leagal system

7/29/2019 Leagal system

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COMPANIES ACT 1956


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COMPANY ??

It mean an association of individualsformed for some common purpose.

It is an artificial person created bylaw , with a fixed capital, divided intotransferable shares, with perpetualsuccession and common seal.


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As defined in Companies Act 1956, Acompany formed and registered under this

Act or an existing company

A voluntary incorporated association whichis an artificial person, created by law withlimited liability having common seal andperpetual succession


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CHARACTERSTICS OF A COMPANY

Separate legal Entity

Limited Liability

Perpetual succession Common Seal

Transferability of Shares

Separate Property Capacity to sue.


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CLASSIFICATION OF COMPANIES

On the basis of Incorporation

On the basis of Liability

On the basis of number of Members. On the basis of Control.

On the basis of Ownership.


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CLASSIFICATION OF COMPANIES

On the basisof

Incorporation

STATUTORYCOMPANIES

REGISTEREDCOMPANIES


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ON THE BASIS

OFLIABILITY

LIMITED BYSHARE

LIMITED BYGUARANTEE

UNLIMITEDLIABILITY


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ON THE BASIS OFNUMBER OF

MEMBERS

PRIVATE PUBLIC


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ON THE BASISOF

CONTROL

HOLDING SUBSIDIARY


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ON THE BASISOF

OWNERSHIP

GOVERNMENT NON GOVERNMENT


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MEMORANDUM OF ASSOCIATION

This document contains the constitution ofa company.

It defines the area within which thecompany can operate, the objects forwhich the company has been formed aswell as the business that company would

undertake.


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Memorandum Of AssociationDefinition

Section 2 (28) of the companies Act defines

Memorandum means Memorandum ofAssociation of a company as originallyframed or as altered from time to time in

pursuance of any previous companies lawor of this Act


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IMPORTANCE

Foundation on which structure of company isbased.

States name . Address , sh cap etc.

Defines scope of activities within which co. canfunction.

Any activity outside the scope of MOA is ultravires and not binding on co.

Constitution of co. Public document


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Clauses of memorandum

Name clause.

Registered office clause.

Object clause

Liability clause

Capital clause


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Name Clause

The memorandum of associationshould contain the name of company,

whether it is private or public company.

Being a legal person it must have a

name to establish its identity.


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Any suitable name can be chosen subject tofollowing retrictions.

1. Word Ltd. Or Public Ltd. & word Pvt. Ltd.

2. Name must not be undesirable-

too identical or similar to name ofexisting co.

Misleading

Once name chosen & co. is registered Inthat name , it along with address mustappear on the outside of every office andon bills , letter, notices etc


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Registered Office Clause

This clause should state the name of the state

in which the registered office of the company

will be situated.

Notice of situation of registered office of co.and of every change is to be given to registrar

for record within 30 days of incorporation.

Registered office is the place where allcommunication and notices are to be sent and

where register of members , register of

debenture holders , minutes books etc are kept.


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Object & Power Clause

Set out objects of co.

A co. is not legally entitled to do anybusiness other than that specified in itsobject clause

This rule is meant to protect

- members- public at large


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Following points must be kept on mind

Objective must not be illegal

Obj must not be against public policy i.eto carry on trade with enemy country.

Obj must not be against provisions of cosact

Must be stated clearly and definitely Must be quite elaborate also- main and

other obj.


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Liability Clause

This clause states that The liabilityof the members shall be limited by

shares

This means no member can be calledupon to pay anything more than thenominal value of the shares held byhim.


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Capital Clause

This clause states the amount of shcapital with which the company isproposed to be registered and the

number and value of the shares intowhich it is divided.


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Association and

Subscription ClauseThe memorandum of association(MOA) concludes with the subscription

clause where in the subscribers agree totake the number of shares which arementioned against the name of the

subscriber


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Alteration

Sec 16 a co. shall not alter the conditionscontained in its MOA , except in the cases,in the mode and to the extent for which

express provision is made in cos act.


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Doctrine of ultra vires

Ultra means beyond and vires meanspowers

The term ultra viresa company means thatthe doing of the act is beyond the legalpowerand authorityof the company.


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A company has the power to do all suchthings as are-

Authorized to be done by the Companies

Act, 1956; Essential to the attainment of its objects

specified in the Memorandum;

Reasonably and fairly incidental to itsobjects.

Everything else is ultra viresthe company.


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Articles of Association

It contains the regulationrelating to internal

management of a company


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Clauses of article

Share capital, rights of shareholders,payment of commissions, sharecertificates.

Calls on shares.

Transfer of shares.

Transmission of shares.

Forfeiture of shares.

Conversion of shares into stocks


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Conversion of shares into stocks.

Share warrants.

Alteration of capital.

General meetings and proceedings.Voting right and proxies.

Directors, their appointment, remunerations,powers and proceedings of board of directors.

Manager

Secretary

Dividend and reserves

Accounts audit and borrowing powers. Capitalization of profit.

Winding up.


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Alteration

A company may alter its articles as oftenas required , by passing a specialresolution only.

A copy of special resolution must be filedwith the registrar within 30days of passingresolution.

A copy of altered articles must be filedwith the registrar within three months ofpassing special resolution.


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Limitations

Must not be inconsistent with theprovisions of cos act or any other statute

Must not be inconsistent with theconditions contained in MOA

Must not be inconsistent with thealteration ordered by CLB.

Must not deprive any person of his rights.

Must not constitute a fraud on minority.


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BOARD OF DIRECTORS

SEC 2(13) defines director as any personoccupying the position of authority to acton behalf of the company

The directors of a company are collectivelyknown as board of directors . they are

elected representatives of shareholders.


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Appointment of Directors

No. of Directors minimum in case of Public ltd company3 & Pvt. Ltd Company 2. Maximum no. as may bepermissible in AOA

First Directors

Names in AOA. In case articles are silent all thesubscribers to MOA / AOA shall be deemed to be the firstdirector. These directors shall held office till AGM

Subsequent Directors

by the members at AGM. 1/3rd

of the directors are nonrotational & 2/3rd of the directors will be liable toretirement.


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Directors appointed by Board of Directors

Appointment of additional director

BOD can appoint additional director (not exceeding

the max. no. provision in AOA) to take benefit ofexpertise as well as experience of any individual

Such director will hold position till next AGM. Atnext AGM he may be re-appointed

To fill up casual vacancies

On account if vacancy arises, BOD can appoint adirector to fill up the vacancies

Death, resignation or Disqualification

Such director to hold office till next AGM


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Alternate directors - When the director leaves thestate in which registered office of a company islocated

For a period more than 3 monthsBoard may appoint alternate director to attend the

Board meeting in absence of original director

The alternate director attends Board meetings in

absence of original director Appointment of directors by outsiders There can be an

agreement by the company with

Its lenders or

Creditors


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Qualifications of a director

Qualifications Qualifications ifprovided in AOA the director will have totake up qualification shares within 2

months of appointment


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DisqualificationsPerson is disqualified

if he is of unsound mind

undischarged insolvent

he applies for declaring himself insolvent

he has been sentenced to imprisonment for a period not excluding 6

months, for offence involving moral turpitude & a period of 5 yearshas not expired

he is director in a company

company has defaulted to file annual return & balance sheet fora consecutive period of 3 years with Registrar

Company defaults in payout of interest / principal of depositsfrom public

Max. no. of companies - a person can be director in max. 20companies


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Vacation of office of Directors

on attracting disqualification

if a director fails to attend 3 consecutiveBoard meetings without leave of absence

if director fails to take qualification shareswithin 2 months

if he fails to pay call money on shareswithin 6 months


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Removal of a Director

Removal by the member at AGM

By not reappointing retired Director

By appointing someone else in place of

retiring director

By passing a resolution removing a director

Removal of Director by CLB

Resignation


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Powers of director

General powers

Specific powers


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General powers

Two sources:-

Articles of association

Companys act.

Exercising powers like supervising and

controlling the work of the officer of thecompany.

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Specific powers. To disclose the nature of his interest in a

contract or arrangement by or on behalfof the company.

The power to make calls on shareholders

in respect of money unpaid on theirshares.

The power to enter in to a contract for the

sale , purchase or supply of any goods,materials or services or for underwritingshares or debentures in which directorsare interested with certain expectations.


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The power to invest in any shares or debenturesof any other company .

The power to fill a casual vacancy of directors incase of public company or its subsidiary pvtcompany.

The power to appoint as managing director or

manager a person who is already managingdirector or manager of another company.


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Duties

Statutory duties

General duties


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Statutory duties

To hold meeting once in every 3 months.

To see that copies of balance sheet andprofit and loss account are filed with theregistrar.

To declare dividends and to arrange fortheir due payments to shareholders.

To see that no statement included in theprospectus is false or misleading.


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To attach their own report on the affairsof the company on the balance sheet.

To authenticate balance sheet and profit

and loss account of the company. To make arrangements to disclose his

interests to other directors.


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General duties

Duty of good faith

Duty of reasonable care

Duty to attend board meeting

M ti f M b


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Meetings of Members:-

Statutory meeting

Annual General Meeting

Extraordinary General Meeting

Statutory Meeting


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Statutory Meeting

held once under the act hence statutory

To be held only by Public Ltd Company.Pvt. Ltd Company not to hold this meeting

held once in life time

it is held between 1 6 months from thedate of obtaining certificate ofcommencement of business


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Agenda-Statutory Meeting

Consideration of Statutory Report Report explaining the progress made since

incorporation of the company

Receipts & payment a/c Shares issued & allotted

Important contracts signed by

management To be filed with ROC

AGM


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AGM

Can be held by Public / Pvt. Ltd company Held every year

Within 6 months from end of accounting year

One meeting per calendar year

1st meeting to be held within 18 months fromthe date of incorporation

between 2 AGMs gap not more than 15 months

Obtain approval of ROC if gap exceeds 15months

A d AGM


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Agenda-AGM

P&L a/c

Balance sheet

Auditors report

Directors reports

EOGM


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EOGM

Can be held by Public / Pvt. Ltd company

Can be held any time when the matter isurgent

It cannot wait till next AGM

Any meetings of members other than AGMare EOGM

Agenda for Meeting For AGM


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Agenda for Meeting For AGMagenda is divided in 2 parts

Ordinary Business

Approval of P&L, B/s

Declaration of dividend

Appointment of auditor

Appointment of Directors Special Business

anything other than ordinary business

explanatory statement should be given in the notice

reason why business is taken up

disclosure of interest of any director

At EOGM all business matters are special business requiringexplanatory stand

Procedure to Conduct


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Procedure to Conductmeetings of members

Authority to convene a meeting Board ofDirectors Every general body meeting must bepresided by Board meeting

Notice Specify time (working time), Day(Working Day not a Sunday or public holidayNegotiable Instrument Act), Date & place ofmeeting (registered office or other place in the

town in which registered office is located, 21 dayclear notice date of posting & date of receiptto be excluded under certificate of posting)

Procedure to conduct meetings of members


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Procedure to conduct meetings of memberson the date of meeting

Chairman the designated chairman to preside over the

meeting. If there is no designated chairman, the members tochoose one of them as chairman of the meeting

Quorum is specified minimum number of qualified memberswhose presence is required at the meeting

As per provisions in the article If articles are silent, in case of Public ltd company 5

persons, in case of Pvt ltd company 2 persons shall formquorum

Quorum must be present within half an hour from the

scheduled time of commencement of meeting

If quorum is not present within half an hour, meeting isadjourned to next week, same time, same place

If at the adjourned meeting quorum is not present,

persons present shall form the quorum


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Proxy a member is entitled to attend the meeting ordepute a person to attend on his behalf by executinginstrument of proxy

Proxy need not be a member

Proxy form should be lodged with the company 48hours before the scheduled time of commencement ofmeeting

Proxy may be open or with specific direction to vote

or against the resolution

Proxy is cancelled if member attends the meeting

Proxy cannot speak, but vote at the meeting


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Movement of Resolution

Resolution is proposed by 1 of the members

It is seconded by another member

Decision on the resolution members canraise questions chairman to answer

Report of auditor is read at the meeting

Minutes record of resolution passed iswritten in minute book to be signed bychairman of the meeting

Resolutions


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Resolutions

Resolution is defined as the formal decisionof a meeting on any proposal before it.

Ordinary

Special

Resolution requiring special notice


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Ordinary resolution

Simple majority

Votes cast in favour, exceeds votes castagainst

Ordinary business of rule is passed bysimple majority

Special resolution


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Special resolution

Requires 3/4th majority

Amendment in MOA

Amendment in AOA

Appointment of MD

Remuneration of MD

Appointment of sole selling agent Can be done by postal ballot for listed

companies



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It is a kind of ordinary resolution with thedifference that here the mover of the proposedresolution is required to give special notice ofatleast 14 days to the company before moving

the resolution and the company is in turn isrequired to give special notice of atleast 7daysbefore the meeting either individually or throughadvertisement in newspaper

Removal of a Director Removal of an Auditor


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Audit

Audit under the companies act is statutory audit. Everycompany under the companies act is required to have itsaccounts audited by the auditor

Auditor

CA member of ICAI (The Institute of CharteredAccountants of India) having certificate of practice &

He is not in the full time employment

Not indebted to the company for amount exceeding Rs.1000/-

Should not be related to Directors

Powers of Auditor


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Powers of Auditor

Power to have access to all documents agreements /

contracts / minutes Power to visit / verify / check properties / assets of the

company at all locations (plant, branch. HR)

Power to obtain information / explanation from the

employees of the company To report to the members

Whether the company has maintained the requiredbooks of a/c or registers

Whether the company has been complying withaccounting standards

In case of variation point out the impact on P&L ofthe company


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WINDING UP

Winding up is the process to bring aboutan end to the life of the organization.

Winding Up V/s Dissolution

Modes of winding up Compulsory winding up order of court

Voluntary winding up

Voluntary winding up under supervision ofcourt

Compulsory winding up under order


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Compulsory winding up under orderof court

Grounds for winding up

Special resolution

Default in holding statutory meeting

Failure to commence business within oneyear of incorporation or suspending itsbusiness for a whole year

Membership below minimum

Inability to pay debts

Just and equitable


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Voluntary winding up

Where company is wound up by themembers or creditors, without anyinterference by the court.

Grounds:

By passing ordinary resolution

By passing special resolution


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Types

Members voluntary winding up:

It is possible only when the co. is solventand is able to pay its liabilities in full.It

requires

The filing of a statutarydeclaration ofsolvency with registar

Passing of ordinary or special resolutionand filing a copy of same with registrar.

Creditors voluntary winding up:


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Creditors voluntary winding up:

Where a co. Is unable to pay its liabilitiesin full(i.e. declared insolvent),and stillwants to undergo voluntary winding up, it

should naturally be controlled andsupervised by the creditors, so that theirinterests are taken care of.

Voluntary winding up under


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Voluntary winding up undersupervision of court

When voluntary winding up of thecompany is in progress,the liquidator orany creditor may apply to the

court,requesting that the windibg up beproceeded further under supervision ofcourt on all or any of the following

grounds:


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The liquidator is negligent in collecting theassets

Liquidator is partial

Rules relating to winding up are not beingobserved

Majority is playing fraud on minority,etc

B i L


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Business Law

Business:- All those activities whichare aimed at transfer of goods &services from the production centreto consumption centre carried out byan entrepreneur by optimally utilizing

resources at his command i.e.money, man, material & machinewith a view to maximize profit.

Law:- Rules & Regulations which

has a force of authority, passed bylegislative bodies.

Contract Act


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Contract Act

Contract:-Agreement enforceable by Law.

Agreement:- It is every promise or a set of promisesforming consideration for each other. It is a result ofintention to create legally binding relationship.

Promise:- Proposal when accepted becomes promise.

Proposal:- When a person signifies to another hiswillingness to do or not to do something with a view toobtain assent of that other person, the person is said tohave made a proposal.

Proposal + Acceptance = Promise Promise * Promise = Agreement

Agreement + Enforceability = Contract

Discuss essential ingredients


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Discuss essential ingredientsof a valid contract

Intention to create legally binding relationship

Offer and Acceptance

Two or more persons

Competence of parties to the contract Everyperson is competent to contract if

He attends the age of majority according to

which he is subject ofHe is of sound mind

Not disqualified under law

Lawful consideration

Free consent of parties Consent is free if it is


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Free consent of parties Consent is free if it isnot caused by

Coercion (Force) use of physical force Undue Influence use of dominant position

Misrepresentation false statement

Fraud cheating

Mistake erroneous state of affairs

Lawful Object

Certainty of performance

Not ambiguous / vague(the agreement must becertain)

Legal Formalities

Not declared to be void


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Module 5

NEGOTIABLE INSTRUMENTSACT

OF 1881


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Definition

Section 13 states negotiable instrument means:

promissory note or bill of exchange or

cheque payable to order or the bearer whether

the words order or bearer appear on the

instrument or not.

Negotiable Instrument means any document

transferable from one person to another.

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Essential features of negotiableinstrument:

1. Free transferability

2. Offer better title to the transferee.

3. Holder in due course is the owner.

4. Holder in due course can file recovery on

suits5. The instrument is transferable till

maturity.

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TYPES OF NEGOTIABLE INSTRUMENT

*PROMISSORY NOTES

Instrument in writing containing unconditionalundertaking signed by the maker to pay acertain sum of money to or to the order of acertain person or to only the bearer of theinstrument

Parties : Maker, payee, holder,endorser, endorsee.

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Essentials of Promissory note:1. Instrument in writing

2. Undertaking to pay

3. The undertaking to pay is unconditional.4. It must be signed by the maker.

5. Amount payable must be certain and in moneyform.

6. The payee must be certain.7. Must be duly stamped as per the Stamp Act.

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BILLS OF EXCHANGE

IS AN INSTRUMENT IN WRITING

AN UNCONDITIONAL ORDER SIGNED BY THE

MAKER DIRECTING A CERTAIN PERSON TOPAY A CERTAIN SUM OF MONEY ONLY TOOR THE ORDER OF CERTAIN SUM OR TO THEBEARER OF THE INSTRUMENT.

Parties: Drawer, Drawee, Acceptor, payee, holder,endorser, endorsee, drawee, acceptor

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Essentials of Bills of Exchange1. It must be in writing

2. It must be an order to pay

3. The order to pay must be unconditional

4. It must be signed by the drawer.5. The parties to the bill must be certain.

6. The order to pay must be in money.

7. The formalities like date , stamp and othersshould be there.

8. Maturity, grace period

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Negotiation and indorsement Negotiation is a process of transferring from

one person to another ( first hand transfer).Thus also confirms the right of the owner to

bring a legal suit if necessary. indorsement ( indorsement) means writing of

the persons name on the back of the instrumentfor the purpose of negotiation.The person who

signs is endorser, who receives is calledendorsee.

In blank

In full

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NEGOTIATION BY ENDORSEMENT AND DELIVERY

Types:

-BLANK OR GENERAL: SIGNS OR WRITES AT THE BACKPAYABLE TO BEARER.

-SPECIAL OR FULL: ORDERED TO SPECIFIC PERSON

-RESTRICTIVE : PROHIBITS OR RESTRICTS FURTHERNEGOTIATION OF INSTRUMENTS.

-PARTIAL : ENDORSEMENT OF HALF OF THE AMOUNT

-CONDITIONAL OR QUALIFIED : CONDITIONS STIPULATED

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CHEQUEA cheque is a bill of exchange drawn on a specified banker

and not expressed to be paid otherwise than ondemand.

-It is a B/E with two additional features:

-Always drawn on a banker.

-Always payable on demand.

A cheque could be open cheque( payable across counter ) orclosed cheque ( named with two parallel lines.)

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TYPES OF CROSSINGS

General Crossing-

shown by two parallel lines

Special Crossings- mentions name of the banker on the face of cheque

Not negotiable may or may not be written.

Restrictive Crossings- Adopted for commercial or banking usage.

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HUNDIS

ARE NEGOTIABLE INSTRUMENTS NOT COVERED UNDER

THE ACT. THEY MAY AT TIMES BE B/E OR P/N

TYPES: SHAH JOG: PAYABLE TO A RESPECTABLE HOLDER.

JOKHMI : DRAWN ON GOODS TO BE SAILED ON SHIP.

JAWABEE HUNDI: USED FOR REMITTING MONEY FROM

ONE PLACE TO ANOTHER.

NAM JOG : PAYABLE TO THE PARTY NAMED IN THEBILL

DARSHANI HUNDI : PAYABLE AT DEMAND AND

PRESENTED AT DEMAND.

leagal system

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