Company law chap 1

What is a company?What is a company?
 A Company is aA Company is a voluntaryvoluntary
association of personsassociation of persons formed for theformed for the
purpose of doing business, having apurpose of doing business, having a
distinct name and limited liability.distinct name and limited liability.
 They can be incorporated under theThey can be incorporated under the
Companies Act (it may be any typeCompanies Act (it may be any type
of company)of company)
 CorporationsCorporations enacted under specialenacted under special
enactments ( Even those which areenactments ( Even those which are
incorporated outside India)incorporated outside India)
 Corporate soleCorporate sole
 AnyAny other body corporateother body corporate notified bynotified by
the central governmentthe central government

Features of a companyFeatures of a company
 A company is considered as aA company is considered as a
separate legal entityseparate legal entity from itsfrom its
members, which can conductmembers, which can conduct
business 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 is
independent of its members andindependent of its members and
shareholdersshareholders

Other featuresOther features
 Limited LiabilityLimited Liability ( either by share or( either by share or
guaranteeguarantee))
 ItIt can own property, separate from itscan own property, separate from its
membersmembers. The property is vested. The property is vested
with the company, as it is a bodywith the company, as it is a body
corporate.corporate.
 TheThe income of the members areincome of the members are
different from the income of thedifferent from the income of the
companycompany ( Income received by the( Income received by the
members as dividends cannot bemembers as dividends cannot be
same as that of the company)same as that of the company)
cont….cont….

Features continued..Features continued..
 Perpetual successionPerpetual succession: Death of the: Death of the
members is not the death of themembers is not the death of the
company 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 juristicjuristic
person or artificial person it canperson or artificial person it can suesue
and be suedand be sued
 The company enjoysThe company enjoys rights andrights and
liabilitiesliabilities which are not as that of thewhich are not as that of the
members of the companymembers of the company

Lifting of Corporate VeilLifting of Corporate Veil
 As the company isAs the company is a separate legala separate legal
entityentity , is has been provided with a, is has been provided with a
veil, compared to that of individualsveil, compared to that of individuals
who are managing the company.who are managing the company.
 But if the court feels that such veilBut if the court feels that such veil
has to been used for anyhas to been used for any wrongfulwrongful
purposepurpose, the court lifts the corporate, the court lifts the corporate
veil and makes theveil and makes the individual liableindividual liable
for such acts which they should notfor such acts which they should not
have done or doing in the name ofhave done or doing in the name of
the companythe company

Circumstances to lift theCircumstances to lift the
corporate veil…corporate veil…
The corporate veil can be lifted eitherThe corporate veil can be lifted either
under theunder the
 Statutory provisionsStatutory provisions oror
 Judicial interpretationsJudicial interpretations
The statutory provisions areThe statutory provisions are
Provided under the CompaniesProvided under the Companies
Act, 1956Act, 1956
The other circumstances are decidedThe other circumstances are decided
through Judicial interpretations, whichthrough Judicial interpretations, which
are based on facts of each case as perare based on facts of each case as per
the decisions of the courtthe decisions of the court

Statutory circumstances forStatutory circumstances for
lifting the corporate veillifting the corporate veil
 Reduction in membership-Reduction in membership- Less thanLess than
seven in public company and lessseven in public company and less
than 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 the
pubic, the company has to pay backpubic, the company has to pay back
the initial payment to thethe initial payment to the
unsuccessful applicants (SEBIunsuccessful applicants (SEBI
Guidelines- 130 Days), if they fail toGuidelines- 130 Days), if they fail to
do so, the corporate veil can bedo so, the corporate veil can be
lifted.lifted.
 Mis-description of companies name-Mis-description of companies name-
While signing a contract if theWhile signing a contract if the
company’s name is not properlycompany’s name is not properly
described, then the corporate veildescribed, then the corporate veil
can be lifted.can be lifted.

continuedcontinued
 Misrepresentation in the prospectus-Misrepresentation in the prospectus- (Derry(Derry
Vs Peek) In case of misrepresentation, theVs Peek) In case of misrepresentation, the
promoters, directors and every otherpromoters, directors and every other
person responsible in this matter can beperson responsible in this matter can be
held liable.held liable.
 Fraudulent Conduct-Fraudulent Conduct- In case the companyIn case the company
is carried on with an intent to defraud theis carried on with an intent to defraud the
creditors, then the court may lift thecreditors, then the court may lift the
corporate veil.corporate veil.
 Holding and subsidiary companies-Holding and subsidiary companies- AA
subsidiary has a distinct legal entity fromsubsidiary has a distinct legal entity from
the holding company other than in a fewthe holding company other than in a few
circumstances, so if otherwise shown, thecircumstances, so if otherwise shown, the
court may under the Act , lift the corporatecourt may under the Act , lift the corporate
veil of the subsidiary company.veil of the subsidiary company.

Circumstances to lift the corporateCircumstances to lift the corporate
veil through judicial interpretationsveil through judicial interpretations
 When the court feels that there areWhen the court feels that there are
no statutory provisions which canno statutory provisions which can
pierce the corporate veil, andpierce the corporate veil, and thethe
identity of the company is not theidentity of the company is not the
one which has to exist, and theone which has to exist, and the
court has to interfere in order tocourt has to interfere in order to
avoid the activities that are done inavoid the activities that are done in
the name of the company by personsthe name of the company by persons
managing themmanaging them, it has been, it has been
empowered to do so……empowered to do so……
The circumstances are…..The circumstances are…..

Judicial interpretations by theJudicial interpretations by the
court are as follows:court are as follows:
 Protection of Revenue-Protection of Revenue- When ever aWhen ever a
company uses its name for the purpose ofcompany uses its name for the purpose of
tax 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 for
fraudulent purpose, like defrauding thefraudulent purpose, like defrauding the
creditors, defeating the purpose of law etc..creditors, defeating the purpose of law etc..
 Determination of the character of theDetermination of the character of the
company-company- Enemy company or all theEnemy company or all the
members being the citizens of the enemymembers being the citizens of the enemy
country. (Daimler Co. Ltd V. Continentalcountry. (Daimler Co. Ltd V. Continental
Tyre & Rubber Co. Ltd)Tyre & Rubber Co. Ltd)

Other circumstancesOther circumstances
 Where a company is used to avoidWhere a company is used to avoid
welfare legislation-welfare legislation- If a company isIf a company is
formed in order to avoid the benefitsformed in order to avoid the benefits
to the workers like bonus, or otherto the workers like bonus, or other
statutory benefits..statutory benefits..
 For determining the technicalFor determining the technical
competence of the company-competence of the company- To lookTo look
into the competency of the companyinto the competency of the company
or 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)

Types of CompaniesTypes of Companies
 Limited Company ( Limited byLimited Company ( Limited by
share or by guarantee)share or by guarantee)
 Unlimited companyUnlimited company
 Government CompanyGovernment Company
 Foreign CompanyForeign Company
 Private CompanyPrivate Company
 Public CompanyPublic Company

Limited CompanyLimited Company
 Limited by Shares-Limited by Shares- In such companies, theIn such companies, the
liability is only the amount which remainsliability is only the amount which remains
unpaid on the shares.unpaid on the shares.
 Limited by Guarantee not having shareLimited by Guarantee not having share
capital-capital-In this type of companies theIn this type of companies the
memorandum of Association limits thememorandum of Association limits the
members’ liability. It will be based on themembers’ liability. It will be based on the
undertaking that has been given in MOAundertaking that has been given in MOA
for their contribution in case of a windingfor their contribution in case of a winding
up.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 based
on the MOA towards the guaranteedon the MOA towards the guaranteed
amount and the remaining would be fromamount and the remaining would be from
the unpaid sums of the shares held by thethe unpaid sums of the shares held by the
person concerned.person concerned.

Unlimited CompanyUnlimited Company
 There isThere is no limit on the liability of theno limit on the liability of the
members.members. The liability in such cases wouldThe liability in such cases would
extend to the whole amount of theextend to the whole amount of the
company’s debts and liabilities.company’s debts and liabilities.
 Here theHere the members cannot be directly suedmembers cannot be directly sued
by the creditorsby the creditors..
 When the company is wound up, theWhen the company is wound up, the
official liquidator will call upon the membersofficial liquidator will call upon the members
to discharge the liability.to discharge the liability.
 The details of the number of members withThe details of the number of members with
which the company is registered and thewhich the company is registered and the
amount of share capital has to be stated inamount of share capital has to be stated in
the Articles of Association (AOA).the Articles of Association (AOA).

Government CompanyGovernment Company
 WhenWhen 51%51% of the paid up shareof the paid up share
capital is held by the government.capital is held by the government.
 The share can be held by theThe share can be held by the centralcentral
government or state governmentgovernment or state government..
Partly by central and partly by two orPartly by central and partly by two or
more governments.more governments.
 As the legal status of the companyAs the legal status of the company
does not change by being adoes not change by being a
government company, there are nogovernment company, there are no
special privileges given to them.special privileges given to them.

Foreign CompanyForeign Company
 A company incorporatedA company incorporated
outside India, butoutside India, but having a placehaving a place
of business in Indiaof business in India..
 If it does not have a place ofIf it does not have a place of
business in India but only hasbusiness in India but only has
agents in India it cannot beagents in India it cannot be
considered to be foreignconsidered to be foreign
company.company.

Private CompanyPrivate Company
 A company which has aA company which has a minimum ofminimum of
two personstwo persons. They have to subscribe. They have to subscribe
to the MOA and AOAto the MOA and AOA
 It should be have aIt should be have a minimum paid upminimum paid up
capital of 1 lakh or morecapital of 1 lakh or more as prescribedas prescribed
by the article.by the article.
 The maximum number of members toThe maximum number of members to
be fiftybe fifty ( it does not include members( it does not include members
who 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 are
restrictedrestricted in the Private companiesin the Private companies
continued….continued….

 Prohibits any invitation to the publicProhibits any invitation to the public
to subscribeto subscribe and therefore it cannotand therefore it cannot
issue a prospectus inviting the publicissue a prospectus inviting the public
to subscribe for any shares in, orto subscribe for any shares in, or
debentures of the companydebentures of the company
 ItIt prohibits acceptance of depositsprohibits acceptance of deposits
from persons other than itsfrom persons other than its
members, directors or their relatives.members, directors or their relatives.
 IfIf two or more are holding one ortwo or more are holding one or
more sharesmore shares in a companyin a company jointly,jointly,
they shall for the purpose of thisthey shall for the purpose of this
definition, be treated asdefinition, be treated as a singlea single
member.member.
 As there isAs there is no public accountabilityno public accountability
like a public company, there islike a public company, there is nono
rigorous surveillance.rigorous surveillance.

Exemption and Privileges of aExemption and Privileges of a
Private companyPrivate company
 It can have aIt can have a minimum of twominimum of two
members.members.
 It canIt can commence businesscommence business
immediatelyimmediately after obtainingafter obtaining
certificate of incorporation.certificate of incorporation.
 It needIt need not issue prospectusnot issue prospectus oror
statement 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 oror
file statutory report with the ROC.file statutory report with the ROC.

Public CompanyPublic Company
 A Public company means aA Public company means a
company-company-
> Which is> Which is not a private companynot a private company
> Which has a> Which has a minimum paid-upminimum paid-up
capital of Rs 5 lakh or such highercapital of Rs 5 lakh or such higher
paid-uppaid-up capital, as may becapital, as may be
prescribedprescribed
> Which is> Which is a private company and isa private company and is
a 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 is
a public company with a paid upa public company with a paid up
capital of less than 5 lakh, then it hascapital of less than 5 lakh, then it has
toto enhance its paid up capital as perenhance its paid up capital as per
the statutory requirementthe statutory requirement

Conversion of CompanyConversion of Company
 The Act provides forThe Act provides for conversion ofconversion of
public company into a privatepublic company into a private
company and vice versacompany and vice versa
 A private company is converted intoA private company is converted into
a public company eithera public company either by default orby default or
by choiceby choice in compliance with thein compliance with the
statutory requirements.statutory requirements.
 Once the action for conversion takesOnce the action for conversion takes
place then,place then, a petition can be fileda petition can be filed
with the central government with thewith the central government with the
necessary documents for its decisionnecessary documents for its decision
on the matter of conversionon the matter of conversion

Registration and IncorporationRegistration and Incorporation
 Association of persons or partnershipAssociation of persons or partnership
or more thanor more than 20 members ( 10 in case20 members ( 10 in case
of banking) can register to form aof banking) can register to form a
company under the Companies Act,company under the Companies Act,
19561956
 If they do not register they can beIf they do not register they can be
considered to be illegal association.considered to be illegal association.
The contract entered into by this illegalThe contract entered into by this illegal
association isassociation is void and cannot bevoid and cannot be
validated.validated. Its illegality willIts illegality will not affectnot affect
its tax liability or its chargeabilityits tax liability or its chargeability
 The certification of incorporation is theThe certification of incorporation is the
conclusive evidence, that all theconclusive evidence, that all the
requirements for the registration haverequirements for the registration have
been complied with thebeen complied with the

Incorporation of a CompanyIncorporation of a Company
 The persons whoThe persons who conceive an ideaconceive an idea of aof a
company decide and do the necessarycompany decide and do the necessary
work for formation of a company are calledwork for formation of a company are called
thethe promoterspromoters of the Company.of the Company.
 The Promoters are the persons who decideThe Promoters are the persons who decide
on theon the formation of the company.formation of the company.
 The promoters of a company standThe promoters of a company stand
undoubtedly in aundoubtedly in a fiduciary positionfiduciary position thoughthough
they are not the agent or a trustee of athey are not the agent or a trustee of a
company. They are the ones “who createcompany. They are the ones “who create
and 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 be
validated after the incorporation of thevalidated after the incorporation of the
company for obtaining certificate ofcompany for obtaining certificate of
incorporation.incorporation.

PromotersPromoters
 They can beThey can be remunerated for theirremunerated for their
services, but they have to enter intoservices, but they have to enter into
a contract before the incorporation ofa contract before the incorporation of
the company through a prethe company through a pre
incorporationincorporation of the companyof the company
 They will usually act asThey will usually act as nominees ornominees or
as the first directorsas the first directors of the companyof the company
 They enter into contracts after theThey enter into contracts after the
incorporation and before theincorporation and before the
commencement of business.commencement of business.
 But they needBut they need not compulsorilynot compulsorily
participate in the formation of theparticipate in the formation of the
company.company.

 Sometimes , a few persons may onlySometimes , a few persons may only
act asact as professionals who help theprofessionals who help the
promoters on behalf of thepromoters on behalf of the
company.. like the solicitor,company.. like the solicitor,
chartered accountant etc.. and getchartered accountant etc.. and get
paid for their servicespaid for their services..
 The promoters in most of the casesThe promoters in most of the cases
decide as to …What is the type of adecide as to …What is the type of a
companycompany to be formed?to be formed?
 In IndiaIn India promoters generally securepromoters generally secure
the management of the companythe management of the company
that is formed and have a controllingthat is formed and have a controlling
interest in the company’sinterest in the company’s
managementmanagement

Legal Position of theLegal Position of the
PromotersPromoters
 TheyThey cannot make profitcannot make profit at theat the
expense of the company, which theyexpense of the company, which they
have promotedhave promoted without thewithout the
knowledge and consent of theknowledge and consent of the
company.company. In case they do so , theyIn case they do so , they
may be compelled to account for it.may be compelled to account for it.
 TheyThey cannot sell their property to thecannot sell their property to the
company at a profit unless all thecompany at a profit unless all the
material factsmaterial facts are disclosed at theare disclosed at the
independent board of directors or theindependent board of directors or the
shareholders of the company.shareholders of the company.
 If they do so, the company mayIf they do so, the company may
repudiate the contract of sale orrepudiate the contract of sale or
confirm the sale after recovering theconfirm the sale after recovering the
profit made by the promoter.profit made by the promoter.

Promoters have the followingPromoters have the following
liabilities under the Companiesliabilities under the Companies
Act, 1956Act, 1956
 They can beThey can be liable for non complianceliable for non compliance ofof
the 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 from
taking part in the managementtaking part in the management of theof the
companycompany
 Liable for any untrue statement in theLiable for any untrue statement in the
prospectusprospectus to the person who hasto the person who has
subscribed for any shares or debenturessubscribed for any shares or debentures
on the faith of the prospectuson the faith of the prospectus
TheThe 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 compensation
d) criminal proceedingsd) criminal proceedings

The requirements are asThe requirements are as
followsfollows
 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 MOA
and AOA- Its printing, stamping andand AOA- Its printing, stamping and
signingsigning
 Preparation of other necessaryPreparation of other necessary
documentsdocuments
 Filling of the required documents forFilling of the required documents for
RegistrationRegistration to obtain certificate ofto obtain certificate of
incorporation and Certificate ofincorporation and Certificate of
commencement of businesscommencement of business

Memorandum of AssociationMemorandum of Association
 It is theIt is the chartercharter of the companyof the company
 It contains theIt contains the fundamentalfundamental
conditions upon which the companyconditions upon which the company
can be incorporatedcan be incorporated
 It contains theIt contains the objectsobjects of theof the
company’s formationcompany’s formation
 The company has toThe company has to act withinact within
objects specifiedobjects specified in the MOAin the MOA
 ItIt defines as well as confinesdefines as well as confines thethe
powers of the companypowers of the company
 Any thing done beyond the objectsAny thing done beyond the objects
specified in the MOA will bespecified in the MOA will be ultraultra
vires. Their transactions will be nullvires. Their transactions will be null
and voidand void
 The outsider haveThe outsider have to transactto transact lookinglooking
into the MOAinto the MOA

Conditions of the MOAConditions of the MOA
 It should beIt should be printedprinted
 Divided intoDivided into paragraph and numbersparagraph and numbers
consecutivelyconsecutively
 SignedSigned by at least seven persons orby at least seven persons or
two in case of public and privatetwo in case of public and private
company respectively.company respectively.
 The signature should be in theThe signature should be in the
presence of a witness, who will havepresence of a witness, who will have
to attestto attest the signaturethe signature
 Members have to takeMembers have to take shares andshares and
write the number of shareswrite the number of shares takentaken
with full addresswith full address

The MOA of the LimitedThe MOA of the Limited
CompanyCompany
 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 the
registered officeregistered office of the company is toof the company is to
be situatedbe situated
 The objects of the company statingThe objects of the company stating
thethe ‘Main objects’ and the ‘other‘Main objects’ and the ‘other
objects’objects’
 The declaration about theThe declaration about the liability ofliability of
the membersthe members isis limitedlimited ( limited by( limited by
shares or guarantee)shares or guarantee)
 The amount of theThe amount of the authorized shareauthorized share
capital, divided into shares of fixedcapital, divided into shares of fixed
amounts.amounts.

The Compulsory ClausesThe Compulsory Clauses
in MOAin MOA
 The Name Clause – it decides on theThe Name Clause – it decides on the namename
of the companyof the company based on the capitalbased on the capital
involvedinvolved
 The Registered Office Clause- where it hasThe Registered Office Clause- where it has
registered its head officeregistered its head office and other branchand other branch
office ( The registered office can beoffice ( The registered office can be
changed with the permission of the ROC)changed with the permission of the ROC)
 The Object Clause-The Object Clause- Main object, ancillaryMain object, ancillary
object and the other objectsobject and the other objects of theof the
company are clearly specified ( Ashburycompany are clearly specified ( Ashbury
Railway Carriage Co V. Riche). TheRailway Carriage Co V. Riche). The
applicable doctrine here is theapplicable doctrine here is the “ Doctrine of“ Doctrine of
Ultra Vires” beyond the powers of theUltra Vires” beyond the powers of the
company (opposed to Intra Vires)company (opposed to Intra Vires)

 The Liability Clause-The Liability Clause- What is the liability ofWhat is the liability of
its members.. limited by shares orits members.. limited by shares or
guarantee or unlimited, there can beguarantee or unlimited, there can be
alteration in the liability clausealteration in the liability clause
 The Capital ClauseThe Capital Clause - The amount of the- The amount of the
nominal capital of the company, number ofnominal capital of the company, number of
shares 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 declare
that they respectively agree to take thethat they respectively agree to take the
number of the shares in the capital. It hasnumber of the shares in the capital. It has
to 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 two
witnesses, who attest the signatures,witnesses, who attest the signatures,
b) The subscriber to take at least oneb) The subscriber to take at least one
share.share.
c) After the name the subscriber has toc) After the name the subscriber has to
write the number of shares takenwrite the number of shares taken

““Doctrine of Ultra Vires”Doctrine of Ultra Vires”
 The powers exercisable by the companyThe powers exercisable by the company
are to be confined to the objectsare to be confined to the objects specifiedspecified
in the MOA.in the MOA.
 So it is better to define and include theSo it is better to define and include the
provisions regarding theprovisions regarding the acquiring ofacquiring of
business, sharing of profits, promotingbusiness, sharing of profits, promoting
company and other financial, gifts , politicalcompany and other financial, gifts , political
party funds etcparty funds etc
 If the company acts beyond the powers orIf the company acts beyond the powers or
the objects of the company that is specifiedthe objects of the company that is specified
in the MOA, the acts are considered to bein the MOA, the acts are considered to be
ofof ultra viresultra vires. Even if it is ratified by the all. Even if it is ratified by the all
the members, the action is considered tothe members, the action is considered to
be ineffective.be ineffective.
 Even the charitable contributions have toEven the charitable contributions have to
be based on the object clause.be based on the object clause. ( A( A
Lakshmanaswami Mudaliar V. LIC of India)Lakshmanaswami Mudaliar V. LIC of India)

TheThe consequences of theconsequences of the ultraultra
viresvires transactions are as followstransactions are as follows::
a)a) InjunctionInjunction
b)b) Directors’ personal liability.Directors’ personal liability.
c)c) If a property has been purchasedIf a property has been purchased
and it is anand it is an ultra viresultra vires act, theact, the
company can have a right over thatcompany can have a right over that
property.property.
d)d) The doctrine to be used exclusivelyThe doctrine to be used exclusively
for the companies’ interest.for the companies’ interest.
e)e) But the others cannot use thisBut the others cannot use this
doctrine as a tool to attack thedoctrine as a tool to attack the
companycompany

Articles of AssociationArticles of Association
 It is the companiesIt is the companies bye- laws or rulesbye- laws or rules
to governto govern the management of thethe management of the
company for itscompany for its internal affairs andinternal affairs and
the conduct of its businessthe conduct of its business..
 AOA defines theAOA defines the powers of itspowers of its
officers and also establishes aofficers and also establishes a
contract between the company andcontract between the company and
the members and between thethe members and between the
membersmembers inter seinter se
 It can be originally framed andIt can be originally framed and
altered by the company underaltered by the company under
previous or existing provisions ofprevious or existing provisions of
law.law.

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 be
considered to be irregular and may beconsidered to be irregular and may be
ratified by the shareholdersratified by the shareholders..
 The content of the AOA may differ fromThe content of the AOA may differ from
company to company as the Act has notcompany to company as the Act has not
specified any specific provisionsspecified any specific provisions
 Flexibility is allowed to the persons whoFlexibility is allowed to the persons who
form the company to adopt the AOA withinform the company to adopt the AOA within
the requirements of the company lawthe requirements of the company law
 The AOA will have to be conversant withThe AOA will have to be conversant with
the MOA, as they are contemporaneousthe MOA, as they are contemporaneous
documents to be read together.documents to be read together.
 AnyAny ambiguity and uncertainty in one ofambiguity and uncertainty in one of
them may be removed by reference to thethem may be removed by reference to the
other.other.

Contents of the AOA may beContents of the AOA may be
as 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….

Doctrine of Constructive noticeDoctrine of Constructive notice
and Indoor Managementand Indoor Management
 Persons dealing with the company have toPersons dealing with the company have to
satisfy themselves. But need not know thesatisfy themselves. But need not know the
internal irregularity. Royal British Bank V.internal irregularity. Royal British Bank V.
Turquand (Turquand Rule) DirectorsTurquand (Turquand Rule) Directors
issuing a bond.issuing a bond.
 The doctrine of Constructive notice can beThe doctrine of Constructive notice can be
invoked by the company to operate againstinvoked by the company to operate against
the persons dealing with the company.the persons dealing with the company.
 The outsider cannot embark, but only canThe outsider cannot embark, but only can
acquaint upon the MOA and AOA. (Officialacquaint upon the MOA and AOA. (Official
Liquidator, Manasube &Co Pvt Lid V.Liquidator, Manasube &Co Pvt Lid V.
Commissioner of Police)Commissioner of Police)

Exceptions to the Doctrine ofExceptions to the Doctrine of
Where the outsider cannot claimWhere the outsider cannot claim
the 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 the
companycompany

Raising of Capital From PublicRaising of Capital From Public
 The companies can raise money byThe companies can raise money by
offering securitiesoffering securities for sale to thefor sale to the
public.public.
 They can invite the public to buyThey can invite the public to buy
shares, which is known asshares, which is known as publicpublic
issue.issue.
 For this purpose the company mayFor this purpose the company may
issue aissue a prospectus, which mayprospectus, which may
include a notice circular,include a notice circular,
advertisement or other documentsadvertisement or other documents
which are issued to invite publicwhich are issued to invite public
deposits.deposits.

ProspectusProspectus
 It is anIt is an invitationinvitation issued to the publicissued to the public toto
purchase or subscribe shares orpurchase or subscribe shares or
debenturesdebentures of the company.of the company.
 EveryEvery prospectus must be datedprospectus must be dated. The date. The date
of publication and the date of issue mustof publication and the date of issue must
be specifically stated in the prospectus.be specifically stated in the prospectus.
 TheThe golden rulegolden rule of the prospectus is thatof the prospectus is that
every detail has to be given in strict andevery detail has to be given in strict and
scrupulous accuracy. The material factsscrupulous accuracy. The material facts
given in the prospectus are presumed to begiven in the prospectus are presumed to be
true.( New Brunswick and Canada Railway.true.( New Brunswick and Canada Railway.
Land & Co. Vs. Muggerridge).Land & Co. Vs. Muggerridge).

Various forms in which theVarious forms in which the
prospectus can be issued.prospectus can be issued.
 Shelf ProspectusShelf Prospectus: Prospectus is normally: Prospectus is normally
issued by financial institution or bank forissued by financial institution or bank for
one or more issues of the securities orone or more issues of the securities or
class of securities mentioned in theclass of securities mentioned in the
prospectus.prospectus.
 There can beThere can be deemed prospectusdeemed prospectus also if italso if it
is issued by the issue houseis issued by the issue house
 ‘‘Information MemorandumInformation Memorandum’: It means a’: It means a
process, which is undertaken prior to theprocess, which is undertaken prior to the
filing of prospectus.filing of prospectus.
 Even anEven an AdvertisementAdvertisement , that the shares, that the shares
are available is considered to beare available is considered to be
prospectusprospectus

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 of
risk factorrisk factor
It is compulsory to register theIt is compulsory to register the
prospectus with the Registrarprospectus with the Registrar

Civil Liability for MisstatementsCivil Liability for Misstatements
In case of any untrue statement inIn case of any untrue statement in
the prospectusthe prospectus
 The liability will be on the director ofThe liability will be on the director of
the company , whose name wasthe company , whose name was
written during the time of issuewritten during the time of issue
 The persons who have authorizedThe persons who have authorized
their names to be theirs in thetheir names to be theirs in the
prospectus to be named as directorsprospectus to be named as directors
 PromoterPromoter
 Every person including the personEvery person including the person
who is an expert and has authorizedwho is an expert and has authorized
his name to be issued with thehis name to be issued with the
prospectusprospectus

Remedies for misstatementsRemedies for misstatements
in the prospectusin the prospectus
 Relying on the prospectus if anyRelying on the prospectus if any
person buys shares, the person mayperson buys shares, the person may
 Rescind the contract ( only whenRescind the contract ( only when
there is misrepresentation relating tothere is misrepresentation relating to
the material facts.the material facts.
The rescission has to be done withinThe rescission has to be done within
a reasonable timea reasonable time
 Claim damages- it can be claimedClaim damages- it can be claimed
from the directors, promoters orfrom the directors, promoters or
other persons who has authorizedother persons who has authorized
their name to be written during thetheir name to be written during the
issue of the prospectusissue of the prospectus

Share CapitalShare Capital
 Share:Share: Share is defined as “an interestShare is defined as “an interest
having a money value and made up ofhaving a money value and made up of
diverse rights specified under the articles ofdiverse rights specified under the articles of
association”.association”.
 Share capital:Share capital: Share capital means theShare capital means the
capital raised by the company by issue ofcapital raised by the company by issue of
sharesshares..
 A share is a share in the share capital ofA share is a share in the share capital of
the company including the stock.the company including the stock.
 Share gives a right to participate in theShare gives a right to participate in the
profits of the company, or a share in theprofits of the company, or a share in the
assets when the company is going to beassets when the company is going to be
wound up.wound up.

Other features of a shareOther features of a share
 A share is not a negotiable instrument, butA share is not a negotiable instrument, but
it 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 the
Sale of Goods Act, 1930.Sale of Goods Act, 1930.
 The company has to issue the shareThe company has to issue the share
certificate.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 for
payment of price of the shares allotted topayment of price of the shares allotted to
the members by the Board of Directors inthe members by the Board of Directors in
accordance 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.

Share Certificate and ShareShare Certificate and Share
WarrantWarrant
 Share CertificateShare Certificate:: The Share Certificate is aThe Share Certificate is a
document issued by the companydocument issued by the company and is prima facieand is prima facie
evidence to show that the person named therein isevidence to show that the person named therein is
the holder ( title) of the specified number of sharesthe holder ( title) of the specified number of shares
stated 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 from
the date of allotment. In case of default the allotteethe date of allotment. In case of default the allottee
may approach the central governmentmay approach the central government
 Share WarrantShare Warrant:: The share warrant is aThe share warrant is a bearerbearer
documentdocument issued by the company under itsissued by the company under its
common seal. As share warrant is a negotiablecommon seal. As share warrant is a negotiable
instrument, it is transferred by endorsement and byinstrument, it is transferred by endorsement and by
mere delivery like any other negotiable instrumentmere delivery like any other negotiable instrument..

Kinds of sharesKinds of shares
>Preference shares->Preference shares- It can be furtherIt can be further
classified 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

Transfer and Transmission ofTransfer and Transmission of
sharesshares
 AOA provides for the procedure of transferAOA provides for the procedure of transfer
of shares. It is a voluntary action of theof shares. It is a voluntary action of the
shareholder.shareholder.
 It can be made even by a blank transfer –InIt can be made even by a blank transfer –In
such casessuch cases the transferor only signs thethe transferor only signs the
transfer form without making any othertransfer form without making any other
entries.entries.
 In case it is a forged transfer, theIn case it is a forged transfer, the
transferor’s signature is forged on thetransferor’s signature is forged on the
share transfer instrument.share transfer instrument.
 Transmission of sharesTransmission of shares is by operation ofis by operation of
law, e.g. by death, insolvency of thelaw, e.g. by death, insolvency of the
shareholder etc.shareholder etc.

Buy-Back of SecuritiesBuy-Back of Securities
 The company may purchase its securitiesThe company may purchase its securities
back and it is popularly known as buy backback and it is popularly known as buy back
of sharesof shares
 To do so , the company has to beTo do so , the company has to be
authorized under the AOA.authorized under the AOA.
 The company has to comply with theThe company has to comply with the
provisions of the Company law to buy backprovisions of the Company law to buy back
its securities.its securities.
 The listed company has to seek permissionThe listed company has to seek permission
from the SEBI (SERA 1998). Specificallyfrom the SEBI (SERA 1998). Specifically
for the private company etc, the Buy Backfor the private company etc, the Buy Back
Securities Rules1999 will be applicable.Securities Rules1999 will be applicable.

DividendsDividends
 TheThe sharing of profitssharing of profits in the going concernsin the going concerns
and the distribution of the assets after theand the distribution of the assets after the
winding up can be called as dividendswinding up can be called as dividends
 It will be distributed among the sharesIt will be distributed among the shares
holdersholders
 The dividends can beThe dividends can be declared and paiddeclared and paid
out of:out of:
Current profitsCurrent profits
ReservesReserves
Monies provided by the government andMonies provided by the government and
the depreciation as provided by thethe depreciation as provided by the
companies.companies.
It can be paid after presenting the balanceIt can be paid after presenting the balance
sheet and profit and loss account in thesheet and profit and loss account in the
AGMAGM

DividendDividend
 Other than the equity shareholders,Other than the equity shareholders,
even the preferential shareholderseven the preferential shareholders
can get the dividends. Rather theycan get the dividends. Rather they
are the first ones to get theare the first ones to get the
dividends.dividends.
 Dividends are to be only in cash, ifDividends are to be only in cash, if
otherwise specified in the AOA.otherwise specified in the AOA.
 In exceptional cases, even theIn exceptional cases, even the
central government may permit thecentral government may permit the
payment of interest to shareholders ,payment of interest to shareholders ,
even though there is no profit.even though there is no profit.

DirectorsDirectors
The Legal Status of the director
The director occupies the position of a:
 As a Trustee- In relation to the company
 As Agents- When they act o n behalf of
the
company
 As Managing Partner-As they are
entrusted with the responsibility of the
company
Qualification Shares
In case there is requirement as per the
AOA for the director is bound to buy
qualification shares
If acts are done by the director prior to he
or she being disqualified, the acts are
considered to be valid.

DisqualificationsDisqualifications
As per the company law, the followingAs per the company law, the following
persons arepersons are disqualifieddisqualified from been appointedfrom been appointed
as 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 adjudged
insolventinsolvent
 Not paid for the call on sharesNot paid for the call on shares
 Persons who are already directors inPersons who are already directors in
maximum number of companies as per themaximum number of companies as per the
provisions of the Act orprovisions of the Act or
 Any other person who has beenAny other person who has been
disqualified by the court for any otherdisqualified by the court for any other
reasonreason

Appointment of DirectorsAppointment of Directors
 The appointment can sometimes be by
based on the proportional representation
like minority shareholders.
 There can be alternate directors, additional
directors, casual directors.
 The third parties can appoint the directors
 Other than the shareholders and the first
directors ,the central government and
NCLT may also appoint directors.

Duties and Liabilities of theDuties and Liabilities of the
DirectorsDirectors
Fiduciary Duties
 To act honestly and with good faith
 Not to use confidential information of the
company for their own purpose
 Duty of Care and to act reasonably while
acting for the company
Statutory Duties
 Not to contract with company, where
he/she or his relative has an interest in the
contract
 where he/she has a interest, they need to
inform the board or seek prior approval
while entering into contract, otherwise the
contract is voidable
 Duty to attend and convene meetings
 Duty not to delegate

The directors liabilitiesThe directors liabilities
 The liability of the directors can be eitherThe liability of the directors can be either
civil or criminal.civil or criminal.
 If provided in the MOA, the liability may beIf provided in the MOA, the liability may be
unlimited, for a limited company, otherwiseunlimited, for a limited company, otherwise
it may be altered.it may be altered.
 Liability may be for breach of fiduciaryLiability may be for breach of fiduciary
dutiesduties
 The directors are personally liable for theThe directors are personally liable for the
following:following:
a) Ultra vires actsa) Ultra vires acts
b) malafide actsb) malafide acts
c) negligent actsc) negligent acts
d) liability for the acts of third partiesd) liability for the acts of third parties

Criminal LiabilityCriminal Liability
 Liability of the director for any untrueLiability of the director for any untrue
statement in the prospectusstatement in the prospectus
 Inviting any deposits in contraventionInviting any deposits in contravention
of the lawof the law
 Liability for false advertisementLiability for false advertisement
 Failure to repay the applicationFailure to repay the application
money, which was excessmoney, which was excess
 Concealing the names of theConcealing the names of the
creditorscreditors
 Failure to lay the balance sheet.Failure to lay the balance sheet.
 Failure to provide information to theFailure to provide information to the
auditor etcauditor etc

Company MeetingsCompany Meetings
 A meeting may be convened by theA meeting may be convened by the
director, requisitionist, or the NCLTdirector, requisitionist, or the NCLT
 Notice to be given by the secretaryNotice to be given by the secretary
after the time and place have beenafter the time and place have been
fixed by the directorsfixed by the directors
 Even the shareholders can call aEven the shareholders can call a
meeting as an extraordinary generalmeeting as an extraordinary general
meeting (EGM)meeting (EGM)
 The NCLT can call an AnnualThe NCLT can call an Annual
General Meeting (AGM)General Meeting (AGM)

Classification of MeetingsClassification of Meetings
 Shareholders meetingsShareholders meetings
a)a) Statutory meetingsStatutory meetings ( which( which
happens only once in the lifetime ofhappens only once in the lifetime of
the company)the company)
b)b) EGMEGM- Convened to transact some- Convened to transact some
special or important decision to bespecial or important decision to be
takentaken
c)c) Class meetings-Class meetings- This is theThis is the
meeting of the shareholders- whichmeeting of the shareholders- which
is convened by the class ofis convened by the class of
shareholders based on the kind ofshareholders based on the kind of
shares they hold.shares they hold.
continued…..continued…..

Other meetingsOther meetings
 AGMAGM-it can be conducted based on-it can be conducted based on
the provisions given in the Articles orthe provisions given in the Articles or
by passing a resolution in one AGMby passing a resolution in one AGM
for the subsequent AGM’sfor the subsequent AGM’s
 Board Meetings-Board Meetings- This is conductedThis is conducted
for the smooth running of thefor the smooth running of the
company and for collectively takingcompany and for collectively taking
the decisions. The meetings may bethe decisions. The meetings may be
conducted toconducted to call on shares, issuecall on shares, issue
debentures, borrow money, to makedebentures, borrow money, to make
loans, To invest the fundsloans, To invest the funds etcetc

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 the
authority of the companyauthority of the company
 In case of failure to give aIn case of failure to give a
notice, the persons concernednotice, the persons concerned
may be punished with fine andmay be punished with fine and
the proceedings of the meetingthe proceedings of the meeting
will be rendered invalid.will be rendered invalid.

ResolutionResolution
 A motion when passed is called aA motion when passed is called a
resolution.resolution.
 The resolution in the General bodyThe resolution in the General body
meetings can be anmeetings can be an ordinaryordinary
resolutionresolution
( Simple majority)( Simple majority) andand specialspecial
resolution.resolution.
 Special resolution- ( notice of 21Special resolution- ( notice of 21
days to be given) the notice has todays to be given) the notice has to
specify the purpose.specify the purpose. The number ofThe number of
votes to be cast in favour of thevotes to be cast in favour of the
resolution is to beresolution is to be three timesthree times thethe
number vote cast against.number vote cast against.

Quorum and proxyQuorum and proxy
 The minimum members to be present mustThe minimum members to be present must
be according to the provisions of the law.be according to the provisions of the law.
 Public company ( minimum Five) andPublic company ( minimum Five) and
private company (minimum of 2)private company (minimum of 2)
 The quorum must be those members whoThe quorum must be those members who
are eligible to vote in respect of the agendaare eligible to vote in respect of the agenda
of the meeting.of the meeting.
 If the quorum is not present within half anIf the quorum is not present within half an
hour from the appointed time, either thehour from the appointed time, either the
meeting stands dissolved or may bemeeting stands dissolved or may be
adjourned in the same day next week oradjourned in the same day next week or
any other as may be determined by theany other as may be determined by the
directorsdirectors
 A person in case of being incapable toA person in case of being incapable to
attend a meeting and who is eligible to voteattend a meeting and who is eligible to vote
may appoint a proxy in writing to attend themay appoint a proxy in writing to attend the
meeting of the member and vote on his ormeeting of the member and vote on his or
her behalf. The proxy can only vote andher behalf. The proxy can only vote and
cannot participate in the discussions.cannot participate in the discussions.

Compromise, Reconstruction
and Arrangement
 Reconstruction includesReconstruction includes reorganization,reorganization,
arrangement and amalgamationarrangement and amalgamation..
 Arrangement includes all forms ofArrangement includes all forms of
reconstructing.reconstructing.
 It has been broadly defined as allIt has been broadly defined as all forms offorms of
capital reorganizations either bycapital reorganizations either by
consolidation of shares or division ofconsolidation of shares or division of
shares or bothshares or both
 Reorganization and arrangement are doneReorganization and arrangement are done
when there is only one company iswhen there is only one company is
involvedinvolved
continuedcontinued….….

 Reconstruction can be effectively doneReconstruction can be effectively done
through 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 or
the separate class of the shareholders hasthe separate class of the shareholders has
to be conducted or in case of winding upto be conducted or in case of winding up
the 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) may
be reconstructed or amalgamated by thebe reconstructed or amalgamated by the
central government on the basis of thecentral government on the basis of the
Reserve Bank’s application for a fixedReserve Bank’s application for a fixed
period of time.period of time.
 The reconstruction or amalgamation canThe reconstruction or amalgamation can
be done with any other banking institution.be done with any other banking institution.

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 the
members or the members may rejectmembers or the members may reject
the scheme.the scheme.
 After the scheme is approved byAfter the scheme is approved by
voting, the court has to sanction thevoting, the court has to sanction the
scheme or reject, if it is against thescheme or reject, if it is against the
public interest or if it feels that thepublic interest or if it feels that the
scheme is not beneficial.scheme is not beneficial.
 The legal provisions vary based theThe legal provisions vary based the
mode of scheme adopted by themode of scheme adopted by the
company.company.

Modes of Reconstruction orModes of Reconstruction or
AmalgamationAmalgamation
 By sale of undertaking- it can be the wholeBy sale of undertaking- it can be the whole
or 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 of
companies adopt this scheme- In suchcompanies adopt this scheme- In such
schemes the shares are sold andschemes the shares are sold and
registered in the name of the purchasingregistered in the name of the purchasing
company or on its behalf. The shareholderscompany or on its behalf. The shareholders
selling the shares are compensated eitherselling the shares are compensated either
by cash or with the shares of the acquiringby cash or with the shares of the acquiring
company.company.
 Amalgamation can take place even for theAmalgamation can take place even for the
sake of Public interest by the centralsake of Public interest by the central
government. In such cases, it will begovernment. In such cases, it will be
notified in the official gazette.notified in the official gazette.

Mergers, Acquisitions andMergers, Acquisitions and
Take over of companiesTake over of companies
 Merger connotes union of two orMerger connotes union of two or
more commercial interests,more commercial interests,
corporations, undertakings, bodies orcorporations, undertakings, bodies or
any other entities.any other entities.
 Fusion of two or more corporationsFusion of two or more corporations
by the transfer of all property to aby the transfer of all property to a
single corporation. It is used as asingle corporation. It is used as a
synonym for amalgamation. Evensynonym for amalgamation. Even
the Act makes no distinctionthe Act makes no distinction
between merger and amalgamation.between merger and amalgamation.


The changing of legal entityThe changing of legal entity
after mergers and acquisitionsafter mergers and acquisitions
 In a merger- one of the companyIn a merger- one of the company
loses its corporate existence and theloses its corporate existence and the
survivor company acquires thesurvivor company acquires the
assets as well as the liabilities of theassets as well as the liabilities of the
merger company.merger company.
 In acquisition, it is acquiring theIn acquisition, it is acquiring the
ownership in the property is theownership in the property is the
purchase of a controlling interest inpurchase of a controlling interest in
the share capital of another existingthe share capital of another existing
company. It is an act of acquiringcompany. It is an act of acquiring
asset and management of theasset and management of the
company.company.

Winding upWinding up
 It is the process whereby the life of theIt is the process whereby the life of the
company is ended and its property iscompany is ended and its property is
administered for the benefit of its creditorsadministered for the benefit of its creditors
and members.and members.
 During this process a liquidator isDuring this process a liquidator is
appointed 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 the
assets, debts and final distribution of theassets, debts and final distribution of the
surplus to the members.surplus to the members.
 It is the process for discharge of liabilitiesIt is the process for discharge of liabilities
and returning the surplus to those who areand returning the surplus to those who are
entitled for it.entitled for it.
 But even a company which is making profitBut even a company which is making profit
can be wound up is the special feature ofcan be wound up is the special feature of
winding up , which is different from that ofwinding up , which is different from that of
the process of insolvency.the process of insolvency.

How can be company beHow can be company be
wound 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 the
statutory meetingstatutory meeting
 Failure to commence the businessFailure to commence the business
 If there is reduction in theIf there is reduction in the
membership of the minimum numbermembership of the minimum number
of members as per the statutoryof members as per the statutory
requirementrequirement
 If it not able to pay its debtsIf it not able to pay its debts

Modes of winding upModes of winding up
 Compulsory winding up under theCompulsory winding up under the
supervision 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 for
just and equitablejust and equitable reasons also.reasons also.
The just and equitable grounds can be likeThe just and equitable grounds can be like
loss of substratum , where there is deadloss of substratum , where there is dead
lock in the management, etclock in the management, etc
 Voluntary winding upVoluntary winding up ( Members voluntary( Members voluntary
winding up and creditors voluntary windingwinding up and creditors voluntary winding
up)up)
 Voluntary winding up subject to theVoluntary winding up subject to the
supervision of the court.supervision of the court.

Winding up procedureWinding up procedure
 A petition for winding up has to beA petition for winding up has to be
filed by the concerned person to thefiled by the concerned person to the
prescribed authorityprescribed authority
 Liquidator to be appointed toLiquidator to be appointed to
safeguard the property of thesafeguard the property of the
companycompany
 Then the court will hear the matterThen the court will hear the matter
and pass necessary orders. It canand pass necessary orders. It can
dismiss the petition or pass an orderdismiss the petition or pass an order
of winding upof winding up

Dissolution of the companyDissolution of the company
 When the company ceases to existWhen the company ceases to exist
as a corporate entity for all practicalas a corporate entity for all practical
purposes it is said to have beenpurposes it is said to have been
dissolved.dissolved.
 Dissolution has to be declared by theDissolution has to be declared by the
court.court.
 It will not be extinct and will be keptIt will not be extinct and will be kept
under suspension for 2 Years.under suspension for 2 Years.
 The order has to be forwarded by theThe order has to be forwarded by the
liquidator to the Registrar of theliquidator to the Registrar of the
Companies within 30 days from theCompanies within 30 days from the
date of the order of dissolution.date of the order of dissolution.

Company law chap 1

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (8)

Similar to Company law chap 1

Similar to Company law chap 1 (20)

Recently uploaded

Recently uploaded (20)

Company law chap 1