Company law ppt

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Company law ppt

  1. 1. Company LawCompany Law
  2. 2. 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
  3. 3. 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
  4. 4. Other featuresOther features ► Limited LiabilityLimited Liability ( either by share or guarantee( either by share or guarantee)) ► ItIt can own property, separate from its memberscan own property, separate from its members.. The property is vested with the company, as it is aThe property is vested with the company, as it is a body corporate.body corporate. ► TheThe income of the members are different from theincome of the members are different from the income of the companyincome of the company ( Income received by the( Income received by the members as dividends cannot be same as that ofmembers as dividends cannot be same as that of the company)the company) cont….cont….
  5. 5. Features continued..Features continued.. ► Perpetual successionPerpetual succession: Death of the members is: Death of the members is not the death of the company until it is wound upnot the death of the company until it is wound up ► As it is a legal entity or aAs it is a legal entity or a juristic person or artificialjuristic person or artificial person it canperson it can sue and be suedsue and be sued ► The company enjoysThe company enjoys rights and liabilitiesrights and liabilities whichwhich are not as that of the members of the companyare not as that of the members of the company
  6. 6. Lifting of Corporate VeilLifting of Corporate Veil ► As the company isAs the company is a separate legal entitya separate legal entity , is has, is has been provided with a veil, compared to that ofbeen provided with a veil, compared to that of individuals who are managing the company.individuals who are managing the company. ► But if the court feels that such veil has to beenBut if the court feels that such veil has to been used for anyused for any wrongful purposewrongful purpose, the court lifts the, the court lifts the corporate veil and makes thecorporate veil and makes the individual liable forindividual liable for such acts which they should not have done orsuch acts which they should not have done or doing in the name of the companydoing in the name of the company
  7. 7. 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
  8. 8. Statutory circumstancesStatutory circumstances for lifting the corporatefor lifting the corporate veilveil► 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.
  9. 9. 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.
  10. 10. Circumstances to lift the corporateCircumstances to lift the corporate veil through judicial interpretationsveil through judicial interpretations ► When the court feels that there are no statutoryWhen the court feels that there are no statutory provisions which can pierce the corporate veil, andprovisions which can pierce the corporate veil, and the identity of the company is not the one whichthe identity of the company is not the one which has to exist, and the court has to interfere in orderhas to exist, and the court has to interfere in order to avoid the activities that are done in the name ofto avoid the activities that are done in the name of the company by persons managing themthe company by persons managing them, it has, it has been empowered to do so……been empowered to do so…… The circumstances are…..The circumstances are…..
  11. 11. Judicial interpretations by theJudicial interpretations by the court are as follows:court are as follows: ► Protection of Revenue-Protection of Revenue- When ever a company uses itsWhen ever a company uses its name for the purpose of tax evasion or to circumvent taxname for the purpose of tax evasion or to circumvent tax obligationsobligations ► Prevention of fraud or Improper conduct-Prevention of fraud or Improper conduct- The incorporationThe incorporation has been used for fraudulent purpose, like defrauding thehas been used for fraudulent purpose, like defrauding the creditors, defeating the purpose of law etc..creditors, defeating the purpose of law etc.. ► Determination of the character of the company-Determination of the character of the company- EnemyEnemy company or all the members being the citizens of thecompany or all the members being the citizens of the enemy country. (Daimler Co. Ltd V. Continental Tyre &enemy country. (Daimler Co. Ltd V. Continental Tyre & Rubber Co. Ltd)Rubber Co. Ltd)
  12. 12. Other circumstancesOther circumstances ► Where a company is used to avoid welfareWhere a company is used to avoid welfare legislation-legislation- If a company is formed in order toIf a company is formed in order to avoid the benefits to the workers like bonus, oravoid the benefits to the workers like bonus, or other statutory benefits..other statutory benefits.. ► For determining the technical competence of theFor determining the technical competence of the company-company- To look into the competency of theTo look into the competency of the company or the shareholders or promoterscompany or the shareholders or promoters (New Horizon’s Ltd and Another V. Union of India(New Horizon’s Ltd and Another V. Union of India (1994)(1994)
  13. 13. Types of CompaniesTypes of Companies ►Limited Company ( Limited by share or byLimited Company ( Limited by share or by guarantee)guarantee) ►Unlimited companyUnlimited company ►Government CompanyGovernment Company ►Foreign CompanyForeign Company ►Private CompanyPrivate Company ►Public CompanyPublic Company
  14. 14. Limited CompanyLimited Company ► Limited by Shares-Limited by Shares- In such companies, theIn such companies, 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.
  15. 15. Unlimited CompanyUnlimited Company ► There isThere is no limit on the liability of the members.no limit on the liability of the members. The liabilityThe liability in such cases would extend to the whole amount of thein such cases would extend to the whole amount of the company’s debts and liabilities.company’s debts and liabilities. ► Here theHere the members cannot be directly sued by the creditorsmembers cannot be directly sued by the creditors.. ► When the company is wound up, the official liquidator willWhen the company is wound up, the official liquidator will call upon the members to discharge the liability.call upon the members to discharge the liability. ► The details of the number of members with which theThe details of the number of members with which the company is registered and the amount of share capital hascompany is registered and the amount of share capital has to be stated in the Articles of Association (AOA).to be stated in the Articles of Association (AOA).
  16. 16. 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.
  17. 17. 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.
  18. 18. 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….
  19. 19. ► 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.
  20. 20. Exemption and Privileges of aExemption and Privileges of a Private companyPrivate company ► It can have aIt can have a minimum of two members.minimum of two members. ► It canIt can commence business immediatelycommence business immediately afterafter obtaining certificate of incorporation.obtaining certificate of incorporation. ► It needIt need not issue prospectusnot issue prospectus or statement in lieu ofor statement in lieu of prospectus.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 or file statutoryor file statutory report with the ROC.report with the ROC.
  21. 21. 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
  22. 22. Conversion of CompanyConversion of Company ► The Act provides forThe Act provides for conversion of public companyconversion of public company into a private company and vice versainto a private company and vice versa ► A private company is converted into a publicA private company is converted into a public company eithercompany either by default or by choiceby default or by choice inin compliance with the statutory requirements.compliance with the statutory requirements. ► Once the action for conversion takes place then,Once the action for conversion takes place then, a petition can be filed with the central governmenta petition can be filed with the central government with the necessary documents for its decision onwith the necessary documents for its decision on the matter of conversionthe matter of conversion
  23. 23. Registration andRegistration and IncorporationIncorporation► 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
  24. 24. Incorporation of aIncorporation of a CompanyCompany► 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.
  25. 25. 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.
  26. 26. ► 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
  27. 27. 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.
  28. 28. Promoters have the followingPromoters have the following liabilities under the Companies Act,liabilities under the Companies Act, 19561956 ► They can beThey can be liable for non complianceliable for non compliance of the provisions ofof the provisions of the Actthe Act ► Severe penaltySevere penalty may be imposedmay be imposed ► The court mayThe court may suspend the promoter from taking part insuspend the promoter from taking part in the managementthe management of the companyof the company ► Liable for any untrue statement in the prospectusLiable for any untrue statement in the prospectus to theto the person who has subscribed for any shares or debenturesperson who has subscribed 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
  29. 29. The requirements are as followsThe requirements are as follows ► Application for availability of nameApplication for availability of name ► Preparation of MOA and AOAPreparation of MOA and AOA ► Selection and finalization of MOA and AOA- ItsSelection and finalization of MOA and AOA- Its printing, stamping and signingprinting, stamping and signing ► Preparation of other necessary documentsPreparation of other necessary documents ► Filling of the required documents for RegistrationFilling of the required documents for Registration to obtain certificate of incorporation andto obtain certificate of incorporation and Certificate of commencement of businessCertificate of commencement of business
  30. 30. Memorandum ofMemorandum of AssociationAssociation► 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
  31. 31. 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
  32. 32. 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.
  33. 33. 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)
  34. 34. ► 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
  35. 35. ““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)
  36. 36. TheThe consequences of theconsequences of the ultra viresultra vires 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 purchased and it is anIf a property has been purchased and it is an ultraultra viresvires act, the company can have a right over thatact, the company can have a right over that property.property. d)d) The doctrine to be used exclusively for theThe doctrine to be used exclusively for the companies’ interest.companies’ interest. e)e) But the others cannot use this doctrine as a tool toBut the others cannot use this doctrine as a tool to attack the companyattack the company
  37. 37. 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.
  38. 38. AOAAOA ► AOA plays aAOA plays a subsidiary partsubsidiary part to the MOAto the MOA ► Any thingAny thing done beyond the AOA will bedone beyond the AOA will 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.
  39. 39. Contents of the AOAContents of the AOA may be as follows:may be as follows: ► Share capitalShare capital ► Lien on sharesLien on shares ► Calls on sharesCalls on shares ► Transfer and transmission of sharesTransfer and transmission of shares ► Forfeiture of the sharesForfeiture of the shares ► Surrender of the sharesSurrender of the shares ► General meetingsGeneral meetings ► Alteration of the capitalAlteration of the capital ► Directors etc..Directors etc.. ► Dividends and reservesDividends and reserves ► Account and auditAccount and audit ► Borrowing powersBorrowing powers ► Winding upWinding up ► Adoption of the preliminary contracts etc….Adoption of the preliminary contracts etc….
  40. 40. Doctrine of Constructive notice andDoctrine of Constructive notice and Indoor ManagementIndoor Management ► Persons dealing with the company have to satisfyPersons dealing with the company have to satisfy themselves. But need not know the internalthemselves. But need not know the internal irregularity. Royal British Bank V. Turquandirregularity. Royal British Bank V. Turquand (Turquand Rule) Directors issuing a bond.(Turquand Rule) Directors issuing a bond. ► The doctrine of Constructive notice can be invokedThe doctrine of Constructive notice can be invoked by the company to operate against the personsby the company to operate against the persons dealing with the company.dealing with the company. ► The outsider cannot embark, but only can acquaintThe outsider cannot embark, but only can acquaint upon the MOA and AOA. (Official Liquidator,upon the MOA and AOA. (Official Liquidator, Manasube &Co Pvt Lid V. Commissioner ofManasube &Co Pvt Lid V. Commissioner of Police)Police)
  41. 41. Exceptions to the DoctrineExceptions to the Doctrine of Where the outsiderof Where the outsider cannot claim the relief oncannot claim the relief on the grounds ofthe grounds of “Indoor management”“Indoor management”►Knowledge of irregularityKnowledge of irregularity ►No knowledge of articlesNo knowledge of articles ►NegligenceNegligence ►ForgeryForgery ►Non- Existent authority of the companyNon- Existent authority of the company
  42. 42. Raising of Capital From PublicRaising of Capital From Public ► The companies can raise money byThe companies can raise money by offeringoffering securitiessecurities for sale to the public.for sale to the public. ► They can invite the public to buy shares, which isThey can invite the public to buy shares, which is known asknown as public issue.public issue. ► For this purpose the company may issue aFor this purpose the company may issue a prospectus, which may include a notice circular,prospectus, which may include a notice circular, advertisement or other documentsadvertisement or other documents which arewhich are issued to invite public deposits.issued to invite public deposits.
  43. 43. 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).
  44. 44. Various forms in which theVarious forms in which the prospectus can be issued.prospectus can be issued. ► Shelf ProspectusShelf Prospectus: Prospectus is normally issued by: Prospectus is normally issued by financial institution or bank for one or more issues of thefinancial institution or bank for one or more issues of the securities or class of securities mentioned in thesecurities or class of securities mentioned in the prospectus.prospectus. ► There can beThere can be deemed prospectusdeemed prospectus also if it is issued by thealso if it is issued by the issue houseissue house ► ‘‘Information MemorandumInformation Memorandum’: It means a process, which is’: It means a process, which is undertaken prior to the filing of prospectus.undertaken prior to the filing of prospectus. ► Even anEven an AdvertisementAdvertisement , that the shares are available is, that the shares are available is considered to be prospectusconsidered to be prospectus
  45. 45. Contents of the prospectusContents of the prospectus ►General informationGeneral information ►Capital structureCapital structure ►Terms of present issueTerms of present issue ►Management and projectsManagement and projects ►Management and perception ofManagement and perception of risk factorrisk factor It is compulsory to register theIt is compulsory to register the prospectus with the Registrarprospectus with the Registrar
  46. 46. 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 of the company ,The liability will be on the director of the company , whose name was written during the time of issuewhose name was written during the time of issue ► The persons who have authorized their names toThe persons who have authorized their names to be theirs in the prospectus to be named asbe theirs in the prospectus to be named as directorsdirectors ► PromoterPromoter ► Every person including the person who is anEvery person including the person who is an expert and has authorized his name to be issuedexpert and has authorized his name to be issued with the prospectuswith the prospectus
  47. 47. Remedies for misstatements inRemedies for misstatements in the prospectusthe prospectus ► Relying on the prospectus if any person buysRelying on the prospectus if any person buys shares, the person mayshares, the person may ► Rescind the contract ( only when there isRescind the contract ( only when there is misrepresentation relating to the material facts.misrepresentation relating to the material facts. The rescission has to be done within a reasonableThe rescission has to be done within a reasonable timetime ► Claim damages- it can be claimed from theClaim damages- it can be claimed from the directors, promoters or other persons who hasdirectors, promoters or other persons who has authorized their name to be written during theauthorized their name to be written during the issue of the prospectusissue of the prospectus
  48. 48. 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.
  49. 49. Other features of a shareOther features of a share ► A share is not a negotiable instrument, butA share is not a negotiable instrument, 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.
  50. 50. Share Certificate and ShareShare Certificate and Share WarrantWarrant ► Share CertificateShare Certificate :: The Share Certificate is aThe Share Certificate is a documentdocument issued by the companyissued by the company and is prima facie evidence toand is prima facie evidence to show that the person named therein is the holder ( title) ofshow that the person named therein is the holder ( title) of the specified number of shares stated therein.the specified number of shares stated therein. ► Share certificate is issued by the company to the ( shareShare certificate is issued by the company to the ( share holder) allottee of shares.holder) allottee of shares. ► The company has to issue within 3 months from the dateThe company has to issue within 3 months from the date of allotment. In case of default the allottee may approachof allotment. In case of default the allottee may approach the central governmentthe central government ► Share WarrantShare Warrant :: The share warrant is aThe share warrant is a bearer documentbearer document issued by the company under its common seal. As shareissued by the company under its common seal. As share warrant is a negotiable instrument, it is transferred bywarrant is a negotiable instrument, it is transferred by endorsement and by mere delivery like any otherendorsement and by mere delivery like any other negotiable instrumentnegotiable instrument..
  51. 51. Kinds of sharesKinds of shares >Preference shares->Preference shares- It can beIt can be further classified asfurther classified as ► Participating preferential shares.Participating preferential shares. ► Cumulative preferential sharesCumulative preferential shares ► Non Cumulative preferential sharesNon Cumulative preferential shares >Redeemable Shares>Redeemable Shares andand >Irredeemable Shares>Irredeemable Shares >Equity or ordinary shares>Equity or ordinary shares >Shares at premium>Shares at premium >Shares at discount>Shares at discount >Bonus shares>Bonus shares >Right shares>Right shares
  52. 52. Transfer and Transmission ofTransfer and Transmission of sharesshares ► AOA provides for the procedure of transfer of shares. It is aAOA provides for the procedure of transfer of shares. It is a voluntary action of the shareholder.voluntary action of the shareholder. ► It can be made even by a blank transfer –In such casesIt can be made even by a blank transfer –In such cases thethe transferor only signs the transfer form without making anytransferor only signs the transfer form without making any other entries.other entries. ► In case it is a forged transfer, the transferor’s signature isIn case it is a forged transfer, the transferor’s signature is forged on the share transfer instrument.forged on the share transfer instrument. ► Transmission of sharesTransmission of shares is by operation of law, e.g. byis by operation of law, e.g. by death, insolvency of the shareholder etc.death, insolvency of the shareholder etc.
  53. 53. 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.
  54. 54. 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
  55. 55. 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.
  56. 56. 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.
  57. 57. 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
  58. 58. 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.
  59. 59. Duties and Liabilities ofDuties and Liabilities of the Directorsthe Directors 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
  60. 60. 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
  61. 61. 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
  62. 62. 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)
  63. 63. 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…..
  64. 64. Other meetingsOther meetings ► AGMAGM-it can be conducted based on the provisions-it can be conducted based on the provisions given in the Articles or by passing a resolution ingiven in the Articles or by passing a resolution in one AGM for the subsequent AGM’sone AGM for the subsequent AGM’s ► Board Meetings-Board Meetings- This is conducted for the smoothThis is conducted for the smooth running of the company and for collectively takingrunning of the company and for collectively taking the decisions. The meetings may be conducted tothe decisions. The meetings may be conducted to call on shares, issue debentures, borrow money,call on shares, issue debentures, borrow money, to make loans, To invest the fundsto make loans, To invest the funds etcetc
  65. 65. How to conduct meeting?How to conduct meeting? ►Written notice to be givenWritten notice to be given ►Notice to be issued under theNotice to be issued under 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.
  66. 66. 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.
  67. 67. 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.
  68. 68. 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 is involvedwhen there is only one company is involved continuedcontinued….….
  69. 69. ► 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 can beThe reconstruction or amalgamation can be done with any other banking institution.done with any other banking institution.
  70. 70. Scheme to be approvedScheme to be approved ► Any kind of scheme to be accepted,Any kind of scheme to be accepted, it has to get approval from theit has to get approval from 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.
  71. 71. Modes of ReconstructionModes of Reconstruction or Amalgamationor Amalgamation► 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.
  72. 72. Mergers, Acquisitions and TakeMergers, Acquisitions and Take over of companiesover of companies ► Merger connotes union of two or more commercialMerger connotes union of two or more commercial interests, corporations, undertakings, bodies orinterests, corporations, undertakings, bodies or any other entities.any other entities. ► Fusion of two or more corporations by the transferFusion of two or more corporations by the transfer of all property to a single corporation. It is used asof all property to a single corporation. It is used as a synonym for amalgamation. Even the Act makesa synonym for amalgamation. Even the Act makes no distinction between merger and amalgamation.no distinction between merger and amalgamation. ►
  73. 73. The changing of legal entity afterThe changing of legal entity after mergers and acquisitionsmergers and acquisitions ► In a merger- one of the company loses itsIn a merger- one of the company loses its corporate existence and the survivor companycorporate existence and the survivor company acquires the assets as well as the liabilities of theacquires the assets as well as the liabilities of the merger company.merger company. ► In acquisition, it is acquiring the ownership in theIn acquisition, it is acquiring the ownership in the property is the purchase of a controlling interest inproperty is the purchase of a controlling interest in the share capital of another existing company. Itthe share capital of another existing company. It is an act of acquiring asset and management ofis an act of acquiring asset and management of the company.the company.
  74. 74. 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.
  75. 75. How can be company be woundHow can be company be wound up?up? ► By passing a special resolutionBy passing a special resolution ► If there is a default in holding the statutory meetingIf there is a default in holding the statutory meeting ► Failure to commence the businessFailure to commence the business ► If there is reduction in the membership of theIf there is reduction in the membership of the minimum number of members as per the statutoryminimum number of members as per the statutory requirementrequirement ► If it not able to pay its debtsIf it not able to pay its debts
  76. 76. Modes of winding upModes of winding up ► Compulsory winding up under theCompulsory winding up under 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.
  77. 77. Winding up procedureWinding up procedure ► A petition for winding up has to be filed by theA petition for winding up has to be filed by the concerned person to the prescribed authorityconcerned person to the prescribed authority ► Liquidator to be appointed to safeguard theLiquidator to be appointed to safeguard the property of the companyproperty of the company ► Then the court will hear the matter and passThen the court will hear the matter and pass necessary orders. It can dismiss the petition ornecessary orders. It can dismiss the petition or pass an order of winding uppass an order of winding up
  78. 78. 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.

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