UNIT-4

THE COMPANIES AMENDMENT

ACT 2015
Companies Amendment Act 2015 is an amendment to the
existing Companies Act. The objective of the amendment is to
make the law more conducive to businesses and investment,
while also protecting the interests of shareholders.

Another significant change introduced by the Companies

Amendment Act 2015 is the concept of ‘pre-incorporation
contracts’. This allows businesses to enter into contracts
before they are formally incorporated as a company. This is
particularly useful for start-ups who may not yet be in a
position to enter into binding agreements.

Overall, the Companies Amendment Act 2015 represents a

major step forward for businesses in India and will make it
easier for them to operate and expand their operations. It is
hoped that this will lead to increased economic growth and job
creation in India.
What is a Company?

“Company” means a company incorporated under this Act .In other

words, A company is a legal entity which is formed by different
individuals to generate profits through their commercial activities..

Types of Company :

Public Company :It is a voluntary association of several members

with a separate legal entity, and the liability of its members is limited
to the shares held by them. Laws, rules and regulations govern all
the activities of this form of company.

Private Company: Private Companies are a small business entity

which can be incorporated with a minimum of two shareholders and
directors. Each is regarded as the employee of the Company with the
benefit of limited liability.
One Person Company This setup allows a sole proprietor to do business
and still enjoy corporate structure. Being a separate legal entity, the
liability is limited to the amount unpaid by the members.

Limited Liability Partnership: As per the Companies Act, this form of

business enjoys the advantages of both a company and a partnership firm.
It is easy to incorporate and manage with limited liability to the owners.

Features:
a) Separate Legal Entity: The outstanding feature of a company is
its independent corporate existence. A company before the law is a person.
It is regarded as an entity separate from its members. By incorporation
under the Act, the company is vested with a corporate personality which is
distinct from the members who compose it. Thus a company continues to
exist even if the members go on changing from time to time.
b) Perpetual succession

An incorporated company never dies, as it is an entity with perpetual

succession.

For eg.
M, N, and O are the only members of a company, holding all its shares. Their
shares may be transferred to or inherited by P, Q, or R who may, therefore,
become the new members and members of the company as they are now the
shareholders of the company. But the company will remain the same entity,
with same name, privileges and immunities, property and assets.

C) Common seal:
A common seal of a company is a symbol of its incorporation. It is considered
as the official signature of a company. But now by the virtue of 2015
amendment to the Companies Act, a company may or may not have
a common seal. As per section 21 of Companies Act, authentication of
documents, proceedings and contracts on behalf of a company, signed by any
key managerial personnel or an officer of the company duly authorised by the
board in this behalf.
d) Limited Liability of Members:
A company having its separate legal entity is the owner of its own assets
and bound by its liabilities. Members are neither the owner nor liable for
its debts. All the debts of a company are to be paid by itself rather than
by its members.

e) Transferability of shares:

Section 44 companies act of the Act, declares that “the shares or

debentures or any other interest of any member in a company shall be a
movable property that can be transferred in the manner provided in the
article of the company.”
f) Capacity to sue and be sued:

Being a body corporate company possesses individual capacity being

sued and suing others in its own name. A company’s right to sue arises
when some loss is caused to the company i.e. to property or personality
of the company. A company also has a right to sue whenever any
defamatory material published about it that may affect its business.

Incorporation of A Company:
The incorporation of a company refers to the legal process that is used
to form a corporate entity or a company. An incorporated company is a
separate legal entity on its own, recognized by the law.

These corporations can be identified with terms like ‘Inc’ or ‘Limited’ in

their names. It becomes a corporate legal entity completely separate
from its owners.
1. Ascertaining Availability of Name

The first step in the incorporation of any company is to choose an

appropriate name. A company is identified through the name it
registers. The name of the company is stated in the memorandum of
association of the company. The company’s name must end with
‘Limited’ if it’s a public company and ‘Private Limited’ if its a private
company.

2. Preparation of Memorandum of Association and Articles of

Association
The memorandum of association of a company can be referred to as its
constitution or rulebook. The memorandum states the field in which the
company will do business, objectives of the company, as well as the type
of business the company plans to undertake.

Articles of Association is basically a document that states rules which

the internal management of the company will follow. The article creates
a contract between the company and its members. The article mentions
the rights, duties, and liabilities of the members. It is equally binding on
all the members of the company
3. Printing, Signing and Stamping, Vetting of Memorandum
and Articles:

The Registrar of Companies often helps promoters to draw up and

draft the memorandum and articles of association.

The memorandum and articles are consequently divided into

paragraphs and arranged chronologically.

The articles have to be individually signed by each subscriber or

their representative in the presence of a witness, otherwise, it will
not be valid.

4. Power of Attorney
To fulfill the legal and complex documentation formalities of
incorporation of a company, the promoter may then employ an
attorney who will have the authority to act on behalf of the
company and its promoters.
5. Payment of Registration Fees:
A prescribed fee is to be paid to the Registrar of Companies during
the course of incorporation. It depends on the nominal capital of the
companies which also have share capital.

6.Certificate of Incorporation:
If the Registrar is completely satisfied that all requirements have
been fulfilled by the company that is being incorporated, then he will
register the company and issue a certificate of incorporation. As a
result, the incorporation certificate provided by the Registrar is
definite proof that all requirements of the Act have been met.
Memorandum Of Association (MOA) :

Memorandum of Association is defined under section 2(56) of the

Companies Act, 2013, which states “memorandum” as a
memorandum of association of the company which is originally
formed or altered from time to time. It is a charter document of
the company and mentions the terms of association with the
company along with the name, object, and scope of the company.

Features:
The memorandum of association is the basic charter on which the
company is based and is mandatory for a company.

The memorandum of association is the constitution of the

company because it defines its limitations and the sphere of its
activities.

The memorandum cannot be altered by the company, except by

fulfilling the conditions laid down in the Companies Act for
specific activities and situations.
It’s a public document and is open to inspection by those who deal with
the company.

It defines the company’s relations with outside individuals and its

activities about them,

Form of Memorandum of Association:

According to section 4 of the Companies Act, 2013, companies will be
prescribed in the forms given under the tables according to different
types of companies.
On the left, we have Form of MOA as per Schedule I and on the right,
we have the Type of Company.
Clauses of the Memorandum of Association:

Name Clause :This section determines the company’s name. The

company’s name should not be the same as that of another business.
Even, since it is a private entity, the term “Private Limited” should be
included at the top. In the case of a public corporation, the term
“Limited” should be added to the end of its name.

Registered Office Clause- indicates the state of the registered office

where the organisation is located exactly. It is very important to specify
the branch of the registered office where the organisation got
registered.

Object Clause: This segment of the memorandum of association

explains the motto of the organisation and its activities. After a few
months if there is a change in activities and operations, then the head
of the institution needs to change the name of that organisation within
6 months. Otherwise, it will become an offence.
Capital Clause: it concentrates on the capital invested by two or
more shareholders of one company. We need to furnish the
information regarding the amounts of share between the
shareholders and how they formulated their rules etc. in the
memorandum of association.

Liability Clause: it is another important class of memorandum of

association. Here we need to explain the liability of the members
either limited or unlimited in the firm.

Association Clause: It is the last but not least, class of the

memorandum of association. Here one should mention the exact
idea and goal of the owner of the company.
Articles of Association Meaning:

Articles of Association (AOA) refer to a document that contains all

pieces of information relating to the company in formation. From
the type, nature, and purpose of the business to its appointment
process and financial reporting procedures, the AOA covers
everything.
Definition of Articles of Association of a Company:

As per Section 2 (5) of the Companies Act, 2013, Articles of Association

have been defined as
“The Articles of Association (AOA) of a company originally framed or
altered or applied in pursuance of any previous company law or this
Act.”

Forms of Articles of Association (AOA):

Table F- AOA of a company limited by shares

Table G- AOA of a company limited by guarantee and having a share
capital
Table H- AOA of a company limited by guarantee and not having a share
capital
Table I- AOA of an unlimited company and having a share capital
Table J- AOA of an unlimited company and not having a share capital
Company Details:
The first one is the details of the company. All basic information is provided
under this separate section of the AOA, from the name of the entity to the
name of the incorporators and their addresses.

Purpose:
When a business is incorporated, it is done with a purpose. The AOA is an
important segment of the document, which the government authorities look
into in detail. Thus, the owners must outline how the business would carry
out the day-to-day tasks.

Duration:
Here, the companies mention whether the incorporation is seasonal or for
one particular objective for a limited period, or permanent.

Power Distribution:
Delegation of power is necessary for companies if they aspire to run in an
organized manner. Hence, they have a hierarchy of staff from the
management to anyone working there. The hierarchy-wise roles and
responsibilities of individuals are mentioned in this segment.
Company Organization:
The AOA gives details about the number of employees and directors,
along with other information related to the company’s organization.
In addition, the details of the shareholders, founders, investors,
auditors, etc., are found in this section.

Share Capital:
The rights they all enjoy in the company are briefed herein. Also, it
includes the information regarding the alteration that occurs in the
share capital, calls on shares, shareholders’ rights, voting rights,
preference shares etc.

Shareholder Meeting
This section contains the requirements of the general or director
meetings. In addition, the rules that govern the annual meeting of
shareholders are found here, along with the notices, resolutions, and
votes.
What Is Share Capital?
Share capital is the money a company raises by issuing common or
preferred stock. The amount of share capital or equity financing a
company has can change over time with additional public offerings. It
means the total amount raised by the company in sales of shares.

Features of Share Capital:

It is the most reliable source of raising capital for the company.

A company has to list itself in the stock market to issue shares. So, it
increases the trust of the investors in the company.

Since shareholders are the company owners, this gives them the right
to participate in the company’s management decisions.

The shareholders get a share of the company’s profit through

dividends against their invested amount.
Types of Share Capital:

Authorized Capital: Authorized capital is the maximum share capital a

company can issue. The amount of authorized capital is specified in the
Memorandum of Association and can be changed only by following a
specific procedure underlined.

For example, if the authorized capital of a company is $10,00,000 and

the face value of a share is decided as $10, then the company cannot issue
more than 100,000 shares to the public.

Issued Capital: Issued capital is the share capital issued to the

shareholders. It can be less than authorized capital but not more than it.

For example, a company’s authorized capital is $10,00,000, and the face

value of a share is $10. The company’s owners initially decided that it only
needed $6,00,000 of capital so that it would issue only 60,000 shares to
the public.
Subscribed Capital: Subscribed capital is the amount of capital
invested by the public.
For example, a company has issued 10,000 shares at a face value of $10
per share to the public, out of which the company subscribed to only
6,000. Hence, subscribed capital will be 6,000 * $10, which is $60,000

Called Up Capital: Called capital up is that part of subscribed capital

that is called upon to pay on the shares allotted to the shareholders

For example, a company initially asks for $5 from its subscribers of

6,000 shares. The called-up capital will be 6,000 shares * $5, which is
$30,000.

Paid-Up Capital: Paid-up capital is the total amount of capital paid by

the shareholders.

For example, out of the called-up amount of $5 from its 6,000 subscribed
shares, the shareholders of 5500 shares paid the called-up amount. Paid-
up capital, in this case, will be $5500 * $5, which is $27,500
Debenture:
The word ‘debenture’ itself is a derivation of the Latin word ‘debere’
which means to borrow or loan. Debentures are written instruments
of debt that companies issue under their common seal. They are
similar to a loan certificate.

Debenture is used to issue the loan by government and companies.

The loan is issued at the fixed interest depending upon the
reputation of the companies. When companies need to borrow some
money to expand themselves they take the help of debentures.

Features:

Debentures are instruments of debt, which means that debenture

holders become creditors of the company.

They are a certificate of debt, and amount of repayment mentioned

on it. This certificate is issued under the company seal and is known
as a Debenture Deed.
Debentures have a fixed rate of interest, and such interest amount is
payable yearly or half-yearly.

Debenture holders do not get any voting rights. This is because they are
not instruments of equity, so debenture holders are not owners of the
company, only creditors.

The interest payable to these debenture holders is a charge against the

profits of the company. So these payments have to be made even in case of
a loss.

Types of Debentures:

Secured Debentures: These are debentures that are secured against an

asset/assets of the company. This means a charge is created on such an
asset in case of default in repayment of such debentures. So in case, the
company does not have enough funds to repay such debentures, the said
asset will be sold to pay such a loan. The charge may be fixed, i.e. against
a specific assets/assets or floating, i.e. against all assets of the firm.
Unsecured Debentures: These are not secured by any charge against the
assets of the company, neither fixed nor floating. Normally such kinds of
debentures are not issued by companies in India.

Redeemable Debentures: These debentures are payable at the expiry of

their term. Which means at the end of a specified period they are payable,
either in the lump sum or in installments over a time period. Such
debentures can be redeemable at par, premium or at a discount.

Irredeemable Debentures: Such debentures are perpetual in nature.

There is no fixed date at which they become payable. They are redeemable
when the company goes into the liquidation process. Or they can be
redeemable after an unspecified long time interval.

Fully Convertible Debentures: These shares can be converted to equity

shares at the option of the debenture holder. So if he wishes then after a
specified time interval all his shares will be converted to equity shares and
he will become a shareholder
Partly Convertible Debentures: Here the holders of such debentures
are given the option to partially convert their debentures to shares. If he
opts for the conversion, he will be both a creditor and a shareholder of the
company.

Non-Convertible Debentures: As the name suggests such debentures

do not have an option to be converted to shares or any kind of equity.
These debentures will remain so till their maturity, no conversion will
take place. These are the most common type of debentures.

Acceptance of Deposits:
Meaning of Deposits:
As per rule(2)(1)(c) of Acceptance of Deposit rules 2014, Deposit
means any receipt of money by way of deposit or loan or in any
other form, by a company. But does not include certain classes of
transactions. They are:-

Any amount,

Received from the Central Government or a State Government, or

any such source where the repayment will be guaranteed by the
State or the Centre.

Received from foreign banks or international banks, foreign

governments, multilateral financial institutions subject to the
provisions of FEMA, 1999.

Received by way of financial assistance or loan from Public

Financial Institutions notified by the Central Government or
Scheduled Banks or Insurance Companies.
Received by a company from any other company.

Received from a director who provides a declaration stating

that the amount is not given out of borrowings or a loan from
any person.

Raised by way of issue of debentures or bonds secured by a

first charge or any other way.

Received as a security deposit for the performance of a

contract.

Kinds of Deposits:

Acceptance of deposit from Members: A Private or Public

company can accept deposits from its members anytime after
fulfilling certain conditions following up by passing a
resolution in general meeting.
Acceptance of deposits from the Public: A Public company only after
fulfilling the following requirements before inviting any deposits from the
public as:

A Public Company holding a net worth of not less than 100 crore rupees; or
The turnover of the public company shall not be less than 500 Crore rupees;
and acquired the earlier consent of shareholders through Special Resolution
and such resolution has been filed with the registrar.

Applicability:
Companies may accept deposits from both, members and the general public
as per the provisions of the Companies Act, 2013. Section 73-76 of the
Companies Act, 2013 contains provisions regarding the acceptance of deposits
that apply to all companies barring a few:-

Any banking company.

Non Banking Financial Companies as per the RBI Act 1934.
Any other company notified by the Central Government in consultation with
the RBI.
Prohibition of Acceptance of Deposits (Sec. 73)

There are a few conditions that have to be fulfilled in order for a company to
accept deposits. They are:-

A resolution has to be passed in the General Meeting.

A circular has to be issued to the members with the following details:-

a) Financial statements
b) Credit rating obtained
c) Total number of depositors
d) Amount due to the depositors with regard to prior deposits e) Other
particulars as may be prescribed

File a copy of the circular and the statements with the Registrar at least 30
days prior to the issue of the circular.

20% of the total amount of deposits maturing in the following financial year
to be deposited with a Scheduled bank in a separate account, “Deposit
Repayment Reserve Account” before the 30th of April, of every year.
Repayment of Deposits (Sec. 74)
Section 74 lays out the provisions for the repayment of those deposits
which have been accepted by the company before the commencement of
the Act; wherein there is any amount of principal or the interest that
stands unpaid

Repay the deposits within 3 years of the commencement of the Act or

the expiry of the term of those deposits, based on whichever is the
earliest

Where the company fails to repay the deposit money within the
stipulated time or such extended period granted by the Tribunal, the
company will be punishable with a fine in addition to the repayment of
the deposits as specified below –

Particulars Fine:
The Company Rs. 1 crore – Rs. 10 crore
Every officer found in default a) Imprisonment that may extend to
7 year b) Or Rs. 25 lakh – Rs. 2 crore c) Or both
Damages for Fraud (Sec. 75)

Where the company fails to repay the deposit money within the stipulated time
it is proved that the deposits were obtained for fraudulent purposes, every
officer found guilty will be held personally responsible and be punishable under
Section 447 of the Companies Act, 2013.

Acceptance of Deposits from Public by Certain Companies (Sec 76)

Deposits from the public may be accepted only by a certain class of companies,
as per the provisions of Section 76. Any public company that:-

Has a networth not less than Rs. 100 crore.

Has a turnover not less than Rs. 500 crore.
Has already obtained the consent via Special Resolution in the General
Meeting.
Has already filed the Special Resolution with the Registrar.
.
Appointment of director including women director:

Requirement of Directors :
As per Section 149 (1) of the Companies Act, 2013 each company will
have at least three directors in case of a public company, two
directors in the case of a private company, and one Director in the
case of a One-Person Company (OPC).

A company may nominate upto fifteen directors, however, a firm may

enroll more than 15 directors after a special resolution passed at a
public company conference.

According to Section 152(2) of the Companies Act, 2013 every director

shall be elected at the general meeting of the firm.
Terms of Appointment :
The following are the terms for the appointment of the Directors of
Company:

Only a real person may be appointed as a director

Someone may not be nominated as a director unless they have a director

Identification number (DIN)

The person should have a Digital signature certificate (DSC) from the
accrediting permission for authorization as director.

Every individual appointed for the post as a director must provide their
DIN and statement that he or she is capable of appointment as a director
under the Companies Act, 2013.

A person may not be capable of authorisation as a director, if he or she is

not registered under subsection (1) of Section 164 of the Companies Act,
2013.
Share Qualification
Company articles state that every director should have a specific number of
percentages. Such shares are known as qualification shares. The director
must buy the mandatory number of shares within two months of being
nominated.

Disqualifications
Minimum qualifications for directors are set out in Section 274. If someone
may not be elected a director in the following circumstances:
If the person is not mentally stable and is recognised by the court for the
same
Whenever a director is determined as insolvent
Not paid for the qualification shares after 6 months of becoming a director
A director is sentenced for at least 6 months in prison due to misconduct and
5 years of not exceeding the date of expiry of a sentence
A director found guilty as a fraudulent person under Section 203
Woman Director Appointment Applicability under
Companies Act: