INTRODUCTION DEFINITION

• The Companies Act, 2013 was enacted to consolidate • THE ACT DEFINES THE TERM
and amend the law relating to the companies. The
Companies Act, 2013 was preceded by the Companies COMPANY A BIT
Act, 1956 DIFFERENTLY. SECTION 2(20)
• Due to changes in the national and international OF THE COMPANIES ACT,
economic environment and to facilitate expansion and
growth of our economy, the Central Government
2013 DEFINES THE TERM
decided to replace the Companies Act, 1956 with a ‘COMPANY’. “COMPANY
new legislation. The Companies Act, 2013 aims to MEANS A COMPANY
improve corporate governance, simplify regulations,
strengthen the interests of minority investors and for INCORPORATED UNDER THIS
the first time legislates the role of whistle-blowers. ACT OR UNDER ANY
Thus, this enactment seeks to make our corporate
regulations more contemporary.
PREVIOUS COMPANY LAW”.
NATURE/FEATURE OF COMPANY
Companies may be classified into various classes on the following basis:
1. On the basis of liability:
(a) Company limited by shares:
• Section 2(22) of the Companies Act, 2013, defines that when the liability of the members of a company is limited by its
memorandum of association to the amount (if any) unpaid on the shares held by them, it is known as a company limited by
shares.
• It thus implies that for meeting the debts of the company, the shareholder may be called upon to contribute only to the extent of
the amount, which remains unpaid on his shareholdings. His separate property cannot be encompassed to meet
the company's debt.
(b) Company limited by guarantee:
• Section 2(21) of the Companies Act, 2013 defines it as the company having the liability of its members limited by the
memorandum to such amount as the members may respectively undertake by the memorandum to contribute to the assets of the
company in the event of its being wound up.
• Thus, the liability of the member of a guarantee company is limited upto a stipulated sum mentioned in the memorandum.
Members cannot be called upon to contribute beyond that stipulated sum.
(c) Unlimited company:
• An unlimited company is a type of business entity where the owners (shareholders) have unlimited liability for the debts
and obligations of the company. This means that if the company faces financial difficulties or goes bankrupt, creditors can
claim the personal assets of the shareholders to satisfy the company's debts.
Under the Companies Act, companies are generally classified into several types:
Private Limited Company: Limited by shares and restricts the transfer of shares. It cannot invite the public to
subscribe for shares.
• No minimum paid-up capital requirement.
• Minimum number of members - 2 (except if private company is an OPC, where it will be 1).
• Maximum number of members - 200, excluding present employee-cum-members and erstwhile employee-
cum-members.• Right to transfer shares restricted.
• Prohibition on invitation to subscribe to securities of the company.
Public Limited Company: According to section 3(1)(a), a company may be formed for any lawful purpose by
seven or more persons, where the company to be formed is to be a public company.
• Is not a private company (Articles do not have the restricting clauses).
• Shares freely transferable.• No minimum paid up capital requirement.
• Minimum number of members - 7.• Maximum numbers of members - No limit.
• Subsidiary of a public company is deemed to be a public company.
One Person Company (OPC): A hybrid structure allowing a single individual to own and operate a business with limited liability.
• Minimum paid up capital - no limit prescribed.
• The memorandum of OPC shall indicate the name of the other person, who shall, in the event of the subscriber's death or his
incapacity to contract, become the member of the company.
• No person shall be eligible to incorporate more than one OPC or become nominee in more than one such company.
Here the member can be the sole member and [Link]
Limited Liability Partnership (LLP): Combines the advantages of a partnership and a company, allowing for limited liability for its partners.
Section 8 Company: Non-profit organizations that operate for promoting arts, commerce, education, charity, etc. They cannot distribute
profits.
Section 8 of the Companies Act, 2013 deals with the formation of companies which are formed to
• promote the charitable objects of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of
environment etc. Such company intends to apply its profit in promoting its objects and
prohibiting the payment of any dividend to its members. Examples of section 8 companies are FICCI, ASSOCHAM, National Sports Club
of India, Cll etc.
OTHER COMPANIES:
Foreign Company [Section 2(42)]: It means any company or body corporate incorporated outside India which—
(i) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and
(ii) conducts any business activity in India in any other manner
On the basis of control:
(a)Holding and subsidiary companies: 'Holding and subsidiary' companies are relative terms.A company is a holding
company in relation to one or more other companies, means a company of which such companies are subsidiary
companies.
(b) Associate company (Section 2(6): In relation to another company, means a company in which that other
company has a significant influence, but which is not a subsidiary company of the company having such influence
and includes a joint venture company.
On the basis of access to capital / Listing:
(a) Listed company: As per the definition given in the section 2(52) of the Companies Act, 2013, it is a company
which has any of its securities listed on any recognised stock exchange. Whereas the word securities as per
the section 2(81) of the Companies Act, 2013 has been assigned the same meaning as defined in clause (h)
of section 2 of the Securities Contracts (Regulation) Act, 1956.
(b) Unlisted company: Unlisted company means company other than listed company.
 FORMATION OF MEMORANDUM OF
ASSOCIATION
The Memorandum of Association (MoA) is a crucial document for the formation of a company. It outlines the
company’s objectives, powers, and structure.
Object of registering a memorandum of association:
• It contains the object for which the company is formed and therefore identifies the possible scope of its
operations beyond which its actions cannot go.
• It enables shareholders, creditors and all those who deal with company to know what its powers are and what
activities it can engage in.
• A memorandum is a public document under Section 399 of the Companies Act, 2013. Consequently, every
person entering into a contract with the company is presumed to have the knowledge of the conditions
contained therein.
• The shareholders must know the purposes for which his money can be used by the company and what risks he
is taking in making the investment.
It cannot enter into a contract or engage in any trade or business, which is beyond the power confessed on it by
the memorandum. If it does so, it would be ultra vires the company and void.
As per Section 4, Memorandum of a company shall be drawn up in such form as is given in Tables A, B, C, D and E in Schedule I of the
Companies Act, 2013.
• Table A is a form for memorandum of association of a company limited by shares.
• Table B is a form for memorandum of association of a company limited by guarantee and not having a share capital.
• Table C is a form for memorandum of association of a company limited by guarantee and having a share capital.
• Table D is a form for memorandum of association of an unlimited company.
• Table E is a form for memorandum of association of an unlimited company and having share capital.
The memorandum and articles of a company must be as closed to model forms, as possible, depending upon the circumstances.

Content of the memorandum:

Name Clause: Specifies the company’s name, which must be unique and compliant with naming regulations.
• Registered Office Clause: States the location of the company’s registered office, which determines the jurisdiction for legal matters.
• Object Clause: Outlines the main objectives for which the company is established. This can include both primary and ancillary
activities.
• Liability Clause: Indicates the liability of the members, which can be limited by shares, limited by guarantee, or unlimited.
• Capital Clause: Specifies the total amount of share capital the company is authorized to issue and the division of that capital into
shares of a fixed amount.
• Association Clause: A declaration by the subscribers stating their intention to form a company and agreeing to take shares in it.
• Subscription Clause: Lists the names and details of the subscribers along with the number of shares each agrees to take.
 STEPS TO FORM THE MOA

• Drafting: Prepare the MoA in accordance with the legal requirements of the Companies Act.
• Subscribers: Obtain signatures from the initial shareholders (subscribers), ensuring they agree to the MoA.
• Filing: Submit the MoA along with other necessary documents (like Articles of Association) to the relevant
regulatory authority (e.g., Registrar of Companies).
• Payment of Fees: Pay any required registration fees associated with the filing.
• Certification: Once approved, the regulatory authority issues a Certificate of Incorporation, officially registering the
company.
ARTICLES OF ASSOCIATION
The document containing the articles of association of a company (the Magna Carta) is a business document; hence it has to be
construed strictly. It regulates domestic management of a company and creates certain rights and obligations between the
members and the company.
Here’s how it is typically formed:
Name of the Company: The official name, usually matching the Memorandum of Association.
• Definitions: Clarification of key terms used in the document.
• Share Capital and Variation of Rights: Provisions regarding the types of shares, their rights, and how those rights can be varied.
• Transfer of Shares: Rules governing the transfer of shares, including any restrictions.
• Meetings: Procedures for calling and conducting general meetings, including annual and extraordinary meetings.
• Voting Rights: Details on how voting is conducted, including proxy voting.
• Directors: Rules regarding the appointment, powers, duties, and removal of directors.
• Accounts and Audit: Provisions for maintaining financial records and conducting audits.
• Indemnity and Insurance: Clauses that provide indemnity to directors and officers against liabilities.
• Winding Up: Procedures to follow in the event of company dissolution.
The AoA serves as a rulebook for the company’s operations, guiding the management and governance structure. It is essential for
ensuring compliance with legal requirements and resolving disputes among members.
STEPS TO FORM THE AOA
Drafting: Prepare the AoA based on the company’s specific requirements and legal provisions under the
relevant Companies Act.
• Incorporation with MoA: The AoA is usually filed alongside the Memorandum of Association during the
incorporation process.
• Approval: The AoA must comply with legal requirements. If necessary, seek legal counsel to ensure
compliance.
• Filing: Submit the AoA with the relevant regulatory authority (e.g., Registrar of Companies) during the
incorporation process.
• Adoption: Once the company is incorporated, the AoA can be amended as needed by passing a
resolution, subject to legal provisions.
PROSPECTUS
A prospectus is a formal legal document that provides details about an investment offering for potential
investors. It is typically used by companies when they are issuing securities, such as stocks or bonds, to the
public. Here are the key aspects of a prospectus:
Disclosure of Information: The prospectus must contain comprehensive details about the company, including its
business model, financial performance, management structure, and risks associated with the investment.
Types of Prospectus:
• Red Herring Prospectus: Preliminary version that does not have complete information on the price or number
of shares.
• Shelf Prospectus: Used by companies that plan to issue securities over a period, allowing for multiple
offerings without needing to issue a new prospectus each time.
Regulatory Compliance:
• The Companies Act requires that a prospectus must be filed with the relevant regulatory authority (e.g.,
Securities and Exchange Board of India in India) before being issued to the public. It must adhere to specific
legal requirements to ensure transparency.
Liability for Misrepresentation:
• If the prospectus contains false or misleading information, the company and its directors may be held liable for
any losses incurred by investors as a result.
Investment Incentives:
• A well-prepared prospectus can attract investors by effectively communicating the company’s value proposition
and growth potential.

Contents of prospectus:
Company Overview: Basic information about the company, including its history, structure, and business model.
• Purpose of the Issue: Explanation of why the company is raising funds (e.g., expansion, debt repayment).
• Financial Information: Recent financial statements, including income statements, balance sheets, and cash flow
statements, to provide insight into the company’s financial health.
• Risk Factors: A comprehensive list of potential risks associated with the investment, helping investors
understand the uncertainties involved.
• Details of the Offering: Information about the type of securities being offered, the number of shares or bonds,
pricing, and the subscription process.
• Management Information: Details about the company’s management team, their backgrounds, and
qualifications.
• Use of Proceeds: Specific information on how the funds raised will be utilized.
• Legal Matters: Any legal issues or proceedings involving the company that might affect the investment.
 POWER AND DUTIES OF DIRECTORS

Sections 179 and 166 of the Companies Act 2013 prescribe these powers and duties, respectively, ensuring directors act in
the best interests of the company, its employees, shareholders, and stakeholders.
Powers of Directors:
General Powers
Calling Meetings: The ability to call meetings on a suo moto basis, ensuring timely decision-making and governance.
Issuing Securities: The power to issue shares, debentures, or other instruments for the company’s benefit.
• Employee Bonuses: Approving bonuses to employees, recognizing their contributions and motivating the workforce.
• Dividend Declaration: The authority to declare dividends, rewarding shareholders for their investment in the company.
• Financial Management: Granting loans or giving guarantees regarding loans, authorizing buybacks of securities, and
approving mergers, acquisitions, or takeovers.
• Business Strategy: Powers to diversify the business, borrow, and invest funds, underlining the board’s central role in
strategic planning.
• Regulatory Compliance: Approving financial statements and board reports, ensuring compliance with regulatory
requirements.
 Specific Powers
Additionally, the board can exercise specific powers, including:
Appointment and Management: Appointing secretaries, managers, or filling up casual vacancies among directors or
auditors.
• Contractual Authority: Entering into contracts on behalf of the company with other parties, ensuring operational
continuity and expansion.
• Contributions to National Defense Fund (NDF): Making contributions without any limit, reflecting the company’s
social responsibility.