Understanding the key terms of Company Law under the Companies Act, 2013 is essential for students, professionals, and anyone involved in the corporate world. These terms are the foundation of the rules that govern how companies operate, who controls them, and how they interact with stakeholders.

This guide breaks down the most critical legal definitions, and important terms into clear, simple explanations for your exams, job roles, or practical application. Each entry includes the relevant section from the Companies Act, 2013, as well as an easy-to-understand meaning.

Let’s begin to understand the essential terms that form the backbone of Company Law, alphabetically.

#A

📘 1. Annual General Meeting (AGM)

• An AGM is a mandatory meeting held annually by most companies to present financial performance, approve dividends, appoint auditors, and address shareholder concerns.
• It provides a formal platform for transparency and accountability.
• Shareholders can vote on significant matters and ask questions about the company's operations.
• Companies, except One Person Companies (OPC) and small companies, must hold AGMs within six months from the end of the financial year.
• This ensures a transparent dialogue between the board and shareholders, fostering trust.

📘 2. Articles of Association (AOA)

• The AOA is a critical document that defines a company’s internal rules and regulations, such as the process of appointing directors, conducting meetings, and issuing shares.
• It is subordinate to the Memorandum of Association (MOA) and guides the company’s day-to-day operations.
• Amendments to the AOA require a special resolution by shareholders.
• It ensures smooth functioning and operational efficiency while remaining compliant with the law.

📘 3. Audit and Auditor

• Auditors independently review company’s financial records to ensure they are accurate and comply with statutory requirements.
• Audits protect stakeholders by identifying discrepancies, fraud, or mismanagement.
• External auditors are appointed by shareholders, usually during the AGM, for a tenure of five years.
• They provide an audit report highlighting financial health and compliance. Audits enhance trust and ensure accountability within the company.

#C

📘 4. Compromise and Arrangement

• This term refers to an agreement between a company and its creditors or shareholders to restructure financial obligations or settle disputes.
• Often used during mergers, acquisitions, or insolvency situations, compromises and arrangements must be approved by the stakeholders and the National Company Law Tribunal (NCLT).
• This ensures fairness and legality while helping companies manage financial stress or implement structural changes effectively.

📘 5. Company

• A company is a legal entity formed by individuals or groups to carry out commercial or industrial activities.
• It has a separate legal identity from its owners, offering benefits like limited liability and perpetual succession.
• Companies can be classified as private, public, or one-person, depending on ownership and governance structures.
• The Companies Act, 2013, governs all companies in India, providing guidelines for incorporation, operations, and compliance.

📘 6. Corporate Governance

• Corporate governance involves a framework of policies and practices ensuring accountability, fairness, and transparency in a company’s operations.
• It balances the interests of stakeholders, including shareholders, employees, and customers.
• Governance mechanisms include a well-structured board, timely audits, and robust risk management.
• Good corporate governance enhances investor confidence and ensures sustainable business growth.

📘 7. Corporate Social Responsibility (CSR)

• CSR mandates certain companies to allocate a portion of their profits towards social welfare activities, like education, healthcare, and environmental conservation.
• Companies meeting specific thresholds (e.g., net worth of ₹500 crore or turnover of ₹1,000 crore) are required to spend at least 2% of their average net profits on CSR initiatives.
• CSR reflects a company’s commitment to ethical responsibility and community development.

#D

📘 8. Debentures

• Debentures are debt instruments issued by companies to borrow funds from investors.
• Debenture holders earn a fixed return (interest) but do not have ownership rights.
• Secured debentures are backed by assets, while unsecured ones depend on the issuer’s creditworthiness.
• Companies use debentures to raise capital without diluting shareholder equity.
• They are governed by a formal agreement known as the debenture trust deed.

📘 9. Director

• A director is a person appointed to the board to oversee and guide the company’s strategic direction.
• Directors are responsible for making high-level decisions, ensuring compliance, and acting in the company’s best interest.
• There are various types, such as executive, non-executive, independent, and nominee directors.
• Directors hold fiduciary duties and are accountable to shareholders and other stakeholders.

📘 10. Dividend

• A dividend is the portion of a company’s profits distributed to shareholders as a reward for their investment.
• It is typically paid in cash or additional shares.
• Dividends are recommended by the board and approved by shareholders in the AGM.
• The distribution depends on profitability, retained earnings, and the company’s policy.

#E

📘 11. Extraordinary General Meeting (EGM)

• An EGM is a meeting held to address urgent issues requiring shareholder approval, such as amending the AOA or approving mergers.
• Unlike AGMs, EGMs are not scheduled annually and focus solely on specific, critical matters.
• These meetings enable timely decision-making and are convened by the board or shareholders meeting legal thresholds.

#I

📘 12. Insolvency

• Insolvency occurs when a company cannot pay its debts as they fall due.
• It is a sign of financial distress requiring resolution plans, restructuring, or liquidation.
• The Insolvency and Bankruptcy Code (IBC) provides a legal framework for resolving insolvency while protecting stakeholder interests.
• Swift action during insolvency can save businesses and prevent severe financial damage.

#K

📘 13. Key Managerial Personnel (KMP)

• KMP are individuals holding significant responsibilities within a company, such as the CEO, CFO, and Company Secretary.
• They ensure compliance with laws, efficient operations, and proper communication with stakeholders.
• KMP act as a bridge between the board and management, playing a pivotal role in decision-making.

#L

📘 14. Limited Liability

• Limited liability limits a shareholder’s financial responsibility to the unpaid value of their shares.
• This means personal assets are not at risk if the company faces losses or insolvency.
• Limited liability encourages investment and separates personal and corporate risks.

#M

📘 15. Memorandum of Association (MOA)

• The Memorandum of Association is a foundational document that defines a company’s objectives, structure, and scope of operations.
• It serves as a public declaration of the company’s mission and purpose.
• Changes to the MOA require shareholder approval and must align with the Companies Act.

#N

16. National Company Law Tribunal (NCLT)

• NCLT is a quasi-judicial body established to handle corporate disputes, mergers, insolvency cases, and shareholder grievances.
• It ensures faster and efficient resolution of disputes compared to traditional courts. Decisions can be appealed to the NCLAT.

#O

📘 17. One Person Company (OPC)

• An OPC is a type of company with a single owner who enjoys limited liability.
• It is ideal for small businesses and startups.
• The OPC combines the benefits of a corporation and sole proprietorship while simplifying compliance.

#P

📘 18. Private Company

• A private company limits its shareholders to 200 and restricts public share trading.
• It enjoys more flexibility and less regulatory burden than public companies.
• Private companies are ideal for closely held businesses.

📘 19. Prospectus

• A prospectus is a formal document issued by companies to invite the public to invest in their securities.
• It details financial performance, risks, and objectives.
• It ensures transparency and informed decision-making for investors.

📘 20. Public Company

• Public companies offer shares to the public and must comply with stricter regulations.
• They enjoy access to significant capital but face higher transparency and governance requirements.

#R

📘 21. Registrar of Companies (ROC)

• The ROC is a government authority responsible for company registration, compliance, and record-keeping.
• It ensures adherence to the Companies Act, 2013 and maintains public records of all companies.

#S

📘 22. Securities

• Securities are financial instruments like shares and debentures used by companies to raise capital.
• They represent ownership (equity) or debt (debentures) and are traded in financial markets.

📘 23. Share Capital

• Share capital is the money raised by issuing shares.
• It represents ownership in the company and provides funds for operations and growth.
• Proper management ensures stability and compliance.

📘 22. Shareholder

• A shareholder owns shares in a company and holds rights such as voting and receiving dividends.
• Shareholders influence corporate decisions and benefit from the company’s success.

📘 25. Winding Up

• Winding up is the process of closing a company, settling debts, and distributing remaining assets to shareholders.
• It can be voluntary or ordered by the tribunal.
• The process ensures fairness and legal compliance.

Conclusion

By simplifying these terms and linking them to their relevant legal provisions, this guide aims to make complex legal jargon accessible and easy to grasp. Mastering these essential terms not only enhances one’s legal knowledge but also empowers individuals to make informed decisions in the corporate world. Whether you’re a student, entrepreneur, or corporate professional, a strong foundation in these key terms will undoubtedly give you an edge in understanding and navigating the legal landscape of businesses