A company is any entity that engages in business.A voluntary association formed and organized to carry on a business.

1. UNIT-III
COMPANIES ACT
Presented by:
Monika , Shailja , Priyansh , Vijay , Ajay ,
Neha , Shreya , Pritika , Siddharth

2. Company Act 2013
A company is any entity that engages in
business.
A voluntary association formed and
organized to carry on a business.
According to the law in the USA:
A company can be a “corporation, partnership,
association, joint-stock company, trust, fund, or
organized group of persons, whether incorporated or
not, and (in an official capacity) any receiver, trustee in
bankruptcy, or similar official, or liquidating agent, for
any of the foregoing”

3. According to Prof. L.H. Haney, “Company is an
artificial person created by law having separated
entity with a perpetual succession and common
seal”.
According to Justice Lindley a company means
association of persons who contribute in shape of
money or money’s worth to a common stock and
employ it for some specific purpose.

4. The Companies Act 2013 of India defines a
company as-
A registered association which is an artificial legal person,
having an independent legal, entity with a perpetual succession,
a common seal for its signatures, a common capital comprised
of transferable shares and carrying limited liability.
Features & Characteristics Of A Company
Incorporated association: A company comes into
existence when it is registered under the Companies Act (or
other equivalent act under the law). A company has to fulfil
requirements in terms of documents (MOA, AOA),
shareholders, directors, and share capital to be deemed as
a legal association.

5. Artificial Legal Person: In the eyes of the law, A company
is an artificial legal person which has the rights to acquire
or dispose of any property, to enter into contracts in its
own name, and to sue and be sued by others.
Separate Legal Entity: A company has a distinct entity
and is independent of its members or people controlling it.
A separate legal entity means that only the company is
responsible to repay creditors and to get sued for its
deeds. The individual members cannot be sued for actions
performed by the company. Similarly, the company is not
liable to pay personal debts of the members.

6. Perpetual Existence: Unlike other non-registered
business entities, a company is a stable business
organization. Its life doesn’t depend on the life of its
shareholders, directors, or employees. Members may
come and go but the company goes on forever.
Common Seal: A company being an artificial legal
person, uses its common seal (with the name of the
company engraved on it) as a substitute for its signature.
Any document bearing the common seal of the company
will be legally binding on the company.

7. Limited Liability: A company may be limited by guarantee
or limited by shares. In a company limited by shares, the
liability of the shareholders is limited to the unpaid value
of their shares. In a company limited by guarantee, the
liability of the members is limited to the amount they had
agreed upon to contribute to the assets of the company in
the event of it being wound up.
COMPANY ACT 2013
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. The 2013
Act is divided into 29 chapters containing 470 sections
as against 658 Sections in the Companies Act, 1956 and
has 7 schedules.

8. TYPES OF
COMPANIES

9. 1) ON THE BASIS OF INCORPORATION
(i) Statutory companies:
 Incorporated by means of a special act passed by the central
or state legislature.
 Mostly invested with compulsory powers and are
responsible to carry out some special business of national
importance.
 Mostly concerned with public utilities, e.g., railways, gas
and electricity companies, and enterprises of national
importance.
 E.g.: The Reserve Bank of India (formed under RBI act,
1934), Life Insurance Corporation of India (formed under
LIC Act, 1956), the Industrial Finance Corporation, Oil and
Natural gas corporation etc.
Companies can be classified into three types based
on whether they are created by a special act,
special order, or are registered just like any normal
company.

10. (II) ROYAL CHARTERED COMPANIES:
companies created by the Royal Charter.
granted power or a right by the monarch or by a
special order of a king or a queen.
E.g.: East India Company, Bank Of England, etc.
(iii)Registered Or Incorporated Companies :
incorporated under the companies act passed by the
government come under existence only after they
register themselves under the act and the certificate
of incorporation is passed by the Registrar of
companies.
E.g. : Google India Pvt Ltd , Hindustan Unilever ltd,
Proctor and Gamble

11. 2) ON THE BASIS NUMBER OF MEMBERS
(i) One Person Company:
 introduced in the Companies Act of 2013 in India.
 One man holds practically the whole of the share capital of the
company, and in order to meet the statutory requirement of the
minimum number of members, some dummy members hold one or two
shares each.
 Can be incorporated as a private ltd company only.
 E.g., Alians agrofarms pvt ltd(Kanpur), Flags corporate pvt ltd, Agricon
seeds industries pvt ltd (Pune) etc.
(ii) Private Limited Company:
 have atleast 2 and less than 50 members.
 Has a minimum paid-up capital of 1 lakh rupees or such higher capital,
as may be prescribed.
 liability is limited or unlimited depending on the type of the company it
is.
 transfer of shares is limited to its members and the general public
cannot subscribe to its shares and debentures.
 can start operations after receiving just the certificate of incorporation.
 E.g. Hyundai motors India, Jet airways , Citibank, L.G. electronics etc.

12. (III) PUBLIC LIMITED COMPANY:
The legal existence of a Public Limited Company is separate from
its members (shareholders) and the liability of its members is also
limited. Existence is thus not affected by the retirement or death
of its shareholders.
A minimum of 7 members is needed to form a Public Limited
company but there is no maximum limit on this.
Does not restrict the right of its members to transfer its shares.
Has a minimum paid-up capital of 5 lakh rupees or such higher
capital as may be prescribed.
collects its capital by the sale of its shares to the shareholders.
needs a certificate of in corporation and certificate of
commencement to start operations.
E.g. Reliance industries ltd, Wipro ltd, Raymond's ltd, Larsen and
turbo ltd, Tata Iron and Steel company ltd, etc.

13. 3) ON THE BASIS OF LIABILITY OF THE
MEMBERS
(ii)Companies Limited By Shares:
 liability of the shareholders is limited by the number and
value of shares held by them.
 The unpaid amount can be called upon any time during
the lifetime or winding up of the company.
 If the shares of a member are fully paid up then his
liability will be nil.
 E.g. Reliance, 18 steps technologies pvt ltd (Hyderabad),
etc.
(i) Unlimited Companies:
 no limit on the liability of the shareholders.
 Liability may extend to the personal property of the
shareholders in case the company is not able to satisfy its claims
at the time of winding up.
 This liability of members is like a partnership where they have
to contribute according to the ratio of amount invested in the
company.
 E.g. Amway India enterprises pvt ltd, GE capital services Delhi,
etc.

14.  Liability of shareholders is limited up to the amount guaranteed or invested by
the shareholder towards the assets of the company in the event of its being
wound up.
 In case of liquidation, the shareholders promise to pay a certain fixed amount to
cover the liabilities of the company.
 The amount guaranteed can be only demanded at the time of its wound up ,
hence it is a reserve capital.
 Company may or may not have share capital , if it has, every member is liable to
pay the amount unpaid on the shares held by him in addition to the amount of
guarantee.
 E.g. Bharat egg producers association, AMF foundries pvt ltd Hyderabad, central
circuit cine association Maharashtra, etc.
(iii) Companies Limited By Guarantee:

15. 4) ON THE BASIS OF CONTROL
(i)Holding company:
 A company is known as the holding company of another
company if it has control over that company,i,.e., if, but
only if, that another is its subsidiary.
 A company which holds more than 50% of the issued share
capital, or more than 50% of the voting power, or has power
to appoint or control the composition of directors of other
company.
 E.g. , TATA, Mahindra, Reliance, ITC, etc.
(ii) Subsidiary company:
 A company is said to be a subsidiary of another company when
control is exercised by the latter, known as holding company
over the former called subsidiary company.
 Holding company may control the activities of the subsidiary
company.
 E.g. TATA sons, TATA motors, TVS motors, jio, Reliance
infrastructure, ITC infotech, etc.

16. 5) ON THE BASIS OF OWNERSHIP
(i) Government company:
company in which atleast 51%of the paid up share capital is
held liable by the central govt. or by the state govt., or partly by
the central govt. or partly by the state govt.
Examples: “State Trading Corporation Of India” And
“Minerals And Metals Trading Corporation Of India”
(ii) Foreign company:
company which is incorporated outside India which has an
established place of business of India. Where a minimum of 51%
of the paid up share capital of a foreign company is held by one
or more Indian citizens or/and by one or more Indian companies,
singly or jointly such company shall comply with such provisions
as may be prescribed as if it were an Indian company. E.g.
Amway, Caterpillar, Agrotech etc.

17. FORMATION OF
COMPANIES

18. WHAT DOYOU MEAN BY FORMATION OF A COMPANY ?
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 together; men, material,
money andmanagement.

19. STAGES OF FORMATION OF A COMPANY
Promotion Stage
Selectionof Name
Incorporation(RegistrationStage)
Commencement of business stage.

20. 1. Promotion of a Company
 A business enterprise does not come into
existence on its own.
 It comes into existence as a result of the efforts of
an individual or group of people or an institution.
 It has to be promoted by some person or persons.

21. Who is a Promoter in a Company?
A successful promoter is a creator of wealth and an
economic prophet. The person who is concerned with the
promotion of business enterprise is known as the
Promoter. He conceives the idea of starting a business and
takes all the measures required for bringing the
enterprise into existence.
For example, DHIRUBHAI AMBANI is the promoter of
Reliance Industries.

22. 1. PROMOTION STAGE INCLUDES
Discovery of an Idea or Business opportunities.
Detailed Investigation.
Assembling necessary requirements.
Financing of proposition.

23. 2. SELECTING COM PANY NAM E
To be identified for legal and business purpose (i.e. “Ltd”
or “Pvt Ltd” ). The name should not be similar to
the existing.

24. 3.I N CORPORAT I ON ST AGE
A Private company is said to beincorporated when it
fulfill the formalitiesof registration and obtain “CERT I F
I CAT E OF INCORPORATION” by submitting the
MoA, AoA and written consent of all thedirectors.
A public company can commence its business only after
getting the
“CERTIF ICATE
OF COMME
NCEME N T OF
BUSINE SS”

25. Example for :
CERTIFICATE OF
INCORPORTATION of
VISWASGOLD
INFRASTRUCTURES

26. 4. Commencement of Business Stage
After getting the certificate of incorporation, a
private company can start its business. A public
company can start its business only after getting a’
certificate of commencement of business’.
Documents to be filled-
 Prospectus
 Minimum subscription
 Return of Allotment
 Statutory Declaration

27. Example for :
CERTIFICATE
OF
COMMENCE
MENT OF
BUSINESS of VISWASGOLD
INFRASTRUCTURES

28. MEMORANDUM OF ASSOCIATION
&
ARTICLES OFASSOCIATION

29. Memorandum of Association
The first step is the formation of a company
is to prepare memorandum of association.
This is also known as constitution of the
company.

30. WHAT IS MEMORANDUM OF
ASSOCIATION OFA COMPANY?
•Is the constitution or charter of the company
and contains the powers of the company. No
company can be registered under the
Companies
without
Under Section 2(56) of
the memorandum of
the
Act, 2013
association.
Companies Act, 2013 the “memorandum”
means the memorandum of association of a
company as originally framed or as altered from
time to time in pursuance of any previous
company law or of this Act;

31. Name Registered
office
Liability Capital
Association
or subscription
Objects
CONTENTS OF MEMORANDUM OF
ASSOCIATION
Six Clauses

32. 1. NAME
CLAUSE
• The memorandum must state the name of the
company with ‘limited ‘ as the word ,in case of a
public limited company and with ‘private
limited', in the case of a private limited company
• the company is free to choose any name but it
must not be undesirable or must not resemble
the name of any other registered company.
• i.e. President, Prime Minister, Govt. etc

33. 2.REGISTERED OFFICE CLAUSE
[SECTION 13(1)(B)]
• The state in which the registered office of
a company will be situated is mentioned
in this clause
• The registered office of the company is
the official address of the company
where the statutory books and records
must normally be kept

34. 3. OBJECT CLAUSE SECTION
13(1)(C)&(B)]
This clause is quite important and must be very carefully
drafted as it determines the activities of the company. In
the object clause each and every detail of activities of the
business to be carried out must be laid down.
Main object:- this sub-clause contains the main objects
of the company to the pursued on its incorporation
objects which are incidental or ancillary to
Objects incidental or ancillary :- it covers the
the
attainment of the main object
Other objects :- this sub-clause will cover any objects
which are not included in the ‘main objects ‘

35. 4. LIABILITY
CLAUSE[SECTION 13(2)]
 This clause states the nature of liability of the members of
the company
In the case of a company limited by share or by guarantee the
fact that the liability of its members is limited must be made
absolutely clear . In case of a company limited by shares the
liability of a member is limited to the nominal value of the
share held by him
If the share are fully paid up his liability is nil. But in
case of partly paid-up shares the liability is limited to
the amount which is unpaid.
In case of a company limited by guarantee, the liability clause
must state the amount which every member undertakes to
contribute to the assets of the company in the event of its
winding up

36. 5. CAPITAL CLAUSE[SECTION
13(4)(A)]
• This clause states that amount of the capital with
which the company is to be registered
• This clause should also state the number and
face value of shares into which the capital of the
company is divided
• The capital with which the company is
‘registered’ or ‘nominal’ or ‘authorized’

37. 6. ASSOCIATION CLAUSE
[SECTION 13(4)(C)]
• The association clause states – in this
cause , the subscribes declare that they
desire to be formed into a company and
agree to take the shares stated against
their names.
• The names, address and occupation of the
subscribers must be given each subscriber
must sign in the presence of at least

38. CASE: COMPANY FOR RESTAURANT
• Husband and wife, SATYAM and DIVYA
RASTOGI, based in DELHI, are forming a
company. They want a short name for the
company with their surname in it. The
company is being formed to run a
SHOPPING MALL. They project they would
need 2 Crore as the capital of the company.
Immediately, the husband would contribute
Rs. 2,00,00,000 to the share capital of the
company and wife Rs. 10. Mr. RASTOGI
hopes to find others, after the company is
formed, to take the shares of the company.
They also contemplate occasionally hiring out
the car they would buy for the company.
Develop a Memorandum of Association for
the Company.

39. MEMORANDUM OF ASSOCIATION OF
THE RASTOGI PRIVATE LIMITED
I . The name of the company is RASTOGI
Private Limited
II.The registered office of the company
will be situated in the state of Delhi.
III.The objective for which the company is
begin established are as follows:
a.Main object: running of shopping mall
b.Ancillary object: opening bank accounts,
hiring premises an running of mall
c.Other objects: Hiring out of vechicles
for advertisement

40. IV. THE LIABILITY OF THE MEMBERS
IS LIMITED
v. The authorized share capital of the company is
RS.2,00,00,000,divided into 20,00,000
S.NO Name & No . Of equity Signature Name
Addresses shares taken of /
description & by each subscribe addres
occupation of subscriber r s
subscribers descri
ption
and
occupa
tion of
witnes
s

41. DOCTRINE OF ‘ULTRA VIRES’
The words :
• Ultra means beyond
• Vires means the powers
• Ultra Vires means beyond the powers
A company which owes its incorporation to statutory
authority cannot effectively do anything beyond the
powers expressly or impliedly conferred upon it by the
statute or Memorandum ofAssociation.

42. ARTICLES OF ASSOCIATION
•A document that specifies the regulations
for a company's operations. The articles
of association define the company's
purpose and lays out how tasks are
to be accomplished organization,
includingthe within the process for
appointing directors and how
financial records will be handled.

43. ITEMS COVERED BY THE
ARTICLES OF ASSOCIATION
INCLUDE :-
• Adoption of preliminary contracts.
• Number and value of shares
• Allotment of shares
• Calls on shares
• Transfer of shares
• Alteration of share capital
• Share certificates
• Conversion of shares into stocks
• Meetings and proceedings
• Voting rights, proxies and polls
• Appointment , Remuneration, etc of Directors
• Borrowing powers
• Dividend and Reserves
• Accounts and audit
• Procedure of winding up
• Seal of the company

44. DOCTRINE OF ULTRA VIRES
• Ultra vires to the articles of association
• Ultra vires the memorandum of Association

45. ALTERATION OF ARTICLES
• Articles may be altered by a company by
passing special resolution at a general body
meeting of shareholders

46. Memorandum of Association Articles of Association
Charter of Company Regulations for internal management
Defines the scope of the activities Rules for carrying out the objects of
company.
Supreme document Subordinate to the memorandum.
Must for every company Company limited by shares need not
have it (Table ‘A’ applies)
Strict restrictions, alteration only with
sanction of central govt./ tribunal.
Can be altered by special resolution.
It define the relationship between the
company & the outsiders
It define the relationship between
company & its staff and between
members & members interests

47. PROSPECTUS
COMPANIES ORDINANCE, 1984
Prospectus means any document described or issued as
prospectus and includes –
Any notice, circular, advertisement or any other
communication inviting offers from the public for the
subscription or purchase of any shares in or debenture of,
body corporate , inviting deposits from the public other then
deposits invited by a banking company or a financial
institution approved by the federal Government whether
described as prospectus or otherwise .

48. DEFINITION :COMPANIES
ACT 2013
 Clause (70) of section 2 of the act define “prospectus” means
any documents described or issued as a prospectus and
incudes a red herring prospectus referred to in section 32 or
self prospectus referred to in section 31 or any notice, circular,
advertisement or other documents inviting offers from the
public for the subscription or purchase of any securities of a
body corporate.
 Section 26 deals with matters to be stated in prospectus.

49. MEANING :
• Company prospectus is released by company to inform the
public and investors of the various securities that are
available. These documents describe about mutual funds ,
bonds, stocks and other forms of investments offers by the
company. A prospectus is generally accompanied by basic
performance and financial information about the company.

50. TYPES OF
PROSPECTUS
 RED HERRING PROSPECTUS
 ABIDGED PROSPECTUS
 SHELF PROSPECTUS
 DEEMED PROSPECTUS

51. RED-HERRING
PROSPECTUS:
• A prospectus that contains most of the information that will
be presented in the final prospectus but often does not
mention a price and/or the number of securities. A red-
herring prospectus is alternatively known as a preliminary
prospectus.
• It can be distributed to potential investors after the
registration statement for a securities offering has been
filed with the securities commission.

52. ABRIDGED PROSPECTUS
• A short version of the prospectus that includes all the most
key elements of the typical prospectus. An abridged
prospectus contains information very similar to the typical
prospectus but in a concise and compact form.
• Both versions of the prospectus must company with the
disclosure requirements prescribed by the relevant
securities commission.

53. SELF PROSPECTUS
• A prospectus that describes a set of unissued, but
registered securities. It is used in situations where
securities are issued in consecutive stages over a period of
time because the size of issue is to large (and funds to be
raised are enormous, making the filing of prospectus each
time very expensive ). Later on, an issuer will only need to
file the so- called information memorandum with relevant
securities commission

54. DEEMED PROSPECTUS
• Section -25 provides that where a company allots or agrees to allot any
shares or debenture with a view to these being offered for sale to the
public is a made, shall for all purpose be deemed to be a prospectus
issued by the company.
• Further, an allotment of, or an agreement to allot, shares or debentures
shall be deemed to have been made with a view to the shares or
debentures being offered for sale to the public, if it is shown;
 (1) That the offer of the shares or debentures for sale to the
public was made within six months after the allotment or
agreement to allot;
 (2) that at the date when the offer was made, the whole
consideration to be received by the company in respect of the
shares or debentures had not been received by it.

55. DIRECTORS

56. DIRECTOR
A/ Webster Dictionary, a director is any person who
is appointed to manage the business of the
company.
The group of person which manages and
administers the company’s affairs is called its
‘Board of Director’.

57. SECTION 149 OF THE COMPANY ACT 2013
PROVIDE
Sec 149(1) – 1. No. of Director.
2. At least one woman director.
Sec 149(3)- Resident Director.
Sec 149(4)- Independent Director.

58. APPOINTMENT OF DIRECTORS.
By the signatories of MOA.
By the Shareholders in the General Meeting.
Appointment by Board of Director.
I. Appointment in case of casual vacancy.
II. Appointment of additional Director.
III. Appointment of alternative Director.
IV. Appointment of nominee Director.
Appointment by the Proportional Representation

59. DUTIES OF DIRECTOR.
Statutory Duties
a) Inspecting the Prospectus.
b) Signing the Prospectus.
c) Presenting the Annual Statement.
d) Statutory meeting & Statutory report.
e) Convening of GM.
f) Declaring and Paying Dividend.
g) Presenting the Annual A/c.

60. h) Sending copies to Registrar.
i) Providing Documents at the time of Inspection.
J) Duty to prepare Director’s Responsibility
statement and Report.
 General duties.
 Corporate Social Responsibility of Company’s
Board of Directors

61. LIABILITIES OF DIRECTORS
 Liability Towards Company
a. Liability for Ultra Vires Acts.
b. Liability for Negligence.
c. Liability for Committing a Breach of Trust.
d. Liability for Fraud.
Liability Towards Outsiders
a. Liability for Ultra Vires Acts.
b. Liability as agent.
c. Liability in Relation to allotment.
d. Liability in Respect of allotment without Minimum
Subscription.

62. POWERS OF DIRECTORS
General powers vested in the Board of Directors.
Specific power vested in the Board.
Power to be exercised only at board Meeting.
Power which must be Exercised by the board
Unanimously.

63. MEETINGS &
RESOLUTIONS

64. MEETINGS
A meeting is the gathering of two or more
people that has been convened for the purpose of
achieving a common goal through verbal
interaction, such as sharing information or
reaching agreement.
Meetings may occur face to face or virtually,
as mediated by communications technology, such
as telephone conference call or a
videoconference.

65. CLASSIFICATION OF COMPANY
MEETINGS
Meeting
General
Meeting
Statutory
Meeting
Annual
General
Meeting
Extraordinar
y Meeting
Class
Meeting
Directors
Meeting
Creditor
s
Meeting

66. STATUTORY MEETING
 Every public company limited by shares or
limited by guarantee & having share capital must
hold a general meeting of its members, to be called
statutory meeting .
 It must be held within a period of not less than
one month or more than six month from the date
of commencement.
 It is the first meeting of the company.
 It is held only once in the lifetime of the company.
It is explained under Sec 165 of Companies Act.

67. Notice of Meeting-
The director will send
a notice of the meeting to all the members of the
company at least 21 days before the meeting. And
also send a copy of statutory report to the
shareholders and ROC.
Objective
• To win confidence.
• To provide latest information.
• To discuss future plans.
• To discuss statutory report.
• To inform where the money used.

68. Companies Exempted From Holding Statutory
Meeting:-
The companies
which are exempted from holding statutory
meeting are as follows-
1) Private Company
2) Public Company not having share
capital
3) Public Company limited by guarantee
4) Unlimited Company
5) Government Company

69. STATUTORY REPORT
The document containing all the information
required by the shareholders before the
statutory meeting is known as Statutory Report.
• Send to members:
• At least 21days before the day of statutory
meeting.
• If less than 21 days then consent of all the
members is required.
• CERTIFICATION:
• 2 directors (including MD)
• Auditor of the company (regarding allotment
of shares and payment & receipt of cash)

70. Contents of statutory report
Statutory report shall set out:
1) Total Shares Allotted
2) Cash Received
3) Abstract of Receipts and Payments
4) Contracts
5) Arrears of Calls
6) Directors and Auditors
7) Commission and Brokerage

71. ANNUAL GENERAL MEETING
(AGM)
 Section 96(1) of the Companies Act, 2013
provides that every company other than
OPC, shall in each year hold at least one
meeting of its shareholders each year.
 It is a statutory requirement to hold an
annual general every year, although the
company is holding so many other meetings
in that year.
 According to the General Clause Act
, 1897 the word “year” means calendar
year i.e. a period of 12 months .
 The proper authority to call AGM is the

72. Provisions to hold agm
The first AGM shall be held within 9 months of its
incorporation and there is no need to hold any AGM in
that year .
Subsequent AGM must be held each year within 6
months of the closing of the financial year and the
interval between two AGM should not be more than 15
months .
Registrar may for any special reason, can grant
extension up to only 3 months.
Objective of AGM
The objective of holding an AGM is to provide an
opportunity to members to discuss the functioning of the
company, and take steps to protect their interests. They can
discuss any matter relating to the conduct of the affairs of
the company.

73. DATE,TIME AND PLACE OF AGM
 Date: AGM is to held on a day that
is not a national holiday. [Sec 96(2)]
 Time: AGM should be held during
business hours i.e. between 9a.m. to
6p.m. [Sec 96(2)]
 Place: AGM shall be held at the
registered office of the company.

74. EXTRAORDINARY MEETING
An extraordinary general meeting (EGM), also called a
special general meeting or emergency general meeting, is
a meeting other than a company's annual general
meeting (AGM) that regularly occurs among a company's
shareholders, executives and any other members.
Objectives of EGM
Alteration of Memorandum of Association
Change in the Articles of Association
Reduction of share capital
Decisions on mergers or acquisitions
 To prevent a hostile takeover
 To prevent oppression and mismanagement of the
company’s affairs.

75. RESOLUTION
A resolution is a formal way in which a company
can note decisions that are made at a meeting of
company members. There are two types of
resolutions: ordinary and special. Under the
Corporations Act 2001, most of the decisions that
affect a company need to be made by a resolution.
Types of resolutions
1. Ordinary Resolution
2. Special Resolution

76. Ordinary resolutions
An ordinary resolution is one passed at a properly convened meeting
of the corporation by a simple majority of the votes of unit holders
present and voting on the resolution [Strata Titles Act 1988 (SA) s
3(1)]. Decisions of a strata corporation are made by ordinary
resolution unless the Act or articles specify otherwise.
Special resolutions
Special resolutions must be proposed by at least 14 days written
notice to all unit holders, including the terms of the proposed
resolution and the reasons for the proposed resolution [s 3(1)(a)].
A special resolution is required to:
 change or adopt new articles [s 19(2)];
 authorise the erection, alteration, demolition or removal of a
building or structure, or authorise changes to the external
appearance of a building by a unit holder [s 29(1)(b)], unless all the
units in the strata scheme are non-residential premises, when the
articles of the strata corporation may allow such changes to be made
[s 29(1)(a)]; and
 approve any special insurance [s 31(3)].

77. AUDITORS

78. WHAT IS AUDITING
• An auditing is a systematic and independent examination of
books, accounts, statutory records, documents and vouchers of
an organization to ascertain how far the financial statements
as well as non financial disclosures present a true and fair
view of the concerns.

79. WHO IS AN AUDITOR??
• An auditor is a person or a firm appointed by a company to
execute an audit. To act as an auditor, a person should be
certified by the regulatory authority of accounting and
auditing or possess certain specified qualifications.

80. TYPES OF AUDITOR
• External Auditor/ Statutory Auditor - It is an independent
firm engaged by the client subject to the audit, to express an
opinion on whether the company’s financial statements are
free of material misstatements, whether due to fraud or error.
• Internal Auditor – They are employed by the organizations
they audit. They work for government agencies; for publicly
traded companies; and for non profit companies across all
industries.

81. WHO CAN APPOINT AN AUDITOR?
Appointment by directors
Appointment by shareholders
Appointment by central government
Appointment by the comptroller and
auditor general

82. CONSTITUENTS OF REMUNERATION
• Fees
• Expenses
• Cost of any facility provided to the auditor

83. WHO CAN FIX REMUNERATION?
Board of Directors
•In case of first
auditor appointed
by the BOD.
Shareholders in
the general
meeting
•In case of
auditors
appointed by
them in general
meeting.
Shareholders in
the general
meeting
•In case of
auditors
appointed by the
CAG for
government
company

84. RIGHTS AND POWERS OF AN AUDITOR
• Right of access at all times to books, accounts, and vouchers of
the company.
• Right to receive notice and to attend general
meetings.(SECTION 231)
• Right to obtain information and explanation[SECTION
227(1)]
• Right to visit branches.
• Right to sign audit report.
• Right to receive remuneration.[SECTION 224(8)]

85. DUTIES OF AN AUDITOR
• Duties of an auditor according to Companies Act.
• Duties of an auditor according to judicial decision.
• Professional Ethics. (Code of Conduct)

86. DUTIESOF AN AUDITOR ACCORDING TO COMPANIES ACT
1. To present Audit report
2. Certification to be given for statutory report
3. When the prospectus is issued
4. Assist the special auditor/inspector

87. DUTIESOF ANAUDITOR ACCORDINGTO JUDICIALDECISION
1. To be acquainted with the Articles
2. To exercise reasonable care-skill
3. To verify the truthfulness of transactions
4. To verify the assets
5. Disclose true economic condition

88. PROFESSIONAL ETHICS
1. Regarding the acceptance of appointment or re-appointment.
2. Regarding the rejection of less fees.
3. Regarding signing the report
4. Regarding not getting work through advertisement.
5. Regarding not getting work by giving commission.

89. LIABILITIES OF AN AUDITOR
A. Civil liability
• Liability arising from negligence
• Liability arising from misfeasance
B. Criminal liabilities
C. Auditor’s Liability to the third party

90. CIVIL LIABILITY
• Liability Arising From Negligence: Act as an agent of his
client.
If the auditor acts negligently on account of which the
client has to suffer loss, then it is his duty to pay for the
damages.
• Liability Arising From Misfeasance: According to section 543,
the court might assess damages against delinquent director or
other officers of the company, including an auditor for breach
of trust.

91. CRIMINAL LIABILITY
• Under section 628 of the Companies Act, any report,
certificate, balance sheet, prospectus, statement or other
document knowingly it to be false, he will be held liable on
criminal offence.
• Section 197 of the IPC who ever issues or signs any certificate
required by law to be given such a certificate is by law
admissible in evidence.

92. AUDITOR’S LIABILITY TO THE THIRD PARTY
• Parties like creditors, prospective investors, the tax
authorities, the bankers- may rely upon the financial
statements entitled by the auditor, the auditor is not liable to
third parties.
• The third parties, can hold liable, if there has been any fraud
on the part of the auditor.

93. WINDING-UP OF
COMPANY

94. WINDING-UP
• Winding up/Liquidation represents the last
stage in company’s life.
• It is a proceeding by which a company is
dissolved.
• The company’s assets are disposed of , the
debts are paid off out of the realised assets,
and the surplus , if any is then distributed
among the members in proportion to their
holdings in the company.

95. MODES OF WINDING-UP
There are basically two modes of winding-up
of a company are as follows:
1) Compulsory Winding-up by the
court/Tribunal (Section 433)
2) Voluntary winding-up this may be:
(Section 484-521)
a)Members’ voluntary winding-up, Or
b)Creditors’ voluntary winding-up

96. WINDING UP BY TRIBUNAL
(SECTION 433)
This is also known as compulsory
winding up and a company may be
wound up in the following cases:
• Special resolution of the company
• Default in delivering the statutory
report to the registrar
• Failure to commence /suspension of
business
• Reduction in membership
• Inability to pay its debts

97. VOLUNTARY WINDING-UP (SECTION
484-521)
Voluntary winding up means winding up by
the members or creditors of a company
without interference by the tribunal.
• A company may be wind-up voluntarily:
• By passing an ordinary resolution
• by passing a special resolution

98. TYPES OF VOLUNTARY WINDING UP
A voluntary winding up is of two types:
• Member’s voluntary winding up
• Creditor’s voluntary winding up
• Member’s voluntary winding up:
• Declaration of solvency
• Provision applicable

99. • Creditor’s voluntary winding up:
• Meeting of creditors
• Notice of resolution to be given to
registrar
• Appointment of liquidator
• Appointment of committee of inspection
• Liquidators remuneration
• Power to fill vacancy in office of liquidator
• Final meeting and dissolution

100. CONSEQUENCE OF WINDING-UP
• Consequences as to shareholders/members
• Consequences as to creditors
• Consequences as to servants and officers
• Consequences as to board of director
• Consequences as to company assess
• Consequences as to cost.