0f96ccompany law

7/28/2019 0f96cCompany Law

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Amity Business SchoolMBA M&S/ RM/E&L, Semester 2Legal Aspects of Business

Ms. Shinu Vig


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Amity Business School

The Companies Act, 1956

The Act defines the word Company as a companyformed and registered under the Act.


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Characteristics of a Company:

1. Independent corporate existence.(Salomon v. Salomon and Co. Ltd.)

2. Perpetual succession.3. Common Seal4. Limited liability.5. Transferability of shares.

6. Separate property7. Power to sue and to be sued.


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Classification of Companies:

The two basic types of companies which may be

registered under the Act are: Private Companies Public Companies


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Private Companies [Sec 3(1)(iii)]:Private company is a company which has a minimumpaid-up capital of one lakh rupees and by its articles:i. Restricts the rights of its members to transfer shares.ii. Limits the number of its members to fifty

iii. Prohibits any invitation to the public to subscribe to itsshares and debenturesiv. Prohibits any invitation or acceptance of deposits from

persons other than its members, directors or their relatives.

A private company can be formed by merely twomembers.


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Public Companies [Sec 3(1)(iv)]: A Public company is a company which:i. Is not a private companyii. Has a minimum paid up capital of Rs.5 lakh

iii. Is a private company which is a subsidiary of apublic company A public company shall have atleast 7 members but there is no restriction with regard to themaximum number of persons.

Listed Public Company: It means a publiccompany which has any of its securities listed ona recognised stock exchange.


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MCA 21 Project:MCA21 project is designed to fully automate all processesrelated to the proactive enforcement and compliance of the legal requirements under the Companies Act, 1956.MCA portal is the single point of contact for all MCArelated services, which can be easily accessed over theInternet by all users.

The re-engineered electronic forms, also called e-Forms ,are capable of helping people in the process of filing theinformation electronically. These e-forms are required tobe signed digitally through Digital Signature Certificates (DSC).


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Formation of a Company:The process of formation of a company may be dividedinto three parts:1. Promotion

2. Incorporation/ Registration3. Floatation

Promotion: It is the process of conceiving an idea and

developing it into a project to be accomplished by theincorporation and floatation of a company. The personswho take the necessary steps to accomplish theseobjectives are called promoters.


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Steps involved in incorporationi. Acquire DIN and DSCii. Ascertaining availability of name by filing e-form 1Aiii. Preparation of Memorandum of Association (MOA) and

Articles of Association (AOA).iv. Other documents to be filed with the ROC: e-form 18 Notice of the situation of the registered

office of the company. e-form 32 Particulars of the directors, manager or

secretary. e-form 1 - Statutory declarationv. Payment of Registration feesvi. Certificate of Incorporation


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Floatation: After a company has received its certificate of incorporation, it is ready for floatation i.e. it can go aheadwith raising capital sufficient to commence business.In case of private companies capital is obtained fromfriends and relatives by private arrangement.In case of public companies capital can be raised ineither of the following two ways-i.By issuing Prospectus - If public is to be invited tosubscribe to its capital.ii.By issuing Statement in lieu of prospectus- If capital isto be arranged privately.


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Certificate of Commencement of Business: A private company can commence business immediatelyafter the certificate of incorporation has been obtained.

In case of Public companies it is necessary to obtain acertificate of commencement of business . Thiscertificate can be obtained only after floatation of thecompany.


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Memorandum of Association (MOA):It is the charter of the company. It tells the objects of the company andthe utmost possible scope of its operations beyond which its actionscannot go. If anything is done beyond this scope, that will be ultravires (beyond powers of) the company and so void.

It enables the shareholders, creditors and all those who deal with thecompany to know what its powers are and what are its range of activities.

MOA must be subscribed by atleast 7 persons in case of a publiccompany and by atleast 2 persons in case of a private company, whoshall sign the memorandum in the presence of atleast one witness.


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Contents of Memorandum of Association (MOA):

MOA is divided into following clauses:i. Name Clause

ii. Registered Office Clauseiii. Objects Clauseiv. Liability Clausev. Capital Clause

vi. Association or Subscription Clause


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Articles of Association (AOA):

They contain the regulations relating to the internalmanagement of the company. They define the duties,rights, powers and authority of the shareholders and thedirectors in their respective capacities and of thecompany.

They are subordinate to and are controlled bymemorandum. Articles cannot supersede the objects asset out in the memorandum of association.


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Prospectus: A prospectus means any document described or issued asprospectus and includes any notice, circular, advertisementor other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares in or debentures of a bodycorporate.

The persons issuing the prospectus are bound to maketrue disclosures and not to omit material facts. A falsestatement or omission of facts gives rise to civil as well ascriminal liability.


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Contents of a Prospectus:

1. General information2. Capital structure of the company.

3. Terms of the present issue4. Particulars of the issue5. Company management & project6. Certain prescribed particulars

7. Outstanding litigations8. Management perception of risk factors


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Initial Public Offer (IPO):When an company makes a fresh issue of securities for thefirst time to the public it is called IPO. This paves the wayfor listing and trading of securities on Stock Exchanges.

Further Public Offer (FPO):When an already listed company makes a fresh issue of securities to the public it is called Further Public Offer.


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Rights Issue:When an issue of securities is made by a company to itsshareholders existing as on a particular date fixed by thecompany (i.e. record date), it is called a rights issue. Therights are offered in a particular ratio to the number of securities held as on the record date.

Bonus issue:When a company makes an issue of securities to itsexisting shareholders as on a record date, without anyconsideration from them, it is called a bonus issue. Theshares are issued out of the Company s free reserve or share premium account in a particular ratio to the number

of securities held on a record date.


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Shares: A share means a share in the share capitalof the company.

The share capital of a company is dividedinto a number of indivisible units of specified

amount. Each of such unit is called ashare .


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Share Capital:

The term share capital is used in following different senses:i. Nominal/ Authorised/ Registered Capital

ii. Issued Capitaliii. Subscribed Capitaliv. Called-up Capitalv. Paid-up capital


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Types of Shares:Preference share

A preference share is one which carries:i. A preferential right in respect of dividends at a fixed rate,and

ii. A preferential right in regard of repayment of capital onwinding up.

Equity shareEquity share means a share which is not a preferenceshare. The rate of dividend is not fixed.


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Shareholders:Shareholder/ member is a person who holds the shares of the company and whose name appears on the register of members of the company.

Rights of shareholders:i. Right to receive notices of general meetings and to attend

and vote at those meetings.ii. Right to receive dividends when declarediii. Right to transfer shares, subject to restrictions, if any.iv. Right to inspect registers and records of the company.v. Right to share in assets of company on its dissolution.


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Debentures:

A debenture means a document acknowledging a loanmade to the company and providing for the payment of interest on the sum borrowed until the debenture isredeemed. It provides for the repayment of principal and interest atspecified date/ or dates. It generally creates a charge on the assets of thecompany.


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Directors: A Director is a member of a Board appointed to direct theaffairs of a company. Only an individual can be appointedas a director. Every public limited company shall haveatleast 3 directors and other companies shall haveatleast 2 directors.

Appointment of Directors: Directors may be appointed-i. By provision in the Articlesii. By shareholders in general meetingiii. By the Board of Directorsiv. By Central Government

v. By third parties


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General Powers vested in the Board of Directors:The Board of Directors is entitled to exercise all suchpowers and to do all such acts and things as the companyis authorised to exercise and to do.

In the exercise of its powers the Board is subjected to theprovisions of the Companies Act, the memorandum and thearticles and any regulations, not inconsistent with them,made by the company in general meeting.

Minimum No. of Directors:Private Companies- 2 directorsPublic Companies- 3 directors


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Kinds of Company Meetings:I. Shareholders meetings:

i. Statutory meetingii. Annual General Meeting

iii. Extraordinary General MeetingII. Board meetingsIII. Meetings of the Board CommitteesIV. Meetings of debenture holders

V. Meetings of creditors for winding up.


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Annual General Meeting (AGM) (Sec 166): It must be held by all companies in each calendar

year and not more than 15 months shall elapsebetween two meetings. 21 days notice is required.

The business to be transacted at such meeting maycomprise of :

a. Ordinary Business- It relates to following matters:i. Consideration of final accountsii. Declaration of dividendiii. Appointment of directors in place of those retiringiv. Appointment of auditors

b. Special Business


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Extra-ordinary General Meeting (EGM) (Sec 169):

All general meetings other than AGMs are calledEGMs.

EGM is convened for transacting some special or urgent business that may arise in between twoAGMs.

All business transacted at such meetings are calledspecial business.

EGM can be called any time by giving a 21 daysnotice.


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Matters relating to General Meetings:

Notice: A notice of atleast 21 days must be given in writing to everymember.

Proxy: Every member of company entitled to attend and vote at ameeting has the right to appoint another person, whether a member or not, to attend and vote for him. Such a person is called proxy. Theinstrument appointing a proxy shall be lodged with company atleast 48hrs before meeting.

Quorum:Public companies- 5 members personally present.Private companies- 2 members personally present.


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Board Meetings:Must be held at least once in every 3 months. At least 4 such meetings must be held in everycalendar year.

Quorum: One-third of the total strength of thedirectors or two directors, whichever is higher.

Chairman: The Chairman for the meetings of theBoard of Directors may either be named in the

Articles or he may be elected by the directors.


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Winding Up of Companies:

Winding up of companies is the process whereby its life isended and its property administered for the benefit of itscreditors and members. An administrator, called aliquidator is appointed and he takes control of thecompany, collects its assets, pays its debts and finallydistributes any surplus among the members in proportion tothe contribution made by them to the company.


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Modes of Winding Up:

A. Compulsory Winding up by the CourtB. Voluntary Winding up

- Members Voluntary Winding up- Creditors Voluntary Winding upC. Voluntary Winding up under the supervision of the

Court

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