Companies Act

COMPANIES ACT, 1956

Introduction

Objects of Company Law 1. 2. 3. 4.

 To  To  To  To  To  To  To  To

encourage investments ensure ensure proper administration prevent malpractices allow for investigations

eaning of Company 

!" company is de#ned as a form of business organi$ation in w%ic% t%e funds of a large number of investors are managed by a few persons for t%e purpose of earning pro#ts w%ic% are s%ared by all investors&

C%aracteristics of a Company 'egistration  (eparate legal entity  )erpetual (uccession  Transferable s%ares  Limited liability  Common seal  (eparate property  Capacity to sue 

 Types of Companies ".

*rom t%e point of view of +ncorporation

,.

*rom t%e point of view of Liability

C.

*rom t%e viewpoint of -ationality

.

*rom t%e view point of )ublic +nterest

1. *rom

t%e point of view of +ncorporation

Types of Companies

CHARTERED

STATUTORY

REGISTERED

Chartered Company 







/istorically0 most of t%e early companies were set up t%roug% a 'oyal C%arter. *or eample0 t%e ast +ndia Company0 t%e C%artered ,an of "ustralia0 +ndia and C%ina0 etc.0 were incorporated by t%e grant of a special 'oyal C%arter. +n +ndia0 t%is form of organi$ation does not eist now because t%ere is no monarc%y. ven in ngland0 t%is met%od is rarely used now. Companies of t%is ind may be called c%artered companies.

Statutory Company 

+n t%is case0 a special law is passed to establis% t%e company.



 T%is is done only in special cases w%en it is necessary to regulate t%e woring of t%e company for some speci#c purposes.



 T%ese are mostly concerned wit% public utilities



amples of suc% companies in +ndia are t%e +ndustrial *inance Corporation0 t%e Life +nsurance Corporation of +ndia0 t%e "ir +ndia0 'eserve ,an of +ndia0 etc.



 T%e provisions of +ndian companies act 1567 apply to t%em if t%ey are not inconsistent wit% t%e provisions of t%eir special "cts.

e!i"tered Company  T%e Companies "ct0 15670 lays down procedures by w%ic% a company can be broug%t into eistence.    "nybody w%o wants to incorporate a company can do so by taing necessary steps outlined t%erein.  ,y far t%e largest number of companies is incorporated under t%e Companies "ct.  T%ese companies may be called registered companies. 

#.

*rom t%e point of view of Liability

TYPES

UNLIMITED

GUARANTEE

LIMITED

$n%imited Company







o not %ave any limit on t%e etent of liability of its members. Liability of eac% member etends to w%ole amount of t%e company8s debts and liabilities. /owever0 t%e members cannot be sued upon t%e directly by t%e company9s creditors.

Company &imited 'y (uarantee

Classification

Company Limite !y G"a#antee not Ha$in% s&a#e capital

Company Limite !y G"a#antee Ha$in% s&a#e capital

Company &imited 'y (uarantee  Not )a*in! Share Capita%  

emorandum Limits t%e member8s liability. +t is limited to t%e amount as may %ave been undertaen by O" to contribute in t%e case of winding up.

Company &imited 'y (uarantee  )a*in! Share Capita% 

emorandum Limits t%e member8s liability.



oreover0 liability would also etend to t%e unpaid value of t%e s%ares %eld by t%e member.

&imited Company  T%e liability of t%e members of t%e company is limited to t%e amount remaining unpaid on t%e s%ares.  /ence t%e %olders of t%e fully paid up s%ares cannot be called upon for t%e furt%er contribution.  T%e liability of t%e members %olding t%e partly paid up s%ares eists even if t%e company is in process of winding up. 

+.

*rom t%e viewpoint of -ationality

TYPES

NATIONAL

MULTI'NATIONAL

Nationa% Company



+n t%is case0 t%e control and t%e management of t%e a:airs of t%e company are to be carried out wit%in t%e geograp%ical boundaries of t%e country.

Mu%tinationa% Company



 T%e branc% is not an +ndependent entity and is lined up to t%e parent company eisting in some ot%er country.

4. *rom t%e view point of )ublic +nterest TYPES

PRI(ATE

PU)LIC

GO(ERNEMENT

Pri*ate Company 

)rivate Company is a company ;%ic% by its "rticles < i.

ii.

iii.

'estricts t%e rig%ts of t%e members to transfer t%e s%ares0 Limits t%e members%ip to 6=0 ecluding t%e past and present employees of t%e company w%o are t%e members of t%e company0 and )ro%ibits t%e invitation to public0 for subscription of s%ares or debentures of t%e company.

Pu%ic Company 

)ublic Company is a company ;%ic% by its "rticles < i. ii.

iii.

oes not restrict t%e rig%ts of t%e members to transfer t%e s%ares0 oes not limit t%e members%ip to 6=0 ecluding t%e past and present employees of t%e company w%o are t%e members of t%e company0 and +nvites t%e public0 for subscription of s%ares or debentures of t%e company.

(o*ernment Company +t is a company in w%ic% not less t%an 61> of t%e paid in case of mismanagement and oppression cannot be removed. +n a private company a director appointed for life and %olding oce as suc% on 1st "pril 1562 cannot be removed by member9s resolution. ;%ere t%e articles of a company provide for t%e election of directors by proportional representation0 a director elected by t%at met%od cannot be removed by t%e resolution.

'emuneration to t%e irector for %is 'emoval +f a director0 by an agreement or ot%erwise is entitled to receive compensation for t%e premature termination of %is service0 %e can enforce %is claim notwit%standing t%e removal by t%e resolution.

'emoval ,y Central ?overnment

 T%e Central ?overnment s%all by order remove from t%e oce any directors against w%om t%ere is a decision of t%e /ig% Court0 %olding t%at %e is not a #t or proper person to %old t%e oce of director

'emoval ,y Company Law ,oard 







Section =# read wit% Section" +9/ and 35H gives wide power to t%e court including t%e removal of t%e directors. On an application by any memberImembers of t%e company in cases of mismanagement or oppression0 t%e Company Law ,oard may terminate any irector. irectors so terminated cannot be appointed as directors of ot%er companies also upto a period of 6 years of t%eir termination. (uc% directors are not entitled to any damages or compensation for loss of oce.

'etirement 

)roportion of irectors to retire by rotation< 2I3rd only in #rst "? t%e ratio is 1I3rd



Facancy to be #lled at "?0 if not t%en retiring directors will be deemed to be re< elected 'esignation of oce of director



)owers of irectors     

"G C"LL( +((D ,-TD'( ,O''O; O- +-F(T *D-( "'GT LO"-(

Limitations of irectors  





(ell0 lease0 etc. t%e w%ole undertaing 'emit or give time for t%e repayment of any debt by a director +nvest or borrow money in contravention of t%e act. C%arity of more t%an 's. 6=0===.

uties of irectors 



D-' T/ CO)"-+( "CT +'CTO'( "' "CCOD-T",L TO *O' T/+' "CT( O- O,/"L* O* T/ CO)"-. ,(+( T/ (T"TDTO' DT+(0 ;/+C/ T/ +'CTO'( /"F TO )'*O'  TO -(D' (T'+CT CO)L+"-C ;+T/ T/ F"'+OD( )'OF+(+O-( O* T/ "CT T/ "L(O /"F C'T"+DT+( ;/+C/ "'+( ODT O* T/+' *+DC+"' 'L"T+O-(/+) ;+T/ T/ CO)"-.

STAT$TO 4$TIES@  

  



To &l) ()'"(n o* allo'm)n'+ No' 'o i!!") i(()d))ma,l) p()*)()nc) !ha() o( !ha()! o( !ha() ()d))ma,l) a*')( - y)a(!+ To di!clo!) in')()!'  To di!clo!) ()c)ip' *(om '(an!*)( o* p(op)('y  D"'y 'o a'')nd Boa(d m))'ing

OTHER DUTIES+  TO CO-F- (T"TDTO'0 "--D"L ?-'"L T+-? K"? "- "L(O T'"O'+-"' ?-'"L T+-?(.    TO )')"' "- )L"C "T T/ "? "LO-? ;+T/ T/ ,"L"-C (/T "- )'O*+T @ LO(( "CCOD-T " ')O'T O- T/ CO)"-8( "**"+'( +-CLD+-? T/ ')O'T O* T/ ,O"' O* +'CTO'(.    TO "DT/-T+C"T "- "))'OF "--D"L *+-"-C+"L (T"T-T.    TO "))O+-T *+'(T "D+TO' O* T/ CO)"-.  

(ENEA& 4$TIES@   

4uty o !ood aith 4uty o care. 4uty not to de%e!ate

4e3nition 

;inding up of a company is t%e process of putting an end to its life. "t t%e end of t%e winding up0 t%e company will be destroyed or dissolved and will %ave no assets or liabilities.

7indin! up and 'anruptcy 

;inding up is di:erent from ,anruptcy. +n banruptcy0 t%e property of t%e debtors is divested from %im and rests in t%e ocial receivers or t%e ocial assignees w%ile t%e winding up t%e property of t%e company is not divested from it.

ea"on" or 2indin! up o a company  T%e main object of t%e company for w%ic% it was establis%ed %as been accomplis%ed.  +t %as become impossible to carry out t%e main objects of t%e company.   T%e company %as sold t%e business or t%e undertaing to anot%er company or an individual.   T%e company is not in a position to pay its debts in full. 

7indin! up y triuna%

(round" or 2indin! up y triuna% •

•

•

•

•

•

•

•

(pecial resolution *ailure in %olding statutory meetings. *ailure to commence or suspend its business 'eduction of members%ip below minimum +nability to pay debts  Uust and eBuitable efault in #ling balance s%eets0 pro#t and loss account or annual returns "cted against sovereignty and integrity of +ndia (ic industrial company

Specia% re"o%ution •

+f

a

company

special

by

a

resolution

resolved t%at it may be wound tribunal0

up t%e

by

t%e

tribunal

may pass a winding up order.

ai%ure in ho%din! "tatutory meetin!" •

+f

a

company

default

in

maes

%olding

a

statutory meeting or in delivering

a

statutory

report0 t%e court may order

winding

company.

up

t%e

ai%ure to commence or "u"pend it" u"ine"" •

+f a company does not commence its business wit%in a year from its incorporation

or

suspends its business for a

w%ole

year0

t%e

tribunal may order for its winding up.

eduction o memer"hip e%o2 minimum •

;%en

t%e

members

number is

of

reduced

below S in t%e case of a public

company

and

below 2 in t%e case of a private tribunal winding company.

company0 may up

t%e order

of

t%e

Inai%ity to pay det" •

 Tribunal may order for winding up a company if it is unable to pay debts.

 8u"t and e-uita%e •

 T%e tribunal may consider it  just and eBuitable t%at t%e company s%ould be wound up if it is of t%at opinion. ;%at is just and eBuitable will depend on t%e tests of eac% particular case.

4eau%t in 3%in! a%ance "heet", pro3t and %o"" account or annua% return" •

 T%e tribunal may order for winding up0 if t%e company %as made a default in #ling wit% t%e registrar its balance s%eets0

pro#t

and

loss

account or annual returns for any consecutive years.

Acted a!ain"t "o*erei!nty and inte!rity o India •

+f

company

against

t%e

%as

acted

sovereignty

and integrity of +ndia0 t%e security

of

t%e

state0

public order0 decency or morality0 t%e tribunal may order for its winding up.

Sic indu"tria% company •

+f

t%e

tribunal

opinion

t%at

company

s%ould

be

under

t%e

wound

up

circumstances in

(ec.

424

is

of t%e

speci#ed ?0

t%e

tribunal may order for its winding up.

App%ication o 2indin! up 

"ccording to section 4350 t%e following can send petition to tribunal for winding up of a company.        

 

Company itself. Contributories. Creditors. "ll or any of t%e above parties jointly or separately. 'egistrar

Bo%untary 2indin! up

4e3nition •

Foluntary

winding

up

means winding up by t%e members or creditors of t%e company wit%out t%e interference tribunal.

of

t%e

4e3nition •

 T%e object of a voluntary winding up is t%at t%e company as well as t%e creditors is left free to settle

t%eir

wit%out

going

tribunal.

a:airs to

t%e

Circum"tance" in 2hich company can e 2ound up *o%untari%y •

,y passing an ordinary resolution.

•

,y

passing

resolution.

special

'y pa""in! an ordinary re"o%ution •

;%en t%e period for t%e duration of a company by t%e "rticle %as epired0 t%e company in ?eneral eeting

may

pass

an

ordinary resolution for its voluntary winding up.

'y pa""in! "pecia% re"o%ution •

" company may at any time

pass

resolution

a w%at

special it

wound up temporarily.

be

4i"tinction et2een memer" and creditor" *o%untary 2indin! up

4i""o%ution 

" company is said to be dissolved

w%en

it

ceases to eist as a corporate body capable of %olding property or of being tribunal.

sued

in

any