Corporate Law

1. Dr. RamuVasu,
Assistant Prof.
1

2. 1.Introduction to Companies Act 2013 – Definition of a
Company – The Companies Act 1956 vs Companies Act 2013 –
Formation of a Company – Memorandum of Association –
Articles of Association .
2.Meeting – Kinds of Meeting – Annual General Meeting –
3.Director – Appointment – DIN – Removal of Director – Rights,
Duties and Liabilities of Director.
2

3. The Companies Act 2013 is an Act of the Parliament of
India on Indian company law which regulates
incorporation of a company, responsibilities of a
Company,
Directors,
Dissolution of a company.

4. • Corporate law (also "company" or
"corporations" law) is the study of how
shareholders, directors, employees, creditors,
and other stakeholders such as consumers, the
community and the environment interact with
one another.

5.  The word ‘company’ was derived from the Latin
words
Com=with or together : Panis =bread
 A company can be defined as an "artificial person",
invisible, intangible, created under law, with a
discrete legal entity, perpetual succession and a
common seal.

6.  Corporate Personality
 Common Seal
 Limited Liability & Unlimited Capital
 Perpetual Succession
 Separate Property
 Transferability of Shares
 Capacity to Sue and Be Sued

7.  The Act 2013 has replaced The Companies Act, 1956 (in a
partial manner) after receiving the assent of the President of
India on 29 August 2013.
 The 2013 Act is divided into 29 chapters containing 470
sections as against 658 Sections in the Companies Act, 1956
and has 7 schedules. However, currently there are only 438
(470-39+7) sections remains in this Act.
7

8.  The Act came into force on 12 September 2013 with few
changes like earlier private companies maximum number of
members were 50 and now it will be 200.
 A new term of "One-Person Company" is included in this act
that will be a private company and with only 98 provisions of
the Act notified. A total of another 184 sections came into force
from 1 April 2014.
8

9.  The Indian company law begun with the
companies act 1850, modeled on British
companies act 1844.
 The Indian Companies act of 1913 was based on
the British Companies act of 1908.
 The Indian Companies act, 1956; April 1, 1956
 The Indian Companies act, 2013.

10.  Passed in Lok sabha: December 18, 2012
 Passed in Rajya Sabha: August 08, 2013
 Total number of sections: 470
 Total number of chapters: 29
 Total number of schedules: 7
 Effective from September 12, 2013
 J.J Irani Committee

16. A Company comes into existence when a group of
people come together with a view of forming an
association to exploit the business opportunities by
bringing to gather (5M)Men, Material, Money. Method
and Machine .
STAGES OF FORMATION OF A COMPANY
1.Promotion Stage
2.Incorporation (Registration Stage).
3.Capital Subscription
4.Raising the Share Capital Stage.

17. 1:Promotion of a Company :
•The promotion of a company refers to all those steps which are
taken from the time of having an idea of starting a company to the
time of actual starting of the company business.
Who is a promoter
•1. People who think of forming a company and take necessary
steps in its formation are known as “Promoters” or “Company
Promoters”.
•2. The person who conceives such an idea is called “Company
Promoter”

18. • Before a company can be formed, there must be
some persons who have an intention to form a
company and who take the necessary steps to
carry that intention into operation. Such
persons are called ‘promoters’.

19. • To discover an idea for establishing a company.
• To make detailed investigations about the demand for the product,
availability of power, labour, raw material.
• To investigate the idea and know whether the formation of the company is
possible and profitable.
• To find out suitable persons who are willing to act as first directors of the
company.
• To settle the name of company.
• To select bank, legal advisor, auditor, underwriter for the company.
• To submit all the documents required for incorporation with the registrar.
• To make proper arrangement for the office of the company. Etc…….

20. • The promoters must disclose fully all the material facts regarding the
formation of a company.
• The promoters must faithfully disclose all the facts relating to the
property which they want to sell to the company.
• The promoters must not make an unfair use their position.
• To disclose the liability and pay the secret profits if promoters have
earned.
• The prospectus of the company should contain the true statements.
• Liability on statutory mistakes or frauds in the property.

21. • He may be paid a certain lump sum.
• He may be given shares of the company.
• He may be given commission of the shares sold by the
company.
• He may be given an option to buy the shares of the Company at
par when their market price is higher.
• He may sell his own property to the company at higher price
and earn profit.

22. • A promoter can be compelled by the company to hand
over any secret profit which he has made without full
disclosure to the company.
• The company can also sue for the rescission of the
contract of sale by the promoter where the promoter
has not disclosed his interest therein.
• the promoters are criminally liable under section 63 for
the issue of prospectus containing untrue statements.
• A company may proceed against a promoter on action
for deceit or breach of duty under section 543.

23. • A company is said to be incorporated when it fulfill the
formalities of registration and obtain “CERTIFICATE OF
INCORPORATION” by submitting the MoA, AoA and written
consent of all the directors.
• A public to commence business, should raise the required
capital and obtain the “ CERTIFICATE OF COMMENCEMENT
OF BUSINESS”

24. • a public company can raise the required funds from the public by means
of issue of shares and debentures. for doing the same, it has to issue a
prospect which is an invitation to public to subscription to the capital of
the company and undergo various other formalities.
• (i) SEBI Approval
• (ii) Filling of prospectus
• (iii) Appointment of Bankers, Brokers , Underwriters
• (iv) Minimum subscription
• (v) Application to stock Exchange
• (vi) Allotment of shares

25. The "minimum subscription" is the minimum amount which, in the opinion
of directors or the signatories of the memorandum, must be raised by the
issue of shares in order to provide the sums in respect of each of the
following heads:
(1)the purchase price of any property purchased or to be purchased;
(2)any preliminary expenses payable by the company and any commission
(underwriting or otherwise) payable to any person;
(3)the repayment of any moneys borrowed by the company;
(4)working capital; and
(5)any other expenditure.

26. • 4. Entering onto an agreement with underwriters.
• Applying to the stock exchange for listing of shares.
• Issue of prospectus inviting public to subscribe.
• Allotting shares.

27. IT IS AN IMPORTANT DOCUMENT WHICH DEFINES OBJECTIVES,
POWERS, SCOPES AND RELATIONS WITH OUTSIDERS .
A Memorandum of Association (MOA) is a legal document
prepared in the formation and registration process of a company
to define its relationship with shareholders. The MOA is accessible
to the public and describes the company's name, physical address
of registered office, names of shareholders and the distribution of
shares. The MOA and the Articles of Association serve as the
constitution of the company.

28. • 1. Name Clause.
• 2. Registered Office clause.
• 3. Objective Clause
• 4. Liability Clause.
• 5. Capital Clause.
• 6. Association Clause
• Note: The MoA must be signed by at least seven subscribers in
the case of Public Company and two in the case of Private
company.

29. • The Company is a legal entity. Therefore, it must have its name to
establish its identity.
• The company is free to choose any name but it must not be undesirable
or it should not be identical to the name of the existing company.
• The name should not be prohibited one.
• The name of the company must end with the word limited so all the
persons dealing with the company must know that their liability is limited
up to the extent of their of shares.
• In the case of private limited company the word private limited to be
used as the last word of the name.

30. • Every company must have a registered office from the day it starts
its business or within 30 days of getting the Certificate of
Incorporation, whichever is earlier.
• Memorandum of Association must state the name of the State in
which the registered office of the company is situated.
• This clause is important as it mentions the
residence for the purpose of the communication
with the company.
•It determines the jurisdiction of the company and also mentions
the place where all the records of company are maintained.

31. It is the essence of memorandum. it clearly defines the
sphere of the company activities.
It indicates a series of objects for which the company is
established.
HERE THE COMPANY SHOULD MENTION ITS
•MAIN OBJECTIVES
•SUBSIDARY OBJECTIVES
•OTHER OBJECTIVES

32. • THE EXTENT AND NATURE OF THE LIABILITY OF SHARESHOLDERS SHOULD BE
STATED
LIKE
• LIMITED LIABILITY
• LIMITED BY GAURANTEE
• UNLIMITED
The liability of the members is limited to the extent of the value of shares
purchased by them.
In a case if a shareholder has to pay the unpaid amount on the share investment,
he can be compelled to pay to the extent of unpaid amount on the shares,
nothing more.

33. • Amount of share capital with which the company is to be
registered and its division into shares of a fixed amount must
be stated in the Memorandum of Association of a company
limited by shares.
• THE AUTHORISED CAPITAL SHOULD BE MENTIONED
• A COMPANY IS NOT AUTHORISED TO ISSUE ABOVE
AUTHORISED CAPITAL

34. • THIS CLAUSE CONTAINS DELCARATION OF MEMBERS
• THE NAMES, ADDRESSESS AND OCCUPATIONS OF THE
SUBSCRIBERS SHOULD BE MENTIONED
• THE SIGNATURES ARE TO BE ATTESTED BY PROPER WITNESS

35. • The expression “ultra vires” consists of two words: ‘ultra’ and ‘vires’.
‘Ultra’ means beyond and ‘Vires’ means powers. Thus, the expression
ultra vires means an act beyond the powers.
• The object clause of the memorandum of the company contains the
object for which the company is formed.
• An act of the company must not be beyond the object clause otherwise
it will be ultra vires and therefore, void and cannot be ratified even if all
the member wish to ratify. This is called the doctrine of ultra vires.

36. •

37. • The articles of association are subordinate to the memorandum of
association of the company.
• The AoA contains regulations regarding all matter concerning the
internal affairs of the company
• The provisions of the articles must not be inconsistent with or
repugnant to any of the provisions of the memorandum of the Act.
• AOA can be altered at any time according to the wishes of the
member.

38. • The articles of association is a document that contains the
purpose of the company as well as the duties and the
responsibilities of its members defined and recorded clearly.
It is an important document which needs to be filed with the
registrar of companies.

39. • Adoption of preliminary contracts.
• Number and value of shares
• Allotment of shares
• Calls on shares
• Transfer of shares
• Forfeiture,reissue,surrender of shares
• Alteration of share capital
• Share certificates
• Conversion of shares in to stocks
• Meetings and proceedings
• Voting rights , proxies and polls
• Appointment , Remmunaration,etc of Directors
• Borrowing powers ,. Dividend and Reserves,
• Accounts and audit , Procedure of winding up , Seal of the company

40. MOA
1.Determines the constitution and
activities of the co.
2.It is fundamental charter
3.Every co. must have a MOA
4.Alteration of MOA is difficult
 AOA
1. It contains rules and regulations
of internal management of co.
2. It is subsidiary to MOA& if
conflicting, MOA would prevail
3. Public company limited by shares
may or may not have AOA
4. Alteration is easier by special
resolution

41. • The Doctrine of Indoor Management says that if a person
enters into a contract with a Company he has the rights to
inquire into the correctness of the contract since Article and
Memorandum of Association are public documents.
• It is invoked by the person.

42. • MOA & AOA are public documents.
• Lodged with the Registrar and are open for inspection.
• Any person can obtain the inspection of these documents.
• Duty of every person to inspect the documents before dealing with the
company.
• Thus MOA & AOA is presumed to be notice of public.
• Such notice is called “Constructive Notice”.
• Every person dealing with a company must read the public documents of
the company.
• If he does not read them, it is his fault

43. • Every person dealing with the company is deemed to have a constructive notice
of the contents of the memorandum and articles of the company.
• An outsider dealing with the company is presumed to have read the contents of
the registered documents of the company.
• The further presumption is that he has not only read and inspected the
documents but has also
• understood them fully in the proper sense. This is known as the rule of
constructive notice.
• So, the doctrine or rule of constructive notice is a presumption operating in
favor of the company against the outsider

45. • It is a valuable document containing important details about
a company
• A prospectus is thus any document which invites the public
to provide funds to the company bye law of deposits or
subscriptions to its shares and debentures.
• It should be duly signed by the company.

46. • . It is an invitation to the public to subscribe to the shares and
debentures of the company.
• It informs public about the company and stimulates people to invest
money in the company.
• It provides an authentic record of the terms and conditions on which
shares and debentures have been issued.
• It identifies the persons who can be held responsible for any untrue or
incorrect statements made in it.
• It reflects the business policies and programes of the company.
• It helps the investors to take investment decisions.

47. It contains the following details about the company:
•Name of the company
•Address of the Registered office.
•Nature and objects of business
•Capital structure
•History of the company
•Particulars about Underwriters,auditors,brokers,bankers
•Date of opening and closing subscription list
•Name of stock exchanges where applications for listing has been made
•Information about material contracts with managerial personnel
•Outstanding liabilities
•Financial information.
•Consent of managerial personnel
•Management perception of risk factors.
•Statutory or other information.

49. • A company is a legal entity and does not have any physical
existence. It can act only through natural persons to run its
affairs. The person, acting on its behalf, is called Director. A
Director is any person, occupying the position of Director, by
whatever name called. They are professional men, hired by
the company to direct its affairs. But, they are not the
servants of the company. They are rather the officers of the
company.

50. Director may be appointed in the following ways:
•1. By the articles as regards first directors.
•2. By the company in general meeting.
•3. By the directors,
•4. By third parties
•5. By the principle of proportional representation
•6. By the central government Removal of directors :
a director of a company can be removed by
•(a) shareholders
•(b) central government, or
•(c) the court

51. The circumstances in which a person cannot be appointed as a director of a company are
enumerated in section 247. According to this section, a person cannot be appointed as a director
of a company, if
•(i) He has been found to be of unsound mind by a competent court and the finding is in force;
•(ii) He is an undischarged insolvent;
•(iii) He has applied to be adjudicated as an insolvent and his
application is pending;
•(iv) He has been convicted of an office involving moral turpitude and sentence to imprisonment
for not less than 6 months and a period of 5 year has not elapsed since the expiry’s of his
sentence;
•(v) He has not paid any call in respect of share of the company held by
him for period of six month from the last day fixed for the payment;
•(vi) He has been disqualified by an order of the court under section 203, of an office in relation
to promotion, formation and management of the company or fraud or misfeasance in relation to
the company.

53. Duties of the directors are mainly divided into two parts.
They are:-
•1. Statutory Duties
•2. General Duties

54. • A) To file return of allotment: Section 75 of the Companies Act, 1956
requires acompany to file with the Registrar, within a period of 30 days
• (B) Not to issue irredeemable preference share or shares or share
redeemable after 20years:
• (C) To disclose interest .
• (D) To disclose receipt from transfer of property (sec. 319): Any money
received by the director from the transferee in connection with the
transfer of the companys property or undertaking must be disclosed to
the members of the company and approved by the company in general
meeting. Otherwise, the amount shall be held by the directors in trust
for the company

55. • E) To disclose receipt of compensation from transferee of shares .
• (F) Duty to attend Board meetings.
• (G) To convene statutory, Annual General meeting (AGM) and also
extraordinary general meetings
• H) To prepare and place at the AGM along with the balance sheet and profit &
loss account a report on the company's affairs including the report of the Board
of Directors .
• (I) To authenticate and approve annual financial statement.
• (J) To appoint first auditor of the company
• K) To appoint cost auditor of the company.
• (L) To make a declaration of solvency in the case of Members’ voluntary
winding up.

56. • (A) Duty of good faith: The directors must act in the best interest of the company. Interest
of the company implies the interest of the present and future members of the company on
the footing that company would be continued as going concern.
• (B) Duty of care: A director must display care in performance of work assigned to him. He
is, however, not expected to display an extraordinary care but that much care which a man
of ordinary prudence would take in his own case. Any provision in the company's Articles
or in any agreement that excludes the liability of the directors for negligence, default,
misfeasance, breach of duty or breach of trust, is void. The company cannot even
indemnify the directors against such liability.
• (C) Duty not to delegate: Director being an agent is bound by the maxim. delegatus
nonpotest delegare. which means a delegate can not further delegate. Thus, a director
must perform his functions personally. However, he may delegate his in certain conditions.

57. • Breach of fiduciary duty: Where a Director acts dishonestly to the interest of the company,
he will be held liable for breach of fiduciary duty.
• Ultra vires acts: Directors are supposed to act within the parameters of the provisions of
the Companies Act, Memorandum and Articles of Association, since these lay down the
limits to the activities of the company and, consequently, to the powers of the Board of
Directors.
• Negligence: As long as the Directors act within their powers with reasonable skill and care,
as expected of them as prudent businessmen, they discharge their duties to the company
• Mala fide acts: Directors are the trustees for the money and property of the company,
handled by them, as well as for exercise of the powers, vested in them. If they dishonestly
or in a mala fide manner, exercise their powers and perform their duties, they will be liable
for breach of trust and, may be required to make good the loss or damage, suffered by the
company by reason of such mala fide acts

58. •

59. • A company is an association of several persons. Decisions are made
according to the view of the majority. Various matters have to be
discussed and decided upon. These discussions take place at the various
meetings which take place between members and between the directors.
Needless to say, the importance of meetings cannot be under-
emphasised in case of companies. The Companies Act, 1956 contains
several provisions regarding meetings. These provisions have to be
understood and followed.
For a meeting, there must be at least 2 persons attending the meeting. One
member cannot constitute a company meeting even if he holds proxies
for other members.

61. • These meetings are general meetings as they are attended by all the
members.•
• The management of the company is undertaken through meetings of
the company’s shareholders
where major decisions are to be taken. The meetings
are usually called by directors, but may also be called by the
shareholders.
• The meetings of the shareholders are of three types:
• 1. The Statutory Meeting
• 2. The Annual General Meeting
• 3. Extra Ordinary General Meeting

62. The statutory meeting is the first meeting of the members of the company
after it commences business. It is held once in lifetime of the company.
•Section 157(1) states that “ every company limited by shares and every
company limited by guarantee and having a share capital shall , within a
period of not less than three months, nor more than six months, from the
date at which the company is entitled to commence business, hold a
general meeting of the
members of the company, which shall be called ‘the statutory meeting’”.

63. • 1.To discuss the success of the formation of the company.
• 2.To approve/modify the contracts which were specified in the
prospectus.
• 3.Providing information to the members regarding Shares.
Allotted, Preliminary Expenses, Underwriting agreement and
contracts entered by the company.
• Note: Sec-433(b) provides for that the Statutory report be
delivered to the ROC otherwise company will be wound up

64. • 1.Notice: A clear 21 days notice must be given to all
• 2.Agenda: Since all items are of Special Business category
therefore each must be accompanied with an explanatory note
for each item.
• 3.Time, date and place of Statutory meeting:
• Statutory Report: Directors must send a report to every member
21 days before the date of the meeting.

65. Is a meeting which Must be held by every type of company, public
or private, once a year. Every company must in each year hold an
annual general meeting. Not more than 15 months must elapse
between two annual general meetings.
However, a company may hold its first annual general meeting
within 18 months from the date of its incorporation. In such a case,
it need not hold any annual general meeting in the year of its
incorporation as well as in the following year only.

66. • Following are the requirements of AGM:
• i. It must be held every year.
• ii. The first AGM is to be held within eighteen months of incorporation.
• iv. Notice of the date of the meeting is to be send twenty one days before
such date to the shareholders whereas in case of a listed company the notice
is also required to be published in the newspaper.
• v. In case of default in complying with any of these requirements all officers
party to such default shall be held liable.
• vi. The gap between two AGMs should not be more than fifteen months.

67. In this meeting the following matters are usually
considered.
Annual accounts of the company
Declaration of dividend
Retirement and appointment of auditors
retirement and appointment of Directors

68. • All general meetings other than annual general meeting and statutory meeting
are known as Extra-Ordinary General Meetings. This meeting is held on the
special occasions or you can say in the emergency situations when directors
think that it necessary. For example; at the plan of merger etc
Occasion:
• This meeting is held on the special occasion and in the emergency situation.
Notice of the Meeting:
• The directors will send a notice of the meeting to all the members of the
company at least 21 days before the meeting.

69. When the meeting is held among the directors of the
company it is called directors meeting. It is classified into two
parts. They are:
•Board meeting
•Committee meeting

70. For any special situation, when the meeting is arranged by the company, it
is called special meeting. The types of the special meetings are as follows:
•Class-meeting: The Company has different kinds of shares. When the
meeting is arranged by any one kind of shareholders it is called class
meeting.
•Creditors meeting: The directors or their appointed lower can invite this
type of meeting. Moreover this type of meeting may be arranged by the
order of the court.

72. Definition : A director is a person from a group of managers who leads or supervises a particular
area of a company, program, or project.
Meaning : An appointed or elected member of the board of directors of a
company who, with other directors, has the responsibility for determining and
implementing the company's policy. According to section 2(30), provides that
no body corporate association or a firm can be appointed as director of the
company. Only an individual can be appointed as a director. A company
director does not have to be a stockholder or an employee of the firm

73. Qualification
A director must hold a share in the company.
Each director must take his qualification share in within 2 months.
Disqualification
An insolvent person can not become a director.
An unsound mind person can not become a director.
A person has not paid any call in respect of shares of the company. A
person who has been convicted an offence or declared by a court.

74.  Power to buy back its shares
 Power to issue debentures
 Power to borrow money from other company or from RBI
 Power to invest funds for the company
 Power to make loans
 Power to fill the casual vacant seat in the board
 Power to make political contribution
 Power to recommend ant the rate of dividend in the annual general
meeting
 Power to appoint any person as Manager or General Manager
 Power to interfere

75.  Directors owe duties to the corporation, and not to individual
shareholders, employees or creditors outside exceptional
circumstances.
 Directors' core duty is to remain loyal to the company, and avoid
conflicts of interest.
 Directors are expected to display a high standard of care, skill or
diligence.
 Directors are expected to act in good faith to promote the
success of the corporation.

76.  Directors have general Duties . They are:
 Duty to act in good faith and not to act contrary to the interest of the company
 Duty not to use power for an improper purpose
 Duty to avoid conflicts of interest
 Duty to retain discretion
Statutory Duties
 Section 181: Mirrors the general law duty to act in good faith, in the best
interests of the company and for proper purpose.
 Section 182: Duty not to misuse position to gain advantage
 Section 183: Duty not to misuse information to gain advantage
 Section 184: Directors breach section 181, 182 and 183 for gain and where
the conduct is reckless or intentionally dishonest. Criminal penalty will be
applied to against director who breach 184.

77.  1. Frequency of Meeting : within 30 days
 2. Calling of Meeting: within 7 days of calling
 Quorum of Board Meeting: 1/3 of total director
 Participation of Directors in Board Meetings:
Participation is must
 Passing of Resolution by Circulation: