Introduction to Companies act 1956

It has been Amendmended in 2002 and 2006 Section 3(1)(i) of the Companies Act 1956 defines a company as : “A company means a company formed and registered under this act or an existing company.” Company is Defined as “a voluntary incorporated association

which is an artificial person , created by law with limited liability having a common seal and perpetual succession” If an association is not incorporated under companies act ,it

becomes illegal association .

Charactertics of the company

Registration Distinct person- separate legal personality Perpetual succession Artificial person Transferable shares Limited liability Common seal Separate Property Capacity to sue and be sued

TYPES OF COMPANIES

Royal Charted CompanyStatutory CompanyRegistered CompanyCompany Ltd SharesCompany Ltd by GuaranteeUnlimited Company

Board of directors

The company being and artificial person carries on its activities and Business through individuals called directors [Sec.2(13)]

Every company has atleast 2 directors

Maximum permissible limit of directors is 12 .where the number of directors Fall below the maximum number the remaining directors cannot act

Director identification number(DIN)

Under Sec253 and 266A to 266G

DIN means director identification number which the central government May allot to any individual intending to be appointed as a director or to

Any existing director of a company for the purpose of his identification

An individual has to apply to the central government for allotment of DIN

Any individual cannot be given two DINS

Appointment in General Meeting

Directors shall be appointed in the General Meeting by the Company

Retiring director or a person other than retiring director can be appointed as a Director of the company

At a general meeting of a public or a private company a motion shall not be made For two or more directors

Share qualification of a Director

Share qualification means the share to be taken by the director to qualify him As a director of the company

It is duty of every director to hold a specified share qualification

The act however does not prescribe any share qualification

Number of Directorships

No person shall hold the office at the same time as a directors in more than15 companies Under Sec 285

Exceptions: A private company which is neither a subsidary nor a holding company of a Public company An unlimited company Not profit organization A company in which such person is only an alternative director

Removal of Directors

By Shareholders Under Sec 284

A company may buy ordinary resolution to remove the director (not being a Director appointed by the central government ) before the expiry of his period of Office

Exceptions: Director appointed by the central government

In case of the private company director holding office for life as on 1.4.1952

Central government under following circumstances may remove a director If a person is found guilty of fraud of default in carrying Out in duties Action of a person is likely to cause or has caused serious Injury to the industry and trade

By central government(Sec 388B

to 388E)

By Company Law boardSec 402 and 407

On application by any member of the company in case of Oppression or mismanagement the company law board may remove a director

No director can be appointed if he is terminated till 5years

Vacation of office of director

Office of the director shall become vacant if……

He is found to be of unsound mind

He is absent for three consecutive board meetings

If he fails to disclose the information in respect to contract he is interested

If he becomes insolvent

He fails to obtain share qualification within 2 months

If he is convicted by court for any offence

RETIREMENT BY ROTATION (SEC.255 & 256)

In the meeting resolution for the re-appointment of the director has been put to the meeting

By a notice in writing addressed to the company or its board of directors ,expressed his Unwillingness top be re-appointed .

He is not qualified or disqualified from appointment.

A resolution, whether special or ordinary, is required for his appointment or reappointment

Where a resolution for the appointment of two or more director by a single resolution Is passed (sec.256).

RIGHTS OF DIRECTORS

Board of directors has following powers :

1) To call shareholders in respect of unpaid money on their shares .

2) To issue debentures

3) To make loans.

4) To invest funds of company.

DUTIES OF DIRECTORS

1)Act honestly.

2)Attend board meetings .

3)Pay call amount.

4)Must not make secret profits.

5)Disclose his name ,occupation and nationality.

6)Obtain share qualification wherever necessary.

DISABILITIES OF DIRECTORS

1) He cannot assign his office or delegate his functions

2) He cannot take any loan from the company except with prior approval of central government wherever applicable .

3) He cannot hold any place of profit in the company without the consent of the company by special resolution.

LIABILITIES OF DIRECTORS

The directors are also liable to pay compensation in following cases :

1)For untrue statement in prospectus .

2)For contracts entered into on behalf of the company where directors act in their own name.

3)For irregular allotment of shares .

4)Where directors act unlawfully.

POSITIONS OF DIRECTORS

1)Directors as agent

2)Directors as trusties .

3)Directors as managing partners.

4)Directors as employees .