The Companies Act

Topics covered • Characteristics of a company • Formation of a company• Types of companies• Management of a company• Meetings• Accounts and Audit

Company

Company means a company formed and registered under the Companies Act, 2013 or under any previous company law

Governing lawsThe Companies Act, 1956The Companies Act, 2013Rules prescribed thereunder

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Important regulatory authorities under the Companies Act

• Ministry of Corporate Affairs, Central Government – Comprising Secretary, Joint Secretary, Deputy Secretary, Director of Inspection & Investigation, etc.

• Registrar of Companies (ROC);• Regional Director;• Company Law Board (CLB) at Delhi with benches

in the north, south, east and west; and• Official Liquidator.NCLT, NFRA and SFIO - CA 2013

Types of companies• Public company • Private company• One person company (CA 2013)

– Limited by shares or guarantee– Unlimited company

• Association not for profit• Foreign company• Government company

Holding and subsidiary company

Public Company [ Section 2 (71)]• has minimum paid-up share capital of

Rs.500,000 or such other amount as may be prescribed.

• Minimum number of members - 7• a private company which is a subsidiary of a

public company.

Private Company • Minimum paid-up share capital of Rs.100,000/- or such

higher amount as may be prescribed.• restricts right to transfer shares• Minimum number of members - 2• Maximum number of members - 200• Prohibits invitation to the public for shares• Prohibits any invitation or acceptance of deposits from

persons other than its members, directors or their relatives.

One person company Single person as member

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Limited by shares or guaranteeLimited by shares

Liability of members is restricted to the amount

unpaid on shares

Limited by guarantee

Undertaking to contribute to assets of the company in the

event of winding up etc.,Eg: clubs, charities etc.

Unlimited company

A company not having any limit on the liability of its members. However liability is towards company and not towards company’s creditors directly or indirectly.

Associations not for profit• Need not add the word ‘Private Limited’ or

‘Limited’.• Formed for promotion of commerce, art, science,

sports, education, research, social welfare, religion, charity, protection of environment or any such other object;

• Intends to apply its profits or other income in the promotion of its objects

• Does not intend to pay any dividend

Holding and subsidiary companyA company shall be a subsidiary, if the holding company:• controls the composition of its Board of Directors,• controls directly or together with one or more other

subsidiary companies more than half of the total share capital

• Is a subsidiary of any company which is that others’ subsidiary.

Foreign CompanyCompany incorporated outside India having a place of business in India

Government company Company in which not less than 51% of the paid up share capital is held by:

Central government (CG) State government(s) (SG) Partly by CG and partly by one or more SG

also includes subsidiary of a government company

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Essentials for a company Certificate of incorporation Corporate Identification Number (CIN) Certificate of commencement of business Memorandum of Association Articles of Association Registered office Minimum number of directors

Characteristics of a company• Separate legal entity• Limited liability• Perpetual succession• Separate property• Transferability of shares• Common seal• Capacity to sue and be sued• Contractual rights• Limitation of action• Separate Management• Voluntary association for profit• Created by law and hence can only be terminated by law.

Formation of a company• Check name availability on MCA 21 portal – adhere to the name availability

guidelines

• Apply to Registrar of Companies (ROC) for name in

e-form 1A

• In case the name includes the name of group company- NOC is required to be

obtained from the Board of directors of that company

• Prepare draft memorandum and articles of association

• On receiving name availability letter from ROC, file

Eform 1- application for incorporation

Eform 18- notice of registered office

Eform 32- appointment of directors

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• Obtain consents from directors and requisite declaration that they are not disqualified from being appointed as directors under Companies Act

• All formalities to be completed within 60 days of name availability, if not apply for revalidation of the name.

• ROC will approve and Corporate Identification Number (CIN) will be generated and Certificate of Incorporation will be issued

• CIN- U17118MH1983PTC03xxxxL12345DL1999PLCxxxxxx

Certificate of Incorporation

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Memorandum of AssociationMOA is a charter constituting the company, consisting of six clauses namely:

• Name Clause• Situation Clause• Objects Clause• Liability Clause• Capital Clause• Association Clause

Articles of Association

AOA is a document laying down the internal regulations of a company.

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Sources of funds• Capital• Borrowings

• “Share” means share in the share capital of a company and includes stock

• “Securities” include –– Shares, scrips, stocks, bonds, debentures, debenture stock or

other marketable securities of a like nature in or of any incorporated company or other body corporate;

– Derivatives……– Government securities;– Such other instruments as may be declared by the Central

Government to be securities; – Rights or interest in securities.

Kinds of share capital

Equity Preference

With voting rights With differential

rights

• Cumulative

• Non-cumulative

• Participating

• Non-participating

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MODES OF ISSUE OF SHARES

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Nature of borrowings

The borrowings may be by way of-• Debentures/ Bonds• Deposits• Loans (rupee or foreign currency), (short term or long

term)• ECB• Working capital loans• Overdraft• Commercial paperBorrowings may be either secured or unsecured, long term or short term, convertible and non-convertible.

Limits for Borrowings

The borrowings should not exceed the paid-up capital of the company and its free reserves, unless shareholders’ approval obtain by special resolution in a general meeting.

Authority to borrowBoard and shareholders’ resolution

Inter-Corporate Loans and Investments

• Limit for Inter-Corporate loans and investments

• Authorisation • Register• Delegation of powers by board• Exemptions• Disclosure under listing agreements and

accounting standard

Management and Administration

• Board of Directors• Committee of directors – Audit committee,

SIGC, Remuneration Committee, Nomination Committee

• Key Managerial Personnel – MD, Manager, WTD CEO CFO Company Secretary

Directors • Maximum number of directors • Types of directors –

Executive Non- executive Independent

• Appointment of directors • First directors• Additional directors• Nominee directors• Independent directors

• Compliance with Clause 49 of Listing Agreement• Retirement by rotation / Removal • Qualification and disqualifications for being a director• Duties and responsibilities of directors• Vacation of office of director

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• Disclosures, consents and declarations by directors

• Managerial personnel – MD / WTD/ Manager

• Remuneration of managerial personnel• Change in KMP • Related party transactions

Directors• Minimum Number of directors

Private company – 2 Public company – 3

• Maximum – For private company- can be provided in Articles of

Association– For public company- 12 (15) directors. Company can apply

to CG to increase the number• Number of directorships – 15 (20)

Meetings• Board Meetings

At least 4 meetings in a year. Gap of not more than 120 days

Quorum – 1/3 of total strength or 2 directorsVideo conferencing Notice- not less than 7 days. With short notice, at least one

independent director presentAgendaMinutesResolution by circulation Chairman

• Audit committee Minimum 3 directors, majority to be

independent directors

• Nomination and Remuneration Committee• Stakeholders’ relationship committee

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Meetings of stakeholders• Annual General Meetings• Extraordinary General meetings • Creditors’ meetings• Court convened meetings

AGM (Annual general meeting)• Once a year and not more than 15 months shall elapse

between two meetings • Within 6 months of end of financial yearEGM (Extraordinary general meeting)

Quorum NoticeExplanatory statement

Voting Rights• Equity• Preference • DVR

Voting can be by:• Show of hands • Poll• Postal ballot

Resolutions – Ordinary or special

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Accounts and Audit

• Books of Accounts, financial statements-signing, approval, inspection

• Accounts should be adopted by shareholders within 6 months of end of financial year

• Financials of subsidiary and consolidated accounts

• Directors’ report• Corporate Governance Report • Management Discussion and Analysis Report

as per Listing agreement

• Auditors- appointment, qualification, disqualification, removal, retirement, rights and duties, auditors’ report

• Persons responsible for accounts

• Filing with ROC

Some important filings with ROC• Annual Return• Financial statements• Directors’ Report• Form 32• Form 18• Form 5• Form 2• Forms 8 and 17• Form 23B• Form 23• Form 25C• Change in promoter shareholding (new)

Restructuring• Capital restructuring – Reduction of

capital• Merger and amalgamation• Acquisition • Take over • Credit debt restructuring• Financial restructuring• Demerger• Buy back

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