law lec 2

8/6/2019 Law Lec 2

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Law Lecture 2nd

Date 11/1/2011

(Memorandum of association done in 1st

lec)

State in which registered office of company will be situated Registered office clause

This clause is domicile to the company and jurisdiction to the admission of suits to the court to the

court . Only Name of the state must b given, address not necessary (if not decided at that point of

time),

Section 146 lays down or company laws states down, that within 30 days of incorporation or

commencement of business , whichever is earlier , the exact place where the registered office would

be located must b decided at notice of the situation, given to the ROC (registrar of companies), who

is to record the same.

Change of registered office

a. A company may shift its registered office from one place to another within the same city

town or village without much difficulty only ROC must b informed

b. If its proposed carry is registered its registered office from city 2 another within the same

state then special resolution of the company plus ROC must b informed within 30 days of

any such change

In case such shiftin of registered office in the same state has theb effect of taking the

registered office from the jurisdiction of one ROC 2 that of another ROC then permission of Region

Director must b obtained who will inform the company within 4 weeks.

c. But if registerd office is to b moved from one state 2 another then special resolution of the

company plus sanction of the CLD(company law board) Plus ROC of both the states must b

informed as it involves alteration of meomtandon itself.

States

Apart from trading company , if objects of the co. would spend to other states then names

of the states, to which the object would extend

This clauses applies to non profit making company that is section 25(1) company, these

companies are expected 2 operate only in the states in which the co, is registered. If a

company wants to operate in some states , other than the state in which its registered office

is located then co. Should the amend the state clause and mention names of others statesalso.

Shareholders and/or members

According to section 41 member includes the subscribers to the memorandum and every

other person who agrees in writing to become a member of a company and whos name is

entered in the Registered of members.

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A person cannot become a member a oral agreement or by its conduct only or by simply

applin to the co. 4 takin the shares

1. There must b an agreement in writin to becom a member and

2. The name of the applicant must b entered in the Registerddc of Members.

The depository act of 1996 now defined the member as every person holdin the

equity the share capital of the company and its name is entered as beneficiary ownerin the records of the depository shall b deemed to b the member of a company.

One may become a member or shareholder of te company in any of the following ways

1. By subscribtion

2. By application and allotment

3. By transfer

4. By transmission

5. By Estoppel

6. By Qualification shares

1. By Subscription

The subscriber to the memorandum promise to buy a specific no. of shares and this is

mentioned in the memorandum. The subscriber is obliged to buy the no. of shares

specified

The ordinary rules of contract act do not apply, for example fraud, coercion etc. will not

make its agreement void,

He becomes member ipso facto (by very fact of). No allotment need b made to him, his

name may not b in the registered of members but ipso facto he is a member because he

holds himself out to the world as such.

a. A subscriber must buy the shares by the co. Itself and no from the market

b. He is not bound to keep the shares for all time. Once the shares are allotted to himand he pays 4 them then he can sell them of at any time.

Under the company act there is no duty to keep the shares for any length of time i.e

lock in time but articles may provide for the lock in time and stock exchange may

also provide 4 lock in time but if they do not provide a subscriber can buy the shares

today and sell them of tomorrow.

c. Shares by the subscriber must b for hard cash i.e current coin of the county. No set

of or adjusted is allowed. Even the amt due to an subscribe as legal dues cannot b

adjusted against its payment for subscription shares

2. By application and Allotment

A person who applies 4 certain of a company becomes a member when the shares are

allotted to him and his name is entered in the Registered of members. On a valid

allotment , a binding contract arises between the company and the applicant and the

name of the applicant is entered in the registered of members,

On such registration the applicant becomes the member irrespective of whether the

person had received the share certificate or not

a. In the terminology of contract act , application allotment means , offer and

acceptance and the ordinary rules of contract act will apply.

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b. Allotment must b communicated to the applicant. Posting of a properly

addressed and stamped letter of allotment is a sufficient communication even if

the letter is delayed or lost in the course of post.

c. The offer may come from the company, for eg a company wrote to a person

offering him certain shares, and whether he his willing to but those shares, the

person wrote back saying that he was willing, afterwards he was ask to pay forthose shares, the person said that company has not communicated anything

further to him

The court held that the offer had come from the co. In this case therefore no

further communication was necessary from the company

d. But it is necessary have his name in the register of members

e. If an offer is made with the condition attached and the condition is not accepted

by the company then acceptance is not valid therefore no binding contract

There are three types of conditions

1. Condition Precedent First condition then precedent eg Roger had a

condition that if he will be given the position of a Branch Manager after the

allotment of shares to him,if he does not get the position, he should take

some action if no then he become the member.

Acquiesced It means that if you are silent and dont take any action then it

means you agree to it,later u cant say no, u become member by acquiesced

2. Condition Collateral It means side by side, allotment done payment done

at the same time.

3. Condition Sebsequent First allotment then condition, pay for the share

only if dividend is paid.

3. By Transfer

So far as public company are concerned shares are freely transferable, a person may buy the sharesof the company in the open market and then apply to the compamy to register him as a member

The company act laws down the act if the company rejects the transfaree as a member then

either the transferor or the transferee, can apply to the CLD

The CLD will ask the company for the reason 4 rejection and it is complsury for the company

to disclose the reason for rejection and then it is left to the CLD to decide whether to order

the company to accept the transfery as a member

The CLD has to see, whether in excersing their power, the directors are acting(OOCM

Oppressively or Capriciously or Corruptly or Mala fide)

4. By transmission.

A person may become a member of a company by transmission , devolution or transfer by operation

of law

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Transmission is of two types.

a. By act of parties when a member dies his executor or the person succeeding to his estate

gets the right, to have the shares transmitted to him name in the register of co. Members

The company is bound to transmit the shares in the legal representative. The legal

representative has to only make an application to the co. To transfer the shares in his name

and there is no need for him to execute transfer the date for registration

It has been held that formal transfer form need not be signed by the legal representative.

The legal representative is not bound to get his name enlisted (entered), in the register of

members and he can transfer the shares to any other person by executive a transfer date.

When a member dies there is no member of shares therefore formalities like execution,

attestation, stamp duty, are not needed

The legal representative has to give the proof that the person applying for transmission of

hares is a legal representative foreg. He has to give probate of a will or letters of

administration granted by the court, or succession certificate. A death certificate is also

required.

b.

By operation of law in case of insolvency, a member ceases to be a member and officialassignee or official receiver is the legal representative as regards the property of an

insolvent member.

The company is bound to transfer the share in the name of official assignee. There are three

alternatives available to official assignee

1. Keep the shares

2. Transfer the shares in the name of third person but he can do this only executing a transfer

date

3. Disclaim or disown a share as onerous i.e burdensome property

5 By Estoppel or holding out

The person may become a member by estoppels or holding out that is if its name is on the registered

of members and he does not take action quickly to get his name struck off the registered of

members on becoming aware of it then he will become liable for no fault of his own this is because

he permitted the Co. To commit fraud in his name

If he does take steps within reasonable time he may become liable as a contributor also

A member by Estoppel is not entitled to a dividend or surplus at the winding up of the

company the company has the right to recover money in both the cases

Membership by estoppels arises when company has transferred the shares in the name of the buyer that is transferee but company has forgotten to delete or omit name of the seller

that is transferred

It also arises when a person holds himself out as a member, or knowingly allows his name to

remain on the register of members when he has actually parted with his shares

6 . By Qualification

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Under the company act no person is capable of being appointed a director of a public company

unless he buys the qualification shares if any

Those who have signed an undertaking from with the ROC to take and pay for their qualification

shares are is same position as a subscribers to the memorandum. They are deemed to have become

members automatically on the registration of the co.

The companys act does not prescribe share qualification but articles of association do prescribe

share qualification

The companys act therefore lays down that if articles of association so provide then a director must

acquire the qualification shared within two months of his appointment or resign after two month. If

he does not do either and continue to be director then he will be liable to take qualification shares at

the time of winding up the company

Even before becoming a director, he may b holding the shares of the co. which is sufficient The value

of qualification shares cannot exceed Rs. 5000

law lec 2

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