Preliminary
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In 30 seconds
- Chapter 1 is just two sections — mnemonic 'SEC-A': Short title, Extent, Commencement, Application (Section 1), then the definitions clause (Section 2, clauses 1–93).
- Section 1 extends the Act to the whole of India and to six categories of entities ('CIBES-B'), each sectoral company governed by the Act except in so far as inconsistent with its own special law.
- Section 2 definitions are 'internal aids to construction' and apply 'unless the context otherwise requires'; undefined terms take their meaning from the SCRA 1956, SEBI Act 1992 or Depositories Act 1996.
- The capital chain 'A-I-S-C-P' — Authorised → Issued → Subscribed → Called-up → Paid-up — plus free reserves and net worth anchor most numerical questions.
- High-yield numbers: 20% associate, more than 50% subsidiary, 51% Government company, 200-member private cap, ₹4 crore/₹40 crore small company.
Companies Act, 2013 as amended, per the May 2026 syllabus.
How the chapter fits together
Chapter 1 is only two sections long, but the whole paper leans on it. Memory hook — “SEC-A”: Short title, Extent, Commencement, Application (all Section 1), then the definitions clause (Section 2). The Act itself: 470 sections, 7 schedules, 29 chapters — a rule-based legislation, so “prescribed” always means by rules.
- Section 1 — short title, extent, commencement, and the six categories of entities the Act applies to (mnemonic “CIBES-B”).
- Section 2 — definitions, clauses 1–93 — the “internal aids to construction” for the entire Act.
- Every definition applies “unless the context otherwise requires” — a defined meaning can yield to context.
- Terms used but not defined take their meaning from the SCRA 1956, SEBI Act 1992 or Depositories Act 1996 [cl. 2(95)].
No penalties live in this chapter. Even “officer who is in default” [Sec 2(60)] is a liability-attribution mechanism — it defines who gets punished under later sections; it is not a penalty itself.
Section 1 — title, extent, commencement, application
- Short title: “Companies Act, 2013”.
- Extent: the whole of India.
- Commencement: Section 1 came into force at once (30.08.2013); the rest by Central Government notification, with different dates for different provisions — 98 sections on 12.09.2013, 143 sections on 01.04.2014.
- Application — six categories, mnemonic “CIBES-B”:
- Companies incorporated under this Act or any previous company law
- Insurance companies (Insurance Act 1938 / IRDA Act 1999)
- Banking companies (Banking Regulation Act 1949)
- Electricity companies (Electricity Act 2003)
- Special Act companies
- Body corporates notified by the Central Government
The exam keyword: each sectoral company is governed by the Companies Act “except in so far as” its provisions are inconsistent with its own sectoral Act.
Section 2 — the capital chain
Mnemonic “A-I-S-C-P”: Authorised → Issued → Subscribed → Called-up → Paid-up — each step a smaller, more “actual” figure than the one before.
| Term [cl.] | Crisp meaning | Trap / keyword |
|---|---|---|
| Authorised / nominal capital (8) | Maximum share capital permitted by the Memorandum | A ceiling — not the same as issued/subscribed/paid-up |
| Issued capital (50) | Capital issued for subscription | Not the same as authorised or subscribed |
| Subscribed capital (86) | Part of the capital subscribed by members | Sits between issued and called-up in the chain |
| Called-up capital (15) | Part of the capital called (demanded) for payment | Not paid-up, which is actually received |
| Paid-up capital (64) | Amount actually received or credited as paid-up | Excludes premium and other amounts |
| Free reserves (43) | Reserves available for dividend per the latest audited balance sheet | Excludes unrealised/notional gains, revaluation reserve, fair-value surplus |
| Net worth (57) | Paid-up capital + reserves created out of profits + securities premium ± P&L balance − accumulated losses, deferred expenditure and misc. expenditure not written off | Excludes revaluation reserve, write-back of depreciation, amalgamation reserve |
Net worth and free reserves both exclude revaluation reserves and unrealised gains — even if routed through retained earnings (substance over form). Net worth is the broader aggregate; free reserves are only the reserves distributable as dividend.
Company types and group relationships
| Type [cl.] | Test | Trap / keyword |
|---|---|---|
| Company (20) | Incorporated under this Act or any previous company law | 1956-Act companies continue as companies |
| Body corporate (11) | Includes foreign companies | Wider than “company”; excludes co-operative societies and CG-notified bodies |
| Ltd by shares (22) | Liability limited to the unpaid amount on shares | Paid ₹75 on a ₹100 share → liable only for ₹25 more |
| Ltd by guarantee (21) | Liability limited to the amount members undertake to contribute, only on winding up | Not liable otherwise |
| Unlimited company (92) | No limit on members’ liability | Contrast with limited by shares/guarantee |
| OPC (62) | Only ONE member | Single-member company |
| Government company (45) | ≥51% of paid-up capital held by CG / State Government(s), singly or jointly; includes a subsidiary of a Govt company | Where DVR shares are issued, read “paid-up capital” as “total voting power” (w.e.f. 3.3.2020) |
| Holding company (46) | Company of which other companies are subsidiaries | “Company” here includes body corporate; read with 2(87) |
| Listed company (52) | Securities listed on a recognised stock exchange | Rule 2A carves out three cases — see exceptions below |
A public company [2(71)] is simply one that is not private, with minimum paid-up capital as prescribed (currently NIL). The trap: a private company that is a subsidiary of a public company is deemed public, even if its own articles retain the private character — and it loses the private-company exemptions.
Private company [Sec 2(68)]
Company with minimum paid-up capital as prescribed (currently NIL) whose articles (i) restrict the right to transfer shares, (ii) cap members at 200 (except OPC) — joint holders count as one, and employees plus qualifying ex-employee members are excluded from the count — and (iii) prohibit any invitation to the public to subscribe.
Small company [Sec 2(85)]
A company other than a public company with paid-up capital and turnover within prescribed limits — statutory floor ₹50 lakh / ₹2 crore, outer ceiling ₹10 crore / ₹100 crore, currently prescribed ₹4 crore / ₹40 crore. Both tests must pass, and it can never be a holding, subsidiary, Section 8 or special-Act company — even if the numbers fit.
Associate company [Sec 2(6)]
A company in which another company has significant influence — ≥20% of total voting power OR participation in business decisions under an agreement — but which is not a subsidiary; includes a joint venture. Fiduciary-capacity shares are excluded, and the definition differs from AS 23 / Ind AS 28.
Subsidiary company [Sec 2(87)]
A company whose holding company either controls the composition of the Board or holds more than 50% of total voting power, alone or together with other subsidiaries. Indirect (step-down) subsidiaries count; fiduciary holdings are excluded; layers of subsidiaries are restricted for prescribed classes.
Related group-test terms: Control [2(27)] includes the right to appoint a majority of directors or to control management/policy decisions — individually or in concert, directly or indirectly (inclusive, not exhaustive). Total voting power [2(89)] is the hypothetical maximum — total votes castable if all members/proxies were present and voting — not the votes actually cast.
Persons, documents and governance terms
Key managerial personnel [Sec 2(51)]
CEO / MD / manager; company secretary; whole-time director; CFO; an officer not more than one level below the directors in whole-time employment and designated as KMP by the Board; and any other prescribed officer — no officer has been prescribed under the last limb yet.
Officer who is in default [Sec 2(60)]
Whole-time director; KMP; director(s) specified by the Board with their written consent (if there is no KMP and no specified director — ALL directors); any person charged with maintaining/filing accounts who defaults; a person on whose instructions the Board is accustomed to act (professional advisers excluded); a director aware of the contravention who stays silent or consents; and share transfer agents, registrars and merchant bankers.
| Term [cl.] | Crisp meaning | Trap / keyword |
|---|---|---|
| Director (34) | Director appointed to the Board | Base for the MD definition |
| Board of Directors (10) | Collective body of directors | Not an individual director |
| Managing Director (54) | Director entrusted with substantial powers of management (articles / agreement / resolution / Board) | Must FIRST be a director; routine acts (seal, cheques, negotiable instruments, share-transfer signing) are not substantial powers even if Board-authorised |
| Manager (53) | Individual managing the whole, or substantially the whole, affairs — subject to the Board’s superintendence and control | Subordinate to the Board (contrast MD) |
| CEO (18) | Officer DESIGNATED as CEO | “Designated” |
| CFO (19) | Person APPOINTED as CFO | “Appointed” |
| Officer (59) | Director, manager, KMP, or a person on whose directions the Board is accustomed to act | Wide — covers shadow-director-type persons |
| Promoter (69) | Named in the prospectus/annual return; OR controls the company’s affairs; OR the Board is accustomed to act on his advice/instructions | Persons acting merely in professional capacity excluded |
| Member (55) | (i) MOA subscriber (deemed member on registration); (ii) person agreeing in writing + entered in the register; (iii) beneficial owner in depository records | Three routes in |
| Contributory (26) | Person liable to contribute on winding up | Includes even a fully paid-up shareholder |
| Relative (77) | HUF members; husband and wife; the prescribed Rule 4 list | Rule 4 list is EXHAUSTIVE: father, mother, son, son’s wife, daughter, daughter’s husband, brother, sister (step- included for father/mother/son/brother/sister) — no grandparents, uncles or aunts |
| Related party (76) | Director/relative; KMP/relative; firm with a director-manager-relative as partner; private co. with them as member/director; public co. with them as director holding (with relatives) more than 2% of paid-up capital; body corporate or person on whose advice the Board or a director/manager is accustomed to act; holding / subsidiary / fellow-subsidiary / associate / investing co.; prescribed persons | Professional-capacity advice excluded under limbs (vi)/(vii); cl.(viii) relaxed for certain companies — see exceptions |
| Expert (38) | Engineer, valuer, CA, CS, cost accountant and any person with power to issue a certificate | Open-ended |
| Chartered Accountant (17) | CA under the CA Act 1949 holding a VALID certificate of practice | Mere ICAI membership is insufficient — COP required [Sec 6, CA Act 1949] |
Documents, statements, standards and the remaining definitions:
| Term [cl.] | Crisp meaning | Trap / keyword |
|---|---|---|
| Memorandum (56) | MOA as framed/altered under previous or this law | Parallel structure to Articles |
| Articles (5) | AOA as framed/altered, incl. under previous law | Parallel to Memorandum |
| Prospectus (70) | Any document — red herring or shelf prospectus, notice, circular, advertisement — inviting public subscription | Very wide; substance over title |
| Abridged prospectus (1) | Memorandum of salient features of a prospectus per SEBI regulations | Not the full prospectus; content set by SEBI |
| Debenture (30) | Debenture stock, bonds or any instrument evidencing debt, whether a charge or not | RBI Act Ch. III-D instruments and CG-with-RBI prescribed instruments excluded |
| GDR (44) | Depository receipt created by a FOREIGN depository outside India | Must be a foreign depository |
| Document (36) | Summons, notice, requisition, order, declaration, form, register — paper or electronic | Wide, inclusive |
| Book and paper (12) | Books of account, deeds, vouchers, documents, minutes, registers — paper or electronic | Electronic form included |
| Books of account (13) | Receipts and expenditure + sales and purchases + assets and liabilities + (iv) items of cost | Limb (iv) applies only to Sec 148 cost-audit-specified companies |
| Financial statement (40) | Balance sheet + P&L (or income and expenditure) + cash flow + statement of changes in equity + notes | OPC / small / dormant / start-up private co. (no default u/s 137, 92) may skip the cash flow statement |
| Financial year (41) | Ends 31 March; if incorporated on/after 1 Jan, first FY ends 31 March of the NEXT year | Foreign holding/subsidiary/associate — CG may allow a different FY |
| Accounting standards (2) | Standards of accounting u/s 133 | Till notified, 1956-Act AS deemed; CG prescribes on ICAI recommendation + NFRA consultation (NFRA from 1.10.2018) |
| Auditing standards (7) | Standards of auditing u/s 143(10) | Till notified, ICAI standards deemed |
| Ordinary/special resolution (63) | Cross-reference to Sec 114 | No substantive content here |
| Postal ballot (65) | Voting by post OR electronic mode | Certain items are MANDATORY via postal ballot (Rule 22) |
| Voting right (93) | Right to vote at a meeting or by postal ballot | Postal ballot included |
| Total voting power (89) | Total votes castable if ALL members/proxies were present and voting | Hypothetical maximum, not actual votes cast |
| Tribunal (90) | NCLT constituted u/s 408 | NCLAT is different (not defined here) |
| Charge (16) | Interest or lien on property/assets as security, incl. mortgage | Wide, inclusive |
| Share (84) | Share in the share capital, incl. stock | Stock included |
| Sweat equity shares (88) | Issued to directors/employees at a discount or for non-cash consideration, for know-how/IPR/value additions | Discount OR non-cash — not free |
| ESOP (37) | Option to directors/officers/employees of the co./holding/subsidiary to buy shares at a future date at a pre-determined price | Extends to holding/subsidiary employees |
| Dividend (35) | Includes interim dividend | Not a substantive definition |
| Turnover (91) | Gross revenue recognised in the P&L from sale/supply/services in the FY | Recognition basis |
| Remuneration (78) | Money or its equivalent for services + perquisites under the Income-tax Act 1961 | Cross-statute reference |
| Alter / alteration (3) | Additions, omissions and substitutions | Inclusive definition |
| Branch office (14) | Establishment described as such BY the company | Self-declaratory |
| Notification (58) | Published in the Official Gazette | “Notify” construed accordingly |
| Prescribed (66) | Prescribed by RULES under the Act | Rules, not sections |
| Registrar (75) | Registrar / Additional / Joint / Deputy / Assistant Registrar | All grades included |
| Register of companies (74) | Maintained by the Registrar, paper or electronic | — |
Exceptions, cross-references and timelines
In this chapter the exception is where the mark is. Mnemonic for the professional-capacity carve-out trio — “POR”: Promoter, Officer in default, Related party — all three exclude persons acting merely in a professional capacity.
| Definition / provision | Carve-out |
|---|---|
| Sec 1 application | Sectoral companies (Insurance Act 1938 / IRDA 1999; Banking Regulation Act 1949; Electricity Act 2003; special Acts) governed by the Companies Act EXCEPT “in so far as” inconsistent with their own Act |
| Associate co. 2(6) | Shares held in FIDUCIARY capacity not counted (circular 25.06.2014) |
| Subsidiary co. 2(87) | Fiduciary-capacity shareholding/power not counted (notification 27.12.2013); layers of subsidiaries restricted for prescribed classes |
| Body corporate 2(11) | Excludes co-operative societies and CG-notified bodies |
| Books of account 2(13)(iv) | Items of cost apply ONLY to Sec 148-specified companies |
| Debenture 2(30) | Excludes RBI Act Ch. III-D instruments and CG-with-RBI prescribed instruments |
| Financial statement 2(40) | OPC / small co. / dormant co. / start-up private co. (no default u/s 137, 92) may SKIP the cash flow statement |
| Financial year 2(41) | Foreign-linked holding/subsidiary/associate — CG may allow a different FY on application; Specified IFSC subsidiary of a foreign co. may follow its holding’s FY without Tribunal approval (from 5.1.2017) |
| Listed company 2(52) | Rule 2A exclusions: (a) public co. with only NCDs/NCRPS on private placement listed; (b) private co. with NCDs on private placement listed; (c) public co. with equity listed only on a foreign exchange [Sec 23(3)] |
| MD 2(54) | Routine administrative acts (seal, cheques, negotiable instruments, share-transfer signing), even if Board-authorised, are not “substantial powers” |
| Officer in default 2(60)(v) | Professional-capacity adviser excluded |
| Promoter 2(69)(c) | Professional-capacity person excluded |
| Private company 2(68) | Minimum paid-up capital rule N/A to Sec 8 companies (5.6.2015 notification, subject to no default u/s 137/92 per the 13.6.2017 amendment); employees + qualifying ex-employee members excluded from the 200 count; joint holders = 1 member |
| Public company 2(71) | Private co. that is a subsidiary of a public co. is DEEMED public even if its articles stay private; Sec 8 exemption also available |
| Related party 2(76) | Cl.(viii) N/A to PRIVATE companies (5.6.2015) and Specified IFSC public companies (4.1.2017) for Sec 188 purposes; professional-capacity advice excluded under the (vi)/(vii) proviso |
| Small company 2(85) | Excludes holding, subsidiary, Sec 8 and special-Act-governed companies — even if the numerical criteria are met |
Sections cross-referenced by this chapter:
| Section | Why it matters here |
|---|---|
| Sec 1 | Short title, extent, commencement — Sec 1 at once, rest as notified |
| Sec 2 | Clauses 1–93 = internal aids to construction; “unless the context otherwise requires” |
| Sec 2(95) | Undefined terms → SCRA 1956 / SEBI Act 1992 / Depositories Act 1996 |
| Sec 6, CA Act 1949 | Certificate of Practice — required for the “Chartered Accountant” definition |
| Sec 23(3) | Foreign-exchange-only equity listing kept out of “listed company” (Rule 2A) |
| Sec 92 | Annual return — promoter ID, member exclusions; default disqualifies exemptions |
| Sec 108/110 | Postal ballot — certain business ONLY via postal ballot (Rule 22) |
| Sec 114 | Substantive ordinary/special resolution provisions (later chapter) |
| Sec 132 | NFRA constitution — effective 1.10.2018 |
| Sec 133 | Accounting standards — CG prescribes on ICAI reco + NFRA consultation |
| Sec 137 | Filing financial statements — default denies start-up/Sec 8 exemptions |
| Sec 143(10) | Auditing standards — CG prescribes on ICAI reco + NFRA consultation |
| Sec 148 | Cost audit — items of cost only for specified companies |
| Sec 188 | Related party transactions — cl. 2(76)(viii) exempted for private and Specified IFSC public cos |
| Sec 203 | KMP appointment procedure |
| Sec 408 | NCLT constitution — defines “Tribunal” |
Key dates:
| Date / period | Event | Provision |
|---|---|---|
| 29.08.2013 | President’s assent to the Companies Act, 2013 | — |
| 30.08.2013 | Section 1 in force; Gazette notification | Sec 1 |
| 12.09.2013 | 98 sections came into force | Sec 1 |
| 01.04.2014 | 143 sections came into force | Sec 1 |
| 31 March | Normal FY end every year | 2(41) |
| 1 Jan cut-off | Incorporated ON/AFTER 1 Jan → first FY ends 31 March of the FOLLOWING year; before 1 Jan → same calendar year’s 31 March | 2(41) |
| 2 years (historical, spent) | Companies existing at the Act’s commencement had 2 years to align their financial year | 2(41) |
| 27.12.2013 | Notification — fiduciary shares excluded for subsidiary determination | 2(87) |
| 25.06.2014 | Circular — fiduciary shares excluded for associate determination | 2(6) |
| 05.06.2015 | Notification — Sec 8 cos exempt from minimum paid-up capital; related-party cl.(viii) exempt for private cos (Sec 188) | 2(68) / 2(71) / 2(76) |
| 04.01.2017 (G.S.R. 08(E)) | Related-party cl.(viii) exempt for Specified IFSC public cos (Sec 188) | 2(76) |
| 05.01.2017 | Notification — Specified IFSC subsidiary of a foreign co. may adopt its holding’s FY, no Tribunal approval needed | 2(41) |
| 13.06.2017 (G.S.R. 584(E)) | Sec 8 exemption made conditional on no default u/s 137/92 | 2(68) |
| 01.10.2018 | NFRA constituted | Sec 132 |
| 03.03.2020 | Explanation inserted — Govt co. “paid-up capital” read as “total voting power” where DVR shares issued | 2(45) |
- Mixing up associate and subsidiary — associate = significant influence, ≥20% of total voting power (the MCQ favourite; NOT 10/15/25%); subsidiary = Board control OR more than 50% of total voting power.
- Swapping CEO and CFO — CEO is “designated”, CFO is “appointed”.
- Treating manager and MD alike — a manager acts UNDER the Board’s superintendence and control; an MD holds substantial powers, must FIRST be a director, and routine acts (seal, cheques, negotiable instruments, share-transfer signing) never count as substantial powers.
- Equating called-up and paid-up capital — called-up = amount DEMANDED; paid-up = amount ACTUALLY RECEIVED.
- Missing the deemed-public trap — a private subsidiary of a public company is DEEMED public regardless of its own articles, losing private-company exemptions.
- Confusing officer [2(59)] with officer in default [2(60)] — officer is the wide category; officer in default is the narrower liability list, and if there is no KMP and no Board-specified consenting director, ALL directors become officers in default.
- Treating net worth and free reserves as interchangeable — both exclude revaluation reserves and unrealised gains, but net worth is the broader aggregate (capital + reserves − losses) while free reserves are only the dividend-distributable reserves.
- Adding relatives beyond Rule 4 — the list is EXHAUSTIVE (father, mother, son, son’s wife, daughter, daughter’s husband, brother, sister); grandparents, uncles, aunts and nephews are NOT relatives.
Quick revision cards
Associate company threshold?
Subsidiary company test?
Small company operative limits?
Government company threshold?
Private company member cap?
Financial year cut-off rule?
CIBES-B stands for?
Capital chain A-I-S-C-P?
Professional-capacity exclusion trio (POR)?
Rule 4 relatives list?
Key commencement dates?
Term used but not defined in the Act?