THE COMPANIES ACT

1956
 INDEX OF PRESENTATION

COMPANY
NATURE OF COMPANY
TYPES OF COMPANIES
PRIVATE Vs PUBLIC COMPANY
PRIVILEGES OF PRIVATE COMPANY
DOCTRINE OF CONSTRUCTIVE NOTICE
PROSPECTUS
MEMORANDAM OF ASSOCIATON.
ACTICLE OF ASSOCIATION.
CASES
 COMPANY
In a simple words a company may be defined as a
association of persons who contribute money or
moneys worth to a common stock and employ it
in some trade or business , and who shares the
profit or loss there from.
Section 3(1)(i) of the Companies Act, 1956 defines a
company as: a company formed and registered
under this Act or an existing Company.Existing
Company means a company formed and
registered under any of the earlier Company
Laws.
Legal definition Incorporated association , which
is an artificial legal person, having a separate
legal entity , with a perpetual succession, a
common seal, a common capital comprised of
transferable shares and carrying limited liability .
NATURE OF COMPANY
1 SEPERATE LEGAL ENTITY
2.ARTIFICIAL PERSON
3.PERPETUAL EXISTENCE
4.COMMON SEAL
5.LIMITED LIABILITY
6.CAPACITY TO SUE OR TO BE SUED
7.TRANSFERABILITY OF SHARE
 Separate legal entity
A company is an separate legal entity means it is
different from its members. It works as a individual body.

It can make contracts, open a bank account, can sue and

be sued by others.
The law has recognized that even if a person holds
virtually all the shares, the right and obligations of the
company shall be different from its members.

Artificial person
A company is a purely a creation of law. It is
invisible, intangible and exists only in the eyes of
law.
It has no soul, no body, but has a position to enter
or exit into a contract, to appoint a people as its
 Perpetual existence [sec 34(2)]
Section 34(2) of the act states that an incorporated
company has perpetual life.
The life of the company is not related to the life of the
members . Law create the company and law alone can
dissolve it.
The existence of the company is not affected b y death,
insolvency, retirement or transfer of share of members.

Limited liability
It means that the liability of a member shall be
limited to the value of the share held by him, he
cannot be called upon to bear the loss from his
personal property.
 Common seal
A company being an artificial person can not
work as a natural being.
Therefore, it has to work through its directors,
officers and other employees. Common seal used
as a official signature of a company.

Transferability of share sec

82
The share of a company are freely transferable.
The shareholder can transfer his share to any
person without the consent of other members.
A company cannot impose absolute restrictions on
the rights of member to transfer their shares
 Capacity to sue and be sued

When a company incorporated it acquire a separate and

independent legal personality. As a legal person it can be sue
and be sued in its own name.
 Types of companies
(Registered under company act
1956)
 Definition : Private & Public
Company
A private company is one which, by its Article
of association restricts the right to transfer its
share, limits the maximum number of its
member to fifty, prohibits any invitation to the
public to subscribe for any share or debenture
of the company.
A public company means a company which is
not a private company. In other words, a public
company, means a company which by its article
does not limit the number of its member &
does not prohibit any invitation to the public to
subscribe for any share or debentures, of the
company.
 Private Vs Public Company
Private Company Public Company

Minimum paid up
1 Lac 5 Lacs
capital
Minimum no of
2 7
members
Maximum no of
50 No limit
members
Minimum no of
2 3
Directors
Restricted AOA &
requires the prior Shareholders can
Transfer of Shares
permission of Board of transfer shares freely
Directors
Private Vs Public Company ..Contd..
Private Company Public Company
AOA prohibits any
Can invite public to
invitation to public to
Public Subscription subscribe to its shares
subscribe to its sharess
& debentures
& debentures
AOA prohibits
Acceptance of public Can acceptance of
acceptance of deposits
Deposits deposits from public
from public
Only after getting the
Immediately after
Commencement of Certificate of
Certificate of
Business commencement of
Incorporation
Business
Need not prepare or file
'Prospectus' or Must prepare or file
Issue of prospectus 'statement in lieu of Prospectus with
prospectus' with registrar
registrar
Private Vs Public CompanyContd..
Private Company Public Company
Must hold after one month
and before 6 months from
date of obtaining the
Statutory meeting Not required to hold
Certificate of
commencement of
business
No Central Govt Central Govt approval is
Provisions approval for appointing must for appointing and
regarding directors and reappointing of MD reappointing of MD or
or Whole time director Whole time director
No restriction on
Managerial payemnt of Remuneration is fixed at
remuneration remuneration to 11 % of net profits
directors & MD's
Must maintain index of
Need not maintain
Index of members members if no of
index of members
members exceed 50
 PRIVILEGES OF PRIVATE
COMPANY
Sec. Privileges
58A For Pvt.Co., amount received from its shareholders by a private
company is not included in the meaning of deposit. If the depositor
ceases to be a shareholder, the deposits made by him cease to
qualify for exemption from the date of such cessation
77(2 & 3) There is no prohibition on a Pvt. Co., which is not a subsidiary of a
public company, to provide financial assistance to anyone for
purchasing or subscribing for its own shares or of its holding
company.
81 A Pvt. Co. can issue further shares in any manner; i.e. rights shares
to the existing shareholders need not be offered.

85 to 90 The provisions of these sections requiring that there should be only

two kinds of share capital and that voting rights should be
proportional to the capital paid up and prohibiting and terminating
disproportionately excessive voting rights are not made applicable
to a private company which is not subsidiary of a public company
 PRIVILEGES ..Contd
Sec. Privileges
111 (13) The right of appeal to the Company Law Board against rejection of
a transfer of shares is not available as long as the private company
is only enforcing the provisions of its articles in rejecting a
particular transfer
170 to 186 The provisions of these sections relating to general meetings do not
apply to such a private company to the extent to which the
company makes its own provisions by its articles
192A Passing of resolution by Postal Ballot not relevant for Pvt. Co.
220 P & L A/c. of a Pvt. Co. is not open for inspection by Public.
224(1B) The ceiling, on number of companies an auditor can audit, does not
include audit of Pvt. Cos.
252 & Minimum Directors for Pvt. Co. is 2 (two) against 3 (three) in case
252A of Public Co. Requirement of Independent Directors or Small
Shareholders Directors not applicable to Pvt. Co.
255 Retirement of Directors by rotation not mandatory.
 PRIVILEGES ..Contd
Sec. Privileges
256 A Pvt. Co. need not adopt the procedure relating to appointment,
retirement, re-appointment of directors etc. applicable to a public
company.
257 The provision requiring the giving of 14 days notice by new
candidates seeking election as directors and deposit of certain
amount (Rs. 500) are not mandatory for Pvt. Cos.
259 Central Government approval for increasing number of directors
beyond the permissible maximum (presently 12) not required.
262 The provision relating to manner of filling casual vacancy among
directors and the duration of the period of office of those so
appointed do not apply to Pvt. Co.
263(1) Appointment of two or more persons as directors by a single
resolution can be done by Pvt. Co.
264 No requirement of filing consent by the directors to be filed with the
Registrar to act as a director.
266(5) Restrictions on appointment of director and subscription to
qualification shares not applicable to Pvt. Co.
 PRIVILEGES ..Contd
Sec. Privileges
268, 269 Central Government approval for amendment relating to
appointment/reappointment of a whole-time director/ director not
liable to retire by rotation.
270-273 Requirements of qualification shares holding by directors the time
within which the qualification shares to be acquired and filing of a
declaration by each director of the qualification shares held, is not
applicable to Pvt. Co.
274(1)(g) The disqualification u/s. 274(1) clause (g) does not include
directorships of Pvt. Co..
275 to 279 The Directorships of Pvt. Cos. not to be considered for the limit on
no. of companies a person can be director.

292A Provisions relating to formation of Audit Committee not applicable.

293 Restrictions on certain powers of Board of directors regarding

selling, leasing, remitting or giving time for payments of debts,
investing or borrowing moneys, or contributing to charities other
than for political purpose are not applicable to Pvt. Co.
 PRIVILEGES ..Contd
Sec. Privileges
295 Restriction on loans to directors/relatives etc. does not apply to Pvt.
Co.
300 No restriction on interested directors from participating in the
proceedings of the Board and exercising their votes.
316, 317 No restriction on period of appointment of managing
director/manager for more than 5 years at a time.
349, 350 Provision relating to the determination of net profits and
ascertainment of depreciation shall not apply.
372A No restrictions on giving loans or guarantees to other companies or
on making investment in the shares of the other companies.
386, 388 No. of companies on which a person may be appointed manager,
the remuneration of a manager and the application of sections 269,
310 to 312 and 317 in relation to managers do not apply.
409(3) Powers given to the Central Government to prevent change in the
Board of directors not applicable to Pvt. Co.
416(1) Restrictions on Contract by agents of the company in which the
company is the undisclosed principal shall not apply.
 DOCTRINE OF CONSTRUCTIVE
NOTICE
Every person dealing with the company was treated as
having the knowledge of the contents of the
memorandum. (Public documents of the company).
It seeks to protect the company against the outsider.
Imputation of knowledge whether the party concerned
has actual knowledge or not.
A member of the company can sue for an injunction to
restrain the company or its directors from doing an ultra
vires act.
All contracts made by the company for an ultra vires
purpose are void and can not be ratified and validated by
any kind of resolution passed by the general meeting of
the company or even with the unanimous consent of its
members.
 PROSPECTUS
Prospectus is the basic document for raising
funds from the public.

Prospectus means any document described or

issued as prospectus and includes any Notice,
Circular, Advertisement inviting deposits or offers
from the public for the subscription or purchasing
any shares in , or debentures of the company.

Thus prospectus is a general invitation to the

public to subscribe to the capital of the company
on the conditions specified in the application from
 MEMORENDUM OF ASSOCIATION
(MOA)
The first step in the formation of the company is to
prepare memorandum of association. it is one of
the documents which has to be filed with registrar
of the companies at the time of incorporation of a
company.
MOA of a company is its character and defines the
limitation of the power of the company . MOA
contains the fundamental condition upon which
the company is allowed to incorporated.
The purpose of MOA is to enable the Shareholders,
creditors and those who deal with the company to
know what is permitted range of enterprise.
 IMPORTANCE OF MOA
It defines the rights and liabilities of the
members.
It shows the capital structure of the company
It shows the object of the company
It specifies the state in which the registered
office of the company is situated.
It shows the constitution of the company
It specify the conditions under which the
company has been incorporated.
ARTICLES OF ASSOCIATION (AOA)
 CONTENTS OF AOA

Rights of different classes of shareholder.

Use of common seal of the company.
Different classes of shares and their right.
Appointment , powers, duties, salary of MD,
manager, and secretary.
Borrowing power of directors.
Voting rights of member .
Board meetings and proceedings.
Winding up company.
 Case 1

ABDUL AZIZ BIN ATAN & 87 ORS V

LADANG RENGO MALAY ESTATE SDN BHD
(1985) 2 MLJ 165.
Facts
All the shareholders of the company sold and transferred their
entire share holdings to a certain buyer
Issue
The court had to determine whether a change of employer took
place

Held
An incorporated company is a legal person separate and distinct
from its shareholders. The company, from the date of
incorporation, has perpetual succession and did not change its
identity or personality even though the entire share holding of
the company changed hands.
 Case 2

LEE V LEES AIR FARMING LTD (1961) AC 12

Fact
Lee who was a pilot who conducted an aerial top-dressing business,
formed a company to conduct the business. Lee hold 2999 shares of the
3000 shares in the company. The remaining one share was taken by his
solicitor as nominee for Lee. Under the articles of association, Lee was
governing director with very wide powers. Workers compensation
insurance was taken out, naming Lee as an employee. Lee was killed
when his aeroplane crashed while engaged in aerial top-dressing.
Issue
His widow made a claim for payment under the Workers Compensation
Act 1922. Her claim was initially rejected on the ground that as Lee had
full control of his company he could not be a "worker" within the
meaning of the Act. "Worker was defined under the Act as a person
"who has entered onto or works under a contract of service ... with an
employer."
Held By Privy Council
The company was a separate legal entity distinct from its founder, Lee
Lee could enter into a contract of employment with him
 Case 3
MACAURA v NORTHERN ASSURANCE CO LTD (1925) AC
619
Fact
Macaura own land on which stood timber. He sold the land and timber
to a company he formed and received as consideration all the fully paid
shares. The company carried the business of felling and milling timber.
A fire destroyed all timber which had been felled. Macaura had earlier
insured the timber against loss of by fire in his own name. He had not
transferred the insurance policy to the company.
Issue
When Macaura made a claim his insurers refused to pay arguing that
he had no insurable interest in the timber. Only persons with a legal or
equitable interest in property are regarded as having interest in it.
Held By House Of Lords
The insurers were not liable. Only Macauras company, as owner of the
timber, which had the requisite insurable interest in it. Only the
company, and not Macaura, could insure its property against loss or
damage. Shareholders have no legal or equitable interest in their
companys property.
Case 4
Ackruti to face action for company law violations
Ackruti v/s MoF (GOI)
Fact
The government is likely to initiate prosecution against Mumbai-based
realty firm Ackruti City Ltd in a case involving loans given to other companies

Issue
Section 295 deals with loans given to directors and other companies. It is
alleged that Ackruti City gave loans to other companies in which its directors
were interested, without seeking the required approvals from the central
government.

The allegations follow an inspection report of the Registrar of Companies

(RoC), an arm of the corporate affairs ministry that oversees registered
companies in India. The ministry had ordered an inspection into Ackrutis
books of accounts in February. The inspection was based on the RoCs
preliminary findings that there were prima facie violations in Ackrutis balance
sheets till the period to March 2008.
Thank You