legal aspects of business unit - 2 ppts

UNIT IICOMPANY LAW

COMPANY

A company is an association of individuals formed for some common purpose. It is a voluntary association of persons. It has capital divisible in to parts, known as shares. At the same time it is an artificial person created by a process of law. It has a perpetual succession and a common seal.

CHARACTERISTICS OF A COMPANY

• Separate legal entity• Limited liability• Perpetual succession• Common seal• Transferability of shares• Separate property• Capacity to sue

TYPES/CLASSIFICATION OF COMPANIES

• Classification on the basis of incorporation• Classification on the basis of liability• Classification on the basis of number of members• Classification on the basis of control• Classification on the basis of ownership

CLASSIFICATION ON THE BASIS OF INCORPORATION

• Statutory companies• Registered companies

CLASSIFICATION ON THE BASIS OF LIABILITY

• Companies with limited liability companies limited by shares companies limited by guarantee• Unlimited guarantee

CLASSIFICATION ON THE BASIS OF NUMBER OF MEMBERS

• Private company• Public company

CLASSIFICATION ON THE BASIS OF CONTROL

• Holding company• Subsidiary company

CLASSIFICATION ON THE BASIS OF OWNERSHIP

• Government company• Non-government company

FORMATION OF COMPANY

PROCEDURES INVOLVED IN FORMATION OF COMPANY

• Electronic filing of forms•Incorporation of company•Certificate of incorporation•Promoter•Pre-incorporation or preliminary contracts•Provisional contracts

MEMORANDUM OF ASSOCIATION

It contains the fundamental conditions upon which the company is allowed to be incorporated.

It lays down the area of operation of the company

CONTENTS OF MEMORANDUM

• The name clause• The registered office clause• The objects clause• The capital clause• The liability clause• The association clause

ALTERATION OF MEMORANDUM• Change of name• Change of registered office• Alteration of objects• Change in liability clause• Change in capital clause

DOCTRINE OF ULTRAVIRES

• Ultra means beyond• Vires means powers• The term ultravires for a company means that

the doing of the act is beyond the legal power and authority of the company.

ARTICLES OF ASSOCIATION

• They are the rules, regulations and bye-laws for the internal management of the affairs of a company.

• They contain the fundamental conditions upon which alone a company is allowed to be incorporated.

CONTENTS OF ARTICLES• Share capital, rights of shareholders• Lien on shares• Calls on shares• Transfer of shares• Transmission of shares• Forfeiture of shares• Conversion of shares in to stock• Share warrants• Alteration of capital• General meetings and proceedings• Voting rights of members• Directors – their appointment, remuneration, powers• Manager• Secretary• Dividends and reserves• Accounts, audits and borrowing powers• Capitalization of profits • Winding up

ALTERATION OF ARTICLESLIMITATIONS TO ALTERATION• Must not be inconsistent with the act• Must not conflict with the memorandum• Must not sanction anything illegal• Must be for the benefit of the company• Must not increase liability of members• Alteration by special resolution only• Approval of central government when a public company is

converted in to a private company• Breach of contract• Must not result in expulsion of member• No power of the tribunal to amend articles• Alteration may be with retrospective effect

ARTICLES AND MEMORANDUM- THEIR RELATION

• The articles are subordinate to memorandum• The memorandum must be read in

conjunction with the articles• The terms of the memorandum cannot be

modified or controlled by the article.

ARTICLES AND MEMORANDUM - DISTINCTIONMEMORANDUM OF ASSOCIATION ARTICLES OF ASSOCIATION

CHARTER OF THE CONPANY REGULATIONS FOR INTERNAL MANAGEMENT

DEFINES SCOPE OF THE ACTIVITIES OF THE COMPANY

RULES FOR CARRYING OUT THE OBJECTS OF THE COMPANY

SUPREME DOCUMENT SUBORDINATE TO MEMORANDUM

EVERY COMPANY MUST HAVE MEMORANDUM COMPANY LIMITED BY SHARES NEED NOT HAVE ARTICLES OF ITS OWN

STRICT RESTRICTIONS ON ALTERATIONS CAN BE ALTERED BY SPECIAL RESOLUTION

ANY ACT OF THE COMPANY WHICH IS ULTRAVIRES THE MEMORANDUM IS WHOLLY VOID

ANY ACT OF THE COMPANY WHICH IS ULTRAVIRES THE ARTICLES CAN BE CONFIRMED BY SHAREHOLDERS

LEGAL EFFECTS OF MEMORANDUM AND ARTICLES

• Members to the company• Company to the members• Members inter se• Company to the outsiders

PROSPECTUS

Any document described or issued as prospectus and including any notice, circular, advertisement or 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 body incorporate.

CONTENTS/DISCLOSURES IN PROSPECTUS

AS PER COMPANIES ACT, 1956PART – I OF SCHEDULE – I

1 General information 2 capital structure of the company 3 terms of the present issue 4 particulars of the issue 5 company, management and project 6 particulars in regard to the company and other listed companies of the

same management 7 Outstanding litigation 8 management perception of risk factors PART – II OF SCHEDULE – II 1 general information 2 financial information 3 statutory and other information

DISCLOSURE AS PER SEBI GUIDELINES

OFFER FOR SALE – DEEMED PROSPECTUS

• Prospectus by implication• Intention to offer shares or debentures to the

public• Additional information

MISSTATEMENTS IN PROSPECTUS AND THEIR CONSEQUENCES

• Civil liability• Criminal liability

CIVIL LIABILITY• Remedies against the company 1 rescind the contract 2 claim damages from the company whether the

statement is fraudulent or an innocent one• Remedies against the directors, promoters and experts 1 directors at the time of the issue of prospectus 2 persons who have authorized themselves to be

named in the prospectus 3 promoters 4 persons who have authorized the issue of the

prospectus

CRIMINAL LIABILITY

• Penalty for fraudulently inducing persons to invest money

• Issue and allotment of shares in fictitious names

DIRECTOR

• Director includes any person occupying the position of director, by whatever name called.

• A person having direction, conduct, management or superintendence of the affairs of the company

APPOINTMENT OF DIRECTORS• First directors• Appointment of directors by the company• Appointment of directors by directors• Appointment of directors by third parties• Appointment by proportional representation• Appointment of directors by the central

government

POSITION OF DIRECTORS

• Directors as agents• Directors as employees• Directors as officers• Directors as trustees

DISQUALIFICATIONS OF DIRECTORS

• A person of unsound mind• Undischarged insolvent• Person convicted by court• Person who is disqualified for appointment as

director• A person whose calls in respect of shares of the

company held for more than 6 months have been in arrear.

REMOVAL OF DIRECTORS

• Shareholders• Central government• Removal by company law board

POWERS OF DIRECTORS

• General powers of the board• Powers to be exercised at board meetings• Powers to be exercised with the approval of

company in general meeting

DUTIES OF DIRECTORS

• Fiduciary duties• Duties of care, skill and diligence

LIABILITIES OF DIRECTORS

• Liability to third parties• Liability to the company• Liability for breach of statutory duties• Liability for acts of his co-directors

WINDING UP/ LIQUIDATION

• Winding up or liquidation of a company represents the last stage in its life. It means a proceeding by which a company is dissolved.

MODES OF WINDING UP

• Winding up by the court• Voluntary winding up• Winding up subject to supervision of court

WINDING UP BY COURT/COMPULSORY WINDING UP

• Special resolution of the company• Default in delivering the statutory report to

the Registrar or in holding statutory meeting• Failure to commence or suspension of

business• Reduction in membership• Inability to pay its debts

PROCEDURE OF WINDING UP BY THE COURT

• Official liquidator• Provisional liquidator

VOLUNTARY WINDING UP - CIRCUMSTANCES

• By passing an ordinary resolution• By passing a special resolution

TYPES OF VOLUNTARY WINDING UP

• Member’s voluntary winding up• Creditors voluntary winding up

MEMBERS VOLUNTARY WINDING UP- APPLICABLE PROVISIONS

• Appointment and remuneration of liquidators• Board’s powers to cease on appointment of a liquidator• Power to fill vacancy in office of liquidator• Notice of appointment of liquidator to be given to Registrar• Power of liquidator to accept shares• Duty of liquidator to call creditors’ meeting in case of

insolvency• Duty to call general meeting at the end of each year• Financial meeting and discussion• Provisions as to manual and final meeting in case of

insolvency

CREDITORS’ VOLUNTARY WINDING UP – APPLICABLE PROVISIONS

• Meeting of creditors• Notice of resolution• Appointment of liquidator• Appointment of committee of inspection• Liquidator’s remuneration• Board’s powers to cease on appointment of liquidator• Power to fill vacancy in office of liquidator• Power of liquidator to accept shares• Duty of liquidator to call meeting at the end of each

year• Final meeting and dissolution

CONSEQUENCES OF WINDING UP

• Consequences as to shareholders/ members• Consequences as to creditors 1 where the company is solvent 2 where the company is insolvent• Consequences as to servants and officers• Consequences as to proceedings against the

company• Consequences as to costs

DEFUNCT COMPANY

• A company is said to be defunct when it is not carrying on business or when it is not in operation.