Company act


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Company act

  1. 1. Companies Act 1956 (Unit III) By- Dharmesh Motwani
  2. 2. What is a company? <ul><li>An association of many persons who, contribute money or money’s worth to a common stock and employ it in some trade or business, and who share the profit and loss arising therefrom. </li></ul>
  3. 3. Features of a Company <ul><li>Incorporated Association </li></ul><ul><li>Separate legal Association </li></ul><ul><li>Limited Liability </li></ul><ul><li>Transferability of Shares </li></ul><ul><li>The company can sue & be sued </li></ul><ul><li>The company can purchase property & sell property in its own name. </li></ul>
  4. 4. Types of Companies <ul><li>Public Ltd. v/s Private Ltd. </li></ul><ul><li>Listed v/s Unlisted Company </li></ul><ul><li>Holding v/s Subsidiary Company </li></ul>
  5. 5. Lifting of the corporate veil <ul><li>Where the law disregards the corporate entity and pays regard instead to the individual members behind the legal façade, it is known as lifting the veil of corporate personality </li></ul>
  6. 6. The corporate veil may be lifted in the following instances <ul><li>To investigate the members of the company. </li></ul><ul><li>To investigate the company affairs where it is used for tax evasion. </li></ul><ul><li>To investigate the relation between holding company & subsidiary company. </li></ul><ul><li>Misdescription of name (L and R / L.R.) </li></ul>
  7. 7. Formation of a Company <ul><li>Promotion Stage </li></ul><ul><li>Pre-Incorporation Contracts </li></ul><ul><li>Incorporation </li></ul><ul><li>Commencement </li></ul>
  8. 8. Promotion Stage <ul><li>Promotion may be defined as the discovery of business opportunities and the subsequent organization of funds, property and managerial ability into business concerns for the purpose of making profits therefrom. </li></ul>
  9. 9. Pre-incorporation Contracts <ul><li>Pre – incorporation contracts are those contracts entered into between different parties on behalf of or for the benefit of the company prior to its incorporation. </li></ul>
  10. 10. Incorporation (Documentation Process) <ul><li>Type of Company & Availability of Name. </li></ul><ul><li>Memorandum of Association & Articles of Association </li></ul><ul><li>Appointment letter of Director & Manager </li></ul><ul><li>A statement from subscribers </li></ul><ul><li>A statement from CA or Advocate </li></ul><ul><li>Issuance of Certificate of Incorporation </li></ul>
  11. 11. Commencement <ul><li>Private Companies can commence the business after third stage </li></ul><ul><li>Public companies need certificate of commencement </li></ul>
  12. 12. Memorandum of Association <ul><li>The memorandum of association is a charter defining the objects & limiting the power of a company. </li></ul>
  13. 13. Memorandum of Association <ul><li>The Name Clause </li></ul><ul><li>The Registered Office Clause </li></ul><ul><li>The Object Clause </li></ul><ul><li>The Capital Clause </li></ul><ul><li>The Liability Clause </li></ul><ul><li>The Association Clause or Subscription Clause </li></ul>
  14. 14. Articles of Association <ul><li>The Articles of Association of a company are its bye-laws which govern the internal management of a company. </li></ul>
  15. 15. Doctrine of Ultra vires (Beyond Power) <ul><li>The director of company and company are prohibited from going beyond powers or MOA & AOA of company. In case they do, they can be prosecuted and the money can be taken back. </li></ul>
  16. 16. Prospectus <ul><li>A document containing detailed information about the company and an invitation to the public for subscribing to the share capital and debentures issued is called prospectus </li></ul>
  17. 17. Contents of a Prospectus <ul><li>General Information </li></ul><ul><li>Capital Structure of the company </li></ul><ul><li>Terms of the present issue </li></ul><ul><li>Company Projects </li></ul>
  18. 18. Statement in lieu of Prospectus <ul><li>When a public company chooses to raise its capital only from its directors, members or their relatives then it issues a statement in lieu of prospectus which contains the details of share capitals filed with the registrar. </li></ul>
  19. 19. Shelf Prospectus <ul><li>A shelf prospects means a prospects issued by any financial institution or bank for one or more issues of the securities or class of securities specified in that prospectus. </li></ul><ul><li>Such prospectus is valid for one year. </li></ul>
  20. 20. Information Memorandum <ul><li>Information memorandum is issued prior to filing of shelf prospects to communicate the changes occurred between the first offer of securities and current offer. Like facts relating to new charges created, changes in the final position. </li></ul><ul><li>It is also used to determine the demand & Price of proposed securities. </li></ul>
  21. 21. Red-herring Prospectus <ul><li>Prospectus which doesn’t have complete particulars on the price of the securities offered and the quantum of securities offered. </li></ul><ul><li>It must be issued at least three days before the opening of the offer </li></ul>
  22. 22. Process of filing shelf Prospectus <ul><li>Information Memorandum </li></ul><ul><li>Red-herring Prospectus </li></ul><ul><li>Shelf Prospectus </li></ul>
  23. 23. Various kinds of Meetings <ul><li>Statutory Meeting </li></ul><ul><li>Annual General Meeting </li></ul><ul><li>Extra Ordinary General Meeting </li></ul>
  24. 24. Statutory Meeting <ul><li>For a public Ltd. Co. happens once in a life time, not required for Pvt. Ltd. Co. </li></ul><ul><li>Should be conducted within the one month of issuing of certificate of commencement. </li></ul><ul><li>A statutory report is prepared which give details about the shares allotted, the progress with respect to the contract of the company. </li></ul><ul><li>Failure of holding the statutory report can lead to the winding of the company. </li></ul>
  25. 25. Annual General Meeting (AGM) <ul><li>Held once in a year to adopt the final account, appoint new auditors, elect directors, declaration of dividend. </li></ul>
  26. 26. Extra Ordinary General Meeting (EGM) <ul><li>Any meeting of shareholders after the AGM would be an EGM. </li></ul><ul><li>Normally called between two AGMs, this meeting can be called by directors, can be called by court or if 10% of the shareholders make a requisition to the board to call for an EGM. </li></ul><ul><li>The board of directors must do so with in 45 days, failing which these 10% shareholders can call the EGM themselves </li></ul>
  27. 27. Requisites of a valid meeting <ul><li>Notice of the meeting </li></ul><ul><li>Agenda of the meeting </li></ul><ul><li>Proxy </li></ul><ul><li>Quorum of Meeting </li></ul><ul><li>Voting </li></ul><ul><li>Minutes of meeting </li></ul>
  28. 28. Resolutions <ul><li>Ordinary Resolutions </li></ul><ul><li>Special Resolutions </li></ul><ul><li>Passing of resolutions by postal ballot </li></ul>
  29. 29. Shares <ul><li>A share is a “Share” in the capital of the company. </li></ul><ul><li>Share is the interest of shareholder in the company; the right to receive dividend, attend meetings, vote at the meeting and share in the surplus assets of the company, if any, in the event of the company being wound up. </li></ul>
  30. 30. Types of Shares <ul><li>Preference Share </li></ul><ul><li>Equity Shares </li></ul><ul><li>Dividend </li></ul><ul><li>Ownership </li></ul><ul><li>Voting rights </li></ul><ul><li>Repayment of capital </li></ul><ul><li>Risk </li></ul>
  31. 31. Share Capital <ul><li>Share capital means the capital of the company expressed in terms of rupees divided into shares of fixed amount. </li></ul><ul><li>Preference Share Capital </li></ul><ul><li>Equity Share Capital </li></ul>
  32. 32. Debentures <ul><li>A document which either creates a debt or acknowledges it, is a debenture. </li></ul><ul><li>Fixed interest is paid in every situation </li></ul><ul><li>Having lower risk </li></ul><ul><li>Don’t have voting rights </li></ul><ul><li>Debenture holders can not get bonus debentures </li></ul>
  33. 33. Winding Up <ul><li>Winding up of a company is a process whereby its life is ended and its property administered for the benefit of its creditors and members </li></ul>
  34. 34. Process <ul><li>A liquidator is appointed by the court / director and director gives the whole of the control / affairs of the company to the liquidator at the time of the winding up of the company. </li></ul><ul><li>After utilizing all the information's liquidator disposed the assets of the company and the funds are utilized to pay the creditors and the surplus is distributed among the shareholders. Once this is over the company is said to be dissolved. </li></ul>
  35. 35. Modes of Winding Up <ul><li>Winding up by Tribunal ( Court) or Compulsory winding up </li></ul><ul><li>Voluntary Winding Up </li></ul>
  36. 36. Winding up by tribunal <ul><li>If the company has, by special resolution, resolved that the company be wound up by the tribunal. </li></ul><ul><li>If default is made by company in delivering the statutory report to the registrar or in holding the statutory meeting. </li></ul><ul><li>If the company doesn’t commence the business within a year of its incorporation, or suspends its business for a whole year. </li></ul>
  37. 37. Winding up by tribunal <ul><li>4. If the number of members is reduced, in the case of public company below 7, and in the case of private company below 2. </li></ul><ul><li>5. If the company is unable to pay its debts. </li></ul><ul><li>6. If the company has mad a default in filing with the registrar its balance sheet and profit & loss account or annual return for any five consecutive financial year. </li></ul><ul><li>7. If the company has acted against the interest of the India </li></ul>
  38. 38. Voluntary Winding Up <ul><li>Voluntary winding up is one which is voluntarily decided by the members or creditors on their own level without intervention of tribunal </li></ul>
  39. 39. Case Study ( Unit II) <ul><li>Salomon v/s Salomon & Co. Ltd. </li></ul>