Company LawCompany Law
What is a company?What is a company? A Company is aA Company is a voluntaryvoluntaryassociation of personsassociation of ...
Features of a companyFeatures of a company A company is considered as aA company is considered as aseparate legal entitys...
Other featuresOther features Limited LiabilityLimited Liability ( either by share or( either by share orguaranteeguarante...
Features continued..Features continued.. Perpetual successionPerpetual succession: Death of the: Death of themembers is n...
Lifting of Corporate VeilLifting of Corporate Veil As the company isAs the company is a separate legala separate legalent...
Circumstances to lift theCircumstances to lift thecorporate veil…corporate veil…The corporate veil can be lifted eitherThe...
Statutory circumstances forStatutory circumstances forlifting the corporate veillifting the corporate veil Reduction in m...
continuedcontinued Misrepresentation in the prospectus-Misrepresentation in the prospectus- (Derry(DerryVs Peek) In case ...
Circumstances to lift the corporateCircumstances to lift the corporateveil through judicial interpretationsveil through ju...
Judicial interpretations by theJudicial interpretations by thecourt are as follows:court are as follows: Protection of Re...
Other circumstancesOther circumstances Where a company is used to avoidWhere a company is used to avoidwelfare legislatio...
Types of CompaniesTypes of Companies Limited Company ( Limited byLimited Company ( Limited byshare or by guarantee)share ...
Limited CompanyLimited Company Limited by Shares-Limited by Shares- In such companies, theIn such companies, theliability...
Unlimited CompanyUnlimited Company There isThere is no limit on the liability of theno limit on the liability of themembe...
Government CompanyGovernment Company WhenWhen 51%51% of the paid up shareof the paid up sharecapital is held by the gover...
Foreign CompanyForeign Company A company incorporatedA company incorporatedoutside India, butoutside India, but having a ...
Private CompanyPrivate Company A company which has aA company which has a minimum ofminimum oftwo personstwo persons. The...
 Prohibits any invitation to the publicProhibits any invitation to the publicto subscribeto subscribe and therefore it ca...
Exemption and Privileges of aExemption and Privileges of aPrivate companyPrivate company It can have aIt can have a minim...
Public CompanyPublic Company A Public company means aA Public company means acompany-company-> Which is> Which is not a p...
Conversion of CompanyConversion of Company The Act provides forThe Act provides for conversion ofconversion ofpublic comp...
Registration and IncorporationRegistration and Incorporation Association of persons or partnershipAssociation of persons ...
Incorporation of a CompanyIncorporation of a Company The persons whoThe persons who conceive an ideaconceive an idea of a...
PromotersPromoters They can beThey can be remunerated for theirremunerated for theirservices, but they have to enter into...
 Sometimes , a few persons may onlySometimes , a few persons may onlyact asact as professionals who help theprofessionals...
Legal Position of theLegal Position of thePromotersPromoters TheyThey cannot make profitcannot make profit at theat theex...
Promoters have the followingPromoters have the followingliabilities under the Companiesliabilities under the CompaniesAct,...
The requirements are asThe requirements are asfollowsfollows Application for availability of nameApplication for availabi...
Memorandum of AssociationMemorandum of Association It is theIt is the chartercharter of the companyof the company It con...
Conditions of the MOAConditions of the MOA It should beIt should be printedprinted Divided intoDivided into paragraph an...
The MOA of the LimitedThe MOA of the LimitedCompanyCompany The name of the company withThe name of the company with‘‘limi...
The Compulsory ClausesThe Compulsory Clausesin MOAin MOA The Name Clause – it decides on theThe Name Clause – it decides ...
 The Liability Clause-The Liability Clause- What is the liability ofWhat is the liability ofits members.. limited by shar...
““Doctrine of Ultra Vires”Doctrine of Ultra Vires” The powers exercisable by the companyThe powers exercisable by the com...
TheThe consequences of theconsequences of the ultraultraviresvires transactions are as followstransactions are as follows:...
Articles of AssociationArticles of Association It is the companiesIt is the companies bye- laws or rulesbye- laws or rule...
AOAAOA AOA plays aAOA plays a subsidiary partsubsidiary part to the MOAto the MOA Any thingAny thing done beyond the AOA...
Contents of the AOA may beContents of the AOA may beas follows:as follows: Share capitalShare capital Lien on sharesLien...
Doctrine of Constructive noticeDoctrine of Constructive noticeand Indoor Managementand Indoor Management Persons dealing ...
Exceptions to the Doctrine ofExceptions to the Doctrine ofWhere the outsider cannot claimWhere the outsider cannot claimth...
Raising of Capital From PublicRaising of Capital From Public The companies can raise money byThe companies can raise mone...
ProspectusProspectus It is anIt is an invitationinvitation issued to the publicissued to the public totopurchase or subsc...
Various forms in which theVarious forms in which theprospectus can be issued.prospectus can be issued. Shelf ProspectusSh...
Contents of the prospectusContents of the prospectus General informationGeneral information Capital structureCapital str...
Civil Liability for MisstatementsCivil Liability for MisstatementsIn case of any untrue statement inIn case of any untrue ...
Remedies for misstatementsRemedies for misstatementsin the prospectusin the prospectus Relying on the prospectus if anyRe...
Share CapitalShare Capital Share:Share: Share is defined as “an interestShare is defined as “an interesthaving a money va...
Other features of a shareOther features of a share A share is not a negotiable instrument, butA share is not a negotiable...
Share Certificate and ShareShare Certificate and ShareWarrantWarrant Share CertificateShare Certificate:: The Share Certi...
Kinds of sharesKinds of shares>Preference shares->Preference shares- It can be furtherIt can be furtherclassified asclassi...
Transfer and Transmission ofTransfer and Transmission ofsharesshares AOA provides for the procedure of transferAOA provid...
Buy-Back of SecuritiesBuy-Back of Securities The company may purchase its securitiesThe company may purchase its securiti...
DividendsDividends TheThe sharing of profitssharing of profits in the going concernsin the going concernsand the distribu...
DividendDividend Other than the equity shareholders,Other than the equity shareholders,even the preferential shareholders...
DirectorsDirectorsThe Legal Status of the directorThe director occupies the position of a: As a Trustee- In relation to t...
DisqualificationsDisqualificationsAs per the company law, the followingAs per the company law, the followingpersons areper...
Appointment of DirectorsAppointment of Directors The appointment can sometimes be bybased on the proportional representat...
Duties and Liabilities of theDuties and Liabilities of theDirectorsDirectorsFiduciary Duties To act honestly and with goo...
The directors liabilitiesThe directors liabilities The liability of the directors can be eitherThe liability of the direc...
Criminal LiabilityCriminal Liability Liability of the director for any untrueLiability of the director for any untruestat...
Company MeetingsCompany Meetings A meeting may be convened by theA meeting may be convened by thedirector, requisitionist...
Classification of MeetingsClassification of Meetings Shareholders meetingsShareholders meetingsa)a) Statutory meetingsSta...
Other meetingsOther meetings AGMAGM-it can be conducted based on-it can be conducted based onthe provisions given in the ...
How to conduct meeting?How to conduct meeting? Written notice to be givenWritten notice to be given Notice to be issued ...
ResolutionResolution A motion when passed is called aA motion when passed is called aresolution.resolution. The resoluti...
Quorum and proxyQuorum and proxy The minimum members to be present mustThe minimum members to be present mustbe according...
Compromise, Reconstructionand Arrangement Reconstruction includesReconstruction includes reorganization,reorganization,ar...
 Reconstruction can be effectively doneReconstruction can be effectively donethrough a compromise or arrangement.through ...
Scheme to be approvedScheme to be approved Any kind of scheme to be accepted,Any kind of scheme to be accepted,it has to ...
Modes of Reconstruction orModes of Reconstruction orAmalgamationAmalgamation By sale of undertaking- it can be the wholeB...
Mergers, Acquisitions andMergers, Acquisitions andTake over of companiesTake over of companies Merger connotes union of t...
The changing of legal entityThe changing of legal entityafter mergers and acquisitionsafter mergers and acquisitions In a...
Winding upWinding up It is the process whereby the life of theIt is the process whereby the life of thecompany is ended a...
How can be company beHow can be company bewound up?wound up? By passing a special resolutionBy passing a special resoluti...
Modes of winding upModes of winding up Compulsory winding up under theCompulsory winding up under thesupervision of the c...
Winding up procedureWinding up procedure A petition for winding up has to beA petition for winding up has to befiled by t...
Dissolution of the companyDissolution of the company When the company ceases to existWhen the company ceases to existas a...
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Company law chap 1

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Company law chap 1

  1. 1. Company LawCompany Law
  2. 2. What is a company?What is a company? A Company is aA Company is a voluntaryvoluntaryassociation of personsassociation of persons formed for theformed for thepurpose of doing business, having apurpose of doing business, having adistinct name and limited liability.distinct name and limited liability. They can be incorporated under theThey can be incorporated under theCompanies Act (it may be any typeCompanies Act (it may be any typeof company)of company) CorporationsCorporations enacted under specialenacted under specialenactments ( Even those which areenactments ( Even those which areincorporated outside India)incorporated outside India) Corporate soleCorporate sole AnyAny other body corporateother body corporate notified bynotified bythe central governmentthe central government
  3. 3. Features of a companyFeatures of a company A company is considered as aA company is considered as aseparate legal entityseparate legal entity from itsfrom itsmembers, which can conductmembers, which can conductbusiness with all powers to contract.business with all powers to contract. Independent corporate entityIndependent corporate entity(Saloman V. Saloman) It is(Saloman V. Saloman) It isindependent of its members andindependent of its members andshareholdersshareholders
  4. 4. Other featuresOther features Limited LiabilityLimited Liability ( either by share or( either by share orguaranteeguarantee)) ItIt can own property, separate from itscan own property, separate from itsmembersmembers. The property is vested. The property is vestedwith the company, as it is a bodywith the company, as it is a bodycorporate.corporate. TheThe income of the members areincome of the members aredifferent from the income of thedifferent from the income of thecompanycompany ( Income received by the( Income received by themembers as dividends cannot bemembers as dividends cannot besame as that of the company)same as that of the company)cont….cont….
  5. 5. Features continued..Features continued.. Perpetual successionPerpetual succession: Death of the: Death of themembers is not the death of themembers is not the death of thecompany until it is wound upcompany until it is wound up As it is a legal entity or aAs it is a legal entity or a juristicjuristicperson or artificial person it canperson or artificial person it can suesueand be suedand be sued The company enjoysThe company enjoys rights andrights andliabilitiesliabilities which are not as that of thewhich are not as that of themembers of the companymembers of the company
  6. 6. Lifting of Corporate VeilLifting of Corporate Veil As the company isAs the company is a separate legala separate legalentityentity , is has been provided with a, is has been provided with aveil, compared to that of individualsveil, compared to that of individualswho are managing the company.who are managing the company. But if the court feels that such veilBut if the court feels that such veilhas to been used for anyhas to been used for any wrongfulwrongfulpurposepurpose, the court lifts the corporate, the court lifts the corporateveil and makes theveil and makes the individual liableindividual liablefor such acts which they should notfor such acts which they should nothave done or doing in the name ofhave done or doing in the name ofthe companythe company
  7. 7. Circumstances to lift theCircumstances to lift thecorporate veil…corporate veil…The corporate veil can be lifted eitherThe corporate veil can be lifted eitherunder theunder the Statutory provisionsStatutory provisions oror Judicial interpretationsJudicial interpretationsThe statutory provisions areThe statutory provisions areProvided under the CompaniesProvided under the CompaniesAct, 1956Act, 1956The other circumstances are decidedThe other circumstances are decidedthrough Judicial interpretations, whichthrough Judicial interpretations, whichare based on facts of each case as perare based on facts of each case as perthe decisions of the courtthe decisions of the court
  8. 8. Statutory circumstances forStatutory circumstances forlifting the corporate veillifting the corporate veil Reduction in membership-Reduction in membership- Less thanLess thanseven in public company and lessseven in public company and lessthan two if it is a private companythan two if it is a private company Failure to refund application money-Failure to refund application money-After the issue of shares to theAfter the issue of shares to thepubic, the company has to pay backpubic, the company has to pay backthe initial payment to thethe initial payment to theunsuccessful applicants (SEBIunsuccessful applicants (SEBIGuidelines- 130 Days), if they fail toGuidelines- 130 Days), if they fail todo so, the corporate veil can bedo so, the corporate veil can belifted.lifted. Mis-description of companies name-Mis-description of companies name-While signing a contract if theWhile signing a contract if thecompany’s name is not properlycompany’s name is not properlydescribed, then the corporate veildescribed, then the corporate veilcan be lifted.can be lifted.
  9. 9. continuedcontinued Misrepresentation in the prospectus-Misrepresentation in the prospectus- (Derry(DerryVs Peek) In case of misrepresentation, theVs Peek) In case of misrepresentation, thepromoters, directors and every otherpromoters, directors and every otherperson responsible in this matter can beperson responsible in this matter can beheld liable.held liable. Fraudulent Conduct-Fraudulent Conduct- In case the companyIn case the companyis carried on with an intent to defraud theis carried on with an intent to defraud thecreditors, then the court may lift thecreditors, then the court may lift thecorporate veil.corporate veil. Holding and subsidiary companies-Holding and subsidiary companies- AAsubsidiary has a distinct legal entity fromsubsidiary has a distinct legal entity fromthe holding company other than in a fewthe holding company other than in a fewcircumstances, so if otherwise shown, thecircumstances, so if otherwise shown, thecourt may under the Act , lift the corporatecourt may under the Act , lift the corporateveil of the subsidiary company.veil of the subsidiary company.
  10. 10. Circumstances to lift the corporateCircumstances to lift the corporateveil through judicial interpretationsveil through judicial interpretations When the court feels that there areWhen the court feels that there areno statutory provisions which canno statutory provisions which canpierce the corporate veil, andpierce the corporate veil, and thetheidentity of the company is not theidentity of the company is not theone which has to exist, and theone which has to exist, and thecourt has to interfere in order tocourt has to interfere in order toavoid the activities that are done inavoid the activities that are done inthe name of the company by personsthe name of the company by personsmanaging themmanaging them, it has been, it has beenempowered to do so……empowered to do so……The circumstances are…..The circumstances are…..
  11. 11. Judicial interpretations by theJudicial interpretations by thecourt are as follows:court are as follows: Protection of Revenue-Protection of Revenue- When ever aWhen ever acompany uses its name for the purpose ofcompany uses its name for the purpose oftax evasion or to circumvent tax obligationstax evasion or to circumvent tax obligations Prevention of fraud or Improper conduct-Prevention of fraud or Improper conduct-The incorporation has been used forThe incorporation has been used forfraudulent purpose, like defrauding thefraudulent purpose, like defrauding thecreditors, defeating the purpose of law etc..creditors, defeating the purpose of law etc.. Determination of the character of theDetermination of the character of thecompany-company- Enemy company or all theEnemy company or all themembers being the citizens of the enemymembers being the citizens of the enemycountry. (Daimler Co. Ltd V. Continentalcountry. (Daimler Co. Ltd V. ContinentalTyre & Rubber Co. Ltd)Tyre & Rubber Co. Ltd)
  12. 12. Other circumstancesOther circumstances Where a company is used to avoidWhere a company is used to avoidwelfare legislation-welfare legislation- If a company isIf a company isformed in order to avoid the benefitsformed in order to avoid the benefitsto the workers like bonus, or otherto the workers like bonus, or otherstatutory benefits..statutory benefits.. For determining the technicalFor determining the technicalcompetence of the company-competence of the company- To lookTo lookinto the competency of the companyinto the competency of the companyor the shareholders or promotersor the shareholders or promoters(New Horizon’s Ltd and Another V. Union of India(New Horizon’s Ltd and Another V. Union of India(1994)(1994)
  13. 13. Types of CompaniesTypes of Companies Limited Company ( Limited byLimited Company ( Limited byshare or by guarantee)share or by guarantee) Unlimited companyUnlimited company Government CompanyGovernment Company Foreign CompanyForeign Company Private CompanyPrivate Company Public CompanyPublic Company
  14. 14. Limited CompanyLimited Company Limited by Shares-Limited by Shares- In such companies, theIn such companies, theliability is only the amount which remainsliability is only the amount which remainsunpaid on the shares.unpaid on the shares. Limited by Guarantee not having shareLimited by Guarantee not having sharecapital-capital-In this type of companies theIn this type of companies thememorandum of Association limits thememorandum of Association limits themembers’ liability. It will be based on themembers’ liability. It will be based on theundertaking that has been given in MOAundertaking that has been given in MOAfor their contribution in case of a windingfor their contribution in case of a windingup.up. Limited by guarantee having share capital-Limited by guarantee having share capital-In such cases , the liability would be basedIn such cases , the liability would be basedon the MOA towards the guaranteedon the MOA towards the guaranteedamount and the remaining would be fromamount and the remaining would be fromthe unpaid sums of the shares held by thethe unpaid sums of the shares held by theperson concerned.person concerned.
  15. 15. Unlimited CompanyUnlimited Company There isThere is no limit on the liability of theno limit on the liability of themembers.members. The liability in such cases wouldThe liability in such cases wouldextend to the whole amount of theextend to the whole amount of thecompany’s debts and liabilities.company’s debts and liabilities. Here theHere the members cannot be directly suedmembers cannot be directly suedby the creditorsby the creditors.. When the company is wound up, theWhen the company is wound up, theofficial liquidator will call upon the membersofficial liquidator will call upon the membersto discharge the liability.to discharge the liability. The details of the number of members withThe details of the number of members withwhich the company is registered and thewhich the company is registered and theamount of share capital has to be stated inamount of share capital has to be stated inthe Articles of Association (AOA).the Articles of Association (AOA).
  16. 16. Government CompanyGovernment Company WhenWhen 51%51% of the paid up shareof the paid up sharecapital is held by the government.capital is held by the government. The share can be held by theThe share can be held by the centralcentralgovernment or state governmentgovernment or state government..Partly by central and partly by two orPartly by central and partly by two ormore governments.more governments. As the legal status of the companyAs the legal status of the companydoes not change by being adoes not change by being agovernment company, there are nogovernment company, there are nospecial privileges given to them.special privileges given to them.
  17. 17. Foreign CompanyForeign Company A company incorporatedA company incorporatedoutside India, butoutside India, but having a placehaving a placeof business in Indiaof business in India.. If it does not have a place ofIf it does not have a place ofbusiness in India but only hasbusiness in India but only hasagents in India it cannot beagents in India it cannot beconsidered to be foreignconsidered to be foreigncompany.company.
  18. 18. Private CompanyPrivate Company A company which has aA company which has a minimum ofminimum oftwo personstwo persons. They have to subscribe. They have to subscribeto the MOA and AOAto the MOA and AOA It should be have aIt should be have a minimum paid upminimum paid upcapital of 1 lakh or morecapital of 1 lakh or more as prescribedas prescribedby the article.by the article. The maximum number of members toThe maximum number of members tobe fiftybe fifty ( it does not include members( it does not include memberswho are employed in the company,who are employed in the company,persons who were formerly employed)persons who were formerly employed) TheThe rights to transfer the shares arerights to transfer the shares arerestrictedrestricted in the Private companiesin the Private companiescontinued….continued….
  19. 19.  Prohibits any invitation to the publicProhibits any invitation to the publicto subscribeto subscribe and therefore it cannotand therefore it cannotissue a prospectus inviting the publicissue a prospectus inviting the publicto subscribe for any shares in, orto subscribe for any shares in, ordebentures of the companydebentures of the company ItIt prohibits acceptance of depositsprohibits acceptance of depositsfrom persons other than itsfrom persons other than itsmembers, directors or their relatives.members, directors or their relatives. IfIf two or more are holding one ortwo or more are holding one ormore sharesmore shares in a companyin a company jointly,jointly,they shall for the purpose of thisthey shall for the purpose of thisdefinition, be treated asdefinition, be treated as a singlea singlemember.member. As there isAs there is no public accountabilityno public accountabilitylike a public company, there islike a public company, there is nonorigorous surveillance.rigorous surveillance.
  20. 20. Exemption and Privileges of aExemption and Privileges of aPrivate companyPrivate company It can have aIt can have a minimum of twominimum of twomembers.members. It canIt can commence businesscommence businessimmediatelyimmediately after obtainingafter obtainingcertificate of incorporation.certificate of incorporation. It needIt need not issue prospectusnot issue prospectus ororstatement in lieu of prospectus.statement in lieu of prospectus. It can have aIt can have a minimum of 2 directors.minimum of 2 directors. ItIt need not hold statutory meetingneed not hold statutory meeting ororfile statutory report with the ROC.file statutory report with the ROC.
  21. 21. Public CompanyPublic Company A Public company means aA Public company means acompany-company-> Which is> Which is not a private companynot a private company> Which has a> Which has a minimum paid-upminimum paid-upcapital of Rs 5 lakh or such highercapital of Rs 5 lakh or such higherpaid-uppaid-up capital, as may becapital, as may beprescribedprescribed> Which is> Which is a private company and isa private company and isa not a subsidiary ofa not a subsidiary of a company,a company,which iswhich is private company.private company.>It includes- any company which is>It includes- any company which isa public company with a paid upa public company with a paid upcapital of less than 5 lakh, then it hascapital of less than 5 lakh, then it hastoto enhance its paid up capital as perenhance its paid up capital as perthe statutory requirementthe statutory requirement
  22. 22. Conversion of CompanyConversion of Company The Act provides forThe Act provides for conversion ofconversion ofpublic company into a privatepublic company into a privatecompany and vice versacompany and vice versa A private company is converted intoA private company is converted intoa public company eithera public company either by default orby default orby choiceby choice in compliance with thein compliance with thestatutory requirements.statutory requirements. Once the action for conversion takesOnce the action for conversion takesplace then,place then, a petition can be fileda petition can be filedwith the central government with thewith the central government with thenecessary documents for its decisionnecessary documents for its decisionon the matter of conversionon the matter of conversion
  23. 23. Registration and IncorporationRegistration and Incorporation Association of persons or partnershipAssociation of persons or partnershipor more thanor more than 20 members ( 10 in case20 members ( 10 in caseof banking) can register to form aof banking) can register to form acompany under the Companies Act,company under the Companies Act,19561956 If they do not register they can beIf they do not register they can beconsidered to be illegal association.considered to be illegal association.The contract entered into by this illegalThe contract entered into by this illegalassociation isassociation is void and cannot bevoid and cannot bevalidated.validated. Its illegality willIts illegality will not affectnot affectits tax liability or its chargeabilityits tax liability or its chargeability The certification of incorporation is theThe certification of incorporation is theconclusive evidence, that all theconclusive evidence, that all therequirements for the registration haverequirements for the registration havebeen complied with thebeen complied with the
  24. 24. Incorporation of a CompanyIncorporation of a Company The persons whoThe persons who conceive an ideaconceive an idea of aof acompany decide and do the necessarycompany decide and do the necessarywork for formation of a company are calledwork for formation of a company are calledthethe promoterspromoters of the Company.of the Company. The Promoters are the persons who decideThe Promoters are the persons who decideon theon the formation of the company.formation of the company. The promoters of a company standThe promoters of a company standundoubtedly in aundoubtedly in a fiduciary positionfiduciary position thoughthoughthey are not the agent or a trustee of athey are not the agent or a trustee of acompany. They are the ones “who createcompany. They are the ones “who createand mould the company”.and mould the company”. They may have to enter intoThey may have to enter into pre-pre-incorporation contractsincorporation contracts , which can be, which can bevalidated after the incorporation of thevalidated after the incorporation of thecompany for obtaining certificate ofcompany for obtaining certificate ofincorporation.incorporation.
  25. 25. PromotersPromoters They can beThey can be remunerated for theirremunerated for theirservices, but they have to enter intoservices, but they have to enter intoa contract before the incorporation ofa contract before the incorporation ofthe company through a prethe company through a preincorporationincorporation of the companyof the company They will usually act asThey will usually act as nominees ornominees oras the first directorsas the first directors of the companyof the company They enter into contracts after theThey enter into contracts after theincorporation and before theincorporation and before thecommencement of business.commencement of business. But they needBut they need not compulsorilynot compulsorilyparticipate in the formation of theparticipate in the formation of thecompany.company.
  26. 26.  Sometimes , a few persons may onlySometimes , a few persons may onlyact asact as professionals who help theprofessionals who help thepromoters on behalf of thepromoters on behalf of thecompany.. like the solicitor,company.. like the solicitor,chartered accountant etc.. and getchartered accountant etc.. and getpaid for their servicespaid for their services.. The promoters in most of the casesThe promoters in most of the casesdecide as to …What is the type of adecide as to …What is the type of acompanycompany to be formed?to be formed? In IndiaIn India promoters generally securepromoters generally securethe management of the companythe management of the companythat is formed and have a controllingthat is formed and have a controllinginterest in the company’sinterest in the company’smanagementmanagement
  27. 27. Legal Position of theLegal Position of thePromotersPromoters TheyThey cannot make profitcannot make profit at theat theexpense of the company, which theyexpense of the company, which theyhave promotedhave promoted without thewithout theknowledge and consent of theknowledge and consent of thecompany.company. In case they do so , theyIn case they do so , theymay be compelled to account for it.may be compelled to account for it. TheyThey cannot sell their property to thecannot sell their property to thecompany at a profit unless all thecompany at a profit unless all thematerial factsmaterial facts are disclosed at theare disclosed at theindependent board of directors or theindependent board of directors or theshareholders of the company.shareholders of the company. If they do so, the company mayIf they do so, the company mayrepudiate the contract of sale orrepudiate the contract of sale orconfirm the sale after recovering theconfirm the sale after recovering theprofit made by the promoter.profit made by the promoter.
  28. 28. Promoters have the followingPromoters have the followingliabilities under the Companiesliabilities under the CompaniesAct, 1956Act, 1956 They can beThey can be liable for non complianceliable for non compliance ofofthe provisions of the Actthe provisions of the Act Severe penaltySevere penalty may be imposedmay be imposed The court mayThe court may suspend the promoter fromsuspend the promoter fromtaking part in the managementtaking part in the management of theof thecompanycompany Liable for any untrue statement in theLiable for any untrue statement in theprospectusprospectus to the person who hasto the person who hassubscribed for any shares or debenturessubscribed for any shares or debentureson the faith of the prospectuson the faith of the prospectusTheThe liabilities areliabilities are ….….a) to set aside the allotment of shares,a) to set aside the allotment of shares,b) sued for damages,b) sued for damages,c) sued for compensationc) sued for compensationd) criminal proceedingsd) criminal proceedings
  29. 29. The requirements are asThe requirements are asfollowsfollows Application for availability of nameApplication for availability of name Preparation of MOA and AOAPreparation of MOA and AOA Selection and finalization of MOASelection and finalization of MOAand AOA- Its printing, stamping andand AOA- Its printing, stamping andsigningsigning Preparation of other necessaryPreparation of other necessarydocumentsdocuments Filling of the required documents forFilling of the required documents forRegistrationRegistration to obtain certificate ofto obtain certificate ofincorporation and Certificate ofincorporation and Certificate ofcommencement of businesscommencement of business
  30. 30. Memorandum of AssociationMemorandum of Association It is theIt is the chartercharter of the companyof the company It contains theIt contains the fundamentalfundamentalconditions upon which the companyconditions upon which the companycan be incorporatedcan be incorporated It contains theIt contains the objectsobjects of theof thecompany’s formationcompany’s formation The company has toThe company has to act withinact withinobjects specifiedobjects specified in the MOAin the MOA ItIt defines as well as confinesdefines as well as confines thethepowers of the companypowers of the company Any thing done beyond the objectsAny thing done beyond the objectsspecified in the MOA will bespecified in the MOA will be ultraultravires. Their transactions will be nullvires. Their transactions will be nulland voidand void The outsider haveThe outsider have to transactto transact lookinglookinginto the MOAinto the MOA
  31. 31. Conditions of the MOAConditions of the MOA It should beIt should be printedprinted Divided intoDivided into paragraph and numbersparagraph and numbersconsecutivelyconsecutively SignedSigned by at least seven persons orby at least seven persons ortwo in case of public and privatetwo in case of public and privatecompany respectively.company respectively. The signature should be in theThe signature should be in thepresence of a witness, who will havepresence of a witness, who will haveto attestto attest the signaturethe signature Members have to takeMembers have to take shares andshares andwrite the number of shareswrite the number of shares takentakenwith full addresswith full address
  32. 32. The MOA of the LimitedThe MOA of the LimitedCompanyCompany The name of the company withThe name of the company with‘‘limited’limited’ as the last wordas the last word The name of theThe name of the state where thestate where theregistered officeregistered office of the company is toof the company is tobe situatedbe situated The objects of the company statingThe objects of the company statingthethe ‘Main objects’ and the ‘other‘Main objects’ and the ‘otherobjects’objects’ The declaration about theThe declaration about the liability ofliability ofthe membersthe members isis limitedlimited ( limited by( limited byshares or guarantee)shares or guarantee) The amount of theThe amount of the authorized shareauthorized sharecapital, divided into shares of fixedcapital, divided into shares of fixedamounts.amounts.
  33. 33. The Compulsory ClausesThe Compulsory Clausesin MOAin MOA The Name Clause – it decides on theThe Name Clause – it decides on the namenameof the companyof the company based on the capitalbased on the capitalinvolvedinvolved The Registered Office Clause- where it hasThe Registered Office Clause- where it hasregistered its head officeregistered its head office and other branchand other branchoffice ( The registered office can beoffice ( The registered office can bechanged with the permission of the ROC)changed with the permission of the ROC) The Object Clause-The Object Clause- Main object, ancillaryMain object, ancillaryobject and the other objectsobject and the other objects of theof thecompany are clearly specified ( Ashburycompany are clearly specified ( AshburyRailway Carriage Co V. Riche). TheRailway Carriage Co V. Riche). Theapplicable doctrine here is theapplicable doctrine here is the “ Doctrine of“ Doctrine ofUltra Vires” beyond the powers of theUltra Vires” beyond the powers of thecompany (opposed to Intra Vires)company (opposed to Intra Vires)
  34. 34.  The Liability Clause-The Liability Clause- What is the liability ofWhat is the liability ofits members.. limited by shares orits members.. limited by shares orguarantee or unlimited, there can beguarantee or unlimited, there can bealteration in the liability clausealteration in the liability clause The Capital ClauseThe Capital Clause - The amount of the- The amount of thenominal capital of the company, number ofnominal capital of the company, number ofshares in which it is to be divided…shares in which it is to be divided…alteration of the capital clause etcalteration of the capital clause etc The Association or Subscription clause-The Association or Subscription clause-Where the subscribers to the MOA declareWhere the subscribers to the MOA declarethat they respectively agree to take thethat they respectively agree to take thenumber of the shares in the capital. It hasnumber of the shares in the capital. It hasto have the following:to have the following:a) They have to sign in the presence of twoa) They have to sign in the presence of twowitnesses, who attest the signatures,witnesses, who attest the signatures,b) The subscriber to take at least oneb) The subscriber to take at least oneshare.share.c) After the name the subscriber has toc) After the name the subscriber has towrite the number of shares takenwrite the number of shares taken
  35. 35. ““Doctrine of Ultra Vires”Doctrine of Ultra Vires” The powers exercisable by the companyThe powers exercisable by the companyare to be confined to the objectsare to be confined to the objects specifiedspecifiedin the MOA.in the MOA. So it is better to define and include theSo it is better to define and include theprovisions regarding theprovisions regarding the acquiring ofacquiring ofbusiness, sharing of profits, promotingbusiness, sharing of profits, promotingcompany and other financial, gifts , politicalcompany and other financial, gifts , politicalparty funds etcparty funds etc If the company acts beyond the powers orIf the company acts beyond the powers orthe objects of the company that is specifiedthe objects of the company that is specifiedin the MOA, the acts are considered to bein the MOA, the acts are considered to beofof ultra viresultra vires. Even if it is ratified by the all. Even if it is ratified by the allthe members, the action is considered tothe members, the action is considered tobe ineffective.be ineffective. Even the charitable contributions have toEven the charitable contributions have tobe based on the object clause.be based on the object clause. ( A( ALakshmanaswami Mudaliar V. LIC of India)Lakshmanaswami Mudaliar V. LIC of India)
  36. 36. TheThe consequences of theconsequences of the ultraultraviresvires transactions are as followstransactions are as follows::a)a) InjunctionInjunctionb)b) Directors’ personal liability.Directors’ personal liability.c)c) If a property has been purchasedIf a property has been purchasedand it is anand it is an ultra viresultra vires act, theact, thecompany can have a right over thatcompany can have a right over thatproperty.property.d)d) The doctrine to be used exclusivelyThe doctrine to be used exclusivelyfor the companies’ interest.for the companies’ interest.e)e) But the others cannot use thisBut the others cannot use thisdoctrine as a tool to attack thedoctrine as a tool to attack thecompanycompany
  37. 37. Articles of AssociationArticles of Association It is the companiesIt is the companies bye- laws or rulesbye- laws or rulesto governto govern the management of thethe management of thecompany for itscompany for its internal affairs andinternal affairs andthe conduct of its businessthe conduct of its business.. AOA defines theAOA defines the powers of itspowers of itsofficers and also establishes aofficers and also establishes acontract between the company andcontract between the company andthe members and between thethe members and between themembersmembers inter seinter se It can be originally framed andIt can be originally framed andaltered by the company underaltered by the company underprevious or existing provisions ofprevious or existing provisions oflaw.law.
  38. 38. AOAAOA AOA plays aAOA plays a subsidiary partsubsidiary part to the MOAto the MOA Any thingAny thing done beyond the AOA will bedone beyond the AOA will beconsidered to be irregular and may beconsidered to be irregular and may beratified by the shareholdersratified by the shareholders.. The content of the AOA may differ fromThe content of the AOA may differ fromcompany to company as the Act has notcompany to company as the Act has notspecified any specific provisionsspecified any specific provisions Flexibility is allowed to the persons whoFlexibility is allowed to the persons whoform the company to adopt the AOA withinform the company to adopt the AOA withinthe requirements of the company lawthe requirements of the company law The AOA will have to be conversant withThe AOA will have to be conversant withthe MOA, as they are contemporaneousthe MOA, as they are contemporaneousdocuments to be read together.documents to be read together. AnyAny ambiguity and uncertainty in one ofambiguity and uncertainty in one ofthem may be removed by reference to thethem may be removed by reference to theother.other.
  39. 39. Contents of the AOA may beContents of the AOA may beas follows:as follows: Share capitalShare capital Lien on sharesLien on shares Calls on sharesCalls on shares Transfer and transmission of sharesTransfer and transmission of shares Forfeiture of the sharesForfeiture of the shares Surrender of the sharesSurrender of the shares General meetingsGeneral meetings Alteration of the capitalAlteration of the capital Directors etc..Directors etc.. Dividends and reservesDividends and reserves Account and auditAccount and audit Borrowing powersBorrowing powers Winding upWinding up Adoption of the preliminary contracts etc….Adoption of the preliminary contracts etc….
  40. 40. Doctrine of Constructive noticeDoctrine of Constructive noticeand Indoor Managementand Indoor Management Persons dealing with the company have toPersons dealing with the company have tosatisfy themselves. But need not know thesatisfy themselves. But need not know theinternal irregularity. Royal British Bank V.internal irregularity. Royal British Bank V.Turquand (Turquand Rule) DirectorsTurquand (Turquand Rule) Directorsissuing a bond.issuing a bond. The doctrine of Constructive notice can beThe doctrine of Constructive notice can beinvoked by the company to operate againstinvoked by the company to operate againstthe persons dealing with the company.the persons dealing with the company. The outsider cannot embark, but only canThe outsider cannot embark, but only canacquaint upon the MOA and AOA. (Officialacquaint upon the MOA and AOA. (OfficialLiquidator, Manasube &Co Pvt Lid V.Liquidator, Manasube &Co Pvt Lid V.Commissioner of Police)Commissioner of Police)
  41. 41. Exceptions to the Doctrine ofExceptions to the Doctrine ofWhere the outsider cannot claimWhere the outsider cannot claimthe relief on the grounds ofthe relief on the grounds of“Indoor management”“Indoor management” Knowledge of irregularityKnowledge of irregularity No knowledge of articlesNo knowledge of articles NegligenceNegligence ForgeryForgery Non- Existent authority of theNon- Existent authority of thecompanycompany
  42. 42. Raising of Capital From PublicRaising of Capital From Public The companies can raise money byThe companies can raise money byoffering securitiesoffering securities for sale to thefor sale to thepublic.public. They can invite the public to buyThey can invite the public to buyshares, which is known asshares, which is known as publicpublicissue.issue. For this purpose the company mayFor this purpose the company mayissue aissue a prospectus, which mayprospectus, which mayinclude a notice circular,include a notice circular,advertisement or other documentsadvertisement or other documentswhich are issued to invite publicwhich are issued to invite publicdeposits.deposits.
  43. 43. ProspectusProspectus It is anIt is an invitationinvitation issued to the publicissued to the public totopurchase or subscribe shares orpurchase or subscribe shares ordebenturesdebentures of the company.of the company. EveryEvery prospectus must be datedprospectus must be dated. The date. The dateof publication and the date of issue mustof publication and the date of issue mustbe specifically stated in the prospectus.be specifically stated in the prospectus. TheThe golden rulegolden rule of the prospectus is thatof the prospectus is thatevery detail has to be given in strict andevery detail has to be given in strict andscrupulous accuracy. The material factsscrupulous accuracy. The material factsgiven in the prospectus are presumed to begiven in the prospectus are presumed to betrue.( New Brunswick and Canada Railway.true.( New Brunswick and Canada Railway.Land & Co. Vs. Muggerridge).Land & Co. Vs. Muggerridge).
  44. 44. Various forms in which theVarious forms in which theprospectus can be issued.prospectus can be issued. Shelf ProspectusShelf Prospectus: Prospectus is normally: Prospectus is normallyissued by financial institution or bank forissued by financial institution or bank forone or more issues of the securities orone or more issues of the securities orclass of securities mentioned in theclass of securities mentioned in theprospectus.prospectus. There can beThere can be deemed prospectusdeemed prospectus also if italso if itis issued by the issue houseis issued by the issue house ‘‘Information MemorandumInformation Memorandum’: It means a’: It means aprocess, which is undertaken prior to theprocess, which is undertaken prior to thefiling of prospectus.filing of prospectus. Even anEven an AdvertisementAdvertisement , that the shares, that the sharesare available is considered to beare available is considered to beprospectusprospectus
  45. 45. Contents of the prospectusContents of the prospectus General informationGeneral information Capital structureCapital structure Terms of present issueTerms of present issue Management and projectsManagement and projects Management and perception ofManagement and perception ofrisk factorrisk factorIt is compulsory to register theIt is compulsory to register theprospectus with the Registrarprospectus with the Registrar
  46. 46. Civil Liability for MisstatementsCivil Liability for MisstatementsIn case of any untrue statement inIn case of any untrue statement inthe prospectusthe prospectus The liability will be on the director ofThe liability will be on the director ofthe company , whose name wasthe company , whose name waswritten during the time of issuewritten during the time of issue The persons who have authorizedThe persons who have authorizedtheir names to be theirs in thetheir names to be theirs in theprospectus to be named as directorsprospectus to be named as directors PromoterPromoter Every person including the personEvery person including the personwho is an expert and has authorizedwho is an expert and has authorizedhis name to be issued with thehis name to be issued with theprospectusprospectus
  47. 47. Remedies for misstatementsRemedies for misstatementsin the prospectusin the prospectus Relying on the prospectus if anyRelying on the prospectus if anyperson buys shares, the person mayperson buys shares, the person may Rescind the contract ( only whenRescind the contract ( only whenthere is misrepresentation relating tothere is misrepresentation relating tothe material facts.the material facts.The rescission has to be done withinThe rescission has to be done withina reasonable timea reasonable time Claim damages- it can be claimedClaim damages- it can be claimedfrom the directors, promoters orfrom the directors, promoters orother persons who has authorizedother persons who has authorizedtheir name to be written during thetheir name to be written during theissue of the prospectusissue of the prospectus
  48. 48. Share CapitalShare Capital Share:Share: Share is defined as “an interestShare is defined as “an interesthaving a money value and made up ofhaving a money value and made up ofdiverse rights specified under the articles ofdiverse rights specified under the articles ofassociation”.association”. Share capital:Share capital: Share capital means theShare capital means thecapital raised by the company by issue ofcapital raised by the company by issue ofsharesshares.. A share is a share in the share capital ofA share is a share in the share capital ofthe company including the stock.the company including the stock. Share gives a right to participate in theShare gives a right to participate in theprofits of the company, or a share in theprofits of the company, or a share in theassets when the company is going to beassets when the company is going to bewound up.wound up.
  49. 49. Other features of a shareOther features of a share A share is not a negotiable instrument, butA share is not a negotiable instrument, butit is a movable property.it is a movable property. It is also considered to be goods under theIt is also considered to be goods under theSale of Goods Act, 1930.Sale of Goods Act, 1930. The company has to issue the shareThe company has to issue the sharecertificate.certificate. It is subject to stamp duty.It is subject to stamp duty. The ‘Call’ on Shares is a demand made forThe ‘Call’ on Shares is a demand made forpayment of price of the shares allotted topayment of price of the shares allotted tothe members by the Board of Directors inthe members by the Board of Directors inaccordance with the Articles of Association.accordance with the Articles of Association. The call may be for full amount or part of it.The call may be for full amount or part of it.
  50. 50. Share Certificate and ShareShare Certificate and ShareWarrantWarrant Share CertificateShare Certificate:: The Share Certificate is aThe Share Certificate is adocument issued by the companydocument issued by the company and is prima facieand is prima facieevidence to show that the person named therein isevidence to show that the person named therein isthe holder ( title) of the specified number of sharesthe holder ( title) of the specified number of sharesstated therein.stated therein. Share certificate is issued by the company to theShare certificate is issued by the company to the( share holder) allottee of shares.( share holder) allottee of shares. The company has to issue within 3 months fromThe company has to issue within 3 months fromthe date of allotment. In case of default the allotteethe date of allotment. In case of default the allotteemay approach the central governmentmay approach the central government Share WarrantShare Warrant:: The share warrant is aThe share warrant is a bearerbearerdocumentdocument issued by the company under itsissued by the company under itscommon seal. As share warrant is a negotiablecommon seal. As share warrant is a negotiableinstrument, it is transferred by endorsement and byinstrument, it is transferred by endorsement and bymere delivery like any other negotiable instrumentmere delivery like any other negotiable instrument..
  51. 51. Kinds of sharesKinds of shares>Preference shares->Preference shares- It can be furtherIt can be furtherclassified asclassified as Participating preferential shares.Participating preferential shares. Cumulative preferential sharesCumulative preferential shares Non Cumulative preferential sharesNon Cumulative preferential shares>Redeemable Shares>Redeemable Shares andand>Irredeemable Shares>Irredeemable Shares>Equity or ordinary shares>Equity or ordinary shares>Shares at premium>Shares at premium>Shares at discount>Shares at discount>Bonus shares>Bonus shares>Right shares>Right shares
  52. 52. Transfer and Transmission ofTransfer and Transmission ofsharesshares AOA provides for the procedure of transferAOA provides for the procedure of transferof shares. It is a voluntary action of theof shares. It is a voluntary action of theshareholder.shareholder. It can be made even by a blank transfer –InIt can be made even by a blank transfer –Insuch casessuch cases the transferor only signs thethe transferor only signs thetransfer form without making any othertransfer form without making any otherentries.entries. In case it is a forged transfer, theIn case it is a forged transfer, thetransferor’s signature is forged on thetransferor’s signature is forged on theshare transfer instrument.share transfer instrument. Transmission of sharesTransmission of shares is by operation ofis by operation oflaw, e.g. by death, insolvency of thelaw, e.g. by death, insolvency of theshareholder etc.shareholder etc.
  53. 53. Buy-Back of SecuritiesBuy-Back of Securities The company may purchase its securitiesThe company may purchase its securitiesback and it is popularly known as buy backback and it is popularly known as buy backof sharesof shares To do so , the company has to beTo do so , the company has to beauthorized under the AOA.authorized under the AOA. The company has to comply with theThe company has to comply with theprovisions of the Company law to buy backprovisions of the Company law to buy backits securities.its securities. The listed company has to seek permissionThe listed company has to seek permissionfrom the SEBI (SERA 1998). Specificallyfrom the SEBI (SERA 1998). Specificallyfor the private company etc, the Buy Backfor the private company etc, the Buy BackSecurities Rules1999 will be applicable.Securities Rules1999 will be applicable.
  54. 54. DividendsDividends TheThe sharing of profitssharing of profits in the going concernsin the going concernsand the distribution of the assets after theand the distribution of the assets after thewinding up can be called as dividendswinding up can be called as dividends It will be distributed among the sharesIt will be distributed among the sharesholdersholders The dividends can beThe dividends can be declared and paiddeclared and paidout of:out of:Current profitsCurrent profitsReservesReservesMonies provided by the government andMonies provided by the government andthe depreciation as provided by thethe depreciation as provided by thecompanies.companies.It can be paid after presenting the balanceIt can be paid after presenting the balancesheet and profit and loss account in thesheet and profit and loss account in theAGMAGM
  55. 55. DividendDividend Other than the equity shareholders,Other than the equity shareholders,even the preferential shareholderseven the preferential shareholderscan get the dividends. Rather theycan get the dividends. Rather theyare the first ones to get theare the first ones to get thedividends.dividends. Dividends are to be only in cash, ifDividends are to be only in cash, ifotherwise specified in the AOA.otherwise specified in the AOA. In exceptional cases, even theIn exceptional cases, even thecentral government may permit thecentral government may permit thepayment of interest to shareholders ,payment of interest to shareholders ,even though there is no profit.even though there is no profit.
  56. 56. DirectorsDirectorsThe Legal Status of the directorThe director occupies the position of a: As a Trustee- In relation to the company As Agents- When they act o n behalf ofthecompany As Managing Partner-As they areentrusted with the responsibility of thecompanyQualification SharesIn case there is requirement as per theAOA for the director is bound to buyqualification sharesIf acts are done by the director prior to heor she being disqualified, the acts areconsidered to be valid.
  57. 57. DisqualificationsDisqualificationsAs per the company law, the followingAs per the company law, the followingpersons arepersons are disqualifieddisqualified from been appointedfrom been appointedas a director:as a director: Unsound mindUnsound mind An undischarged insolventAn undischarged insolvent A person who is convicted by the courtA person who is convicted by the court Who has applied for being adjudgedWho has applied for being adjudgedinsolventinsolvent Not paid for the call on sharesNot paid for the call on shares Persons who are already directors inPersons who are already directors inmaximum number of companies as per themaximum number of companies as per theprovisions of the Act orprovisions of the Act or Any other person who has beenAny other person who has beendisqualified by the court for any otherdisqualified by the court for any otherreasonreason
  58. 58. Appointment of DirectorsAppointment of Directors The appointment can sometimes be bybased on the proportional representationlike minority shareholders. There can be alternate directors, additionaldirectors, casual directors. The third parties can appoint the directors Other than the shareholders and the firstdirectors ,the central government andNCLT may also appoint directors.
  59. 59. Duties and Liabilities of theDuties and Liabilities of theDirectorsDirectorsFiduciary Duties To act honestly and with good faith Not to use confidential information of thecompany for their own purpose Duty of Care and to act reasonably whileacting for the companyStatutory Duties Not to contract with company, wherehe/she or his relative has an interest in thecontract where he/she has a interest, they need toinform the board or seek prior approvalwhile entering into contract, otherwise thecontract is voidable Duty to attend and convene meetings Duty not to delegate
  60. 60. The directors liabilitiesThe directors liabilities The liability of the directors can be eitherThe liability of the directors can be eithercivil or criminal.civil or criminal. If provided in the MOA, the liability may beIf provided in the MOA, the liability may beunlimited, for a limited company, otherwiseunlimited, for a limited company, otherwiseit may be altered.it may be altered. Liability may be for breach of fiduciaryLiability may be for breach of fiduciarydutiesduties The directors are personally liable for theThe directors are personally liable for thefollowing:following:a) Ultra vires actsa) Ultra vires actsb) malafide actsb) malafide actsc) negligent actsc) negligent actsd) liability for the acts of third partiesd) liability for the acts of third parties
  61. 61. Criminal LiabilityCriminal Liability Liability of the director for any untrueLiability of the director for any untruestatement in the prospectusstatement in the prospectus Inviting any deposits in contraventionInviting any deposits in contraventionof the lawof the law Liability for false advertisementLiability for false advertisement Failure to repay the applicationFailure to repay the applicationmoney, which was excessmoney, which was excess Concealing the names of theConcealing the names of thecreditorscreditors Failure to lay the balance sheet.Failure to lay the balance sheet. Failure to provide information to theFailure to provide information to theauditor etcauditor etc
  62. 62. Company MeetingsCompany Meetings A meeting may be convened by theA meeting may be convened by thedirector, requisitionist, or the NCLTdirector, requisitionist, or the NCLT Notice to be given by the secretaryNotice to be given by the secretaryafter the time and place have beenafter the time and place have beenfixed by the directorsfixed by the directors Even the shareholders can call aEven the shareholders can call ameeting as an extraordinary generalmeeting as an extraordinary generalmeeting (EGM)meeting (EGM) The NCLT can call an AnnualThe NCLT can call an AnnualGeneral Meeting (AGM)General Meeting (AGM)
  63. 63. Classification of MeetingsClassification of Meetings Shareholders meetingsShareholders meetingsa)a) Statutory meetingsStatutory meetings ( which( whichhappens only once in the lifetime ofhappens only once in the lifetime ofthe company)the company)b)b) EGMEGM- Convened to transact some- Convened to transact somespecial or important decision to bespecial or important decision to betakentakenc)c) Class meetings-Class meetings- This is theThis is themeeting of the shareholders- whichmeeting of the shareholders- whichis convened by the class ofis convened by the class ofshareholders based on the kind ofshareholders based on the kind ofshares they hold.shares they hold.continued…..continued…..
  64. 64. Other meetingsOther meetings AGMAGM-it can be conducted based on-it can be conducted based onthe provisions given in the Articles orthe provisions given in the Articles orby passing a resolution in one AGMby passing a resolution in one AGMfor the subsequent AGM’sfor the subsequent AGM’s Board Meetings-Board Meetings- This is conductedThis is conductedfor the smooth running of thefor the smooth running of thecompany and for collectively takingcompany and for collectively takingthe decisions. The meetings may bethe decisions. The meetings may beconducted toconducted to call on shares, issuecall on shares, issuedebentures, borrow money, to makedebentures, borrow money, to makeloans, To invest the fundsloans, To invest the funds etcetc
  65. 65. How to conduct meeting?How to conduct meeting? Written notice to be givenWritten notice to be given Notice to be issued under theNotice to be issued under theauthority of the companyauthority of the company In case of failure to give aIn case of failure to give anotice, the persons concernednotice, the persons concernedmay be punished with fine andmay be punished with fine andthe proceedings of the meetingthe proceedings of the meetingwill be rendered invalid.will be rendered invalid.
  66. 66. ResolutionResolution A motion when passed is called aA motion when passed is called aresolution.resolution. The resolution in the General bodyThe resolution in the General bodymeetings can be anmeetings can be an ordinaryordinaryresolutionresolution( Simple majority)( Simple majority) andand specialspecialresolution.resolution. Special resolution- ( notice of 21Special resolution- ( notice of 21days to be given) the notice has todays to be given) the notice has tospecify the purpose.specify the purpose. The number ofThe number ofvotes to be cast in favour of thevotes to be cast in favour of theresolution is to beresolution is to be three timesthree times thethenumber vote cast against.number vote cast against.
  67. 67. Quorum and proxyQuorum and proxy The minimum members to be present mustThe minimum members to be present mustbe according to the provisions of the law.be according to the provisions of the law. Public company ( minimum Five) andPublic company ( minimum Five) andprivate company (minimum of 2)private company (minimum of 2) The quorum must be those members whoThe quorum must be those members whoare eligible to vote in respect of the agendaare eligible to vote in respect of the agendaof the meeting.of the meeting. If the quorum is not present within half anIf the quorum is not present within half anhour from the appointed time, either thehour from the appointed time, either themeeting stands dissolved or may bemeeting stands dissolved or may beadjourned in the same day next week oradjourned in the same day next week orany other as may be determined by theany other as may be determined by thedirectorsdirectors A person in case of being incapable toA person in case of being incapable toattend a meeting and who is eligible to voteattend a meeting and who is eligible to votemay appoint a proxy in writing to attend themay appoint a proxy in writing to attend themeeting of the member and vote on his ormeeting of the member and vote on his orher behalf. The proxy can only vote andher behalf. The proxy can only vote andcannot participate in the discussions.cannot participate in the discussions.
  68. 68. Compromise, Reconstructionand Arrangement Reconstruction includesReconstruction includes reorganization,reorganization,arrangement and amalgamationarrangement and amalgamation.. Arrangement includes all forms ofArrangement includes all forms ofreconstructing.reconstructing. It has been broadly defined as allIt has been broadly defined as all forms offorms ofcapital reorganizations either bycapital reorganizations either byconsolidation of shares or division ofconsolidation of shares or division ofshares or bothshares or both Reorganization and arrangement are doneReorganization and arrangement are donewhen there is only one company iswhen there is only one company isinvolvedinvolvedcontinuedcontinued….….
  69. 69.  Reconstruction can be effectively doneReconstruction can be effectively donethrough a compromise or arrangement.through a compromise or arrangement. To do so the meeting or the members orTo do so the meeting or the members orthe separate class of the shareholders hasthe separate class of the shareholders hasto be conducted or in case of winding upto be conducted or in case of winding upthe meeting to be called by the liquidatorthe meeting to be called by the liquidator Even a banking company (sick bank) mayEven a banking company (sick bank) maybe reconstructed or amalgamated by thebe reconstructed or amalgamated by thecentral government on the basis of thecentral government on the basis of theReserve Bank’s application for a fixedReserve Bank’s application for a fixedperiod of time.period of time. The reconstruction or amalgamation canThe reconstruction or amalgamation canbe done with any other banking institution.be done with any other banking institution.
  70. 70. Scheme to be approvedScheme to be approved Any kind of scheme to be accepted,Any kind of scheme to be accepted,it has to get approval from theit has to get approval from themembers or the members may rejectmembers or the members may rejectthe scheme.the scheme. After the scheme is approved byAfter the scheme is approved byvoting, the court has to sanction thevoting, the court has to sanction thescheme or reject, if it is against thescheme or reject, if it is against thepublic interest or if it feels that thepublic interest or if it feels that thescheme is not beneficial.scheme is not beneficial. The legal provisions vary based theThe legal provisions vary based themode of scheme adopted by themode of scheme adopted by thecompany.company.
  71. 71. Modes of Reconstruction orModes of Reconstruction orAmalgamationAmalgamation By sale of undertaking- it can be the wholeBy sale of undertaking- it can be the wholeor part of sale ( the court will decide)or part of sale ( the court will decide) By sale of shares ( Maximum number ofBy sale of shares ( Maximum number ofcompanies adopt this scheme- In suchcompanies adopt this scheme- In suchschemes the shares are sold andschemes the shares are sold andregistered in the name of the purchasingregistered in the name of the purchasingcompany or on its behalf. The shareholderscompany or on its behalf. The shareholdersselling the shares are compensated eitherselling the shares are compensated eitherby cash or with the shares of the acquiringby cash or with the shares of the acquiringcompany.company. Amalgamation can take place even for theAmalgamation can take place even for thesake of Public interest by the centralsake of Public interest by the centralgovernment. In such cases, it will begovernment. In such cases, it will benotified in the official gazette.notified in the official gazette.
  72. 72. Mergers, Acquisitions andMergers, Acquisitions andTake over of companiesTake over of companies Merger connotes union of two orMerger connotes union of two ormore commercial interests,more commercial interests,corporations, undertakings, bodies orcorporations, undertakings, bodies orany other entities.any other entities. Fusion of two or more corporationsFusion of two or more corporationsby the transfer of all property to aby the transfer of all property to asingle corporation. It is used as asingle corporation. It is used as asynonym for amalgamation. Evensynonym for amalgamation. Eventhe Act makes no distinctionthe Act makes no distinctionbetween merger and amalgamation.between merger and amalgamation.
  73. 73. The changing of legal entityThe changing of legal entityafter mergers and acquisitionsafter mergers and acquisitions In a merger- one of the companyIn a merger- one of the companyloses its corporate existence and theloses its corporate existence and thesurvivor company acquires thesurvivor company acquires theassets as well as the liabilities of theassets as well as the liabilities of themerger company.merger company. In acquisition, it is acquiring theIn acquisition, it is acquiring theownership in the property is theownership in the property is thepurchase of a controlling interest inpurchase of a controlling interest inthe share capital of another existingthe share capital of another existingcompany. It is an act of acquiringcompany. It is an act of acquiringasset and management of theasset and management of thecompany.company.
  74. 74. Winding upWinding up It is the process whereby the life of theIt is the process whereby the life of thecompany is ended and its property iscompany is ended and its property isadministered for the benefit of its creditorsadministered for the benefit of its creditorsand members.and members. During this process a liquidator isDuring this process a liquidator isappointed to take control of the company.appointed to take control of the company.The liquidator will be responsible for theThe liquidator will be responsible for theassets, debts and final distribution of theassets, debts and final distribution of thesurplus to the members.surplus to the members. It is the process for discharge of liabilitiesIt is the process for discharge of liabilitiesand returning the surplus to those who areand returning the surplus to those who areentitled for it.entitled for it. But even a company which is making profitBut even a company which is making profitcan be wound up is the special feature ofcan be wound up is the special feature ofwinding up , which is different from that ofwinding up , which is different from that ofthe process of insolvency.the process of insolvency.
  75. 75. How can be company beHow can be company bewound up?wound up? By passing a special resolutionBy passing a special resolution If there is a default in holding theIf there is a default in holding thestatutory meetingstatutory meeting Failure to commence the businessFailure to commence the business If there is reduction in theIf there is reduction in themembership of the minimum numbermembership of the minimum numberof members as per the statutoryof members as per the statutoryrequirementrequirement If it not able to pay its debtsIf it not able to pay its debts
  76. 76. Modes of winding upModes of winding up Compulsory winding up under theCompulsory winding up under thesupervision of the courtsupervision of the court(Reasons as stated in the previous slide)(Reasons as stated in the previous slide)Compulsory windingCompulsory winding up may happen forup may happen forjust and equitablejust and equitable reasons also.reasons also.The just and equitable grounds can be likeThe just and equitable grounds can be likeloss of substratum , where there is deadloss of substratum , where there is deadlock in the management, etclock in the management, etc Voluntary winding upVoluntary winding up ( Members voluntary( Members voluntarywinding up and creditors voluntary windingwinding up and creditors voluntary windingup)up) Voluntary winding up subject to theVoluntary winding up subject to thesupervision of the court.supervision of the court.
  77. 77. Winding up procedureWinding up procedure A petition for winding up has to beA petition for winding up has to befiled by the concerned person to thefiled by the concerned person to theprescribed authorityprescribed authority Liquidator to be appointed toLiquidator to be appointed tosafeguard the property of thesafeguard the property of thecompanycompany Then the court will hear the matterThen the court will hear the matterand pass necessary orders. It canand pass necessary orders. It candismiss the petition or pass an orderdismiss the petition or pass an orderof winding upof winding up
  78. 78. Dissolution of the companyDissolution of the company When the company ceases to existWhen the company ceases to existas a corporate entity for all practicalas a corporate entity for all practicalpurposes it is said to have beenpurposes it is said to have beendissolved.dissolved. Dissolution has to be declared by theDissolution has to be declared by thecourt.court. It will not be extinct and will be keptIt will not be extinct and will be keptunder suspension for 2 Years.under suspension for 2 Years. The order has to be forwarded by theThe order has to be forwarded by theliquidator to the Registrar of theliquidator to the Registrar of theCompanies within 30 days from theCompanies within 30 days from thedate of the order of dissolution.date of the order of dissolution.

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