Definition of Company:

2(c) "company" means a company formed and registered

under this Act or an existing company;
A company is a voluntary association of persons formed
to achieve some common objectives, having a separate
legal entity, independent and separate from its members
with a perpetual succession and a common seal and with
capital divisible into transferable shares.
Its an artificial person which has rights and duties at law.
Being an artificial legal person possesses similar rights
and owes similar obligations like natural person.
 Characteristics of a Company:
1.It has separate legal entity.
2.It has perpetual succession-continuous existence.
3. It has a separate property.
4.It has capacity to sue and being sued.
5.It has a common seal.
6.Its shares are freely transferable.
 Kinds of companies:
1. chartered companies, i.e. East-India Company
2. Statutory companies: is one which is incorporated
by a Special Act of the legislature (i.e. Parliament)
3. Registered companies: is one which is formed and
registered under the Companies Act, 1994
Registered companies can be divided into two
kinds-

A. Limited companies
B. Unlimited companies
A. Limited companies: is one in which the liability of
the members is limited i.e. the members are liable up
to a limited amount, and beyond that limit they
cannot be asked to contribute anything towards the
payment of companys liabilities.
A limited company is required to add the word Limited
after its name.
A limited company further can be divided into two
kinds, namely-
Companies limited by shares
Companies limited by guarantee
a) Companies limited by shares: A company limited
by shares is one in which the liability of the members
is limited to the extent of nominal value of shares held
by them.. If the shares are fully paid i.e. all amount of
share has already been paid, then the liability of the
member s is nil. And if the shares are partly paid then
the liability of the members is limited to the extent of
the amount which remains unpaid. The companies
limited by shares may be either private or public
b)Companies limited by Guarantee: A company
limited by guarantee is one in which the liability of the
members is limited to such amount as he undertakes
to contribute to the assets of the company in the event
of its being wound up. This liability can only be
enforced at the time of winding up of the company.

4. Unlimited Companies: An unlimited company is

one in which the liability of the members is unlimited
i.e. the members are also personally liable for the
payment of companys liabilities.
 5. Private Companies: Sec.2 (q) "private company" means
a company which by its articles--
(i) restricts the right to transfer its shares, if any;
(ii) prohibits any invitation to the public to subscribe for its
shares or debenture, if any; i.e. the issue of prospectus
should be prohibited.
(iii) Limits the number of its members to fifty (and minimum
two) not including persons who are in its employment;

Provided that where two or more persons hold one or

more shares in a company jointly, the shall, for the
purposes of this definition be treated as a single member.

In case a private company is a limited company, then, it

must add the words private limited at the end of its
name.
 A private company need not necessarily be a company
having share capital. Thus, in case of a private company
having no share capital, there is no question of restrictions
on members right to transfer their shares.

The legal positions of a private company is similar to that of

a public company i.e. it is a separate legal entity.

In case of private companies, it is only the number of

members that is limited to 50, and not the number of
debenture-holders. Thus, a private company may issue
debentures to any number of persons. However, the
debentures can be issued privately i.e. without inviting the
public to subscribe for the same.
 6. Public Companies: A public company is one which
is not a private company-sec.2(r).
A public company is the company the articles of
association of which do not contain the restrictions to
make it a private company. Thus, in case of public
companies
1) There are no restrictions on the transfer of shares,
2)on maximum number of members and
3) On the invitation to the general public to subscribe for
its shares.
However, the minimum number of public company
must be seven.
7. Government companies:
Government company is one in which 51% or more of
the paid up share capital is held by the government.
 Memorandum of Association
This is the first most important document which has
to be filed with the Registered office at the time of
presentation for registration. Memorandum of
Association is the charter or Constitution of the
company as it regulates the relations between the
company and outside world. It lays down the powers
and objects of a company, and the scope of the
operations of the company beyond which its actions
cannot go. The company is bound to act according to
the objects and powers as contained in its
memorandum.
Clauses (contents) of Memorandum of Association:
1. Name clause
2. Registered clause
3. Objects clause
4. Liability clause
5. Capital clause
6. Association clause or subscription clause
 1. Name Clause:
1. Should not be undesirable in the opinion of the Government.
2. Should not be identical with the name of an already existing
company.
3. Must add the word at the end of its name Private limited if
it is a private company and the word Limited if it is a Public
Company with limited liability.
2. Registered Office Clause:
The name of the place where the Registered Office is situated.

3. Objects Clause:
This clause contains the objects for which the proposed
company is going to be formed.
1.Should not be illegal or against the public policy
2.Should not be against the provisions of the Company Act.
3.Should not be against the General Law of the country.
4. Liability Clause:
1. By Share.
2. By Guarantee
5. Capital Clause:
It contains the amount of share capital with which the
company is to be registered. It also states the number
and value of shares into which the capital of the
company is divided. The effect of this clause is that the
company cannot issue more shares than are authorized
by its memorandum of association.
6. Association or Subscription clause:
This clause contains the names of the persons who sign
the memorandum and states that they are willing t form
themselves into a company. These persons are called
subscribers. They will sign a declaration in the presence
of at least one witness who must attest the signatures.
Every subscriber will write his name, designation,
address, occupation etc. and also the number of shares
which he takes. Every subscriber must take at least one
share. In case of a Public company, the memorandum
must be signed by at least seven subscribers and in case
of a Private company by at least two subscribers.
 Articles of Association
This is the second document which has to be filed with
the Registrar at the time of registration of the
company. This document contains the rules,
regulations and bye laws for the internal management
of the company. These rules and regulations are
framed for the purpose of carrying out the objects of
the company as stated in the Memorandum of
association. This is subordinate to and controlled by
the memorandum of association. This document lays
down the objects, powers of the company and also the
modes in which the objects of the company are to be
carried out by the members. The articles of association
contain the rules and regulations which are framed for
the internal management of the company.
 Contents of Articles of Association

Definitions of important terms and phrases

Adoption or execution of pre-incorporation contracts.
Share capital and the rights of the share holders
Allotment of shares
Procedure as to forfeiture of share
Transfer of share
Share certificate
Alteration of share certificate
Appointment of managerial personnel e.g. directors etc.
Meetings
Borrowing power
Accounts and audits
Common seal of the company
Voting rights and proxies
Winding up of the company etc.
Winding Up
 The term winding up of a company may be defined as
the proceedings by which a company is dissolved.
According to Prof. Gower- winding up is the process
whereby its life is ended and its property is
administered for the benefit of its creditors and
members. And an administrator, called a liquidator, is
appointed and he takes control of the company, collects
its assets, pays its debts and finally distributes any
surplus among the members with their rights.
The winding up of the company called the liquidation
of the company.
Modes of Winding up: Sec 234
1. Compulsory winding up by the court. 241-254
2. Voluntary winding up without the intervention
of the court (by the members themselves and
voluntary winding up by the creditors). 286-315
3. Voluntary winding up with the intervention of
the court i.e. under the supervision of the court. 315-
321
 Compulsory Winding Up by the Court: The
winding up of a company by an order of the court
is called the compulsory winding up. The court
may wound up the company on a petition submitted to
it on any of the following grounds.
Special resolution by the company
Default in holding statutory meeting
Failure to commence business
Reduction in members
Inability to pay debt
Just and equitable
 Special Resolution by the Company:
Sometimes, the company passes a special resolution to
the effect that the company be wound up by the court.
In such cases, the court may order the winding up of
the company on a petition presented to it by the
company or contributory.
A contributory is a person who is liable to
contribute to the assets of the company in the
event of its being wound up. On filing of the
winding up petition, companys shareholders are
called contributories.
Passing of special resolution by the company
itself is a ground for presenting a petition to the
court. A winding up petition under this clause can be
presented by the company or the contributory.
 Default in holding statutory meeting:
A company must hold its statutory meeting within 6
months from the date on which the company is
entitled to commence its business. And before the
holding of the meeting, the statutory report must be
delivered to the Registrar for Registration. If default
is made in delivering the report to the Registrar,
or in holding the statutory meeting, the court may
order the winding up of the company on petition
presented to it by the Registrar or Contributory.
 Failure to Commence Business:
Sometimes the company fails to commence the
business within one year from its incorporation,
or suspends its business for the whole year. In such
cases, the court may order the winding up of the
company on a petition presented to it by the Registrar
or Contributory. However, the court will exercise its
power only where there is a fair indication that there is
no intention to carry on the business or that it is not
possible for the company to carry on its business.
 Reduction in Members:
A Private Company must have at least 2 members and
a Public Company must have at least 7 members. If the
membership of any Company is reduced below limit,
the court may order the winding up of the company.
A winding up petition, under this clause, can be
presented by the Registrar of companies or
Contributories.
 Inability to pay debt:
Sometimes, the company is unable to pay its debts. In
such cases, the court may order the winding up of the
company. The term debt here means a definite sum of
money which is due and immediately payable by the
company.
A winding up petition, under this clause, can be
presented by the Registrar of companies, creditors or
Contributories.
 Just and equitable:
Sometimes the court is of the opinion that it is just and
equitable that the company should be wound up. In such
a case, the court may order the winding up of the
company. This clause gives a very wide discretionary
power to the court to order the winding up whenever it
appears desirable. Under this clause, the court may
order winding up on any ground. However, there must
be strong ground for winding up of the company. The
court may give due weight to the interest of the company,
its employees, creditors and shareholders. The interest of
general public should also be considered.
A winding up petition, under this clause, can be presented
by the Registrar of companies, by a person appointed by the
Govt. or Contributories.
 3. Consequence of Winding Up:
a) On making the winding up order, the court must
immediately send the intimation of the order to the
official liquidator and the Registrar.
b) The certified copy of the order must be filed with
the Registrar within 30 days of the order.
c) The order shall be deemed to be a notice of
discharge to the officers and employees and
employees.
d) After a winding up order has been made, no suit or
other legal proceeding shall be commenced
against the company with the leave of the court.
And if any suit or legal proceeding is pending at the
date of the order, it shall not be proceeded with except
with the permission of the court.
 4. Procedure for Compulsory winding up: The
winding up proceedings are conducted by an official to
be known as the official Liquidator. Thereafter, the
procedure involves the appointment of Official
Liquidator, and the conduct of proceedings by him.
 5. Appointment of official liquidator: an official
liquidator is an officer who helps the court in
conducting and completing the winding up
proceedings.
 6. Statement of Affairs: on the making of the
winding up order by the court or on appointment of
the official liquidator as the provisional liquidator, a
statement as to the affairs of the company must be
made out and submitted to the official liquidator. The
statement of affairs should contain the following
matters-
a) The assets of the company
b) The debts and liabilities of the company
c) The names, residence and occupations of companys
creditors
d) The debts due to the company
e) Such further or other information as may be
required by the official liquidator.
 7. Report by official liquidator: after receiving the
statement of affairs, as soon as practicable, the official
liquidator is required to submit a preliminary report to
the court stating the following informations-
a) The amount of issued, subscribed and paid up
capital of the company. And the estimated amount of
the assets and liabilities.
b) Where the company has failed, the causes of the
failure.
c) Whether in his opinion, further enquiry is desirable
as to any matter relating to the promotion, formation
or failure of the company or the conduct of its
business.
Voluntary winding up without the
intervention of the court:
the voluntary winding up means the winding up by the
members or creditors themselves without the
intervention of the court. Thus, the members and the
creditors are left free to settle their affairs without
going to the court of law.
 By ordinary resolution: sometimes, the article of the
company fixes the period for the duration of the
company, or provides that the company shall be
dissolved on the occurrence of some event. In such
cases, when that time expires of that event occurs, the
company may pass an ordinary resolution in its
general meeting for its voluntary winding up.
By special resolution: the company may, at any time
pass a special resolution that the company be wound
up voluntarily. In that case, no reason is necessary.
 Kinds of voluntary winding up:
1. Members voluntary winding up
2. Creditors voluntary winding up
 Members voluntary winding up: It is the winding
up in the case of which a declaration of solvency is
made and delivered to the Registrar in accordance with
the provision of Companies Act. The declaration of
solvency is the declaration made by the directors
stating that the company has no debts, or that it will
be in a position to pay its debts in full.
 Legal Rules-
1. The declaration of solvency has to be made by the
majority of directors at a meeting of the board of
directors, and verified by an affidavit.
2. The directors have to declare in it that they have
made a full enquiry into the affairs of the company
and have formed the opinion about the following-
a) That the company has no debts,
b) That the company will be able to pay its debts in
full.
3. The declaration must be made within 5 weeks
immediately before the passing of the resolution
for winding up and must be delivered to the registrar
for Registration before that date.
4. The declaration must be accompanied by a copy of
the report of companys auditors on the profit and
loss account. And the balance sheet of the company
prepared up to the latest practicable date before the
making of the declaration.
5. The declaration must also contain a statement of the
assets and liabilities of the company as at the latest
practicable date before the making of the declaration.
Creditors voluntary winding up:
It is the winding up in the case of which a declaration
of solvency has not been made and delivered to the
registrar. Thus, the question of creditors voluntary
winding up arises where the company is unable to pay
its debts in full.
Voluntary winding up with the
intervention of the court:
It is the voluntary winding up, but under the
supervision of the court. At any time after a
company has passed a resolution for voluntary
winding up, the court may make an order that the
voluntary winding up shall continue but, subject to the
supervision of the court. The order may be made by
the court on such terms and conditions as it thinks fit
and the court may also determine the extent of the
supervision. The application for courts supervision
may be made by creditors, contributories, or by the
others as the court think just.