2. Definition of Company
According to section3(1)(i) of the companies
Act,1956 a company means, “A company formed
and registered under this Act or an existing
company ”.
“An association of many persons who contribute
money or money’s worth to a common stock and
employed for a common purpose, and who share
the profit and loss arising thereform.”
- Lindley, L.J.
3. Characteristics of a Company
Separate legal Entity
Perpetual succession
Limited liability
Common seal
Transferability of shares
Capacity to sue and be sued
Not a citizen
Company’s actions limited
Separate property
4. KINDS OF COMPANIES
On the basis of constitution:
1)Public company
2)Private company
On the basis of incorporation:
1)Chartered company
2)Statutory company
3)Registered company
5. CONT.
a)Limited companies
- Limited by shares
- Limited by guarantee
b)unlimited companies
4)Foreign company
On the basis of control:
1)Government companies
2)Holding and subsidiary companies
6. FORMATION OF COMPANY
It includes 4 stages:
1) Promotion of a company
2) Incorporation or registration of the
company
3) Capital subscription
4) Commencement of business
7. 1) Promotion of a company
Promotion is the first stage in the formation of a
company. Before a company is formed, some
persons come together and conceive the idea of
doing business i.e. the company is born in their
minds.
“promotion is the process of creating a specific
business enterprise. The aggregate of activities
contributed by all those who participate in the
building of the business constitutes promotion.”
8. Promoter
“promoter is the person who assembles the
men, the money and the material into a going
concern.”
Rights of promoters:
1)Rights to the legitimate preliminary expenses
2)Right to get proportionate amount from co-
promoters
3)Right to get remuneration
9. Duties of promoters
1)To disclose private arrangements
2)To disclose secret profits
3)To disclose all material facts
4)To disclose the profits which he has earned as
trustee
5)To show goodwill towards future shareholders
10. 2) Incorporation or registration of the
company
Incorporation is the second stage of the company’s
formation, which is done by getting the company registered
with the registrar of the companies. The required fee for
registration is paid and the certificate of registration
obtained from the registrar of companies.
Preliminary activities:
1) To decide where the registered office of the company will be located.
2) To decide the name of the company
3) To get the license under industrial development and regulation act, 1951
4) To make appointments
5) To get the important documents prepared
6) To send the application to the registrar
11. 3) Capital subscription
A private company or a public company not
having share capital can commence its
business immediately on its incorporation. In
case of capital subscription, a company has to
complete the following procedures to obtain the
necessary capital:
1) Issue of prospectus
2) Statement in lieu of prospectus
12. 4) Commencement of business
A private company can commence its business
immediately on incorporation. A public company
on the other hand, can not commence its
business till it receives the certificate of
commencement.
To obtain the certificate of commencement, a
public company needs to fulfill the provisions
of section 149.
13. MEMORANDUM OF ASSOCIATION
It is the most important document of a
company. It defines the objects and
powers of a company and the company’s
relationship with the outside world. The
purpose of the memorandum is to enable
the shareholders, creditors and others
who deal with the company to know its
permitted range of activities.
14. SIGNIFICANCE OF MEMORANDUM
• Its is the basis of incorporation and a company
cannot be registered without a memorandum of
association
• It informs the investors of the purposes for which
their money will be utilized by the company.
• It makes known to the shareholders the extent of
their liability.
• It defines the objectives of the company.
• It indicates the names and addresses of the people
who have promoted the company.
15. CONTENTS OF MEMORANDUM
1. NAME CLAUSE: The clause contains the name of the
company. A company can choose any name it
likes, subject, however, to the following conditions:
a. The proposed name should not be identical or similar to the
name of an existing company.
b. The proposed name should not convey any connection or
like with a government department or local authority as it is
undesirable and may mislead the public.
c. The name of the public company limited by shares should
end with the word ‘limited’ while that of the private
company should contain the words ‘private limited’.
16. 2. THE SITUATION (DOMICILE) CLAUSE: This
clause specifies the name of the state in which the
Registered Office of the Company is to be situated.
3. THE OBJECT CLAUSE: This clause may be
considered as the core of the memorandum of
association because it defines powers of the
company and the scope of its activities. A company is
not authorized to do the any business outside the
scope of the objects clause.
17. 4. THE LIABILITY CLAUSE: This clause states that
the liability of members is limited to the amount, if
any, unpaid on the shares held by them. In case of
‘companies limited by guarantee’, this clause will also
state the amount which every member undertakes to
contribute to the assets of the company in the event
of its winding up. The Memorandum may provide for
the unlimited liability of directors.
18. 5. THE CAPITAL CLAUSE: This clause states the
total amount of authorized share capital with which
a company is to be registered.
6. THE SUBSCRIPTION OR ASSOCIATION
CLAUSE: This clause contains the full
names, occupations and addresses of subscribers to
the memorandum.
19. ARTICLES OF ASSOCIATION:
The articles of association of the company
contains the rules and regulations relating to
the management of its internal affairs. They
define the rights, powers and duties of the
management, the mode and form in which
the business of the company is need to b
carried on and the manner in which changes
in the internal regulations of the company
may b made from time to time.
20. CONTENTS OF ARTICLES
1. Adoption of preliminary contracts.
2. Number and value of shares.
3. Allotment of shares.
4. Calls on shares.
5. Lien on shares
6. Transfer and transmission of shares.
7. Forfeiture of shares.
8. Borrowing powers.
9. Meetings.
10. Winding up.
11. Accounts and audit, etc.
22. What is Prospectus?
• Section 2 (36)
• It is a document which includes notice,
advertisement or circular.
• Invites deposits from the public or offers from
the public for the purchase of any shares or
debentures.
• It is not merely an advertisement; it may be a
circular or a notice.
23. Document -> Prospectus
A document shall be called a prospectus if it
satisfies the following two things:
• It invites subscriptions to shares or debentures
or invites deposits.
• The invitation is made to the public.
24. Registration of Prospectus
• Section 60
• A prospectus cannot be issued without its
registration.
• A prospectus can be issued by or on behalf of
a company or in relation to an intended
company only when a copy has been delivered
to the Registrar for registration.
25. Cntd….
• The prospectus must be issued within 90 days
of the date on which a copy is delivered for
registration.
• If a prospectus is not issued within this
period, it is deemed to be a prospectus, a
copy of which has not been delivered to the
registrar.
26. Penalty for non- registration of
Prospectus
• A prospectus should not be issued without
delivering a copy to the registrar.
• If so, then the company and every
person, who is a party to the issue of the
prospectus, shall be punishable with fine
which may extent to Rs. 5000.
27. Contents of a Prospectus:
• General information
• Capital structure of the company
• Terms of the present issue
• Particulars of the issue
• Company management and project
• Report by the auditors
• Report by the accountants
• Statutory and other information.
28. Misstatements in the Prospectus
• Section 65
• Untrue statements
• Statements which produce wrong impression
• Concealment of material facts
• Omission of facts.
29. Statement in Lieu of Prospectus
• Section 70
A company having a share capital which
does not issue a prospectus or, which has
issued a prospectus but has not proceeded to
allot any of the share offered to the public for
subscription, shall not allot any of its share or
debenture, unless at least 3 days before the
allot of share or debenture, there has been
delivered to the registrar for registration a
‘statement in lieu of prospectus’.
30. SHARES AND DEBENTURES
Meaning of share:
The capital of a company is usually divided
into certain indivisible units of a fixed value
and each such unit is known as ‘share’.
Types of shares:
1) Preference share
2) Equity share
31. Types of preference share:
1) Cumulative preference share
2) Non cumulative preference share
3) Participating preference share
4) Non participating preference share
5) Convertible preference share
6) Non convertible preference share
7) Redeemable preference share
32. Meaning of debentures:
The term debenture may be defined
as a certificate of loan issued by the
company, which creates or acknowledges and
indebtedness of the company.
“Debenture mean a document which either
creates a debt or acknowledges it, and any
document which fulfills either of these
conditions is a debenture.”
