A company is an association of individuals formed for a common goal, such as conducting

business or promoting art, science, education, or charity. According to Section 2(20) of the
Companies Act, 2013, a company is one incorporated under this Act or any previous
company law.

Key Features of a Company:

1. Separate Legal Entity: Once incorporated, a company is legally distinct from its
members.
2. Limited Liability: Members’ liabilities are limited to the value of their shares or the
guaranteed amount.
3. Perpetual Succession: The company continues to exist despite changes in
membership.
4. Transferability of Shares: Shares are movable and transferable, ensuring liquidity.
5. Unlimited Membership: Public companies can have an unlimited number of
members.
6. Stable Capital & Creditor Protection: Share buyback provisions ensure capital
stability and safeguard creditors.
7. Separate Property: A company’s assets are distinct from those of its members (as in
Salomon v. Salomon).
8. Professional Management: Managed by elected directors, separating ownership
from control.
9. Legal Capacity: A company can sue and be sued in its own name for various legal
matters.

Classifiction of Companies

1. Private Company
Most common in India. Key features:

 2–200 shareholders, at least 2 directors

 Share transfers can be restricted
 Cannot raise public funds or accept public deposits
 Fewer compliance requirements
 Name ends with "Private Limited"

2. Public Company
Ideal for large or listed businesses. Features:

 At least 3 directors, no max on shareholders

 Can issue shares to the public
 Name ends with "Limited"

3. One Person Company (OPC)

New under Companies Act, 2013. Features:

 One shareholder, one or more directors

 Max share capital ₹50 lakhs; turnover ₹200 lakhs

4. Holding Company
Controls another company by:

 Holding >50% equity or voting rights

 Right to appoint majority of directors
 5. Subsidiary Company
Controlled by a holding company (e.g., Tata Capital under Tata Sons)

Certificate of Incorporation

A Certificate of Incorporation is issued by a government or authorized body to confirm a

company’s legal formation. It typically includes:

 Type of corporation (e.g., professional, cooperative)

 Company name with legal suffixes (e.g., Ltd., Inc.)
 Legal address of registration

The processing time varies by country—ranging from a few days to a couple of months.

This certificate is essential for:

 Proving the company’s legal existence

 Opening a bank account
 Receiving business income

It can be issued in physical or electronic form, especially with online company formations.

Disadvantages of Incorporation

1. Complex Formation: Involves extensive documentation and procedures

2. Lack of Privacy: Must disclose financials and operations
3. Slow Decision-Making: Requires board/general meeting decisions
4. Unlimited Liability: In unlimited companies, members are personally liable

Advantages of Incorporation

1. Easy to Start: Private companies can begin right after incorporation

2. Flexibility: Fewer legal formalities, more operational freedom
3. Faster Decisions: Smaller teams allow quicker consensus
4. Business Secrecy: Not required to disclose as much as public companies
5. Policy Continuity: Managed by the same core team
6. Personal Touch: Closer relationships with staff and customers

Dividend Conditions

A company can declare dividends only if the following conditions are met:

1. Depreciation: Provided as per Schedule II of the Companies Act.

2. Reserve Transfer: A portion of profits must be transferred to reserves.
3. Set Off Losses: Previous years’ losses and depreciation must be adjusted from current
profits.
4. Free Reserves: Dividends must be paid only from free reserves.
Private Company vs. Public Company

Particulars Private Company Public Company

Meaning Sells shares privately to select investors. Offers shares to the general public.
Fewer rules unless it exceeds 500 Must follow strict government
Regulations
shareholders or $10M in assets. regulations and reporting norms.
No need to disclose details or report to Can raise capital by selling shares in
Advantage
shareholders. the market.
Can be large, despite being privately
Size Typically large-scale businesses.
held.

Memorandum of Association (MOA)

As per Sec. 2(56) of the Companies Act, 2013, the MOA is the company’s charter defining
its objectives and powers. It's mandatory at the time of registration.

Key Clauses of MOA

1. Name Clause
o States the company’s name, ending with Limited or Private Limited.
o Must not resemble existing company names.
o Prohibited names under the Emblems and Names (Prevention of Improper
Use) Act, 1950, cannot be used.
2. Registered Office Clause (Sec. 12)
o Mentions the state of the registered office.
o Company must display its name and address at all business locations and on
documents.
3. Object Clause
o Specifies the company’s business scope.
o Protects investors and creditors by clearly stating permissible business
activities.
4. Liability Clause
o States if member liability is limited (by shares or guarantee).
5. Capital Clause
o Details the share capital and its division into fixed-value shares.

Alteration of MOA (Sec. 13)

Changes can be made through a special resolution and in compliance with the Act. Types of
alterations:

1. Change in Registered Office (State to State)

o Requires Central Government approval and registrar filing.
2. Change in Object Clause
o Needs a special resolution and government approval.
3. Change in Liability
o Cannot increase member liability without written consent.
4. Change in Share Capital (Sec. 61)
o Allowed if authorized by Articles. Includes increasing, consolidating,
subdividing, or cancelling shares.
Limitations on Alteration

 Must comply with the Companies Act.

 Should not conflict with the MOA.
 Cannot legalize any illegal act.
 Must not increase members' liability without consent.
 Even minor changes require a special resolution.

Articles of Association (AOA)

The AOA contains the rules and regulations for managing a company’s internal affairs. It
helps implement the objectives outlined in the Memorandum of Association and may include
any additional provisions needed for effective management.

Key Contents of AOA

 Share capital structure and division

 Share capital reorganization and reduction
 Call money and procedures
 Commission on underwriting and brokerage
 Minimum subscription amount
 Share allotment, forfeiture, and re-issue
 Share certificates and lien on shares
 Share transfer and conversion to stock
 Types of meetings and scheduling
 Voting rights and poll procedures
 Approval of preliminary contracts
 Borrowing powers and loan procedures

Memorandum of Association Articles of Association

1. Acts as the company’s charter; defines its 1. Regulates internal management;
relationship with outsiders. subordinate to the Memorandum.
2. Contains rules for achieving the
2. Defines the company’s scope of activities.
company’s objectives.
3. It is the primary legal document. 3. It is a secondary document.
4. Hard to alter; requires strict procedures. 4. Easier to alter by special resolution.
5. Acts beyond the Memorandum are void and 5. Acts beyond Articles but within
can’t be ratified. Memorandum can be ratified.
6. Outsiders are not expected to know its
6. Outsiders must be aware of its contents.
contents.

Prospectus

A prospectus is defined under the Companies Act, 2013 as any document issued to invite
public offers for the purchase of securities. It includes notices, advertisements, and circulars.

Essentials of a Prospectus:

1. It must invite public subscription for shares or debentures.

2. The invitation must be made by or on behalf of the company.
3. It must relate to shares, debentures, or similar instruments.
Statement in Lieu of Prospectus
Public companies must issue a prospectus or file a statement in lieu of it. Private companies,
when converting to public, must do the same.

Red Herring Prospectus

A red herring prospectus lacks complete price details but can be issued before a full
prospectus. It must be filed with the registrar 3 days before the subscription opens. Any
variations must be disclosed.

Liabilities for Misstatements in Prospectus:

 Criminal Liability: Any misleading statement in a prospectus can lead to fraud

charges, with penalties including imprisonment and fines.
 Civil Liability: Those responsible (directors, promoters, etc.) can be liable for
compensating losses due to misstatements in the prospectus.

Doctrine of Ultra Vires

Ultra vires refers to acts beyond a company's legal authority. These acts are void and cannot
be ratified. The doctrine protects shareholders and the public from unauthorized company
actions.

Effects of Ultra Vires Acts:

1. A company is not bound by ultra vires acts.

2. Directors can be personally liable.
3. Injunctions can be sought to stop ultra vires acts.
4. Contracts beyond a company's powers are void.

Lifting of Corporate Veil

Under the Companies Act, 2013, the corporate veil can be lifted to identify the true owners,
especially in cases of fraud, misstatements in the prospectus, ultra vires acts, or failure to
return application money.
The basis on which Corporate Veil is Lifted under Companies Act,2013
1. Misstatement in Prospectus
2. Misdescription of Name
3. Fraudulent conduct
4. Ultra-Vires Acts
5. Failure to return the application Money
6. tax Evasion
7. Embezellement

Consequences of Lifting the Veil:

Personal Liability: The individuals or entities behind the company can be held personally
liable for the company's debts and liabilities.
Punishment: Individuals involved in fraudulent activities may face criminal charges and
penalties.

Doctrine of Indoor Management

This doctrine assumes that outsiders dealing with the company need not verify internal
proceedings. They are entitled to assume the company acts within its powers, unless
circumstances are suspicious or there is a forgery. The rule does not apply if the person
should have known about internal irregularities.

Key Principles:
Good Faith Transactions:
The doctrine applies when a third party enters into a contract or transaction with a company
in good faith, believing the company's internal procedures are being followed.
Presumption of Regularity:
Third parties can assume that the internal requirements and procedures outlined in the
company's public documents (memorandum and articles of association) have been met.
No Duty to Investigate:
Outsiders are not required to investigate the company's internal affairs to ensure proper
procedures are followed. They can rely on the company's public representations.
Protection from Internal Irregularities:
The doctrine prevents the company from using internal irregularities as a defense against a
third party's legitimate claim.
Exceptions to the Doctrine:
 Knowledge of Irregularity:
 Forgery or Fraud:
 Acting in Bad Faith:

Share Capital :

A company needs significant capital to begin its operations, and this capital is divided into
smaller units called shares. Section 2(84) of the Companies Act defines shares as "a share in
the share capital of a company, including stock."

Types of Share Capital:

1. Equity Share Capital: This refers to share capital in a company that is not preference
share capital. It can have:
o Voting rights.
o Differential rights (e.g., dividends, voting rights).
2. Preference Share Capital: This is the part of share capital that offers preferential
rights, such as:
o Fixed or calculated dividends.
o Preference in capital repayment during winding-up.

Types of Preference Shares:

1. Simple Preference Shares: Non-cumulative shares with no right to accumulate

unpaid dividends.
2. Cumulative Preference Shares: Shares that allow shareholders to accumulate unpaid
dividends.
3. Convertible Preference Shares: These shares can be converted into equity shares
after a set period.
4. Non-Convertible Preference Shares: These shares cannot be converted into equity
shares.
5. Redeemable Preference Shares: Shares that are redeemable at the company’s
discretion, usually at winding-up.
6. Irredeemable Preference Shares: Shares that are not redeemable unless specified
events occur, such as winding-up.
7. Participating Preference Shares: These shares get a fixed dividend and may share
additional profits with equity shareholders after a specified event.
8. Non-Participating Preference Shares: These shares receive only a fixed dividend
and do not share in further profits.
Basis Share Warrant Share Certificate
A company can issue only
Can be issued originally by
1. Original Issue fully paid-up shares as
the company.
warrants.
Only public companies can Can be issued by any
2. Right of Issue
issue. company.
Requires Articles' authority
3. Approval and Central Government No such approval required.
approval.
Only fully paid-up shares Can be fully or partly paid-
4. Paid-Up Value
can be converted. up.
Holders of share
5. Membership Holders of share warrants.
certificates.
It is prima facie evidence
6. Negotiability It is a negotiable instrument.
of title.
Prima facie evidence of
7. Evidence of Title Conclusive evidence of title.
title.
Transfer requires
8. Transfer Transferable by delivery. registration with the
company.
Qualification shares are in
9. Qualification Not applicable to share
the form of share
Shares of Directors warrants.
certificates.
Only the person named on
10. Ownership The bearer is the owner.
the certificate is the owner.

MEETINGS

In a company, a meeting refers to a gathering of members for business purposes, with prior
notice given. At least two persons are needed to constitute a meeting. The purpose is to
discuss common interests.

Kinds of Meetings:

1. Statutory Meeting: Required for public companies with share capital, held once in a
company's lifetime, within 1-3 months of starting business.
2. Annual General Meeting (AGM): Public companies must hold an AGM within six
months of their financial year-end. Private companies only if required by their articles
or if traded.
3. Extraordinary General Meeting (EGM): Any meeting that isn’t an AGM or
statutory meeting, convened by the directors or on the requisition of members.
4. Class Meeting: Held by a specific class of shareholders to alter their rights or convert
one class to another.
5. Meeting of Debenture Holders: Held as per the trust deed, often during
reorganization, amalgamation, or winding-up.
6. Board of Directors Meeting: Directors meet regularly to decide on company policies
and routine matters.
7. Meeting of Creditors: Held when a company proposes a scheme of arrangement with
creditors, or as ordered by the court during liquidation.
8. Meeting of Creditors and Contributories: Held during liquidation to determine
debts and approve schemes to resolve financial difficulties.

Debentures Overview
A debenture is a bond or promissory note issued by a company to raise capital. It is not
backed by any specific asset but based on the company’s creditworthiness. Terms are
outlined in a legal document called an indenture. Debentures are usually bearer
instruments, meaning ownership isn't recorded, and interest is paid via attached coupons.

Key Features of Debentures

1. Written Certificate – A debenture must be in writing.

2. Acknowledges Debt – Acts as proof of the company’s debt.
3. Company Seal Optional – Valid even without the seal if signed by two directors.
4. Single or Series – Can be issued individually or in a series.
5. Repayment – Typically redeemable at a fixed date, though some are perpetual.
6. Interest Payments – Carries a fixed interest rate until repayment.

Types of Debentures

1. By Negotiability

 Bearer Debentures – Transferable by delivery; unregistered.

 Registered Debentures – Transferable only with company records updated.

2. By Security

 Secured Debentures – Backed by company assets.

 Unsecured Debentures – No backing; holders are general creditors.

3. By Permanence

 Redeemable – Repaid after a fixed term.

 Irredeemable (Perpetual) – No fixed maturity; repayable on uncertain events.

4. By Convertibility

 Convertible – Can be converted into shares after a set period.

 Non-Convertible – Cannot be converted into shares.

5. By Priority

 First Debentures – Have priority over others in repayment.

 Second Debentures – Paid after first debentures.

Shareholders vs. Debenture Holders

Aspect Shareholders Debenture Holders
Role Owners Creditors
Decision-making Participate in decisions No participation
Returns Dividends (profit-based) Interest (fixed, mandatory)
Payment Obligation Not guaranteed Must be paid regardless of profit

Director – Overview

A director is an individual responsible for managing a company, which as an artificial legal

entity, must act through human agents.

Number of Directors
  Public Company: Minimum 3
 Private Company: Minimum 2
 One Person Company: Minimum 1
 Maximum: 15 (more allowed with a special resolution)
 Certain companies must have at least one woman director.

Rights of Directors

1. Inspect company accounts and meeting minutes

2. Receive meeting notices and circular resolutions
3. Attend and vote in board meetings
4. Speak in general meetings
5. Record dissent
6. Call board meetings
7. Receive sitting fees and reimbursements

Duties of Directors

 Act in good faith for the company’s benefit and public interest
 Avoid conflicts of interest
 Refrain from personal gains
 Cannot assign their office

Appointment of Directors

1. By Small Shareholders – Listed companies may appoint one director elected by

small shareholders.
2. By the Company – If not specified in the Articles, initial directors are deemed to be
the subscribers to the Memorandum.
3. Vacancy – If a retiring director's seat isn’t filled, the meeting is adjourned and he may
be reappointed by default.

Disqualifications [Sec. 164]

A person cannot be appointed if they:

 Are of unsound mind

 Are insolvent or have applied for insolvency
 Have been convicted and sentenced to 6+ months, unless 5 years have passed since
sentence completion

Resignation of Directors

 Must submit a written notice

 The board must record it and inform the Registrar
 If all directors resign, the promoter or Central Government appoints temporary
directors

Removal of directors

 Can be removed via an ordinary resolution, after giving a chance to be heard

 A special notice is required for removal
 The director can submit a written representation to the company, which should be
shared with members if time allows

Majority Rule & Oppression

In company law, majority shareholders usually control decisions. However, this power can
be misused to oppress minority shareholders by enforcing unfair or risky policies. This
misuse is called oppression.

Example of Oppression:

 Forcing new, risky objectives on unwilling shareholders.

Majority Rule – Principle

 Company decisions are made by a simple or special majority.

 Majority control is essential for smooth functioning.

Exceptions to Majority Rule

1. Ultra Vires Acts: When the company acts beyond its powers (as defined in the
Memorandum), any shareholder can sue.
2. Fraud on Minority: If majority shareholders misuse power or appropriate company
assets unfairly, minority shareholders can take action.
3. Wrongdoer in Control: If the wrongdoer holds control, minority shareholders may
sue on behalf of the company.
4. Infringement of Individual Rights: A single shareholder can act if their legal rights
are violated.
5. Oppression & Mismanagement: Minority shareholders are protected under specific
legal provisions.

Prevention & Remedies Against Oppression

 Oppression involves unfair treatment and misuse of power within the company.
 The Companies Act, 2013, under Sections 241 & 242, allows minority shareholders
to seek relief through a tribunal if:
o Company affairs are being run oppressively or against public interest.
o Significant changes are made without protecting shareholder or debenture
holder interests.

Winding Up of a Company

Winding up is the legal process of closing a company and settling its affairs, bringing its
existence to an end. The company’s assets are sold, and proceeds are distributed to creditors
and shareholders

Types of Winding Up

1. Voluntary Winding Up
Initiated by the company itself, when:
o A special resolution is passed.
o Conditions in the Articles of Association trigger winding up.

Procedure:

o Board meeting and declaration of solvency.

o General meeting to pass a resolution.
o Meeting with creditors for approval.
o Appointment of a liquidator and filing with Registrar.
o Final accounts prepared and audited.
 o General meeting to approve closure.
o Application filed with Tribunal for dissolution.
2. Compulsory Winding Up
Ordered by a Tribunal, generally when:
o The company can't pay debts.
o A special resolution is passed.
o The company commits fraud or unlawful acts.

Procedure:

o Petition filed with Tribunal along with company’s financial statement.

o Tribunal may accept or seek objections.
o Tribunal appoints a liquidator.
o Liquidator submits draft and final reports.
o ROC receives final report and approves winding up.
o Company’s name is removed from the register and published in the official
gazette.