Companies act 1956

By Akash Saxena
 Companies Act 1956
INTRODUCTION:
This law will represent the basic legal provisions
governing a company. Every corporate executive needs to
have knowledge of basic provisions of company law.

MEANING OF COMPANY;
 The word company has no strictly technical or legal
meaning.
It implies association of persons for some object.
This act runs into 658 sections and 15 schedules.
 DEFINITION OF COMPANY
1. Section 3(1) of the Companies Act 1956 merely states that “ a
company means a company forms and registered under this act.

2 As defined in Section 3(1)(ii) lays down “ an existing company

means a company formed and registered under the companies
act.

3 According to Prof Haney: “ A company is an artificial person

created by law, having separate entity, with perpetual succession
and common seal”.

By Akash Saxena
 Characteristics of company
1. Incorporated Association.
2. Artificial Legal Person.
3. Separate Legal Entity.
4. Perpetual Succession. It does not die & life is not dependant on
its members.
5. Limited Liability.
6. Common Seal.
7. Separate Property.
8. Capacity to sue and being sued.

By Akash Saxena
 Incorporation of Company
Stages of Incorporation:

The complete process of formation of a company may be divided

into four stages:

1. Promotion.
2. Registration/Incorporation.
3. Floatation/ Raising of Capital.
4. Commencement of Business.

By Akash Saxena
 Promotion
1. It means preliminary steps taken for the purpose of registration.

2. Gerstenberg has defined the term promotion as “ the discovery of

business opportunities and the organization of fund, property and
managerial ability for the purpose of making profits.

3 Person who perform the task of promotion are called promoters.

4 Promotion means a number of business operations familiar to the

commercial world by which a company is brought into exixtence.

By Akash Saxena
 Registration
The promoter of the company will submit the following documents
with the registrar of the Companies for the registration of the
company:
 Memorandum of association
 Articles of Association
 List of persons who have consented to act as directors of the
company.
 A statutory declaration of compliance.
 Any agreement with the relevant persons of the proposed company.

By Akash Saxena
 Cond.
 The registrar of companies is to allot a Corporate Identity Number
(CIN) to each company registered on or after Nov 1, 2000.

 After scrutiny of all these documents and if they are in order, the
registrar of companies shall issue a “ certificate of incorporation”.

 This certificate of incorporation given by the registrar shall be

conclusive evidence that all the requirements of the Act have been
compiled with.

By Akash Saxena
 Floatation
 A private company is prohibited from inviting public to subscribe to
its share capital.

 Therefore, when a private company is formed, the requisite capital

is obtained from friends and relatives by making its own
arrangement.

 The company can take any of the following steps:

 Issue a prospectus in case public is to be invited to subscribe
to its capital.
 Deliver a statement in lieu of prospectus where the company
has either not issued a prospectus.

By Akash Saxena
 Commencement of Business
 Every private company can commence business immediately on
receipt of certificate of incorporation.
 Where a company has issued a prospectus it has to satisfy the
following conditions:
 The minimum subscription in cash has been received.
 Every director of the company has paid in cash his qualification
shares, a proportion payable on application and allotment of shares
offered for public subscription.
 No money is liable to be repaid to applicants for any shares or
debentures which have been offered for public by reason of any
failure to apply.

By Akash Saxena
 Memorandum of Association
 For the formation of company the first step is to prepare a document
called Memorandum of Association.
 According to the act memorandum means the memorandum of
association of a company as originally framed or altered from time
to time.
 It defines the limitation and powers of company.
 It contains the fundamental condition upon which the company is
allowed to be incorporated.
 It has to be printed, divided into paragraphs, numbered and signed
by at least 7 persons in the presence of at least one witness, who
will attest the signature.

By Akash Saxena
 Contents of MOA
Contents of MOA:

1. Name of the company.

2. Registered office.
3. Objects of company.
4. Liability.
5. Capital.
6. Association

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 Articles of Association
Meaning:

 It governs the rules and regulations and management of the

company.

 It defines the powers of its officers.

 They establish a contract between the company and the members.

By Akash Saxena
 Contents of AOA
1. Different classes of shares and their rights.
2. Procedure of making an issue of share capital and allotment.
3. Procedures of issuing share certificates and share warrants.
4. Directors, their appointment, remuneration, qualifications.
5. Accounts and audits.
6. Powers of directors.
7. General meetings.
8. Voting rights of members.
9. Winding up.
10. Dividend and reserves.

By Akash Saxena
 Prospectus
Definition:
According to the act “ prospectus means any document
described or issued as a prospectus and includes any notice,
circulars, advertisement or other document inviting deposits from
public or inviting offers from public for subscription or purchase of
any shares, debentures, .”

Essentials of definition:
1. Document
2. Subscription
3. Invitation to public
4. Offer to public 50 or more persons

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 Necessary Pre requisites of
Prospectus
a) It must be dated.
b) It must be signed. By directors
c) It must be registered. It is issued within 90 days from registration.

Contents of prospectus:
1. Matters specified in Part I of schedule II:
a. Name and address of company,
b. Its objects,
c. Particulars of directors and auditors,
d. Details regarding securities being issued.

By Akash Saxena
By Akash Saxena