Companies Act 1956: Bhavdeep Singh Amit Chetri Bhanushali Deepak

COMPANIES ACT 1956
BHAVDEEP SINGH
AMIT CHETRI
BHANUSHALI DEEPAK
Why Companies Act ?
Companies Act, 1956 regulates the
• formation,
• financing,
• functioning
• and winding up of companies
Main objectives of the Act:
To protect the interests of large number of
shareholders
To safeguard the interests of creditors;
To help the development of companies in India on
healthy lines,
To help the attainment of the ultimate ends of the
social and economic policy of the Government ;
To equip the Government with adequate powers to
intervene in the affairs of a company in the public
interest so that the interest of all the stake-holders
may be protected from unscrupulous management.
Types of Firm:
Legal form of a firm consist of :
1. Sole proprietorship
2. Partnership
3. Joint stock company
Joint Stock Company
A form of company in which a number of people
contribute funds to finance a firm in return for shares
in the company.
Once a joint stock company is formed then it becomes
a separate legal entity apart from its shareholders.
These companies are managed by board of directors
appointed by shareholders.
Types of Joint Stock Company:
Private company: Max no. of shareholders in pvt
company is limited to 50 and shares the company
issues cannot be bought and sold on the stock
exchange. Such companies carry the term Ltd after
their names .
Public company: There must be a min of 7
shareholders in a public company but it can have
unlimited number of shareholders. It carries the term
plc after its name.
Company Formation
The process of forming a Joint Stock Company involves
a number of steps:
1. Drawing up of a Memorandum Of Association,
2. Preparation of Articles Of Association,
3. Application to the Company Registrar for a
Certificate Of Incorporation,
4. Issue of share capital,
5. Commencement of trading.
Memorandum of Association of a
Company
It is the constitution or charter of the company and
contains the powers of the company.
No company can be registered under the Companies
Act, 1956 without the memorandum of association.
The promoters must make a decision regarding the
type of company i.e. a public company or a private
company or an unlimited company, etc and
accordingly prepare the Memorandum of Association.
Anything done beyond the objects clause is ultra-vires
the company and void.
Contents of Memorandum:
The memorandum of association of every company must
contain the following clauses
1. Name Clause: The name of the company is mentioned
in the name clause.
(a) The name chosen should end with the word ‘Limited’
or the words ‘Private Limited’, as the case may be.
(b) The name should not be undesirable i.e., it should
not be identical or too similar to the name of an
already existing company OR include the name of a
registered trade mark unless consent of the owner of
the trade mark is obtained.
2. Registered Office Clause:
This clause states the name of the place in which
registered office of the company is to be situated.
3. Objects Clause
This clause is to be divided into:
(a) Main objects and objects incidental or ancillary to
main objects
(b) Other objects
A company cannot commence any business stated under
other objects unless ‘special resolution’ by the
shareholders is passed.
4. Liability Clause
5. Capital Clause
This clause states the authorized capital and the
number of shares into which the same shall be
divided.
Articles of Association
The Articles of Association (AA) contain the rules and
regulations of the internal management of the company. The
important items covered by the AA include :-
1. Powers, duties, rights and liabilities of Directors
2. Powers, duties, rights and liabilities of members
3. Rules for Meetings of the Company
4. Dividends
5. Borrowing powers of the company
6. Calls on shares
7. Transfer & transmission of shares
8. Forfeiture of shares
9. Voting powers of members, etc
Alteration of articles of association
o A company, by special resolution at a general meeting

of members, alter its articles provided that such
alteration does not have the effect of converting a
public limited company into a private company unless
it has been approved by the Central Government.
o The articles must be printed, divided into paragraphs
and numbered consequently and must be signed by
each subscriber to the Memorandum of Association.
Registration of the Company
Once the documents have been prepared, vetted,
stamped and signed, they must be filed with the
Registrar of Companies for incorporating the
Company.
Once all the required documents have been filed and
they are found to be in order, the Registrar of
Companies will issue Certificate of Incorporation of
the Company.
Commencement of Business
A private company or a company having no share capital
can commence its business immediately after it has been
incorporated. However, other companies can commence
their activities only after they have obtained Certificate of
Commencement of Business.
For this purpose a company has to issue a prospectus that
includes any notice, circular, advertisement or other
document inviting deposits from the public or inviting
offers from the public for the subscription or purchase of
any shares or debentures of a body corporate.
The Winding Up of a Company
Winding up or liquidation is the process by which the
management of a company’s affairs is taken out of its
director’s hands, its assets are realized by a liquidator,
and its debts are paid out of the proceeds of
realization.
A company is said to be dissolved when it ceases to
exist as a corporate body. It is the process by which the
dissolution of the company is brought about.
Modes of Winding Up
The winding up of a company may be either-
(a) By the Court; or
(b) Voluntary; or
(c) Subject to the supervision of the Court.
Winding up By The Court
If the company has passed a special resolution of it’s being
wound up by the Court.
If the company defaults in delivering the statutory report to
the Registrar or in holding the Statutory Meeting.
It does not commence business within one year from its
incorporation or it suspends business for a whole year.
The number of its members falls before the minimum
required.
It is unable to pay its debts.
If the company has acted against the interests of the
sovereignty and integrity of India.
Petition for Winding up
1. The Company
2. Any creditor of the Company
3. Any contributory / shareholder
4. The Registrar
5. Any person authorized by the Central Government
Voluntary Winding Up
A voluntary winding up may be:
Member’s Voluntary Winding Up: In case of a
company which is solvent and able to pay its liabilities
in full and which desires to be wound up voluntarily,
the majority of its directors at a Meeting of the Board
must make a declaration of solvency
Creditor’s Voluntary Winding Up: Where the
company is not solvent or where the declaration of
solvency of the company is not made and delivered to
the Registrar in a voluntary winding up, it amounts to
creditor’s voluntary winding up.
Winding up subject to the supervision of
court
The application for a creditor, contributory or the
voluntary liquidator may make such intervention of
the Court, when there are irregularities or frauds in the
voluntary winding up.
THANK YOU
Have a
nice
day.

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COMPANIES ACT 1956

o A company, by special resolution at a general meeting

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