1.1 Important definitions | unit 1 introduction to companies act

UNIT I

Introduction to Companies Act, 2013

1.1 Important definitions

The terms or definitions used for companies in India according to Companies Act, 2013 are: - :

Abridged prospectus: It’s a memorandum containing such salient features of a prospectus as may be specified by the Securities and Exchange Board by making regulations in this behalf.

Accounting Standards: Standard for accounting for company or class of companies.

Alter or Alteration: Used for making Additions, Omissions, and Substitutions

Appellate Tribunal: The National Company Law Appellate Tribunal constituted under section 410.

Articles: Articles of association of a company as originally framed or as altered from time to time or applied in pursuance of any previous company law or of this Act.

Associate Company: Associate Company means in relation with another company. A company that have at least 20% of total share capital in other company.

Auditing Standards: The standards of auditing or any addendum thereto for companies or class of companies.

Authorized Capital or Nominal Capital: A Capital that is authorized by the memorandum of company to be the maximum amount of share capital of that company.

Banking Company: A Company that fulfills the terms defined in Clause (c) of section 5 of the Banking Regulation Act, 1949.

Board of Directors or Board: Collective body of the directors of the company is termed as Board of Directors.

Body Corporate or Corporation: A Company that incorporated outside India But it does not be a co-operative society.

"Book and Paper" and "Book or Paper": This includes Books of Account, Deeds, Vouchers, Writings, Documents, Minutes and Registers Maintained on paper or in electronic form.

Books of Account: Books of Account consist all the records like: (a) All sums of money received and expended by a company; (b) All sales and purchases of goods and services by the company; (c) The assets and liabilities of the company; (d) The items of cost as may be prescribed under section 148 in the case of a company which belongs to any class of companies specified under that section.

Branch Office: Branch Office means any establishment described as Branch Office by the Company.

Called-Up Capital: Called-Up Capital is that part of capital, which has been called for payment.

Charge: Charge means an interest or lien created on the property or assets of a company or any of its undertakings or both as security and includes a mortgage.

Chartered Accountant: Chartered Accountant means a chartered accountant as defined in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 who holds a valid certificate of practice under sub-section (1) of section 6 of that Act.

Chief Executive Officer: Chief Executive Officer means an officer of a company, who has been designated as such by it.

Chief Financial Officer: Chief Financial Officer means a person appointed as the Chief Financial Officer of a company.

Company: A Company is an entity that Incorporated under this Companies 2013 Act or under any previous Company Law Acts.

Company Limited by Guarantee: Company Limited by Guarantee means a company having the liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up.

Company Limited by Shares: Company Limited by Shares 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.

Company Liquidator: Company Liquidator relates to the winding up of a company, means a person appointed by (a) Tribunal in case of winding-up by the tribunal or (b)Company or creditors in case of voluntary winding.

Company Secretary or Secretary: Who is company secretary is defined in clause (c) of sub-section (1) of section 2 of the Company Secretaries Act, 1980 who is appointed by a company to perform the functions of a company secretary under this Act.

Company Secretary in Practice: Company Secretary in Practice means a company secretary who is deemed to be in practice under sub-section (2) of section 2 of the Company Secretaries Act, 1980.

Contributory: Contributory means a person liable to contribute towards the assets of the company in the event of its being wound up.

Control: Control shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.

Cost Accountant: Cost Accountant is defined in clause (b) of subsection (1) of section 2 of the Cost and Works Accountants Act, 1959.

Court: (i) The High Court having jurisdiction in relation to the place at which the registered office of the company concerned is situate, except to the extent to which jurisdiction has been conferred on any district court or district courts subordinate to that High Court under sub-clause (ii) The District Court, in cases where the Central Government has, by notification, empowered any district court to exercise all or any of the jurisdictions conferred upon the High Court, within the scope of its jurisdiction in respect of a company whose registered office is situate in the district. (iii) The Court of Session having jurisdiction to try any offence under this Act or under any previous company law. (iv) The Special Court established under section 435. (v) Any Metropolitan Magistrate or a Judicial Magistrate of the First Class having jurisdiction to try any offence under this Act or under any previous company law.

Debenture: Debenture includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not.

Deposit: Deposit includes any receipt of money by way of deposit or loan or in any other form by a company, but does not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India.

Depository: depository is defined in clause (e) of sub-section (1) of section 2 of the Depositories Act, 1996.

Derivative: A Derivative is defined in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956.

Director: Director means a person that is appointed as director to the Board of a company.

Dividend: Dividend includes any interim dividend.

Document: Document includes summons, notice, requisition, order, declaration, form and register, whether issued, sent or kept in pursuance of this Companies Act 2013 or under any other law for the time being in force or otherwise, maintained on paper or in electronic form.

Employees Stock Option: Employees Stock Option means the option given to the directors, officers or employees of a company or of its holding company or subsidiary company or companies, if any, which gives such directors, officers or employees, the benefit or right to purchase, or to subscribe for, the shares of the company at a future date at a pre-determined price.

Expert: Expert includes an engineer, a chartered accountant, a company secretary, a cost accountant and any other person who has the power or authority to issue a certificate in pursuance of any law for the time being in force.

Financial Institution: Financial Institution includes a scheduled bank, and any other financial institution defined or notified under the Reserve Bank of India Act, 1934.

Financial Statement: Financial Statement includes- (i) a balance sheet as at the end of the financial year (ii) a profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year (iii) cash flow statement for the financial year (iv) a statement of changes in equity, if applicable (v) any explanatory note annexed to, or forming part of, any document referred to in sub clause.

Financial Year: Financial Period is the period ending on the 31st day of March every year, whether the company has been incorporated on or after the 1st day of January of a year, the period ending on the 31st day of March of the following year, in respect whereof financial statement of the company or body corporate is made up.

Foreign Company: Foreign Company means any company or body corporate incorporated outside India which has a place of business in India whether by itself or through an agent, physically or through electronic mode or conducts any business activity in India in any other manner.

Free Reserves: Free Reserves means such reserves which are available for distribution as dividend as per the latest audited balance sheet of a company that provides (i) any amount representing unrealized gains, notional gains or revaluation of assets, whether shown as a reserve or otherwise (ii) any change in carrying amount of an asset or of a liability recognized in equity, including surplus in profit and loss account on measurement of the asset or the liability at fair value, shall not be treated as free reserves.

Global Depository Receipt: Global Depository Receipt means any instrument in the form of a depository receipt, by whatever name called, created by a foreign depository outside India and authorized by a company making an issue of such depository receipts.

Government Company: Government Company is a company in which minimum fifty one per cent 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.

Holding Company: Holding Company means a company of which such companies are subsidiary companies.

Independent Director: Independent Director means an independent director referred to in sub-section (5) of section 149.

Indian Depository Receipt: Indian Depository Receipt means any instrument in the form of a depository receipt created by a domestic depository in India and authorized by a company incorporated outside India making an issue of such depository receipts.

Interested Director: Interested Director means a director who is in any way, whether by himself or through any of his relatives or firm, body corporate or other association of individuals in which he or any of his relatives is a partner, director or a member, interested in a contract or arrangement, or proposed contract or arrangement, entered into or to be entered into by or on behalf of a company.

Issued Capital: Issued Capital means such capital as the company issues from time to time for subscription.

Key Managerial Personnel: Key Managerial Personnel includes the CEO, MC, Manager, Company Secretary, Whole-Time Director, CFO and Other Officer as may be prescribed.

Listed Company: Listed Company means a company which has any of its securities listed on any recognized stock exchange.

Manager: Manager is an individual who, controls and directions the Board of Directors, manages the affairs of a company as superintendence whether under a contract of service or not.

Managing Director: Managing Director means a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called.

Member: Member in a company means the subscriber to the memorandum of the company as a member, any person whose name is entered in the register of members of the company or every person that holds shares of the company.

Memorandum: Memorandum means the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of this Act.

Net Worth: Net Worth means the aggregate value of the paid-up share capital and all reserves created out of the profits and securities premium account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation.

Notification: Notification means a notification published in the Official Gazette and the expression “notify” shall be construed accordingly.

Officer: Officer includes any director, manager or key managerial personnel or any person in accordance with whose directions or instructions the Board of Directors or any one or more of the directors is or are accustomed to act.

Officer Who is in Default: An officer of the company who is in default shall be liable to any penalty or punishment by way of imprisonment, fine or otherwise, means any of the following officers of a company like whole-time director, key managerial personnel, Any person who is authorized of the Board or any key managerial personnel, any person whose advice taken as direction to the Board of Directors of the company, or in respect of the issue or transfer of any shares of a company the share transfer agents or registrars or merchant bankers.

Official Liquidator: Official Liquidator means an Official Liquidator appointed under sub-section (1) of section 359.

One Person Company: One Person Company means a company which has only one person as a member.

Ordinary or Special Resolution: Ordinary or Special Resolution means an ordinary resolution, or as the case may be, special resolution referred to in section 114.

Paid-up Share Capital: Paid-up Share Capital means such aggregate amount of money credited as paid-up as is equivalent to the amount received as paid up in respect of shares issued and also includes any amount credited as paid-up in respect of shares of the company.

Postal Ballot: Postal Ballot means voting by post or through any electronic mode.

Prescribed: Prescribed means prescribed by rules made under Companies ACT, 2013.

Previous Company Law: Previous Company Law means any of the Previous Company Law as Indian Companies Act 1866, The Indian Companies Act 1882, The Indian Companies Act 1913, The Registration of Transferred Companies Ordinance 1942, The Companies Act 1956, The commencement of the Jammu and Kashmir (Extension of Laws) Act 1956, The commencement of the Central Laws (Extension to Jammu and Kashmir) Act 1968, The Portuguese Commercial Code, and The Registration of Companies (Sikkim) Act, 1961.

Private Company: Private Company means a company having (i) minimum paid-up share capital of one lakh rupees (ii) restricts the right to transfer its shares (iii) prohibits any invitation to the public to subscribe for any securities of the company.

Promoter: Promoter means a person who has control over the affairs of the company directly or indirectly whether as a shareholder or director whose advice, directions or instructions the Board of Directors of the company is accustomed to act.

Prospectus: Prospectus means any document described or issued as a prospectus and includes a red herring prospectus referred to in section 32 or shelf prospectus referred to in section 31 or any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate.

Public Company: Public Company means a company which (a) is not a private company (b) has a minimum paid-up share capital of five lakh rupees.

Public Financial Institution: Public Financial Institution means (i) the Life Insurance Corporation of India, established under section 3 of the Life Insurance Corporation Act, 1956; (ii) the Infrastructure Development Finance Company Limited, referred to in clause (vi) of sub-section (1) of section 4A of the Companies Act, 1956 so repealed under section 465 of this Act; (iii) specified company referred to in the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002; (iv) institutions notified by the Central Government under sub-section (2) of section 4A of the Companies Act, 1956 so repealed under section 465 of this Act; (v) such other institution as may be notified by the Central Government in consultation with the Reserve Bank of India.

Recognized Stock Exchange: Recognized Stock Exchange is defined in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956.

Register of Companies: Register of Companies maintained by the Registrar on paper or in any electronic mode under this Act.

Registrar: Registrar may be Registrar, an Additional Registrar, a Joint Registrar, a Deputy Registrar or an Assistant Registrar, having the duty of registering companies and discharging various functions under this Act.

Related Party: Related Party means (i) a director or his relative; (ii) a key managerial personnel or his relative; (iii) a firm, in which a director, manager or his relative is a partner; (iv) a private company in which a director or manager is a member or director; (v) a public company in which a director or manager is a director or holds along with his relatives, more than two per cent. of its paid-up share capital; (vi) anybody corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager; (vii) any person on whose advice, directions or instructions a director or manager is accustomed to act: Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity.

Relative: Relative means anyone who is related to another, if (i) they are members of a Hindu Undivided Family; (ii) they are husband and wife; or (iii) one person is related to the other in such manner as may be prescribed.

Remuneration: Remuneration means any money or its equivalent given or passed to any person for services rendered by him and includes perquisites as defined under the Income-tax Act, 1961.

Schedule: Schedule means a Schedule annexed to Companies ACT, 2013.

Scheduled Bank: Scheduled Bank is defined in clause (e) of section 2 of the Reserve Bank of India Act, 1934.

Securities: Securities defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956.

Securities and Exchange Board: Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992.

Serious Fraud Investigation Office: Serious Fraud Investigation Office means the office referred to in section 211.

Share: Share means a share in the share capital of a company and includes stock.

Small Company: Small Company means a company, other than a public company whose (i) paid-up share capital does not exceed by fifty lakh rupees (ii) turnover does not exceed two crore rupees.

Subscribed Capital: Subscribed Capital means such part of the capital which is for the time being subscribed by the members of a company.

Subsidiary Company: Subsidiary Company is a subsidiary of Holding Company where holding company (i) controls the composition of the Board of Directors (ii) controls more than one-half of the total share capital.

Sweat Equity Shares: Sweat Equity Shares means such equity shares as are issued by a company to its directors or employees at a discount or for consideration, other than cash, for providing their know-how or making available rights in the nature of intellectual property rights or value additions.

Total Voting Power: Total Voting Power means the total number of votes which may be cast in regard to that matter on a poll at a meeting of a company if all the members thereof or their proxies having a right to vote on that matter are present at the meeting and cast their votes.

Tribunal: Tribunal means the National Company Law Tribunal constituted under section 408.

Turnover: Turnover means the aggregate value of the realization of amount made from the sale, supply year.

Unlimited Company: Unlimited Company means a company not having any limit on the liability of its members.

Voting Right: Voting Right means the right of a member of a company to vote in any meeting of the company or by means of postal ballot.

Whole-time Director: Whole-time Director includes a director in the whole-time employment of the company.

1.2 Incorporation of a company and matters incidental thereto

Incorporation of a company starts with selection of the name and the type of company you wish to establish. The name should not be contradictory to provisions laid down in Companies Act, 2013 (hereinafter referred to as “Act”). There are various types of companies in India; the type of company completely depends upon the nature of the business, the objective of business, future expectations from the business and capital and the number of members one wishes to include in the business. Secondly, the applicant needs to file Memorandum of Association (hereinafter referred to as “MoA”) and Article of Association (hereinafter referred to as “AoA”) with Registrar of Companies (hereinafter referred to as “RoC”). The Government of India (hereinafter referred to as “GoI”) has made the incorporation of a company easy vide various amendments in Companies (Incorporation) Rules, 2014 (hereinafter referred to as “Rules, 2014”). The major steps in the process of incorporation of a company are.

Selection of Name:

Clause 2 and 3 of Section 4 of the Act provide for the restrictions in the selection of the name. They provide that the name should not be identical or resembling the name of an already registered company under the Act, or any previous company law. Further, a company shall not be registered with the name giving the impression that the company in any way is connected with, or having patronage to the GoI, any State Government or any corporation set up by GoI or State Government thereof, unless a prior approval of the Central Government has been obtained for the use of any such word or expression.

Selection of Type of Company:

The Act gives legal status to various kinds of companies. It is upto the applicant to decide which type of company one wishes to establish. There are various factors to decide, such as, number of members, the amount of capital that will be invested and future expectations from the company. A company formed may be either— (a) a company limited by shares; or (b) a company limited by guarantee; or (c) an unlimited company.

Public Company: A public company is a company whose shares are freely transferable. This kind of company may or may not be a listed company; a minimum of seven numbers of people are required to form a public company. A public company is ideal for large businesses as after some years of establishment when the market is capitalized, a public company can be listed on a recognized stock exchange.

Private Company: A private company is a company whose shares are not freely transferable and the number of subscribers is limited. A minimum of two persons are required to form this kind of a company. A private company is ideal for new startups, as investors can easily invest in a private company and no SEBI regulations apply on private companies. This kind of company is most common in India.

One Person Company: A one-person company (hereinafter referred to as “OPC”) is a private company having only one member and only that member’s name is indicated in the MoA, along with the successor to the member, in case of death or incapacity to enter into contracts.

Producer Company: “Producer Company” means a company having special objects and activities listed in Section 581B of the Act, such company needs to be registered as producer company according to the provisions of the Act.

Documents Required and Filings:

INC form 32: The Applicant needs to file form INC 32 with the RoC. The process for this filing has become entirely electronic, as the GoI had introduced Simplified Proforma for Incorporating a Company Electronically (SPICe) vide amendment in Rules, 2014 for ease of doing business. Earlier, forms INC 1, INC 7, INC 8 and INC 10 were required to be filed with RoC, however, after the amendment only form INC 32, INC 33 and INC 34 are required. The change was widely accepted by the applicants as the process is now speedy and tranquil.

Memorandum of Association: The Moa contains the following information regarding the company: (1) Name Clause; (2) Registered Office Clause; (3) Object Clause; (4) Liability Clause; (5) Capital Clause; and (6) Association Clause. MoA is filed with RoC in form INC 33 duly signed by directors of the company.

Articles of Association: AoA of a company lay down the working of a company and the rights and liabilities of shareholders and directors. AoA is filed with RoC in Form INC 34.

Certificate of Incorporation:

On the basis of the documents and information filed with it, the RoC shall register all the documents and information referred to in the register and issue a certificate of incorporation in the prescribed form, to the effect that the proposed company is incorporated under the Act, from the date mentioned in the certificate of incorporation issued. Further, the RoC shall allot to the company a Corporate Identity Number, which shall be the distinct identity for the company and which shall also be included in the certificate.

Registered Office:

According to the Act, a company must have a registered office capable of receiving and acknowledging all communications and notices on and continuously from the 15th (fifteenth) day of its incorporation. Once the registered office has been established, the company shall furnish proof to Registrar for verification of the address within 30 (thirty) days of incorporation. Form INC-22 is to be filed with the Registrar for this purpose.

These are the basic steps involved in the incorporation of a Company.

Key Takeaways:

Incorporation of a company starts with selection of the name and the type of company you wish to establish.

References:

‘Company Law’ by Brenda Hannigan.

‘Elements of Company’ Law by N. D. Kapoor.

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