Company Law

1. C O M P A N Y
L A W

2. common seal
WHAT IS COMPANY?
• incorporated voluntary association of persons in business
• having joint capital divided into transferable shares of a fixed value,
• along with the features of limited liability
+ + perpetual succession.
• public, private, foreign, small, associate, holding or subsidiary
company.
optional

3. WHAT IS CORPORATE PERSONALITY
• is the creation of law.
• English and Indian law has recognized
• A corporation has a legal personality of its own, it can sue and
can be sued in its own name.
• It does not come to end with the death of its individual members
and therefore, has a perpetual existence.
• However, unlike natural persons, a corporation can act only
through its agents.
• Law provides procedure for winding up of a corporate body.

4. Formation of company [S. 3]
PUBLIC
COMPANY
PRIVATE
COMPANY
OPC
Limited by
shares
Limited by
guarantee
Unlimited
liability

5. Public company
[Sec. 2(71)]
Persons = 7 – no limit
Min paid up = NIL
(2015 Amendment)
Easy transferability of
shares
Word 'Limited'
Private Company
[Sec. 2(68)]
Persons = 2 - 200
Min paid up = NIL
(2015 Amendment)
Restricted transfer of
shares
Word 'Private Limited'
One Person
Company [Sec.
2(62)]
One member ONLY
Private company

6. Registration of the Company [Sec. 7]
Documents
• Memorandum of association - signatories + duly stamped
• Articles of Association
• List of directors, wherein the details regarding their names,
occupation and address is mentioned
• Written consent of the directors
• Statutory Declaration: advocate, CA, CS

7. Certificate of Incorporation
• On the registration of Memorandum of Association, Articles of
Association and other documents, the Registrar will issue a
certificate known as the ‘Certificate of Incorporation‘. The
issue of certificate is the evidence of the fact that the company
is incorporated, and the requirements of the Companies Act
have been complied with.

8. Certificate of Commencement of
Business
• MCA came up with a new amendment by inserting section 10A
under CA, 2013,
• companies incorporated on/after Ordinance 2018 (2nd Nov,
2018) + share capital
• Can commence + borrrow = declaration is filed w/i 180 days
from date of incorporation
• Who will file? = Director
• declaration and verification

9. Certificate of
Incorporation
Declaration w/i
180 days
Certificate of
Commencement
Commencement of Business

10. Consequences of Non-filing
• Company cannot start business
• Cannot borrow money
• ROC – remove name of company from ROC
• Penalty = penalty of fifty thousand rupees and every officer who
is in default shall be liable to a penalty of one thousand rupees
for each day during which such default continues but not
exceeding an amount of one lakh rupees.

11. DOCTRINE OF LIFTING OF OR
PIERCING THE CORPORATE VEIL
• The Court will break through the corporate shell and apply the
principle/doctrine of what is called as “lifting of or piercing the
corporate veil”.
• The Court will look behind the corporate entity and take action
as though no entity separate from the members existed and
make the members or the controlling persons liable for debts
and obligations of the company.
• Examples under Companies Act 2013 - Sections 7(7), 251(1)
and 339

12. Contd......
• Cases:
• Jones v. Lipman, (1962)
• Re. Sir Dinshaw Manakjee Petit, A.I.R. 1927

13. PROMOTER [Sec. 2(69)]
• “Promoter” means a person—
(a) who has been named as such in a prospectus or is identified by
the company in the annual return referred to in section 92; or
(b) who has control over the affairs of the company, directly or
indirectly whether as a shareholder, director or otherwise; or
(c) in accordance with whose advice, directions or instructions the
Board of Directors of the company is accustomed to act.
If a person is merely acting in a professional capacity i.e. giving only
professional advice to the Board of directors, he shall not be treated
as a promoter.

14. LEGAL POSITION OF A PROMOTER
Erlanger v. New Sombrero Phosphate Co.
Issue
• Was Erlanger liable to Phosphate due to not disclosing to his
conflict of interest?
• Lord Cairns held that - A promoter is neither an agent of, nor a
trustee for, the company because it is not in existence. But he
occupies a fiduciary position in relation to the company and
therefore requires to make full disclosure of the relevant facts,
including any profit made by him as

15. Pre incorporation Agreements
What will be liability of promoter or company or third party in pre-
incorporation agreement. Whether company and promoters may
misuse their position in these agreements or not?
Kelner v. Baxter, (1866)
The court held that, “Until the company has been incorporated it
cannot contract or enter into any other act in the law. Nor once,
incorporated, can it become liable on or entitled under contracts
purporting to be made on its behalf prior to incorporation, for
ratification is not possible when the ostensible principal did not
exist at the time when the contract was originally entered in to.”

16. After Specific Relief Act, 1963:
Ratification of Contract
• Section 15 and Section 19 of the Specific Relief Act, 1963
makes the pre-incorporation contracts valid.
• If company, had adopted the same and contract is warranted by
terms of incorporation.
• If no ratification is done the position remains same as under
common law which means the promoter shall be personally
liable. If no ratification or warranty by terms of incorporation the
contract takes effect as a personal contract

17. Sec.
15
• contracts entered before
the incorporation stage by
promoters
• Then after REGISTRATION
- company may ask for
specific performance from
the third party.
Sec.
19
• If company to enforce the
contract against the other
party
• the members must ratify the
contract followed by a
communication of
acceptance.
VALIDITY OF P-IC

18. Issue
of securities
Public
Company
to public
through
prospectus
private
placement
rights issue or
a bonus issue
Private
Company
private
placement
rights issue or
a bonus issue

19. PROSPECTUS
Section 2(70): any document described or issued as a
prospectus and includes:
• a red herring prospectus referred to in section 32 or
• shelf prospectus referred to in section 31 or
• any notice, circular, advertisement or
• other document inviting offers from the public for the
subscription or
• purchase of any securities of a body corporate.

20. Types of Prospectus
Shelf Prospectus [Sec. 31]
Red herring Prospectus [Sec. 32]
Abridged Prospectus [Sec. 33]
Deemed Prospectus [Sec. 25(1)]

21. Shelf Prospectus [Sec. 31]
• is a single prospectus for multiple public
• Once the company has filed with ROC, there is no need to file
fresh prospectus at every issue
• Validity = 1 year
• If any change in issue – then file 'Information Memorandum'

22. Red Herring Prospectus (RHP) [Sec. 32]
• NOT included – quantum of issue and price of securities
• Not final – can be updated several times before final issue of
prospectus
• Filed with Registrar 3 days prior to opening of the subscription

23. Abridged Prospectus [Sec 2(1) r/w 33]
• Brief summary of prospectus – containing materialistic
information
• Section 33 of the Act provides that no form of application for the
purchase of any of the securities of a company shall be issued
unless such form is accompanied by an abridged prospectus.

24. Deemed Prospectus – Offer for Sale
(OFS)
• Sec 25(1)
• company offers securities for sale to the public; the document
will be considered as a deemed prospectus through which the
offer is made to the public for sale.
• OFS = invitation to general public to purchase shares through
INTERMEDIARY – issuing house, merchant bank

25. MoA
• is the charter of the company, laying down the constitution of
the company
• It is an open-to-access document from which a person
interested in the company may gather all essential information
about the company
• In Ashbury Railway Carriage & Iron Co. Ltd. v. Riche, Lord
Cairn defined the memorandum of association as the charter of
a company which defines the limitations of the power of the co

26. 1st
•NAME CLAUSE
2nd
•SITUATION
CLAUSE
3rd
•OBJECTS
CLAUSE
4th
•LIABILITY
CLAUSE
5th
•CAPITAL
CLAUSE
6th
•SUBSCRIPTION
CLAUSE
TABLE A – TABLE E
Sec. 2(56) r/w Sec. 4

27. AoA
• prescribe the rules, regulations and the bye-laws for the internal
management of the company
• Section 5(3): Entrenchment
that certain provisions within the Articles of Association will not be
alterable by merely passing a special resolution, and will require
a much more lengthy and elaborate process.

28. DOCTRINES
A. Doctrine of Constructive Notice
it is the duty of every person that deals with the company to
inspect these public documents and ensure in his own capacity
that the workings of the company are in conformity with the
documents.
B. The doctrine of Indoor Management
In the case of Royal British Bank v. Turquand, which in fact,
first laid down the doctrine. It is due to this that the doctrine of
indoor management is also known as the “Turquand Rule”.

29. Shares [2(84)]
• “share” means a share in the share capital of a company and
includes stock
• Equity & Preference Share Capital
Nominal or
Authorized
Capital
Issued
Capital
Subscribed
Capital
Called-up
Capital
Paid-up
Share
Capital

30. • A share is a right to participate in the profits made by a company,
while it is a going concern
• Section 44 of the Companies Act, 2013 provides that a share or
debentures or other interest of any member in a company is a
movable property transferable in the manner provided by the
articles of the company.
• According to Section 45 of the Companies Act, 2013 each share
of the share capital of the company shall be distinguished with a
distinct number for its individual identification.
• This certificate is a prime facie evidence of title to the shares in
the possession of shareholders.

31. Some important terms:
• As per Explanation I to Section 42(3), “private placement” means
any offer or invitation to subscribe or issue of securities to a select
group of persons by a company (other than by way of public offer).
• Sweat Equity Shares(Sec 54): for providing know-how or making
available rights in intellectual property rights or value additions
• Rights Issue[Sec 62(1)(a)]: Rights issue is an issue of capital to be
offered to the existing shareholders of the company through a letter
of offer.
• Bonus Shares(Sec 63): When a company accumulates large
distributable profits, it converts these profits into capital and divides
the capital among the existing members in proportion to their
entitlements.

33. TRANSFER[Section 56] TRANSMISSION[Section 56]
Transfer takes place by a voluntary or deliberate
act of the parties by way of a contract
Transmission is the result of the operation of law.
An instrument of transfer is required in case of
transfer
No instrument of transfer is required in case of
transmission
normal course of transferring property takes place on death or insolvency of a holder of
securities
transfer is complete, the liability of the transferor
ceases
Shares continue to be subject to the original
liabilities

34. BORROWING
• In order to run a business effectively/successfully, adequate
amount of capital is necessary. In some cases capital arranged
through internal resources i.e. by way of issuing equity share
capital or using accumulated profit is not adequate and the
organisation is resorted to external resources of arranging
capital i.e., , Bank Loan, Term Loan, Working Capital Loan,
Overdraft facility from Bank, Debentures, Public Fixed Deposits,
External Commercial borrowing (ECB) etc. Thus, borrowing is a
mechanism used whereby the money is arranged through
external resources with an implied or expressed intention of
returning money.

35. • According to Section 2(30) of Companies Act, 2013,
“debenture” includes debenture stock, bonds or any other
instrument of a company evidencing a debt, whether
constituting a charge on the assets of the company or not.
• Section 71(1) states that a company may issue debentures
with an option to convert such debentures into shares, either
wholly or partly at the time of redemption.
• Section 71(2) states that no company shall issue any
debentures carrying any voting rights.
• Section 71(3): necessary conditions
• Power of Company to Borrow (Section 179)

36. Debentures Shares
Debentures constitute a loan. Shares are part of the capital of a company.
Debenture holders are creditors Shareholders are members/owners of the
company.
Debenture holder gets fixed interest which
carries a priority over dividend.
Shareholder gets dividends with a varying
rate.
Debentures generally have a charge on
the assets of the company.
Shares do not carry any such charge.
Debentures can be issued at a discount
without restrictions.
Shares cannot be issued at a discount.
Debenture holders do not have any voting
rights.
Shareholders enjoy voting rights.

37. Convertibility
Non-Convertible
Debentures (NCD)
Partly Convertible
Debentures (PCD)
Fully convertible
Debentures (FCD)
Optionally
Convertible
Debentures (OCD)
Security
Secured
Debentures
Unsecured
Debentures
Redemption
Redeemable
Debentures
Perpetual or
Irredeemable
Debentures
Registration
Registered
Debentures
Bearer debentures

38. Company Meetings: Board Meetings
• Section 173 of the Act deals with Meetings of the Board.
• First Board Meeting should be held within 30 days of the date
of incorporation.
• Subsequent Board Meeting: there shall be minimum number
of four board meetings every year and not more than 120 days
shall intervene between two consecutive Board meetings.
• NOTICE: within 7 days in writing
• Penalty: 25k for every officer

39. Board Meetings
Sec 173(5)
In case of OPC, Private company, Small company and Dormant
company:
 Provision regarding 4 board meetings – NOT APPLICABLE
ONE board meeting in each half of a calendar year and GAP
b/w must not be less than 90 days.
OPC having only one director: NOT required to conduct even a
single meeting as per Sec. 173(5)

40. Quorum for Board Meetings : Section 174
• 1/3rd of total strength or 2 directors, whichever is higher,
• Section 174 is not applicable to One Person Company in which there
is only one director.
Vigil Mechanism [Sec 177(9) or Whistle blowing
• Formed for directors and employees who may report genuine
concern
• Eligibility: every listed company
Company that accepts deposits from public
Company's borrowings from banks and public
financial institutions – more than 50 cr
Punishment: 1lacs - 5lacs

41. Members’ Meetings

42. Annual General Meeting (section 96)
• Section 96 provides that every company, other than a one
person company is required to hold an annual general meeting
every year.
• First AGM of the company should be held within 9 months from
the closing of the first financial year. Hence it shall not be
necessary for the company to hold any annual general meeting
in the year of its incorporation.
• Subsequent AGM should be held within 6 months from the date
of closing of the relevant financial year.
• The gap btw AGM shall not exceed 15 months.
• extension can be for a period not exceeding 3 months

43. Business to be transacted at annual
general meeting: [Section 102]

44. EXTRA-ORDINARY GENERAL
MEETING (SECTION 100)
• The articles of association of the company of the company
make provisions for convening general meeting other than the
annual general meeting. All general meetings other than annual
general meeting are called extra-ordinary general meetings
(EGM).
• all the transactions dealt upon in an EGM shall be special
business.

46. CLASS MEETINGS
• Class meetings are meeting of shareholders, holding a particular
class of share which is held to pass resolution which will bind only
the members of the class concerned.
• Only members of the class concerned may attend and vote at
meeting.
• Under section 48 of the Companies Act, 2013 (variation of
shareholders’ rights) class meeting of the holders of different classes
of shares shall be held if the rights attaching to these shares are to
be varied.
• Similarly, under Section 232(Merger and Amalgamation of
companies), where a scheme of arrangement is proposed, meeting
of several classes of shareholders and creditors are required to be
held.

48. DIRECTOR
S
Section 2 (34) of the Act
prescribed that “director”
means a director
appointed to the Board of
a company – no
exhaustive definition
appointed to perform the
duties and functions of
director of a company
Section 2 (10) defines
“Board of Directors”, in
relation to a company,
means the collective
body of the directors of
the company.
BRAIN of the company

49. Section 149(1): Minimum/Maximum
Number of Directors
PUBLIC COMPANY 3 DIRECTORS
PRIVATE COMPANY 2 DIRECTORS
OPC 1 DIRECTOR
• Maximum directors = 15
• A company may appoint more than fifteen directors after passing a special resolution in general
meeting and approval of Central Government is not required.
• Resident Director [Section 149(3)]: atleast one director has stayed in India for a total period of not
less than 182 days in the previous calendar year.

50. Section 165: Number of directorships
• Maximum number of directorships, including any alternate
directorship a person can hold is 20.
• Provided, maximum number of directorships in public
companies must not exceed 10
• The numbers could be restricted by passing special resolution

51. Types of Directors
Residential
Director
[Section 149
(3)]
Independent
Director [2(47)
r/w 149(5)]
Women
Director
[Section 149(1),
2nd proviso]
Alternate
Director
[Section 161
(2)]
Additional
Director
[Section 161
(1)]
Nominee
Director
[Section 161(3)]
Small
Shareholders
Director
[Section 151]

52. • Residential Director [Section 149(3)] every company shall have
one director who stayed in India for a total period of not less
than 182 days
• Woman Director [Section 149(1), 2nd proviso]: must for
- every listed company
- other public company having = Rs. 100cr paid up share
capital OR turnover of Rs. 300 crore

53. • Independent Directors: Section 2(47) r/w 149(5) must for
- Every listed public company = at least one-third of
the total number of directors
- atleast 2 directors
- Def: 149(6)
- Term: 5years – 3 years
Paid up
= 10cr
Turnover
= 100 cr
o/s
borrow =
50 cr

54. Director elected by Small Shareholders- Section 151
• every listed company may have one director elected by such
small shareholders.
• “small shareholder” means a shareholder holding shares of
nominal value of not more than twenty thousand rupees or such
other sum
Additional Director- Section 161 (1)
power is conferred - by the AOA
Alternate Director- Section 161 (2)
person in whose place the Alternate Director is being appointed
should be absent for a period of not less than 3 months from
India.

55. Nominee Directors - Section 161(3)
• the Board may appoint any person as a director nominated by
any institution in pursuance of the provisions of any law for the
time being in force or of any agreement or by the Central
Government or the State Government

56. Other points:
• Every individual, who is to be appointed as director of a
company shall make an application electronically in Form DIR-3
[Section 153]
• Lee Vs. Lee's Farming Co. Ltd. (1960)