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The Company Law

The Company Law

Introduction
The Companies Act passed in India from time to time have been following the
English companys act with certain modifications to suite Indian Society and
circumstances. Our companies act owes its origin to English Companys Act. The
first legislative enactment was passed in the year 1850 for the registration of
Joint-Stock Companies. This act was based on the English company act of 1844
which recognized the distinct legal entity characteristics of a company. The
principle of Limited Liability was first time introduced by the Limited Liability
Act of 1855 passed in England. English company Act of 1856 know as the Joint
Stock cos Act of 1856, on which Indian company act was passed in 1857. This Act
for the first time in India recognized the principle of limited liabilities. Then came
the cos Act of 1866 based on the English cos Act of 1862, the Act was described
as the Magma carta of Co-operative Enterprise.
The Indian cos Act of 1866 which incorporated various amendments made to
English cos Act of 1862.
In the year 1913 the Indian cos Act was passed. The Act was found to be highly
unsatisfactory because it did not take into consideration the peculiar features of
Indian trade and business. The Cos Act was then further amended almost every
year. After that, with the appointment of the Bhabha Committee and the report
submitted by the Bhabha committee the Cos act of 1956 was enacted as per the
recommendations of the Bhabha Committee.
The Companies Act of 1956 has been amended several times since it was codified.
Further it was amended in 2000, then in 2002. The latest amendment was made in
2006.

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The Company Law

Kinds of company

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The Company Law

Classification of companies by mode of incorporation

Chartered companies

I.
II.

III.
IV.

These are incorporated under a special charter by a monarch

The power and nature of business of a chartered company are defined
the chapter, which incorporates it. A chartered company has wide
power. It can deal with its property and bind itself to any contracts like
any ordinary person can. In case the company deviates from its
business are prescribed by the chapter, the Sovereign can annual the
latter and close the company
Such companies do not exist in India.
The East Indian Company and The Bank of England are examples of a
chartered companies incorporated in England.

Statutory companies

I.

II.

III.
IV.

These companies are incorporated by a special Act passed by the

Central or State legislature. Such companies do not have any
memorandums or articles of association. They derive their power from
the acts constituting them and enjoying certain power that companies
incorporated under the Companies Act have. Alteration in the power
of such companies can be brought about by legislative amendments.
The provisions of the Companies Act shall apply to these companies
also except when the provision of the act are in consistent with those
of such Special Act [section 616](d)
These companies are generally formed to meet social needs and not
for the purpose of earning profits.
Reserve Bank of India, State Bank of India, Industrial Finance
corporation, Unit Trust of India, State Trading Corporation and Life
Insurance Corporation are examples of Statutory Companies.

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The Company Law

Registered or incorporated companies

I.

II.

These are formed under the Companies Act, 1956 or under the
Companies Act passed earlier to this. Such companies come into
existence only when they are registered under the Act and a certificate
of incorporation has been issued by the Registrar.
Such companies derive their powers from the Companies Act from the
memorandum of association (every company registered under the Act
has to prepare a memorandum). Rules and regulations for internal
management are contained in the articles.

CLASSIFICATION OF COMPANIES BY LIABILITY OF MEMBERS

Companies limited by shares.

1) A company in which the liability of its members is limited by the

memorandum to the unpaid amount, on the shares held by them is
termed as a company limited by shares.
2) The main attraction of these companies is that the liability of their
members is limited to the nominal value of shares he held by each
member. If the shareholder has paid the full nominal value of shares
held by him, his liability is nil.
3) The liability of the shareholder to pay the unpaid amount can be
enforced during the existence of the company as also during its
winding up.
4) Companies limited by shares are most common and may be either
public or private.
Companies limited by guarantee.

1) A company that has the liability of its members limited by the

memorandum to such amount as the members may respectively
undertake, by the memorandum, to contribute to the assets of the
company in the event of its being wound up, is known as a company
limited by guarantee [Sec. 12(b)].
2) The guarantee amount is required to be paid only when the company is
wound up.

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The Company Law

3) Generally, non-trading companies are formed with a guarantee capital.

Such companies are not intended for purpose of making profits and
distributing these among their members. Rather, they are formed for the
promotion of art, science, culture and sports, etc. Such companies may
be registered with or without a share capital.

Unlimited companies

1) A company that has no limit on the liability of its members is termed an

unlimited company [Sec. 12(2C)].
2) The members are liable for the companys debts in proportion to their
respective interests in the company, and their liability is unlimited. Such
companies may not have share capital.
3) In an unlimited company, the articles shall state the number of members
with which the company is to be registered, and, if the company has a
share capital, the amount of share capital with which the company is to
be registered [Sec. 27(1)].
4) This may be either a public company or a private company though these
days, such companies are rare.

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The Company Law

PRIVATE AND PUBLIC COMPANIES

On the basis of the number of members, a company may be either a private
company or a public company.
Private Company.

1. Sec 3(1)(iii), as amended by the Companies (Amendment) Act, 2000,

provides that a private company means a company which has minimum
paid-up capital of Rs 1lakh or such higher paid-up capital as may be
prescribed, and by its articles of association:
a) Restricts the right of the members to transfer shares, if any;
b) Limits the number of its member to 50, excluding members who are or
were in the employment of the company;
c) Prohibits any invitation to the public to subscribe for any share in, or
debentures of, the company; and
d) Prohibits any invitation and acceptance of deposits from persons other
than its members, directors or their relatives
2. The minimum number required to form a private company is 2. A private
company shall add the words Private Limited at the end of its name, and it
may commends its business immediately after obtaining a certificate of
incorporations.
3. Where two or more persons hold one or more shares jointly in the company,
they shall be treated as a single member for the purpose of this definition.
[Sec. 3(1) (iii)].
4. In a private company without share capital, the articles need not contain the
provisions for restricting the right of members to transfer shares.[Sec. 27(3)]

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The Company Law

5. Every private company, existing on the date of commencement of the

Companies (Amendment) Act, 2000, i.e. 13 December, 2000, with a paid-up
capital of less than Rs 1lakh, shall enhance its paid-up capital to Rs 1iakh
within 2 years from such commencement. Where a private company fails to
enhance its paid-up capital as specified above, such company shall be
deemed to be a defunct company within the meaning of section 560 and its
name shall be struck off from the Register of Companies maintained by the
Register of Companies.
Besides, a licence company, registered under Section 25, shall not be
required to have the minimum paid-up capital as aforesaid. [ Sec.3(3), (5)
and (6)]
Public Company

A) According to Section 3(i)(iv), as amended by the Companies (Amendment)

Act, 2000, a public company means a company which:
(a)is not a private company;
(b) has a minimum paid-up capital of Rs 5lakhs or such higher paid-up
capital, as may be prescribed;
(c) is a private company which is subsidiary of a company which is not a
private company, i.e, which is a subsidiary of a public company.
B) The minimum number of members required to form a public company is 7.
At the same time the articles need not contain a clause for restricting the
right of members to transfer their shares. These are freely transferable. It
should be noted that a public company must add the word Limited at the
end of its name.
The Companies (Amendment) Act, 2000 has added clauses (b) and (c) stated
above in the definition of a public company. A minimum paid-up capital of
Rs 5lakhs has been prescribed for a public company. Further, as per
amended definition of a public company, a private company which is
subsidiary of a public company will be treated as a public company on and
from the commencement of the Amendment Act , 2000 and it shall cease to
enjoy the privileges and exemptions hitherto available to it under the
Companies Act, 1956.

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The Company Law

C) Every public company, existing on the date of commencement of the

Companies (Amendment) Act, 2000, i.e., 13 December, 2000, with a paid-up
capital of less than Rs 5lakhs, shall enhance its paid up capital to Rs 5lakhs
within two years from such commencement. Where a public company fails
to enhance its paid up capital as specified above, such company shall be
deemed to be a defunct company within the meaning of Section 560 and its
name will be struck off from the Register of companies maintained by the
Registrar of the companies.
Besides, licensed company registered u/s 25, shall not be required to have
the minimum paid up capital as aforesaid.[Sec. 3(4), (5) and (6)].

Differences between Private and Public Company

1. Minimum paid-up capital. A private company must have a minimum paidup capital of Rs1lakh while a public company must have a minimum paid-up
capital of Rs5lakhs at the time of incorporation.
2. Number of members. The number of members in a private company is 2
while a public company must have at least 7. The maximum number of
member in a private company cannot exceed 50, excluding its present or past
employees. In the case of public company, there is no maximum limit on
members.
3. Name of the company. In a private company, the words Private Limited
shall be added at the end of its name. In a public company, the word
Limited only shall be added at the end of its name.
4. Transfer of shares. In a private company, the articles restrict the right of
member to transfer their shares where as in public company, the shares are
freely transferable.
5. Public subscription. A private company cannot invite the public to purchase
its shares or debentures. A public company may do so.
6. Acceptance of public deposits. A private company, by its article, prohibits
any invitation or acceptance of deposits from persons other than its
members, directors or their relatives whereas a public company can invite or
accept deposits from the public.

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The Company Law

7. Issue of prospectus. Unlike a public company, a private company is not

expected to issue a prospectus or file a statement in lieu of prospectus with
the registrar before allotting shares.
8. Allotment of shares. A private company can proceed to allot shares even
before the minimum capital is subscribed or paid. But a public company can
not allot shares without raising minimum capital.
9. Issue of right shares. While making further issue of capital, a public
company is required to first offer such further shares to its existing
shareholders on pro-rata basis. But a private company is not required to do
so.
10.Issue of share warrants. A private company cannot issue share warrants
while a public company can.

SPECIAL PRIVILEGES OF PRIVATE COMPANY:

Though public as well as private companies are governed by company act , yet
private companies are exempted from certain of its provision. these exemptions are
the special privileges of a private company. The idea underlying this sort of
differentiation is that a public company raises money from the general public and
therefore in order to protect the interests of investors, a strict control on public
companies are required. In case of private companies, the money is invested by
private individuals, generally members of the same family, and as the number of
members is comparatively small, the act can exempt such companies from some of
its provisions.
The exemptions and privileges enjoyed by the private company, as provided in
companies act, 1956, as stated below.
1. a private company may be formed with only 2 persons as members[section
12 (1)].
2. it may commence allotment of shares even after the minimum subscription
is subscribed for or paid[section.69]
3. it is not required to either issue a prospectus to the public or file a statement
in lieu of a prospectus[section 70(3)]
4. restrictions imposed on public company regarding further issue of capital
do not apply on private companies[section 81(3)]

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The Company Law

5. provisions of section 114 and 115 relating to share warrants shall not
applicable to it[section114]
6. it need not keep an index of members [section 151]
7. it can commence its business after obtaining a certificate of incorporation.
A certificate of commencement of business is not required[section 149(7)].
8. it need not hold statutory meeting or file a statutory report[section 165(10)].
9. unless the articles provide for a larger number, only two persons personally
present from the quorum in case of a private company, hile atleast 5
members personally personally present from the quorum in case of a public
company.[section 174]
10.in case of a private company,poll can be demanded by 1 member if not
more than 7 members are present,and by 2 members if more than 7
members are present. In case of a public company, poll csn be demanded by
persons having not less than 1/10th of the total voting power in respect of
the resolution of holding shares on which an aggregate sum of not less than
rs 15000 has been paid up[section 179].

Conversion of private company into a public company

Conversion by default:
Where a private company makes a default in complying with statutory
requirements as laid down in section 3 (1)(iii) of the act it becomes a public
company automatically. The company shall cease to be entiled to the privileges
and exemptions conferred on private company under the act, and act shall apply
to the company as if it were not a private company.
Conversion by choice:
1. Section 44 lays down the method by which a private company may be
converted into a public company. The procedure is as follows:
It shall pass a special resolution to alter its article so as to eliminate the
provisions relating to a private company.
Within 30 days, a prospectus or a statement in lieu of prospectus together
with the copy of special resolution and a copy of altered articles should
be filled with the registrar.

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The Company Law

It shall increase the number of members to at least 7 if it is less than 7. It

should also increase the directors to 3.
The company shall have to increase its paid up capital to at least rs 5
lakhs, if existing paid up capital was less than prescribed minimum paid
up capital for a public company.
It shall delete the word private from its name. If the change of name
involves anything more than removing the word private written
approval of central govt. must be obtained.

Conversion of public company into private company:

In order to convert a public company into private company the following steps are
essential:
1. a public company shall pass a special resolution to alter its article so as to
include in it the a provision relating to a private company, such as limiting
the number of members to 50, restricting the transfer of shares, prohibiting
invitation to the public to subscribe to his shares or debentures or prohibiting
invitation or acceptance of deposits from public.
2. The sanction of the central government must be obtained.
3. A copy of the special resolution and the printed copy of the article has
altered shall be filled with registrar within one month of the date of receipt
of order of approval of the central govt. [section 31].

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The Company Law

After the conversion of the public company into a private company, it will add
the word private in its name. it shall also reduce the number of its members to
a maximum of 50, if the existing number is more than that.

One man companies

In these companies , one man holds practically the entire share capital of the
company. He takes a few other members who are no more than dummies or
nominees of the former. This is done to fulfill the statutory requirement of
minimum number of members (at least 7 members in the case of public company
and at least 2 members in the case of private companies) . the other members
usually subscribe the memorandum for one share each. The person who holds the
entire share capital, except a few shares held by his nominees, enjoys full control
over the company and is thereby enabled to do his business with limited liability.

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The Company Law

Such a company is perfectly valid in the eyes of the law. It has its own entity which
separates it from the entity of its members.
CASE STUDY

In Salomon v. Salomon & Co. Ltd. Salomon was holding substantially

the entire share capital in his name, and to fulfil the statutory requirement of
minimum membership i.e. seven members, his wife , a daughter and four sons
joined him to form the company. These other members took only one share of 1
each.
It was held that the company is perfectly in order. It enjoys a separate entity of its
own. Salomon v. Salomon & Co. Ltd were treated separate even when Salomon
was holding practically the entire share capital of the company. It was pointed out
that the Act required at least seven persons, each of whom should hold at least one
share. Once this condition is fulfilled, it does not matter whether the members are
independent or dummies.

Foreign companies
Ordinarily a foreign company is understood as a company incorporated outside
India, but for the purpose of section 591 a foreign company which is incorporated
outside India but has an established place of business in India.

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The Company Law

Rules as foreign companies:

Registration of documents.
A foreign company which establishes a business in India is required to
deliver the following documents to the registrar for registration within 30
days of the establishment of such place of business:
I. A certified copy of the constitution of the company. If it is not in
English a certified translation in English thereof.
II. The full address of the registered or principal office of the company in
foreign country.
III. A list of the directors and secretary of the company giving full name
,residential address, nationality of origin, his business occupation and
any other directorship held by him.
IV. The name and addresses of one or more persons residing in India who
are authorized to accept the service of notice and other documents on
behalf of the company.
V. The full address of the office of the company in India which is deemed
its principal place of business in India. [Sec. 592]
Alterations.
Alterations in any of the documents or particulars mentioned above must be
notified to the Registrar within the prescribed time. [Sec. 593]
Accounts.
Every foreign company shall, make out a balance sheet profit and loss
account under the provisions of this Act in every calendar year, as if it is an
Indian company. It may also file with the Registrar three copies of the
balance sheet, profit and aloss account and other documents required under
the Act. The Central Government may modify or cancel the application of
this rule for any foreign company. [Sec. 594]

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The Company Law

Name.
Every foreign company shall, (i) state the name of the country of its
incorporation in every prospectus, inviting subscriptions in India for its
hares or debentures; (ii) conspicuously exhibit on the outside of every office
or place where it carries on business in India the name of the company and
the country in which it is incorporated, in English and in one of the local
languages; (iii) cause in the name of the company and the country in which
it is incorporated to be stated in English on all business letters, bill heads and
letter paper and in all notices and other official publications of the company;
and (iv) if liability of the members of the company is limited, cause notice of
this fact to be stated in English and one of the local languages, on the outside
of every office or place where it, carries on business in Indian and on its
letter paper, bill heads etc. [Sec.595]
Service.
Any process , notice or document required to be served on a foreign
company shall be deemed to be sufficiently served, if addressed to any
authorized person of the company and either left at his address or sent to the
address by post. [Sec. 596]
Delivery of documents.
Any document which any foreign company is required to deliver to the
registrar shall be delivered to the registrar having jurisdiction over New
Delhi, in addition to delivery of such documents to the registrar of the state
in which the principal place of business of the company is situated. [ Sec.
597]
Failure to company with the above provisions.
If the company fails to comply with any of the provisions,(a) the company
and every officer or agent of he company who is in default shall be
punishable with a fine which may extend up to ten thousand rupees, and in
case of continuing default, with an additional fine which may extend to one
thousand rupees for every day during which the default continues. [Sec.
598]; (b) it shall not affect the validity of any contract, dealing or transaction
entered into by the company or its liability to be sued in respect thereof. But
the company shall not be entitled to bring any suti, claim and any set-off,

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The Company Law

make any counter-claim or institute any legal proceeding in respect of any

such contract, dealing or transaction until it has complied with the above
provisions. [Sec.599]
Application of other provisions of the Companies Act.
The provisions relating to registration of charges [Sec. 124 to 145] will
apply to a foreign company in respect of charges on property created in
India. The provisions of Section 118 relating to the rights of members and
debenture holders to obtain and inspect a copy of the trust deed for securing
any issue of debentures of the company shall apply to foreign companies.
Similarly the provisions of Section 209 shall apply to a foreign company to
the extent of requiring it to keep at tits principal place of business in India
the books of account with respect to moneys received and expended, sales
and purchases made and asset and liabilities in relation to its business in
India. [Sec. 600]
On and from the commencement of the Companies (Amendment) Act, 1974,
the following provisions of the Act shall be applicable to foreign companies
1. The provisions of Section 159 relating to the annual return to be
made by a company having a share capital, subject to such
modifications or adaptations as may be made therein by the rules
made under this Act.
2. The provisions of Section 209(A) relating to inspection of books of
account by the Registrar or officer of the government.
3. The provisions of Section 233 (A) relating to the powers of the
Central Government to direct special audit of the companys
accounts
4. The provisions of Section 233 (B) relating to audit of cost accounts
in certain cases.
5. The provisions of Sections 234 to 246 (both inclusive) relating to the
powers of the Registrar to call for information or explanations and
investigation of the affairs of company by the appointment of
inspectors. [Sec. 600]
Under Section 591(2), the Central Government may notify that the
provisions of the Act as may be specified by it shall apply to a foreign
company in which Indian citizens and bodies corporate incorporated in

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The Company Law

India hold not less than fifty per cent of the paid-up share capital of the
company.
It may be noted that the above provisions apply to a foreign company
only in respect of its Indian business.
Fees for registration of documents.
There shall be prescribed fees paid to the Registrar for registering any
document. [Sec. 601]
Prospectus.
A prospectus inviting subscriptions for shares or debentures issued by a
foreign company must be dated and it shall state the following particulars :
1. Name of the company
2. Name of the country in which it is incorporated and the date of
incorporation
3. The instrument constituting or defining the constitution of the
company
4. The enactments under which the incorporation was affected;
5. The address in India where the said instrument, enactments or copies
thereof can be inspected;
6. Whether the company has established a place of business in India,
and if so, the address of its principal office in India; and
7. Matters specified in Part I of Schedule II and reports specified in
Part II of that Schedule, subject to the provisions contained in Part
III of the Schedule. [Sec. 603]
The prospectus shall also state whether the liability of members is
limited. [Sec.595(d)]
Where the prospectus includes a statement purporting to be made by a
expert, the prospectus shall contain a statement that the expert has given
and has not withdrawn his consent to the statement. [Sec. 604(1)]
Section 605 provides that no prospectus shall be issued unless a copy of
the prospectus certified by the chairman and two other directors of the
company as having been approved by resolution of the managing body
has been delivered for registration to the Registrar and the prospectus
states on the face of it that a copy has been so delivered.

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The Company Law

The liability for misstatement in the prospectus is the same as that for a
prospectus issued by an Indian company. [Sec.607]

Offer of Indian Depository Receipts.

Like Indian companies raising funds abroad by issuing Global Depository
Receipts (GDEs), companies incorporated outside India have been showing
interest to raise funds from India. Section 605A has been inserted by the
Companies(Amendment) Act, 2000 to enable foreign companies to offer
Indian Depository Receipts (IDRs) to the investors in India. The Central
Government has been empowered to make rules for the same. These rules
shall provide for the offer of IDRs, the reqirement of disclosures in
prospectus or letter of offer issued in connection with IDRs, the manner in
which the IDRs shall be dealt in a depository mode and by custodian and
underwriters as well as the manner of sale, transfer or transmission of IDRs.
Winding up.
Where a body corporate incorporated outside India that has been carrying on
business in India ceases to do so, it may be would up as an unregistered
company. It may be would up even if it has been dissolved or ceased to exist
according to its own law of incorporation. [Sec. 584]

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The Company Law

GOVERNMENT COMPANIES
Definition:

A government companies is one in which not less than 51% of the paid up capital
share is held by the central government or by any state government or governments
or partly by the central government and partly by one r more state government. The
subsidiary of such a company is also a government company (section 617).

Special provision relating to government companies

Appointment of auditors:
The auditor of a government company shall be appointed or reappointed by the
comptroller and auditor general of India . [Section 619(2)].
Conduct of audit:
The comptroller and auditor general of India shall have the power to direct the
manner in which the companies account shall be audited and to give such an
auditor instructions in regard t any matter relating to the performance of his
functions as such. He also has the power to conduct a supplementary or test the
audit of the companies accounts by such person or persons as he may authorize in
this behalf [section 619(3)].

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The Company Law

Audit report to be submitted to the comptroller and

auditor general of India :
The auditor shall submit a copy of his audit report to the comptroller and auditor
general of India who shall have the right to comment upon or supplement the audit
report in such manner as he may think fit.[section 619(4)].

Audit report to be placed before the annual general

meeting:
Any such comments upon, or supplement to, the audit report shall be placed before
the annual general meeting of the company at the same time and in the same
manner as the audit report [section 619(5)].

Annual report to be placed before parliament:

Where the central government is the member of government companies, the central
government shall prepare the annual report on working and affairs of the company
within 3 months of its annual general meeting before which the audit report is
placed. The annual report is to be laid before both Houses of the Parliament
together with a copy of the audit report and the comments or supplementary report
of the Comptroller and Auditor General of India. [Sec. 619 (A) (1)].

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The Company Law

HOLDING AND SUBSIDIARY COMPANIES

When a company has control over another company it is known as holding
company.
The company which is so controlled is known as subsidiary company.
Conditions of holding a subsidiary relationship:

A company shall be deemed to be a subsidiary company of another only if any or

more of the following conditions are satisfied:
1. Where the composition of its BOD is controlled by the other company
[section 4(1) (a)]. The composition of a companys BOD shall be deemed to
be controlled by another company by exercise of some power exercisable
by it at its discretion without the consent or concurrence of any other
person, can appoint or remove the holders of all or majority of directorships
[section 4(1)(a)].
2. Where the other company holds more than half in nominal value of its
equity shares capital; or where the other company holds more than the half
of the total voting power of such company, if such company has preference
shareholders who had, before the commencement of the Act of 1956 and
therefore, still have, the same voting rights in all respects of the holders of
the equity shares.[section 4(1)(b)].

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The Company Law

3. Where one company is subsidiary of any company ie. Another subsidiary

eg. Company B is a subsidiary of company A , and company C is a
subsidiary of company B. Accordingly, company C becomes the subsidiary
of company A. If company D is a subsidiary of company C, company D will
become subsidiary of company B and consequently also of company A.
[section 4(1)(c)]

Memorandum of Association
DEFINATIONS
1. It contains the fundamental conditions upon which companies are
incorporated. They are conditions introduced for the benefits of the creditor
and the outside public as well as the share holders.
2. A company memorandum of association is of supreme importance. The first
step in the formation of a company is to prepare the memorandum of
association because without this no company can formed or registered at
companies act. It is charter of company.
3. It sets out the constitution of the company and provides the foundation on
which company is built .it lays down the objects and scope of the activities
of the company and also define the relationship of the company with the
outside world. Its importance can be gauged by the fact that it contains the
rules regarding the capital structure of the company the liability of the
members and its scope of activities.
4. Its purpose is to enable the shareholder creditors and those who deal with the
company to know what is permitted range of enterprise.

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The Company Law

It may be noted that memorandum not only define the powers of the company but
also confines them. Nothing beyond the powers defined in the memorandum, shall
be attempted by the company .if this is done, it shall be considered ultra virus. It
was rightly pointed out in Ashbury railway carriage &co. Riche that, the
memorandum is as it were, the area beyond the action cannot go; inside that area
the shareholders may make regulations for their own government as they think fit.
Purpose of memorandum
The Purpose of memorandum is two-fold. In the first place, it gives protection to
shareholders who learn from it the purposes to which their money can be applied.
In the second place, it gives protection to persons who deal with the company and
who can infers from it the extent of the companys power. They can know with
certainty as to what the objects of the company are and as to whether the
contractual relation to which they contemplate entering with the company is within
the corporate objects of the company.

Unalterable charter to some extent

Memorandum of association is the fundamental document of the company. Being
the very basis of the company, it is not allowed to be altered by the company every
now and then in the interests of the members, creditor and outside public dealing
with it. The unalterable charter is recognized by the section 16 of Companies Act,
1956. It lays down that a company shall not alter the conditions mentioned in its
memorandum except in cases and in the manner and to the extent provided in the
ACT in sections 17-19. That is why the memorandum is regarded as an unalterable
charter of the company.
Form of memorandum
Section 14 of the Act lays down that the memorandum shall be according to the
prescribed form or as near to it as the circumstances admit. These prescribed
forms, as given in schedule I of the act are as follows:
Table B for memorandum of a company limited by shares.

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The Company Law

Table C for memorandum of a company limited by guarantee and not having a

share capital.
Table D for memorandum of a company limited by guarantee and having share
capital.
Table E for memorandum of unlimited company.
Contents of memorandum
Section 13 of the companies act lays down that the memorandum of association of
every company shall contain the following clauses:
Name clause

In this clause the name of the company with limited as that last word of the
name in the case of public company and private limited as the last words in the
case of private company, must be stated. It may be noted here that a company has a
separate legal entity and is recognized by its name.

License to drop the word limited

Where it is proved to the satisfaction to the central government that an association

is
a) About to be formed as a limited company for promoting commerce, art,
science religion charity or another useful objects
b) Intends to apply its profile and others income in promoting its objects and
the payment of any dividend to its members it may direct that the association
be registered as a company with limited liability ,without the addition to its
name of the world limited or the words private limited [sec29].
Undesirable names to be avoided

Ordinarily, a company is free to adopt any names it likes. But the name should not
be one, which, in the opinion of the central government, is undesirable. A name
which is identical with or which closely resemble the name of an existing company
may be considered undesirable by central government. [sec20]

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The Company Law

Generally no companies can trade with a name identical to that of an already

existing company, so as to deceive the prospective customers of one into trading
with the others.
When a company has been registered under a name that resembles the name of an
existing company, the existing company can apply for an injunction restraining the
new company from the use of such name. It may be noted here since a company is
recognized by its name, which becomes a part of its business reputation, it would
be injured if a new company were to adopt it.
Certain names prohibited by statue

A company cannot adopt a name which attracts the provisions of the Emblems
and Name (prevention of improper use) Act, 1950. This act prohibits the use of the
name and emblems of the United Nations and the world health organization, the
official seal and emblems of the central and state governments, the Indian national
flag, the name pictorial representation of Mahatma Gandhi and the Prime Minister
of the India.

Publication of name

Every company shall paint or affix its name and the address of its registered office
outside every office or place in which the business of the company is conducted
[sec 147(1) (a)]. Similarly every company shall have its name engraved in legible
characters on its seal. [Sec 147(1) (b)]
Every company shall have its name and address of the registered office mentioned
in legible characters on allots business letters, bill heads, letter paper, all notices
and other official publication, all negotiable instruments issued or endorsed by the
company and on all other orders, receipts, invoice and letters of credit. [Sec 147(1)
(c)]
Registered office clause

This clause states the name of the state in which the registered office of the
company will be situated. But the full address of the registered office must be

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The Company Law

communicated to the registrar within 30 days of incorporation or from the date it

commence business, whichever is earlier. All communication and notices to the
company shall be address to its registered office. [sec146].

Objects clause

This is the most important clause in the memorandum. It defines the sphere of the
companys activities, the aims that its formation seeks to achieve and the kind of
activities or business that it proposes to conduct. A company cannot conduct any
business foreign to its objects clause. If anything unauthorized by the objects
clause is undertaken, it is considered ultra virus and hence not binding on the
company.

Liability clause

This clause states the nature of the liability of members. The memorandum of a
company limited by shares or by guarantee shall state that the liability is limited.
This means that in the case of a company limited by shares, the members liability
is limited to the face value of shares or so much thereof as remains unpaid if his
shares are fully paid up his liability is nil [sec.13(2)]
However, section 34 provides that where a company has carried on business
with fewer members that the statutory minimum for more than six month ,every
member who is aware of this fact is severally liable for the entire debts of the
company contracted after a period of six months and may be severally sued
thereof . His liability becomes unlimited.
It may be noted here that the liability clause is entirely omitted from the
memorandum in an unlimited company.
In a limited company, the memorandum may provide that the liability of the
directors or of any director or manage shall be unlimited. [sec.322]

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The Company Law

Capital clause

This clause states the amount of share capital with which the company is proposed
to be registered and the division thereof into shares of fixed amount. This is known
as the authorized or nominal capital of the company. The stamp duty and
registration fees are payable on authorized or nominal capital. A company more
shares than are authorized for the time being by the memorandum. The Act does
not lay down any rules for fixing the authorized capital of the company but it
should be sufficiently high consideration the immediate needs of the business and
possible expansion in the near future. It is not essential to mentioned here the rights
attached to different classes of shares which may be provided in this article. This
clause is to be omitted in the case of companies with unlimited liability and the
companies limited by guarantee having no share capital.
Association or subscription clause

In this clause the subscribers declare that they desire to be formed into a company
and agree to take shares stated against their names. No subscriber will take less
than one shares. The memorandum has to be subscribed by at least seven persons
in the case of a public company. The signature of each subscriber must be attested
by at least one witness who cannot be any of the subscribers. Each subscribers and
his witness add his address, description and occupation if any.
After registration, no subscriber to the memorandum can withdraw his subscription
on any ground.

ALTERATION OF MEMORANDUM OF ASSOCIATION

1.Change of name ( sec.21)
Company can affect the change in the name of the company by passing special
resolution .In a general meeting of the members of the company and after
obtaining central government permission. An application is to be made to the
registrar of the companies for availability of new name.

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The Company Law

No approval of central government is necessary where the only changes in the

name of the company is addition or deletion Of the word private because of
conversion of a public company into a private or vice-versa.
When company changes it name the registrar shall issue a fresh certificate of
incorporation with the necessary alterations embodied therein.
The change of name shall complete and effective only on the issues of such
certificate.

Effects of change of Name (sec.23)

The change of the name shall not effect any rights or obligation of the company ,
or render defective any legal proceedings by or against it.
The alteration effected is only in the name and not in the identity of the company .
The change of the name of the company does not effect the entity of the company
or its continuity .A change in the name does not bring into existence a new
company.

2.Change in the registered office of the company

(sec.17&17A)

Procedure
1 Change in the registered office of the company from one place to another in the
same city ,In a particular state can be effected by an ordinary Board resolution .
Intimation of change is to be filed with Registrar within 30 days of the change.

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The Company Law

2. Change in the registered office of the company from one city to another city,In a
particular state requires a special resolution and confirmation by regional director
under section 17A.
3. Change in the registered office of the company from one state to another state in
India pursuant to section 17 involves alteration of memorandum of association of
the company
A special resolution is therefore required to alter the provisions of its
memorandum so as to change the place of its of its registered office from one
state to another state
Followed by confirmation of the company law board .
Alteration to be registered (sec.18)
A company shall file with the registrar a special resolution passed by the company
within one month from the date of such resolution or certified copy of the order of
the company law board confirming the alteration , within three months from the
dare of orders , as the case may be together with printed copy of memorandum as
altered .
The registrar should register the same name and certify the registration under his
hand within one month from the date of Filing of such documents .

3. Alteration on objects clause (sec.17)

The company may alter its objects on any of the following grounds.
i.

To enable the company to carry its business more economically or more

efficiently

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The Company Law

ii.

To enable the company to attain its main purpose by new or improved

means;

iii.

To enlarge or change the local area of the company s operation;

iv.

To restrict or abandon any of the objects specified in the memorandum ;

v.

To sell or dispose of the whole, or any part of the undertakings of the

company .

vi.

To amalgamate with any other company or body of persons.

Alterations in the objects clause is to be confined within the above limits for
otherwise alterations in the excess of the above limitations shall be void. The
alteration shall be effective only after it is approved by special resolution of the
members in the general meetings a company shall filled with registrars a special
resolution within one month from the date of the such resolution together with
printed copy of memorandum as altered .registrar shall register the same and
certify the registration (sec.18)
4.Alteration of capital clause (sec94.)
i.

Section 94 of the Act provides that a limited company having share capital if
so authorized by its articles may alter its capital an any of the followings
ways .

ii.

increase its share capital by such amount as its thinks expedients by issuing
new shares;

iii.

Consolidate and divide all or any of its share capital into shares of larger
amount;

iv.

Convert all or any of its fully paid up shares into stock , and reconvert that
stock into fully paid up shares of any denomination ;

v.

Sub divide its shares or any of them , into shares of smaller amount;

vi.

Cancel the shares and diminish the amount of its shares by the amount of
shares so cancelled.

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The Company Law

A notice of alteration of share capital must be filed with registrar within 30

days of such alteration.
Procedure
1.Special resolution : The company limited by shares or a company limited by
guarantee and having a share capital may reduce its share capital in anyway by
passing a special resolution in the general meetings provide the articles of
association of the company permit such reduction.
2. Application to the court the company has then to apply by petition to the court
for confirmation. The court may direct notice to be given to all the creditors
entitled to any debt or claim .The creditors are entitled to raise objection to the
reduction.
3. Registration of the order .The registrar shall on production to him of an
order of the court confirming the reduction of share capital of the company and on
the delivery to him a certified copy of the order and of minute approved by the
court, shall register the order and minute.

5.Change of liability clause (sec.18)

The liability of the members cannot be altered so as to increase the liability of the
members, or prejudice their interests. No member shall be bound by such an
alteration. The alteration can be effected only with the consent of members in
writing, either before or after a particular alteration is made.
Any other provision in the memorandum can be altered by passing a special
resolution.

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The Company Law

SHAREHOLDER
The term shareholder refers to a person who holds share in a company.
Ordinarily, the terms members and shareholder are synonymous but, precisely, this
is so only in the case of company limited by shares, accompany limited by
guarantee and having share capital and an unlimited company whose capital is
held in definite shares. However, there are a few exceptional cases where a person
may become a member of accompany without being its shareholder and vice versa.

SHAREHOLDER WITHOUT BEING MEMBERS

The circumstances where a person may become a shareholder of a company
without being its members are stated below:
1. A person who holds a share warrant is a shareholder but not a member
because his name does not appear on the register of members after issue of
such a share warrant.
2. Similarly, a transferee or legal representative of a deceased or insolvent
member is not a member until he applies for registration as one and his name
is entered in the register of the members although he is shareholder even
without being placed on the register of member.

RIGHTS OF MEMBERS
The members of a company enjoy various rights in relation to the company. These
rights are conferred on members of the company either by the companies act,1956
or by the memorandum and articles of association of the company or by the
company or by the general law, especially that relating to contract under the Indian
contract act, 1872. Some of the more important rights are stated bellow:

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The Company Law

1)
2)
3)

He has a right to obtain copies of memorandum of association, articles of

association and certain resolutions and agreements on request and
payment of the prescribed fees,[sec.39]
He has a right to have a certificate of shares held by him within three
months of the allotment.[sec113]

4)

He has a right to transfer his shares or other interest s in the company

subject to the manner provided by the articles of the company.[sec.82]

5)

He has a right to appeal to the company law board when the company
refuses or fails to register the transfer of shares.[sec111]

6)

He has the preferential right(i.e. right of pre-emption) to purchase shares

on a pro rata basis in case of further issue of shares by the company.
Moreover, he has also the right of renouncing all or any of the shares is
favour of any other person.(sec. 81)

7)

He has the right to apply the Company Law Board for rectification of the
register of members.[sec.111]

8)

He has a right to inspect the register and index of members and debenture
holder, annual returns, register of charges and register of investments not
held by the company in its own name, without any charge. He can also
take extra from any of them.

9)

He is entitled to receive the statutory report. [sec. 165].

10)

He has the right to apply the court to have any variation or abrogation to
his rights set aside by the court. [sec. 107].

11)

He is entitled to receive the annual report of the directors, annual accounts

and auditors report. [sec.219].

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The Company Law

12)

He has the right to participate in the appointment of auditors and election

of directors at the annual general meeting of the company
[sec 224and225].

13)

He has the right to make an application to the Company Law Board for
calling annual general meeting if company fails to call such a meeting in
prescribed time limits [sec 167].

14)

He can request the directors to convene an extraordinary general meeting

by presenting a proper requisition as per the provision of the Act and hold
such a meeting on refusal. [sec169].

15)

He can make an application to company law board for convincing an

extraordinary general meeting of the company where it is impracticable to
call such a meeting of the company where it is impracticable to call such a
meeting either by the directors or by the members themselves.[sec.186]

16)

He is entitled to inspect and obtain copies of minutes of proceeding of

general meeting.[sec.196]

17)

He has a right to demand poll.[sec.179]

18)

He has a right to apply for company law board for investigation of the
affairs of the company.[sec.235]

19)

He has a right to remove the director before the expiry of the term of his
office.[sec.284]

20)

He has a right to participate in the surplus assets of the company, if any,

on its winding up.[sec475 and 511]

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The Company Law

LIABILTY OF THE MEMBERS

The liability of the members of the company depends on the nature of the
company.

Company with unlimited liability

A company not having any limit on liability of its members is termed as an
unlimited company. The shareholders are fully liable for deficiency of the assets
to the liabilities of the company in proportion to their interest in the companies.
Such companies are rarely encountered.
Companies limited by shares
In case of a company limited by shares, the liability of its members is limited to the
amount, if any unpaid on the shares respectively held by them. These types of
companies are by far the large. The main reason is the attraction to the investors of
knowing beforehand the exact amount of risk involved or maximum limit of the
liability.
The amount of the shares may not be paid in full at once, but from time to time, as
and when the company makes calls on shareholders. All the money payable by any
members to the company under the memorandum or articles shall be debt due from
him to the company. [sec.36]

Additional liability not be imposed

Section 38 provides that any alteration made in the memorandum or articles which
seeks to impose additional liability on a member of the company to take shares
than what he has already taken or to pay any more money than what he is liable to
pay on his shares, shall not be bonding upon him unless he agrees in writing, either
before or after alteration.

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The Company Law

Directors with unlimited liability in a limited company

Section 3222 provides that the liability of the directors or any of them or manager
may be unlimited by virtue of the provisions of the memorandum of the company,
though the liability of the members is limited.
Unlimited liability on reduction of membership below
minimum
The liability of the members becomes unlimited and several in the case of a limited
company if the numbers of its members fall below seven in the case public
company, and two in case of private company, and the company continues to
conduct business for more than six months after the reduction of number of
members below the legal minimum [sec.45].

Company limited by guarantee

In this case of a company limited by guarantee, the liabilities of its members is
restricted to such amount as the members may respectfully undertake to contribute
in the event of its being wound up. Non-profit earning companies are mostly
registered with guarantee liabilities. If such a company has a share capital, the
members are also liable to pay the amount which remains unpaid on their shares,
besides the amount payable under guarantee. The guarantee amount cannot be
called up except when the affairs of the company are wound up.
Liabilities on winding up of the company
If before the liabilities to pay the whole amount is discharged, the company goes
into liquidation, share holder become liable as contributories to pay the balance
when called up to do so [sec. 429]. If a person has ceased to be a member within
one year prior to the winding up of the company, he is liable to be included in the
B list of past members and pay on the shares which he held to the extent of the
amount unpaid thereon, if (a) on the winding up, debts exists which are incurred
while he was a member, and (b) the member of the A list (list of present
members) cannot satisfy the contribution required from them in respect of their
shares. [sec. 426].

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The Company Law

Register on members
Section 150 of the companies act, 1956, requires every company to maintain a
register of members which must contain the following particulars:
1) The name, address and occupation of each members.
2) In case of a company having share capital, the share held by each member,
distinguishing each share by its number, except where such shares are held
with a depository and the extent to which the shares has been paid up.
3) The date on which each person was entered in the register as a member.
4) The date on which any person ceased to be a member
Where the company has converted ant of its shares into stock and given notice of
the conversion to the registrar, the register shall show the amount of stock held by
each of the members in place of shares.

If any default is made in maintaining the register in the above manner, the
company and every officer of the company who is in default shall be publishable
with a fine which may extend to five hundred rupees for every day during which
the default continues.
Section 164 states that the register of the member shall be prima facie, but not
conclusive, evidence of any matter directed or authorized by the Act to be entered
therein. The court will accept the same as correct until rebutted.

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The Company Law

Index of members
Under section 151, every company with more than 50 members is required to keep
an index of members along with the register .the index may be in the form of a
card index. If the register of member is in such form as in, itself constitutes an
index; no separate index of members would be required.

When the index register is maintained, it shall be kept at the same place as the
register of member. It shall contain sufficient indication to enable the entire
relating to a member easily found. Any alteration in the register of member must be
noted in the index within fourteen days of the alteration.

If default is made in company with these provisions, the company and every officer
who is in the default shall be punishable with a fine which may extend up to five
hundred rupees.

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The Company Law

Foreign Register of Members

A company with a share capital or one that has issued debentures may, if
authorized by its articles, keep in any State or Country outside India, a branch
registered of members or debenture holders resident in that State or Country. Such
a register is called a foreign register. If a company opens a foreign register at a
place, it must file with the Registrar of Companies a notice of the location of the
office where such a register is kept, within thirty days of opening of such register.
Notice of any discontinuance or change in situation of such office must be given to
the Registrar within one month. [sec. 157]
The foreign register is a part of a companys principal register of members or of
debenture holders, as the case may be. A foreign register shall be kept open to
inspection and may be closed and extracts be taken there from and copies thereof
may be required in the same manner as is applicable to the principal register
maintained in India. However, the advertisement before closing the foreign register
shall be interested in some newspaper circulating in the district where the foreign
register is kept. The duplicate copy of the foreign register shall be maintained at
the head office in India and all the entries made in that foreign register should be
entered in the duplicate copy as soon as possible. If so directed by the Central
Government, the decision of any competent court of the State where the foreign
register is kept shall be as effective as if it were the decision of the competent court
in India. The company may at time discontinue such a foreign register in which
case all its entries may either be transferred to some other foreign register kept in
the same part of the world or to the principal register. [sec. 158]

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The Company Law

Rectification of the Register of Members

Prior to the Companies (Amendment) Act 1988, the power to order rectification of
register of members was vested in the court under Section 155, The Amendment
Act of 1988 seeks to recast Section 111 by assimilating the existing provisions of
Section 155 and it vests the Company Law Board with the courts power to order
rectification of register of members.
Under the Section 111 (4), the Company Law Board has been empowered to order
the rectification of the register of members in the following cases;
a) Where the name of any person is entered in the register of members without
any sufficient case,
b) Where the name of any person is omitted from the register of members
without any sufficient causes ,
c) Where default is made or unnecessary delay takes place in entering on the
register the fact of any person having become or ceased to be a member.
Persons entitled to apply to the Company Law Board
In all these cases the person aggrieved or the company or any member of the
company may apply to the Company Law Board for the rectification of the register
of member. A person who claims to have become a member but whose name has
not been entered in the register of members may make the application. The
Company Law Board has very wide discretionary powers in this regard. It may
either reject the application or order rectification of the register and even payment

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The Company Law

by the company of any damages sustained by the aggrieved party. But no damages
can be ordered unless the relief of rectification is granted.
An application for rectification has to be in the form of petition in writing and
accompanied by such fee as may be prescribed. [sec.111 (10)]
Rectification on winding up
Section 467 also empowers the court to rectify a register on the winding up of a
company before settling the list of contributories.
It may also be noted that rectification will date back to the date on which a
mistake, default or delay which is being rectified was made.
Cases where rectification ordered
The following are a few illustrative cases where the rectification of register of
members has been ordered:
i)

Where the person was induced to buy shares by misrepresentation.

ii)

Where the allotment was irregular.

iii)

Where shares were improperly forfeited.

iv)

Where the real owners name was removed by the company acting on
a forged transfer.

v)

Where the shares were improperly surrendered and the shareholder

claimed to have his name reinstated.

vi)

Where the application for shares was conditional and the condition
precedent was not fulfilled.

vii)

Where the company improperly neglected to register a transfer.

viii)

Where the allotment was not made within a reasonable time.

ix)

Where the allotment is made in violation of the provision of articles.

The above provisions are applicable to the rectification of the register of debenture
holders also. [sec. 111 (8)]

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The Company Law

No notice of Trust on Register of Members

Section 153, though short, is of very great importance. It clearly states that no
notice of any trust, express, implied or constructive, shall be entered on the register
of members or debenture holders. For example if A is acting the trustee on behalf
of B, the company must not take any notice that A is a trustee. In the register, the
name of A only is to be entered and no mention that he is a trustee on behalf of B,
shall be made. The trustee can be entered in the register in his personal capacity
and not as a trustee, and he will exercise the rights of a share holder, and is alone
liable for share calls and to put on the list of contributories. The provision is to
relieve the company from taking any notice of equitable interest in shares and to
preclude any person claiming an equitable interest in shares from treating the
company as a trustee in respect thereof.
CASE STUDY

The above provision is well illustrated in the case of Murshidabad Loan

Office Ltd. V. Satish Chandra Chakarvarti. In this case, a lady was the
registered holder of certain shares in a company. These shares really belonged to
her husband and on learning this; the company filed a case against him for the
unpaid call on the shares. It was held that the husband was not liable, although he
was the real owner. The court observed; Assuming that the registered shareholder
is not the real owner but if he is the member in the books of the company, it is he

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The Company Law

alone who would be entitled to the rights of a shareholder and he alone is liable for
share calls and to be put on the list of contributories.

Annual returns
Every company must prepare and file every year with the Registrar of Companies a
return known as annual return. The purpose of filing an annual return is to enable
the Registrar to record the changes that have been taken place in the constitution of
the company during the year.
Annual return of a company having a share capital
Section 159 requires that every company having a share capital must prepare and
file with the registrar an annual return within 60 days of the date of the annual
general meeting. The returns of a company with share capital has to contain the
particulars specified in Part 1 of Schedule V of the companies act as they stood on
that day regarding:
1)
2)
3)
4)
5)
6)
7)

The registered office

Its register of members
Its register of debenture holders
Its shares and debentures
Its indebtedness
Its members and debenture holders, past and present
Its directors, manager and managing directors, past and present

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The Company Law

Section 159 (1), as amended by the companies (Amendment) Act, 1988, provides
for the filing of annual return containing full particulars as to the past and present
members and shares held and transferred by them once in every three years prior to
the amendment. Annual returns for the intervening five years are required to
contain only the changes in the list of shareholders or the number of shares held by
a member.
If no annual general meeting is held in a particular year then the annual return has
to be filed within 60 days from the last day on which the meeting should have been
held, which is normally 6 months from the date of the closing of the accounting
year of the company. If no annual general meeting has been held, the company
shall file with the annual return, a statement giving the reason for not holding the
annual general meeting. Therefore not holding the annual general meeting is not an
excess for not filling the annual return. The fact that the company itself did not
function could not be a ground by itself for non-compliance of this section. The
annual return shall be filed in the form giving in Part II of schedule V.

Annual return of a company not having a share capital

Under Section 160, the annual return of a company without share capital must state
the following particulars:
1. The address of the registered office of the company
2. The name of the members and the respective dates on which they became
members, and the mane of person who ceased to be the member since the
date of the last general meeting, and the dates on which they ceased to be the
members
3. All such particulars with respect to the person who, at the date of the return,
were the companys directors, managers and secretary
4. A statement containing the particulars of the total amount of indebtedness of
the company in respect of all charges which are or were required to be
registered with the Registrar under the Act.
Signature and Certificate of annual returns
Under Section 161, the copy of the annual return filled with the Registrar must be
signed both by the manager or secretary of the company. Where there is no

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manager or secretary, the copy must be signed by two directors, one of whom must
be the managing director, if any. As per Amendment Act (1988), the annual return
of the listed company shall also be signed by the secretary in whole time practice,
in addition to its certification by the company secretary. Further, annual return
must be accompanied by a certificate sign by signatories of the return stating the
information given in the return was correct on the day of the annual general
meeting, and further entries regarding transfer of shares and debentures have been
correctly recorded in the proper books. In the case of a private company the
certificates should further state that the company has not, during the year, issued
any invitation to the public to subscribe for shares or debentures of the company
and that were the annual return discloses the fact that the number of members
exceeds fifty, the excess consists wholly of persons who are not to be included in
reckoning the number of fifty.

Penalty
If the company pails to comply with any of the provisions relating to the annual
returns, the company and every officer of the company who is in default is
punishable with a fine extending up to five hundred rupees for every day during
which the default continues.[section 162]

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Service of documents [sec. 51, 52 & 53]

A document includes summons , notice, requisition, order, other legal processes
and registers sec.2(15)].
Service of documents on company:
A document may be served on a company or an officer thereof by sending it to the
company or officer at the registered office of the company by post under a
certificate of posting or by a registered post, or by leaving it at its registered office
[sec.51].
Where the securities are held in depository, the records of the beneficial ownership
may be served by such depository on the company by means of electronic mode or
delivery of floppies or disks.
Case study

In Madan & co. V.Wazir Jaiver Chand AIR 1989 SC 630,it is held that
when a summon was send to the proper address of the addressee by registered post
and tendered with the postal authority for service,then the presumption of service
arises under section 27 of the General Clauses Act. A notice addressed to the
company and served on the directors is a good service [Benabo v. Jay(William) and

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Partners Ltd. (1942) 12 Com. Cases 92]. Notice to a director or other officer in the
course of a transaction amounts to notice to the company [ Shri Minakshi Mills v.
Rathi Lal Thakar AIR 1941 Bom. 108 ].
Service of documents on registrar:
A document may be served on a registrar by sending it to him at his office by post
under a certificate of posting or by registered post, or by delivering it, or leaving it,
at his office [ Sec.52].
Service of documents on members by company: a document may be served by a
company or any member thereof either personally, or by sending it by post to him
at his registered address, or if he has no registered address in India, to the address,
if any, within India supplied by him to the company. [Sec.53(1)].

Where a document is sent by post

1) Service thereof shall be deemed to be effected by properly addressing,
prepaying & posting a letter containing the document. Where a member has
intimated to the company in advance that document should be sent to him
under a certificate of posting or by registered post with or without
acknowledgement due & has deposited with the company a sum sufficient to
defray the expenses of doing so, service of the document shall be deemed to
be effected, unless it is sent in a manner intimated by the member.
2) Such service shall be deemed to have been effecteda) In the case of a notice of a meeting, at the expiration of 48 hours after the
letter containing the same is posted; and
b) In any other case at the time at which the letter would be delivered in the
ordinary course of post [Sec.53(2)].
A document advertised in a newspaper circulating in the neighbourhood of the
registered office of the company shall be deemed to be duly served, on the day on
which the advertisement appears, every member of the company who has no

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registered address in India and has not supplied to the company an address within
India for the giving of notices to him. [Sec.53(3)].
A document may be served by the company on the joint holders of a share by
serving it on the joint holder named first in the register in respect of the share [Sec.
53(4)]
A document may be served by the company on the persons entitled to share in
consequence of the death or insolvency of a member by sending it through the post
in prepaid letter addressed to them by name, or by the title of representatives of the
deceased, or assignees of the insolvent, or by any like description, at the address, if
nay , in India supplied for the purpose of the person claiming to be so entitled.
Until such an address has been so supplied, a document may be served in any
manner in which it might have been served if the death or insolvency had not
occurred [sec.53(5)].
No notice need be given to a member who has not given address in India. If notice
of a general meeting is sent by a post, it must be posted at such time as to give 21
days clear notice plus 48 hours in addition. A notice duly addressed and stamped
and sent under certificate of posting is deemed to have been duly served even if,
the notice does not reach the addressee. Ministry of Finance, Department of
Economic Affairs, vide Circular No.8/15/SE/86-B dated 03.06.1986 and circular
no.6 of 1992 dated 03.09.1992 has directed that the company shall issue refund
orders for amounts exceeding Rs.1500 for allotment letters. Certificates, letters of
offer for right issue, only by registered post. Refund orders below Rs.1500 may be
issued under certificate of posting (circular No.1/93 dated 16.03.1993).
E- Governance system and programme:
Sections 610B, 610C, 610D and 610E are inserted to provide for filing of
applications, documents etc., through electronic form, for electronic records and
application of the provisions of Information Technology Act, 2000. The thrus is on
electronic mode of filing of E-form under MCA 21 programme through Companies
(Central Governments) General Rules and Forms (Amendment) Rules, 2006.

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Filing of applications, documents, inspection, etc.,

through electronic form: (sec. 610B, 610C, 610D
&610E)
Companies (Amendment) Act, 2006 with the effect from 16.09.2006 requires
applications, balance sheet. Prospectus, returns, declaration, Memorandums of
Association, particulars of charges or any other particulars or documents, to be
filed, delivered, maintained and inspected through the electronic form. Document,
notice, any communication or intimation shall be served or delivered through the
electronic form and authenticated. Any fees, charges or other sums shall be paid
through the electronic form. Registrar shall register change of registered office,
alteration of Memorandum of Association or Articles of Association, prospectus,
issue certificate of incorporation or certificate of commencement of business,
register such documents, issue such certificate, record notice, receive such
communication or perform duties or discharge functions or exercise powers by
electronic form. The manner of regulating, filling, etc., through electronic form is
specified in Companies (Electronic Filing and Authentication of Documents) rules.
2006. All the provisions of the Information Technology Act, 2000 relating to
electronic records shall apply.

Acknowledgement
We would like to thank the following for this project
1. Thakur college of Science and Commerce for giving us this
opportunity for preparing this project.
2. The B.M.S. department for the same.

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The Company Law

3. Our faculty for law- Mr. Sachin Joshi for guiding us all through
this project.
4. Our team members for coordinating all through the same.

Bibliography
Books
Company Law

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The Company Law

- Ashok K Bagrial
Business Law
- K. R. Bulchandani

Site
Justice.com
Google.com

Group members
Names

Roll No

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The Company Law

Priyanka Banka

41

Daniel Solomon

42

Kartik

43

Anurag Tiwari

44

Tirtha Hegde

45

Charmi Shah

46

Sneha Maknojia

47

Roshan

48

Abhishek Tiwari

49

Asha Nagarajan

50

Contents
Introduction................................................................................... 2
Kinds of company.......................................................................... 3
Classification of companies by mode of incorporation................4

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The Company Law

Chartered companies...............................................................4
Statutory companies................................................................4
Registered or incorporated companies.....................................4
CLASSIFICATION OF COMPANIES BY LIABILITY OF MEMBERS.......5
Companies limited by shares...................................................5
Companies limited by guarantee..............................................5
Unlimited companies................................................................6
PRIVATE AND PUBLIC COMPANIES...............................................7
Private Company......................................................................7
Public Company........................................................................ 8
Differences between Private and Public Company....................9
SPECIAL PRIVILEGES OF PRIVATE COMPANY:...........................10
Conversion of private company into a public company..........11
Conversion of public company into private company:............12
One man companies.................................................................13
CASE STUDY...........................................................................13
Foreign companies....................................................................14
Rules as foreign companies:...................................................14
GOVERNMENT COMPANIES.......................................................19
Definition:..............................................................................19
Special provision relating to government companies.............19
HOLDING AND SUBSIDIARY COMPANIES....................................21
Conditions of holding a subsidiary relationship:.....................21

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Memorandum of Association.......................................................22
DEFINATIONS............................................................................22
Purpose of memorandum..........................................................23
Unalterable charter to some extent..........................................23
Form of memorandum..............................................................23
Contents of memorandum........................................................24
Name clause..........................................................................24
License to drop the word limited............................................24
Undesirable names to be avoided..........................................24
Certain names prohibited by statue.......................................25
Publication of name................................................................25
Registered office clause.........................................................25
Objects clause........................................................................ 25
Liability clause.......................................................................26
Capital clause......................................................................... 26
Association or subscription clause..........................................27
ALTERATION OF MEMORANDUM OF ASSOCIATION.......................27
1.Change of name ( sec.21)......................................................27
2.Change in the registered office of the company (sec.17&17A)
................................................................................................. 28
3. Alteration on objects clause (sec.17)....................................29
4.Alteration of capital clause (sec94.)......................................30
5.Change of liability clause (sec.18).........................................31

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SHAREHOLDER............................................................................32
SHAREHOLDER WITHOUT BEING MEMBERS..............................32
RIGHTS OF MEMBERS..................................................................33
LIABILTY OF THE MEMBERS..........................................................35
Company with unlimited liability...............................................35
Companies limited by shares....................................................35
Additional liability not be imposed............................................36
Directors with unlimited liability in a limited company..............36
Unlimited liability on reduction of membership below minimum
................................................................................................. 36
Company limited by guarantee.................................................36
Liabilities on winding up of the company..................................36
Register on members..................................................................37
Index of members.......................................................................38
Foreign Register of Members.......................................................39
Rectification of the Register of Members..................................40
Persons entitled to apply to the Company Law Board...............40
Rectification on winding up.......................................................41
Cases where rectification ordered.............................................41
No notice of Trust on Register of Members................................42
CASE STUDY...........................................................................42
Annual returns............................................................................43
Annual return of a company having a share capital..................43

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Annual return of a company not having a share capital............44

Signature and Certificate of annual returns..............................44
Penalty...................................................................................... 45
Service of documents [sec. 51, 52 & 53].....................................46
Service of documents on company:..........................................46
Case study.............................................................................46
Service of documents on registrar:...........................................46
Filing of applications, documents, inspection, etc., through
electronic form: (sec. 610B, 610C, 610D &610E)......................48
Acknowledgement.......................................................................49
Bibliography................................................................................ 50
Group members..........................................................................51

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