companies act

Question 1

definition of companies act

Answer 1

section 2 (20)
a company is a company incorporated under this act or under any previous company law

Question 2

purpose of the act

Answer 2

1. to improve corporate governance
2. to simplify regulations
3. to strenthen the interest of minority investors
4. legislates the role of whistle blower
5. provisions regarding class action suit

Question 3

applicability of the act

Answer 3

1. companies incorporated under this act or under any previous company law
2. insurance companies (insurance act, 1938 or IRDA act, 1999)
3. banking companies (banking regulation act, 1949)
4. companies engaged in** generation or supply of elctricity** (electricity act, 2003)
   (2,3,4- except where the provisions of thecompanies act are inconsistent with the proviisons of the said act)
5. companies governed by special act
6. body corporate incorporated under any act and specified by central government

Question 4

companies act contains?

Answer 4

470 section and 7 schedules divided into 29 chapters

Question 5

features of the companies act

Answer 5

1. separate legal entity
2. perpetual sucession
3. limited liability
4. artificial legal person
5. common seal

Question 6

separate legal entity

Answer 6

1. when a company is incorporated, it is clothed with legal personality
2. co. can raise loan, incur liabilities, have bank accounts, posses property, enter into contracts
3. although assets and capitals are contributed by shareholders, co. becomes the owner of the assets
   - sh arent joint or co-owners for co. property
4. members do not have even insurable interest in co.s property

Question 7

limited liability

Answer 7

The liability of a member depends upon
the kind of company of which he is a member.
a. Thus, in the case of a co.limited by shares the
liability of the members is limited to the extent of the
nominal value of shares held by them.
b. In the case of a** company limited by guarantee, the
members are liable only to the extent of the amount
guaranteed by them and that too only when the
company goes into liquidation.
c. However, if it is an unlimited company**, the liability
of its members is unlimited as well.

Question 8

artificial legal person

Answer 8

1. co. is created by law and therefore, clothed with **legal personality, having all the rights of an individual **
2. it has ** separate legal identity** from its members
3. it can run through ** human agency,** vix directors
   . - who control affairs of the co. but they arent the gents of the memebrs of the co.

Question 9

perpetual succession

Answer 9

1. Members may die or change, but
   the company goes on till it is wound up on the grounds specified by the Act
2. since a co. is created by law, law alone can bring an end to its life

Question 10

common seal

Answer 10

1. common seal is the official signature of a co. ,
   - which is affixed by the officers and employees of the co. on co.s docs
2. as percompanies (amendment) act 2015 has made common seal optional
3. docs which needed to be authenticated by common seal can now be authenticated through- 2 directors or a director and CS(if appointed)

Question 11

corporate veil theory

Answer 11

It is legal concept whereby the company is identified separately from the members of the company.
The company has its own existence and as a result, a shareholder cannot be held liable for the acts of the company
members enjoy corporate insulation

Question 12

lifting up of corporate veil

Answer 12

it mean looking behind the co, i.e. disregarding the corporate entity and paying regard instead to the realities behind the legal facade

Question 13

situations to lift up corporate veil

Answer 13

1. to determine the character of the co. i.e. to find out whether the co is an enemy or a friend
2. to protect revenue/ tax
3. to avoid legal obligation
4. formation of subsidiaries to act as agents
5. company formed for fraud/improper conduct or to defeat law

Question 14

company limited by shares

Answer 14

section 2(22)
the liability of the members of a company is limited to the amount (if any) unpaid on the shares held by them, it is known as a company limited by shares.

Question 15

company limited by guarantee

Answer 15

section 2 (21)
The company having the liability of its members limited 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.

Question 16

unlimited company

Answer 16

section 2(92)
Unlimited company as a company not having any limit on the liability of its members.
In such a company, the liability of a member ceases when he ceases to be a member.

Question 17

one person company

Answer 17

section 2 (62)
opc is a private co. and has only one member
minimum paid up capital- not prescribed

Question 18

points of OPC

Answer 18

1. memorandum shall indicate the name of nominee - with prior consent
2. only a natural person who is an indian citizen and has stayed in india for a period of not less than 120 days during the immediately preceeding financial year
   - eligible for member and nominee
3. nominee cant be a minor
4. cant incorporate or be a nominee of more than one opc
5. opc cant become a section 8 co.
6. cannot carry out non-banking financial investment activites
7. if opc contravenes the provisions
   - fine up to 10,000 and further fine up to 1000 for every day if contravenes continues

Question 19

private company

Answer 19

section2 (68)
it is a co. having minimum paid up share cap as may be prescribed, and which by its articles-
1. restricts the right to transfer its shares
2. except in opc, limits the no. of its members to 200
- when 2 or more persons hold shares jointly they shall be treated as a single member
- excludes employee+member
- ex-employee + member
3.prohibits any invitation to the public to subscribe for any securities of the co.

Question 20

public company

Answer 20

section 2 (71)
public co. means a co. which isnot a private co., and has a minimum paid up share cao as may be prescribed.
a co. which is a subsidiary of a co., not being a private co., shall be **deemed to be public **co. for the purpose of this act (public has pvt subs- pvt subs now will be deemed as public)

Question 21

associate co.

Answer 21

section 2(6)
in relation to another co., means a co. in which that other co has a significant influence, but which is not a subsidiary co. of the co. having such influence and includes a joint venture co.

“significant influence” means control of at least
twenty per cent of total voting power, or control of
or participation in business decisions under an
agreement;
”joint venture’’ means a joint arrangement whereby
the parties that have **joint control **of the
arrangement have rights to the net assets of the
arrangement.
The term “Total Share Capital”, means the
aggregate of the - (a) Paid-up equity share capital;
and (b) Convertible preference share capital.

The shares held in a ‘fiduciary capacity’shall not be
counted for the purpose of determining the
relationship of ‘associate company’.

Question 22

significant influence

Answer 22

“significant influence” means control of at least
twenty per cent of total voting power, or control of
or participation in business decisions under an
agreement;

Question 23

joint venture

Answer 23

”joint venture’’ means a joint arrangement whereby
the parties that have joint control of the
arrangement have rights to the net assets of the
arrangement.

Question 24

Total Share Capital

Answer 24

The term “Total Share Capital”, means the
aggregate of the - (a) Paid-up equity share capital;
and (b) Convertible preference share capital.

Question 25

listed company

Answer 25

section 2 (52)
:it is a company which has any of its securities listed on any recognised stock exchange
Provided that such class of companies, which have listed or intend to list such class of securities, as may be prescribed in consultation with the SEBI, shall not be considered as listed companies.

Question 26

unlisted co.

Answer 26

co. other than listed co.
co.s not listed on stock exchange

Question 27

government company

Answer 27

section 2 (45)
Government Company means any company in which not less than 51% 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
the section includes a company which is a subsidiary company of such a Government company.

Question 28

foreign company

Answer 28

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 anybusiness activityin India in any other manner.

Question 29

section 8 co.
formation of co.s with charitable objects

Answer 29

It means companies which are formed to:
* promote the charitable objects of commerce, art, science, sports, education, research etc.
* Such company apply its profit in promoting its objects and prohibiting the payment of any dividend to its members.
ex.- FICCI, ASSOCHAM, National Sports Club of India, CII etc.

Question 30

points for section 8 co.

Answer 30

Central Government has power to register a company with limited liability without the addition of words ‘Limited’ or ‘Private limited’ to its name, by issuing licence on such conditions as it deems fit.
It may revoke the licence after giving written notice and opportunity to be heard, where the company contravenes any of the requirements or the
conditions of this sections or where the affairs of the company are conducted fraudulently, or violative of the objects of the company or prejudicial to public interest.
* Central Government may, in the public interest order that the company whose licence is revoked should be
amalgamated with another company registered under this section having similar objects or the company be wound
up.
* Penalty/punishment in contravention: For Company: fine Min 10 lakh rupees but up to 1 crore rupees
For the directors and every officer in default: fine Min 25000 rupees but up to 25 lakh rupees.
* when the affairs of the company were conducted fraudulently, every officer in default shall be liable for action under section 447.
* Company Can call its general meeting by giving a clear 14 days’ noticeinstead of 21 days.
* Requirement of minimum number of directors, independent directors etc. does not apply.
* Need** not constitute** Nomination and Remuneration Committee and Shareholders Relationship Committee.
* A partnership firm can be a member of Section 8 company

Question 31

dormant co.

Answer 31

section 455

• Where a company is formed and registered under this Act for afuture projector to hold an asset or intellectual property and hasno significant accounting transaction, such a company or aninactive company may make an application to the Registrar for obtaining the status of a dormant company.
• **“Inactive company” **means a company which has not been carrying on any business or operation, or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years.
• “Significant accounting transaction” means any transactionother than— (i) payment of fees by a company to the Registrar; (ii) payments made by it to fulfil the requirements of this Act or any other law; (iii) allotment of shares to fulfil the requirements of this Act; and (iv) payments for maintenance of its office and records.

Question 32

inactive co.

Answer 32

company which has not been carrying on any business or operation, or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years.

Question 33

significant accouting transactions

Answer 33

“Significant accounting transaction” means any transactionother than—
(i) payment of fees by a company to the Registrar;
(ii) paymentsmade by it to fulfil the requirementsof this Act or any other law;
(iii) allotment of shares to fulfil the requirements of this Act; and
(iv) payments for maintenance of its office and records.

Question 34

meaning of nidhi companies

Answer 34

section 406 (1)
: “Nidhi” or “Mutual Benefit Society” means a company which the Central Government may, by notification in the Official Gazette, declare to be a Nidhi or Mutual Benefit Society, as the case
may be.

Question 35

Public Financial Institutions

Answer 35

Section 2(72)
the following institutions are to be regarded as public financial institutions:
(i) the Life Insurance Corporation of India, established under the Life Insurance Corporation Act, 1956;
(ii) the Infrastructure Development Finance Company Limited,
(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 section 4A(2) 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

Question 36

Conditions for an institution to be notified as PFI

Answer 36

No institution shall be so notified unless—
1. central or state act
2. govtco

a) it has been established or constituted by or under any Central or State Act other than this Act or the previous Companies Law; or

b) not less than fifty-one per cent of the paid-up share capital is held or controlled by the Central Government or by any State Government or Governments or partly by the Central Government and partly by one or more StateGovernments.

Question 37

promoter

Answer 37

section 2 (69) CAN
means a person—
a) who has been named as such in a prospectus or is identified by the company in the annual return; or
b) who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or
c) in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act.

Question 38

who isnt considered as a promoter

Answer 38

Persons acting only in a professional capacity e.g., the solicitor, banker, accountant etc. are not regarded as promoters.

Question 39

formation of company

Answer 39

section 3
: In the case of a public company, any 7 or more persons can form a company by subscribing their names to memorandum and complying with the requirements of this Act.
2 or more persons can form a private company and
one person where company to be formed is one person company