Important Definitions under the Companies Act
2(1). Abridged Prospectus
An abridged prospectus is a short summary of the most important information that investors need before deciding to buy the company’s shares.
A prospectus itself is a detailed document that tells you about the company such as its name, date of incorporation (when it was formed), registered office address, type of business, main activities, and the industries it operates in.
It states the purpose for raising funds, such as expansion, debt repayment, or R&D, and how proceeds will be used.
It provides data on revenue, net profit, assets, and liabilities, mostly from the last 3 years.
2(2). Accounting Standards
Accounting standards are the official set of rules and guidelines that companies must follow when they prepare and present their financial statements.
The standards ensure that the company’s financial information is recorded and reported in a uniform and transparent manner.
They are issued under Section 133 of the Companies Act, 2013, and help make the accounts of different companies comparable.
In India, companies follow the Indian Accounting Standards (Ind AS) notified by the government.
2(3). Alter / Alteration
The term “alter” or “alteration” refers to any kind of change made to a company’s documents or records.
Change can involve making additions, omissions, or substitutions.
2(4). Appellate Tribunal
The Appellate Tribunal refers to the National Company Law Appellate Tribunal (NCLAT), which has been constituted under Section 410 of the Companies Act, 2013.
It acts as an appellate authority that hears and decides on appeals against the orders passed by the National Company Law Tribunal (NCLT).
If a company or individual is not satisfied with an NCLT decision such as one relating to mergers, company disputes, or director disqualification they can appeal to the NCLAT for reconsideration.
2(5). Articles
The term “articles” refers to the Articles of Association (AoA) of a company.
It defines the internal rules and regulations governing the management and operation of the company.
The Articles of Association specify matters such as the powers and duties of directors, the rights of shareholders, the conduct of meetings, and other internal procedures.
The articles can be altered from time to time as per the provisions of the Companies Act, allowing the company to update its internal framework when needed.
2(6). Associate Company
An associate company in relation to another company is one in which the other company has a significant influence, but it is not a subsidiary company of that company.
Associate company includes joint venture companies.
Significant influence generally means owning at least 20% of the voting power or having control over business decisions under an agreement.
For example, if Company A holds 30% of the shares in Company B, Company B becomes an associate company of Company A.
However, if Company A held more than 50%, Company B would instead be considered a subsidiary company.
Significant Influence
The expression significant influence refers to a situation where one company has control over at least twenty percent (20%) of the total voting power in another company.
It has the ability to control or participate in making important business decisions under an agreement.
This does not amount to full control (as in a subsidiary), but it does give the company the power to influence key decisions.
Joint Venture
A joint venture means a business arrangement in which two or more parties have joint control and share the rights to the net assets of the arrangement.
All the parties involved jointly make important decisions and share both profits and losses.
It is a partnership-type setup for a specific business purpose, where each party contributes resources and jointly manages the venture.
2(7). Auditing Standards
Auditing standards are the official rules and principles that auditors must follow while examining a company’s financial statements.
These standards ensure that audits are conducted properly, consistently, and transparently. They are prescribed under sub-section (10) of Section 143 of the Companies Act
2(8). Authorised Capital or Nominal Capital
The term authorised capital (also known as nominal capital) refers to the maximum amount of share capital that a company is allowed to issue, as mentioned in its Memorandum of Association.
It sets a limit on how many shares the company can issue to shareholders.
For example, if a company’s authorised capital is ₹10 lakh divided into 1 lakh shares of ₹10 each, it cannot issue shares beyond this amount unless the authorised capital is increased through proper procedures.
2(9). Banking Company
A banking company means any company that carries on the business of banking as defined under clause (c) of Section 5 of the Banking Regulation Act, 1949.
It refers to a company that accepts deposits from the public for lending or investment purposes and allows withdrawals by cheque, draft, or other means.
Examples include commercial banks like SBI, HDFC Bank, and ICICI Bank.
2(10). Board of Directors or Board
The term Board of Directors or simply Board refers to the collective body of directors who manage the affairs of a company.
The Board is responsible for making key business decisions, setting company policies, and ensuring that the company operates in compliance with the law.
Each director plays an important role, but decisions are taken collectively by the entire Board.
2(11). Body Corporate and Corporation
A body corporate is a legally recognized organization, such as a company or corporation, which can own property, enter contracts, and sue or be sued in its own name.
The term body corporate or corporation includes any company that has been incorporated outside India.
It essentially means it has a legal existence separate from its owners.
However, it does not include:
(i) A co-operative society registered under any law relating to co-operative societies
(ii) Any other body corporate that the Central Government may specifically exclude through a notification.
(12) “book and paper” and “book or paper” include books of account, deeds, vouchers, writings, documents, minutes and registers maintained on paper or in electronic form;
Documents
The term documents refers to any papers, records, minutes, or registers that a company maintains, either in physical (paper) form or in electronic form.
These include all official company documents, such as meeting minutes, statutory registers, contracts, and other written records that are required to be kept under the Act
Companies can also maintain these electronically as well, provided they follow prescribed security and accessibility standards.
2(13). Books of Account
Books of account are the financial records that every company must maintain to show its financial transactions and position accurately.
These include
(i) All money received and spent by the company and the reasons for such transactions
(ii) All sales and purchases of goods and services
(iii) Details of the company’s assets and liabilities
(iv) In certain cases, cost records as required under Section 148 for specific classes of companies.
Proper maintenance of these books ensures transparency and helps auditors verify the company’s financial health.
2(14). Branch Office
A branch office refers to any establishment that a company describes as its branch.
It is usually a smaller office or unit of the main company that operates in a different location, either in India or abroad, to carry on part of the company’s business activities.
For example, If a company’s head office is in Mumbai and it opens another office in Delhi to handle sales, that Delhi office is a branch office.
2(15). Called-Up Capital
Called-up capital means the portion of a company’s share capital that the company has asked (or “called”) its shareholders to pay.
When a company issues shares, shareholders may not be required to pay the entire value immediately.
The amount that has been formally demanded by the company for payment is the called-up capital.
For example, if shares are worth ₹10 each and the company has called for ₹5 per share, that ₹5 becomes the called-up capital.
2(16). Charge
A charge refers to an interest or right that a company gives to a lender (like a bank) over its property or assets as security for a loan or other obligation.
It can include a mortgage or any lien on assets.
If the company fails to repay the loan, the lender can enforce the charge to recover the amount.
2(17). Chartered Accountant
A chartered accountant means a professional who is a member of the Institute of Chartered Accountants of India (ICAI), as defined under the Chartered Accountants Act, 1949.
Such a person must also hold a valid certificate of practice issued by the ICAI. Chartered accountants perform various functions like auditing, accounting, financial analysis, and providing tax and financial advice.
2(18). Chief Executive Officer
The Chief Executive Officer (CEO) is the top executive officer of a company who is designated as such by the company.
The CEO is responsible for managing the company’s overall operations and making major corporate decisions.
They act as the main point of communication between the board of directors and the management team.
2(19). Chief Financial Officer
The Chief Financial Officer (CFO) is the senior executive responsible for managing the financial actions of a company.
This includes tasks such as financial planning, managing company funds, record-keeping, and reporting financial performance.
The CFO ensures that the company remains financially stable and compliant with accounting and taxation laws.
2(20). Company
A company means an entity incorporated under the Companies Act, 2013, or any of the earlier company laws in India.
It is a legal person that has a separate existence from its owners (shareholders) and can own property, enter contracts, and sue or be sued in its own name.
Essentially, incorporation gives the company its own legal identity.
2(21). Company Limited by Guarantee
A company limited by guarantee is a type of company in which the members’ liability is limited to the amount they agree to contribute to the company’s assets in case it is wound up.
Such companies generally do not have share capital and are often formed for charitable or non-profit purposes.
For example, members might each guarantee to pay ₹1,000 if the company is ever liquidated.
2(22). Company Limited by Shares
A company limited by shares is one in which the liability of each member is limited to the unpaid amount, if any, on the shares held by them.
Shareholders are only responsible for paying the balance of their shares’ face value and nothing more.
If a shareholder holds a ₹10 share and has paid ₹8, their maximum liability is ₹2.
2(23). Company Liquidator
A Company Liquidator is a person appointed by the Tribunal under Section 275 of the Act to carry out the process of winding up (closing) a company.
The liquidator’s role is to collect and sell the company’s assets, pay its debts, and distribute any remaining funds to shareholders in accordance with the law.
Essentially, they handle the dissolution process of a company.
2(24). Company Secretary or Secretary
A company secretary (CS) is a professional defined under the Company Secretaries Act, 1980, who holds the required qualifications and is appointed by a company to perform statutory and legal compliance functions.
The company secretary ensures that the company follows all legal requirements under corporate laws, organizes board and general meetings, maintains company records, and files necessary documents with the Registrar of Companies (ROC).
2(25). Company Secretary in Practice
A company secretary in practice means a qualified company secretary who is recognized as being “in practice” under Section 2(2) of the Company Secretaries Act, 1980.
A person holds a valid certificate of practice and is authorized to offer professional services independently such as company law compliance, certification, legal documentation, and corporate governance advisory to clients and companies.
2(26). Contributory
During the time of liquidation , if the company still owes debt , then:
A contributory is any person who may be required to contribute money or assets to help pay off the company’s debts and expenses when liquidated.
Usually , it is the shareholders who may be required to pay any unpaid amount on their shares if the company is liquidated
However, even if a person holds fully paid-up shares (and hence has no financial liability), they are still considered a contributory because they retain certain rights in the liquidation process, such as attending meetings or receiving any surplus after debts are paid.
2(27). Control
The term control refers to the power or right to influence or direct the management and policy decisions of a company.
This control may be exercised directly or indirectly, alone or together with others, through ownership of shares, management rights, voting agreements, or other arrangements.
For example, if a person can appoint most of the company’s directors or make key business decisions, that person is said to have control over the company.
2(28). Cost-Accountant
A cost accountant refers to a professional defined under the Cost and Works Accountants Act, 1959, who holds a valid certificate of practice under Section 6(1) of that Act.
A cost accountant specializes in cost accounting, cost audit, and financial management.
They analyze production costs, set budgets, and help companies manage resources efficiently.
2(29). Court
The term court refers to the judicial authorities that have jurisdiction under the Companies Act.
Depending on the case type, it can mean:
(i). The High Court having jurisdiction over the location of the company’s registered office.
(ii). A District Court, if the Central Government authorizes it to handle company matters.
(iii). The Court of Session for criminal offences under company law.
(iv). The Special Court established under Section 435 for trying serious corporate offences.
(v). A Metropolitan Magistrate or Judicial Magistrate of the First Class, who can try offences under this Act or older company laws.
2(30). Debenture
A debenture refers to any instrument issued by a company that acknowledges a debt owed by the company to its holders. It is a way for companies to borrow money from the public or investors.
This can include debenture stock, bonds, or other debt instruments whether or not they are secured by a charge on company assets.
However, certain financial instruments, such as those covered under Chapter III-D of the Reserve Bank of India Act or as notified by the government, are not considered debentures.
2(31). Deposit
A deposit refers to any money a company receives in the form of a loan, deposit, or any other way.
However, certain types of money received such as from government grants, banks, or share application money (within a time limit) are not treated as deposits, as prescribed by the government in consultation with the Reserve Bank of India.
Companies must follow strict rules before accepting deposits from the public.
2(32). Depository
A depository means an institution that holds securities (like shares, bonds, etc.) of investors in electronic (dematerialized) form.
It is defined under the Depositories Act, 1996.
Depositories allow investors to trade securities without handling physical certificates.
In India, the two main depositories are: NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited).
2(33). Derivative
A derivative is a financial instrument whose value depends on, or is derived from, the value of another asset known as the underlying asset.
The price of a derivative changes when the price of its underlying asset changes.
The underlying assets can be shares, commodities, currencies, or market indices.
2(34). Director
A director means a person who is appointed to the Board of Directors of a company.
Directors are responsible for managing the company’s business and affairs, making key strategic decisions, and ensuring legal and ethical compliance.
They act collectively through the Board and owe fiduciary duties to the company and its shareholders.
2(35). Dividend
Dividend refers to the portion of a company’s profits that is distributed to its shareholders as a return on their investment.
It includes both final dividends (declared at the end of a financial year) and interim dividends (declared during the year).
Paying dividends indicates that a company is profitable and sharing part of its earnings with shareholders.
2(36). Document
A document includes any summons, notice, requisition, order, declaration, form, or register that is issued, sent, or kept under the Companies Act or any other law.
It can be maintained either in paper form or in electronic form.
Essentially, any official written communication or record that relates to company operations is considered a document.
2(37). Employee Stock Options (ESOP)
An employees’ stock option refers to an option given by a company to its directors, officers, or employees (including those of its holding or subsidiary companies) to purchase or subscribe to the company’s shares at a future date and at a pre-determined price.
ESOPs are a form of employee benefit or incentive, aimed at motivating and retaining talent by giving them an ownership stake in the company.
2(38). Expert
An expert includes professionals such as engineers, valuers, chartered accountants, company secretaries, cost accountants, or any other person authorized by law to issue a certificate or report.
These experts provide specialized knowledge and opinions that companies may rely on for decision-making, compliance, or verification purposes.
2(39). Financial Institution
A financial institution includes scheduled banks and any other institution defined or notified as a financial institution under the Reserve Bank of India Act, 1934.
These institutions provide financial services such as lending, investment, or advisory support to individuals and businesses.
Examples include the Industrial Finance Corporation of India (IFCI) and Industrial Development Bank of India (IDBI).
2(40). Financial Statement
A financial statement of a company is a formal record that shows its financial position and performance for a given financial year.
It includes:
(i) a balance sheet at year-end
(ii) a profit and loss account (or an income and expenditure account for non-profit companies)
(iii) a cash flow statement
(iv) a statement of changes in equity (if applicable)
(v) explanatory notes attached to these statements.
However, for certain companies such as One Person Companies, small companies, and dormant companies, the cash flow statement is not mandatory.
2(41). Financial year
The term financial year refers to the 12-month accounting period that ends on the 31st of March every year.
All companies and body corporates in India must prepare their financial statements such as the balance sheet and profit & loss account for this period.
If a company is incorporated (registered) on or after 1st January of any year, its first financial year will end on 31st March of the following year.
Exceptions:
If a company in India is a holding company, subsidiary, or associate company of a foreign company that follows a different financial year for consolidation purposes, it can apply to the Central Government for permission to adopt that different financial year. The government can allow it if justified.
Companies that existed when the Companies Act, 2013 came into effect were given two years to align their financial year with this rule.
(ending on 31st March).
2(42). Foreign Company
A foreign company is any company or body corporate that is incorporated outside India but has a place of business in India either directly, through an agent, or even electronically and conducts business activities in India in any way.
If a company registered in another country operates in India, whether by opening an office, appointing an agent, or doing business online (like through a website or digital platform), it is considered a foreign company under Indian law.
2(43). Free-Reserves
Free reserves are the reserves or accumulated profits of a company that are available for distribution as dividends to shareholders, as shown in the company’s latest audited balance sheet.
However, not all reserves are considered “free.”
The following are excluded:
Unrealised or notional gains, such as increases in asset value due to revaluation (these are paper profits, not actual cash gains).
Changes in asset or liability values that are recorded directly in equity (like fair value adjustments).
In other words, only those reserves that represent actual, realized profits can be treated as free reserves.
2(44). Global Depository Receipt (GDR)
A Global Depository Receipt (GDR) is a financial instrument issued outside India by a foreign depository and authorized by an Indian company.
It represents shares of that Indian company that are held by a depository bank.
These receipts allow foreign investors to invest in Indian companies without directly buying shares in India.
Essentially, GDRs are a way for Indian companies to raise capital from international markets.
2(45). Government Company
A Government company is a company in which at least 51% of the paid-up share capital is held by:
The Central Government
One or more State Governments
Jointly by the Central and one or more State Governments.
It also includes any company that is a subsidiary of such a Government company.
These companies are often formed to carry out public sector or national development activities.
2(46). Holding Company
A holding company is a company that has one or more subsidiary companies under its control.
It is a parent company that either owns more than 50% of the voting rights or has control over the board of directors of another company.
The law also clarifies that the term “company” in this context includes any body corporate, not just companies incorporated under the Companies Act.
2(47). Independent Director
An independent director is a director who meets the requirements set out in Section 149(6) of the Companies Act, 2013.
Such a director is not a promoter or employee of the company (or its group companies) and does not have any material or financial relationship with it.
The purpose of an independent director is to provide unbiased, objective judgment in board decisions and protect the interests of minority shareholders.
2(48). Indian Depository Receipt (IDR)
An Indian Depository Receipt (IDR) is a financial instrument issued in India by a domestic depository (such as a bank in India) and authorized by a foreign company.
It allows Indian investors to invest in the shares of foreign companies without sending money abroad.
IDRs represent ownership in shares of a foreign company that are held by the Indian depository.
2(49). Omitted
2(50). Issued Capital
Issued capital is the portion of a company’s authorized share capital that has actually been issued to shareholders for subscription.
It represents the total value of shares that the company has offered to investors (out of the total it is authorized to issue).
The company can issue shares in parts over time, as needed.
2(51). Key-Managerial Person
Key managerial personnel (often called KMP) are the most senior executives responsible for managing and controlling the company’s operations. Under the Act, KMP includes:
The Chief Executive Officer (CEO), Managing Director, or Manager.
The Company Secretary.
The Whole-time Director.
The Chief Financial Officer (CFO).
Any other officer, not more than one level below the directors, who is designated as a KMP by the Board.
Any other officer as may be prescribed by the government.
These individuals hold key positions of authority and accountability in the company’s management and decision-making processes.
2(52). Listed Company
A listed company means a company that has any of its securities listed on one or more recognized stock exchanges in India.
So the company’s shares, debentures, or other securities are traded publicly, and the company must follow strict rules and disclosure requirements set by the Securities and Exchange Board of India (SEBI) to protect investors.
However, according to the proviso, certain classes of companies that have listed or intend to list specific types of securities (as may be prescribed by the government in consultation with SEBI) will not be treated as listed companies for regulatory purposes.
This exemption usually applies to companies that list only certain debt instruments or non-convertible securities.
2(53). Manager
A manager is an individual who, under the supervision, control, and direction of the Board of Directors, manages the whole or substantially the whole affairs of the company.
This person may or may not be a director and may hold the title of manager, general manager, or any other similar designation.
The key point is that the person has control over the day-to-day management of the company’s business operations.
2(54). Managing Director
A managing director (MD) is a director who has been entrusted with substantial powers of management over the affairs of the company.
These powers can be given by the articles of association, an agreement, or a resolution passed by the company’s shareholders or Board of Directors.
However, the law clarifies that powers to perform routine administrative acts such as signing cheques, affixing the company seal, endorsing negotiable instruments, or approving share transfers do not count as “substantial powers of management.
The managing director is responsible for important strategic and policy decisions, not just daily administrative tasks.
2(55). Member
A member of a company is a person who legally owns a part of it and appears in the register of members. There are three types of members:
Subscribers to the Memorandum - The people who sign the company’s Memorandum of Association during its formation automatically become members when the company is registered.
Persons who agree to become members - Anyone who agrees in writing to become a member and whose name is entered in the company’s register of members.
Beneficial owners in a depository system – Anyone whose name appears as the beneficial owner of shares in the records of a depository (for dematerialized shares).
2(56). Memorandum
The memorandum (or Memorandum of Association, MOA) is one of the most important documents of a company.
It defines the constitution of the company and outlines its objectives, name, registered office, liability of members, and capital structure.
The memorandum is like the rulebook or foundation document of a company.
It sets out the main purpose of the company and explains what activities it is allowed or not allowed to do.
If the company ever wants to change these basic rules, it can do so by following the steps and procedures given in the Companies Act.
2(57). Net-Worth
Net worth shows how financially strong a company is. It is the amount left after subtracting what the company owes from what it owns
It is calculated by adding up the:
Company’s share capital + Profits kept in reserves, and any extra money from selling shares at a premium, and then
Subtracting losses or expenses that haven’t been written off.
A higher net worth means the company is in a stronger financial position.
Importantly, certain items are not included in net worth, such as reserves created from revaluation of assets, write-back of depreciation, or amalgamation adjustments, because these do not represent real financial gains.
2(58). Notification
A notification means an official announcement published in the Official Gazette by the Government.
2(59). Officer
An officer includes any director, manager, key managerial personnel (KMP).
It also includes any person whose directions or instructions the Board of Directors or any of its members habitually follows.
So , anyone who actually influences or controls company decisions can be treated as an officer under the Act, even if they don’t hold a formal title.
2(60). Officer who is in default
An officer who is in default refers to specific company officers who are legally responsible when the company violates any provision of the Act.
This clause identifies who can be held liable for penalties, fines, or imprisonment.
Those responsible include:
Whole-time directors & Full-time directors involved in daily management.
Key Managerial Personnel (KMP) – such as CEO, CFO, company secretary.
Directors specified by the Board, or all directors if none are specified, when there is no KMP.
Employees acting under the Board or KMP who are responsible for maintaining records or accounts and who cause or fail to prevent defaults.
Persons whose directions the Board follows, except those giving advice in a purely professional capacity (like lawyers or auditors).
Directors aware of violations but who do not object or who consented to the violation.
Share transfer agents, registrars, or merchant bankers, in matters related to share issuance or transfer.
2(61).Official Liquidator
An Official Liquidator is a government officer appointed under section 359(1) of the Act.
The role of the Official Liquidator is to handle the winding-up (closure) process of companies under the supervision of the Tribunal.
They are responsible for collecting company assets, settling debts, and distributing remaining assets to shareholders.
2(60).One-Person Company
A One Person Company is a private company that has only one member (shareholder).
This concept allows a single entrepreneur to form a company with limited liability, providing flexibility similar to a sole proprietorship but with the benefits of corporate status.
The sole member must nominate another person who will take over in case of death or incapacity.
2(60).Ordinary or Special Resolution
A resolution is simply a formal decision made by the members (shareholders) or directors of a company during a meeting.
When members discuss an issue like approving accounts, appointing a director, or changing company rules they vote on it.
If most people agree, that decision (once passed) is called a resolution.
An ordinary resolution or special resolution refers to two types of decisions passed by company members as described in section 114 of the Act.
An ordinary resolution is passed when a simple majority (more than 50%) of members vote in favor.
A special resolution requires at least 75% of votes in favor.
Ordinary resolutions are used for routine matters, while special resolutions are needed for major decisions like altering the company’s memorandum or articles.
2(60).Paid-Up Share Capital
Paid-up share capital means the total amount of money that shareholders have actually paid to the company for their shares.
It includes only the money that has been actually paid for the company’s shares, and leaves out any other money the company receives for other purposes.
2(60).Postal Ballot
A postal ballot means voting by post or electronic means, allowing shareholders to vote on company matters without physically attending meetings.
It ensures wider participation by enabling remote voting.
2(60).Prescribed
The term “prescribed” means decided or specified in the rules made by the Central Government under the Companies Act.
These rules explain how certain parts of the Act should be followed or applied.
(67) “previous company law” means any of the laws specified below:— (i) Acts relating to companies in force before the Indian Companies Act, 1866 (10 of 1866); (ii) the Indian Companies Act, 1866 (10 of 1866); (iii) the Indian Companies Act, 1882 (6 of 1882); (iv) the Indian Companies Act, 1913 (7 of 1913); (v) the Registration of Transferred Companies Ordinance, 1942 (Ord. 54 of 1942); (vi) the Companies Act, 1956 (1 of 1956); and (vii) any law corresponding to any of the aforesaid Acts or the Ordinances and in force— (A) in the merged territories or in a Part B State (other than the State of Jammu and Kashmir*), or any part thereof, before the extension thereto of the Indian Companies Act, 1913 (7 of 1913); or (B) in the State of Jammu and Kashmir*, or any part thereof, before the commencement of the Jammu and Kashmir (Extension of Laws) Act, 1956 (62 of 1956), in so far as banking, insurance and financial corporations are concerned, and before the commencement of the Central Laws (Extension to Jammu and Kashmir) Act, 1968 (25 of 1968), in so far as other corporations are concerned;
2(68).Private Company
A private company is a type of company that has a minimum amount of money invested by its owners as shares, as prescribed by law.
This is called the “paid-up share capital.The company’s internal rules, called articles of association, set some limits.
(i) It restricts the transfer of shares, meaning the owners cannot freely sell or give their shares to just anyone.
(ii) A private company can have a maximum of 200 members. If two or more people jointly own a share, they are counted as one member.
Also, people who work for the company, or who were employees and became members, are not counted in the 200-member limit.Finally, a private company cannot invite the general public to buy its shares or securities. This keeps it private and separate from public companies that raise money from the public.
2(69).Promoter
A promoter is a person who plays a key role in forming or controlling a company. The law identifies a promoter in three main ways.
First, a person is a promoter if they are explicitly named as such in official documents like the company’s prospectus or annual return.
Second, a promoter can be someone who exercises control over the company, either directly or indirectly.
This control may come through owning a significant number of shares, being a director, or influencing company affairs in any other way.
Essentially, if a person has the power to shape major company decisions, they can be considered a promoter.
Third, a promoter may be someone whose advice, directions, or instructions the board of directors usually follows.
Essentially someone who can influence how the company operates.
However, there is an important exception: if the person is acting purely in a professional capacity.
(A lawyer, accountant, or consultant are not considered a promoter)
2(70).Prospectus
A prospectus is any document issued by a company to invite the public to invest that is, to buy or subscribe to its shares or debentures.
It can take several forms, including:
A regular prospectus.
A red herring prospectus (used when the price of shares isn’t finalized, under section 32).
A shelf prospectus (used when a company plans to issue securities in stages, under section 31).
It also includes any advertisement, circular, or notice that invites the public to buy a company’s securities.
2(71).Public Company
A public company is the opposite of a private company.
It is a company that:
(a). Is not a private company.
It does not restrict share transfers.
It does not limit the number of members.
It can invite the public to subscribe to its securities.
(b) Has a minimum paid-up share capital as prescribed (previously ₹5 lakh, now flexible under current rules).
Additionally, if a company is a subsidiary of a public company, it is automatically considered a public company.
Even if its own articles describe it as a private company.
2(72).Public-Financial Institution
A public financial institution (PFI) is a financial body established by the government to provide funding and financial services.
These are institutions that either exist under a Central or State Act or are majority-owned/controlled by the government (at least 51% of paid-up capital).
Key examples include:
Life Insurance Corporation of India (LIC)
Infrastructure Development Finance Company Ltd. (IDFC)
Specified companies under the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002
Other institutions notified by the Central Government in consultation with the Reserve Bank of India (RBI).
These are government-backed financial institutions that provide funds, loans, or other financial support to companies or infrastructure projects.
2(73). Recognised Stock Exchange
A recognised stock exchange is a stock exchange officially recognised under the Securities Contracts (Regulation) Act, 1956.
Only companies listed on such recognised stock exchanges are considered listed companies under the Companies Act.
Examples include BSE, NSE, or regional stock exchanges recognised by SEBI.
2(74).Register of Companies
The register of companies is a record maintained by the Registrar of Companies (RoC).
It can be in paper form or electronic form. It contains the details of all the Registered companies under the Companies Act.
The details could include information like Names, addresses, directors, shareholders, and other statutory information.
2(75).Registrar
The Registrar is the official responsible for registering companies and ensuring they comply with statutory requirements.
This includes Registrars, Additional Registrars, Joint Registrars, Deputy Registrars, and Assistant Registrars. ]
Their duties include:
Company incorporation
Maintenance of company records
Compliance with filings like annual returns, financial statements, etc.
2(76).Related - Party
A related party is a person or entity that has a special relationship with the company, which could influence its decision-making. The definition is broad and includes:
Directors or their relatives
Key Managerial Personnel (KMP) or their relatives
Firms in which a director, manager, or their relatives are partners
Private companies in which a director, manager, or their relatives are members or directors
Public companies where a director or manager, along with relatives, holds more than 2% of paid-up capital
Bodies corporate whose board or key officers act based on a director/manager’s advice (unless professional advice)
Persons whose advice or directions are followed by a director or manager (again, excluding professional advice)
Holding, subsidiary, or associate companies, and companies where investment makes it an associate company
2(77).Relative
A relative of a person is:
Someone in the same Hindu Undivided Family (HUF).
The husband or wife.
Any other relation as prescribed by the government.
2(78).Remuneration
Remuneration means any money or benefits paid to a person for services rendered.
Includes perquisites (like allowances, perks, benefits) defined under the Income-tax Act, 1961.
2(79).Schedule
A Schedule is an annexure attached to the Act.
It contains detailed provisions, forms, or rules.
Example: Schedule III contains format for financial statements.
2(80).Scheduled Bank
A scheduled bank is defined under the RBI Act, 1934, and refers to:
Banks included in the Second Schedule of the RBI Act.
Basically, these are banks recognized by the Reserve Bank of India.
2(81).Securities
Securities include shares, bonds, debentures, or any financial instruments as defined under the Securities Contracts (Regulation) Act, 1956.
2(82).Securities and Exchange Board (SEBI)
SEBI is the regulatory body for securities markets in India.
Established under SEBI Act, 1992.
Oversees stock markets, protects investors, and regulates listed companies.
2(83).Serious Fraud Investigation Office (SFIO)
SFIO is a government office that investigates serious corporate frauds.
It is empowered under Section 211 of the Companies Act.
2(84).Share
A share is a unit of ownership in a company.
Includes stock (another form of share).
Ownership gives rights to profits, voting, and participation in company matters.
2(85).Small Company
A small company is a type of private company that is not a public company and meets certain financial limits.
To qualify as a small company, its paid-up share capital should be ₹50 lakh or less (though in some cases, the law allows it to go up to ₹10 crore).
Similarly, its annual turnover should not exceed ₹2 crore (or up to ₹100 crore as prescribed in updated rules).
These limits are set to identify companies that are relatively small in size and scale of operations.
However, not all companies that meet these financial criteria can be classified as small companies.
A company cannot be a small company if it is a holding company or a subsidiary, a Section 8 company (non-profit), or a company governed by a special Act like banks or insurance companies.
2(86).Subscribed Capital
Subscribed capital is the portion of the company’s capital actually subscribed by members/shareholders.
2(87).Subsidiary Company
A subsidiary company is a company that is controlled by another company, which is called the holding company.
A company is a subsidiary if the holding company either controls its board of directors or holds more than 50% of its voting power, either on its own or together with its other subsidiaries.
Even if the holding company exercises control through another subsidiary, the company is still considered a subsidiary.
Control of the board means the holding company has the power to appoint or remove the majority of directors. The term “company” here also includes any body corporate, not just traditional companies.
The concept of layers refers to the different levels of subsidiaries under a holding company.
For example, a holding company may have a subsidiary, which in turn has its own subsidiary, forming multiple layers of control.
2(88).Sweat Equity Shares
Sweat equity shares are shares issued by a company to its directors or employees:
At a discounted price or in exchange for non-cash consideration
Given in return for know-how, intellectual property, or value addition to the company.
2(809).Total Voting Power
Total voting power is:
The total number of votes that can be cast on a matter in a company meeting if all members or their proxies vote.
2(90).Tribunal
Tribunal refers to the National Company Law Tribunal (NCLT):
A quasi-judicial body that handles company law matters, including disputes, insolvency, and governance issues.
2(91).Turnover
Turnover refers to the total revenue or income a company earns from its normal business activities during a financial year.
This includes money earned from selling goods, providing services, or both.
Essentially, it is the company’s gross income before deducting any expenses, and it is recorded in the profit and loss account of the company.
Turnover shows how much business a company has done in a year, reflecting the total sales or service revenue it has generated.
It does not include other income like interest, dividends, or capital gains unless it comes from the company’s main business operations.
2(92).Unlimited Company
An unlimited company is a company where the members’ liability has no upper limit.
If the company is wound up, members may be personally liable for the company’s debts.
2(93).Voting Right
Voting right is the right of a member to vote at a company meeting, or By postal ballot
2(94).Whole-Time Director
A whole-time director is a director who is employed full-time by the company.
2(94A).Winding up
Winding up is the process of closing a company and ending its existence.
It involves selling off the company’s assets, paying its debts, and distributing any remaining money to the shareholders.
Winding up can happen in two ways:
Under the Companies Act – This is the standard legal process for closing a company, which can be voluntary (decided by the members) or compulsory (ordered by a court).
Under the Insolvency and Bankruptcy Code, 2016 (IBC) – This applies when the company is insolvent, meaning it cannot pay its debts. The IBC provides a structured way to liquidate the company and settle its liabilities.
2(95).
words and expressions used and not defined in this Act but defined in the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or the Securities and Exchange Board of India Act, 1992 (15 of 1992) or the Depositories Act, 1996 (22 of 1996) shall have the meanings respectively assigned to them in those Acts.
