c.law final

7/29/2019 C.law final

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What is a company? As per Sec 3(1)(i):

“Company means:

-A company formed and registered under this Act, or

-An existing company, formed and registered under any previous company law.”

“A company means an association of many persons

- who contribute money or money’s worth to a common stock and employ it in some common trade or business. -whoshare the profits or lose arising there from.”

-Lord Justice Lindlay



Features of a company Separate Legal Entity

Limited Liability ( either by share or guarantee)

Perpetual Succession

Artificial person

Common seal

Transferability of shares

Separate Property

Capacity to sue Termination of existence

Separate management



Types of Companies

Classification on the basis of incorporationStatutory companies

Registered companies

Classification on the basis of liability

Limited Company ( Limited by share or by guarantee)

Unlimited company

Classification on the basis of ownership

Government Company

Foreign Company

Classification on the basis of number of membersPrivate Company

Public Company

• Classification on the basis of control

Holding company Subsidiary company



Statutory Companies:

Formed under Special Statutory Act of Parliament or

State Legislature. For e.g., RBI, SBI, IFCI, etc.

Registered Companies:

Are registered under the Companies Act. These

companies have MoA and AoA for internal & externalregulations.

Types of Companies



Types of CompaniesLimited Company

Limited by Shares

Limited by Guarantee not having share capital Limited by guarantee having share capital

Unlimited Company

no limit on the liability of the members. Members cannot be directly sued by the creditors. When the company is wound up, members to discharge the

liability.



Types of Companies

Government Company 51% of the paid up share capital by government.

The share can be held by the central government or stategovernment. Partly by central and partly by two or moregovernments.

Foreign Company A company incorporated outside India, but having a place

of business in India.



Private Company minimum of two persons

minimum paid up capital of 1 lakh or more

The maximum number of members to be fifty Rights to transfer the shares are restricted Prohibits any invitation to the public to subscribe It prohibits acceptance of deposits from persons other

than its members, directors or their relatives. Two or more are holding one or more shares in a

company jointly, to be treated as a single member.



Public Company A Public company means a company-

> Which is not a private company

> Which has a minimum paid-up capital of Rs 5 lakh orsuch higher paid-up capital, as may be prescribed> Which is a private company and is a not a subsidiary of acompany, which is private company.

>It includes- any company which is a public company with

a paid up capital of less than 5 lakh, then it has to enhanceits paid up capital as per the statutory requirement



Conversion of Company The Act provides for conversion of public company into a

private company and vice versa

A private company is converted into a public company either by default or by choice in compliance with thestatutory requirements.

Once the action for conversion takes place then, a petition

can be filed with the central government with thenecessary documents for its decision on the matter of conversion



Registration and Incorporation Association of persons or partnership or more than 20

members ( 10 in case of banking) can register to form acompany under the Companies Act, 1956

The contract entered into by this illegal association is voidand cannot be validated. Its illegality will not affect its taxliability or its chargeability

The certification of incorporation is the conclusive evidence,that all the requirements for the registration have beencomplied with the



Procedure for incorporation of

Company. Application for availability of name

Preparation of MOA and AOA

Selection and finalization of MOA and AOA- Its printing,stamping and signing

Preparation of other necessary documents

Filling of the required documents for Registration to obtaincertificate of incorporation and Certificate of commencement of business



Memorandum of Association

It is the charter of the company

It contains the fundamental conditions upon which thecompany can be incorporated

It contains the objects of the company’s formation

The company has to act within objects specified in the MOA

It defines as well as confines the powers of the company

Any thing done beyond the objects specified in the MOA willbe ultra vires. Their transactions will be null and void

The outsider have to transact looking into the MOA



Conditions of the MOA

It should be printed Divided into paragraph and numbers consecutively Signed by at least seven persons or two in case of

public and private company respectively. The signature should be in the presence of a witness,

who will have to attest the signature Members have to take shares and write the number

of shares taken with full address



The Compulsory Clauses in MOA

The Name Clause

The Registered Office Clause The Object Clause The Liability Clause The Capital Clause

The Association or Subscription Clause



“Doctrine of Ultra Vires”

The powers exercisable by the company are to be confinedto the objects specified in the MOA.

If the company acts beyond the powers or the objects of the company that is specified in the MOA, the acts areconsidered to be of ultra vires. Even if it is ratified by theall the members, the action is considered to be ineffective.

Even the charitable contributions have to be based on theobject clause. ( A Lakshmanaswami Mudaliar V. LIC of India)



The consequences of the ultra vires transactions are

as follows: a)Injunction

b)Directors’ personal liability.

c) If a property has been purchased and it is an ultra vires act,the company can have a right over that property.

d)The doctrine to be used exclusively for the companies’

interest.

e)But the others cannot use this doctrine as a tool to attackthe company



Articles of Association

It is the companies bye- laws or rules to govern themanagement of the company for its internal affairs and theconduct of its business.

AOA defines the powers of its officers and also establishes acontract between the company and the members andbetween the members inter se

It can be originally framed and altered by the company under previous or existing provisions of law.



AOA

AOA plays a subsidiary part to the MOA Any thing done beyond the AOA will be considered

to be irregular and may be ratified by theshareholders.

The content of the AOA may differ from company tocompany as the Act has not specified any specificprovisions

Flexibility is allowed to the persons who form the

company to adopt the AOA within therequirements of the company law

Any ambiguity and uncertainty in one of them may be removed by reference to the other.



Share Capital Share: Share is defined as “an interest having a

money value and made up of diverse rightsspecified under the articles of association”.

Share capital: Share capital means the capitalraised by the company by issue of shares.

A share is a share in the share capital of the

company including the stock.

Share gives a right to participate in the profits of the company, or a share in the assets when the

company is going to be wound up.



Other features of a share

A share is not a negotiable instrument, but it is amovable property.

It is also considered to be goods under the Sale of

Goods Act, 1930. The company has to issue the share certificate.

It is subject to stamp duty.

The ‘Call’ on Shares is a demand made for paymentof price of the shares allotted to the members by theBoard of Directors in accordance with the Articlesof Association.

The call may be for full amount or part of it.



Share Certificate and Share

Warrant Share Certificate: The Share Certificate is a document issued by

the company and is prima facie evidence to show that the personnamed therein is the holder ( title) of the specified number of sharesstated therein.

Share certificate is issued by the company to the ( share holder) allotteeof shares. The company has to issue within 3 months from the date of allotment.

In case of default the allottee may approach the central government

Share Warrant: The share warrant is a bearer document issued by the company under its common seal. As share warrant is a negotiable

instrument, it is transferred by endorsement and by mere delivery likeany other negotiable instrument.



Types of Capital 1.Nominal, authorized or registered capital means the sum

mentioned in the capital clause of Memorandum of Association

2.Issued capital means that part of the authorized capital which has

been offered for subscription to members and includes shares allottedto members for consideration in kind also.

3.Subscribed capital means that part of the issued capital at nominalor face value which has been subscribed or taken up by purchaser of shares in the company and which has been allotted

Called-up capital means the total amount of called up capital on theshares issued and subscribed by the shareholders

Paid-up capital means the total amount of called up share capital which is actually paid to the company by the members.



Kinds of shares

>Preference shares- It can be furtherclassified as

Participating preferential shares.

Cumulative preferential shares Non Cumulative preferential shares>Equity or ordinary shares Shares at premium Shares at discount Bonus shares Right shares SWEAT shares (ESOPS)



Rights of shareholders Voting Power on Major Issues

Ownership in a Portion of the Company

The Right to Transfer Ownership

Entitlement to Dividends

Opportunity to Inspect Corporate Books and Records

The Right to Sue for Wrongful Acts: In the form of a shareholder

class-action lawsuit.



Transfer and Transmission of shares AOA provides for the procedure of transfer of shares. It is a

voluntary action of the shareholder. It can be made even by a blank transfer –In such cases the

transferor only signs the transfer form without making any other entries.

In case it is a forged transfer, the transferor’s signature isforged on the share transfer instrument.

Transmission of shares is by operation of law, e.g. by death,insolvency of the shareholder etc.



Debentures

Negotiability Security Permanence Convertibility

Bearer Secured Redeemable ConvertibleRegistered Unsecured Unredeemable Non convertible

Partly convertibleOptional convertible



Dividends

The sharing of profits in the going concerns andthe distribution of the assets after the winding upcan be called as dividends

It will be distributed among the shares holders The dividends can be declared and paid out of:• Current profits• Reserves• Monies provided by the government• It can be paid after presenting the balance sheet

and profit and loss account in the AGM



Dividend Other than the equity shareholders, even the

preferential shareholders can get the dividends.Rather they are the first ones to get the dividends.

Dividends are to be only in cash, if otherwisespecified in the AOA.

Dividends to be paid by Cheque only.

Unclaimed dividend after 30 days of declaration to

be transferred to unclaimed dividend account withany scheduled bank.



Directors

The Legal Status of the directorThe director occupies the position of a: As a Trustee- In relation to the company As Agents- When they act o n behalf of the

company As Managing Partner-As they are entrusted with

the responsibility of the company

Qualification SharesIn case there is requirement as per the AOA forthe director is bound to buy qualification sharesIf acts are done by the director prior to he or shebeing disqualified, the acts are considered to be

valid.



Disqualifications

As per the company law, the followingpersons are disqualified from been appointedas a director: Unsound mind

An undischarged insolvent A person who is convicted by the court Who has applied for being adjudged insolvent Not paid for the call on shares Persons who are already directors in maximum

number of companies as per the provisions of the Act or Any other person who has been disqualified by

the court for any other reason



Appointment of DirectorsThe appointment can sometimes be by based on

the proportional representation like minority

shareholders.There can be alternate directors, additional

directors, casual directors.

The third parties can appoint the directors

Other than the shareholders and the first

directors ,the central government and

NCLT may also appoint directors.



Duties and Liabilities of the Directors

Fiduciary Duties To act honestly and with good faith Not to use confidential information of the company for their

own purpose

Duty of Care and to act reasonably while acting for thecompany

Statutory Duties Not to contract with company, where he/she or his relative

has an interest in the contract where he/she has a interest, they need to inform the board or

seek prior approval while entering into contract, otherwisethe contract is voidable

Duty to attend and convene meetings Duty not to delegate



The directors liabilities The liability of the directors can be either civil or

criminal. If provided in the MOA, the liability may be

unlimited, for a limited company, otherwise it may be altered.

Liability may be for breach of fiduciary duties The directors are personally liable for the following:

a) Ultra vires actsb) malafide actsc) negligent actsd) liability for the acts of third parties



Criminal Liability Liability of the director for any untrue statement in

the prospectus

Inviting any deposits in contravention of the law Liability for false advertisement Failure to repay the application money, which was

excess

Concealing the names of the creditors Failure to lay the balance sheet. Failure to provide information to the auditor etc



Auditor Powers and Duties Powers of Auditors: To access books of accounts of the company.[227(1)]

To seek information and explanation from the officers of the company

To visit branches where he is not satisfied with the detailsgiven by the branch auditor [228]

To receive notice of AGM [231]

To take advice from experts. To receive Branch Audit Report.

To sign the audit report based on his opinion.

To attend AGM.

Right of lien.



Auditor Powers and Duties Report to the shareholders on:-• Whether proper Books of Accounts were kept and proper returns

received from the Branches not visited by him.

• Whether necessary information was received during the course of

audit .• Whether BS & P& L A/c are in agreement with the Books of

Accounts.

• Whether BS & P& L A/c are as per Co.’s Act.

•

Whether the BS & P& L A/c complied with Accounting Standardsreferred in Sec 211(3C)

• Whether Accounts show True & Fair View.

• Report on CARO (if applicable)

• Qualifications in report.

• Directors dis ualifications if an .



Auditor Powers and Duties Duty to inquire into Certain Matters Sec 227(IA)• Loan and advances made by the company.

• Book entries.

• Sale of investment below cost.

• Loan and Advances shown as deposit

• Personal expenses.

• Shares issued during the year.

Sign & submit the Audit Report. Certify Statutory report regarding :

• Numbers of shares allotted

• Cash received on such allotment

• Receipt and Payment Account



Corporate governanceDisclosures on Remuneration of Directors:

• Section 299 of the Act requires every director of a company to makedisclosure, at the Board meeting, of the nature of his concern orinterest in a contract or arrangement (present or proposed) entered by or on behalf of the company.

• The company is also required to record such transactions in theRegister of Contract under section 301 of the Act.

Requirements of the Audit Committee:• section 292A of the Act requires every public having paid up capital of

Rs 5 crores or more shall constitute a committee of the board to beknown as Audit Committee.

• The Annual Report of the company shall disclose the composition of the Audit Committee.



Corporate governance

Periodic discussions with the auditors about the Internal ControlSystems and the scope of audit including the observations of theauditors.

If the default is made in complying with the said provision of the Act,then the company and every officer in default shall be punishable withimprisonment for a term extending to a year or with fine up to Rs 50000or both.

Corporate Democracy:• Wider participation by the shareholders in the decision making

process

• Introduction of section 192A of the Act and the Companies (Passingof Resolution by Postal Ballot), Rules provides for certainresolutions to be approved and passed by the shareholders through

postal ballots.



Company Secretary A company having a paid up share capital of two crore

rupees or more but less than five crore rupees may appointany individual who is a member of the Institute of Company Secretaries of India as a whole-time secretary to

perform the duties of a secretary under the Companies Act,1956.

Advises Board of Directors on the kind of practices to beadopted in corporate governance.

She/he is the one who represents the company for internaland external stakeholders

The secretary appointment is generally governed by thecompany’s articles of association



make sure that the procedure for appointment of directorsis followed properly.

should ensure that all statutory and regulatory

requirements are properly complied with. They should advise the company and its board of Directors

on business ethics and corporate governance.

should also ensure that the interest of the stakeholders are

safeguarded. is responsible for organizing board meetings

CS roles and duties



CS roles and duties

has to ensure that Annual General Meetings (AGM) areheld as per the Companies Act and the companies’ Articleof Association.

responsible for issuing notices of meetings, distribution of proxy forms.

Has to ensure that the Memorandum and Articles of Association is properly complied with.

has to make sure that company complies with therequirements of SEBI if company is listed on any of theStock exchanges of India.

http://www.altiusdirectory.com/Business/company-registration-act.html

http://www.altiusdirectory.com/Business/company-registration-act.html



CS roles and duties

responsible for maintaining the statutory registersregarding the members, company charges, directors andsecretary, directors’ interests in shares and debentures,

interests in voting shares and debenture holders. Ensure the payment of dividends and interest. They have to

keep an eye on register of members in case any stakeholderis aiming at taking over the company.

Has to play a key role in implementing acquisitions,disposals and mergers. They have to make sure that properdocumentation is in place and proper commercialevaluation is done.



Classification of Meetings

Shareholders meetingsa) Statutory meetings ( which happens only once in thelifetime of the company)

b) EGM- Convened to transact some special or importantdecision to be takenc) Class meetings- This is the meeting of the shareholders- which is convened by the class of shareholders based on thekind of shares they hold.

AGM-it can be conducted based on the provisions given inthe Articles or by passing a resolution in one AGM

Board Meetings- This is conducted for the smooth runningof the company



A meeting may be convened by the director, requisitionist,

or the NCLT

Notice to be given by the secretary after the time and placehave been fixed by the directors

Even the shareholders can call a meeting as anextraordinary general meeting (EGM)

The NCLT can call an Annual General Meeting (AGM)



Oppression of minority

shareholders Shareholders elect the board of directors in a

corporation. Once elected, the directors set the

corporation's bylaws, elect officers and act assupervisors for the corporation.

This means that the people who run the business areoften elected by majority shareholders. Meanwhile,minority shareholders may not even be able to electthemselves to the board of directors.



By controlling the board of directors, and, thus, the

officers of a corporation, majority shareholders oftenhave outright decision-making power.

Some majority shareholders use this power to oppressminority shareholders by:

- Squeezing-out / freezing-out minority shareholders- Refusing to declare dividends- Reducing profits and dividends (by increasing spending, etc.)

- Denying minority shareholders the right to inspect corporate records- Diluting minority shareholders' interest by issuing more stock

- Moving business assets out of the business

- Terminating the minority shareholder's employment with thecorporation



Winding up It is the process whereby the life of the company is ended

and its property is administered for the benefit of itscreditors and members.

During this process a liquidator is appointed to take controlof the company. The liquidator will be responsible for theassets, debts and final distribution of the surplus to themembers.

It is the process for discharge of liabilities and returning the

surplus to those who are entitled for it. But even a company which is making profit can be wound up

is the special feature of winding up , which is different fromthat of the process of insolvency.



How can be company be

wound up? By passing a special resolution[sec:433(a)]

If there is a default in holding the statutory

meeting[sec:433(b)] Failure to commence the business [sec:433(c)]

If there is reduction in the membership of the minimumnumber of members as per the statutory

requirement[sec:433(d)] If it not able to pay its debts[sec:433(e)]



Modes of winding up Compulsory winding up/winding up by the

tribunal(secs.433 to 483)

• under the supervision of the court

Compulsory winding up may happen for ‘ just and

equitable’ reasons also.The just and equitable grounds can be like loss of substratum , where there is dead lock in the management,etc

Voluntary winding up:(secs.484 to 483)

( Members voluntary winding up and creditors voluntary winding up)

• Voluntary winding up subject to the supervision of thecourt.



Winding up procedure A petition for winding up has to be filed by the concerned

person to the prescribed authority

Liquidator to be appointed to safeguard the property of thecompany

Then the court will hear the matter and pass necessary orders. It can dismiss the petition or pass an order of

winding up



Dissolution of the company When the company ceases to exist as a corporate entity for

all practical purposes it is said to have been dissolved.

Dissolution has to be declared by the court.

It will not be extinct and will be kept under suspension for 2 Years.

The order has to be forwarded by the liquidator to theRegistrar of the Companies within 30 days from the date of the order of dissolution.



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