The Companies Act, 2013

Companies Bill 2013 got its assent in the

Lok Sabha on 18 December 2012 and in
the Rajya Sabha on 8 August 2013. After
having obtained the assent of the
President of India on 29 August 2013, it
has now become the Companies Act, 2013.
The 2013 Act introduces significant
changes in the provisions related to
governance, e-management, compliance
and enforcement, disclosure norms,
auditors and mergers and acquisitions.
Also, new concepts such as one-person
company, small companies, dormant
The 2013 Act has introduced several new
concepts and has also tried to streamline
many of the requirements by introducing new
definitions.

One-person company: The 2013 Act introduces a

new type of entity to the existing list i.e. apart
from forming a public or private limited company,
the 2013 Act enables the formation of a new entity
a one-person company (OPC). An OPC means a
company with only one person as its member
[section 3(1) of 2013 Act].
Private company: The 2013 Act introduces a
change in the definition for a private company,
inter-alia, the new requirement increases the limit
of the number of members from 50 to 200.
[section 2(68) of 2013 Act].
 Small company: A small company has
been defined as a company, other than
a public company.
(i) Paid-up share capital of which does not
exceed 50 lakhs.
(ii) Turnover of which as per its last profit-and-
loss account does not exceed two crore.
As set out in the 2013 Act, this section will not
be applicable to the following:
A holding company or a subsidiary company
A company registered under section 8
A company or body corporate governed by
any special Act [section 2(85) of 2013 Act]
 Dormant company: The 2013 Act
states that a company can be
classified as dormant when it is
formed and registered under this
2013 Act for a future project or to
hold an asset or intellectual property
and has no significant accounting
transaction. Such a company or an
inactive one may apply to the ROC in
such manner as may be prescribed
for obtaining the status of a dormant
company.[Section 455 of 2013 Act]
 Secretarial Standards

Secretarial Standards: The 2013 Act

requires every company to observe
secretarial standards specified by the
Institute of Company Secretaries of
India with respect to General
Meetings and Board Meetings
 Definition of Company

A company is an association of
persons who contribute money or
moneys worth for a common
purpose of trade or business and
share profit or loss arising from them.
Company is an artificial person
created by law, having separate legal
entity, perpetual succession and a
common seal.
The money and the common stock
contributed in the company is known
 The persons who contribute the
capital in the Company are called as
the Members of the Company or the
Shareholders.
The portion of capital which is
contributed by the members is called
as Share.
Section 2(10) 1956
Section2(20) 2013
 Characteristics of Company

1. Voluntary Association A company is a voluntary

association of certain persons registered under the
Companies Act. Law cannot compel a person to become a
member.
2. Separate legal entity - A company is regarded as an entity
different/separate from its members. It has independent
corporate existence. It is an artificial person created by the
law. It is different from its owners and the managers.
Solomon vs Solomon & Co.
3. Limited Liability The company being separate person, is
the owner of its assets and bound by its liabilities . The
liability of members is limited to the extent of amount unpaid
on their shareholdings.
4. Perpetual Succession A company is a stable form of
organisation and does not have any fixed span of life. Its
continuance is not affected by the death , insolvency, mental
or physical incapacity of its members. It is created by the law
and only the law can dissolve it.
5. Artificial legal person A company is an artificial person
in the sense that it is created by law and lacks the
attributes possessed by natural persons. It is invisible,
intangible, and exists only in the contemplation of law.
6. Common Seal Being artificial entity a company has to
act through a collectivity of individuals called the board.
The board of directors are competent to exercise almost all
the powers of the company on its behalf. In order to signify
the companys consent to a contract or a document, the
board affixes a seal of the company on it. It signifies the
common consent of all he members, and is the official
signature of the company.
7. Transferability of shares Shares of public company are
freely transferable without the permission of the company
but in manner as provided in the Articles.
 What are the different kinds of Companies?
Unicorporated Companies No longer under Companies Act.
Incorporated Companies Which are incorporated under the
Companies Act.
Chartered Companies East India Company
Statutory Companies The companies created under the
Special Act of parliament. Eg Reserve bank of India, Life
Insurance Corporation.
Registered Companies Registered under registrar of joint
stock companies.
Unlimited Companies Company not having any limit on the
liability of its members.
Company limited by guarantee
Holding and Subsidiary Company
Government and Non Government Company
Foreign Company
 Memorandum of Association
It is the principal document of a company without which it cannot
be registered. It describes the constitution and the fundamental
conditions on which a company has been registered.
Negatively speaking it circumscribes the boundaries beyond
which the objects of the company cannot go. Any act of the
company which goes beyond the scope of the memorandum is
simply ultra vires.
Printing and Signing of memorandum By the subscribers to the
memorandum.
Contents of Memorandum
1. Name Clause
2. Registered office clause
3. Object clause
4. Liability clause
5. Capital clause
6. Subscription clause .
 Alteration of Memorandum can be either through a special
resolution or ordinary resolution as case may be.
 Articles of Association
They lay down the rules ,regulation and bye-laws for the
internal management of the affairs of the company. They
are framed with the object of carrying out the aims and
objects as set out in the Memorandum of Association.
The Articles of Association must be framed in such a manner
that they should not go beyond the powers of the company
as contemplated by the Memorandum of Association.
Contents of Articles
1. Share capital, rights of shareholders, share certificates
2. Lien on shares
3. Calls on shares
4. Transfer of shares
5. Transmission of shares
6. Alteration of share capital
7. Voting rights of the members
8. General meetings
9. Voting rights of members
10. Managers
11. Secretary
12. Dividends and reserves
13. Capitalisation of profits
14. Winding up.
 Articles must be signed by the subscribers to the
memorandum of association and registered along with the
memorandum.
Alteration of articles of association by passing a special
resolution and file the same with the Registrar.
 Lifting of Corporate Veil
Solomon vs Solomon & Co. It was considered that a company
is a separate legal entity, distinct from its members. It regarded
as a curtain (but not a wall between company and the
members).
The effect to this principle is that there is a financial veil and its
not permitted to look at the persons behind the veil.
According to this principle, when company has been formed and
registered under the Companies Act, all dealings with the
company will be in the name of the company and the persons
behind the company will be disregarded or will not be looked at.
This principle was considered as a shield. This veil was used for
fraud and improper conduct.
Therefore it became necessary for the courts to break through
the veil and look at the persons behind the company who were
the real beneficiaries.
Only in appropriate circumstances the courts are allowed to lift
the corporate veil and in exceptional cases -
1. UNDER STATUTORY PROVISIONS Eg: reduction of members below
the statutory minimum, failure to refund application fee,
misdiscription of companys name, fraudulent trading.
2. UNDER JUDICIAL INTERPETATION Eg: Protecting the revenue,
Public policy

SIR DINSHAW PETIT CASE sham company to evade taxes

 WINDING UP OF A COMPANY
Winding up is a process by which the management of the
companies affairs is taken out from its directors, the assets
are realized and liabilities are discharged out of proceeds of
realization and any surplus of assets is returned to its
members or shareholders.
The main purpose of winding up of a company is to realize
the assets and pay the debts of the company.
On dissolution the company ceases to exist.
A company may be wound up even when it is perfectly
solvent.
A company can never be declared bankrupt although its
unable to pay debts, it can only be adjudged insolvent.
Winding up and dissolution - Difference
 MODES OF WINDING UP
Compulsory winding up / Winding up by Court

The company has passed special resolution to wind up by

the Court.
Default in holding Statutory meeting
Company does not commence its business within 1 year of
its incorporation or suspends its business for a whole year.
The number of its members came down below 2 and 7
incase of private and public company respectively.
Court is of the opinion of just and equitable grounds.
The company has defaulted in filing balancesheet and P&L
A/c with the registrar for 5 consecutive years.
 Voluntary winding up -

a) Members Voluntary winding up In case of a solvent

company which has ability to pay its debts in full. The
majority of directors must give the declaration of solvency
certificate
b) Creditors Voluntary winding up
Meeting of creditors
Notice to registrar