The document summarizes key aspects of company law in India as outlined in the Companies Act of 1956. It defines a company and lists its key characteristics such as separate legal entity status, transferable shares, and limited liability. It outlines different types of companies based on incorporation, liability, nationality, and public interest. It also describes the different types of companies that fall under each of these categories, such as private vs. public companies. Finally, it discusses the key documents of a company, namely the Memorandum of Association and Articles of Association.

1. COMPANIES ACT, 1956

2. Introduction

3. Objects of Company Law
1. To encourage investments
2. To ensure proper administration
3. To prevent malpractices
4. To allow for investigations

4. Meaning of Company
 “A company is defined as a form of business
organization in which the funds of a large number
of investors are managed by a few persons for the
purpose of earning profits which are shared by all
investors”

5. Characteristics of a Company
 Registration
 Separate legal entity
 Perpetual Succession
 Transferable shares
 Limited liability
 Common seal
 Separate property
 Capacity to sue

6. Types of Companies
A. From the point of view of Incorporation
B. From the point of view of Liability
C. From the viewpoint of Nationality
D. From the view point of Public Interest

7. 1. From the point of view of
Incorporation
Types of Companies
CHARTERED STATUTORY REGISTERED

8. Chartered Company
 Historically, most of the early companies were set up
through a Royal Charter.
 For example, the East India Company, the Chartered
Bank of Australia, India and China, etc., were
incorporated by the grant of a special Royal Charter.
 In India, this form of organization does not exist now
because there is no monarchy.
 Even in England, this method is rarely used now.
Companies of this kind may be called chartered
companies.

9. Statutory Company
 In this case, a special law is passed to establish the
company.
 This is done only in special cases when it is necessary to
regulate the working of the company for some specific
purposes.
 These are mostly concerned with public utilities
 Examples of such companies in India are: the Industrial
Finance Corporation, the Life Insurance Corporation of
India, the Air India, Reserve Bank of India, etc.
 The provisions of Indian companies act 1956 apply to them
if they are not inconsistent with the provisions of their
special Acts.

10. Registered Company
 The Companies Act, 1956, lays down procedures by
which a company can be brought into existence.
 Anybody who wants to incorporate a company can
do so by taking necessary steps outlined therein.
 By far the largest number of companies is
incorporated under the Companies Act. These
companies may be called registered companies.

11. 2. From the point of view of
Liability
TYPES
UNLIMITED GUARANTEE LIMITED

12. Unlimited Company
 Do not have any limit on the extent of liability of its
members.
 Liability of each member extends to whole amount of
the company‟s debts and liabilities.
 However, the members cannot be sued upon the
directly by the company's creditors.

13. Company Limited By Guarantee
Classification
Company Limited by Company Limited by
Guarantee not Guarantee
Having share capital Having share capital

14. Company Limited By Guarantee
Not Having Share Capital
 Memorandum Limits the member‟s liability.
 It is limited to the amount as may have been undertaken
by MOA to contribute in the case of winding up.

15. Company Limited By Guarantee
Having Share Capital
 Memorandum Limits the member‟s liability.
 Moreover, liability would also extend to the unpaid
value of the shares held by the member.

16. Limited Company
 The liability of the members of the company is limited
to the amount remaining unpaid on the shares.
 Hence the holders of the fully paid up shares cannot
be called upon for the further contribution.
 The liability of the members holding the partly paid
up shares exists even if the company is in process of
winding up.

17. 3. From the viewpoint of
Nationality
TYPES
NATIONAL MULTI-NATIONAL

18. National Company
 In this case, the control and the management of the
affairs of the company are to be carried out within
the geographical boundaries of the country.

19. Multinational Company
 The branch is not an Independent entity and is linked
up to the parent company existing in some other
country.

20. 4. From the view point of Public
Interest
TYPES
PRIVATE PUBLIC GOVERNEMENT

21. Private Company
 Private Company is a company Which by its
Articles :-
i. Restricts the rights of the members to transfer the
shares,
ii. Limits the membership to 50, excluding the past and
present employees of the company who are the
members of the company, and
iii. Prohibits the invitation to public, for subscription of
shares or debentures of the company.

22. Public Company
 Public Company is a company Which by its
Articles :-
i. Does not restrict the rights of the members to
transfer the shares,
ii. Does not limit the membership to 50, excluding the
past and present employees of the company who
are the members of the company, and
iii. Invites the public, for subscription of shares or
debentures of the company.

23. Government Company
It is a company in which not less than 51% of the paid-
up share capital is held by one or more of the
following or any combination thereof:-
 The Central Gov. & one or more Govt. Co.
 Any State Gov. or Govts and one or more Govt. Co.;
 The Central Govt., one or more State Govt. and one or more Govt.
Companies;
 The Central Govt. and one or more corporations owned or controlled by
Central Govt.;
 The Central Govt., one or more State Govt. and one or more Corps.
Owned or controlled by the Central Govt.
 One or more corps. Owned or controlled by Central Govt. or State Govt.
 More than one Govt. Company

24. Distinction Between Private Ltd. &
Public Ltd. Company
Private Ltd. Public Ltd.
 Minimum capital required is 1,00,000  Minimum capital required is
5,00,000
 Minimum 2 and maximum 50
members  Minimum 7 members. No limit on
maximum members
 At least 2 directors  At least 3 directors
 No restriction on appointment of  No restriction on appointment of
directors directors
 Non-transferable shares  Transferable shares
 Restriction on invitation to subscribe  Invitation to subscribe for shares is
for shares allowed
 No restriction on managerial  Managerial remuneration cannot
remuneration exceed 11% of net profit
 Can start business without obtaining  Can start business only after
obtaining certificate of
certificate of commencement comencement

25. Special Privileges of a Private Company
Over Public Company
1. Can be started with minimum 2 members
2. No provision regarding minimum subscription
3. No need to file a Prospectus or Statement in Lieu of Prospectus.
4. Further share issue
5. It can issue share capital of any kinds
6. Commence business immediately after getting certificate of
incorporation
7. Need not to keep index of members
8. Need not to hold a statutory meeting or file statutory report
9. Provision regarding maximum limit of Director‟s or Manager‟s
remuneration does not apply

26. Special Privileges of a Private
Company Over Public Company
10. Retirement by rotation for directors not there
11. Director‟s consent to act as such not required
12. Qualification shares not needed for appointment of directors
13. Government approval to appointment or amendment do not apply
14. Director‟s contract to take qualification share not to be filed with the
registrar
15. Provisions regarding loans to directors do not apply
16. No provision regarding interested director not to participate or vote
in board proceedings
17. No provisions for Govt. approval for increasing remuneration
18. No prohibition regarding appointment of MD for more than 5 years
at a time
19. No restrictions on advancing loans to other company

27. Procedure for Converting Private
Company Into A Public Company
 Alter the articles of the company by special resolution to
eliminate restrictions of private company under sec(3) (iii)
 If the number of members is less than 7, it must be raised at
least to 7
 If the number of directors is less than 3 it must be raised at
least to 3.
 It must file within 30 days with the Registrar prospectus or
statement in lieu of prospectus & the resolution altering the
articles.

28. Procedure for Converting Public Company
Into A Private Company
 Pass a special resolution authorizing conversion of the
company and altering the articles so as to contain the
restrictions under section 3(1) (iii) of the Act
 Change the name of the company by a special resolution
 Obtain Central Government approval
 File the altered articles with the Registrar within 30 days of
the receipt of the approval from the Central Government

29. When A Private Company Becomes a
Public Company
 By default of Provisions
 Subsidiary Company Deemed to be Public
 By Provisions of Law
 Where not less than 25% of paid-up capital of pvt. Company
is held by one or more bodies corporate
 Where the average turnover of a private company is not less
than Rs.10 cr. During the relevant period – after 3 months
 When a private company holds not less than 25% of the paid
up capital of a public company
 By Conversion

30. Holding Company & Subsidiary Company
When one company controls another company it is called holding
company.
Control may be in any following ways:
 Where it controls the composition of the Board of Directors of
another company; or
 Where it controls more than half of the total voting power of
the other company; or
 Where it holds more than half of the nominal value of equity
share capital of the other company; or
 Where it is a subsidiary of any company which is the
subsidiary of some other company.

31. One Man Company
WHEN A SINGLE PERSON HOLDS ALMOST ALL THE
SHARES OF THE COMPANY IT IS CALLED ONE MAN
COMPANY. SUCH A COMPANY HAS ITS LEGAL
PERSONALITY IF IT COMPLIES WITH THE NECESSARY
REQUIREMENTS OF REGISTRATION, IT MAY BE A
PUBLIC OR PRIVATE COMPANY.

32. Illegal Association
ANY COMPANY, ASSOCIATION OR PARTNERSHIP CARRYING
ON BANKING BUSINESS WITH MORE THAN TEN MEMBERS OR
CARRYING ON ANY OTHER BUSINESS WITH MORE THAN
TWENTY MEMBERS THAT HAS FOR ITS OBJECT THE
ACQUISITION OF GAIN, WITHOUT BEING REGISTERED UNDER
THE COMPANIES ACT, SHALL BE CONSIDERED AN ILLEGAL
ASSOCIATION.

33. PRACTICAL PROBLEMS
 In a private limited Company it is discovered that there are, in
fact, 54members. On an enquiry, it is ascertained that 6 of such
members have been employees of the Company in the recent past
and that they acquired their shares while they were still employees
of the Company. Is it necessary to convert the Company into a
public limited Company
 Ans. As per Section 3(1) (iii), a Company to be registered as a
private Company must restrict its membership to 50 only. But,
however, in counting this number of 50 members, employee
members and ex-employee members (i.e., those who become
members while in the employment of the Company but now having
retired still continue to retain membership) are to be excluded.
Thus, in the given case, the Company shall continue to be a private
Company. There is no need for conversion.

34. DOCUMENTS OF COMPANY

35. Documents
Documents
MOA AOA

36. Memorandum of Association
 Main document of the company.
 It defines the objects of the company for which it is
established.
 Lays down the conditions upon which alone the company
allowed to be formed.
 Charter of the constitution of the company.
 It defines the scope of its activity and also states that
anything beyond it is unauthorized and illegal.
 The memorandum shall be one of the forms given in
Tables B, C, D and E in schedule 1 of the Act.

37. How MOA Looks?
 The Memorandum of Association must be
o printed,
o divided into paragraphs,
o numbered consecutively,
o and signed by each subscriber (seven or more in case of a
public company),
o who must add his name, address and description
o in the presence of at lease one witness who is to attest the
signature.

38. Clauses of MOA
 Name clause
 Registered office or Situation clause
 Object clause
 Liability clause
 Capital clause
 Subscription clause

39. Name Clause
 The Company is a legal entity. Therefore, it must have
its name to establish its identity.
 The name of the company should not be Similar,
Undesirable, or which will mislead the public. E.g. Indian
National flag, name or pictorial representation of
Mahatma Gandhi or Prime Minister of India, etc.
 Its use has been, therefore, prohibited by the
Government under the Emblems and Names (Prevention
of Improper Use) Act, 1950.
 The company can change its name by passing a special
resolution and obtaining he approval of the Central
Government.

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

41. Registered Office Clause
 Where the company wants to change its registered
office from one state to another then it can do so by
passing a special resolution as well as by confirmation
of Company Law Board.
 Such confirmation will be given provided debenture
holders and creditors are satisfied and such alteration
is fair.

42. Object Clause
 It is the most important clause in the Memorandum of Association.
 It defines and limits the scope and sphere of the operation of the
company and affords protection of its funds.
 It states the main objects as well as incidental objects of the
company.
 The transaction which does not fall within the scope of the main
objects of the company will not be valid and binding on the
company simply because it is not beneficial for the company.
 As regards to the alteration of object clause a special resolution
must be passed and the confirmation by the Company Law Board
must also be obtained.
 The alteration is done to obtain a main purpose by new means or
to enlarge the area of its operation, or to restrict the objects or
sell or dispose of or amalgamate the undertaking.

43. Liability Clause
 The liability clause states that the member or the
shareholder will be liable to pay only the unpaid value
of shares held by him.
 If it is a company limited by guarantee, Memorandum of
Association must further state that each member
undertakes to contribute to the assets of the company at
the time of the winding up while he is a member.
 Ordinarily this clause cannot be altered except that the
liability of the directors may be made unlimited under
certain circumstances.

44. Capital Clause
 Amount of share capital with which the company is to be
registered and its division into shares of a fixed amount
must be stated in the Memorandum of Association of a
company limited by shares.
 The capital with which the company is registered is
called „Registered‟ or „Authorized‟ or „Nominal‟ Capital
 Capital clause can be varied or capital can be reduced
(by special procedure) or the rights of the shareholders
can be varied.

45. Subscription/Association Clause
 This clause gives idea about the people who have
created the company.
 Maximum seven members in a public company and
two members in a private company shall subscribe to
the Memorandum of the company.
 A declaration is to be given. Such declaration is to be
signed by a member in presence of a witness.
 Moreover the details as regards to name, address,
age and business of the promoters are also recorded
under this clause.
 Each subscriber has to take atleast 1 share

46. PROBLEMS & SOLUTIONS

47. (1)
 A company altered Its Memorandum of Association according to
the procedure laid down by law and the alteration was also
confirmed by the Company Law Board. A certified copy of the
order of the Company Law Board was filed 4-months after the
order was passed by the Company Law Board. Can the
Registrar register the alteration?
Ans. Yes. He can do so as per provisions mentioned under
Sec.18.
 As per Section 18 company shall file with the Registrar, a
certified copy of the order of the company law board
confirming the alteration within 3 months of the order. The
registrar shall register the same and certify the registration
within 1 month from the date of filing such documents.
 However the company can be allowed the extension of time if
the company law board thinks fit.

48. (2)
 A company was started with the object of building 'a hall
with shops'. The building was destroyed by fire and the
company wanted to alter the objects clause in the
Memorandum by substituting the words 'a hall with shops'
with the words 'shops, dwelling houses and warehouses for
letting purposes.' Should this alteration be allowed?
Ans. No,
 As the alteration exceeds object mentioned by the
company on its incorporation. (Strathspey Public
Assembly etc. Hall Co. Ltd. v. Anderson's Trustees,
(1934) S.C. 385).

49. (3)
 X Mining Co. Ltd. applied to the Company Law Board for
permission to add the following objects in its Memorandum of
Association, which earlier stated mining as its main purpose :
(a ) To sell goods on hire-purchase basis ; (b) To do all kinds
of fabrication works of steel, aluminum, copper, zinc, and
alloys ; (c) To buy and sell land, buildings, hotels, restaurants
and business premises ; and (d) to enter in to contracts for
construction of building with private people or government.
Will the Company Law Board approve this alteration?
Ans. No,
The Company Law Board will only approve the alteration if
the incidental objects are in alignment of the main purpose
for which the company is established.

50. (4)
 A Ltd. applies to the Company Law Board for approving an
alteration in situation clause of its Memorandum and thus
permitting it to change its registered office from Calcutta to
Delhi. The Government of West Bengal requests the Company
Law Board not to allow this change, for it would lead to a loss of
revenue of the Government. Decide.
Ans. No, The request of Government of West Bengal won‟t be
considered.
 The change will be allowed if it is warranted by the interests of
the company [Rank Film Distributors of India Ltd. v. Registrar of
Companies]
 The court observed that the state has no statutory right to oppose
the shifting of the registered office from one state to another.
Members of the company will decide whether the registered
office of the company is to be transferred from one state to
another. Moreover the shifting should be in the interest of the
company.

51. (5)
 A company put up telephone wires in a certain area. There
was no power in the Memorandum to put up wires there.
The defendants cut them down. Can the company sue for
the damage done to the wires?
Ans. Yes
 In case National Telephone Co. v. St Peter Port
Constables, it was held that company being a corporate
person should not be fined or punished for its own act or
the act of its agents unless the authority conferred on the
company by the Memorandum, the whole transaction would
be altered by doctrine of ultra vires and it would be void.
Moreover there is nothing to prevent the company from
protecting its property.

52. (6)
 The Memorandum of Association of a company formed to
Improve and encourage the breeding of poultry contained
a provision that no remuneration should be paid to the
members of the governing body of the company. But the
company owing to Its Increase in the business passed a
special resolution providing for equitable remuneration to
such members for services rendered, Can this alteration of
the Memorandum be confirmed? If so, state why and when.
Ans. Yes
 It was decided that alteration is valid as it will help to
carry the business more economically or more efficiently
and any resolution passed will be within the scope of MOA.
[Scientific Poultry Breeders' Assn. Ltd.].

53. (7)
 X Ltd a cotton textile company, enters into a contract with
A Ltd, adjacent cotton textile mills, to supply electricity
from their power generation plant. After the supplies have
been made for 3 months it is discovered that this activity is
beyond the scope of the object clause of memorandum of
association of X Ltd. Shareholders of X Ltd ratify the
above contract in their general body meeting. Can A Ltd.
which refuses to make payment on the ground that the
contract is wholly null and void be legally compelled to
make payment?
Ans. No, as the transaction is ultra vires X Ltd.
 The transaction which does not fall within the scope of the
main objects of the company will not be valid and binding
on the company.

54. ARTICLES OF ASSOCIATION

55. SCOPE
 The articles of association are subordinate to the
memorandum of association of the company.
 The articles contain the internal regulations of the
company.
 The provisions of the articles must not be inconsistent
with or repugnant to any of the provisions of the
memorandum of the Act.
 AOA can be altered at any time according to the
wishes of the member.

56. CONTENTS
Articles usually contain provisions relating to the following
matters.
 Share capital, rights of shareholders, variation of these rights,
and payment of commissions, share certificates
 Lien on shares
 Calls on shares
 Transfer of shares
 Transmission of shares
 Forfeiture of shares
 Conversion of shares into stock
 Alteration of Capital

57. CONTENTS
 General meetings and proceedings thereat
 Voting rights of members, voting poll and proxies
 Directors, their appointment, remuneration, qualification,
powers and proceedings of Boards of Directors
 Manager
 Secretary
 Dividends and reserves
 Accounts, audit and borrowing powers
 Capitalization‟s of profits
 Winding up

58. ALTERATION
 Pass the Special Resolution
 File the copy of the Special Resolution with the Registrar
within 30 days of passing the special resolution
 Attach the resolution with every copy of AOA
 Must not be inconsistent with the Act
 Must not conflict with MOA
 Must not sanction anything illegal
 Must be for benefit of the company
 Must not increase the liability of the members
 Must not result into breach of contract

59. CONSTRUCTIVE NOTICE
 Every outsider dealing with the company is deemed to
have the notice of the contents of MOA & AOA.
 These documents, on registration with the Registrar,
assume the character of public documents.
 This is known as Constructive Notice of Memorandum and
Articles.

60. INDOOR MANAGEMENT
 There is one limitation to the doctrine of constructive notice of the
MOA & AOA of the company.
 The outsiders dealing with the company are entitled to assume that
as far as internal proceedings are concerned, everything has been
regularly done.
 They are presumed to have read these documents and to see that
the proposed dealing is not inconsistent therewith.
 They cannot inquire into the regularity of internal proceedings as
required by MOA & AOA. They can presume all is being regularly
done.
 This limitation of doctrine of constructive notice is known as
“DOCTRINE OF INDOOR MANAGEMENT”
 It is also called Turquand Rule.

61. CASE: ROYAL BRITISH BANK VS.
TURQUAND
 The directors of a company had issued a bond to T. They
had the powers under the Articles to issue such bond
provided they were authorized by a resolution passed
by the shareholders at a general meeting of the
company. No such resolution was passed by the company.
 Held, T could recover the amount of the bond from the
company on the ground that he was entitled to assume
that the resolution had been passed.
 Thus doctrine of indoor management seeks to protect the
outsiders of the company.

62. Exceptions to the Doctrine of Indoor
Management
 Ultra Vires Act
 Knowledge of Irregularity
 Act of an agent outside the scope of his authority
 Negligence

63. Doctrine of Ultra Vires
 Any act done by the company which is neither
authorized by its object nor by the Companies Act, that
act is called „Ultra Vires‟ the powers and authority of
the company.
 An act which is ultra vires the company is void and
cannot bind the company.
 Since the act is void, it cannot be ratified even by the
shareholders.

64. Doctrine of Ultra Vires
 If the directors do any act which are outside the object
clause of the company then the shareholders are not
liable. The directors are personally liable for the ultra
vires act done by them.
 Act Ultr Vires to MOA cannot be ratified by the
shareholders but acts Ultra Vires to AOA can be
ratified by them.
 Any shareholder can bring court injunction to prevent
the company from doing an Ultra Vires Act.

65. Give the Legal Advice
Under the Articles, the directors of the company had the
power to borrow up to Rs. 10,000 without the consent of
the directors of the general meeting. The directors
themselves lent Rs. 35,000 to the company without such
consent and took debentures. Is the company liable to
pay Rs.35,000.

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

67. PROSPECTUS

68. General Interpretation
 Any Document,
 Any Notice,
 Any Circular,
 Any Advertisement,
Inviting the money to be raised from the public

69. Meaning
 It is a device for the public ltd company to collect the
capital after its incorporation.
 When the public company or the promoters of the
public company decide that the money should be
raised from the public by the way of the invitation
for offers to the subscription of the shares or
debentures of the company, a document is drawn up
which is known as prospectus.

70. Objective Behind Issuing Prospectus
 The objective of issuing the prospectus is to let the
public know of the establishment of the company, its
objects, its prospects, to induce the investors to
purchase its shares or debentures.

71. Dating of Prospectus
 A prospectus issued by or on the behalf of the
company shall be dated and that date shall be
taken as the date of the publication of the
prospectus.

72. Registration of Prospectus
 No prospectus shall be issued unless on or before the
date of its publication, a copy of the prospectus has
been delivered to the Registrar for registration, duly
signed by every person who is named therein as a
Director or proposed Director of the company.
 Registration of the Prospectus
 Experts Consent
 Delivery for Registration
 News paper advertisement

73. Contents of the Prospectus
 It contains the following details about the company:
1. Name and Address of the Registered Office
2. Name of the Stock Exchange where the application for the
listing is made
3. Details related to the Minimum Subscription
4. Capital Structure of the Company
5. Terms of the present issue.
6. Particulars about the Issue.
7. Company Management and the Project.
8. Financial Information of the company.
9. Statutory information as per the provisions of Section 56 of
the Companies Act,1956

74. Misstatements in Prospectus
 Misstatements include:-
 Untrue statements;
 Statements which produce wrong impression;
 Statements which are misleading;
 Concealment of material facts; and
 Omission of facts

75. Who are liable for Mis-statements in
Prospectus?
 Every person who is:-
i. Director of the company at the time of issue of
prospectus;
ii. Promoter of the company;
iii. Any other person who has authorized the issue of the
prospectus.

76. Consequences of Misstatements in
Prospectus
Consequences
Civil Liability Criminal Liability

77. Civil Liability
 If the person has purchased the shares on the basis
of the misleading prospectus, then there will be civil
liability arising which are as follows:
1. Compensation
2. Damages for deceit or fraud
3. Recession of the contract for misrepresentation
4. Liability for non compliance with section 56

78. Criminal Liability
No. Situation Penalty
1 Mis- statement in Prospectus 2 years imprisonment or fine
which extends up to
Rs.50,000 or both.
2 Fraudulent Statements in 5 years imprisonment or fine
Prospectus which extends up to
Rs.1,00,000 or both.
3 Issuing Application for shares Rs. 50,000
and Debentures not
accompanied with
memorandum containing
features of prospectus

79. Defenses Against Civil Liability
 Withdrawal of consent after issue
 Reasonable belief
 Statement by an expert
 Statement by an official person or extract from a
public official document

80. Defenses Against Criminal Liability
 The statement was immaterial.
 He had reasonable ground to believe and did up to
the time of the issue of the prospectus believe that
the statement was true.

81. Statement in Lieu of Prospectus
 A company having a share capital which does not issue a
prospectus or which has issued a prospectus but has not proceeded
to allot any of the shares offered to the public for subscription,
shall not allot any of its shares or debentures, unless at least 3
days before the allotment of shares or debentures, there has been
delivered to the Registrar for registration a „statement in lieu of
prospectus‟ signed by every person who is named therein as a
director or proposed director of the company or by his agent
authorized in writing, in the form and containing the particulars
setout in Part I of schedule III and setting out the reports specified
in Part II of schedule III subject to the provisions contained in Part III
of that schedule.

82. Shelf Prospectus
 Any public financial institution, public sector bank or
scheduled bank whose main object is financing shall
file a shelf prospectus.
 „Shelf Prospectus‟ means a prospectus issued by any
financial institution or bank for one or more issues of
the securities or class of securities specified in that
prospectus.

83. Minimum Subscription
 No allotment shall be made of any share capital of a company offered to the public for
subscription, unless a minimum amount is raised. This minimum amount is called
“MINIMUM SUBSCRIPTION”
 It is decided taking into account:
 Purchase price of any property
 Any preliminary expenses payable
 Any commission payable towards subscription of any shares
 The repayment of any money borrowed by the company
 Working capital
 Any other expenditure
 All moneys received from applicants for shares shall be deposited and kept deposited in
a Scheduled Bank-
 Until the certificate of commencement business is obtained and
 Until the entire amount payable on applications for shares in respect of minimum subscription is received
(interest 6% after 130 days)

84. Types of Company Meetings

85. Kinds of Company Meeting
 General Meetings
A. Statutory General Meeting
B. Annual General Meeting
C. Extra ordinary General Meeting
 Meetings of Creditors Debenture-holder‟s
 Class Meeting
 Meetings of Board of Directors

86. Statutory General meeting
 A public limited company having share capital is
required to hold a statutory meeting.
 Such a statutory meeting is held only once in the
lifetime of the company.
 Such a meeting must be held within a period of not
less than one month or within a period not more than
six months from the date on which it is entitled to
commence business i.e. it obtains certificate of
commencement of business.

87. Purpose of Statutory Meeting
To enable members to know all important matters
pertaining to the formation of the company like:-
 which shares have been taken up
 what money has been received
 what contracts have been entered into
 what sums have been spent on preliminary expenses

88. Statutory Report
 The Board of Directors must prepare and send to every
member a report called the "Statutory Report" at least 21
days before the day on which the meeting is to be held.
 The report should be certified as correct by at least two
directors, one of whom must be the managing director, where
there is one, and must also be certified as correct by the
auditors of the company with respect to the shares allotted by
the company, the cash received in respect of such shares and
the receipts and payments of the company.
 A certified copy of the report must be sent to the Registrar
for registration immediately after copies have been sent to
the members of the company.

89. Contents of Statutory Report
 The total number of shares allotted, distinguishing those fully
or partly paid-up, otherwise than in cash, the extent to which
partly paid shares are paid-up.
 The total amount of cash received in respect of all shares
allotted.
 An abstract of the receipts and payments made within 7 days
of the date of report.
 An account of preliminary expenses.
 The names, addresses and occupations of directors, auditors,
manager and secretary, if any, of the company and the
changes which have taken place in the names, addresses and
occupations of the above since the date of incorporation.

90. Contents of Statutory Report
 Any commission or discount paid or to be paid on the issue or
sale of shares or debentures.
 Particulars of any contracts to be submitted to the meeting
for approval and modifications done or proposed.
 If the company has entered into any underwriting contracts,
the extent, if any, to which they have not been carried out
and the reasons for the failure.
 The arrears, if any, due on calls from every director and
from the manager.
 The particulars of any commission or brokerage paid or to
be paid, in connection with the issue or sale of shares or
debentures to any director or to the manager.
 The auditors have to certify that all information regarding
calls and allotment of shares are correct.

91. Proceedings at the Meeting
 At the commencement of the statutory meeting, the Board
shall produce a list showing the names, addresses and
occupations of the members of the company and number of
shares held by them respectively. The list shall remain open
and accessible to any member of the company during the
continuance of the meeting.
 Discussion of matters relating to formational aspect. They may
also discuss any matter arising out of the statutory report.
 Adjournment. The meeting may adjourn from time to time. At
any adjourned meeting, any resolution (of which notice has
been given), may be passed. An adjourned meeting shall
have the same powers as the original meeting. The object of
the adjournment may be to provide members with additional
information as to the company's affairs.

92. Annual General Meeting (AGM)
 Must be held by every type of company, public or private once a
year.
 Not more than 15 months must elapse between two AGMs.
However, a company may hold its first annual general meeting
within 18 months from the date of its incorporation.
 A notice of at least 21 days before the meeting must be given to
members unless consent is accorded to a shorter notice by members,
holding not less than 95% of voting rights in the company.
 The notice of the meeting must be accompanied by a copy of the
annual accounts of the company, director‟s report on the position of
the company for the year and auditor‟s report on the accounts.

93. Annual General Meeting
 The notice must state that the meeting is an annual general
meeting. The time, date and place of the meeting must be
mentioned in the notice.
 Companies having share capital should also state in the notice
that a member is entitled to attend and vote at the meeting
and is also entitled to appoint proxies in his absence.
 A proxy need not be a member of that company. A proxy
form should be enclosed with the notice.
 The proxy forms are required to be submitted to the company
at least 48 hours before the meeting.
 The AGM must be held on a working day during business
hours at the registered office of the company or at some other
place within the city, town or village in which the registered
office of the company is situated.

94. Purpose of Holding Annual General
Meeting
 It is only at the annual general meeting of a company that the
shareholders can exercise any control over the affairs of the
company.
 They also get an opportunity to discuss the affairs and review the
working of the company and can also take the necessary steps for
the protection of their interests. They may, for example, refuse to
re-elect a director whose actions and policy they disapprove.
 They can also take up any other business relating to the affairs of
the company for discussion.
 Appointment of auditors is also made at the annual general
meeting.
 Annual accounts are presented for the consideration of
shareholders and dividends are declared in the annual general
meeting.

95. Business Transacted at AGM
 The following matters constitute ordinary business at
an AGM:-
o Consideration of annual accounts, director‟s report and
the auditor‟s report
o Declaration of dividend
o Appointment of directors in the place of those retiring
o Appointment of and the fixing of the remuneration of the
statutory auditors.

96. Extra ordinary General meeting
 Every general meeting (i.e. meeting of members of the
company) other than the statutory meeting and the
annual general meeting or any adjournment thereof, is
an extraordinary general meeting.
 Such meeting is usually called by the Board of Directors
for some urgent business which cannot wait to be
decided till the next AGM.
 Every business transacted at such a meeting is special
business.
 An explanatory statement of the special business must
also accompany the notice calling the meeting.

97. Debentures Holder‟s Meeting
 A company issuing debentures may provide for the
holding of meetings of the debenture holders.
 At such meetings, generally any matters pertaining to the
variation in terms of security or to alteration of their rights
are discussed.
 All matters connected with the holding, conduct and
proceedings of the meetings of the debenture holders are
normally specified in the Debenture Trust Deed.
 The decisions at the meeting made by the prescribed
majority are valid and lawful and binding upon the
minority.

98. Purpose of Holding Debenture
Holder‟s Meeting
 These meetings are called from time to time
where the interests of debenture holders are
involved
-at the time of reconstruction
-reorganization
-amalgamation
-winding up of the company.

99. Creditor‟s Meeting
 Sometimes, a company, either as a running concern or
in the event of winding up, has to make certain
arrangements with its creditors. Meetings of creditors
may be called for this purpose.
 E.g. in case of winding up of a company, a meeting of
creditors and of contributories is held to ascertain the
total amount due by the company and also to appoint
a liquidator to wind up the affairs of the company.

100. Class meetings
 Class meetings are meetings which are held by
holders of a particular class of shares, e.g.,
preference shareholders.
 Such meetings are normally called when it is
proposed to vary the rights of that particular class of
shares.
 At such meetings, these members discuss the pros and
cons of the proposal and vote accordingly.
 Class meetings are held to pass resolution which will
bind only the members of the class concerned, and
only members of that class can attend and vote.

101. Meeting of Board of Directors
 For efficient management of the affairs of the company, the
directors are required to meet frequently to discuss and
review important matters and to decide number of meetings.
 A Board meeting can be held on a public holiday or outside
business hours for convenience.
 It need not be held at the registered office of the company. It
may be held at any place convenient to the directors.
 Period: A Board meeting must be held at least once in every
three months, and at least four such meetings must be held in a
calendar year.

102. Meeting of Board of Directors
 Notice: Notice of every meeting of the board of directors of
company has to be sent to all the directors at their usual
address in India. Failure to do so will render the resolutions
passed at such meeting, null and void.
 Quorum: The quorum for a meeting of the board of directors
of company shall be one-third of its total strength or two
directors whichever is higher. If the meeting cannot be held for
want of quorum it stands adjourned till the same day of the
next week at the same time and place.
 Every meeting of the board must have a chairman to preside
over it. The articles usually name the chairman who shall
preside over the board meeting. If the articles do not name
the chairman, the director may elect a chairman of the
meeting.

103. Requisites of a Valid Meeting
 To be convened by Board
 Notice
 Quorum
 Chairman of the meeting
 Minutes of the previous meeting must be properly
kept

104. Quorum
 Unless the AOA provides for a larger number, 5
members physically present in case of public
company and 2 members in private company shall
be the quorum for the meeting.
 If the meeting is called upon the requisition of
members, and the quorum is not maintained within
half an hour of time of holding the meeting then the
meeting shall stand ‘dissolved’.
 In other cases it shall be ‘adjourned’ to the same day
in the next week at the same time and place.

105. Minutes
 Minutes of the proceedings of meetings are statutorily
required to be maintained under Section 193 of the
Companies Act.
 Under this section the minutes of a meeting must be recorded
within 14 days of the meeting concerned.
 The minutes of each meeting are required to contain a fair
and correct summary of the proceeding of the meeting.
 Minutes of all the meetings are signed by the chairman of the
meeting.
 The chairman enjoys absolute discretion regarding the
exclusion of matters which are irrelevant to the interests of
the company.

106. Minutes
 The minutes must be recorded in a proper minute‟s book
which has pages consecutively numbered. Pasting of
minutes to any other book is prohibited.
 The minutes of general meetings are required to be kept
at the registered office of the company and must be
open to inspection by members without charge at least
for two hours every day.
 If a member wants a copy of the minutes, he can get it
within seven days of the request on payment.

107. Proxies
 The term proxy is used to refer to the person who is
nominated by a shareholder to represent him at a
general meeting of the company.
 Under Section 176 (1) every member of the company is
entitled to appoint another person (member or a non-
member) to attend a general meeting and vote if need
be.
 Unless a provision to the contrary is made in the Articles,
the members of companies not having a share capital
cannot appoint proxies to represent them.
 A proxy shall not have any right to speak at the meeting.
 A proxy can only vote through a secret poll.

108. Proxies
 Table 'A' lays down that an instrument appointing a
proxy must be deposited with the company not less than
48 hours before the time for the meeting.
 The Act also requires that the instrument appointing a
proxy must be in writing and must be signed by the
appointer or his legally authorized representatives.
 Two types of proxies may be distinguished, A proxy
authorized to vote only upon a particular resolution is
called a 'special proxy' while a proxy empowered to
vote on all resolutions in a meeting may be called a
'general proxy'.

109. Resolutions
 Matters in a company are decided by resolutions in the
meetings. E.g. giving authorities to directors
 A resolution is proposed either by the chairman or by
any other member.
 Kinds of resolutions:
1. Ordinary resolution
2. Special resolution

110. 1. Ordinary Resolution
 A resolution passed at a meeting by a simple majority of votes,
including the casting vote of the chairman is an ordinary resolution
 The following are some of the examples of acts, which a company can
do by passing an ordinary resolution:
 To change its name where it has been registered with a name very nearly like
that of another existing company.
 To authorize the issue of shares at a discount.
 To alter the share capital by increase, consolidation and conversion of shares
into shares of larger amount, conversion of fully paid shares into stock or vice-
versa, subdivision of shares and cancellation of unissued shares
 To appoint or remove directors.
 To appoint the auditor at the annual general meeting.
 To declare dividend recommended by the directors.
 To wind-up the company voluntarily when the period fixed for its duration has
expired.

111. 2. Special Resolution
 It is a resolution which is passed at general meeting by a majority of
three fourth of the members present. The notice of the general meeting
at which a special resolution is to be moved must expressly state that
the resolution is to be moved as a special resolution.
 A company can do the following acts only by passing special resolution:
 To transfer the registered office of the company from one state to
another or to alter its objects.
 To alter the Articles of Association.
 To reduce share capital.
 To shift the registered office from one place to another in the same
state.
 To make the liability of directors or managers unlimited.
 To approve the making of loans to other companies.
 To resolve that the company be wound up by the court.
 To wind up a company voluntarily.

112. MEMBERSHIP

113. Membership of a Company
 The subscribers to the memorandum of a company shall
be deemed to have agreed to become members of the
company and on its registration, shall be entered as
members in the Registrar of Members;
 Every other person who agrees in writing to become
member of a company and whose name is entered in its
register of members, shall be a member of company;
 Every person holding equity share capital of company
and whose name is entered as beneficial owner in the
records of the depository shall be deemed to be a
member of the concerned company.

114. How Membership Ceases?
 By transfer of shares;
 By forfeiture of shares;
 By surrender of shares;
 By sale of shares by the company after it exercises its right of lien on the
shares or in execution of a decree by Court or other proper authority;
 By insolvency;
 By death;
 By rescission of the contract to take shares on the ground of
misrepresentation in the prospectus;
 When the company redeems its redeemable preference shares;
 On issue of share warrants by company in place of certificates;
 On winding up of the company

115. Who Can Be A Member?
 Minor
 Company & Subsidiary Co.
 Trust
 Partnership firm
 Society
 Non-Resident

116. Rights of Members
 To receive notices of all general meetings
 To attend and vote at general meetings, appoint directors and
auditors of the company
 To receive copies of accounts of the company
 In case of a statutory meeting, he is entitled to a copy of statutory
report
 To inspect the minutes of proceedings of any general meeting
 To inspect the register and index of members and debenture
holders and copies of annual returns
 If his name is omitted in the register of members, he can apply to
the Court for the rectification of the register
 To transfer his shares
 Priority to have shares offered to him in case of increase of
capital by the company

117. Rights Contd..
 To receive share certificate
 To receive dividends in case of preference shares
 To rescind the contract and claim damages in case of his acquiring
shares on account of mis-statements in prospectus
 To make an application to Central Government for ordering
investigation into the affairs of the Co.
 To present a petition to the Court for relief in cases of mis
management & oppression
 If the company declares dividend, the right to participate in the
dividend distribution
 To apply to the Central Govt. to convene the AGM when Board of
Directors fail to convene the same
 To present a petition to the Court for winding up of the Co.
 Entitled to share in the surplus assets, if available, on liquidation

118. Liabilities, Duties and Obligation of
Members
 To pay calls on the shares whenever demanded by the
company
 To pay the full nominal value of the shares held by him
in case of a company limited by shares
 To pay all the debts of the company in case of a
company unlimited by liability

119. DIRECTORS

120. What Does Company Law Speak?
 Section 2(13) defines director as "director includes any person
occupying the position of a director by whatever name called."
 Director is not servant of the company. He is rather an officer
of the company.
 The articles of association of the company and provisions of
the companies Act will govern the selection of the directors of
the company.
 The management or the affairs of the company will be in the
hands of the directors. The directors are collectively called the
Board of Directors.
 The articles will determine the number of directors to be
appointed to the Board of Directors of a company. As per the
Act, minimum three directors will be there in a public
company and two directors in a private company.

121. Position of Director
Position
As a Trustee As an Agent As a Partner

122. AS A TRUSTEE
 The directors are not owner of the company and they
do not function as an owner, while entering into contract
with the third person.
 The directors have to use their powers in the interest of
the company. The directors are expected to show the
capacity and diligence as a trustee.
 If the directors misuse the position, they are held liable.
The directors are the trustees in connection with the
transfer and distribution of shares. The directors have to
disclose the details of his interest.

123. AS AN AGENT
 The position of director is like an agent. They have
to function as per the provisions contain in the
Articles of the company and the Company Law.
 Their actions are not their personal transactions, but
they are the transactions done for and on behalf of
the company. Therefore, they cannot be sued for the
all intra vires acts done by them on behalf of the
company .

124. AS A PARTNER
 Directors held shares. The members of the company
also hold shares. The directors work as the
representatives of the members. Thus, they are liked
partners of the members of the company.

125. Appointment of Directors
 Appointment as First Directors
 Appointment by Election in General Meetings
 Appointment by Nomination by BOD
 Appointment by Nomination by Central Government
 Appointment by Nomination in Statutory
Corporations
 Appointment on the basis of Qualification shares
 Appointment by Proportional Representation
 Alternate Directors

126. First Directors
Persons named in the articles of association as
directors become the first directors of the company
or in the absence of the provision in the articles
regarding persons to be appointed First Directors,
the subscribers to the memorandum of association
will become the first directors.

127. Appointment by Election in General
Meetings
 The members at the general meeting of the
company will elect the directors.
 At the general meetings generally directors are
appointed in place of retiring directors.
 This is the most common and usual mode of
appointing directors. Section 255 provides for the
procedure for election

128. Appointment by Nomination by BOD
 The Board of Directors will fill up the casual
vacancy arising among the directors by nomination.
 A casual vacancy arises in case o death,
resignation, disqualification or any other reason
than retirement by rotation.
 Directors so appointed will remain in the office
only for the unexpired period for which the
director whose post is vacant, would have
remained in the office.

129. Appointment by Nomination by
Central Government
Under Section 408 of the Act, the Central
Government can nominate some directors to the
Board in case of mismanagement and oppression.

130. Appointment by Nominations in
Statutory Corporations
Certain statutory corporations possess similar powers
e.g. the Industrial Finance Corporations Act of 1947
empowers the Corporation to nominate a director to
the Board of a company to which it has advanced
moneys.

131. Appointment on the Basis of
Qualification Shares
Where a person holds minimum number of shares as
provided in the articles then he is said to have
obtained 'qualification shares'. A person can be
appointed as a director on the basis of such
qualification shares.

132. Appointment by Proportional
Representation
 The articles of the company may provide for the
appointment of not less than 2/3rd of the total
number of directors of a public company, according
to the principles of proportional representation.
 The appointments must be done once in every 3
years and interim casual vacancies must be filled by
the BOD in Board meetings.

133. Alternate Directors
 The Board of Directors of a Company, may, if so
authorized by its articles or by resolution passed by a
company in general meeting, appoint alternate
director during absence of the existing director for a
period not less than three months from the State in
which meeting of the Board are ordinarily held.
 The alternate director cannot hold office longer than
the original director. He will vacate his office if and
when the original director returns to the State.

134. Qualification to be a Director
 A director must be-
i. An individual,
ii. Competent to contract, and
iii. Hold a share qualification, if so required by the
articles

135. Disqualification for Directors
 A person shall not be capable of being appointed as
director of the company, if
I. He has been found to be of unsound mind
II. He is an undischarged insolvent.
III. He has applied to be adjudicated as an insolvent and his application is
pending.
IV. He is convicted by a Court, of any offence involving moral turpitude and
sentenced in respect thereof, to imprisonment for not less than six months
and period of five years has not elapsed from the date of the expiry of
the sentence.
V. He has not paid any call in respect of shares of the company held by him
and six months have elapsed from the last date fixed for the payment of
the call.
VI. An order disqualifying him from appointment as director has been passed
by a Court in pursuance of Section 203

136. Removal of Directors
 By Shareholders
 By Central Government
 By Company Law Board

137. Removal By Shareholders
 A company may by ordinary resolution remove a
director before the expiry of period of office on the
intent of the shareholders in the annual general
meeting by:-
 Giving special notice to the director at least 14 days
before the meeting in which they are to be removed,
 A copy of the notice to be sent to the shareholders and to
other directors,
 Shareholders can remove the director by appointing a
new director in his place who will hold the office only for
the unexpired tenure of the previous director.

138. Directors who cannot be removed
by Shareholders
 An additional director appointed by the Central
Government under Section 408 in case of
mismanagement and oppression) cannot be removed.
 In a private company a director appointed for life
and holding office as such on 1st April 1952 cannot
be removed by member's resolution.
 Where the articles of a company provide for
the election of directors by proportional
representation, a director elected by that method
cannot be removed by the resolution.

139. Remuneration to the Director for his
Removal
If a director, by an agreement or otherwise is
entitled to receive compensation for the premature
termination of his service, he can enforce his claim
notwithstanding the removal by the resolution.

140. Removal By Central Government
The Central Government shall by order remove
from the office any directors against whom there is
a decision of the High Court, holding that he is not a
fit or proper person to hold the office of director

141. Removal By Company Law Board
 Section 402 read with Sections 397 and 398 gives
wide power to the court including the removal of the
directors.
 On an application by any member/members of the
company in cases of mismanagement or oppression, the
Company Law Board may terminate any Director.
 Directors so terminated cannot be appointed as
directors of other companies also upto a period of 5
years of their termination.
 Such directors are not entitled to any damages or
compensation for loss of office.

142. Retirement
 Proportion of Directors to retire by rotation-2/3rd only
in first AGM the ratio is 1/3rd
 Vacancy to be filled at AGM, if not then retiring
directors will be deemed to be re-elected
 Resignation of office of director
RESTRICTION- HOLDING OFFICE OF DIRECTOR FOR NOT
MORE THAN 20 COMPANIES.

143. Managing Director
 The director who is entrusted with substantial powers
of management and includes a director occupying the
position of Managing Director by whatever name
called.
 He is contract with company for his services and is a
whole time director entrusted with certain duties and
responsibilities.

144. Modes of Appointment of MD
 BY AGREEMENT WITH COMPANY
 BY A CLAUSE IN MOA. OR AOA.
 BY A RESOLUTION PASSED BY COMPANY IN
GENERAL MEETING
 BY A RESOLUTION PASSED BY B.O.D.

145. Disqualification of MD
 INSOLVENT
 SUSPENDED PAYMENT OF HIS CREDITOR
 CONVICTED BY COURT
 ALL DISQUALIFICTIONS OF DIRECTOR
LIMIT:-ONLY ONE PUBLIC CO. & SECOND WITH:
1. A RESOLUTION OF BOD.
2. OR SPECIAL ORDER BY CENTRAL GOVERNMENT
TERM:- NOT EXCEEDING 5 YEARS

146. Remuneration
 As determined in the Articles
 Not to exceed 11% of Net profit
 Director other than MD may be allowed commission
not exceeding 1% of net profit

147. Powers of Directors
 MAKE CALLS
 ISSUE DEBENTURES
 BORROW MONEY
 INVEST FUNDS
 MARKET LOANS

148. Limitations of Directors
 Sell, lease, etc. the whole undertaking
 Remit or give time for the repayment of any debt by
a director
 Invest or borrow money in contravention of the act.
 Charity of more than Rs. 50,000.

149. Rights & Duties of Directors
RIGHTS:
1. TO TAKE PART IN MEETINGS OF BOARD & IN THE AFFAIRS OF THE
CO.
2. RIGHT OF REMUNERATION
3. COMPENSATION IN CASE OF PREMATURE TERMINATION OF
SERVICES
DUTIES:
1. DISTRIBUTE WORK ON BUSINESS LINES
2. ACT IN GOOD FAITH
3. EXERCISE REASONABLE CARE
4. MUST EXERCISE THAT SKILL WHICH IS REASONABLY EXPECTED OF
HIM
5. ATTEND MEETING

150. Liabilities
 CIVIL:
1. FALSE STATEMENT IN A PROSPECTUS
2. EXCEED AUTHORITY
3. IN CASE OF ULTRA-VIRES ACTS
4. WHERE HE IS NEGLIGENT AND CO. SUFFERS
5. MAKES A SECRET PROFIT
6. COMMITS ANY BREACH OF TRUST
 CRIMINAL: FALSIFICATION OF BOOKS & REPORTS
FAILURE TO KEEP CERTAIN REGISTER

151. Issue of Capital

152. Types of Share Capital
 Authorized or Nominal Capital
 Issued Capital
 Subscribed Capital
 Paid-up Capital
 Un-called Capital

153. Example
 A company is registered with Rs. 5 lacs initially as the total share capital. This is
Authorized or Nominal capital. This capital is divided in shares of different
denominations, for example, Rs. 5 lacs may be divided into 5000 equity shares of
Rs. 100 each. The face value of the shares is, therefore, Rs. 100 each.
 The company may require only about Rs. 2.5 lacs immediately for carrying out its
objects and activities. It may, therefore, issue only 2,500 shares of Rs. 100 each.
This is „Issued capital‟.
 If all the shares offered or issued are taken up by the public it becomes' subscribed
capital‟.
 Further the minimum requirement of the company initially may be only Rs. 1 lac. It
may, therefore, call up only Rs. 25 on each subscribed share. This will be a „Called-
up capital‟.
 When all the 2500 shares are paid up by Rs. 25 on each share i.e., Rs. 1 lac will be
„Paid up capital‟. Rs. 1.5 lacs is „Uncalled capital‟.

154. Difference Between Shares & Stocks
SHARE STOCK
1. Shares cannot be 1. Stock can be divided into
unequal amount and
issued or transferred in therefore can be issued
fragments and transferred in
2. Shares need not be fragments
fully paid up 2. Stock is always fully paid
3. Shares bear distinctive up
numbers 3. Fractions of stock do not
bear distinctive numbers
4. Shares are issued
directly 4. Stock cannot be issued
directly

155. CLASSIFICATION OF SHARES
I. PREFERENCE SHARES
 Are those which have two characteristics, viz; (i) they
have a preferential right to be paid dividend during the
lifetime of the company and (ii)they have a preferential
right to the return of capital when the company goes into
liquidation
 Cumulative/Non Cumulative, Redeemable/Non-
redeemable, Participating/Non Participating,
Convertible/ Non Convertible
II. EQUITY SHARES

156.  Further issue of capital:
 At any time after the expiry of two years from the formation
of a comp or at any time after the expiry of one year from
the allotment of shares in that comp made for the first time
after its formation – whichever is earlier
 Offers to present share holders
 Time limit 15 days.
 Issue of shares at Premium
 Securities premium account
 Issue of shares at Discount
 Maximum rate 10%
 Issue of shares for consideration

157. Transfer of Shares
 Instrument of Transfer
 Transfer of instrument in prescribed form and
presentation
 Time limit for presentation
 Application for transfer
 Transfer by legal representative
 Transmission by operation of law
 Registration of transfer
 Share Certificate

158. Amalgamation & Reconstruction

159. Reconstruction & Amalgamation
 Reconstruction: Occurs when a company transfers the
whole of its undertaking and property to a new
company under an arrangement by which the
shareholders of the old company are entitled to receive
some shares or other similar interests in the new
company.
 Amalgamation: Takes place when 2 or more
companies combine into one company, the shareholders
in the amalgamating companies becoming substantially
the shareholders in the amalgamated company.

160. Procedure to Be Followed
1. Approval of scheme by shareholders of 3/4th in the value of
shares
2. Court‟s sanction on any of the following matters
o Transfer of the whole or any part of the undertaking, property or
liabilities
o Allotment or appropriation of any shares, debentures, policies, etc
under compromise or arrangement
o The continuation by or against the transferee company of any legal
proceedings pending by or against the transferor company
o Dissolution, without winding up, of the transferor company
o Provision to be made for any persons who dissent from the
compromise or arrangement
3. A certified copy of Tribunal order to be filed with the
Registrar

161. Acquisition of Shares of Shareholders
Dissenting From Scheme Approved By Majority
 In case of amalgamation or reconstruction, the
transferee company makes an offer to the shareholders
of the transferor company to purchase their shares at a
stated price.
 The offer may be to buy the shares either for cash or in
exchange of shares of the transferee company.
 Dissenting shareholders are the shareholders who have
not agreed to the scheme or arrangement between the
transferee company and the transferor company.

162. Conti..
 Approval of shareholders of not less than 9/10ths in value of
the shares required within 4 months
After the transferee company makes an offer to the shareholders of the
transferor company to acquire their shares, the offer shall have to be
approved within 4 months by the shareholders holding not less than 9/10ths of
the total value of such shares.
 Notice to Dissenting Shareholders
Within 2 months after the expiry of 4 months(the period for the approval of offer
to take shares), the transferee company shall give notice to the dissenting
shareholders that it desires to acquire their shares. Within 1 month of the notice
any dissenting shareholder may apply to the Tribunal to investigate into the
matter. If no application is made by any holder or if the Tribunal refuses it, the
transferee company shall be entitled to acquire the shares of all persons.

163. Amalgamation of Companies Under
National Interest
 Sec 396 provides for the powers of the Central Govt. for
the amalgamation of 2 or more companies in the national
interest.
 Where the central govt. is satisfied that it is essential in the
public interest that 2 or more companies should
amalgamate, it may, by order in the Official Gazette,
provide for the amalgamation of those companies as a
single company.
 In such case, the members and creditors of the company
shall have the same interests or rights in the amalgamated
company which they enjoyed before the amalgamation.

164. Conti..
 Appeal to the Tribunal:
Any person aggrieved by the assessment of
compensation , may within 30 days from the date of
publication of the assessment in the Official Gazette,
prefer an appeal to the Tribunal.