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Companies Act 2013 Basics for CA Foundation

Updated 4 October 2026 · Fact-checked

The Companies Act 2013 governs how companies in India are formed and run. A company is an artificial legal person with separate existence, perpetual succession and limited liability. To answer questions, identify the company type or document, state the rule, apply it to the facts, and conclude. Use the rule-facts-conclusion structure.

Understand Companies Act 2013 Basics

A company is a body of persons registered under the Companies Act 2013 (or an earlier company law). Once registered, it becomes a legal person. It can own property, sue and be sued in its own name, and enter contracts. This is the starting point for almost every question in this chapter.

The key features follow from that. A company has separate legal entity: it is distinct from its members. It has perpetual succession: members may die or leave, but the company continues. It has limited liability where members are liable only up to the unpaid amount on their shares (or the guaranteed amount). Shares are generally transferable, with restrictions in a private company. It has a common seal that is optional under the 2013 Act, and it can sue and be sued.

Companies are classified in different ways. By members' liability: limited by shares, limited by guarantee, or unlimited. By number of members and transferability: private, public, and One Person Company (OPC). A small company is a private company that meets the prescribed limits on paid-up capital and turnover. Always check the current limits in your study material, because they are revised by rules. Do not memorise old figures blindly.

A company is born through documents. The Memorandum of Association (MOA) is the charter. It sets out the company's name, registered office state, objects, liability and capital. The Articles of Association (AOA) are the internal rules for management. The prospectus is the document through which a public company invites the public to subscribe to its shares or debentures. The MOA is the superior document. If the AOA conflicts with the MOA, the MOA prevails.

Two doctrines test your understanding. Corporate personality says the company is separate from its members, so the company's debts are not the members' debts. Lifting the corporate veil is the exception: courts or the statute look behind the company at the real persons when the company is used for fraud, to evade law, or in similar misuse. The doctrine of ultra vires says an act beyond the objects in the MOA is void and cannot be ratified by members. Questions usually give a short fact pattern and ask which principle applies.

Key rules to remember

Separate legal entity: Company ≠ its members; The company owns its assets and owes its debts. Members are not personally liable beyond their share liability. Mention this first in any corporate personality answer.
Private company minimum and maximum members: Minimum 2 members; maximum 200 (excluding employee-members and ex-employee-members who were members while employed); Joint holders of shares are counted as one member. Also restricts share transfer and prohibits invitation to the public to subscribe to securities.
Public company minimum members and directors: Minimum 7 members; minimum 3 directors; No upper limit on members. Shares are freely transferable, subject to the Act and the company's articles (listed companies also follow SEBI rules).
One Person Company: 1 member (a natural person who is an Indian citizen and resident); 1 nominee required; private company; Check the study material for current conditions such as conversion thresholds. Always name the nominee requirement.
Minimum directors in a private company: Minimum 2 directors; OPC minimum 1 director; A public company needs 3.
Order of superiority of documents: Companies Act > MOA > AOA; An act beyond the MOA is ultra vires and void. An act beyond the AOA but within the MOA can be ratified by members, by altering the AOA through a special resolution if needed.
Contents of MOA: Name, Registered office (state), Objects, Liability, Capital, Association clause; Use as a checklist. Alter each clause only by the procedure set in the Act.
Ground for lifting the veil: Fraud / evasion of law / sham or improper use of company → veil lifted; Also statutory cases such as fewer than the minimum members or misdescription. State only the grounds you are sure of.

How to solve Companies Act 2013 Basics questions

Use this method for any theory or case-based question on company basics. It keeps your answer in the rule-facts-conclusion shape that earns marks.

1Read the question and mark the keyword: type of company, document, or doctrine (personality, ultra vires, veil).
2State the definition or rule in one or two lines, using exact terms such as private company, MOA, objects clause.
3List the features or points in a short numbered list if the question says differentiate, explain, or state.
4For case-based questions, pull out the facts that matter: who did what, whether the act was within the objects, and whether the company was misused.
5Apply the rule to those facts. Use phrases like 'Therefore, the company is a separate person' or 'This act is ultra vires'.
6Write a clear conclusion that answers exactly what was asked, such as whether the member is liable or whether the contract is valid.
7For a difference question, draw two columns and compare on at least four points.

Quickest way: Rule, facts, conclusion in four lines

When to use it: Use this when you have about five minutes for a short case-based question on corporate personality, ultra vires or veil lifting.

Line 1: name the principle (for example, separate legal entity).
Line 2: state the rule in one sentence.
Line 3: link it to the key fact in the question.
Line 4: conclusion in one sentence that answers the question asked.
For differences, memorise a hook: members, directors, transfer of shares, public invitation. Cover these four first.

Common mistakes in Companies Act 2013 Basics

Saying the AOA overrides the MOA
Students think the AOA is more detailed, so it must be stronger.
Fix: Remember the order: Act, then MOA, then AOA. The AOA is subordinate and cannot go beyond the MOA.
Treating members and the company as the same person
In small private companies the owner runs everything, so it feels the same.
Fix: In law, the company is separate. Say that the company owns the property and is liable for its debts, not the members.
Saying the veil is lifted whenever the company incurs losses or defaults
Students overapply the exception.
Fix: Lifting the veil needs fraud, evasion of law, or another recognised ground. Ordinary business debt does not lift it.
Mixing up the member and director minimums for private and public companies
Numbers look similar and get memorised without context.
Fix: Use a small table in rough work: private 2 members and 2 directors; public 7 members and 3 directors; OPC 1 member and 1 director.
Saying an ultra vires act can be ratified by members
Students confuse it with an irregularity in procedure, which can be ratified.
Fix: An act beyond the MOA objects is void and cannot be ratified, even by all members. An act beyond the AOA but within the MOA can be ratified by members, by altering the AOA through a special resolution if needed.
Confusing prospectus with MOA or AOA
All three are documents connected to formation.
Fix: The prospectus invites the public to buy securities. It is not a constitutional document of the company like the MOA and AOA.

Worked examples

Example 1

Distinguish between a private company and a public company. (Any four points)

Show the solution

Start with the definitions: a private company restricts the right to transfer shares, limits members and bars public invitation; a public company is one that is not a private company.
Compare on minimum members: private needs 2; public needs 7.
Compare on maximum members: private is limited to 200 (excluding certain employee members, and joint holders count as one member); public has no limit.
Compare on directors: private needs a minimum of 2; public needs a minimum of 3.
Compare on transfer of shares: private restricts transfer in its articles; public shares are freely transferable, subject to the Act and its articles.
Compare on public invitation: a private company cannot invite the public to subscribe to its securities; a public company can.

Answer: A private company has 2 to 200 members, at least 2 directors, restricted share transfer and no public invitation. A public company has at least 7 members with no maximum, at least 3 directors, shares freely transferable subject to the Act and its articles, and can invite the public to subscribe.

Example 2

A and B hold all the shares of Alpha Pvt Ltd. A sold goods to Alpha on credit for ₹5,00,000. Alpha went into liquidation with no money left. A says B should pay Alpha's debt personally because B is a member. Is A correct?

Show the solution

Identify the principle: separate legal entity. Alpha is a company and a person distinct from its members.
State the rule: the company owns its assets and owes its debts. A member's liability is limited to the unpaid amount on shares.
Apply it: the debt of ₹5,00,000 is owed by Alpha, not by B. There is no fact of fraud or misuse of the company to justify lifting the veil.
Check the exception: the facts mention only liquidation and non-payment, which is ordinary business failure.
Conclude: A can claim only from Alpha's assets or liquidation proceeds.

Answer: A is not correct. Alpha is a separate legal entity, so the debt of ₹5,00,000 is the company's. B is liable only for any unpaid amount on his shares, since there is no fraud or other ground to lift the corporate veil.

Exam tips

For a difference question, write at least four points in two columns. Cover members, directors, share transfer and public invitation for private versus public.
For MOA versus AOA, point out that the MOA is the charter and superior, while the AOA contains internal rules and is subordinate.
In case-based questions, name the principle first and then apply it. Marks are given for naming it, stating the rule, and reaching a conclusion.
Learn OPC and small company conditions from your latest study material, since limits can change. State the principle clearly and give figures only when you are certain.
Do not write long stories. A tight four-to-six line answer with correct terms scores better than a vague page.

Practice questions from Indian Regulatory Framework

Companies Act 2013 Basics: frequently asked questions

What is the difference between MOA and AOA?

The MOA is the charter that defines the company's name, state of registered office, objects, liability and capital. It sets the limits of the company's powers. The AOA contains the internal rules for managing the company and must stay within the MOA.

What does ultra vires mean for a company?

Ultra vires means beyond powers. If a company does something outside the objects in its MOA, the act is void. Even all the members together cannot ratify it.

When can the corporate veil be lifted?

The veil can be lifted when a company is used for fraud, to evade legal obligations, or as a sham, and in certain cases provided by statute. Mere losses or inability to pay debts do not by themselves lift the veil.

What is a One Person Company?

An OPC is a private company with only one member, who is a natural person. It must name a nominee who takes over if the member dies or becomes incapable. Check your study material for the latest eligibility rules.

Is a small company the same as a private company?

No. A small company is a special kind of private company that meets prescribed limits on paid-up capital and turnover. Every small company is private, but most private companies are not small companies.