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Companies Act
A company refers to an association of persons created by law as a separate body for a
special purpose. Section 3 of the companies act, 2013 relates to the basic requirements
for the constitution of the company
Following are the features of a company:
• Incorporated Association: A company is said to have come into existence through
the operation of law. Therefore, its incorporation under the companies act is
necessary.
• Separate Legal Entity: A company, being a separate legal entity, can sue or be
sued in its incorporated name and capacity.
• Perpetual Existence: A company continues to be in existence despite the death,
insolvency or change of members.
• Common seal: Common Seal is the official signature of a company. It is the official
stamp of the company. The Companies (Amendment) Act, 2015 made it optional
for the companies by removing the words 'and a common seal' from section 9.
• Limited liability: The liability of each and every shareholder of a company is
limited to the amount that he has agreed to pay to the company on the shares
allotted to him and if such shares are fully paid-up, he is subject to no further
liability.
• Transferability of shares: The shareholders contribute capital through the
subscription of shares and such shares are transferable by its members except in
case of a private limited company which may have certain specific restrictions on
such transferability.
Section 43 prescribes the kinds of share capital namely, equity share capital and
preference share capital
Types of Companies
Section 7 of Companies Act,2013 lays down the procedure to be followed for
incorporation of a company and Section 9 of the Companies Act, 2013 provides for the
effect of registration of a company.
1. Government Company: As per section 2(45) of the companies act, 2013,
“Government company” means any company in which not less than 51% of the
paid-up share capital is held by the central government, or by any state
government or governments, or partly by the central government and partly by
one or more state governments, and includes a company which is a subsidiary
company of such a government company.
2. Foreign Company: As per section 2(42) of the companies act, 2013, Foreign
company means any company incorporated outside India which has (a), a place
of business in India whether by itself or through an agent physically or through
electronic mode and (b) conducts any business activity in India in any other
manner
3. Private Company: As per section 2(68) of the companies act, 2013, A Private
company restricts the right to transfer shares. Minimum number of members
that are required in a private company is 2 and 1 in case the private company is a
One Person Company (OPC)
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A Private company which is subsidiary of a Public Company is treated as a Public
Company.
Earlier, as per companies act, 2013, the minimum paid up capital to form a
Private Company was Rs.1Lakh but as per Companies (Amendment) Act, 2015,
there is no minimum paid up capital requirement in case of private companies.
4. Public Company: A public company is a company whose shares are available to
be purchased by the general public.
Earlier, as per companies act, 2013, the minimum paid up capital to form a
Private Company was Rs.5Lakh but as per Companies (Amendment) Act, 2015,
there is no minimum paid up capital requirement in case of private companies.
5. One Person Company: OPC is a company which has only one person as a
member.
6. Associate Company: Associate Company [Section 2(6)] is a company in which
some other company has a significant influence (control of at least 20% of total
share capital) but it is not the subsidiary company of that company (having such
influence)
7. Company limited by Guarantee: Guarantee Company is defined in Section
2(21) of the Companies Act, 2013. It is a company with liability of the members
being limited by the memorandum. The liability of the member of a Guarantee
Company is limited up to a specified or stipulated sum as mentioned in the
memorandum and members are not allowed to contribute beyond that specified
sum.
8. Company limited by shares: It means a company having the liability of its
members limited by the memorandum to the amount, if any, unpaid on the
shares respectively held by them. In simple words, it means that the liability of
the shareholders to the creditors of the company is limited to the capital
originally invested.
Preparation of Final Statements:
According to Companies Act 2013, every company shall prepare their financial
statements which shall give a true and fair view of the state of affairs of the company.
International Financial Reporting Standards are issued by the International Accounting
Standards Board (IASB) to bring comparability, transparency & consistency in financial
statements around the world.
Section 129 of companies act 2013, provides for the preparation of financial
statements. It is also provided that the financial statements shall be prepared in the
form provided in new schedule III of Companies Act, 2013. Financial statements as per
section 2(40) of the companies act 2013 include:
• A balance sheet as at the end of the financial year
• A profit and loss account, or in case of NPO, an income and expenditure account
for the financial year
• Cash flow statement for the financial year
• A statement of changes in equity, if applicable
Some Important points to consider:
• Memorandum of Association (MOA) is known as charter of the company and
states the objects and scope of activities as well as restraints on the power of the
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company beyond which it cannot go. It contains all the fundamental conditions
required for the incorporation of a company.
It includes contents such as Name clause, Liability clause, registered office clause,
Object clause, Capital clause, Association clause.
• The Articles of Association contains the regulations for management of the
company. Memorandum of Association defines the activities and scope of the
powers of the company. Section 5 of the act provides the contents as well as
models of articles of association
• Doctrine of Constructive Notice states that any person has the right to inspect
any document kept by the registrar, can make a record of it or even get a copy on
payment of prescribed fees.
• The Doctrine of Indoor Management tends to protect the outsiders against the
acts of the company. It is most popularly known as Turquand Rule
• A joint venture is the business where two or more businesses are carrying out a
business venture. When goods are purchased for the Joint Venture, the amount is
debited to Joint Venture Account.
• Corporate Veil is the legal concept which states that the company is identified
separately from its members and if it (the company) suffers any debts or violates
the law then the members should not be held liable for those errors.
Q. In the context of accounting, the term IFRS stands for
(UPSC EPFO - ENFORCEMENT OFFICER) – 2017
A. International Financial Reporting Standards
B. Indian Financial Reporting Standards
C. Indian Financial Reporting System
D. International Financial Reporting System
Answer – A
Q. When goods are purchased for the Joint Venture, the amount is debited to
(UPSC EPFO - ENFORCEMENT OFFICER) – 2017
A. Purchase Account
B. Joint Venture Account
C. Venture’s Capital Account
D. Profit and Loss Account
Answer – B
Q. Under which Schedule of the Companies Act, 2013, the formats of financial
statements are prescribed? (UPSC EPFO - ENFORCEMENT OFFICER) – 2017
A. Schedule I
B. Schedule II
C. Schedule III
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D. Schedule IV
Answer - C
