THE COMPANIES ACT, 2013

After studying this chapter, you would be able to understand

In this chapter, students are exposed to the aspects relating to working knowledge on the introductory part of the Companies Act, 2013. On completion of this chapter students should be able to understand the following:

1. Company form of Business Organisation and Corporate veil theory

2. Classes of companies under the Companies Act

3. Registration of companies

4. Memorandum of Association and Articles of Association

SUMMARY

Company

1. An artificial person created under the Companies Act, 2013 with distinct characteristics of separate legal entity and perpetual succession.

2. The capital of the company is divided into transferable shares and shareholders called as members because their name is entered into the Register of members.

3. The member of the company generally has limited liability upto the extent of unpaid nominal value of shares held by him.

Corporate veil theory

1. Saloman vs. Saloman & Co. Ltd. laid that company is a juristic person different and separate from its members.

2. Under certain situations the courts may lift the corporate veil/ veil of incorporation and thus disregard the separate legal entity of the company. This is called lifting the corporate veil.

Incorporation of company

1. A company is said to come into existence only after its registration and issue of Certificate of Incorporation.

2. The company to be incorporated must be validly constituted and be an association for a lawful purpose. After all the formalities are compiled and the Registrar is satisfied, the company is registered under the Act.

3. On registration the Registrar shall issue a Certificate of Incorporation to the company.

4. To provide an integrated process of incorporation, the MCA has introduced SPICe for simplifying the filing of forms. Effect of registration

5. From the date of incorporation the company becomes a legal person by the name contained in the Memorandum and capable of exercising all the functions of an incorporated company.

6. The issue of Certificate of Incorporation is considered as conclusive evidence as to compliance of all the legal formalities in respect of registration of company.

Capital

1. Nominal or authorized share capital: Authorized by memorandum to be the maximum amount of share capital

2. Issued share capital: That part of authorized capital which us offered by the company for subscription.

3. Subscribed share capital: Such part of the capital which us for the time being subscribed by the members of a company.

4. Called up capital: Such part of the capital that has been called for payment.

5. Paid up capital: It is the total amount paid or credited as paid up on shares issued. Paid up capital= Called up capital – calls in arrears.

Share Capital

1. Equity share capital: with reference to any company limited by shares, means all share capital which is not preference share capital.

2. Preference share capital: with reference to any company limited by shares, means that part of the issued share capital of the company which carries or would carry a preferential right with respect to— payment of dividend and repayment.

Memorandum of Association

1. It is known as charter of the company.

2. It is fundamental document of a company containing the fundamental conditions upon which a company is to be incorporated.

3. It lays object and scope of activities and limitations on the power of a company beyond which the company cannot go.

4. Any act done or contracts made by a company which are beyond the express or implied scope of its memorandum, are said to be null and void. This is termed as doctrine of ultra vires.

5. The conditions and the provisions of the memorandum can be altered to the extent and in the manner provided by the Act which allows alterations by special resolution and confirmation by Central Government/Registrar of Companies.

Article of Association

1. Document containing rules, regulations or bye-laws of a company.

2. It lays down the form in which the business of the company is to be carried on.

3. It also lays down the powers of directors and officers of the company and thus forming the basis of a contract between the company and the members and between the members Inter se (among themselves).

4. Every company have an absolute power to alter its Articles of Association by a special resolution subject to the provisions of the Act and conditions of the memorandum of the company.

Doctrine of Constructive Notice

1. As memorandum and article is a public document so it is considered that every person dealing with the company is deemed to have notice of the contents of memorandum and articles of the company.

2. It is presumed that person have not only read these documents but have also understood their proper meaning.

Doctrine of Indoor Management/ Turquand Rule

1. This is an exception to doctrine of Constructive Notice.

2. This protects the outsiders against the company, who acts in good faith.

3. It says that person who deals with the company are not bound to enquire into the regularity of the internal procedure of the company. They assume that everything is done in accordance with the procedure laid down in the article of the company and thus not affecting adversely the rights of the dealing parties in any way by irregularity of the internal procedure.