Every law has a backbone — the silent framework that holds its provisions, interpretations, and compliance requirements together. In the Companies Act, 2013, that backbone is Section 2.

Section 2 isn’t about penalties, filings, or punishments. Instead, it’s serves as the official vocabulary of the law.

Think of it like this: if the Companies Act was a big corporate manual, Section-2 would be the “Definitions” page you see at the start, ensuring everyone speaks the same language. Without it, even the simplest terms — like “company,” “director,” or “capital” — could be argued over endlessly.

The twist? These definitions are not always as simple as the dictionary meaning. Each term is legally precise, sometimes with hidden layers and exceptions. And because one clause of Section 2 often cross-references another clause (or even other sections), it works like a legal web — pull one string, and another definition shifts.

Why Section-2 matters?

You might wonder — “Why should I care about definitions? Let’s get to the ‘real law’.”
Well, here’s the truth: every single compliance form, resolution, penalty, or court order under the Companies Act is based on these definitions.

For example:

If you don’t know exactly who qualifies as a “related party” under Section 2(76), you might violate disclosure rules without realizing it.

Even something as basic as “financial year” under Section 2(41) can differ from the common January–December calendar.

In short, misunderstanding a definition means misunderstanding the law. For law students, it’s exam marks. For businesses, it’s compliance survival. For professionals, its reputation.

How to read legal definitions easily?

At first glance, Section-2 may feel like a wall of text. But reading it effectively is a skill:

Spot the clause number – e.g., Section 2(20) means clause 20 under Section-2.

What is a “clause”? (E.g., 2(1), 2(20), 2(68))

In legal drafting, a clause is a numbered or lettered provision within a section (or sometimes within a sub-section) that sets out a specific point, rule, or definition.

In Section-2. The first number “2” means Section-2, the number in brackets is the specific definition’s position.

For example:

2(20) = Clause 20 of Section 2, which defines a company.
2(68) = Clause 68, defining private company.

Think of it like house addresses: “Section 2” is the street, “(68)” is the door number.

In definition Sections like Section 2(20), the number shown within brackets refers to clause (20) of Section 2, not a separate section of the Act. Since Section-2 contains only definitions, these numbered items are always read as clauses, not sub-sections.

Read the exact words – a single word like “means” or “includes” changes the scope entirely.
- Means = exhaustive definition.
- Includes = open-ended, can cover more.
Note cross-references – if the clause says “…as defined in clause (52),” you must check that other clause before interpreting.
Look for provisos – the “provided that…” parts often create exceptions.
Break down examples – translating the clause into a real-life corporate scenario helps memory retention.

COMPANY MEANING AND TYPES OF COMPANIES

Company Meaning:

History of the Term “Company”

The word Company comes from the Latin companion (com = “together” + panis = “bread”), originally meaning “a group of people who share bread together.” Over a time, it evolved in Old French (compaignie) and Middle English (compaigny) to mean “an association of people for a common purpose.”

Association of persons are two types of persons:

Incorporated: means incorporation of single person distinct from the members constituting it.

Unincorporated: means mere collection or aggregation of persons.

General Meaning of “Company”

A Company is a legal entity formed by an association of persons to engage in and operate a business.

Legal Definition of “Company”

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

Simple Explanation:

As per the Companies Act, 2013 a Company is not just any business entity formed by an association of persons. Legally, it’s an organisation that has gone through the formal process of incorporation (registration) under the Companies Act, 2013 or earlier laws like the Companies Act, 1956.

If you and two friends run a shop but never registered it, it’s not a company under the Act. Once you file incorporation documents with the Registrar of Companies (ROC) and get the Certificate of Incorporation, only then you officially become a company.

Example:

ABC Pvt Ltd incorporated in 2024 under the Companies Act, 2013 → It’s a company under 2(20).
XYZ Ltd incorporated in 1998 under the Companies Act, 1956 → It’s also a company under 2(20).
XYZ Company – A Family or Group of Friends run a shop/business without registration → Not a company under 2(20).

Why It Matters:

Only registered companies get the benefits of characteristics of the Company under the Act such as limited liability, perpetual succession, and separate legal personality.
Many provisions in the Act apply only to “companies” — not partnerships, proprietorships, or trusts or other unincorporated association of persons.

Key Takeaway:

The general definition is broad and flexible, while the legal definition in the Companies Act is precise and limited to entities incorporated under the legislation.

Types of Companies:

Basic Classification – Public vs Private Companies:

Section-2(71) – Public Company:

Legal Definition:

“Public company” means a company which—

(a) is not a private company;

(b) has a minimum paid-up share capital as may be prescribed:

Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public or the purposes of this Act even where such subsidiary company continues to be a private company in its articles.

Simple Meaning:

A public means a company, which can invite the public to buy shares and has fewer ownership restrictions compared to a private company.

Example:

Listed companies like Infosys Ltd or Reliance Industries Ltd.
Also includes some large unlisted companies.

Key Points:

Minimum 7 members required to form a Public Company.
No limit on the number of shareholders.
Stricter compliance norms than private companies.
Freely Transferability of Shares

Deemed Public Company:

As per the proviso of the Section-2(71) Deemed Public Company means a private company, which is a subsidiary of a public company shall be deemed to be public company under the Companies Act, 2013.

Section-2(68) – Private Company

Legal Definition:

“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) limits the number of its members to 200;
(iii) prohibits any invitation to the public to subscribe for any securities.

Simple Meaning:

A private company is closed to the public. Ownership is restricted, and shares cannot be freely traded outside the group.

Example:

TechStart Solutions Pvt Ltd with 5 shareholders and no public trading.

Key Points:

Minimum 2 members required.
Enjoys several compliance relaxations.
Cannot raise funds from the general public.
Shares are not freely transferable.

Classification on the basis of liability- Limited vs Unlimited Companies:

Section-2(21) – Company Limited by Guarantee

Legal Definition:

“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.

Simple Meaning:

Here, members (owners) are not required to pay upfront capital, but they promise to contribute a fixed or limited amount if the company closes and has unpaid debts.

Think of it like a “safety guarantee” — you don’t pay unless the company fails.

Example:

Educational societies, non-profits, and sports clubs often register as companies limited by guarantee.
If you join a sports association and agree to pay ₹5,000 if it winds up, that’s your maximum liability.

Key Points:

Popular for non-profit objectives.
No share capital is required, though it can have one.
Members’ personal liability is limited to the guaranteed amount.

2(22) – Company Limited by Shares

Legal Definition:

“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.

Simple Meaning:

Here, liability is linked to shares. If you’ve fully paid for your shares, you owe nothing more. If you’ve paid only ₹7 per share on a ₹10 share, you may be called to pay the remaining ₹3 if needed.

Example:

ABC Pvt Ltd has 1,000 shares of ₹10 each. If a shareholder has paid ₹5 per share, he may be required to pay the remaining ₹5 during winding up.

Key Points:

Most private and public companies in India fall under this type.
Members’ liability is restricted to unpaid amounts on their shares.

2(92) – Unlimited Company

Legal Definition:

“Unlimited company” means a company not having any limit on the liability of its members.

Simple Meaning:

This is the risky type — if the company can’t pay its debts, members may have to use personal assets to cover them.

Example:

Suppose you invest ₹1 lakh in an unlimited company but it owes ₹10 lakh — you can be personally liable for the shortfall.

Key Points:

Very rare in India due to high personal risk.
Used in niche sectors where members have high trust in each other.

Classification on the basis of Listing on Stock Exchange:

Section-2(52) – Listed Company

Legal Definition:

“Listed company” means a company which has any of its securities listed on any recognised stock exchange.

Provided that such class of companies, which have listed or intend to list such class of securities, as may be prescribed in consultation with the Securities and Exchange Board, shall not be considered as listed companies.

After 2020 amendment, certain companies whose only listed securities are debt instruments excluded. – Refer Rule-2A of Companies (Specification of definitions detailed) Rules, 2014

Simple Meaning:

A listed is a company whose shares, bonds, or other securities are traded on a stock exchange like NSE or BSE.

Example:

Infosys Ltd, Reliance Industries Ltd.

Key Points:

Subject to strict SEBI and stock exchange regulations.
Not just equity shares — even listed debt instruments can make it a listed company.

Unlisted Company

Legal Definition:

“Unlisted company” means a company which is not a listed company.

Simple Meaning:
Any company whose securities are not traded on a stock exchange.

Example:

Most private limited companies.
Large unlisted public companies like Haldiram Manufacturing Co.

Key Points:

Not regulated by stock exchanges, but must still follow Companies Act compliance.

Special Types of Companies under Section-2:

Section-2(6) – Associate Company

Legal Definition:

“Associate company” in relation to another Company, means a Company in which other Company has a significant influence, but which is not a subsidiary of the Company and includes a Joint Venture Company.

Explanation:

“Significant influence” means control of at least 20% of total voting power, or control over or participation in business decisions under an agreement.
“Joint venture” means a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement;]

Simple Meaning:
An associate company is not fully controlled like a subsidiary, but another company has a big say in its affairs.

Example:

Ola Electric Mobility Pvt Ltd (associate of ANI Technologies — Ola Cabs).

Key Points:

Influence but no majority control.
Often formed for joint ventures and strategic partnerships.

Section-2(46) – Holding Company

Legal Definition:

“Holding company” in relation to one or more other Companies, means a company of which such companies are subsidiary companies.

Explanation:

For the purposes of this clause, the expression “company” includes any Body Corporate.

Simple Meaning:
A holding company controls one or more subsidiaries, either by owning more than 50% of their shares or having the power to control their board.

Example:

Tata Sons Pvt Ltd is the holding company for various Tata Group companies like Tata Motors, Tata Steel.

Key Points:

Relationship is based on control — can be direct or indirect.
A holding company can have multiple subsidiaries across industries.

Section-2(87) – Subsidiary Company

Legal Definition:

Subsidiary Company in relation to any other company (that is to say the holding company) means a company in which the holding company—

controls the composition of the Board of Directors; or
exercises or controls more than one-half of the total share capital,
either by itself or together with one or more subsidiaries.

Simple Meaning:

In simple words, a subsidiary is a company controlled by another company (the holding company).

Example:

Tata Motors Ltd is a subsidiary of Tata Sons Pvt Ltd.

Key Points:

Control can be through majority shareholding or board composition.
A subsidiary can itself have subsidiaries, creating a corporate group structure.

Section-2(42) – Foreign Company

Legal Definition:

“Foreign company” means any company or body corporate incorporated outside India which—
(a) has a place of business in India (physically or through electronic mode), and
(b) conducts any business activity in India in any manner.

Simple Meaning:

Any company registered abroad but doing business in India — even through a website — is a foreign company under this Act.

Example:

Microsoft Corporation (USA) – operates through an Indian subsidiary and branch office.
Alibaba Group – offers services to Indian customers via online mode.

Key Points:

Must file certain documents with the ROC.
Covered under Sections 380–386 and rules for foreign companies.
Digital presence alone can make a company fall under this category.

2(45) – Government Company

Legal Definition:

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

Simple Meaning:

A government company is majority-owned by the government — either central, state, or both together.

Example:

Coal India Ltd – majority owned by the Government of India.
Maharashtra State Power Generation Co. Ltd – owned by a State Government.

Key Points:

They follow the Companies Act, but many provisions apply with government-specific exemptions.
Audit is usually done by the CAG (Comptroller and Auditor General of India) instead of private auditors.
Subsidiaries of government companies are also treated as government companies.

2(62) – One Person Company (OPC)

Legal Definition:

“One Person Company” means a company which has only one person as a member.

Simple Meaning:
It’s a company owned by a single person. Perfect for solo entrepreneurs who want limited liability without a partner.

Example:

Rajiv Kumar OPC Pvt Ltd — Rajiv is the sole owner and member.

Key Points:

Introduced in Companies Act, 2013.
Has the flexibility of a sole proprietorship and the benefits of a company.

2(85) – Small Company

Legal Definition:

“Small company” means a company, other than a public company—
(a) paid-up share capital of which does not exceed ₹4 crore,

and
(b) turnover of which (as per profit and loss account for the immediately preceding financial year) does not ₹40 crore (As per the rules and latest amendment).

Simple Meaning:
Small companies are given relaxed compliance rules to reduce the burden on small businesses.

Example:

ABC Traders Pvt Ltd with ₹2 crore capital and ₹15 crore turnover.

Key Points:

Cannot be a holding or subsidiary of another company.
Lower filing fees, fewer board meetings, simplified audits.

Other Forms of Companies:

Dormant Company

Legal Definition:

“Dormant company” means a company formed for a future project or to hold an asset or intellectual property, and which has no significant accounting transaction, or an inactive company.

Simple Meaning:
A dormant company is sleeping — it exists legally but has no active business operations.

Example:

A company formed to hold a trademark until it’s used in future.

Key Points:

Can apply for “dormant” status to avoid full compliance burden.
Needs to file only minimal returns until active again.

Section-8 Company

Legal Meaning:

Any person or an association of persons proposed to be registered under this Act as a limited company and are able to prove to the satisfaction of the Central Government that the company –

has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
intends to apply its profits, if any, or other income in promoting its objects; and
intends to prohibit the payment of any dividend to its members,

Such person or association of person may be allowed to be registered as a limited company without addition to its name of the word “limited” or “private limited” by the Central government by issuing a license under section 8 of the Companies Act and by prescribing the specified conditions.

Simple Meaning:

A Section-8 Company is a type of company formed for a charitable or non-profit purpose, not for making profits for its members.

Example

Teach for India
Azim Premji Foundation
Federation of Indian Chambers of Commerce and Industry (FICCI)

Producer Company

Legal Definition:

Under Section 378A of the Companies Act, 2013, Producer Company means a body corporate having objects or activities specified in section 378B and registered as Producer Company under this Act or under the Companies Act, 1956.

Simple Meaning:

A Producer Company is a special type of company formed by producers (like farmers, artisans, etc.) to carry out activities connected with primary production.

It is registered under the Companies Act, 2013 (Section 378A & 378B) follows a unique hybrid structure — combining the benefits of a private limited company with the cooperative principles of producer groups.

Nidhi Company

A Nidhi is a type of company in the Indian non-banking financial sector, recognized under Section 406 of the Companies Act, 2013. Their core business is borrowing and lending money only among their members. They are also known as Permanent Fund, Benefit Fund, Mutual Benefit Fund and Mutual Benefit Society.

These companies are regulated under the Nidhi (Amendment) Rules, 2022 issued by the Ministry of Corporate affairs.

QUICK RECAP: TYPES OF COMPANIES

Type	Key Feature	Example
Public Company	Offers shares to public	Reliance
Private Company	Max 200 members	ABC Pvt Ltd
OPC	One-person company	Ravi OPC Pvt Ltd
Small Company	Turnover ≤ ₹40 Cr	SmallTech Pvt Ltd
Govt Company	51% owned by govt	ONGC
Foreign Company	Incorporated outside India	Google Inc.
Holding/Subsidiary	Ownership-based	Tata Sons & Tata Motors
Dormant	Inactive but legal	IP-holding shell company
Listed	Shares listed	Infosys
Unlisted	Shares not listed	Patanjali
Section-8 Company	Non-profit, charitable objects, no dividend to members	Azim Premji Foundation
Producer Company	Formed by producers for primary production activities	Varini Milk Producer Company Limited
Nidhi Company	Borrowing/lending only among members	Margadarsi Nidhi Ltd

PEOPLE IN A COMPANY

When we talk about “a company,” we often think of buildings, logos, or products. But legally, a company is a separate legal person — and like any person, it acts through its people.

Managerial and Other Key Positions:

Section-2(34) – Director

Legal Definition:

“Director” means a director appointed to the Board of a company.

Simple Meaning:

A director is a person chosen (appointed or elected) to be part of the Board of Directors, the group that collectively controls and guides the company’s affairs.

Example:

In ABC Pvt Ltd, the three individuals deciding company policies, approving budgets, and signing key agreements are the directors.

Key Points:

Minimum 2 directors for private companies, 3 for public companies, 1 for OPC.
Directors must follow duties under Section-166.
Not every employee or senior manager is a director — only those formally appointed to the board.

Section-2(47) – Independent Director

Legal Definition:

An independent director is a director other than a managing director, whole-time director, or nominee director, who meets the criteria of independence as per Section 149(6).

Simple Meaning:

An independent director is not connected to the company’s management or ownership — their job is to bring unbiased oversight.

Example:

A retired judge sitting on the board of a listed company to ensure fairness in decisions.

Key Points:

Mandatory for certain classes of public companies.
Helps protect minority shareholders’ interests.
Cannot have material financial ties to the company.

2(51) – Key Managerial Personnel (KMP)

Legal Definition:

Key managerial personnel, in relation to a company, means—

the Chief Executive Officer or the managing director or the manager;
the company secretary;
the whole-time director;
the Chief Financial Officer;
such other officer, not more than one level below the Directors who is in whole-time employment, designated as key managerial personnel by the Board; and
such other officer as may be prescribed;

Simple Meaning:
KMP are the top executives legally recognised as responsible for the company’s compliance and management.

Example:

In a listed company: CEO, CFO, Company Secretary, and Whole-time Director together form KMP.

Key Points:

Certain filings and approvals require signatures from KMP.
Personally accountable for statutory compliance.

Section-2(53) – Manager

Legal Definition:

Manager means an individual who, subject to the superintendence, control and direction of the Board of Directors, has the management of the whole, or substantially the whole, of the affairs of a company, and includes a director or any other person occupying the position of a manager, by whatever name called, whether under a contract of service or not;

Simple Meaning:

A manager runs almost the whole business but still works under the board’s authority, an individual who has the management of the whole or substantially the whole of the affairs of a company, under the superintendence, control, and direction of the Board.

Example:

A senior executive hired to run operations in India while the board is overseas.

Key Points:

Different from a “managing director” — a manager may not be a board member.

2(54) – Managing Director (MD)

Legal Definition:

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.

Simple Meaning:

Managing Director is a director entrusted with substantial powers of managing the affairs of the company. An MD is both a board member and the top executive managing day-to-day affairs.

Example:

The MD of a manufacturing company who signs contracts, approves budgets, and oversees daily operations.

Key Points:

Powers are defined in the articles or by a board resolution.
The MD is answerable to the board and shareholders.

2(94) – Whole-time Director

Legal Definition:

Whole-Time Director includes a director in the whole-time employment of the company.

Simple Meaning:

A director who works full-time in the company, not just attending board meetings occasionally.

Example:

Finance Director who works daily in the office handling company finances.

Section-2(69) – Promoter

Legal Definition:

Promoter means a person—

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
who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or
in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act:

Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a professional capacity;

Simple Meaning:
Promoters are the people who start the company — they conceive the idea, arrange funding, and get it incorporated. A promoter is a person named as a promoter in the prospectus or identified by the company in its annual return, or who has control over the company’s affairs.

Example:

The founders of Infosys were its promoters.

Key Points:

Promoters owe fiduciary duties to the company.
Not every founder remains a promoter forever — role can change over time.

Section-2(75) – Registrar

Legal Definition:

Registrar” means a Registrar, an Additional Registrar, a Joint Registrar, Deputy Registrar or an Assistant Registrar, having the duty of registering companies and discharging various functions under this Act.

Simple Meaning:

The ROC (Registrar of Companies) is the government authority that records company registrations and filings.

2(55) – Member

Legal Definition:

Member, in relation to a company, means—

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;
- 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;
- every person holding shares of the company and whose name is entered as a beneficial owner in the records of a depository;

Simple Meaning:
Members are the legal owners (shareholders) of the company, includes subscribers to the memorandum, persons agreeing in writing to become members, and persons whose names are entered in the register of members.

2(28) – Cost Accountant

Meaning:
A cost accountant as defined in the Cost and Works Accountants Act, 1959, holding a valid certificate of practice.

2(17) – Chartered Accountant

Meaning:
A CA as defined under the Chartered Accountants Act, 1949, with a certificate of practice.

2(24) – Company Secretary

Meaning:
A member of the Institute of Company Secretaries of India (ICSI) appointed to perform company secretarial duties.

2(25) – Company Secretary in Practice

Meaning:
A CS with a valid certificate of practice, offering services independently.

Section-2(60) – Officer in Default

1. The Legal Definition (Straight from the Act)

Under the Companies Act, 2013, an “Officer who is in default” means the person(s) who will be personally liable when a company fails to comply with the Act. This includes:

Whole-time Directors – Actively involved in day-to-day operations.
Key Managerial Personnel (KMP) – Such as CEO, CFO, Company Secretary.
Directors designated in writing by the Board (where no KMP exists).
Any person reporting directly to the Board or KMP who is responsible for compliance.
Persons whose directions the Board habitually follows – except professional advisors giving independent advice.
Directors who knew about the default but failed to object.
Share transfer agents, registrars, merchant bankers in connection with default relating to share transfers/issues.

Plain meaning: If the company breaks the law, the “officer in default” is the one who can’t escape by saying “It wasn’t me.”

2. Why It Matters?

This definition ensures that someone is personally accountable — not just “the company” as an abstract entity. It prevents the blame game and forces individuals in leadership to take compliance seriously.

When the law says “officer in default”, it’s pointing directly at the human being who had the duty + power to prevent the breach.

3. Real-World Example

Default: Annual Return (Form MGT-7) not filed by due date.

If a Company Secretary exists: They are the officer in default.
If no Company Secretary: The Board’s designated officer is liable.
If no designation: All directors in office during the default period may share liability.

4. Amendment Updates

While the wording of Section 2(60) hasn’t been heavily revised since 2013, liability enforcement has evolved:

Companies (Amendment) Act, 2020 – Many procedural offences shifted from criminal (imprisonment) to civil (monetary) penalties.
Penalty Scaling – Adjudicating Officers now assess company size, nature of business, and gravity of default before deciding fines.
Faster Adjudication – Non-compliance cases to be resolved within 90 days, with appeals allowed within 30 days.
Focus on Financial Accountability – Less jail time, more financial consequences, especially for recurring defaults.

5. Key Roles & How They Get Caught

Role	When They Become “Officer in Default”
Company Secretary / KMP	Fails to file statutory returns or maintain registers.
Board-Designated Officer	Designated in writing (filed in e-Form GNL-3) but fails in that responsibility.
Director	Knows about the breach and doesn’t object, or consents to it.
Registrar / Merchant Banker / Share Transfer Agent	Only in defaults linked to share transfers/issues they handle.

6. Consequences of Being the Officer in Default

Fines – Can be significant, often per day for continuing defaults.
Disqualification – Serious violations can trigger Section 164 disqualification from being a director.
No Escape via Resignation – If the default happened during your tenure, you remain liable.
Reputational Damage – MCA orders and penalties are public records.

7. Practical Compliance Tips

Maintain a Responsibility Matrix in Board records.
Always document delegations of compliance duties (e.g., via GNL-3).
Raise objections in writing if you foresee non-compliance.
Ensure Board minutes clearly record your dissent in case of illegal decisions.

Quick Recap – People in a Company (Section 2 Definitions)

Term	Section No.	Meaning in Simple Words	Key Points / Amendments
Director	2(34)	A person appointed to the Board of a company.	Appointed under the Act; must have DIN (Director Identification Number).
Managing Director (MD)	2(54)	A director with substantial management powers over day-to-day affairs.	Can be appointed via AoA, agreement, resolution, or by Board. Powers can be altered by Board.
Whole-Time Director (WTD)	2(94)	A director who works full-time in the company.	Often an employee-director; different from independent directors.
Independent Director (ID)	2(47)	A non-executive director with no material or pecuniary relationship with the company.	Listed public companies must follow minimum ID requirements under Sec 149(4).
Promoter	2(69)	A person who has been named as promoter in prospectus or is identified by company.	Includes those controlling affairs of company, directly or indirectly.
Key Managerial Personnel (KMP)	2(51)	Includes CEO, MD, Manager, CS, WTD, CFO & any prescribed officer.	MCA may update list by notification.
Manager	2(53)	Person in charge of management of the company’s affairs (under Board’s direction).	Cannot be MD at the same time (except in certain cases).
Chief Executive Officer (CEO)	2(18)	Officer designated as CEO; has overall management responsibility.	Can be part of KMP; role depends on company structure.
Chief Financial Officer (CFO)	2(19)	Officer designated as CFO; handles finance and accounts.	Also part of KMP; appointment in Board meeting.
Company Secretary (CS)	2(24)	A company secretary as defined under Company Secretaries Act, 1980.	Listed & certain public companies must appoint full-time CS.
Officer	2(59)	Includes directors, managers, KMP, or anyone in position to give directions to Board.	Broad definition for liability purposes.
Officer in Default	2(60)	Person responsible for compliance failures.	Includes WTD, KMP, CS, directors aware of defaults, etc.
Employee	2(24) (read with other labour laws)	A person working for remuneration in the company.	Includes permanent, contractual, and casual workers unless excluded by context.
Member	2(55)	A shareholder whose name is entered in the Register of Members.	Includes subscribers to MoA; amendments clarify beneficial owners also count.

OWNERSHIP, SHARES & CAPITAL

The heart of any company lies in its capital — and capital is represented through shares and securities. These concepts define ownership, control, and rights of those who invest in the company. Let’s break down each definition in simple terms with relatable examples.

Share & Securities

Before diving into legal definitions, it’s important to understand the difference between shares and securities.

Shares are a specific type of security that represent ownership in a company.
Securities is a broader term that includes shares, debentures, bonds, and other instruments.

Example:
If you own 1,000 shares of Reliance Industries, you own a piece of the company. But if you hold Reliance debentures, you are a creditor, not an owner.

Section-2(84) – Share

Definition:
A “share” means a share in the share capital of a company and includes stock.

In simple words:
A share is like a slice of a pizza — the bigger your slice, the bigger your share of ownership in the company.

Types of Shares:

Equity Shares – Carry voting rights and share in profits.
Preference Shares – Get preference in dividends and repayment but have limited or no voting rights.

Example:
If a company has a capital of ₹10 lakh divided into 1 lakh shares, each share is worth ₹10. Owning 10,000 shares means owning 10% of the company.

Section-2(30) – Debenture

Definition:
A “debenture” includes debenture stock, bonds, or any other instrument of a company that evidences a debt, whether constituting a charge on the company’s assets or not.

In simple words:
A debenture is like lending money to a company in exchange for fixed interest.

Example:
If Tata Motors issues debentures at 10% interest for 5 years, buying one means you’ll earn fixed interest yearly and get your principal back after 5 years.

Section-2(81) – Securities

Definition:
“Securities” have the same meaning as in the Securities Contracts (Regulation) Act, 1956 — including shares, scrips, stocks, bonds, debentures, and derivatives.

In simple words:
This is the umbrella term for all tradeable financial instruments.

Example:
Buying Infosys shares or trading Nifty futures both involve securities.

Section-2(88) – Sweat Equity Shares

Definition:
Sweat equity shares are equity shares issued by a company to its directors or employees at a discount or for non-cash consideration, in recognition of their work or intellectual property.

In simple words:
These are reward shares for employees or directors for their contribution.

Example:
If a tech startup gives its CTO 5,000 sweat equity shares for developing a patent, it’s a way to reward without paying cash.

Section 2(93) – Voting Right

Definition:
“Voting right” means the right of a member to vote in meetings of the company.

In simple words:
It’s the power to influence decisions in the company.

Example:
If you own 15% shares, you generally have 15% voting rights, unless there are preference shares with different rights.

Section 2(89) – Total Voting Power

Definition:
The “total voting power” means the total number of votes that can be cast if all members exercise their voting rights.

In simple words:
It’s the full set of votes available in the company.

Example:
If a company has 1,00,000 equity shares, total voting power is 1,00,000 votes (assuming each share = 1 vote).

Section-2(8) – Authorised Capital

Authorised capital (or nominal capital) means the maximum amount of share capital a company is authorised to issue to shareholders, as stated in its memorandum of association.

Set at incorporation and can be increased later with shareholder approval.
The company cannot issue shares beyond this limit.

Example:
If a company’s authorised capital is ₹1 crore, it cannot issue shares worth more than ₹1 crore without amending its memorandum.

Section-2(64) – Paid-up Capital

Paid-up capital means the amount actually received by the company from shareholders in respect of issued shares.

It is part of the issued capital that shareholders have paid for.
Can be less than or equal to issued capital, but never more.

Example:
If 10,000 shares of ₹10 each are issued and fully paid, the paid-up capital is ₹1,00,000. If only ₹8 is paid per share, paid-up capital is ₹80,000.

Section-2(50) – Issued Capital

Issued capital means the part of the authorised capital that has been offered to shareholders for subscription.

May not be the entire authorised capital.
Can be fully or partly paid-up.

Example:
Authorised capital = ₹10 lakh. Company issues shares worth ₹6 lakh. Issued capital is ₹6 lakh.

Section 2(86) – Subscribed Capital

Subscribed capital means the part of issued capital that has been subscribed by shareholders.

Shows actual shareholder commitment.
May be fully paid or partly paid.

Example:
If a company issues shares worth ₹6 lakh and investors subscribe to ₹5 lakh worth, subscribed capital = ₹5 lakh.

Section-2(15) – Called-up Capital

Means such part of the capital, which has been called for payment.

Can be less than subscribed capital if shares are partly paid.

Example:
If 10,000 shares of ₹10 each are subscribed, but the company calls only ₹6 per share, called-up capital = ₹60,000.

Section-2(35) – Dividend

Dividend includes any interim dividend and covers the return given to shareholders from company profits.

Paid out of profits or free reserves.
Can be declared annually (final) or during the year (interim).

Example:

Company earns a profit of ₹50 lakh and declares a 20% dividend on equity shares of ₹10 each. Shareholders get ₹2 per share.

Section-2(43) – Free Reserves

Free reserves are reserves available for distribution as dividend, as per the latest audited balance sheet.

Excludes unrealised gains, notional gains and reserves from asset revaluation.

Example:
General reserve, retained earnings, and certain surplus balances qualify as free reserves.

Section-2(57) – Net Worth

Net worth means the aggregate value of the paid-up share capital and all reserves created out of the profits, securities premium account and debit or credit balance of profit and loss account], after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation.

Simple Meaning:

Net worth is the sum of paid-up capital and free reserves, minus accumulated losses, deferred expenditure, and miscellaneous expenses not written off.

Used to assess financial health.

Example:
Paid-up capital ₹50 lakh + free reserves ₹30 lakh – accumulated losses ₹10 lakh = net worth ₹70 lakh.

Section-2(91) – Turnover

Turnover means the gross amount of revenue recognised from the sale, supply, or distribution of goods or services during a financial year.

Does not include other income like interest or investment gains unless it’s part of the main business.

Example:
If a company sells products worth ₹5 crore and services worth ₹2 crore in a year, turnover = ₹7 crore.

Quick Recap: Ownership, Shares & Capital in a Company

Term	Meaning / Definition	Example
Shareholder / Member	Person or entity owning shares in the company	Has ownership rights, voting power, and profit share via dividends
Share	Smallest unit of ownership in a company	Can be equity or preference; gives rights & obligations
Authorised Capital	The maximum share capital a company is allowed to issue as per its Memorandum of Association (MOA).	Company authorised to issue ₹10 crore worth of shares.
Issued Capital	Portion of authorised capital that the company has offered to investors for subscription.	Out of ₹10 crore authorised, company issues ₹6 crore worth of shares.
Subscribed Capital	Portion of issued capital that investors have agreed to purchase.	Investors subscribe to ₹5.5 crore worth of shares out of ₹6 crore issued.
Called-up Capital	Amount called for payment on the subscribed shares by the company.	Company calls ₹5 crore out of ₹5.5 crore subscribed.
Paid-up Capital	Amount actually paid by shareholders against the called-up capital.	Shareholders pay ₹4.8 crore of the ₹5 crore called-up.
Dividend	Portion of profits distributed to shareholders, usually declared per share.	₹5 per share as final dividend.
Free Reserves	Profits available for distribution as dividends, not earmarked for any specific purpose.	General reserve of ₹2 crore.
Net Worth	Total assets minus total liabilities, representing shareholder value.	₹15 crore (assets) – ₹5 crore (liabilities) = ₹10 crore net worth.
Turnover	Total revenue from sales of goods or services during a financial year.	₹25 crore annual sales revenue.

COMPANY CONSTITUTION & RULES

Section-2(5) – Articles

“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;

Articles of Association (AOA)

The Articles of Association contain the internal rules and regulations for managing a company’s affairs.

Acts as the company’s internal constitution alongside the Memorandum of Association.
Covers matters like share transfers, board meetings, dividend policy, and rights of members.

Example:
If the AOA says a shareholder must first offer shares to existing members before selling to outsiders, that rule binds all members.

Section 2(56) – Memorandum

“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.

Memorandum of Association (MOA)

The Memorandum of Association defines the company’s constitution and scope of activities.

States the company’s name, registered office, objects, liability, share capital, and subscription.
Any act outside the MOA’s objects is ultra vires (beyond the company’s powers).

Example:
If the MOA states the company’s object is manufacturing textiles, it cannot legally start a banking business without altering the MOA.

Section-2(70) – Prospectus

A prospectus is any document inviting the public to subscribe to a company’s securities.

Must include full disclosures about the company’s financials, risk factors, and business details.
False or misleading statements can lead to legal liability.

Example:
An IPO brochure describing the company’s projects and offering shares to the public is a prospectus.

Section-2(1) – Abridged Prospectus

An abridged prospectus is a summary of the prospectus containing all key disclosures in a brief format.

Must be provided with every application form for securities (except in certain exempted cases).

Example:
A two-page summary attached to a public issue application form is an abridged prospectus.

Section 2(36) – Document

Document includes summons, notices, orders, registers, or any other legal or business record maintained in physical or electronic form.

Wide definition covering both paper and digital records.

Example:
An email notice of a board meeting is a “document” under the Act.

Section 2(12) – Book and Paper

Book and paper mean any book, deed, voucher, writing, or other document, whether in print or electronic form, relating to the company’s business.

Example:
Invoice records, purchase ledgers, and contracts all qualify as “book and paper.”

Section-2(13) – Books of Account

Books of account are records of all sums received and spent, sales and purchases, assets, and liabilities.

Must give a true and fair view of the company’s state of affairs.
Can be maintained electronically.

Example:
A digital ledger showing sales, expenses, and cash flow is part of the books of account.

Section-2(40) – Financial Statement

Financial statement includes:

Balance sheet
Profit and loss account (or income & expenditure for certain companies)
Cash flow statement
Statement of changes in equity (if applicable)
Any explanatory notes

Example:
The annual report containing the audited balance sheet and profit/loss account is the company’s financial statement.

Section 2(76) – Related Party

Related party includes directors, key managerial personnel, their relatives, and entities where they have significant influence.

Special rules apply to related party transactions to prevent conflicts of interest.

Example:
If the company’s CEO’s brother owns a supplier company, that supplier is a related party.

Quick Recap:

Section & Term	Meaning (Simplified)	Key Points	Example
2(5) – Articles of Association (AOA)	Internal rulebook of the company.	Regulates internal management; works with MOA; covers shares, meetings, dividends, member rights.	Rule that shareholders must first offer shares to existing members before outsiders.
2(56) – Memorandum of Association (MOA)	Charter document stating company’s purpose & powers.	Contains name, office, objects, liability, capital, subscription; acts beyond objects are ultra vires.	Textile company MOA → cannot start banking without amendment.
2(70) – Prospectus	Public invitation to buy securities.	Must have full disclosures; false statements attract liability.	IPO brochure inviting public to buy shares.
2(1) – Abridged Prospectus	Short summary of a prospectus.	Given with security application forms (unless exempt).	2-page summary attached to public issue application.
2(36) – Document	Any legal/business record, physical or electronic.	Includes summons, notices, registers, orders, etc.	Email notice of a board meeting.
2(12) – Book and Paper	Any company-related written record.	Includes vouchers, deeds, documents, print or electronic.	Purchase ledger or contract file.
2(13) – Books of Account	Financial transaction records.	Must show true & fair view; may be electronic.	Digital ledger of sales, expenses, and assets.
2(40) – Financial Statement	Official report of financial performance & position.	Includes balance sheet, P&L, cash flow, equity changes, notes.	Audited balance sheet in annual report.
2(4) – Annual Return	Yearly filing with ROC of key company data.	Contains address, activities, shareholding, directors.	e-Form MGT-7 on MCA portal.
2(76) – Related Party	Persons/entities linked to company insiders.	Includes directors, KMPs, relatives, influenced entities; special rules for transactions.	CEO’s brother’s company as supplier.
2(86) – Subsidiary Company	Company controlled by another.	Holding company controls board or owns >50% share capital.	Company A owns 60% of Company B → B is subsidiary

FAQ Section – Most Googled Section 2 Doubts

Q1. Is a One Person Company (OPC) a Private or Public company?
A: OPC is always treated as a private company, but with special provisions.

Q2. Can a public company have only two directors?
A: No, minimum three directors are mandatory.

Q3. Are LLPs covered under Companies Act?
A: No, LLPs are governed by LLP Act, 2008 — but certain definitions like “body corporate” do include LLPs.

Q4. Is paid-up capital mandatory for incorporation now?
A: No minimum paid-up capital requirement post 2015 amendment.

Q5. Is every director a KMP?
A: No, only whole-time directors (and other specified posts) are KMPs.

Conclusion: Section 2 as the Legal Dictionary of the Act

Why Definitions Are the Building Blocks of Company Law

In everyday life, misunderstandings often happen when two people interpret the same word differently. In law, this problem is far more serious — a single word can decide the outcome of a case, the validity of a compliance filing, or even the liability of a company.

That’s why Section 2 of the Companies Act, 2013 functions as the “legal dictionary” of the Act. It ensures everyone — directors, shareholders, regulators, auditors, students, and lawyers — speak the same legal language.

If you don’t know what “private company” means in legal terms, you may wrongly assume a compliance requirement doesn’t apply to you.
If you misunderstand “related party” in the context of a contract, you could unintentionally violate Section 188 and face penalties.

In short, definitions are not just theoretical — they’re the foundation of every legal action under the Act. If the foundation is weak, everything built on it becomes unstable.

How Knowing Section 2 Helps in Practice, Business, Exams, and Compliance

Understanding Section 2 gives you a strong advantage, whether you’re a law student, corporate professional, or entrepreneur.

For Legal & Compliance Professionals

Speeds up interpretation of provisions without relying on external clarifications every time.
Reduces risk of non-compliance caused by misunderstanding.

For Business Owners & Directors

Helps make strategic decisions with clarity on what the law actually says.
Avoids unnecessary expenses on penalties, litigation, or rework.

For Law & CS Students

Makes it easier to understand all other provisions, since almost every section uses defined terms from Section 2.
Improves exam answers with accurate usage of legal definitions.

Always cross-check the latest MCA notifications before relying on a definition. Amendments can change meanings, and what was correct last year might be outdated today.

Final Conclusion:

If the Companies Act is a building, Section 2 is the blueprint’s legend — without it, you might be looking at the right page but still reading it wrong. Mastering these definitions means you can navigate the law with confidence, precision, and less stress.

[1] https://ca2013.com/sections/2/

Written by Mahboob Gaddi and Farman Ahmad | Founders, Lawgical Search

Disclaimer:
This handbook explains key definitions from Section 2 of the Companies Act, 2013 in a simplified, student-friendly manner.
To know more and for a complete understanding, readers are advised to go through the entire Section 2 in the bare act, as legal interpretation may require reference to the exact statutory wording.