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. Abridged Prospectus

Section: 2(1), “abridged prospectus” means a memorandum containing such salient features of a prospectus as may be specified by the Securities and Exchange Board by making regulations in this behalf.

Simply meaning, an abridged prospectus is a summary of the main points of the prospectus, like a "quick guide" for investors. It gives the key information about the company's shares, risks, and financials.

📘 2. Alteration

Section: 2(3), “alter” or “alteration” includes the making of additions, omissions and substitutions.

Alteration means to change, add, or remove something in important company documents, such as its Memorandum or Articles of Association.

📘 3. Appellate Tribunal

Section: 2(4), “Appellate Tribunal” means the National Company Law Appellate Tribunal constituted under section 410.

The Appellate Tribunal (NCLAT) is a higher court where you can appeal decisions made by the NCLT (National Company Law Tribunal).

📘 4. Articles of Association

Section: 2(5), “articles” means the articles of association of a company as originally framed or as altered from time to time or applied in pursuance of any previous company law or of this Act.

The Articles of Association (AoA) is like a company's rulebook. It defines how the company will be run and includes rules for director appointments, meetings, and management.

📘 5. Associate Company

Section: 2(6), “associate company”, in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.

An associate company is one in which another company has some control (at least 20% of shares) but does not own it fully.

#B

📘 6. Banking Company

Section: 2(9), “banking company” means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949).

A Banking Company is a company that does the banking operations. This means it takes deposits from people (like savings) and gives loans to others.

📘 7. Board of Directors

Section: 2(10), “Board of Directors” or “Board”, in relation to a company, means the collective body of the directors of the company.

The Board of Directors is the company's decision-making team. They make big decisions and set the company's strategy.

📘 8. Body Corporate

Section: 2(11), “body corporate” or “corporation” includes a company incorporated outside India, but does not include— (i) a co-operative society registered under any law relating to co-operative societies; and (ii) any other body corporate (not being a company as defined in this Act), which the Central Government may, by notification, specify in this behalf.

A body corporate is any company, organization, or corporation that has its own legal identity.

📘 9. Books of Account

Section: 2(13), "books of account” includes records maintained in respect of— 1. The Explanation subs. by Act 1 of 2018, s. 2 (w.e.f. 7-5-2018). 18 (i) all sums of money received and expended by a company and matters in relation to which the receipts and expenditure take place; (ii) all sales and purchases of goods and services by the company; (iii) the assets and liabilities of the company; and (iv) the items of cost as may be prescribed under section 148 in the case of a company which belongs to any class of companies specified under that section.

The books of accounts are like the company's accounting diary, which tracks all money, assets, and expenses.

#C

📘 10. Called-up Capital

Section: 2(15), “called-up capital” means such part of the capital, which has been called for payment.

Called-up Capital is the part of the company's total share capital that the company has asked its shareholders to pay. For example, if the company has issued 1,000 shares worth ₹100 each, it may only ask for ₹50 per share. So, the called-up capital is ₹50,000 (1,000 × ₹50).

📘 11. Charge

Section: 2(16), “Charge” means an interest or lien created on the company’s property as security for a loan.

A charge is a claim on the company's assets. For example, if a company takes a loan, the bank can claim company property as security.

📘 12. Chief Executive Officer (CEO)

Section: 2(18), “Chief Executive Officer” means an officer of a company, who has been designated as such by it.

The CEO is the top boss of the company who makes important decisions and manages its day-to-day work.

📘 13. Chief Financial Officer (CFO)

Section: 2(19), “Chief Financial Officer” means a person appointed as the Chief Financial Officer of a company.

The CFO is the money manager of the company. He/she tracks expenses, revenue, and financial health.

📘 14. Company

Section: 2(20), “company” means a company incorporated under this Act or under any previous company law.

A company is a legal entity that can own property, sign contracts, and operate independently of its owners.

📘 15. Company Limited by guarantee

Section: 2(21), “company limited by guarantee” means a company having the liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up.

A Company Limited by Guarantee is a type of company where the members are not required to pay money upfront like shareholders. Instead, they promise to pay a fixed amount (guarantee) only if the company is being shut down (wound up).

📘 16. Company Limited by shares

Section: 2(22), “company limited by shares” means a company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them.

A Company Limited by Shares is a company where the members (shareholders) own shares of the company, and their liability is limited to the amount unpaid on the shares they hold.

Example: Suppose you buy 100 shares of a company at ₹10 each, but you only pay ₹8 per share. If the company is later shut down, you will only have to pay the remaining ₹2 per share, i.e., ₹200 total (100 × ₹2).

📘 17. Company Liquidator

Section: 2(23), “Company Liquidator” means a person appointed by the Tribunal as the Company Liquidator in accordance with the provisions of section 275 for the winding up of a company under this Act.

A Company Liquidator is the person responsible for closing a company. When a company is wound up (shut down).

📘 18. Contributory

Section: 2(26), “contributory” means a person liable to contribute towards the assets of the company in the event of its being wound up.

A contributory is a person who must pay money to the company if it is being shut down.

📘 19. Control

Section: 2(27), “control” shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.

If you have control over a company, you can make important decisions about its management and policies.

#D

📘 20. Debenture

Section: 2(30), “debenture” includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or no.

A debenture is like an IOU (I owe you) from the company when it borrows money from the public.

📘 21. Deposit

Section: 2(31), “deposit” includes any receipt of money by way of deposit or loan or in any other form by a company, but does not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India.

A Deposit means any money the company receives from people or businesses as a loan or advance.

📘 22. Depository

Section: 2(32), “depository” means a depository as defined in clause (e) of sub-section (1) of section 2 of the Depositories Act, 1996 (22 of 1996).

A Depository is like a digital bank for shares and securities. It holds all your shares, bonds, and securities in electronic form (dematerialized form) so that you don’t need to keep paper share certificates.

📘 23. Director

Section: 2(34), “director” means a director appointed to the Board of a company.

A director is a person who helps run the company and makes big decisions.

📘 24. Dividend

Section: 2(35), “dividend” includes any interim dividend.

A dividend is the profit shared with shareholders as a reward for their investment.

#E

📘 25. Employees’ Stock Option

Section: 2(37), “employees’ stock option” means the option given to the directors, officers or employees of a company or of its holding company or subsidiary company or companies, if any, which gives such directors, officers or employees, the benefit or right to purchase, or to subscribe for, the shares of the company at a future date at a pre-determined price.

An Employees' Stock Option (ESOP) is a way for a company to reward its employees. It gives employees the right to buy the company's shares at a discounted price at a future date. It is used as an incentive to motivate employees and keep them loyal to the company for a longer period.

#F

📘 26. Financial Institution

Section: 2(39), “financial institution” includes a scheduled bank, and any other financial institution defined or notified under the Reserve Bank of India Act, 1934 (2 of 1934).

A Financial Institution is any organization that provides financial services like loans, credit, and investment services to businesses and individuals.

📘 27. Financial Statement

Section: 2(40), “financial statement” in relation to a company, includes— (i) a balance sheet as at the end of the financial year; (ii) a profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year; (iii) cash flow statement for the financial year; (iv) a statement of changes in equity, if applicable; and (v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause (iv).

A financial statement shows a company’s financial health, like its profit, loss, and cash flow.

📘 28. Foreign Company

Section: 2(42), “foreign company” means any company or body corporate incorporated outside India which— (a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and (b) conducts any business activity in India in any other manner.

A Foreign Company is a company that is registered outside India but is doing business in India. It may have a physical office in India, or it may operate digitally via websites or apps.

#G

📘 29. Government company

Section: 2(45), “Government company” means any company in which not less than fifty-one per cent. of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary company of such a Government company.

A Government Company is a company in which the Government owns 51% or more of its shares. It can be controlled by either the Central Government, a State Government, or both together.

#H

📘 30. Holding Company

Section: 2(46), “holding company”, in relation to one or more other companies, means a company of which such companies are subsidiary companies.

A holding company is a company that owns other companies (called subsidiaries).

#I

📘 31. Independent Director

Section: 2(47), “independent director” means an independent director referred to in sub-section (6) of section 149.

An Independent Director is like a "watchdog" director who is not connected to the company's owners, management, or employees.

📘 32. Issued Capital

Section: 2(50), “issued capital” means such capital as the company issues from time to time for subscription.

Issued Capital is the total value of shares offered by the company to investors (public, promoters, or other investors) out of its authorized capital. It is the part of the company's authorized share capital that is actually issued to shareholders to raise funds.

#K

📘 33. Key Managerial Personnel (KMP)

Section: 2(51), “key managerial personnel”, in relation to a company, means— (i) the Chief Executive Officer or the managing director or the manager; (ii) the company secretary; (iii) the whole-time director; (iv) the Chief Financial Officer.

A KMP is a high-level manager (like the CEO, CFO, or CS) who runs the company's core functions.

#L

📘 34. Listed Company

Section: 2(52), “listed company” means a company which has any of its securities listed on any recognised stock exchange.

A Listed Company is a company whose shares, debentures, or securities are traded on a stock exchange (like NSE or BSE). This means that anyone from the public can buy or sell its shares on the stock market.

#M

📘 35. Managing Director

Section: 2(54), “managing director” means a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called.

A Managing Director (MD) is like a "Super Director" who has been given more powers than an ordinary director to run the company's daily operations.

📘 36. Member

Section: 2(55), “member”, in relation to a company, means— (i) the subscriber to the memorandum of the company who shall be deemed to have agreed to become member of the company, and on its registration, shall be entered as member in its register of members; (ii) every other person who agrees in writing to become a member of the company and whose name is entered in the register of members of the company; (iii) every person holding shares of the company and whose name is entered as a beneficial owner in the records of a depository.

A Member is a person who owns part of the company. Members can be: Founders, Investors and/or Shareholders.

📘 37. Memorandum of Association

Section: 2(56), “memorandum” means the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of this Act.

The Memorandum of Association (MoA) is like the company’s "birth certificate". It defines what the company can and cannot do.

#O

📘 38. Officer

Section: 2(59), “officer” includes any director, manager or key managerial personnel or any person in accordance with whose directions or instructions the Board of Directors or any one or more of the directors is or are accustomed to act.

An Officer is anyone who has power, influence, or control over the company's key decisions or day-to-day operations.

📘 39. Officer in Default

Section: 2(60), “officer who is in default”, for the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any penalty or punishment by way of imprisonment, fine or otherwise, means any of the following officers of a company, namely:— (i) whole-time director; (ii) key managerial personnel; (iii) where there is no key managerial personnel, such director or directors as specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified; (iv) any person who, under the immediate authority of the Board or any key managerial personnel, is charged with any responsibility including maintenance, filing or distribution of accounts or records, authorises, actively participates in, knowingly permits, or knowingly fails to take active steps to prevent, any default; (v) any person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act, other than a person who gives advice to the Board in a professional capacity; (vi) every director, in respect of a contravention of any of the provisions of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention had taken place with his consent or connivance; (vii) in respect of the issue or transfer of any shares of a company, the share transfer agents, registrars and merchant bankers to the issue or transfer.

An officer in default is someone (like a director or CS) who can be punished if the company breaks the law.

📘 40. One Person Company (OPC)

Section: 2(62), A company that has only one person as its member.

A One Person Company (OPC) is a company owned by only one person. It’s useful for small entrepreneurs and solo business owners.

📘 41. Ordinary or Special Resolution

Section: 2(63), “ordinary or special resolution” means an ordinary resolution, or as the case may be, special resolution referred to in section 114.

Ordinary Resolution = Decisions that only need a simple majority (more than 50%) to pass.

Special Resolution = Important decisions that need a larger majority (at least 75%) of members to pass.

#P

📘 42. Paid-up Share Capital

Section: 2(64), “paid-up share capital” or “share capital paid-up” means such aggregate amount of money credited as paid-up as is equivalent to the amount received as paid-up in respect of shares issued and also includes any amount credited as paid-up in respect of shares of the company, but does not include any other amount received in respect of such shares, by whatever name called.

Paid-up capital is the actual money shareholders have paid to the company for their shares.

📘 43. Private Company

Section: 2(68), “private company” means a company having a minimum paid-up share capital as may be prescribed, and which by its articles,— (i) restricts the right to transfer its shares; (ii) except in case of One Person Company, limits the number of its members to two hundred.

A Private Company is a company where shares are not traded publicly. It is usually owned by a small group of people.

📘 44. Promoter

Section: 2(69), “promoter” means a person— (a) who has been named as such in a prospectus or is identified by the company in the annual return referred to in section 92; or (b) who has control over the affairs of the company, directly or in directly whether as a share holder, director or otherwise; or (c) in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act.

A Promoter is the person who "starts the company" by arranging its setup, money, and legal requirements.

📘 45. Prospectus

Section: 2(70), “prospectus” means any document described or issued as a prospectus and includes a red herring prospectus referred to in section 32 or shelf prospectus referred to in section 31 or any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate.

A Prospectus is like a brochure that tells the public about the company and why they should buy its shares.

📘 46. Public Company

Section: 2(71), “public company” means a company which— (a) is not a private company; 1 [and] (b) has a minimum paid-up share capital as may be prescribed.

A Public Company is a company that can sell shares to the public and is listed on the stock exchange.

📘 47. Public Financial Institution

Section: 2(72), “public financial institution” means— (i) the Life Insurance Corporation of India, established under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956); (ii) the Infrastructure Development Finance Company Limited, referred to in clause (vi) of sub-section (1) of section 4A of the Companies Act, 1956 (1 of 1956) so repealed under section 465 of this Act; (iii) specified company referred to in the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002); (iv) institutions notified by the Central Government under sub-section (2) of section 4A of the Companies Act, 1956 (1 of 1956) so repealed under section 465 of this Act; (v) such other institution as may be notified by the Central Government in consultation with the Reserve Bank of India.

A Public Financial Institution is a big, government-backed institution that gives loans and financial help to companies.

#R

📘 48. Recognised Stock Exchange

Section: 2(73), “recognised stock exchange” means a recognised stock exchange as defined in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).

A Recognised Stock Exchange is an official marketplace (like BSE or NSE) where shares are bought and sold.

📘 49. Registrar

Section: 2(75), “Registrar” means a Registrar, an Additional Registrar, a Joint Registrar, a Deputy Registrar or an Assistant Registrar, having the duty of registering companies and discharging various functions under this Act.

A Registrar is a government officer who manages the list of all registered companies and their records.

#S

📘 50. Scheduled bank

Section: 2(80), “scheduled bank” means the scheduled bank as defined in clause (e) of section 2 of the Reserve Bank of India Act, 1934 (2 of 1934).

A Scheduled Bank is a bank that is officially listed and recognized by the RBI in its Second Schedule.

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