GROUP 1
THE
COMPANY
ACT 1956
INDEX OF PRESENTATION
 COMPANY
 NATURE OF COMPANY
 TYPES OF COMPANIES
 PRIVATE Vs PUBLIC COMPANY
 PRIVILEGES OF PRIVATE COMPANY
 DOCTRINE OF CONSTRUCTIVE NOTICE
 PROSPECTUS
 MEMORANDAM OF ASSOCIATON.
 ACTICLE OF ASSOCIATION.
 CASES
COMPANY
 In a simple words a company may be defined as a “
association of persons who contribute money or money’s
worth to a common stock and employ it in some trade or
business , and who shares the profit or loss there from.
 Section 3(1)(i) of the Companies Act, 1956 defines a company
as: “a company formed and registered under this Act or an
existing Company”.‘Existing Company’ means a company
formed and registered under any of the earlier Company
Laws.
 Legal definition “ Incorporated association , which is an
artificial legal person, having a separate legal entity , with a
perpetual succession, a common seal, a common capital
comprised of transferable shares and carrying limited
liability.
NATURE OF COMPANY
1 SEPERATE LEGAL ENTITY
2.ARTIFICIAL PERSON
3.PERPETUAL EXISTENCE
4.COMMON SEAL
5.LIMITED LIABILITY
6.CAPACITY TO SUE OR TO BE SUED
7.TRANSFERABILITY OF SHARE
Separate legal entity
 A company is an separate legal entity means it is different
from its members. It works as a individual body.
 It can make contracts, open a bank account, can sue and be
sued by others.
 The law has recognised that even if a person holds virtually all
the shares, the right and obligations of the company shall be
different from its members.
Artificial person
 A company is a purely a creation of law. It is invisible,
intangible and exists only in the eyes of law.
 It has no soul, no body, but has a position to enter or exit into
a contract, to appoint a people as its employees
 In short it can do every thing just like a natural person.
Perpetual existence [sec 34(2)]
 Section 34(2) of the act states that an incorporated company
has perpetual life.
 The life of the company is not related to the life of the
members . Law create the company and law alone can dissolve
it.
 The existence of the company is not affected b y death,
insolvency, retirement or transfer of share of members.
Limited liability
 It means that the liability of a member shall be limited to the
value of the share held by him, he cannot be called upon to
bear the loss from his personal property.
Common seal
 A company being an artificial person can not work as a natural
being.
 Therefore, it has to work through its directors, officers and
other employees. Common seal used as a official signature of
a company.
Transferability of share sec(82)
 The share of a company are freely transferable. The
shareholder can transfer his share to any person without the
consent of other members.
 A company cannot impose absolute restrictions on the rights
of member to transfer their shares
Capacity to sue and be sued
 When a company incorporated it acquire a separate and
independent legal personality. As a legal person it can be
sue and be sued in its own name.
Types of companies
(Registered under company act 1956)
Definition : Private & Public Company
 A private company is one which, by its Article of
association restricts the right to transfer its share,
limits the maximum number of its member to fifty,
prohibits any invitation to the public to subscribe for
any share or debenture of the company.
 A public company means a company which is not a
private company. In other words, a public company,
means a company which by its article does not limit
the number of its member & does not prohibit any
invitation to the public to subscribe for any share or
debentures, of the company.
Private Vs Public Company
Minimum paid up
capital
Minimum no of
members
Maximum no of
members
Minimum no of
Directors
Transfer of Shares
Private Company
Public Company
1 Lac
5 Lacs
2
7
50
No limit
2
3
Restricted AOA &
requires the prior
Shareholders can
permission of Board transfer shares freely
of Directors
Private Vs Public Company ..Contd..
Private Company
Public Subscription
Acceptance of public
Deposits
AOA prohibits any
invitation to public to
subscribe to its sharess &
debentures
AOA prohibits acceptance
of deposits from public
Public Company
Can invite public to
subscribe to its shares &
debentures
Can acceptance of
deposits from public
Only after getting the
Certificate of
commencement of
Business
Commencement of
Business
Immediately after
Certificate of
Incorporation
Issue of prospectus
Need not prepare or file
'Prospectus' or 'statement Must prepare or file
in lieu of prospectus' with Prospectus with registrar
registrar
Private Vs Public Company…Contd..
Private Company
Public Company
Must hold after one month
and before 6 months from
Statutory meeting
Not required to hold
date of obtaining the
Certificate of commencement
of business
No Central Govt approval Central Govt approval is must
Provisions regarding for appointing and
for appointing and
directors
reappointing of MD or
reappointing of MD or Whole
Whole time director
time director
No restriction on payemnt
Managerial
Remuneration is fixed at 11 %
of remuneration to
remuneration
of net profits
directors & MD's
Must maintain index of
Need not maintain index
Index of members
members if no of members
of members
exceed 50
PRIVILEGES OF PRIVATE COMPANY
Sec.
Privileges
58A
For Pvt.Co., amount received from its shareholders by a private
company is not included in the meaning of deposit. If the depositor
ceases to be a shareholder, the deposits made by him cease to
qualify for exemption from the date of such cessation
77(2 & 3) There is no prohibition on a Pvt. Co., which is not a subsidiary of a
public company, to provide financial assistance to anyone for
purchasing or subscribing for its own shares or of its holding
company.
81
85 to 90
A Pvt. Co. can issue further shares in any manner; i.e. rights
shares to the existing shareholders need not be offered.
The provisions of these sections requiring that there should be only
two kinds of share capital and that voting rights should be
proportional to the capital paid up and prohibiting and terminating
disproportionately excessive voting rights are not made applicable
to a private company which is not subsidiary of a public company
PRIVILEGES …..Contd
Sec.
Privileges
111 (13)
The right of appeal to the Company Law Board against rejection of
a transfer of shares is not available as long as the private company
is only enforcing the provisions of its articles in rejecting a
particular transfer
170 to 186 The provisions of these sections relating to general meetings do not
apply to such a private company to the extent to which the
company makes its own provisions by its articles
192A
220
224(1B)
252 &
252A
255
Passing of resolution by Postal Ballot not relevant for Pvt. Co.
P & L A/c. of a Pvt. Co. is not open for inspection by Public.
The ceiling, on number of companies an auditor can audit, does not
include audit of Pvt. Cos.
Minimum Directors for Pvt. Co. is 2 (two) against 3 (three) in case
of Public Co. Requirement of Independent Directors or Small
Shareholders’ Directors not applicable to Pvt. Co.
Retirement of Directors by rotation not mandatory.
PRIVILEGES …..Contd
Sec.
Privileges
256
A Pvt. Co. need not adopt the procedure relating to appointment,
retirement, re-appointment of directors etc. applicable to a public
company.
257
The provision requiring the giving of 14 days notice by new
candidates seeking election as directors and deposit of certain
amount (Rs. 500) are not mandatory for Pvt. Cos.
259
Central Government approval for increasing number of directors
beyond the permissible maximum (presently 12) not required.
262
The provision relating to manner of filling casual vacancy among
directors and the duration of the period of office of those so
appointed do not apply to Pvt. Co.
263(1)
264
266(5)
Appointment of two or more persons as directors by a single
resolution can be done by Pvt. Co.
No requirement of filing consent by the directors to be filed with the
Registrar to act as a director.
Restrictions on appointment of director and subscription to
qualification shares not applicable to Pvt. Co.
PRIVILEGES …..Contd
Sec.
Privileges
268, 269 Central Government approval for amendment relating to
appointment/reappointment of a whole-time director/ director not
liable to retire by rotation.
270-273
Requirements of qualification shares holding by directors the time
within which the qualification shares to be acquired and filing of a
declaration by each director of the qualification shares held, is not
applicable to Pvt. Co.
274(1)(g) The disqualification u/s. 274(1) clause (g) does not include
directorships of Pvt. Co..
275 to 279 The Directorships of Pvt. Cos. not to be considered for the limit on
no. of companies a person can be director.
292A
293
Provisions relating to formation of Audit Committee not applicable.
Restrictions on certain powers of Board of directors regarding
selling, leasing, remitting or giving time for payments of debts,
investing or borrowing moneys, or contributing to charities other
than for political purpose are not applicable to Pvt. Co.
PRIVILEGES …..Contd
Sec.
Privileges
295
Restriction on loans to directors/relatives etc. does not apply to Pvt.
Co.
300
No restriction on interested directors from participating in the
proceedings of the Board and exercising their votes.
316, 317 No restriction on period of appointment of managing
director/manager for more than 5 years at a time.
349, 350 Provision relating to the determination of net profits and
ascertainment of depreciation shall not apply.
372A
No restrictions on giving loans or guarantees to other companies or
on making investment in the shares of the other companies.
386, 388 No. of companies on which a person may be appointed manager,
the remuneration of a manager and the application of sections 269,
310 to 312 and 317 in relation to managers do not apply.
409(3)
Powers given to the Central Government to prevent change in the
Board of directors not applicable to Pvt. Co.
416(1)
Restrictions on Contract by agents of the company in which the
company is the undisclosed principal shall not apply.
DOCTRINE OF CONSTRUCTIVE NOTICE
 Every person dealing with the company was treated as having
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
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the knowledge of the contents of the memorandum. (Public
documents of the company).
It seeks to protect the company against the outsider.
Imputation of knowledge –whether the party concerned has
actual knowledge or not.
A member of the company can sue for an injunction to
restrain the company or its directors from doing an ultra vires
act.
All contracts made by the company for an ultra vires purpose
are void and can not be ratified and validated by any kind of
resolution passed by the general meeting of the company or
even with the unanimous consent of its members.
PROSPECTUS
 ‘Prospectus’ is the basic document for raising funds from the
public.
 ‘Prospectus’ means any document described or issued as
prospectus and includes any Notice, Circular, Advertisement
inviting deposits or offers from the public for the
subscription or purchasing any shares in , or debentures of
the company.
 Thus prospectus is a general invitation to the public to
subscribe to the capital of the company on the conditions
specified in the application from
MEMORENDUM OF ASSOCIATION (MOA)
 The first step in the formation of the company is to
prepare memorandum of association. it is one of the
documents which has to be filed with registrar of the
companies at the time of incorporation of a company.
 MOA of a company is its character and defines the
limitation of the power of the company . MOA contains
the fundamental condition upon which the company is
allowed to incorporated.
 The purpose of MOA is to enable the Shareholders,
creditors and those who deal with the company to know
what is permitted range of enterprise.
IMPORTANCE OF MOA
 It defines the rights and liabilities of the members.
 It shows the capital structure of the company
 It shows the object of the company
 It specifies the state in which the registered office of the
company is situated.
 It shows the constitution of the company
 It specify the conditions under which the company has
been incorporated.
ARTICLES OF ASSOCIATION (AOA)
CONTENTS OF AOA
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
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Rights of different classes of shareholder.
Use of common seal of the company.
Different classes of shares and their right.
Appointment , powers, duties, salary of MD, manager,
and secretary.
 Borrowing power of directors.
 Voting rights of member .
 Board meetings and proceedings.
 Winding up company.
Case – 1
ABDUL AZIZ BIN ATAN & 87 ORS V LADANG RENGO MALAY
ESTATE SDN BHD (1985) 2 MLJ 165.
 Facts
All the shareholders of the company sold and transferred their entire
share holdings to a certain buyer
 Issue
The court had to determine whether a change of employer took place
 Held
An incorporated company is a legal person separate and distinct from
its shareholders. The company, from the date of incorporation, has
perpetual succession and did not change its identity or personality
even though the entire share holding of the company changed hands.
Case – 2
LEE V LEE’S AIR FARMING LTD (1961) AC 12
 Fact
Lee who was a pilot who conducted an aerial top-dressing business, formed a
company to conduct the business. Lee hold 2999 shares of the 3000 shares in
the company. The remaining one share was taken by his solicitor as nominee
for Lee. Under the articles of association, Lee was governing director with very
wide powers. Workers’ compensation insurance was taken out, naming Lee as
an employee. Lee was killed when his aeroplane crashed while engaged in
aerial top-dressing.
 Issue
His widow made a claim for payment under the Workers’ Compensation Act
1922. Her claim was initially rejected on the ground that as Lee had full control
of his company he could not be a "worker" within the meaning of the Act.
"Worker’ was defined under the Act as a person "who has entered onto or
works under a contract of service ... with an employer."
 Held By Privy Council
The company was a separate legal entity distinct from its founder, Lee
Lee could enter into a contract of employment with him
Case – 3
MACAURA v NORTHERN ASSURANCE CO LTD (1925) AC 619
 Fact
Macaura own land on which stood timber. He sold the land and timber to a
company he formed and received as consideration all the fully paid shares.
The company carried the business of felling and milling timber. A fire
destroyed all timber which had been felled. Macaura had earlier insured the
timber against loss of by fire in his own name. He had not transferred the
insurance policy to the company.
 Issue
When Macaura made a claim his insurers refused to pay arguing that he had
no insurable interest in the timber. Only persons with a legal or equitable
interest in property are regarded as having interest in it.
 Held By House Of Lords
The insurers were not liable. Only Macaura’s company, as owner of the
timber, which had the requisite insurable interest in it. Only the company,
and not Macaura, could insure its property against loss or damage.
Shareholders have no legal or equitable interest in their company’s property.
Case 4
Ackruti to face action for company law violations
Ackruti v/s MoF (GOI)
 Fact
The government is likely to initiate prosecution against Mumbai-based realty
firm Ackruti City Ltd in a case involving loans given to other companies
 Issue
Section 295 deals with loans given to directors and other companies. It is
alleged that Ackruti City gave loans to other companies in which its directors
were interested, without seeking the required approvals from the central
government.
 The allegations follow an inspection report of the Registrar of Companies
(RoC), an arm of the corporate affairs ministry that oversees registered
companies in India. The ministry had ordered an inspection into Ackruti’s
books of accounts in February. The inspection was based on the RoC’s
preliminary findings that there were prima facie violations in Ackruti’s balance
sheets till the period to March 2008.
Thank You
Happy Independence Day