A General Overview of Company Law

Introduction:
Statutory company legislation in the sub-continent starts actually from 1850 with the passing of
the British Companies Act in that Year. ollowing the sai! law" a comprehensi#e Companies Act
was passe! in 18$$ which was again recast in 1888. %hereafter se#eral amen!ments were ma!e
an! ultimately the &n!ian Companies Act" 1'1( was passe! consoli!ating the laws relating to
companies.
&n 1'')" the Companies Act which is at present applicable was passe! on the basis of the
structure of the Companies Act" 1'1(.
What is a Company?
A company may be !efine! as a *legal person or legal entity separate from an! capable of
sur#i#ing beyon! the li#es of its members.+,Salomon -s Salomon . Co" 18'/0
Accor!ing to A#tar Singh" two or more persons who are !esirous of carrying on 1oint business
enterprises may ha#e the choice of forming a company or a partnership. But where the enterprise
re2uires a rather greater mobilisation of capital which the resources of few persons can3t pro#i!e"
the formation of a company is the only choice.
4owe#er" in terms of the Companies Act" 1'')" company means a company forme! an!
registere! un!er the Companies Act.
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Advantages of a Company:
1 Independent corporate e!istence:
A Company is in law a person. &t is a !istinct legal person e5isting in!epen!ent of its members.
By incorporation un!er the Act" the company is #este! with a corporate personality which is
!istinct from the members who compose it.
" Limited Lia#ility:
%he Company" being a separate person" is the owner of its assets an! boun! by its liabilities.
6embers" e#en as a whole" are neither the owners of the company3s un!erta7ing" nor liable for
its !ebts. 8here the subscribers e5ercise the choice of registering the company with limite!
liability" the members3 liability becomes limite! or restricte! to the nominal #alue of the shares
ta7en by them or the amount guarantee! by them.
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$ %erpetual &uccession:
An incorporate! company ne#er !ies. &t is an entity with perpetual succession. 6embership of a
company may 7eep changing from time to time" but that !oesn3t affect the Company3s continuity.
%he !eath or insol#ency of in!i#i!ual members !oesn3t" in any way" affect the corporate
e5istence of a company.
' &eparate %roperty:
A company" being a legal person" is capable of owning" en1oying an! !isposing of property in its
own name. %he company becomes the owner of its capital an! assets. A member !oesn3t e#en
ha#e an insurable interest in the property of the company.
( )ransfera#le shares:
Another a!#antage of a company is the transferability of its shares. &ncorporation enables a
member to sell his shares in the open mar7et an! to get bac7 his in#estment without ha#ing to
with!raw the money from the company. %his pro#i!es li2ui!ity to the in#estor an! stability to the
company.
* Capacity to sue and to #e sued:
A company" being a bo!y corporate" can sue an! be sue! in its own name.
+inds of Companies:
Company may be limite! by shares or limite! by guarantee. &t may be e#en with unlimite!
liability. Companies limite! by shares may be of two types9 a0 :ublic Company an! b0 :ri#ate
Company.
&n case of pri#ate company" some restrictions are impose! on members3 right to transfer their
shares" the ma5imum number of members ,up to fifty0 an! also on the issue of prospectus.
A public company is one which is not a pri#ate company. &n case of public company" the articles
of association !o not contain any such restrictions as foun! in case of pri#ate company.
&t is to be note! here that" the minimum number of members in case of pri#ate company is two
an! in case of public company is se#en.
,emorandum of Association:
%he 6emoran!um of Association is a !ocument which contains the fun!amental rules regar!ing
the constitution an! acti#ities of a company. &t is the basic !ocument which lays !own how the
company is to be constitute! an! what wor7 it shall un!erta7e. %he memoran!um contains rules
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regar!ing the capital structure" liability an! ob1ects of the company. %he memoran!um is altere!
only after certain formalities are obser#e!.
Clauses of ,emorandum of Association:
%he main clauses of 6emo are 9
-ame clause:
%his clause contains the name of the propose! company. %he company as a legal person must
ha#e a name to establish its i!entity. A company may choose any suitable name it li7es" but it
can3t be i!entical or too closely resemble to the name of any other e5isting company.
.egistered office clause:
%his clause contains the name of the place in which the registere! office of the company is to be
situate!.
O#/ects Clause:
%his clause is #ery important as it contains the ob1ects for which the propose! company is to be
forme!. &t shoul! be !rafte! #ery carefully. %he ob1ects shoul! not be illegal" or against public
policy" or against the pro#isions of the Companies Act" 1''). &t shoul! not be against the general
law of the lan!.
Capital Clause:
%his clause contains the amount of share capital with which the company is to be registere!. %his
clause also states the number an! #alue of shares into which the capital of the company is
!i#i!e!. %he effect of this clause is that the company can3t issue more shares than are authorise!
by its 6emo.
Lia#ility Clause:
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%his clause contains the nature of liability of the members of the company. %his clause is mainly
necessary for those companies in which the liability of the members is limite!. %he
6emoran!um of such company must state that the liability of its members is limite!.
Alteration of ,emorandum of Association:
%he 6emoran!um of Association is a #ery important !ocument of a company. &t can3t be altere!
by the sweet will of the members of the company. 4owe#er" it may be altere! only by following
the proce!ure as lai! !own in the Companies Act" 1''). <#en the ob1ect clause of the company
can be altere! by the special resolution.
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Articles of Association:
%he Articles of Association is a !ocument which contains rules" regulations an! bye-laws
regar!ing the internal management of the company. Articles must not #iolate any pro#ision of the
6emoran!um of Association or any pro#ision of the Companies Act. %he rules lai! !own in the
Articles of Association must always be rea! sub1ect to the rules containe! in the 6emoran!um.
Legal 1ffects of ,emorandum 2 Articles of Association:
A company is incorporate! only for the ob1ects an! purposes mentione! in the 6emoran!um of
Association. Any act purporte! to be !one by the company which is beyon! the scope of the
functions of the company as lai! !own in the 6emoran!um of Association is ultra vires i.e."
beyon! the powers of the company" as is of no effect.
Section ;; of the Companies Act pro#i!es that sub1ect to the pro#isions of this Act" the
6emoran!um an! the Articles shall" when registere!" bin! the company an! the members
thereof to the same e5tent as if they respecti#ely ha! been signe! by the company an! by each
member an! containe! co#enants on its an! his part to obser#e all the pro#isions of the
6emoran!um an! the Articles.
3ormation of a Company:
Before a company may be forme!" the following steps must be ta7en9
i0 %he 6emoran!um of Association an! the Articles of Association must be prepare!.
ii0 %he Company must be registere! in accor!ance with the pro#isions of the Companies
Act.
iii0 %he prospectus or a statement in lieu of prospectus must be issue! an! registere! with the
=egistrar.
i#0 %he minimum subscription must be raise! an! thereafter the allotment of shares must be
ma!e.
)he Certificate of incorporation:
%he certificate issue! by the =egistrar after a company is registere! is calle! Certificate of
&ncorporation. &t is conclusi#e on the following points9
1. %hat all the precon!ition i.e." legal re2uirements of registration ha#e been complie! with.
;. %hat the company is properly registere!.
(. %hat the company came into e5istence on the !ate of certificate of incorporation.
%rospectus:
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A prospectus may be !efine! as any !ocument !escribe! or issue! as a prospectus an! inclu!es
any notice" circular" a!#ertisement or other !ocument in#iting !eposits from the public for the
subscription or purchase of any share in" or !ebentures of a bo!y corporate.
&hares and &hareholders:
%he sharehol!ers are the proprietors of the company. %herefore a >share3 may be !efine! as an
interest in the company entitling the owner thereof to recei#e proportionate part of the profits" if
any" an! proportionate part of the assets of the company upon li2ui!ation.
.ights of &hareholders:
i0 A sharehol!er can atten! an! #ote in the general meeting of the company. 4e is entitle!
to recei#e notice of all such meetings.
ii0 A sharehol!er has the right to inspect account.
iii0 A sharehol!er has the right to inspect the minutes of the procee!ings of any general
meeting.
i#0 4e has a right to transfer his shares.
#0 A sharehol!er has the right to apply for the win!ing up of the company.
,eetings and .esolutions:
,eetings:
%he following are the three 7in!s of meeting that may be hel! by a company9
a4 Annual General ,eeting:
A general meeting of e#ery company shall be hel! within eighteen months from the !ate of
incorporation an! thereafter once at least in e#ery calen!ar year an! not more than fifteen
months after the hol!ing of the last prece!ing general meeting.
#4 &tatutory ,eeting:
<#ery company limite! by share an! e#ery company limite! by guarantee an! ha#ing a share
capital shall" within a perio! not less than one month or more than si5 months from the !ate at
which the company is entitle! to commence its business" hol! a general meeting of the members
of the company" which shall be calle! statutory meeting. %hus it is the first meeting of the
members of the company after its incorporation.

c4 1!traordinary General ,eeting:
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%he !irectors may call an e5traor!inary general meeting whene#er they consi!er it !esirable.
urther" the !irectors of the company shall" on the re2uisition of the hol!ers of not less than one-
tenth of issue! share capital" call an e5traor!inary general meeting.
.esolutions:
i4 Ordinary .esolution:
Any resolution passe! in a general meeting an! re2uiring ma1ority #otes is calle! or!inary
resolution. &t is passe! by simple ma1ority.
ii4 1!traordinary .esolution:
&t is a resolution which is passe! by a ma1ority of not less than three-fourths of members entitle!
to #ote" as are present in person or by pro5y" at a general meeting of which notice specifying the
intention to mo#e the resolution has been !uly gi#en.
iii4 &pecial .esolution:
&t is a resolution passe! in the manner for the passing of an e5traor!inary resolution at a general
meeting of which ;1 !ays notice has been !uly gi#en. Special resolutions are necessary when the
Articles" 6emoran!um etc. are to be altere!.
5irectors:
%he !irectors of a company are selecte! accor!ing to the Articles of Association an! the
pro#isions of the Companies Act. %hey are in charge of the management of company. %hey are
collecti#ely calle! Boar! of ?irectors. %he Boar! is the company3s e5ecuti#e authority.
&n a public company" there must be at least three !irectors an! in a pri#ate company" at least two
!irectors.
Winding 6p:
%he win!ing up or li2ui!ation of a company means the termination of the legal e5istence of the
company stopping its business" collecting its assets an! !istributing the assets among the
cre!itors an! sharehol!ers in the manner lai! !own in the Act.
%here are three metho!s of win!ing up of a company9
i0 Compulsory win!ing up by the court@
ii0 -oluntary win!ing up by the members themsel#es@
iii0 -oluntary win!ing up un!er the super#ision of the court.
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