Companies Act, 2013 Chapter 1: Preliminary Review

Comprehensive vocabulary flashcards covering Section 1 and Section 2 of the Companies Act, 2013, including organizational structure, jurisdictional extent, and legal definitions.

Companies Act, 2013 Notification Dates

The Act received the assent of the Hon’ble President of India on $29th\,August\,2013$ and was notified in the Official Gazette on $30th\,August\,2013$. Section $1$ came into force on $30th\,August\,2013$.

Structure of the Companies Act, 2013

It is rule-based legislation consisting of $470$ sections, $7$ schedules, and is divided into $29$ chapters.

Extent and Application of the Act

The Act extends to the whole of India and applies to companies incorporated under this Act, insurance companies, banking companies, electricity companies, companies governed by any special Act, and bodies corporate specified by the Central Government.

Abridged prospectus

A memorandum containing such salient features of a prospectus as may be specified by the Securities and Exchange Board by making regulations in this behalf.

Accounting standards

The standards of accounting or any addendum thereto for companies as referred to in section $133$, prescribed by the Central Government as recommended by the Institute of Chartered Accountants of India.

Alter or Alteration

Includes the making of additions, omissions, and substitutions.

Articles

The articles of association of a company as originally framed, or as altered from time to time, or applied in pursuance of any previous company law or this Act.

Associate company

A company in which another company has a significant influence (control of at least $20\%$ of total voting power or business decisions under an agreement), but which is not a subsidiary company and includes joint ventures.

Authorised capital (Nominal capital)

Such capital as is authorised by the memorandum of a company to be the maximum amount of share capital of the company.

Body corporate (Corporation)

Includes a company incorporated outside India, but does not include a co-operative society registered under law relating to co-operative societies or any other body corporate specified by the Central Government.

Books of account

Includes records of all sums of money received/expended, all sales/purchases of goods and services, assets and liabilities, and prescribed items of cost under section $148$.

Called-up capital

Such part of the capital which has been called for payment.

Charge

An interest or lien created on the property or assets of a company or any of its undertakings or both as security and includes a mortgage.

Company

A company incorporated under the Companies Act, 2013 or under any previous company law.

Company limited by guarantee

A company having the liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up.

Company limited by shares

A company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them.

Contributory

A person liable to contribute towards the assets of the company in the event of its being wound up; includes holders of fully paid-up shares.

Control

Includes the right to appoint the majority of directors or to control management or policy decisions exercisable by a person acting individually or in concert.

Employees’ stock option

The option given to directors, officers, or employees of a company (or its holding/subsidiary) to purchase or subscribe for shares at a future date at a pre-determined price.

Financial statement

Includes a balance sheet, profit and loss account (or income and expenditure account), cash flow statement, statement of changes in equity, and any explanatory notes.

Cash Flow Statement Exemption

One Person Company, small company, dormant company, and private company (if it is a start-up) may not include the cash flow statement in their financial statements.

Financial year

The period ending on the $31st$ day of March every year; for companies incorporated on or after $1st\,January$, it is the period ending on the $31st\,March$ of the following year.

Free reserves

Reserves available for distribution as dividend based on the latest audited balance sheet; excludes unrealised gains, notional gains, revaluation of assets, or changes in carrying amounts of assets/liabilities measured at fair value.

Government company

Any company in which not less than $51\%$ of the paid-up share capital is held by the Central Government, any State Government(s), or both, including a subsidiary of such a company.

Key Managerial Personnel (KMP)

Includes the CEO, MD, or Manager; Company Secretary; Whole-time director; CFO; and such other officer not more than one level below directors designated by the Board.

Manager

An individual who, subject to the superintendence and control of the Board, has management of the whole or substantially the whole of the affairs of a company.

Managing Director

A director entrusted with substantial powers of management of the affairs of the company by virtue of articles, agreement, or resolution.

Net worth

The aggregate value of paid-up share capital and all reserves (out of profits, securities premium, P&L balance) minus accumulated losses, deferred and miscellaneous expenditure; excludes revaluation reserves.

One Person Company (OPC)

A company which has only one person as a member.

Private company

A company that restricts the right to transfer shares, limits members to $200$ (excluding employee members), and prohibits any invitation to the public to subscribe for securities.

Promoter

A person named as such in a prospectus or annual return, or who has control over company affairs, or in accordance with whose directions the Board is accustomed to act (excluding professional capacity).

Public company

A company which is not a private company and has a minimum paid-up share capital as may be prescribed. A private subsidiary of a public company is deemed a public company.

Small company

A private company with paid-up share capital not exceeding $Rs.\,4\,crore$ and turnover (per last P&L) not exceeding $Rs.\,40\,crore$. Cannot be a holding/subsidiary, Section $8$ company, or body corporate under a special Act.

Subsidiary company

A company in which the holding company controls the composition of the Board of Directors or exercises/controls more than one-half ($> 50\%$) of the total voting power.

Sweat equity shares

Equity shares issued to directors or employees at a discount or for consideration other than cash for providing know-how or intellectual property rights.

Turnover

The gross amount of revenue recognised in the profit and loss account from the sale, supply, or distribution of goods or services during a financial year.

Officer who is in default

Includes WTDs, KMPs, directors specified by the Board, and persons charged with responsibility (maintenance of accounts, etc.) who knowingly permit or fail to prevent defaults.

Relative

Includes members of a Hindu Undivided Family, husband and wife, and prescribed relations including Father, Mother, Son, Daughter, Brother, and Sister (including step-relations).