INTRODUCTION TO BUSINESS ORGANIZATION

1. Course: BBA I
Subject : Introduction to Business Organization
Unit: 2

2.  In a simple words a company may be defined as a “
association of persons who contribute money or
money’s worth to a common stock and employ it in
some trade or business , and who shares the profit or
loss there from.
 Section 3(1)(i) of the Companies Act, 1956 defines a
company as: “a company formed and registered under
this Act or an existing Company”.‘Existing Company’
means a company formed and registered under any of
the earlier Company Laws.

3. 1 SEPERATE LEGAL ENTITY
2.ARTIFICIAL PERSON
3.PERPETUAL EXISTENCE
4.COMMON SEAL
5.LIMITED LIABILITY
6.CAPACITY TO SUE OR TO BE SUED
7.TRANSFERABILITY OF SHARE
NATURE OF COMPANY

4.  A company is an separate legal entity means it is
different from its members. It works as a individual
body.
 It can make contracts, open a bank account, can sue
and be sued by others.
 The law has recognised that even if a person holds
virtually all the shares, the right and obligations of the
company shall be different from its members.
Artificial person
 A company is a purely a creation of law. It is invisible,
intangible and exists only in the eyes of law.
 It has no soul, no body, but has a position to enter or exit into
a contract, to appoint a people as its employees
 In short it can do every thing just like a natural person.

5. • Section 34(2) of the act states that an incorporated company
has perpetual life.
• The life of the company is not related to the life of the
members . Law create the company and law alone can
dissolve it.
• The existence of the company is not affected b y death,
insolvency, retirement or transfer of share of members.
Limited liability
 It means that the liability of a member shall be limited to the
value of the share held by him, he cannot be called upon to
bear the loss from his personal property.

6.  A company being an artificial person can not work as
a natural being.
 Therefore, it has to work through its directors, officers
and other employees. Common seal used as a official
signature of a company.
Transferability of share sec(82)
 The share of a company are freely transferable. The
shareholder can transfer his share to any person without the
consent of other members.
 A company cannot impose absolute restrictions on the rights
of member to transfer their shares

7. • When a company incorporated it acquire a separate and
independent legal personality. As a legal person it can be
sue and be sued in its own name.

9. Chartered company is an association formed by investors or shareholders
for the purpose of trade, exploration and colonization.. Ex. East India Company
Statutory corporation is a corporation created by statute. Ordinary
companies/corporations owned by a government with or without other
shareholders, or they might be a body without shareholders which is controlled by
national or sub-national government to the (in some cases minimal) extent
provided for in the creating legislation. Ex. RBI
FOOD CORPORATION OF INDIA, NHAI
Registered Companies means all firms that registered under Company
Act , 1956 and existing Companies.
Limited liability company (LLC) is a flexible form of enterprise. An
LLC is not a corporation; it is a legal form of company that provides limited
liability to its owners . LLCs do not need to be organized for profit. Certain types of
businesses that provide professional services requiring a state professional
license, such as legal or medical services.

10. Unlimited company or private unlimited company is a
hybrid company incorporated either with or without a share capital (and similar to its
limited company counterpart) but where the liability of the members or shareholders
is not limited - that is, its members or shareholders have a joint, several and
unlimited obligation to meet any insufficiency in the assets of the company in the
event of the company's formal liquidation. An unlimited company has the benefit and
status of incorporation same as its limited company counterpart. Ex. Bagai
Investment Company
Holding company is a company or firm that owns other
companies' outstanding stock. The term usually refers to a company that does not
produce goods or services itself; rather, its purpose is to own shares of other
companies. Holding companies allow the reduction of risk for the owners and can
allow the ownership and control of a number of different companies. Ex. Gillete India
Subsidiary,daughter company, or sister company is
a company that is completely or partly owned and partly or wholly controlled by another
company that owns more than half of the subsidiary's stock. The subsidiary can be a
company, corporation, or limited liability company. In some cases it is a government or state-
owned enterprise. The controlling entity is called its parent company, or holding company. Ex.
Hindalco subsidiary of Aditya birla group.

11. • A private company is one which, by its Article of
association restricts the right to transfer its share,
limits the maximum number of its member to fifty,
prohibits any invitation to the public to subscribe for
any share or debenture of the company.
• A public company means a company which is not a
private company. In other words, a public company,
means a company which by its article does not limit the
number of its member & does not prohibit any
invitation to the public to subscribe for any share or
debentures, of the company.

12. Private Company Public Company
Minimum paid up
capital
1 Lac 5 Lacs
Minimum no of
members
2 7
Maximum no of
members
50 No limit
Minimum no of
Directors
2 3
Transfer of Shares
Restricted AOA &
requires the prior
permission of Board
of Directors
Shareholders can
transfer shares freely

13. Private Company Public Company
Public Subscription
AOA prohibits any
invitation to public to
subscribe to its sharess &
debentures
Can invite public to
subscribe to its shares &
debentures
Acceptance of public
Deposits
AOA prohibits acceptance
of deposits from public
Can acceptance of
deposits from public
Commencement of
Business
Immediately after
Certificate of
Incorporation
Only after getting the
Certificate of
commencement of
Business
Issue of prospectus
Need not prepare or file
'Prospectus' or 'statement
in lieu of prospectus' with
registrar
Must prepare or file
Prospectus with registrar

14. Private Company Public Company
Statutory meeting Not required to hold
Must hold after one month
and before 6 months from
date of obtaining the
Certificate of commencement
of business
Provisions regarding
directors
No Central Govt approval
for appointing and
reappointing of MD or
Whole time director
Central Govt approval is must
for appointing and
reappointing of MD or Whole
time director
Managerial
remuneration
No restriction on payemnt
of remuneration to
directors & MD's
Remuneration is fixed at 11 %
of net profits
Index of members
Need not maintain index
of members
Must maintain index of
members if no of members
exceed 50

15. • Incorporation (Inc.) is the forming of a new corporation (a corporation being a legal entity that is
effectively recognized as a person under the law). The corporation may be a business, a non-profit
organization.
• The process of legally declaring a corporate entity as separate from its owners.

16.  Types of Company
 Availability of Name
 The Memorandum and Articles of Association duly
signed, and stamped.
 The agreement, if any with any individual for
appointment as its Managing or whole-time director.
 Consent(Permission for something to happen or
agreement to do something) of directors in Form 29.
 Notice of Registered address in Form 18 to be given
within 30 days of the date of incorporation.
 Particulars of Directors in Form 32.

17.  Payment of Registration Fees.
 Power of attorney (मुख्तारी अधिकार), to fulfill various
legal and other formalities.
 Statutory Declaration (statement made under oath) in
Form No. 1 that all requirements of the Companies Act
and the rules there under have been complied with.
 The declaration should be made by either an
advocate(पक्ष का समर्थन करना) of Supreme Court / High
Court, a practicing Chartered Accountant or a director,
or a manager or a secretary named in the Articles of the
proposed company. [Section 33 (2)]

18.  According to SEBI(Securities and Exchange Board of
India) (Substantial Acquisition and Takeover)
Regulations, 1997 the term promoters means:
 the person or persons who are in control of the company
or
 person or persons named in any offer document (A term
used for a document combining a prospectus and an
investment statement. The document describing features
of a product and its associated terms and conditions.) as
promoters.
 a relative of the promoter within the meaning of Section 6
of the Companies Act.
 Should be members of HUF (Hindu Undivided Family)
only or
 Husband or wife or

19.  in case of a corporate body :
 i) a subsidiary or a holding company; or
 ii)any company in which the promoters hold
10% or more equity capital; or
 iii) any body corporate in which a group of
individuals or corporate bodies or a
combination thereof holds 20% or more of
equity capital.

20.  The persons who assume the primary
responsibility to promotion of a company are
called Promoters.
 One who undertakes to form a company with
reference to a given project and to set it going
and who takes the necessary steps to
accomplish that purpose.
 A promoter may be a natural person or a
company.

21.  It contains the fundamental rules regarding the
constitution of the company.
 It lays down how the company is going to be constituted
and what work it shall undertake.
 It sets out the constitution of the company
(CONSTITUTION<===> बनावट).
 It is a foundation on which the structure of the company
stands.
 Its purpose is to enable the shareholders, creditors, and
those who deal with the company to know what is the
permitted range of its enterprise.
 It defines(स्पष्ट करना) as well as confines(सीमा) the power
of the company.

22. • The first step in the formation of the company is to
prepare memorandum of association. it is one of the
documents which has to be filed with registrar of the
companies at the time of incorporation of a company.
• MOA of a company is its character and defines the
limitation of the power of the company . MOA contains
the fundamental condition upon which the company is
allowed to incorporated.
• The purpose of MOA is to enable the Shareholders,
creditors and those who deal with the company to
know what is permitted range of enterprise.

23. • It defines the rights and liabilities of the members.
• It shows the capital structure of the company
• It shows the object of the company
• It specifies the state in which the registered office
of the company is situated.
• It shows the constitution of the company
• It specify the conditions under which the company
has been incorporated.

24.  Name Clause
 Registered Office / Situation Clause
 Object Clause- main objects and other
objects
 Liability Clause- limited by share or
guarantee
 Capital Clause.
 Association Clause

25. • A company not to be registered under a name
which is undesirable, identical or too nearly
resembles(समान) another company. [Section 20]
• It must not be misleading or intended to
deceive(िोखा) with reference to its object.
• A similarity of name does not give right to
injunction(आदेश), there should be likelihood of
deception or confusion.
• The name and address must be printed or
affixed outside every office in English and local
language.
• Inadvertent(बेखबर) mistake in name can be
changed by passing an ordinary(सािारण)
resolution and by obtaining written approval of
Central Government.

26.  Only the state in which the Registered
Office is situated is mentioned.
 Exact address can be filled with RoC
separately in Form 18 within 30 days of
incorporation.

27.  Must divide object clause into two sub-
clauses - Main Objects and Other Objects.
 It determines the purpose and capacity of
the company hence carry great importance.
 Acts beyond this ambit are ultra vires and
hence void. Even the entire body of
shareholders cannot ratify such acts.
 Subscribers enjoy unrestricted freedom to
choose the objects.

28.  An act or transaction, which may not be
illegal, is beyond company's power by not
being within the object of the Memorandum.
 An act ultra vires the company is incapable
of ratification.
 Act which is intra vires the company but
outside the authority of directors may be
ratified by the company in proper form.
 The shareholders can ratify an act ultra vires
the directors.

29.  Injunction to restrain the company from
doing an ultra vires act.
 Personally liability of the directors.
 Ultra vires contract are void ab initio.
 An ultra vires borrowing does not create a
relationship of a debtor and creditor.

30.  The Memorandum of a company limited by
shares or by guarantee shall state that the
liability of its members is limited.
 Where the liability is limited by shares, a
member can be called upon to pay only the
unpaid balance on his shares.
 In case the company is limited by guarantee
the members are liable up to the maximum
amount which they have guaranteed.
 Where the company is limited by both share
and guarantee the liability of members is
dual.

31.  Mentions that the liability of the members is
limited to the face value of the shares.
 In case of guarantee, the amount of guarantee
should be mentioned.

32.  Shares must be of fixed value.
 Nominal, authorised or registered capital.
 Not authorised to issue capital beyond its
authorised capital unless the Memorandum
is altered.
 In case of unlimited company having share
capital, the liability is unlimited as against
creditors only in case of winding up.
 In case of going concern, liability is limited
to shares subscribed.

33.  Must be signed by each subscriber in
presence of one witness.
 Each subscriber must take at least one share.
 A subscriber cannot, after registration of
company, repudiate his liability even on the
ground that he was induced to sign by
misrepresentation.

34.  Articles are by-laws or rules and regulations for
the govern the management of its internal affairs
and conduct of business.
 It also includes regulation contained in Table A
of Schedule I.
 Deals with the rights of the members inter se.
 Articles are subordinate to and controlled by
Memorandum.

35.  Unlimited companies, companies limited by
guarantee and private companies must have
their own Articles of Associations.
 Must be printed, divided into paragraphs,
numbered consecutively, stamped adequately,
signed by each subscriber to Memorandum and
duly witnessed.

37. • Rights of different classes of shareholder.
• Use of common seal of the company.
• Different classes of shares and their right.
• Appointment , powers, duties, salary of MD,
manager, and secretary.
• Borrowing power of directors.
• Voting rights of member .
• Board meetings and proceedings.
• Winding up company.

38.  Subject to the provisions of the Act and
Memorandum, a company, by special
resolution alter the Articles. [Section 31]
 The alteration binds members in the same way
as original Articles.
 A company cannot in any manner deprive
itself of the powers to alter its Articles.

39.  Must not exceed the power in the Memorandum.
 Must not be inconsistent with the provisions of the Act.
 Must not include anything illegal or opposed to public
policy.
 Must be bona fide for the benefit of the company.
 Must not constitute fraud on minority.
 Cannot be altered so as to have retrospective effects.
 In case of listed companies approval of Stock Exchange is
required.

41. • A company prospectus is released by businesses to inform the public and
investors of the various securities that are available. These documents describe
to buyers and participants about mutual funds, bonds, stocks and other forms
of investments offered by the company. A prospectus is generally accompanied
by basic performance and financial information about the company.
• "Any document described or issued as a prospectus
and includes
• any notice,
• circular,
• advertisement, or
• other document
• inviting deposits from the public or
• for the subscription or purchase of any shares in, or
debenture of a body corporate." [(Section 2(36)]

42.  An invitation to public.
 Invitation be by or on behalf of the company.
 Invitation must be to subscribe or purchase.
 Must relate to shares / debentures or other
instrument.
 Judicial Pronouncements (न्याययक घोषणा)

43.  Promoters are required to prepare a draft
prospectus known as statement in Lieu of
Prospectus.
 A copy of it must be filled with the
RoC(Registrar of Companies) at least three days
before any allotment of shares is made.
 It contains similar particulars as are required for
a prospectus.
 No minimum subscription is required to be
stated.

44.  If the statement contains any misinformation
or omission, the liability, civil and criminal, is
same as in case of Prospectus - Fine up to Rs
10,000.
 The process of issuing securities through a
statement in lieu of prospectus is a kind of
private placement.

45.  ‘Prospectus’ is the basic document for raising funds
from the public.
 ‘Prospectus’ means any document described or
issued as prospectus and includes any Notice,
Circular, Advertisement inviting deposits or offers
from the public for the subscription or purchasing
any shares in , or debentures of the company.
 Thus prospectus is a general invitation to the public
to subscribe to the capital of the company on the
conditions specified in the application from

46. 1. Fundamentals of Business Organization and
Management by Y.K.Bhushan- Sultan Chand
publications
2. Principles & Practices Of Management by L M
Prasad – Himalaya Publishing House