Section 96) – Every company other than a One Person Company must, in
each year, hold, in addition to any other meetings, a general meeting as its annual general meeting and
shall specify the meeting as such in the notices calling it, and not more than fifteen months shall elapse
between the date of one annual general meeting of a company and that of the next.
b) Extraordinary general meeting (Sec.100) – An annual general meeting of a company is an ordinary
meeting. Any meeting, other than these, is called an extraordinary meeting. Such meetings are held for
special purposes.
c) Board meeting (Section 173) – The affairs of a company are managed by the board of directors. In
other words, powers delegated by a company to its directors must be exercised at properly convened
and duly constituted meetings, generally referred to as board meetings.
Types of Resolution
The Companies Act recognises the following two kinds of resolutions:
a) Ordinary resolution – A resolution is called an or the notice required under the Companies Act has
been duly given, and it is required to be passed by the votes cast, whether on a show of hands,
electronically or on a poll, as the case may be, in favour of the resolution, including the casting vote, if
any, of the Chairman, by members who, being entitled so to do, vote in person, or where proxies are
allowed, by proxy or by postal ballot, exceed the votes, if any, cast against the resolution by members, so
entitled and voting.
b) Special resolution – A resolution is said to be a special resolution if: (a) the intention to propose the
resolution as a special resolution has been duly specified in the notice calling the general meeting or
other intimation given to the members of the resolution; (b) the notice required under the Act has been
duly given; and (c) the votes cast in favour of the resolution, whether on a show of hands, or
electronically or on a poll, as the case may be, by members who, being entitled so to do, vote in person
or by proxy or by postal ballot, are required to be not less than three times the number of the votes, if
any, cast against the resolution by members so entitled and voting.
Human resources slide 9

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