The Companies Act, 2013: formula sheet

Key formulas

Definition of company

Company = a company incorporated under the Companies Act, 2013 or any previous company law

Write this definition first in any 'meaning of company' question.

Separate legal entity rule (Salomon)

Company ≠ its members; a registered company is a separate person in law

Members are not liable for company debts beyond their share liability, and they do not own company assets.

Limited liability of a member

Maximum liability = unpaid amount on shares held (company limited by shares)

For a company limited by guarantee, liability is limited to the guaranteed amount on winding up.

Perpetual succession

Death, insolvency or exit of a member does not end the company

The company ends only by a legal process such as winding up or removal from the register.

Lifting the veil

Veil lifted when: fraud / sham / evasion of law or obligation / statutory provision

Apply only to the facts that show misuse of corporate personality.

Minimum members

Private company = 2; Public company = 7; OPC = 1

Private company maximum is 200 members (employee members, and former employees who became members while employed and remain members, are not counted; joint holders count as one). Public company has no maximum.

Minimum directors

Private company = 2; Public company = 3; OPC = 1

An OPC must have at least one director. Remember these three numbers together.

Private company test

Private company = restricts share transfer + prohibits public invitation to subscribe to securities (+ limits members to 200)

Public company is defined negatively: a company that is not a private company.

Liability classification

Limited by shares | Limited by guarantee | Unlimited

Shares: liability limited to unpaid amount on shares. Guarantee: members guarantee a fixed amount if wound up. Unlimited: no limit on members' liability.

Control classification

Holding company controls Subsidiary; Associate = significant influence (not a subsidiary)

A subsidiary is one where the holding company controls the composition of the board, or exercises or controls more than half of the total voting power. Significant influence means control of at least 20% of total voting power, or control of or participation in business decisions under an agreement. A joint venture company is covered in the associate definition.

Section 8 company

Charitable object + profits applied to objects + no dividend to members

May be licensed by the Central Government. Name usually ends with Foundation, Forum, Association, Federation, Chamber, Confederation or similar.

OPC eligibility

Natural person + Indian citizen (resident in India or NRI) + nominee named in memorandum

Since the 2021 amendment, an Indian citizen who is an NRI can also form an OPC. 'Resident in India' means staying in India for at least 120 days in the previous financial year; the earlier test was 182 days. A company or other body corporate cannot form an OPC.

Documents filed with the Registrar (Section 7(1))

Memorandum + Articles (signed by all subscribers) + professional's declaration + subscribers' and first directors' declarations + address for correspondence + subscriber particulars + first directors' particulars (with DIN) + directors' other interests and consent

These are the items listed in Section 7(1)(a) to (g). Write them as a list in answers.

Who gives the compliance declaration (Section 7(1)(b))

An advocate, chartered accountant, cost accountant or company secretary in practice engaged in formation + a person named in the articles as director, manager or secretary

The declaration says all requirements of the Act and rules for registration have been complied with.

Declaration by subscribers and first directors (Section 7(1)(c))

No conviction for offence in connection with promotion, formation or management of a company; not found guilty of fraud, misfeasance or breach of duty in the preceding five years; all filed documents are correct, complete and true

Since 2018 this is a declaration. Earlier it was an affidavit.

Registrar's action (Section 7(2) and (3))

Register documents → issue certificate of incorporation → allot corporate identity number (CIN)

The CIN is distinct for each company and appears in the certificate.

Record keeping (Section 7(4))

Keep copies of all documents as originally filed at the registered office until dissolution

Do not say 'for five years'. The rule is until dissolution.

False information (Section 7(5) to (7))

False or suppressed information → action under Section 447; promoters, first directors and Section 7(1)(b) declarants each liable; Tribunal may regulate management, make liability unlimited, remove the name from the register, order winding up or pass other orders

Before any order the company must get a reasonable opportunity of being heard, and the Tribunal considers the transactions already entered into.

Producer Company (Section 378C)

10 or more producer individuals, or 2 or more Producer Institutions, or a combination of 10 or more individuals and Producer Institutions; Registrar registers within 30 days of receiving documents

Liability is limited by shares. It is treated like a private company with no limit on members, and it can never become a public company.

Conversion of class (Section 18)

Alter memorandum and articles → Registrar closes former registration → new certificate issued

Debts, liabilities, obligations and contracts before conversion are not affected.

Foreign company filing (Section 380)

Deliver documents to the Registrar within 30 days of establishing a place of business in India; deliver alterations within 30 days of the alteration

This is registration of a foreign company, not incorporation of a new Indian company.

Inspection of Registrar's documents (Section 399)

Any person may inspect documents electronically on payment of fees and may get certified copies; a certified true copy is admissible in evidence with equal validity to the original

Special limits apply to documents delivered with a prospectus.

Red herring prospectus (Section 32)

Prospectus without complete particulars of quantum or price; filed with Registrar at least 3 days before the subscription list opens

Same obligations as a prospectus. Variations must be highlighted in the final prospectus. After the offer closes, the final prospectus with total capital raised and closing price is filed with the Registrar and SEBI.

Shelf prospectus (Section 31)

Validity: not more than 1 year, starting from the opening of the first offer

Filed at the first offer. No further prospectus for later offers in the validity period. An information memorandum must be filed before a second or later offer.

Information memorandum (Section 31)

Shelf prospectus + information memorandum = deemed prospectus

It covers new charges, changes in financial position and other prescribed changes. Applicants who applied with advance payment before a change can withdraw and get a refund within 15 days.

Civil liability (Section 35)

Subscriber acted on a misleading prospectus + suffered loss → compensation from the company and listed persons

Listed persons: directors at the time of issue, persons named as directors or agreed to become directors, promoters, persons who authorised the issue, and experts under Section 26(5).

Fraud under Section 35(3)

Intent to defraud → listed persons personally responsible without limit of liability

Applies to losses of anyone who subscribed on the basis of that prospectus.

Criminal liability (Section 34)

Untrue or misleading statement, or misleading omission → every person who authorises the issue is liable under Section 447

Defence: statement or omission was immaterial, or he had reasonable grounds to believe, and until issue did believe, it was true or that the inclusion or omission was necessary.

Allotment conditions (Section 39)

Minimum subscription received + application money received before allotment; application money not less than 5% of nominal value (or SEBI-specified)

If the minimum is not received within 30 days of the prospectus issue (or SEBI-specified period), the money is returned in the prescribed manner. A return of allotment must be filed with the Registrar.

Penalty (Section 39(5))

₹1,000 per day of default or ₹1,00,000, whichever is less

Applies to default in refunding money under 39(3) or filing the return under 39(4). Company and every officer in default are liable.

Advertisement of prospectus (Section 30)

Must state objects, liability of members, share capital, signatories to the memorandum with shares subscribed, and capital structure

Applies whenever a prospectus advertisement is published in any manner.

AGM timing

First AGM: within 9 months from close of first financial year. Later AGMs: within 6 months from close of the financial year, and gap between two AGMs ≤ 15 months

Applies to every company except a One Person Company. The Registrar may extend time for AGMs other than the first, by up to 3 months.

Place and time of AGM

Business hours (9 a.m. to 6 p.m.), not a national holiday, at the registered office or within the same city, town or village

Section 96. Keep this as a short point in the answer.

Notice of general meeting

At least 21 clear days' notice in writing or electronic mode

Clear days exclude the day the notice is given and the day of the meeting. Section 101.

Shorter notice

AGM: allowed if members entitled to vote and holding at least 95% of the voting rights consent. Other general meetings: allowed if a majority in number of members, holding at least 95% of the paid-up share capital giving the right to vote, consent

For a company with no share capital, the 95% is counted on voting power for other general meetings. Write the 95% figure and the AGM versus other meeting difference clearly.

EGM on requisition

Members holding at least 1/10 of paid-up voting share capital (or 1/10 of total voting power) can requisition an EGM

Board must proceed to call it within 21 days of the requisition, to be held within 45 days. If it does not, the requisitionists may call it themselves.

Quorum of general meeting: public company

5 members if total members ≤ 1,000; 15 members if 1,000 < members ≤ 5,000; 30 members if members > 5,000

Members must be personally present. Section 103.

Quorum of general meeting: private company

2 members personally present

Quorum must be present when the meeting starts and generally at business.

Adjournment for want of quorum (general meeting)

Wait 30 minutes. Requisitioned meeting lapses. Other meetings adjourn to same day next week, same time and place (or as the board decides)

At the adjourned meeting, if quorum is still absent after 30 minutes, members present form the quorum. This applies only to meetings not called on requisition, because a requisitioned meeting lapses.

Proxy

Proxy form must be deposited at least 48 hours before the meeting. Proxy need not be a member. Can vote only on a poll, and has no right to speak

Section 105. A person can be proxy for at most 50 members and for at most 10% of total voting share capital. A member holding more than 10% may appoint one person as proxy, who cannot act for any other member. For a company without share capital, the 50-member limit applies but the 10% test does not.

Ordinary resolution

Votes cast in favour > votes cast against

Simple majority. Abstentions and invalid votes are not counted as votes cast.

Special resolution

Votes cast in favour ≥ 3 × votes cast against

The notice must state that the resolution will be proposed as a special resolution. Section 114.

Board meeting: frequency

First meeting within 30 days of incorporation. At least 4 meetings a year. Gap between two meetings ≤ 120 days

One Person Company, small company and dormant company: at least one board meeting in each half of the calendar year, with a gap of at least 90 days between the two meetings. A One Person Company with only one director need not hold board meetings.

Board meeting: notice

At least 7 days' notice in writing to every director

Can be sent by hand, post or electronic means. For a shorter notice on urgent business, at least one independent director (if the company has one) must attend.

Board meeting: quorum

Higher of (1/3 of total strength) and 2 directors; fractions rounded up

Interested directors do not count towards quorum on that matter. Section 174.

Quick revision

• A company is a separate legal person from its members, so it can own property and sue or be sued in its own name.
• Limited liability means a member's liability is limited to the unpaid amount on shares, or the guaranteed amount in a company limited by guarantee.
• Know the types by liability, by members and by control: limited by shares, by guarantee, unlimited, private, public, one person, and others.
• Incorporation ends with the certificate of incorporation, which is conclusive evidence that the Act's formation requirements were met.
• The memorandum states the company's name, registered office (state), objects, liability of members and, for a company with share capital, the capital clause; the articles set internal rules.
• The articles are subordinate to the memorandum and the Act; anything in them against either is void.
• A prospectus is an invitation to the public to subscribe to securities, and misstatements can lead to civil and criminal liability.
• Shares may be equity or preference; debentures are a form of debt and carry interest, not ownership.
• Directors owe duties to the company, and Key Managerial Personnel are specific officers defined in the Act.
• Ordinary resolutions need a simple majority; a special resolution needs the votes cast in favour to be not less than three times the votes cast against it (i.e., at least 75% of valid votes cast).
• For every case question, write: provision, facts, conclusion.
• Revise numbers and time limits from your separate list on the last day.

Common mistakes

• Saying a company is a group of members with no existence apart from them. Fix: Always add: once registered, the company is a separate legal entity from its members.
• Writing that a common seal is compulsory. Fix: Write that a common seal is optional under the Companies Act, 2013. A company may have one, but it is not mandatory.
• Saying a private company can have unlimited members. Fix: Write 'minimum 2 and maximum 200 members' every time, with the special treatment of employee members, former employee members and joint holders.
• Treating a public company as one that invites the public to subscribe. Fix: Define it as a company that is not a private company. Public invitation is permitted, not compulsory.
• Saying the company exists from the date the promoters sign the memorandum. Fix: Write that the certificate of incorporation marks the date of incorporation, and the company comes into existence on registration, not on signing or filing.
• Leaving out the declarations when listing documents and writing only memorandum and articles. Fix: Always list all Section 7(1) items. Mention both the professional's declaration under clause (b) and the subscribers' and first directors' declarations under clause (c).
• Saying only the company is liable for a misleading prospectus. Fix: Remember Section 35 also covers directors, promoters, persons who authorised the issue and experts, as listed.
• Mixing up civil and criminal liability. Fix: Civil (Section 35) means compensation to subscribers who lost money. Criminal (Section 34) means punishment under Section 447 for those who authorise the issue.
• Writing that a special resolution needs a three-fourths majority of members present. Fix: Write the exact test: votes cast in favour must be at least three times the votes cast against. Compare votes cast, not members present.
• Counting the day of the notice and the day of the meeting while calculating 21 days. Fix: Exclude both days. If notice is given on 10 August, the earliest meeting is 1 September (11 to 31 August is 21 days).

Exam tips

• Begin every answer with the rule or definition. Subjective papers give marks for correct law before facts.
• Learn the Salomon facts in three lines: one-man control, secured debenture, company held separate. Examiners often test this principle.
• For veil questions, list the grounds you know: fraud, sham, evasion of law or tax, avoiding obligations, and statutory exceptions. Match the facts to one ground.
• Write each characteristic as a bold term followed by a short explanation. This is easy to mark and scores steps.
• Always end scenario answers with a clear conclusion that names the person liable or protected.
• Comparison questions are common. Write them as numbered points so the examiner can tick each one.
• Memorise the numbers 2, 7, 1 for members and 2, 3, 1 for directors, and 200 for the private company maximum.
• For fact-based questions, always apply the rule to the names and facts in the question before concluding.