Company law


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Company law

  1. 1. THE COMPANIES ACT - 1956
  2. 2. LEGISLATIVE BACKDROP OF COMPANIES ACT The law relating to companies in INDIA is based on British model. The first piece of legislation relating to INDIAN companies in 1850 is based on Joint Stock Companies Act, 1844 of England. Companies Amendment Act 1857 provided for registration of companies with or without liability. Companies Act,1866 replaced the Amendment Act 1857 After a series of Amendments Companies Act 1956 was passed Since 1956 -1988 13 amendments have been made
  3. 3. MEANING AND DEFINITION OF A COMPANY Sec 3 (1) of the companies act 1956 defines that “ a company means a company formed and registered under this act or an existing company ” A company refers to an “ association of many persons who contribute money or moneys worth to a common stock and employ it in some trade or business and who share the profit and loss arising there from ” - Lord Justice Lindlay Company is “ an incorporated association which is an artificial person created by law, having separate legal entity with a perpetual succession and common seal ” - Henry
  4. 4. Features of a Company1. Registration / Incorporated association2. Separate legal entity3. Common Seal4. Perpetuity5. Limited Liability6. Separation of ownership and mgt7. Transferability of shares8. Separate property9. Capacity to sue and to be sued
  5. 5. LIFTING THE CORPORATE VEIL Circumstances under which the courts may lift the corporate veilA. Common law exceptions1. Determination of character2. Where company is a sham3. Prevention of fraud or improper conduct4. Where the company is acting as the agent of the s.holders5. Protection of revenue6. Avoidance of welfare legislation
  6. 6. B. Statutory exceptions1. Number of members fall below statutory minimum2. Failure to refund application money3. Company not mentioned on a bill of exchange4. Group accounts5. Investigation into related activities6. Fraudulent trading
  7. 7. Company & Partnership distinguished On the basis of ………. 1. Registration 2. Separate legal entity 3. Right on property 4. Liability 5. Shares transferability 6. Perpetuity 7. Agent 8. Interference in affairs 9. Entering into contact 10. Powers 11. Members 12. Dissolution
  8. 8. Company & HUF distinguished On the basis of ……….1. Authority2. Number of members3. Basis of membership4. Position of females5. Homogeneous / Heterogeneous
  9. 9. Kinds of companies Company Registered co. Statutory co. Chartered co. Companies ltd by shares Public Companies ltd by guarantee & Unlimited ltd companies Private conti……
  10. 10. Classification of Registered companiesOn the Basis of the Number of Members a) Private Companies b) Public CompaniesOn the Basis of ownership a) Government Companies b) Non Government CompaniesOn the Basis of Nationality a) Domestic Company and b) Foreign CompanyOn the Basis of Control a) Holding Companies b) Subsidiary Companies
  11. 11. PUBLIC AND PVT. CO. DISTINGUISHED On the basis of …….. 1. Formation 2. End words of the name 3. Membership 4. Prospectus 5. Allotment of shares 6. MOA and AOA 7. Preparation of Articles 8. Public issue of capital 9. Transfer of shares 10. Statutory meeting 11. Share warrant
  12. 12. Formation of a CompanyIncorporationDocuments to be filed with the Registrar1. Memorandum of Association2. Articles of Association3. Agreement if any for appointment of M.D4. Statement of nominal capital5. Address of the Registered Office6. List of directors and sign7. Undertaking in writing to take and pay for his qualification shares8. Declaration
  13. 13. Memorandum of Association-MOA It is document which sets out the constitution of the company and is the foundation of the company. It contains the fundamental conditions upon which the company is allowed to be incorporatedVarious Clauses in MOA-1. Name clause2. Registered office clause3. Objects clause4. Liability clause5. Capital clause
  14. 14. Alteration of MOA1. Change of name2. Change of Registered office3. Change of Liability clause4. Change in Capital clause5. Change in Objects clause substantive limits procedural limits DOCTRINE OF ULTRA VIRES
  15. 15. Articles of Association-AOA AOA refers to the rules and regulations of a company framed for the purpose of internal management of its affairs.The AOA of a company are sub-ordinate to and are controlled by the MOA.Companies which must have their own articles-1. Private companies limited by shares2. Companies limited by guarantee3. Unlimited companies
  16. 16. Contents of AOA1. Number and value of 9. Conversion of shares shares into stock2. Allotment of shares 10. Voting rights and3. Calls on shares proxies4. Lien on shares 11. Meetings5. Transfer and 12. Directors and their transmission of shares appointment6. Forfeiture of shares 13. Borrowing powers7. Alteration of capital 14. Dividends and reserves8. Share certificates 15. Accounts and audit 16. Winding up
  17. 17. MOA & AOA distinguished1. MOA is a charter of the company defines scope and activities AOA regulates internal mgt2. MOA defines relation to the outside world AOA deals with rights of the members3. MOA is the supreme document of the company AOA is the subordinate to the memorandum4. MOA is necessary for all the companies AOA is not required for the company limited by shares5. MOA cannot be altered except in the manner and extent provided by the Act AOA can be altered through a special resolution
  18. 18. PROSPECTUSDefinition – Sec 2(36) defines prospectus as “ any document described or issued as a prospectus and includes any notice, circular, advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares in, or debentures of a body corporate ”Ingredients to be called prospectus -1. There must be an invitation offering to the public2. The invitation must be made by or on behalf of the company3. The invitation must be to subscribe or purchase4. The invitation must relate to shares or debentures
  19. 19. Objective of Prospectus –• To inform the public about the formation of the company• To induce the investors to invest in its shares and debentures• To preserve the authentic record of the terms on which the investors have been invited and to make the directors responsible for the statements in the prospectusStatement in Lieu of PROSPECTUS
  20. 20. SHARE CAPITAL The term share capital refers to the amount of capital raised by a company through the issue of sharesFeatures of Share capital:1. Share capital can be raised only by companies limited by shares and registered with share capital.2. Share capital can be raised by a company either at the time of its formation for starting its operations or later on for further expansion3. Share Capital (Except in the case of redeemable preference shares), once raised , cannot be returned by the company to the shareholders as long as it continues to exist.It can be returned only at the time of the winding up of the company.
  21. 21. Classes of Capital 1. Nominal,Registered or Authorized Capital 2. Issued capital 3. Subscribed capital 4. Called up capital 5. Paid up capital 6. Uncalled capital 7. Reserve capital
  22. 22. SHARES Section 2(46) of the companies Act of 1956 defines a share as “ a share in the share capital of a company and includes stock except where a distinction between stock and share is expressed or implied ” According to this definition a share is a fractional part or unit of the capital of a company.
  23. 23. Capital Structure of SharesEquity Preference Deferred/Founders Cumulative Non-Cumulative Participating Non-participating Redeemable Non-redeemable
  24. 24. Preference & Equity shares distinguished On the basis of ……… 1. Right of receiving dividend 2. Right of receiving back their capital 3. Return 4. Voting rights 5. Control of management 6. Face value 7. Redeemability 8. Period of finance 9. Capital appreciation 10. Nature of capital 11. Interest in company
  25. 25. Debentures The term debenture is derived from Latin term ‘deber’ meaning ‘to owe’ So literally, debenture means a document acknowledging a debt. Debenture is an instrument issued by a company under seal, acknowledging a debt to some person, and containing an undertaking to repay the debt after a specified date or on a particular date or at the option of the company, and in the meantime , to pay interest at a fixed rate and at regular intervals. In short, a debenture is an instrument of credit, a bond of indebtedness, a certificate of loan or an acknowledgement of debts issued by a company.
  26. 26. Kinds of DebenturesTransferability Security Redemption Convertibility Priority•Registered •Simple or •Redeemable Convertible First unsecured•Bearer or •Irredeemable Non-Convertible SecondUnregistered •Mortgage or Secured
  27. 27. Stock and SharesRights sharesBonus sharesShare CertificateShare WarrantForfeiture of sharesLien of sharesTransfer of sharesTransmission of shares
  28. 28. MEETINGSGeneral Meetings Board Meetings Creditors’ Meetings•Statutory meeting•Annual general • Board meetings •Debenture holders’•Extraordinary • Committee •Creditors [during general meetings winding up]•Class meeting
  29. 29. Provisions of a valid meeting  Proper authority to convene a meeting.  Proper notice of the meeting  Quoram for the meeting For General meeting US 174 2 members personally present in the case of a private Co,& 5 members personally present in the case of public co. For Board meeting In the absence of specific provisions in the articles regarding the quoram. 13 rd of the total strength of the directors or at least 2 directors whichever is higher.
  30. 30. Proxy – It refers to a person who is authorized by a member of a co to attend and vote at a meeting of the co on his behalf. In other words, a proxy is an agent of a share holder authorized to attend & vote at a meeting of the co.• Proper person in the Chair• Agenda of the meeting• Motion :- A proposition or proposal put before a meeting for consideration & decision. Method of Voting:- a) By show of hands b) by poll
  31. 31. Resolutions When motion is passed in a meeting, it becomes a resolution. In other words it is the recorded decision of a meeting. In short, it is the decision of a meeting on a motion. Ordinary Resolution:- As per Sec 189(1) of co Act an ordinary ordinary resolution is one which is passed by a simple majority of votes of members present in person or by proxy at a properly constituted & convened general meeting. Special Resolution:- Sec 189 (2) of the Co. Act, a special Resolution is one which is passed by at least 3/4 th majority of votes of members present in person or proxy at a properly constituted & convened G.M.
  32. 32. Minutes of Meetings Literally, minutes refer to a note to preserve the memory of anything. The minutes of a meeting are the written record of the business transacted and decisions arrived at a meeting. U/S 193 of Co Act provides that every company must keep minutes containing a fair and correct summary of the proceedings.
  33. 33. Objectives ,Uses or Value of Minutes 1. Clear, concise and accurate record 2. Permanent record of the proceedings and the decisions reached at a meeting. 3. Reminder of The subjects previously dealt with and the conclusion reached. 4. They are accepted in a court of law as a evidence of the proceedings of a meeting. 5. Information to the absentee members.
  34. 34. Statutory Meeting Statutory meeting is the first official general Meeting of the shareholders of public co ltd by shares or a public co ltd by guarantee & having share capital. Provisions 1. Notice. 2. Statutory Report. 3. A certified copy of the Statutory report must be filed with the registrar of companies. 4. At the meeting , a list showing the names, addresses & occupations of the members & the number of share held by them must be placed by the board of directors. 5. Default.
  35. 35. Statutory Report This is a report drafted by directors and certified as correct by at least 2 of them including the managing director. U/S 165 (3) of the Companies Act of 1956, the statutory report must contain the following matters: 1. Total no of shares allotted. 2. An abstract of Receipts and payments. 3. Particulars of directors, managing directors etc. 4. Underwriting contracts. 5. Calls in arrears. 6. Commission or brokerage.
  36. 36. Objects of Statutory meeting. 1. To know the progress of the Co. 2. To discuss the finances of the Co. 3. To help the members to know one another .
  37. 37. Annual General Meeting Annual General meeting is a meeting of the share holders which is held every year. Provisions 1. U/S 166 every co public or private , must hold an annual G.M of shareholders every year. 2. The first A.G.M. of a co. must be held within 18 months from the date of its incorporation. 3. Every subsequent A.G.M must be held each year within 6 months after the closing of the financial year. Of the co & within 15 months from the date of the previous A.G.M. 4. The meeting must be held on a working day during the business hours at the Registered office of the co. 5. Notice.
  38. 38. WINDING UP OF COMPANIESModes of Winding Up1. By the Court – Compulsory winding up i. Special resolution ii. Default in filing statutory report or holding statutory meeting iii. Failure to commence business with in time iv. Reduction of membership v. Inability to pay debts vi. Just and equitable clause of the court
  39. 39. 2. Voluntary winding up –i. Members voluntary w. up (declaration of solvency)ii. Creditors voluntary winding up3. Winding up under the supervision of the court
  40. 40. Petition for Winding Up 1. The company 2. Any creditor or creditors including any contingent or prospective creditor or creditors 3. Any contributor or contributories 4. The Registrar 5. Any person authorized by the central government
  41. 41. The Largest Public Company Bankruptcies - 2002  Company Bankruptcy Date Assets WorldCom,Inc. 7/21/2002 $103,900,000,000 Conseco, Inc. 12/18/2002 $61,392,300,000 Global Crossing, Ltd. 1/28/2002 $30,185,000,000 UAL Corp. (United Airlines, Inc. parent) 12/9/2002 $25,197,000,000 Adelphia Communications Corp. 6/25/2002 $21,499,480,000 Kmart Corp. 1/22/2002 $14,630,000,000 NTL, Inc. 5/8/2002 $13,026,100,000 U.S. Airways, Inc. 8/11/2002 $7,941,000,000 XO Communications, Inc. 6/17/2002 $7,930,470,000 Williams Communications Group, Inc. 4/22/2002 $5,992,030,000 McLeodUSA, Inc. 1/30/2002 $4,755,100,000 Budget Group, Inc. 7/29/2002 $4,469,500,000 National Century Financial Enterprises, Inc. 11/18/2002 $3,800,000,000 Asia Global Crossing, Ltd. 11/18/2002 $3,632,540,000 Kaiser Aluminum Corp. 2/12/2002 $3,364,300,000Source:
  42. 42. THANK ‘U’