ICAI Notes- The Companies Act, 2013 | Business Laws for CA Foundation PDF Download

 Page 1


LEARNING OUTCOMES 
 
 
THE COMPANIES ACT, 2013  
 
 
After studying this chapter, you would be able to understand- 
? Company form of Business Organisation and its features 
? Corporate veil theory 
? Classes of companies under the Companies Act 
? Registration of companies 
? Memorandum of Association and Articles of Association 
 
 
 
 
 
 
 
 
 
CHAPTER 
6 
   
© The Institute of Chartered Accountants of India
Page 2


LEARNING OUTCOMES 
 
 
THE COMPANIES ACT, 2013  
 
 
After studying this chapter, you would be able to understand- 
? Company form of Business Organisation and its features 
? Corporate veil theory 
? Classes of companies under the Companies Act 
? Registration of companies 
? Memorandum of Association and Articles of Association 
 
 
 
 
 
 
 
 
 
CHAPTER 
6 
   
© The Institute of Chartered Accountants of India
  
 
BUSINESS LAWS 
a
 
 6.2 
 
 
 
 
Company (Incorported under the Companies Act, 2013
Features
Separate Legal entity, Perpetual 
Succession, Limited Liability, Artificial 
Judicial Person
Corporate Veil 
theory
Company is different from its 
members
Veil can be lifted to disregard 
separate legal entity
Incorporation of 
company
Register Company with ROC
Get certificate of incorporation
For easy filing follow SPICe
Share Capital
1. Nominal,
2.Issued,
3. Subscribed
4.Called up
5. Paid up capital
Shares Equity Shares and Preference shares
With Uniform 
Rights
With differential 
Voting rights
MOA
Defines object and scope of work of 
company
Company can not go beyond the 
scope defined.
AOA
Defines rules, regulations or bye-laws 
of Company
Company has power to alter it AoA 
through Special Resolution
CHAPTER OVERVIEW 
 
© The Institute of Chartered Accountants of India
Page 3


LEARNING OUTCOMES 
 
 
THE COMPANIES ACT, 2013  
 
 
After studying this chapter, you would be able to understand- 
? Company form of Business Organisation and its features 
? Corporate veil theory 
? Classes of companies under the Companies Act 
? Registration of companies 
? Memorandum of Association and Articles of Association 
 
 
 
 
 
 
 
 
 
CHAPTER 
6 
   
© The Institute of Chartered Accountants of India
  
 
BUSINESS LAWS 
a
 
 6.2 
 
 
 
 
Company (Incorported under the Companies Act, 2013
Features
Separate Legal entity, Perpetual 
Succession, Limited Liability, Artificial 
Judicial Person
Corporate Veil 
theory
Company is different from its 
members
Veil can be lifted to disregard 
separate legal entity
Incorporation of 
company
Register Company with ROC
Get certificate of incorporation
For easy filing follow SPICe
Share Capital
1. Nominal,
2.Issued,
3. Subscribed
4.Called up
5. Paid up capital
Shares Equity Shares and Preference shares
With Uniform 
Rights
With differential 
Voting rights
MOA
Defines object and scope of work of 
company
Company can not go beyond the 
scope defined.
AOA
Defines rules, regulations or bye-laws 
of Company
Company has power to alter it AoA 
through Special Resolution
CHAPTER OVERVIEW 
 
© The Institute of Chartered Accountants of India
 
 
a
    
 
6.3 
THE COMPANIES ACT, 2013 
 
 INTRODUCTION 
The Companies Act, 2013 was enacted to consolidate and amend the law relating to the 
companies. The Companies Act, 2013 was preceded by the 
Companies Act, 1956.  
Due to changes in the national and international economic 
environment and to facilitate expansion and growth of our 
economy, the Central Government decided to replace the 
Companies Act, 1956 with a new legislation. The Companies Act, 
2013 contains 470 sections and seven schedules. The entire Act has 
been divided into 29 chapters. A substantial part of this Act is in the 
form of Companies Rules. The Companies Act, 2013 aims to improve corporate governance, 
simplify regulations, strengthen the interests of minority investors and for the first time 
legislates the role of whistle-blowers and provisions relating to class action suit. Thus, this 
enactment seeks to make our corporate regulations more contemporary.  
Applicability of the Companies Act, 2013: 
The provisions of the Act shall apply to- 
? Companies incorporated under this Act or under any previous company law. 
? Insurance companies (except where the provisions of the said Act are inconsistent with 
the provisions of the Insurance Act, 1938 or the IRDA Act, 1999) 
? Banking companies (except where the provisions of the said Act are inconsistent with 
the provisions of the Banking Regulation Act, 1949) 
? Companies engaged in the generation or supply of electricity (except where the 
provisions of the above Act are inconsistent with the provisions of the Electricity Act, 
2003) 
? Any other company governed by any special Act for the time being in force. 
? Such body corporate which are incorporated by any Act for time being in force, and as 
the Central Government may by notification specify in this behalf. 
1. COMPANY: MEANING AND ITS FEATURES 
Meaning: According to Chief Justice Marshall, “a corporation is an artificial 
being, invisible, intangible, existing only in contemplation of law. Being a mere 
creation of law, it possesses only those properties which the charter of its 
creation confers upon it, either expressly or as accidental to its very existence.   
© The Institute of Chartered Accountants of India
Page 4


LEARNING OUTCOMES 
 
 
THE COMPANIES ACT, 2013  
 
 
After studying this chapter, you would be able to understand- 
? Company form of Business Organisation and its features 
? Corporate veil theory 
? Classes of companies under the Companies Act 
? Registration of companies 
? Memorandum of Association and Articles of Association 
 
 
 
 
 
 
 
 
 
CHAPTER 
6 
   
© The Institute of Chartered Accountants of India
  
 
BUSINESS LAWS 
a
 
 6.2 
 
 
 
 
Company (Incorported under the Companies Act, 2013
Features
Separate Legal entity, Perpetual 
Succession, Limited Liability, Artificial 
Judicial Person
Corporate Veil 
theory
Company is different from its 
members
Veil can be lifted to disregard 
separate legal entity
Incorporation of 
company
Register Company with ROC
Get certificate of incorporation
For easy filing follow SPICe
Share Capital
1. Nominal,
2.Issued,
3. Subscribed
4.Called up
5. Paid up capital
Shares Equity Shares and Preference shares
With Uniform 
Rights
With differential 
Voting rights
MOA
Defines object and scope of work of 
company
Company can not go beyond the 
scope defined.
AOA
Defines rules, regulations or bye-laws 
of Company
Company has power to alter it AoA 
through Special Resolution
CHAPTER OVERVIEW 
 
© The Institute of Chartered Accountants of India
 
 
a
    
 
6.3 
THE COMPANIES ACT, 2013 
 
 INTRODUCTION 
The Companies Act, 2013 was enacted to consolidate and amend the law relating to the 
companies. The Companies Act, 2013 was preceded by the 
Companies Act, 1956.  
Due to changes in the national and international economic 
environment and to facilitate expansion and growth of our 
economy, the Central Government decided to replace the 
Companies Act, 1956 with a new legislation. The Companies Act, 
2013 contains 470 sections and seven schedules. The entire Act has 
been divided into 29 chapters. A substantial part of this Act is in the 
form of Companies Rules. The Companies Act, 2013 aims to improve corporate governance, 
simplify regulations, strengthen the interests of minority investors and for the first time 
legislates the role of whistle-blowers and provisions relating to class action suit. Thus, this 
enactment seeks to make our corporate regulations more contemporary.  
Applicability of the Companies Act, 2013: 
The provisions of the Act shall apply to- 
? Companies incorporated under this Act or under any previous company law. 
? Insurance companies (except where the provisions of the said Act are inconsistent with 
the provisions of the Insurance Act, 1938 or the IRDA Act, 1999) 
? Banking companies (except where the provisions of the said Act are inconsistent with 
the provisions of the Banking Regulation Act, 1949) 
? Companies engaged in the generation or supply of electricity (except where the 
provisions of the above Act are inconsistent with the provisions of the Electricity Act, 
2003) 
? Any other company governed by any special Act for the time being in force. 
? Such body corporate which are incorporated by any Act for time being in force, and as 
the Central Government may by notification specify in this behalf. 
1. COMPANY: MEANING AND ITS FEATURES 
Meaning: According to Chief Justice Marshall, “a corporation is an artificial 
being, invisible, intangible, existing only in contemplation of law. Being a mere 
creation of law, it possesses only those properties which the charter of its 
creation confers upon it, either expressly or as accidental to its very existence.   
© The Institute of Chartered Accountants of India
  
 
BUSINESS LAWS 
a
 
 6.4 
In the words of professor Haney, “A company is an incorporated association, which is an artificial 
person created by law, having a separate entity, with a perpetual succession and a common seal.”  
This definition sums up the meaning as well as the features of a company succinctly.  
However, the Act defines the term company a bit differently. Section 2(20) of the Companies 
Act, 2013 defines the term ‘company’. “Company means a company incorporated under this 
Act or under any previous company law”. As we shall progress under the chapter, the meaning 
of the term company will be understood by the students. 
Features of a Company 
 
We have seen the definition given to company from a layman’s point of view and legal point 
of view. But the company form of organization has certain distinctive features that help us to 
understand the realms of a company. Following are the main features: 
I. Separate Legal Entity: There are distinctive features between different forms of 
organisations and the most striking feature in the company form of organisation vis-
à-vis the other forms of business organisations is that it acquires a unique character of 
being a separate legal entity. In other words, when a company is registered, it is clothed 
with a legal personality. It comes to have almost the same rights and powers as a 
human being. Its existence is distinct and separate from that of its members. A 
company can own property, have bank account, raise loans, incur liabilities and enter 
into contracts.  
 (a) It is at law, a person which is different from the subscribers to the memorandum 
of association.  It’s personality is distinct and separate from the personality of 
those who compose it. 
•Legally separate from the members
Separate Legal Entity
•Change in members does not affect existence of Company
Perpetual succession
•Liability of Company is different  from liability of members
Limited Liability
•Company can act through human agency only
•Company can contract, sue and be sued in its own name
Artificial Juridicial Person
© The Institute of Chartered Accountants of India
Page 5


LEARNING OUTCOMES 
 
 
THE COMPANIES ACT, 2013  
 
 
After studying this chapter, you would be able to understand- 
? Company form of Business Organisation and its features 
? Corporate veil theory 
? Classes of companies under the Companies Act 
? Registration of companies 
? Memorandum of Association and Articles of Association 
 
 
 
 
 
 
 
 
 
CHAPTER 
6 
   
© The Institute of Chartered Accountants of India
  
 
BUSINESS LAWS 
a
 
 6.2 
 
 
 
 
Company (Incorported under the Companies Act, 2013
Features
Separate Legal entity, Perpetual 
Succession, Limited Liability, Artificial 
Judicial Person
Corporate Veil 
theory
Company is different from its 
members
Veil can be lifted to disregard 
separate legal entity
Incorporation of 
company
Register Company with ROC
Get certificate of incorporation
For easy filing follow SPICe
Share Capital
1. Nominal,
2.Issued,
3. Subscribed
4.Called up
5. Paid up capital
Shares Equity Shares and Preference shares
With Uniform 
Rights
With differential 
Voting rights
MOA
Defines object and scope of work of 
company
Company can not go beyond the 
scope defined.
AOA
Defines rules, regulations or bye-laws 
of Company
Company has power to alter it AoA 
through Special Resolution
CHAPTER OVERVIEW 
 
© The Institute of Chartered Accountants of India
 
 
a
    
 
6.3 
THE COMPANIES ACT, 2013 
 
 INTRODUCTION 
The Companies Act, 2013 was enacted to consolidate and amend the law relating to the 
companies. The Companies Act, 2013 was preceded by the 
Companies Act, 1956.  
Due to changes in the national and international economic 
environment and to facilitate expansion and growth of our 
economy, the Central Government decided to replace the 
Companies Act, 1956 with a new legislation. The Companies Act, 
2013 contains 470 sections and seven schedules. The entire Act has 
been divided into 29 chapters. A substantial part of this Act is in the 
form of Companies Rules. The Companies Act, 2013 aims to improve corporate governance, 
simplify regulations, strengthen the interests of minority investors and for the first time 
legislates the role of whistle-blowers and provisions relating to class action suit. Thus, this 
enactment seeks to make our corporate regulations more contemporary.  
Applicability of the Companies Act, 2013: 
The provisions of the Act shall apply to- 
? Companies incorporated under this Act or under any previous company law. 
? Insurance companies (except where the provisions of the said Act are inconsistent with 
the provisions of the Insurance Act, 1938 or the IRDA Act, 1999) 
? Banking companies (except where the provisions of the said Act are inconsistent with 
the provisions of the Banking Regulation Act, 1949) 
? Companies engaged in the generation or supply of electricity (except where the 
provisions of the above Act are inconsistent with the provisions of the Electricity Act, 
2003) 
? Any other company governed by any special Act for the time being in force. 
? Such body corporate which are incorporated by any Act for time being in force, and as 
the Central Government may by notification specify in this behalf. 
1. COMPANY: MEANING AND ITS FEATURES 
Meaning: According to Chief Justice Marshall, “a corporation is an artificial 
being, invisible, intangible, existing only in contemplation of law. Being a mere 
creation of law, it possesses only those properties which the charter of its 
creation confers upon it, either expressly or as accidental to its very existence.   
© The Institute of Chartered Accountants of India
  
 
BUSINESS LAWS 
a
 
 6.4 
In the words of professor Haney, “A company is an incorporated association, which is an artificial 
person created by law, having a separate entity, with a perpetual succession and a common seal.”  
This definition sums up the meaning as well as the features of a company succinctly.  
However, the Act defines the term company a bit differently. Section 2(20) of the Companies 
Act, 2013 defines the term ‘company’. “Company means a company incorporated under this 
Act or under any previous company law”. As we shall progress under the chapter, the meaning 
of the term company will be understood by the students. 
Features of a Company 
 
We have seen the definition given to company from a layman’s point of view and legal point 
of view. But the company form of organization has certain distinctive features that help us to 
understand the realms of a company. Following are the main features: 
I. Separate Legal Entity: There are distinctive features between different forms of 
organisations and the most striking feature in the company form of organisation vis-
à-vis the other forms of business organisations is that it acquires a unique character of 
being a separate legal entity. In other words, when a company is registered, it is clothed 
with a legal personality. It comes to have almost the same rights and powers as a 
human being. Its existence is distinct and separate from that of its members. A 
company can own property, have bank account, raise loans, incur liabilities and enter 
into contracts.  
 (a) It is at law, a person which is different from the subscribers to the memorandum 
of association.  It’s personality is distinct and separate from the personality of 
those who compose it. 
•Legally separate from the members
Separate Legal Entity
•Change in members does not affect existence of Company
Perpetual succession
•Liability of Company is different  from liability of members
Limited Liability
•Company can act through human agency only
•Company can contract, sue and be sued in its own name
Artificial Juridicial Person
© The Institute of Chartered Accountants of India
 
 
a
    
 
6.5 
THE COMPANIES ACT, 2013 
 
 (b) Even members can contract with company, acquire right against it or incur 
liability to it. For the debts of the company, only its creditors can sue it and not 
its members.    
A company is capable of owning, enjoying and disposing of property in its own 
name. Although the capital and assets are contributed by the shareholders, the 
company becomes the owner of its capital and assets. The shareholders are not 
the private or joint owners of the company’s property. 
 A member does not even have an insurable interest in the property of the 
company.  The leading case on this point is of Macaura Vs. Northern Assurance 
Co. Limited (1925): 
 Fact of the case 
 Macaura (M) was the holder of nearly all (except one) shares of a timber company.  He 
was also a major creditor of the company.  M insured the company’s timber in his own 
name. The timber was lost in a fire. M claimed insurance compensation. Held, the 
insurance company was not liable to him as no shareholder has any right to any item 
of property owned by the company, for he has no legal or equitable interest in them. 
Hence in this case, since the timber was insured in the company’s name, M could not 
claim the compensation from insurance company. 
II Perpetual Succession: Members may die or change, but the company goes on till it is 
wound up on the grounds specified by the Act. The shares of the company may change 
hands infinitely but that does not affect the existence of the company.  Since a 
company is an artificial person created by law, law alone can bring an end to its life.  
Its existence is not affected by the death or insolvency of its members. 
Example 1: Many companies in India are in existence for over 100 years. This is 
possible only due to the fact that the company has perpetual existence. There was a 
company which has 7 members and all of them died in an aircraft. Despite this the 
company still exists unlike partnership form of business. 
III Limited Liability: The liability of a member depends upon the kind of company of 
which he is a member.  We know that company is a separate legal entity which is 
distinct from its members.  
 (i) Thus, in the case of a limited liability company, the debts of the company in 
totality do not become the debts of the shareholders. The liability of the 
members of the company is limited to the extent of the nominal value of shares 
held by them. In no case can the shareholders be asked to pay anything more 
than the unpaid value of their shares.  
© The Institute of Chartered Accountants of India