Q

Terminology

1.Ministry of Corporate Affairs:

It is denoted by MCA(Ministry of Corporate Affairs); is a government body which is primarily concerned with the Companies Act 2013, the Limited Liability Partnership Act 2008, the Companies Act 1956 and all other regulations framed under the corporate sector. The main work of the body is to regulate the functioning of the corporate sector as per the law. The sole responsibility of the Ministry of Corporation lies in regulating Indian enterprise under Industrial and Service sector.

2.Limited Liability:

It is said that the financial liability of a person is limited to a fixed sum and the condition by which legal responsibilities of the shareholders for the debts of a company is exclusively restricted to the nominal value of their shares. If a company with limited liability is sued, then the competitors are the one suing the company, and not its owners or investors. The shareholders of a limited company are not personally accountable for any debts of the company, other than the value that they invested in that company. This is applicable for both, members of Limited Liability Partnership and limited partners in Limited Partnership. The contrast is for the proprietors and partners in the general partnership wherein each is accountable for the debts of the business.

3.Capital(Authorized Capital and Paid Capital):

Authorized Capital: It is also termed as Registered capital or Nominal capital, which is the amount of capital/fund with which a company is registered. The authorized capital is the maximum sum of money that a company can generate through its shares and beyond which is not permissible. For this same reason, the companies are registered with such high capitals which exceed their need for functioning, to avoid problems with increasing future needs. Hence, it is the ultimate sum of money that a company can generate through its shares and cannot exceed beyond it.

Paid-up capital:

The paid-up capital as the name suggests it is the added investment to a company's capital. It is the amount that is funded by the shareholders. A paid-up capital can be less than the company's total capital as the company not necessarily will sell all of the shares that it has. This reflects the dependence of the company on equity financing. Hence, the amount of capital (out of called-up capital) against which the company has received the payments from the shareholders so far are the paid-up capitals.

4.Shares & Share-value:

Share: A share is a unit of account which is counted for various investments. It is often termed as the stock of a corporation, but in collective investments as well shares are being used. Joint investments can include limited partnerships, mutual funds, and real estate investment trusts. The companies issue shares for sale which helps to raise the share capital of the corporation. The person who owns the shares are stated as shareholders or stockholders of the company. The owner of shares in the corporation is a shareholder (or stockholder) of the corporation. A share is a permanent unit of capital, which develops the ownership relationship of the company with the shareholder. The designated amount of a share is its face value, and the combined value of issued shares represent the capital of a company, which might not reflect the market value of those shares.

Share Value: There are various principles based on which a Share is Valued. An initial ascertain is that a share must be worth the price at which a purchase is likely to occur at the place where the shares are sold. The liquidity of markets is a major consideration as to whether a share can be sold at any given time. An actual transaction in sale of shares between buyers and sellers are usually considered to provide the best-appearing market indicator which further states the "real value" of shares at a given time.

5.Shareholders & Directors:

Directors: Directors are also known as company officers; it can be an individual or a corporate body with a Board of Directors. One director in a company is must, and the minimum age should be 16 years. A director can also be a shareholder of the company, the responsibility of a director lies in the management of a corporation lawfully and ethically as stated by the Companies Act 2006 & the Articles of Association. They are required to administer a business within their potential. The success of a company majorly depends on the director and it is them who promotes the success to (or "intending to") making profit further benefiting the business and its shareholders. The shareholders determine the rights and power of a Director. The Directors are also accountable for the financial responsibilities like the Annual returns, Company Tax Returns which are to be paid within certain deadlines. They can be dismissed from the position if any misconduct is noticed or breaching of any contract is being recorded. Authorized to annunciate the transfer shares in a company but again it depends on the Article of Association(AOA)

Shareholder: They are the members of a company; it can be a person or a corporate body.They own a part or a complete company by buying shares. The liability of shareholders are limited to the minimum value of their shares, if the company runs up any debt, then they are accountable only for their shares. A shareholder can also be a director of the company. They are not related to the working of the company unless they are the directors. The appointment of the positions are however in the hands of shareholders; they have the right to remove any director or secretary from the company and appoint new members on board. The proportion of ownership depends on the number, value and class of shares that is held by the shareholders. The voting rights, dividend rights, and capital rights rely on the Prescribed Particulars of their shares. The significant decisions that associate with the company are to be taken by the shareholders such as the Company Name or structure, opportunities for investment, issuing shares, appointment, and removal of employees.

6.Memorandum of Association(MOA):

In the process of formation and registration of a Limited Liability Company, a legal document is prepared to define the relationship with the shareholders. That legal document is coined as Memorandum of Association (MOA). This document describes the name of the company; it includes the relevant physical address of the company along with names of its shareholders and also the distribution of shares. This serves as the Constitution of the company. The MOA is not applicable in U.S. but is a legal requirement for Limited Liability Companies of European origin which includes the UK, Netherlands, and France. The Commonwealth nations also need an MOA for company registration.

The MOA of a company can simply be called as a memorandum. It is one of the fundamental document that has to be filed with the Registrar of Companies while the process of incorporation. It includes the fundamental conditions upon which the enterprise is allowed to operate. It consists of the following Clause:

  1. Name Clause: This states the name of the Company
  2. Registered Office Clause: This required you to show the address of the Company
  3. Objective Clause: Here you need to mention the purpose of the company concerning the requirements for shareholding and use of financial resources.
  4. Liability Clause: To mention about till what extent is the shareholder liable for the debt obligations of the company.
  5. Capital Clause: This requires you to state the Authorized share of capital, which is likely to include the different value of shares. Company's assets are to be listed under this clause.
  6. Association Clause: The clause confirms that shareholders signing the MOA are willingly associating and forming a company. A minimum of 7 members for a Public Company and two members for a Private Company needs to sign the MOA.

7.Article of Association:

The is a document that specifies the Principles for a company's operations. It defines the purpose and the process with which the tasks are to be accomplished. It includes the process of appointment and also mentions how the financial records are to be handled.It often analyzes the way in which a company will issue stock shares, audit financial records, pay dividends, and power of voting rights. It serves as a user manual of the Company which lists out the day-to-day tasks to be accomplished. There should be certain Rules & Regulations in addition to terms and condition for a Company. To maintain a document about the same it is very important to have the Article of Association. It helps to the working of the company by including all the features related to the duties and responsibilities of the employee as well as the purpose of the Company.

8. Digital Signature Certificate:

Digital Signature Certificates (DSC) is an electronic format of a certificate that represents the physical form of a certificate. These are specific certificates which give you authority to access information or services on the Internet or to sign legal documents. It works as a prove for the identity of a person example of certificates can be like a driving license, passport or any membership certificates. Its the same way as the physical documents are signed manually, the electronic documents, like e-forms are signed by using a Digital Signature Certificate. The DSC is given by an authorized Licensed Certifying Authority (CA). There are two levels of DSC: Class 2: Herein the identity of a person is verified. Class 3: The highest level where the person needs to prove his/her identity by being present at the Registration Authority(RA)

9.Director Identification Number:

Director identification number is the unique number that is issued to existing Director or a Future Director of a Company. It is required to be submitted during the procedure for company registration. It is denoted as DIN. The DIN can be interchangeably used with the Designated Partner Identification Number(DPIN). For registering an LLP (Limited Liability Partnership) in India, DPIN is needed. All the personal information of the person assigned as directed are recorded in DIN. The foreigners and NRI also can obtain a DIN by submitting the identity and address proof. But firstly DSC(Digital Signature Certificate) must be obtained to get DIN(Director Identification Number).

Why do you need a DIN?

Often there are crisis situations when a company is created with money raised from the investors and public, then the director along with all the money vanishes which are not traceable if they don't have a DIN. To avoid such fraudulent cases and maintain a proper record of the company a DIN is necessary.

10. Company Identification Number:

Each company has a unique 21 digit Company Identity Number, which needs to be quoted in all the forms in the process of registration. This number is assigned by the Registrar of Companies(ROC) functioning in different states under Ministry of Corporate Affairs(MCA). This number helps to find the primary details of several companies registered in India under MCA, Government of India. The Corporate Identification Number(CIN) is given only after the company is registered, so after the company is registered the respective ROC issues a certificate containing its unique number known as the Corporate Identification Number.

The following abbreviations are often used n the Company CIN No. Code:

  1. FLC: Financial Lease Company as Public Limited
  2. FTC: Subsidiary of a Foreign Company as Private Limited Company
  3. GAP: General Association Public
  4. GAT: General Association Private
  5. GOI: Companies owned by Govt. Of India
  6. NPL: Not For Profits License Company
  7. PLC: Public Limited Company
  8. PTC: Private Limited Company
  9. SGC: Companies owned by State Govt.
  10. ULL: Public Limited Company with Unlimited Liability
  11. ULT: Private Limited Company with Unlimited Liability

11. TAN Card:

A 10 digit alphanumeric number is issued by the Income-tax department which is known as Tax Deduction Account Number or Tax Collection Account Number(TAN). Any person who is responsible for deducting tax at source (TDS) or who are required to collect tax at source (TCS) needs to have a TAN.

There is a proper structure of a TAN:

  • First four digits of TAN are alphabets,
  • The next five digits of TAN are numeric
  • The last digit is an alphabet.

Each of them has certain meaning like the first three alphabets of TAN represent the jurisdiction code; the 4th alphabet is the initial of the name of the TAN holder that can be an individual, a company or a firm. However under section 194-IA a person who is required to deduct tax can use PAN(Permanent Account Number) instead of TAN. The relevance of TAN As per section 203A of the Income-tax Act, 1961, every person who deducts or collects tax at source has to apply for the allotment of TAN.

It is a must to attach the TAN with the following documents:

  • TDS Statements (Tax Deduction at Source returns)
  • TCS statements (Tax Collected at Source return)
  • Challan for payment of TDS/TCS.
  • TDS/TCS Certificates.
  • Annual Information Return.

12. PAN Card:

It is a unique 10-digit alphanumeric identification that is issued to each and every taxpayer, may it be Business, Individual, HUF(Hindu Undivided Family), Trusts, Foreign Citizens and more. This PAN number and the card is issued by the Income Tax Department which is of extreme importance as identity form. This card is used by the Income Tax department to keep a check on the transactions that can carry a taxable component. PAN card id required as evidence/proof/identity and even in transactions that are associated with a high value.


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