Table of Content: 

1. INTRODUCTION
2. CORPORATE VEIL THEORY
3. CLASSES OF COMPANIES UNDER THE ACT
4. MODE OF REGISTRATION/INCORPORATION OF COMPANY 
5. FORMATION OF COMPANY:
6. INCORPORATION OF COMPANY:
7. CLASSIFICATION OF CAPITAL
8. MEMORANDUM OF ASSOCIATION 
9. DOCTRINE OF ULTRA VIRES 
10. ARTICLES OF ASSOCIATION
11. DOCTRINE OF INDOOR MANAGEMENT

What is Companies Act? - CA Foundation

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.

Features of a Company

CORPORATE VEIL THEORY

(i) Corporate Veil:

Corporate Veil refers to a legal concept whereby the company is identified separately from the members of the company.

The term Corporate Veil refers to the concept that members of a company are shielded from liability connected to the company’s actions. If the company incurs any debts or contravenes any laws, the corporate veil concept implies that members should not be liable for those errors. In other words, they enjoy corporate insulation. 

(ii) Lifting of Corporate Veil: 

The following are the cases where company law disregards the principle of corporate personality or the principle that the company is a legal entity distinct and separate from its shareholders or members:

• To determine the character of the company i.e. to find out whether co-enemy or friend
• To protect revenue/tax
• To avoid a legal obligation
• Formation of subsidiaries to act as agents
• Company formed for fraud/improper conduct or to defeat law

CLASSES OF COMPANIES UNDER THE ACT

The growth of the economy and increase in the complexity of business operation in the corporate world has led to the emergence of different forms of corporate organizations. To regulate them, the Companies Act, 2013 has broadly classified the companies into various classes. 

A company may be incorporated as a one-person company, private company or a public company, depending upon the number of members joining it. Again, it may either be an unlimited company, or may be limited by shares or by guarantee or by both. On the basis of control, companies can be classified as associate company, holding company and subsidiary company. Some other forms of classification of companies are foreign company, government company, small company, dormant company, nidhi company and company formed for charitable objects.

Companies may be classified into various classes on the following basis:

1. On the basis of liability
2. On the basis of members
3. On the basis of control
4. On the basis of access to capital
5. Other companies

MODE OF REGISTRATION/INCORPORATION OF COMPANY 

PROMOTERS: The Companies Act, 2013 defines the term “Promoter” under section 2(69) which means a person—
(a) who has been named as such in a prospectus or is identified by the company in the annual return referred to in section 92; 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.

FORMATION OF COMPANY:

INCORPORATION OF COMPANY:

Section 7 of the Companies Act, 2013 provides for the procedure to be followed for incorporation of a company. 

•  Filing of the documents and information with the registrar
• Issue of certificate of incorporation on registration
• Allotment of Corporate Identity Number (CIN)
• Maintenance of copies of all documents and information
• Furnishing of false or incorrect information or suppression of material fact at the time of incorporation (i.e. at the time of Incorporation)
• Company already incorporated by furnishing any false or incorrect information or representation or by suppressing any material fact (i.e. post Incorporation)
• Order of the Tribunal

CLASSIFICATION OF CAPITAL

The term Capital has a variety of meanings. It means one thing to economists; another to accountants and still another to businessmen and lawyers. In relation to a company limited by shares, the word capital means share-capital, i.e., the capital or figure in terms of so many rupees divided into shares of fixed amount. In other words, the contributions of persons to the common stock of the company form the capital of the company. The proportion of the capital to which each member is entitled, is his share. A share is not a sum of money; it is rather an interest measured by a sum of money and made up of various rights contained in the contract.

In the domain of Company Law, the term ‘capital’ is used in the following senses:

• Nominal or authorised or registered capital
• Issued capital
• Subscribed capital
• Called-up capital
• Paid-up capital

SHARES

Section 2(84) of the Companies Act, 2013 defines the term ‘share’ which means a share in the share capital of a company and includes stock. A share thus represents such proportion of the interest of the shareholders as the amount paid up thereon bears to the total capital payable to the company. It is a measure of the interest in the company’s assets to which a person holding a share is entitled. 

MEMORANDUM OF ASSOCIATION 

The Memorandum of Association of company is in fact its charter; it defines its constitution and the scope of the powers of the company with which it has been established under the Act. It is the very foundation on which the whole edifice of the company is built.

Object of registering a memorandum of association:
⬥ It contains the object for which the company is formed and therefore identifies the possible scope of its operations beyond which its actions cannot go.
⬥ It enables shareholders, creditors and all those who deal with company to know what its powers are and what activities it can engage in A memorandum is a public document under Section 399 of the Companies Act, 2013. Consequently, every person entering into a contract with the company is presumed to have the knowledge of the conditions contained therein.
⬥ The shareholders must know the purposes for which his money can be used by the company and what risks he is taking in making the investment.

DOCTRINE OF ULTRA VIRES 

Doctrine of ultra vires: The meaning of the term ultra vires is simply “beyond (their) powers”. The legal phrase “ultra vires” is applicable only to acts done in excess of the legal powers of the doers. This presupposes that the powers in their nature are limited. 

It is a fundamental rule of Company Law that the objects of a company as stated in its memorandum can be departed from only to the extent permitted by the Act, thus far and no further. In consequence, any act done or a contract made by the company which travels beyond the powers not only of the directors but also of the company is wholly void and inoperative in law and is therefore not binding on the company. On this account, a company can be restrained from employing its fund for purposes other than those sanctioned by the memorandum. Likewise, it can be restrained from carrying on a trade different from the one it is authorised to carry on.

The leading case through which this doctrine was enunciated is that of Ashbury Railway Carriage and Iron Company Limited v. Riche-(1875). 
The facts of the case are:
The main objects of a company were:
(a) To make, sell or lend on hire, railway carriages and wagons;
(b) To carry on the business of mechanical engineers and general contractors.
(c) To purchase, lease, sell and work mines.
(d) To purchase and sell as merchants or agents, coal, timber, metals etc. 

ARTICLES OF ASSOCIATION

Section 5 of the Companies Act, 2013 seeks to provide the contents and model of articles of association. The section lays the following law- 

• Contains regulations
• Inclusion of matters
• Contain provisions for entrenchment
• Manner of inclusion of the entrenchment provision
• Notice to the registrar of the entrenchment provision
• Forms of articles
• Model articles
• Company registered after the commencement of this Act

DOCTRINE OF INDOOR MANAGEMENT

Doctrine of Constructive Notice: Section 399 of the Companies Act, 2013 provides that any person can inspect by electronic means any document kept by the Registrar, or make a record of the same, or get a copy or extracts of any document, including certificate of incorporation of any company, on payment of prescribed fees.

The memorandum and articles of association of a company when registered with Registrar of Companies, become public documents, and they are available for inspection to any person, on the payment of a nominal fees. In other words, Section 399 confers the right of inspection to all. It is therefore, the duty of every person dealing with a company to inspect its documents and make sure that his contract is in conformity with their provisions but whether a person reads them or not, it will be presumed that he knows the contents of the documents. This kind of presumed/implied notice is called constructive notice.

The above-mentioned doctrine of Indoor Management or Turquand Rule has limitations of its own. That is to say, it is inapplicable to the following cases, namely:

• Actual or constructive knowledge of irregularity
• Suspicion of Irregularity
• Forgery