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Company+law Company+law Presentation Transcript

  • Comparison of Ownership
    • It is useful to compare the advantages and disadvantages of the three forms of business
      • Sole trader
      • Partnership
      • Company
  • Sole Trader - Advantages
    • No legal filing requirements or fees and no professional advice is needed to set it up.
    • You just literally go into business on your own.
    • Simplicity – one person does not need a complex organisational structure.
  • Sole Trader - Disadvantages
    • The disadvantages are that it is not a particularly useful business form for raising capital (money).
    • For most sole traders the capital will be provided by personal savings or a bank loan.
    • Unlimited liability – the most important point to note in terms of comparing this form to the company in that there is no difference between the sole trading business and the sole trader himself.
  • Sole trader -disavantages
    • The profits of the business belong to the sole trader but so do the losses.
    • As a result he has personal liability for all the debts of the business.
    Companies Act 1956
  • Partnership - Advantages
    • No formal legal filing requirement involved in becoming a partnership beyond the minimum requirement that there be two members of the partnership.
    • Easier to obtain capital as there can be up to 20 members of the partnership, all of whom could pool their investment within the partnership.
  • Partnership – Advantages (cont.)
    • If you are aware of the problems the Partnership Act can cause then you can draft a partnership agreement to vary these terms of the Act
    • The partnership agreement can therefore be used to provide a very flexible organisational structure although this usually involves having to pay for legal advice.
  • Partnership - Disadvantages
    • A partnership will end on the death of a partner.
    • If you are unaware of this when the partnership is formed, the Act may not reflect the intention of the partners.
    • The partners are jointly and severally liable for the debts of the partnership.
    • This means that each partner can be sued for the total debts of the partnership
  • Company - Advantages
    • Companies are designed as to make it easy to raise capital.
    • Companies have the ability to subdivide their capital into small amounts, allowing them to draw in huge numbers of investors who also benefit from the sub-division by being able to sell on small parts of their investment.
    • Limited liability also minimises the risk for investors and is said to encourage investment.
  • Company – Advantages (cont.)
    • It is also said to allow managers to take greater risk in the knowledge that the shareholders will not lose everything.
    • The constitution of the company provides a clear organisational structure which is essential in a business venture where you have large numbers of participants.
  • Company - Disadvantages
    • Forming a company and complying with company law is expensive and time consuming.
    • It also appears to be an very complex organisational form for small businesses, where the Board of Directors and the shareholders are often the same people
  • COMPANIES ACT 1956 Companies Act 1956
  • Legal meaning
    • Sec 3(1) (i); “Company means a company formed and registered under this Act or an existing company. An existing company means a company formed and registered under any of the previous companies laws”
    Companies Act 1956
  • Nature and definition of a company
    • ‘ Literal meaning - Company’ in common parlance means a group of persons associated together for the attainment of a common end, social or economic.
    • Represents different kinds of associations, both business and otherwise
    Companies Act 1956
  • Contd -
    • Lindley – 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 (i.e.) for a common purpose and who share the profit or loss (as the case may be) arising therefrom. The common stock so contributed is denoted in money and is the capital of the company. The persons who contribute it, or to whom it belongs are members. The proportion of capital to which each member is entitled is his share. Shares are always transferable although the right to transfer them is often more or less restricted
    Companies Act 1956
  • Characteristics of the company
    • An artificial person created by the law.
    • A separate Legal entity
    • Case: Saloman and Saloman &Co ltd
            • (1897) (AC) (22)
      • Corporate personality is distinct and different from that of its members individually and collectively
    Companies Act 1956
  • Separate Legal Personality (cont.)
    • The most famous case in this area is Salomon v Salomon & Co
    • Mr Salomon was in business as a leather merchant
    • In 1892, he formed Salomon & Co Ltd
    • He held most of the shares with his wife and 5 of his children each holding one share as company law at that time required at least 7 shareholders in a company
  • Separate Legal Personality (cont.)
    • Unfortunately, the company did not do well and it went into liquidation
    • A liquidator was appointed to sell the assets of the company and pay its debts
  • Separate Legal Personality (cont.)
    • The liquidator claimed that the company was a fake because Mr Salomon owned 20001 shares and his family owned only 6 altogether
    • Mr Salomon was really just running the same business
    • Therefore, the liquidator argued that Mr Salomon was liable for all the debts of the company
  • Separate Legal Personality (cont.)
    • However, the House of Lords disagreed
    • The court held that
    • The fact that some shareholders only held 1 share as a technicality was not relevant
    • The registration procedure could be used to create a one-man company
  • Separate Legal Personality (cont.)
    • A company which is properly formed under the Companies Act is a separate person
    • As a result the debts of a company were its own and not those of its members
  • Characteristics of a company
    • Perpetual existence
      • Continued existence
      • Death, insolvency or unsoundness of mind of its members does not in any way affect the existence of the company.
      • Comes into existence by law and comes to an end by law.
    Companies Act 1956
  • Lifting the Veil of Incorporation
    • Although the general rule is that a company has a separate legal identity from its members, there are exceptions to this rule when a court will not treat a company as a separate entity
    • This is often referred to as “lifting the veil of incorporation”
    • Often, this is to prevent abuse of the principle of separate identity
  • Lifting of corporate veil
    • Veil of corporate personality used as a cloak for fraud and improper conduct. In such case, the court may disregard the corporate personality. The overlooking of corporate personality or separate entity is known as the phenomenon of lifting the corporate veil
    Companies Act 1956
  • Lifting the Veil of Incorporation (cont.)
    • At common law, the general principle is that the courts will not allow a company to be used for a fraudulent purpose or to avoid a legal duty
    • For example, in Gilford Motor Co v Horne, a term in an employee’s contract prevented him from approaching former customers after he left Gilford Motor Co
  • Lifting the Veil of Incorporation (cont.)
    • Therefore, when he left he formed his own company, and the company approached his former customers
    • The court held the company was a sham being used to avoid the term in his contract
  • Lifiting of corporate veil
      • For the protection of revenue.
      • Where a company is acting as the agent of the shareholders
      • Where a company has been formed for a fraudulent purpose.
    Companies Act 1956
  • Contd-
      • Where the device is used for some illegal purpose
      • Where the number of members fall below the statutory minimum
      • Where the prospectus includes a fraudulent misrepresentation
    Companies Act 1956
  • Registration and incorporation
    • Sec 12: Any seven or more persons or where the company to be formed will be a private company, two or more persons, associated for any lawful purpose may, by subscribing their names to a memorandum of association and otherwise complying with the requirements of this act in respect of registration, form an incorporated company with or without limited liability.
    Companies Act 1956
  • Contd -
    • Before a company is registered, it is essential to ascertain from the registrar of companies if the proposed name of the company is approved
    • Then the following documents duly stamped along with the necessary fees are to be filed with the registrar.
      • Memorandum of association duly signed by the subscribers
    Companies Act 1956
  • Contd-
      • Articles of association duly signed by the subscribers
      • Agreement which the company proposes to enter into with any individual for appointment as its managing or whole time director or manager.
      • A list of directors who have agreed to become the first directors of the company.
      • A declaration stating that all the requirements of the companies act and other formalities relating to registration have been complied with
    Companies Act 1956
  • Contd-
    • Certificate of incorporation is issued by the registrar after due examination of the documents. From the date of issue of the certificate the company becomes a separate legal entity
    • Certificate of commencement of business. –A conclusive evidence that the company is entitled to do business
    Companies Act 1956
  • Classification of Companies
    • Companies may be classified as :
    • Incorporated Companies
    • A company formed for the purpose of carrying on a business and is incorporated under the Company’s Act,1956.
    • Unincorporated Companies
    • These companies are large partnerships, not regarded as distinct entities separate from the members constituting them. In such companies the liability of members is unlimited.
    Companies Act 1956
  • Classification of Companies
    • Companies on the basis of Incorporation
    • 1. Chartered Companies : If a company is incorporated by a charter granted by a monarch, it is called a chartered company. Ex: East India Company.
    • 2. Statutory Companies : These are companies which are created by a special Act of the Legislature, e.g. LIC,SBI,UTI. The provisions of the Company’s Act ,1956 apply to them , if they are not inconsistent with the provisions of the special Act under which they are formed.
    Companies Act 1956
  • Classification of Companies
    • 2. Registered companies : These are the companies which are formed and registered under the Companies Act, 1956, or were registered under any of the earlier Companies Acts.
    Companies Act 1956
  • Classification of Companies
    • Companies on the basis of Number of Members
    • Private Company :
      • Company which has a minimum paid up capital of Rs 1,00,000.
      • Minimum members: 2 - 50
    • Public company :
      • Minimum paid up capital: 5 lakhs
      • Minimum no of members: 7
    Companies Act 1956
  • Classification of Companies
    • Companies on the basis of Liability
    • Companies with limited liability
    • Companies limited by shares: It is a registered company with the liability of members limited by the memorandum of association to the amount, if any, unpaid on the shares respectively held by them.
    Companies Act 1956
  • Classification of companies
    • Company limited by guarantee : A company having the liability of its members limited by the memorandum to such an amount as the members may respectively undertake by the memorandum to contribute to the assets of the company.
    Companies Act 1956
  • Classification of Companies
    • Unlimited company :
      • It is a company in which the liability of the members is not limited by its memorandum.
      • The members of such companies may be required to pay the losses from their personal property.
      • Because such companies have separate legal entity, its creditors cannot file a suit against the members directly.
    Companies Act 1956
  • Classification of Companies
    • Classification based on control
      • 1. Government company: 51% of the paid up shares held by the government.
      • 2. Non-government Company:
      • 3. Foreign Company: Company which is incorporated in a country outside India under the law of that country.
      • 4. Domestic company: Company which cannot be termed as a foreign company
      • 5. Holding and subsidiary company: If one company controls another company
    Companies Act 1956
  • Classification of Companies
    • The controlling company is called the holding company and the company so controlled may be called the subsidiary company .
    • 5. Public financial Institutions: LIC, UTI etc
    • 6. One-man company: A member may hold virtually the entire share capital of a company.
    Companies Act 1956
  • Classification of Companies
    • Non-trading company or association not for profi t – company formed for promoting the objects of art, science , religion –a license is granted by the central government.
    • Investment company –A company whose principal business is the acquisition of shares, stock, debentures etc.
    Companies Act 1956
  • Classification of Companies
    • Producer Company – Cooperative societies can be made companies under the Companies Act. a company formed and registered under theses provisions shall be known as producer companies.
    • Multinational Companies – companies operating in more than one country – ex: Coca Cola, LG
    Companies Act 1956
  • Classification of Companies
    • Illegal Association : According to sec 11 No company, association or partnership consisting of more than 10 persons for the purpose of carrying on the business of banking and more than 20 persons for the purpose of carrying on another business shall be formed unless it is a registered as a company under this Act or is formed in pursuance of some other Indian Law.
    Companies Act 1956
  • Promoter
    • Who is a promoter?
    • A promoter is one who undertakes to form a company with reference to a given project and to set it going, and who takes the necessary steps to accomplish that purpose.
    Companies Act 1956
    • A contract made by promoters on behalf of the company before its incorporation is termed as pre-incorporation contract.It is correct to say that a company can’t retify PIC.A company gets its legal status only after incorporation.Therefore,the only remedy open to the company after incorporation is to enter into a fresh contract.
    Companies Act 1956
  • Legal position of pre-incorporation contracts
    • The promoters while entering into preliminary contracts are treated as agents of the company that is about to be formed.
    • The legal position is that for a valid contract two consenting parties are necessary and a company before incorporation is a non-entity.
    • A pre-incorporation contract which is purported to be made by the company which does not exist, is a nullity .
    • Thus when the company comes into existence it can neither sue nor be sued on that contract
    Companies Act 1956
  • Provisional contracts
    • Provisional Contracts
    • Provisional contracts refer to the contracts entered into by the public company after its incorporation but before it is issued certificate to commence business.
    • According to sec 149(4), any contract made by a company before the date at which it is entitled to commence business shall be provisional only, and shall not be binding on the company until that date, and on that date it shall become binding
    Companies Act 1956
  • The Constitution of the Company
    • The company’s constitution essentially consists of two documents:
    • the memorandum of association
    • the articles of association
    • These are essential documents as they:
        • set out the nature and character of the company
        • outline the powers of directors
        • define the relationship between directors and shareholders
  • Memorandum of Association
    • It is a fundamental document .
    • It contains the fundamental condition on which alone the company is allowed to be incorporated.
    • It lays down the area of operation of the company.
    • It regulates the internal affairs of the company in relation to the outsiders.
    • It has to be printed, divided into paragraphs, numbered consecutively and signed by at least 7 persons
  • Memorandum of Association
    • The memorandum – is essentially for external consumption as it sets out the names of the promoters, the share capital and the purpose (objects) of the company
    • This is useful information for potential customers and investors
  • Contents
    • The name clause
    • The registered office clause
    • The objects clause
    • Liability clause
    • Capital Clause
    • Association clause
  • Memorandum of Association
    • 3 . Object Clause (Sec 13 (1))
    • The objects of the company shall be clearly set forth in the Memorandum.
    • It defines and confines the scope of the Company’s Powers.
    • The object clause in the Memorandum must State
    • a) Main Objects of the company to be pursued by the company on its incorporation and objects incidental to it.
    • b) Other objects not included above.
  • Memorandum of Association
    • Purpose of the Main objects:
    • To enable subscribers to the Memorandum to know the uses to which their money may be put.
    • To enable creditors and persons dealing with the company to know what its permitted range of enterprise or activities is.
    • The narrower the objects expressed in the Memorandum the less is the subscriber’s risk.
  • Doctrine of Ultra Vires
    • A company cannot go beyond its objects mentioned in its memorandum. The company’s activities are confined strictly to the objects mentioned in the memorandum and if they go beyond these objects, then such acts will be ultra vires
    • The object of declaring such an act as ultra vires is to protect the interests of shareholders and all others who deal with the company
  • Alteration of Memorandum
    • To Alter the Memorandum the provisions of the memorandum can be divided into 2 :
    • Conditions : Are the main provisions included in the Memorandum.
    • They can be altered as per the express provisions laid down in the company’s Act.
    • Other Provisions : Can be altered by passing a special resolution.
  • Doctrine of Ultra Vires
    • Company exists only for the objects which are expressly stated in its objects clause or which are incidental to or consequential upon these specified objects
    • Any act done outside the express or implied objects is ultra vires
    • The ultra vires acts are null and void ab intio. The company is not bound by these acts and neither the company nor the other contracting party can sue upon it
  • Doctrine of Ultra Vires
    • In case a company is about to undertake an ultra vires act the members of a company (even a single member) can get an order of injunction from the court restraining the company
    • If the directors have exceeded their authority and done something then such matter can be ratified by the general body of the shareholders, provided the company has the capacity to do so by its memorandum of association.
  • Doctrine of Ultra Vires
    • Any property acquired by a company under an ultra vires transaction may be protected by the company against damage by third persons
    • Directors and other officers can be held liable to compensate the company for any loss occasioned to it by an ultra vires act.
    • Directors and other officers shall be personally accountable to the third parties
  • Doctrine of Ultra Vires
    • Money or property gained through an ultra vires transaction available in specie or capable of being identified shall be restituted (restored) to the other party.
    • In case an ultra vires loan taken by a company is used for the payment of its intra vires debts the lender of the ultra vires loan is substituted in place of the creditor who has been paid off and as such can recover money
  • Articles of association
    • Sec 2(2) – AOA of a company as originally framed or as altered from time to time in pursuance of any previous companies law or act.
    • They are the bye-laws of the company according to which director and other officers are required to perform their functions as regards the management of the company, its accounts and audit.
    • Subordinate to the memorandum
    • They can be easily altered by passing a special resolution.
    Companies Act 1956
  • Articles of Association
    • Contents of Articles
    • Different classes of shares and rights of shareholders
    • Procedure for making an issue of share capital and allotment thereof.
    • Procedure for issue of share certificates and share warrants.
    • Forfeiture of shares and the procedure for their reissue.
    • Procedure for transfer and transmission of shares.
  • Articles of Association
    • The time lag between calls on shares, conversion of shares into stock.
    • Directors, their appointment, remuneration , qualification etc.
    • Accounts and Audit.
    • Lien on shares.
    • Payment on commission of shares and debentures to underwriters.
    • Rules for adoption of preliminary contracts, if any.
    • Re-organisation and consolidation of share capital.
  • Articles of Association
    • 13. Alteration of share capital and buy back of shares.
    • 14.Borrowing powers of Directors.
    • 15. General Meetings, proxies and polls.
    • 16. Voting rights of members.
    • 17. Dividends and reserves.
    • 18. Winding up.
  • Articles of Association
    • Limitations to Alteration of Articles
    • Alterations should not be inconsistent with the provisions of the Act or any other statute, and conditions contained in the Memorandum.
    • Case: M.R.Kamath vs Canara Banking Corporation Ltd.
    • A Company passed a resolution expelling a member and authorising the directors to register the transfer of his shares without the transfer deed.
    • Held the resolution was in violation of provision relating to the transfer under the act
  • Articles of Association
    • Alteration of Articles
    • Every company has the power to alter its Articles by a special resolution. (sec 31)
    • Procedure for Alteration of Articles
    • By passing a special resolution.
    • Copy of Special Resolution to be sent to ROC within 30 days.
    • Copy of altered Articles to be submitted to ROC within 3 months of passing resolution.
  • Articles of Association
    • 2. Must not sanction anything illegal
    • Case : Andrew vs Gas meter co. Ltd.
    • The Memorandum of the Company provided that the Nominal Capital of the company was 60,000 pounds divided into 600 shares of 100 pounds each. The Memorandum and Articles did not contain any express provisions as to issue of preference shares. The company by a special resolution, altered its Articles so as to give itself power to issue preference shares, and then issued them.
    • Held the issue was valid.
  • Articles of Association
    • 3. Must be bonafide for the benefit of the company as a whole.
    • Case: Shuttleworth vs Cox Bros.& Co.
    • The Articles of a company provided that S and 4 others should be permanent directors of the company. They could however be disqualified by any of the 6 specific event. S failed to account for company’s money on 22 occasions within 12 months. The Articles were accordingly altered and a 7 th event disqualifying a director was added. The event added was that if a Director was so requested in writing by all other Directors he should resign. S was so requested to resign.
    • Held the alteration was bonafide for the benefit of the company as whole, and was valid.
  • Articles of Association
    • 4.Must not deprive any person of his rights under a contract.
    • 5.Must not be contrary to the order of the National Company Law Tribunal.
    • 6. Alteration in Articles which has an effect of converting a public company into a private company can be made only if it is approved by the central government.
  • Articles of Association
    • Binding force of Memorandum and Articles
    • The company is bound to its members.
    • Each member is bound to the company
    • Each member is bound to the other member in so far as rights and duties arising out of the articles are concerned.
    • Neither the members nor the company is bound to the outsiders.
  • Articles of Association
    • Difference between Articles and Memorandum of Association
    • Memorandum is the charter of the company while Articles are the regulations for the internal management of the company.
    • Memorandum defines the scope of activity of the company whereas Articles contain the rules for carrying out the objectives of the company.
  • Articles of Association
    • 3. Memorandum is a supreme and primary document where as Articles are subordinate to the Memorandum.
    • 4. Memorandum is a must for every company where as for Articles , it is not a must for companies limited by shares which may simply adopt Table A of the schedule.
    • 5. Memorandum is subject to strict restrictions and some alterations must be subject to the Central Government approval where as articles can be Altered by just passing a special resolution.
  • Articles of Association
    • 6. Acts Ultra vires the memorandum are wholly void and cannot be ratified where as acts ultra vires the Articles but intra vires the memorandum can be ratified
  • Articles of Association
    • Doctrine of Constructive Notice
    • Memorandum and Articles on registration with ROC assume the character of Public documents.
    • Every outsider dealing with the company is deemed to have notice of the contents of the same.
    • This is known as Doctrine of Constructive Notice
  • Articles of Association
    • Doctrine of Constructive Notice
    • Case : The Articles of Association of the company contained a clause that all deeds and documents shall be signed by the Managing Director, the secretary and the working Director on behalf of the company. A deed of mortgage was signed by the secretary and the working director only.
  • Articles of Association
    • Doctrine of Constructive Notice
    • Decision
    • It was held that the Mortgage was invalid in spite of the fact that the plaintiff acted in good faith and the money was utilised for the company. The mortgagee should have consulted the Articles of Association before executing the mortgage deed.
  • Articles of Association
    • Lord Hatherley observed in this regard in a case of Mahony vs East Holyford Mining Co.
    • Whether actually the outsider reads the Articles or the Memorandum or not, it will be presumed that he has read them. Every Joint stock company has its Memorandum and Articles of Association open to all and every person who deals with the company must be affected with the notice of all that is contained in these two documents
  • Articles of Association
    • Doctrine of Indoor Management
    • There is one limitation to the doctrine of Constructive Notice.
    • The outsiders dealing with the company are entitled to assume that so far as the internal proceedings of the company are concerned, everything has been regularly done.
    • They need not inquire about the regularity of the internal proceedings as required by the Memorandum and Articles. They can presume that all is being done regularly.
  • Articles of Association
    • Case: Royal British Bank vs Turquand
    • The Directors of the company had issued a bond to T. They had the power under the Articles to issue such a bond provided they were authorised by a resolution passed by the shareholders at the General Meetings of the Company. No such resolution was passed by the company.
  • Articles of Association
    • Decision
    • T could recover the amount of the bond from the company on the ground that he was entitled to assume that the resolution had been passed.
  • Articles of Association
    • Exceptions to the Doctrine of Indoor Management
    • 1. Where the outsider has the knowledge of irregularity.
    • Case: T.R.Pratt
    • Company A lent money to company B on a mortgage of its assets. The procedure laid down in the Articles for such transactions were not complied with. The Directors of the companies were the same.
    • Held the lender had notice of irregularity and hence the mortgage was not binding.
  • Articles of Association
    • 2. Negligence on the part of the outsider
    • Case : Anand Bihari Lal vs Dinshaw and Co.
    • The plaintiff in this case accepted a transfer of company’s property from its accountant.
    • Held the transfer was void as such a transaction was beyond the scope of Accountant’s authority. The plaintiff should have seen the Power of Attorney executed in favour of the accountant by the company.
  • Articles of Association
    • 3. In case of a forgery
    • Case: Ruben vs Great Fingall consolidated Co.
    • The secretary of the company issued a share certificate under the company’s seal with his own signature and the signature of a Director forged by him.
    • Held the share certificate was not binding on the company. The person who advanced money on the strength of this certificate was not entitled to be registered as holder of shares.
  • Articles of Association
    • 4. Acts outside the scope of apparent authority.
    • Case: Kredit Bank Cassel vs Schenkers Ltd.
    • A branch manager of a company drew and endorsed bills of exchange on behalf of the company in favour of a payee to whom he was personally indebted. He had no authority from the company to do so .
    • Held the company was not bound.
  • Directors
    • Brains of the company
    • A person having control over the direction, conduct and management or superintendence over the affairs of the company
    • Only individuals can be directors.
    • Public company – three directors
    • Private company – two directors
    Companies Act 1956
  • Directors
    • Director is a person who has control over the direction , conduct and management of the affairs of the company.
    • According to Lord Cairns
    • A company cannot act on its own . It can only act through directors, and the relation between the company and directors is that of Principal and agent.
    Companies Act 1956
  • Management and Administration
    • According to Companies Act 1956, Sec 2(13)
    • A Director is defined as “ any person occupying the position of the director, by whatsoever name called.
    • Only Individuals can be Directors
    • No Body corporate or Association or firm can be appointed as director of the company,
    Companies Act 1956
  • Management and Administration
    • Qualification of a Director
    • The Act prescribes no academic or professional qualification for a director. The Articles may provide what qualifications the company’s directors must possess.
    • Disqualification of Directors
    • Following persons are not eligible to be directors
      • Persons of unsound mind
      • An Undischarged insolvent
    Companies Act 1956
  • Powers
    • General powers of the Board
    • Powers to be exercised at board meetings
      • To issue debentures
      • To invest the funds of the company
      • To make calls on shareholders in respect of money unpaid on their shares
    • Powers to be exercised with the approval of company in general meeting
    Companies Act 1956
  • Contd -
      • To borrow money
      • To contribute to charitable trusts
      • To remit or give time for repayment of any debt due to the company by a director
    • Duties
      • Fiduciary duties
      • Duties of skill, care and diligence
      • Attend board meetings
      • Not to delegate his functions
    Companies Act 1956
  • Meetings
    • General meetings
      • Statutory meeting
      • Annual General meeting
      • Extraordinary meeting
    • Class meeting
      • Meeting of creditors and debenture holders
      • Meeting of directors
    Companies Act 1956
  • Requisites of a valid meeting
    • Proper authority
    • Notice of meeting
    • Quorum of meting
    • Chairman of meeting
    • Minutes of meeting
    Companies Act 1956
  • Statutory Meetings (Sec 165) Companies Act 1956
    • Company limited by shares
    • Company limited by guarantee and having a share capital
    • Not applicable to Private Limited Company
    Applicability Should be held between 1 months ≥ 6 months from the date at which the company is entitled to commence business Periodicity The 1st General Meeting of the members of the company after the incorporation of the company to acquaint members with matters arising out of the promotion and formation of the company Definition Report has to be forwarded to every member at-least 21 days before the date of meeting Statutory Report
  • Annual General Meetings (Sec 166) Companies Act 1956 AGM is the regular meeting of the members of a company held annually for the purpose of transacting Company’s ordinary business. Definition
    • Once every year
    • The gap between 2 AGM should not be more than 15 months
    • Company may hold its 1st AGM within a period of not more
    • than 18months from the date of incorporation
    • The registrar may for special reason extend the period of
    • AGM by a period not more than 3 months (except in case of
    • 1 st AGM).
    Frequency of Meeting Ordinary Business
    • To Consider and adopt Audited Balance Sheet
    • To declare dividend on shares
    • To appoint Directors in place of those retiring by rotation
    • To appoint Auditors and to fix their remuneration.
  • Annual General Meetings (Sec 166) Companies Act 1956 The Central Government on an application from any member of the company may call or give direction to call a AGM if the same has not been held as per the provision of section 166 Power of the Central Government (section 167) The company and every officer of the company who is in default shall be punishable with a fine which may extend upto Rs 50,000 In case of continuing default a further fine of Rs 2,500 for each day of default Penalty for default in complying with section 166 & 167 (section 168)
  • Annual General Meetings (Sec 166) Companies Act 1956
    • At a time during business hours
    • On a day that is not a public holiday
    • Shall be held either at the registered office of the company or some other place within the city,
    • town or village in which the registered office of the company is situated
    Every AGM shall be called for :
    • The central government may exempt any class of company from the requirements mentioned
    • above subject to conditions as it may impose
    • A public company or a private company which is a subsidiary of a public company may by its
    • article fix the time for its AGM and may also in one AGM fix the time for the subsequent
    • AGM
    • A private company which is not a subsidiary of a public company may in a like manner and
    • also by a resolution agreed to by all the members thereof, fix the time and place for its AGM
  • Extra Ordinary General Meetings (Sec 169) Companies Act 1956 Every general meeting other than the statutory meeting and the annual general meeting or any adjournment thereof, is an extraordinary general meeting
    • Such meeting is usually called by the Board of Directors for some urgent
    • business which cannot wait to be decided till the next AGM.
    • Every business transacted at such a meeting is special business.
    BOD can call EGM if it has received a requisition from such number of members of the company as mentioned below:
    • Company having share capital – members holding ≥ 1/10th of the paid up capital of the
    • company ( voting rights) at the date of the deposit of the requisition
    • Company not having share capital – members having ≥ 1/10 th of the total voting power
    • of all members as at the date of the deposit of the requisition
  • Notice of Meetings Companies Act 1956 Contents and manner of service of notice – Section 172
        • Meeting can be called by giving not less than 21 days notice
        • Meeting can be called with shorter notice, if consent is accorded there to
        • * AGM By all members entitled to vote thereto
        • An explanatory statement of the special business must also accompany the notice calling the
        • meeting.
        • Notice should also give the nature and extent of the interest of the directors or manager in the
        • special business, as also the extent of shareholding interest in the company of every such person
    Company having share capital Members holding ≥ 95% of the paid up share capital Company not having share capital Members having ≥ 95% of the total voting rights * Other meeting
  • Quorum of Shareholders ’ Meetings Companies Act 1956 Quorum for meeting - section 174
    • Unless the article provides for a larger number, the Quorum for the meeting :
    • * Public ltd. Company 5 members personally present
    • * Private Ltd. Company 2 members personally present
    • If Quorum not present within 30 minutes of the time fixed for the meeting :
    * Meeting called on requisition from members meeting stands dissolved * Other meetings shall stand adjourned to the same day in the next week, at the same time & place or such other day at such other time & place as Board may decide * In case of adjourned meeting members present shall form the quorum
  • Board Meetings Companies Act 1956 Frequency of Meeting (section 285)
    • At least once in every 3 calendar months and 4 meetings in every year
    • If 4 BMs are held in a calendar year, one in each quarter, the interval between 2 meetings may
    • be more than 3 months
    • Section 25 company (An association not for profit) needs to hold only one meeting in 6 months
    Notice of the Meeting (section 286)
    • Notice must be given in writing to every director for the time being in India and at the usual
    • address in India to every other director
    Agenda of the Meeting
    • Unless otherwise required by the article, no agenda required
    • In some matters prior intimation of the business to be transacted is required i.e. appointment
    • of managing director (Sec 316), inter - company loans & investment (sec 372A) appointment
    • of a person as a manager who is already a MD in some other company (sec 386)
  • Board Meetings Companies Act 1956 Quorum for Board Meetings
    • 1/3 rd of the Board’s total strength or 2 directors which ever is higher
    • Total strength for the purpose means total strength of the Board as reduced by the number
    • of positions vacant at that time
    • Article of association can always fix a higher quorum but not lower number
    • The quorum shall consist of fully qualified and disinterested directors only.
    • Number of the interested directors ≥ to 2/3rd of the total strength, quorum shall be the
    • remaining directors present at the meeting being not less than 2.
    Chairman of the Board Meeting
    • The Board shall elect one of the directors as its chairman
    Voting at Board Meeting
    • Question decided by majority of votes
    • Chairman will have the right exercise casting vote
  • Winding up
    • Winding up or liquidation of a company represents the last stage in its life.
    • A proceeding by which a company is dissolved.
    • Assets of the company are disposed of, debts are paid out
    Companies Act 1956
  • Modes of winding up
    • Winding up by the court – compulsory winding up
    • Voluntary winding up
      • (a) members voluntary winding up
      • (b) creditors voluntary winding up
    • Winding up subject to the supervision of the court
    Companies Act 1956
  • Grounds for compulsory winding up
    • By special resolution
    • Default in holding statutory meeting
    • Failure to commence business
    • Reduction in membership
    • Inability to pay debts
    • Just and equitable
    Companies Act 1956
  • Voluntary winding up
    • Winding up by the creditors or members without the intervention of the court.
    • Grounds
    • If the company in the general meeting passes an ordinary resolution for voluntary winding up where the period fixed by the Articles of Association for the duration of the company has expired or the event has occurred on which under the articles the company is to be dissolved.
    Companies Act 1956
  • Contd-
    • If the company resolves by special resolution that it shall be wound up voluntarily
    Companies Act 1956
  • Members winding up
    • Members winding up is possible only when the company is solvent and is able to pay the liabilities in full.
    Companies Act 1956
  • Creditors voluntary winding up
    • Based upon the assumption that the company is insolvent
    • From the beginning the meeting of creditors is held along with the members.
    • The chief power to appoint the liquidator is in the hands of the creditors and there is a provision for appointing a committee for inspection
    Companies Act 1956