83  The Companies Act, 2013: Nature and kinds of companies; Company formation; Management, meetings and winding up of a joint stock company

83.1 Background and Scope

The Companies Act, 2013 repealed and replaced the Companies Act 1956. It received Presidential assent on 29 August 2013 and was substantially notified between 2013 and 2014. The Act consolidates and amends the law relating to companies in India in 29 chapters, 470 sections, and 7 Schedules. Administered by the Ministry of Corporate Affairs (MCA) through the Registrar of Companies (RoC), Regional Directors, NCLT, NCLAT, NFRA, SFIO, and IBBI (where relevant).

83.2 Nature of a Company

A company (§ 2(20)) is “a company incorporated under this Act or any previous company law”. Salient features (from Salomon v Salomon & Co Ltd 1897 — corporate personality):

TipSalient Features of a Company
  • Separate legal entity.
  • Perpetual succession.
  • Limited liability (in limited companies).
  • Common seal (now optional after 2015 amendment).
  • Transferable shares.
  • Capacity to sue and be sued.
  • Artificial legal person.
  • Separation of ownership and management.

83.2.1 Lifting of Corporate Veil

Courts may pierce the veil in fraud, evasion of law, agency relationship, character of enemy, public interest, tax avoidance, holding-subsidiary unity, etc.

83.3 Kinds of Companies

TipCompanies by Liability
  • Limited by shares.
  • Limited by guarantee — with/without share capital.
  • Unlimited.
TipCompanies by Number of Members
  • Private company (§ 2(68)) — min 2, max 200 members; restricts transfer of shares.
  • Public company (§ 2(71)) — min 7, no upper limit.
  • One Person Company (OPC) (§ 2(62)) — single member; introduced in 2013.
TipOther Categories
  • Government company (§ 2(45)) — ≥ 51 % paid-up held by central/state govt.
  • Holding & Subsidiary (§ 2(46), § 2(87)).
  • Associate company (§ 2(6)) — significant influence (≥ 20 %).
  • Foreign company (§ 2(42)).
  • Listed company (§ 2(52)).
  • Small company (§ 2(85)) — paid-up ≤ ₹4 cr and turnover ≤ ₹40 cr (revised 2022).
  • Producer company (§§ 581A-581ZT carried from 1956 Act).
  • Section 8 company — non-profit.
  • Dormant company (§ 455).
  • Nidhi company.

83.4 Formation of a Company

83.4.1 Stages

TipFormation Stages
  1. Promotion — Promoter (§ 2(69)) takes the initial steps.
  2. Incorporation — file SPICe+ form (§ 7); RoC issues Certificate of Incorporation = conclusive evidence.
  3. Capital subscription — issue of shares.
  4. Commencement of business (§ 10A — for cos with share capital, file INC-20A).

83.4.2 Key Documents (§§ 4-5)

TipMoA, AoA & Doctrines
  • Memorandum of Association (MoA) (§ 4) — charter; clauses: Name, Registered Office (Domicile), Object, Liability, Capital, Subscription.
  • Articles of Association (AoA) (§ 5) — internal rules; can adopt Table F, G, H, I, J.
  • Prospectus (§ 26) — invitation to public to subscribe.
  • Doctrine of Ultra Vires — Ashbury Railway Carriage v Riche 1875. Act outside object clause is void.
  • Doctrine of Constructive Notice — public deemed to know MoA & AoA.
  • Doctrine of Indoor Management (Turquand’s Rule) — outsider not bound to inquire into internal procedures.

83.4.3 Special Status of Promoter

Promoter has fiduciary duty to the company (Erlanger v New Sombrero Phosphate Co 1878). Must disclose secret profits.

83.4.4 Pre-Incorporation Contracts (§ 15(h) Specific Relief Act 1963)

Company cannot enforce pre-incorporation contracts unless ratified after incorporation.

83.5 Management of a Company

83.5.1 Directors (§§ 149-172)

TipBoard Composition (§ 149)
  • Min: 3 (public co), 2 (private co), 1 (OPC).
  • Max: 15 (may exceed with SR).
  • At least one woman director (listed + large unlisted public cos).
  • Independent directors — listed and prescribed public cos: at least 1/3 of board.
  • Resident director: at least one director who has stayed in India ≥ 182 days in financial year.
  • Director Identification Number (DIN) — § 153.

83.5.2 Key Managerial Personnel (KMP — § 2(51))

CEO, MD/Manager, Whole-time Director, Company Secretary, CFO. Mandatory for listed and certain unlisted public cos.

83.5.3 Powers of Directors (§ 179)

By board resolution: calls, borrowings, investments, loans, financial statements, BC notice, etc. Some require SR via postal ballot or general meeting (§ 180): sell undertaking, borrowings > paid-up + free reserves + securities premium, remitting director’s debt, contributions over limits.

83.5.4 Director Duties (§ 166)

Act in good faith, in best interest, with due care, not involve in conflict of interest, not assign office.

83.6 Meetings of a Company

TipTypes of Meetings
Meeting Section Frequency
Board Meeting § 173 At least 4 in a year; max gap 120 days
AGM § 96 Annually; max gap 15 months; first AGM within 9 months
EGM § 100 Whenever required
Class meetings § 48 When class rights vary
Creditors’ / Debenture-holders’ meetings § 230 For arrangements
Postal ballot § 110 For specified items
Statutory Meeting – Abolished in 2013 Act

83.6.1 Quorum (§ 103)

  • Public company: 5 (members ≤ 1000), 15 (≤ 5000), 30 (> 5000).
  • Private company: 2 members.

83.6.2 Resolutions

TipTypes of Resolutions
  • Ordinary (§ 114(1)) — > 50 % votes.
  • Special (§ 114(2)) — ≥ 75 % votes; e.g. amend AoA, change registered office, alter MoA, buy-back, voluntary winding up.

83.7 Winding Up of a Company

The Companies Act 2013 originally provided three modes; the Insolvency and Bankruptcy Code, 2016 absorbed most of insolvency provisions:

TipModes of Winding Up (Current)
  • Compulsory / Tribunal winding up (§§ 271-303) — by NCLT order. Grounds: special resolution, acted against state interests, defaulting filings, fraud, just & equitable.
  • Voluntary winding up — earlier covered by Co Act 2013; now under IBC 2016.
  • Liquidation under IBC — after failed CIRP.

83.7.1 Sequence

TipWinding-up Sequence
  1. Petition (§ 272) — by company, contributory, creditor, RoC, Central Govt.
  2. Tribunal hearing & winding-up order.
  3. Appointment of Liquidator (Insolvency Professional).
  4. Realisation of assets, settlement of list of contributories.
  5. Payment of debts — IBC waterfall (§ 53 IBC).
  6. Dissolution by Tribunal order.

83.7.2 Distribution Waterfall (§ 53 IBC)

CIRP costs → Workmen dues (24 mo) + Secured creditors → Workmen dues (other) → Unsecured FCs → Govt dues + secured creditors realising security → Other dues → Preference shareholders → Equity shareholders.

83.7.3 Strike-Off (§§ 248-252)

RoC may remove a company’s name from register if not commenced business within 1 year, inactive for 2 financial years, etc.

83.8 Other Important Provisions

TipOther Provisions
  • CSR (§ 135) — companies with net worth ≥ ₹500 cr / turnover ≥ ₹1000 cr / net profit ≥ ₹5 cr in FY must spend ≥ 2 % of average net profit (last 3 yrs) on CSR; mandatory transfer of unspent amount.
  • Independent Directors’ Database (IIM Bengaluru).
  • SBO — Significant Beneficial Owner (§ 90).
  • Class action (§ 245) — by members/depositors.
  • Auditor rotation (§ 139) — individual 5 yrs, firm 10 yrs (for listed/prescribed cos).
  • NCLT/NCLAT — established 2016 under Companies Act 2013.
  • NFRA (§ 132) — accounting & auditing standards regulator.
  • Decriminalisation of compoundable offences — Companies (Amendment) Acts 2017, 2019, 2020.

flowchart TB
  C[Companies Act 2013] --> N[Nature<br/>§2(20) · Salomon · Veil-piercing]
  C --> K[Kinds<br/>Pvt · Pub · OPC · Govt · Sec 8 · Small]
  C --> F[Formation<br/>SPICe+ · MoA · AoA · §10A]
  C --> M[Management<br/>Board §149 · KMP §2(51) · §179 powers]
  C --> Mt[Meetings<br/>BM 173 · AGM 96 · EGM 100 · Postal 110]
  C --> W[Winding Up<br/>§§271-303 · IBC 2016 · §53 waterfall]
    classDef default fill:#003366,color:#ffffff,stroke:#ffcc00,stroke-width:3px,rx:10px,ry:10px;

NoteDistractor warning

PYQ trap: Private — 2 to 200 members; Public — min 7; OPC — 1. Board ≥ 4 meetings/yr, max gap 120 days. CSR §135 — net profit ≥ ₹5 cr. Statutory meeting abolished in 2013 Act.

83.9 Practice Questions

Q 01ActEasy

Companies Act 2013 received Presidential assent on:

  • A1 April 2013
  • B29 August 2013
  • C1 January 2014
  • D1 April 2014
View solution
Correct Option: B
**29 August 2013** — Royal assent; bulk notified 1 April 2014.
Q 02PrivateEasy

Maximum members in a private company:

  • A50
  • B100
  • C200
  • DUnlimited
View solution
Correct Option: C
**200** (excluding employees & ex-employees as members).
Q 03OPCEasy

OPC was introduced by:

  • ACompanies Act 1956
  • BCompanies Act 2013
  • CLLP Act 2008
  • DSEBI Act 1992
View solution
Correct Option: B
**OPC §2(62) — 2013 Act**.
Q 04SalomonMedium

Separate legal entity was established in:

  • ASalomon v Salomon (1897)
  • BFoss v Harbottle
  • CRoyal British Bank v Turquand
  • DAshbury Railway Carriage
View solution
Correct Option: A
**Salomon 1897** — HL.
Q 05TurquandMedium

Doctrine of Indoor Management is from:

  • ASalomon
  • BRoyal British Bank v Turquand 1856
  • CFoss v Harbottle
  • DAshbury
View solution
Correct Option: B
**Turquand 1856**.
Q 06Ultra ViresHard

Ultra Vires doctrine emerged from:

  • AAshbury Railway Carriage v Riche (1875)
  • BSalomon
  • CTurquand
  • DFoss v Harbottle
View solution
Correct Option: A
**Ashbury 1875**.
Q 07BoardMedium

Minimum board meetings per year (§ 173):

  • A2
  • B3
  • C4
  • D6
View solution
Correct Option: C
**4 board meetings/yr; max gap 120 days**.
Q 08AGMMedium

Maximum gap between two AGMs:

  • A12 months
  • B15 months
  • C18 months
  • D24 months
View solution
Correct Option: B
**15 months** (§ 96); first AGM within 9 months of first FY.
Q 09SRMedium

A special resolution requires:

  • A> 50 % votes
  • B≥ 60 %
  • C≥ 75 %
  • D≥ 100 %
View solution
Correct Option: C
**≥ 75 %**.
Q 10Director minEasy

Minimum directors for a private company:

  • A1
  • B2
  • C3
  • D5
View solution
Correct Option: B
**2** (§ 149). Public co — 3; OPC — 1.
Q 11CSRMedium

CSR threshold (any one): net profit:

  • A₹1 cr
  • B₹5 cr
  • C₹10 cr
  • D₹50 cr
View solution
Correct Option: B
Any one: NW ≥ ₹500 cr / Turnover ≥ ₹1000 cr / **Net profit ≥ ₹5 cr**.
Q 12Audit rotationMedium

Audit firm rotation period (§ 139):

  • A5 years
  • B10 years
  • C15 years
  • D20 years
View solution
Correct Option: B
**10 yrs for firm**; 5 yrs for individual.
Q 13StatutoryHard

Statutory meeting is:

  • ARequired for all cos
  • BRequired for public cos only
  • CAbolished by Companies Act 2013
  • DAnnual
View solution
Correct Option: C
**Abolished** in 2013 Act.
Q 14Quorum pvtMedium

Quorum for general meeting of a private company:

  • A2 members
  • B5 members
  • C15 members
  • D30 members
View solution
Correct Option: A
**2** (§ 103).
Q 15TribunalMedium

Compulsory winding up petition is now filed before:

  • AHigh Court
  • BNCLT
  • CSAT
  • DCCI
View solution
Correct Option: B
**NCLT** (since 2016).
Q 16SPICe+Hard

Integrated company-incorporation web form is:

  • AINC-7
  • BSPICe+
  • CDIR-3
  • DMGT-7
View solution
Correct Option: B
**SPICe+** (since 2020).
Q 17Sec 8Medium

Section 8 Company is:

  • AFor-profit
  • BNon-profit (charitable)
  • CGovernment
  • DProducer company
View solution
Correct Option: B
**Non-profit** — promotes commerce, art, science, sports, education, etc.
Q 18Class actionHard

Class action suit by members/depositors is under:

  • A§ 135
  • B§ 245
  • C§ 271
  • D§ 96
View solution
Correct Option: B
**§ 245** — class action.
Q 19IndependentHard

Listed companies must have at least:

  • A1/2 IDs
  • B1/3 IDs
  • C2/3 IDs
  • DNo IDs
View solution
Correct Option: B
**At least 1/3 Independent Directors** (listed cos under § 149(4)).
Q 20MatchMedium

Match section with provision:

Section Provision
(i) § 96 (a) Board meeting
(ii) § 135 (b) AGM
(iii) § 173 (c) Class action
(iv) § 245 (d) CSR
  • A(i)-(b), (ii)-(d), (iii)-(a), (iv)-(c)
  • B(i)-(a), (ii)-(b), (iii)-(c), (iv)-(d)
  • C(i)-(c), (ii)-(d), (iii)-(b), (iv)-(a)
  • D(i)-(d), (ii)-(a), (iii)-(c), (iv)-(b)
View solution
Correct Option: A
96-AGM, 135-CSR, 173-Board, 245-Class.

83.10 Quick Recall

ImportantQuick recall
  • Act: 2013; assent 29 Aug 2013; 470 sections, 7 schedules, 29 chapters; admin by MCA.
  • Features: separate legal entity (Salomon 1897), perpetual succession, limited liability, transferable shares.
  • Kinds: Private (2-200), Public (≥7), OPC (1, §2(62)), Govt (≥51 %), Sec 8 (non-profit), Small (paid-up ≤₹4 cr & turnover ≤₹40 cr).
  • Formation: SPICe+ form; MoA §4, AoA §5; Cert of incorporation conclusive evidence; §10A INC-20A.
  • Doctrines: Ultra Vires (Ashbury 1875), Constructive Notice, Indoor Management (Turquand 1856).
  • Board: min 3 (pub), 2 (pvt), 1 (OPC); max 15; ≥1/3 IDs in listed cos; 4 meetings/yr, gap 120 days.
  • Meetings: AGM (§96) — 15 mo max gap; first within 9 months; EGM §100; Postal ballot §110; Statutory meeting abolished.
  • Resolutions: Ordinary > 50 %, Special ≥ 75 %.
  • CSR §135: NW ≥ ₹500 cr / TO ≥ ₹1000 cr / NP ≥ ₹5 cr; 2 % of avg NP (3 yrs).
  • Winding up: compulsory §§271-303 by NCLT; IBC waterfall §53.