Companies Act, 2013 - Share Capital, Members, Charges, Management, Dividends, Audit and Accounts
What the exam tests
Share capital, members, charges, management and administration, dividends, audit and accounts: the machinery of a company after incorporation.
Core rules
- Share capital includes authorised, issued, subscribed and paid-up capital. Equity shares carry voting and residual dividend rights; preference shares carry preferential dividend and repayment but usually no voting (s 43). Shares may be transferred or transmitted; a company must register a transfer within the prescribed time.
- Members are entered in the register of members (s 88). A member may hold beneficial interest through a depository; the register and depository records interact.
- A charge is a security interest in company assets. It must be registered with the Registrar within 30 days of creation (s 77); late registration is allowed on payment of additional fees in specified cases. An unregistered charge is void against the liquidator and creditors (s 77(3)). The register of charges is open to inspection (s 85).
- Management is by the Board of Directors, subject to the articles, the Act and shareholder approval for specified matters. Dividends may be paid only out of profits or accumulated profits, after providing for depreciation, and not out of capital (s 123). Interim dividend is decided by the Board. Unpaid dividend must be transferred to the Unpaid Dividend Account within the prescribed time.
- Accounts must give a true and fair view (s 129); auditors are appointed under s 139, with rotation for prescribed companies.
Worked example
A company has only ₹10 lakh paid-up capital and no accumulated profits, but declares a ₹2 lakh dividend from capital. The dividend is invalid. If it had ₹2 lakh accumulated profits lawfully available, the dividend could be declared subject to the s 123 conditions.
Traps
- Registering a charge after 30 days without considering the late-filing route.
- Paying dividends from capital.
- Confusing authorised and paid-up capital.
- Ignoring audit rotation and true-and-fair requirements.