Unit I Company: Meaning, features, types, Incorporation advantages & disadvantages, privileges of private company, lifting of corporate veil, formation of company, Doctrine of ultra-vires, Constructive notice and doctrine of indoor management. Unit – II Documents of Company: Memorandum of Association: meaning, importance, clauses of memorandum of association and their alteration, Articles of Association: meaning, contents, alteration of articles of association Prospectus: Definition, contents of prospectus, Statement in lieu of prospectus; Share Capital: Types of share capital, alteration of share capital, reduction of share capital, share and stock, share certificate and share warrant

1. CORPORATE LAW
Course Contents
Unit I
Company: Meaning, features, types, Incorporation advantages & disadvantages, privileges of
private company, lifting of corporate veil, formation of company, Doctrine of ultra-vires,
Constructive notice and doctrine of indoor management.
Unit – II
Documents of Company: Memorandum of Association: meaning, importance, clauses of
memorandum of association and their alteration, Articles of Association: meaning, contents,
alteration of articles of association Prospectus: Definition, contents of prospectus, Statement in
lieu of prospectus; Share Capital: Types of share capital, alteration of share capital, reduction of
share capital, share and stock, share certificate and share warrant
UnitIII
Management -Directors: Appointment, Removal, Position, Powers and Duties of Directors.
Audit Committee: Its Role. Company Secretary: Qualification, Appointment and Duties
Officer who is in default: Definition of Officer who is in default
Types of Meetings (ii) Procedure of calling meeting (iii) Company’s resolutions and its kinds
Unit - IV
Oppression & Mismanagement and Investigation (Sections 397 to 408; Sections 235 to 251) 1.
(i) Rule in Foss v. Harbottle (ii) Prevention of Oppression (iii) Prevention of Mismanagement
(iv) Role & Powers of the Company Law Board (v) Role & Powers of Central Government
Winding Up: meaning, compulsory Winding up, voluntary winding up, winding up under the
supervision of Court, consequences of winding up.

2. Unit I
Introduction toCompany
Company:A companymeansa bodyof individualsassociatedtogetherfora common objective,which
may be businessforprofitorforsome charitable purposes.
CHARACTERISTICSOFA COMPANY
1. Incorporatedassociation.A companyiscreatedwhenitisregisteredunderthe CompaniesAct.It
comesintobeingfromthe date mentionedinthe certificate of incorporation.Itmaybe notedinthis
connectionthatSection11 providesthatan associationof more thantenpersonscarryingon business
inbankingor an associationormore than twentypersonscarryingonany othertype of businessmust
be registeredunderthe CompaniesActandisdeemedtobe an illegal association,if itisnotso
registered.Forformingapubliccompanyatleastsevenpersonsandfora private companyat leasttwo
personsare personsare required.These personswillsubscribetheirnamestothe Memorandumof
associationandalsocomplywithotherlegal requirementsof the Actinrespectof registrationtoform
and incorporate acompany,withor withoutlimitedliability.
2. Artificial legal person.A companyisanartificial person.Negativelyspeaking,itisnota natural person.
It existsinthe eyesof the lawandcannot act on its own.Ithas to act througha board of directors
electedbyshareholders.
It was rightlypointedoutinBatesV StandardLand Co.that :
“The boardof directorsis the brainsand the onlybrainsof the company,whichisthe bodyand the
company can and doesact onlythroughthem”.But for manypurposes,acompanyis a legal personlike
a natural person.Ithas the rightto acquire and dispose of the property,toenterintocontractwiththird
partiesinitsownname,and can sue and be suedin itsownname.However,itisnota citizenasit
cannot enjoythe rightsunderthe Constitutionof IndiaorCitizenshipAct
3. Separate Legal Entity: A companyhas a legal distinctentityandisindependentof itsmembers.The
creditorsof the companycan recovertheirmoneyonlyfromthe companyandthe propertyof the
company.Theycannot sue individual members.Similarly,the companyisnotinany wayliable forthe
individualdebtsof itsmembers.The propertyof the companyisto be usedfor the benefitof the
companyand nor for the personal benefitof the shareholders.Onthe same grounds,amembercannot
claimany ownershiprightsinthe assetsof the companyeitherindividuallyorjointlyduringthe
existence of the companyorinitswindingup.At the same time the membersof the companycan enter
intocontracts withthe companyinthe same manneras anyother individual can.Separate legal entityof
the companyis alsorecognizedbythe Income Tax Act.Where a companyisrequiredtopayIncome-tax
on itsprofitsandwhenthese profitsare distributedtoshareholdersinthe formof dividend,the
shareholdershave topayincome-tax ontheirdividendof income.Thisprovesthata companythat a

3. companyand itsshareholdersare twoseparate entities.The principal of separate of legal entitywas
explainedandemphasizedinthe famouscase of SalomonvSalomon&Co. Ltd.
4. Perpetual Existence.A companyisa stable formof businessorganization.Itslife doesnotdepend
uponthe death,insolvencyorretirementof anyorall shareholder(s) ordirector(s).Law createsit and
lawalone can dissolve it.Membersmaycome andgo butthe companycan go on forever.The company
may be comparedwitha flowingriverwherethe waterkeepsonchangingcontinuously,still the identity
of the riverremainsthe same.Thus,a companyhasa perpetual existence,irrespective of changesinits
membership.
5. CommonSeal.Aswaspointedoutearlier,acompanybeinganartificial personhasnobodysimilarto
natural personand as suchit cannot signdocumentsforitself.Itactsthroughnatural personwhoare
calleditsdirectors.Buthavinga legal personalityitcanbe boundby onlythose documentswhichbear
itssignature.Therefore,the lawhasprovidedforthe use of commonseal,withthe name of the
companyengravedonit,as a substitute foritssignature.Anydocumentbearingthe commonseal of the
companywill be legallybindingonthe company.
6. LimitedLiability:A companymay be companylimitedbysharesor a companylimitedbyguarantee.
In companylimitedbyshares,the liabilityof membersislimitedtothe unpaidvalue of the shares.For
example,if the face value of ashare ina companyisRs. 10 and a memberhasalreadypaidRs. 7 per
share,he can be calledupontopay not more thanRs. 3 pershare duringthe lifetime of the company.In
a companylimitedbyguarantee the liabilityof membersislimitedtosuchamountas the membermay
undertake tocontribute tothe assetsof the companyinthe eventof itsbeingwoundup.
7. Transferable Shares.Inapubliccompany,the sharesare freelytransferable.The righttotransfer
sharesisa statutoryrightand itcannot be takenaway by a provision inthe articles.However,the
articlesshall prescribe the mannerinwhichsuchtransferof shareswill be made andit mayalso contain
bona fide andreasonable restrictionsonthe rightof memberstotransfertheirshares.Butabsolute
restrictionsonthe rightsof memberstotransfertheirsharesshall be ultravires.However,inthe case of
a private company,the articlesshall restrictthe rightof membertotransfertheirsharesincompanies
withitsstatutorydefinition.Inordertomake the rightto transfersharesmore effective,the
shareholdercanapplyto the Central Governmentincase of refusal bythe companyto registera
transferof shares.
8. Separate Property:Asacompany isa legal persondistinctfromitsmembers,itiscapable of owning,
enjoyinganddisposingof propertyinitsownname.Althoughitscapital andassetsare contributedbyits
shareholders,theyare notthe private andjointownersof itsproperty.The companyisthe real person
inwhichall its propertyisvestedandbywhichitis controlled,managedanddisposedof.
9. DelegatedManagement:A companyisan autonomous,self-governingandself-controlling
organization.Since ithasa large numberof members,all of themcannottake part inthe management
of the affairsof the company.Actual control and managementis,therefore,delegatedbythe
shareholderstotheirelectedrepresentatives,know asdirectors.Theylookafterthe day-to-dayworking
of the company.Moreover,since shareholders,bymajorityof votes,decide the general policyof the

4. company,the managementof the companyiscarriedon democraticlines.Majoritydecisionand
centralizedmanagementcompulsorilybringaboutunityof action.
Disadvantage of incorporation
• Formalities,expenses
• Corporate disclosure
• Divorce of control
• Increasedsocial responsibility
• Greatertax burden
Types of company
1. Classificationof CompaniesbyMode of Incorporation
Dependingonthe mode of incorporation,thereare three classes of companies.
A. Charteredcompanies.These are incorporatedunderaspecial charterbya monarch.The East India
CompanyandThe Bank of Englandare examplesof charteredincorporatedinEngland.The powersand
nature of businessof achartered companyare definedbythe charterwhichincorporatesit.A chartered
companyhas wide powers.Itcandeal withitspropertyand binditself toanycontractsthat any ordinary
personcan. Incase the companydeviatesfromitsbusinessasprescribedby the charted,the Sovereign
can annul the latterand close the company.Suchcompanies donot existinIndia.
B. StatutoryCompanies.These companiesare incorporatedbyaSpecial Actpassed bythe Central or
State legislature.Reserve Bankof India,State Bankof India,Industrial Finance Corporation,UnitTrustof
India,State TradingCorporation andLife Insurance Corporationare some of the examplesof statutory
companies.Such companiesdonot have anymemorandumorarticlesof association.Theyderive their
powersfromthe Acts constitutingthemandenjoycertainpowersthatcompaniesincorporatedunder
the CompaniesActhave.Alternationsinthe powersof suchcompaniescanbe brought aboutby
legislative amendment.
C. Registeredorincorporatedcompanies.
These are formedunderthe Companies Act,1956 or underthe CompaniesActpassedearliertothis.
Such companiescome intoexistenceonlywhentheyare registeredunderthe Actanda certificate of

5. incorporationhasbeenissuedbythe Registrarof Companies.Thisis the mostpopularmode of
incorporatingacompany.Registeredcompaniesmayfurther be dividedintothreecategoriesof the
following.
i) CompanieslimitedbyShares:These typesof companieshave ashare capital andthe liabilityof each
memberorthe companyislimitedbythe Memorandumtothe extentof face value of share subscribed
by him.Inotherwords,duringthe existence of the companyorinthe eventof windingup,amember
can be calledupontopay the amountremainingunpaidonthe sharessubscribedbyhim.Sucha
companyiscalled companylimitedbyshares.A companylimitedbysharesmaybe a publiccompanyor
a private company.These are the mostpopulartypesof companies.
ii) CompaniesLimitedby Guarantee:These typesof companiesmayormaynot have a share capital.
Each memberpromisestopaya fixedsumof moneyspecifiedin the Memoranduminthe eventof
liquidationof the companyforpaymentof the debts andliabilitiesof the company[Sec13(3)] This
amountpromisedbyhimiscalled ‘Guarantee’.The Articlesof Associationof the companystate the
numberof memberwithwhichthe companyisto be registered[Sec27(2)].Such a companyis calleda
companylimitedbyguarantee.
iii) Unlimited Companies:Section12 giveschoice tothe promoterstoforma companywithor without
limitedliability.A companynothavinganylimitonthe liability of itsmembersiscalledan‘unlimited
company’[Sec12(c)].An unlimitedcompany mayormay not have a share capital.If it has a share
capital it maybe a publiccompany or a private company.If the companyhas a share capital,the article
shall state the amountof share capital withwhichthe companyisto be registered[Sec27 (1)] The
articlesof an unlimitedcompanyshall state the numberof memberwith whichthe companyistobe
registered.
II.On the Basis of Numberof Members
On the basisof numberof members,acompanymaybe :
(1) Private Company,and(2) PublicCompany.
A. Private Company
Accordingto Sec.3(1) (iii) of the IndianCompaniesAct,1956, a private company isthat companywhich
by itsarticlesof association:
i) limitsthe numberof itsmemberstofifty,excludingemployeeswhoare membersorex-employees
whowere and continue tobe members;

6. ii) restrictsthe rightof transferof shares,if any;
iii) prohibitsanyinvitationtothe publictosubscribe foranysharesor debenturesof the company.
Where twoor more personsholdshare jointly,theyare treatedasa single member.
Accordingto Sec12 of the CompaniesAct,the minimumnumberof membersto forma private company
istwo. A private companymustuse the word“Pvt” afterits name.
CharacteristicsorFeaturesof a Private Company.The mainfeaturesof aprivate of a private company
are as follows:
i) A private companyrestrictsthe rightof transferof its shares.The shares of a private companyare not
as freelytransferable asthose of public companies.The articlesgenerallystate thatwhenevera
shareholderof aPrivate Companywantstotransferhisshares,he mustfirstofferthemto the existing
membersof the existingmembersof the company.The price of the sharesis determinedbythe
directors.Itis done soas to preserve the familynature of the company’sshareholders.
ii) Itlimitsthe numberof itsmemberstofiftyexcludingmemberswhoare employeesorex-employees
whowere and continue tobe the member.Where twoormore personsholdshare jointlytheyare
treatedas a single member.The minimumnumberof memberstoformaprivate company istwo.
iii) A private companycannotinvite the publictosubscribe foritscapital or sharesof debentures.Ithas
to make itsown private arrangement.
B. Publiccompany
Accordingto Section3 (1) (iv) of IndianCompaniesAct.1956 “A publiccompanywhichisnota Private
ompany”,
If we explainthe definitionof IndianCompaniesAct.1956 in regardto the publiccompany,we note the
following:
i) The articlesdonotrestrictthe transferof sharesof the company
ii) Itimposesnorestrictionnorestrictiononthe maximumnumberof the membersonthe company.
iii) Itinvitesthe generalpublictopurchase the sharesand debenturesof the companies

7. III. On the basis of Control
On the basisof control,a companymaybe classifiedinto:
1. Holdingcompanies,and
2. SubsidiaryCompany
1. HoldingCompany[Sec.4(4)].A companyis knownasthe holdingcompany of anothercompanyif it
has control overthe othercompany.Accordingto Sec4(4) a companyisdeemedtobe the holding
companyof anotherif,butonlyif that otherisits subsidiary. A companymaybecome aholding
companyof anothercompanyineitherof the followingthree ways:-
a) byholdingmore thanfiftypercentof the normal value of issuedequity capital of the company;or
b) By holdingmore thanfiftypercentof itsvotingrights;or
c) by securingtoitself the righttoappoint,the majorityof the directorsof the othercompany, directly
or indirectly.
The other companyinsuch a case isknownas a “Subsidiarycompany”.Though the twocompanies
remainseparate legal entities,yetthe affairsof boththe companies are managedandcontrolledbythe
holdingcompany.A holdingcompanymayhave any numberof subsidiaries.The annual accountsof the
holdingcompanyare requiredto disclose full informationaboutthe subsidiaries.
2. SubsidiaryCompany.[Sec.4(I)].A companyisknow as a subsidiaryof another companywhenits
control is exercisedbythe latter(calledholdingcompany) overthe formercalledasubsidiarycompany.
Where a company(companyS) is subsidiaryof anothercompany(sayCompanyH),the former
(CompanyS) becomesthe subsidiary
of the controllingcompany(companyH).
IV.On the basisof Ownershipof companies
GovernmentCompanies.
A Companyof whichnot lessthan51% of the paidup capital isheldbythe Central Governmentof by
State GovernmentorGovernmentsinglyorjointlyisknownasaGovernment Company.Itincludesa
companysubsidiarytoa governmentcompany. The share capital of agovernmentcompanymaybe
whollyorpartly ownedbythe government,butitwouldnotmake itthe agentof the government.The
auditorsof the governmentcompanyare appointedby the governmentonthe advice of the
ComptrollerandAuditorGeneral of
India.The Annual Reportalongwiththe auditor’sreportare placedbefore boththe House of the
parliament.

8. Non-GovernmentCompanies.
All othercompanies,exceptthe GovernmentCompanies,are callednon-governmentcompanies.They
do notsatisfythe characteristicsof a governmentcompanyasgiven above.
V.On the basisof Nationalityof the Company
a) IndianCompanies:These companiesare registeredinIndiaunderthe CompaniesAct.1956 andhave
theirregisteredoffice inIndia.Nationalityof the membersintheircase isimmaterial.
b) ForeignCompanies:Itmeansany companyincorporatedoutside Indiawhich hasanestablishedplace
of businessinIndia.A companyhasan establishedplace of businessinIndiaif ithasa specifiedplace at
whichitcarries onbusinesssuchasan office,store house orotherpremiseswithsome visible indication
premises.Section592 to 602 of CompaniesAct,1956 contain provisionsapplicabletoforeigncompanies
functioninginIndia.
PRIVILIGESOF PRIVATE COMPANY
A private companyenjoysseveralexemptionsandprivilegesunderthe CompaniesAct.Some of these
privilegesare givenbelow:
1. Members:A private companycanbe startedbytwo personsonly,whereassevenpersonsare
requiredtostart a publiccompany.
2. Commencement ofbusiness:A private companycancommence businessimmediatelyafterits
incorporation.Itisnot requiredtoobtainthe certificate of commencementof Business.
3. Prospectus:A privatecompanyisnotrequiredtoissue orfile aprospectusor statementinlieuof
prospectuswiththe Registrarof Companies.
4. Statutory meeting:A private companyisnotrequiredtoholdastatutorymeetingorto file
statutoryreportwiththe Registrar.
5. Directors:Aprivate companycanhave onlytwodirectors. Itisexemptedfromrestrictionsrelating
to the appointment,reappointment,retirement,andremunerationetc.,of managerialpersonnel.
6. Shares:A private companycan issue deferredshareswithdisproportionatevotingrights.Itisnot
requiredtoobserve restrictionsconcerningallotmentof shares,minimumsubscription,rightshares,
investmentof fundsinthe same groupsof companies,etc.
7.T ransfer ofshares:A private companycanrefuse toregisteranytransferof shareswithoutany
appeal.

9. 8. Accounts:Aprivate companyisnotrequiredtokeepitsannual accountsopenforinspectionfor
non-members.
9. Quorum:Twomemberspersonallypresentissufficientquorumforthe general meetingof aprivate
company.
10. Index ofmembers:A privatecompanyisnotrequiredtoprepare andmaintainanyindex tothe
Registerof members.
The IntroductionTo Doctrine Of Ultra Vires
The objectclause of the memorandumof the companycontainsthe objectforwhichthe companyis
formed.Anact of the companymustnot be beyondthe objectclause otherwise itwill be ultraviresand
therefore,voidandcannotbe ratifiedevenif all the memberwishtoratify.Thisiscalledthe doctrine of
ultravires.The expression“ultravires”consistsof twowords:‘ultra’and‘vires’.‘Ultra’meansbeyond
and ‘Vires’meanspowers.Thus,the expressionultraviresmeansanactbeyondthe powers.Here the
expressionultraviresisusedtoindicate anact of the company,whichisbeyondthe powersconferred
on the companyby the objectsclause of itsmemorandum.Anultraviresactis voidandcannot be
ratifiedevenif all the directorswishtoratifyit.Sometimesthe expressionultraviresisusedtodescribe
the situationwhenthe directorsof acompanyhave exceededthe powersdelegatedtothem.Where
accompanyexceedsitspowerasconferredonitby the objectsclause of itsmemorandum, it’snot
boundby itbecause itlackslegal capacityto incur responsibilityforthe action,butwhenthe directorsof
a companyhave exceededthe powersdelegatedtothem.Thisuse mustbe avoidedforitis apt to cause
confusionbetweentwoentirelydistinctlegal principles.Consequently,here are restrictingthe meaning
of ultraviresobjectsclause of the company’smemorandum.
Factors for piercingthe veil
1. Absence orinaccuracyof corporate records;
2. Concealmentormisrepresentationof members;
3. Failure tomaintain arm'slengthrelationshipswithrelatedentities;
4. Failure toobserve corporate formalitiesintermsof behavioranddocumentation;
5. Failure topay dividends;
6. Interminglingof assetsof the corporationandof the shareholder;
7. Manipulationof assetsorliabilitiestoconcentrate the assetsorliabilities;
8. Non-functioningcorporate officersand/ordirectors;
9. Otherfactors the court findsrelevant

10. ProtectionOf CreditorsAndInvestors
Doctrine of ultra vireshasbeendevelopedtoprotectthe investorsandcreditorsof the company.This
doctrine preventsacompanyto employthe moneyof the investorsforapurpose otherthanthose
statedinthe objectsclause of itsmemorandum.Thus,the investorsandthe companymaybe assured
by thisrule thattheirinvestmentwill notbe employedforthe objectsoractivitieswhichtheydidnot
have incontemplationatthe time of investingtheirmoneyinthe company.Itenablesthe investorsto
knowthe objectsinwhichtheirmoneyistobe employed.Thisdoctrine protectsthe creditorsof the
companyby ensuringthemthatthe fundsof the companyto whichtheymustlookfor paymentare not
dissipatedinunauthorizedactivities.The wrongful applicationof the company’sassetsmayresultinthe
insolvencyof the company,asituationwhenthe creditorsof the companycannotbe paid.Thisdoctrine
preventsthe wrongful applicationof the company’sassetslikelytoresultinthe insolvencyof the
companyand therebyprotectscreditors.Besidesthe doctrine of ultravirespreventsdirectorsfrom
departingthe objectforwhichthe companyhas beenformedand,thus,putsa checkoverthe activities
of the directions.Itenablesthe directorstoknow withinwhatlinesof businesstheyare authorizedto
act .
Is It Ultra Vires OrIllegal?
The ultra viresact or transactionisdifferentfromanillegalactor transaction,althoughbothare Void.
An act of a company,whichisbeyonditsobjectsclause,isultraviresand,therefore,void,evenif itis
illegal.Similarly,anillegal actwill be voidevenif itfallswithinthe objectsclause.Unfortunately,the
doctrine of ultravireshas oftenbeenusedinconnectionwithillegalandforbiddenact.Thisuse should
alsobe prevented.
CONSTRUCTIVENOTICEOF MEMORANDUM ANDARTICLES OF ASSOCIATION
The Memorandumand Articlesof a companyare registeredwiththe Registrar. These are the public
documentsandopento publicinspection,.Everyperson contractingwiththe companymustacquaint
himself withtheircontentsandmust make sure thathiscontract isinaccordance withthem, otherwise
he cannot sue the company. On registrationthe memorandumandarticlesof associationbecomepublic
documents.These documentsare availableforpublicinspectioneitherinthe office of the company orin
the office of the Registrarof Companiesonpaymentof one rupee foreachinspectionandcanbe copied
. Everypersonwhodealswiththe company,whethershareholderoran outsider ispresumedtohave
readthe memorandumandarticlesof associationof the companyandisdeemedtoknow the contents
of these document.Therefore,the knowledge of these documentsandtheircontentsisknownasthe
constructive notice of memorandumandarticlesof association. Itispresumedthatpersonsdealingwith
the companyhave not onlyread these documentsbuttheyhave alsounderstoodtheirpropermeaning.
Where a persondealswiththe companyina manner,whichisinconsistent withthe provisionsof
memorandumorarticles,orentersintoa transactionwhich isbeyondthe powersof the company.

11. Doctrine of Constructive Notice
The Memorandumand Articles,onregistration,assume the characterof publicdocuments.The office of
the Registrarisa publicoffice anddocumentsregisteredthere are openandaccessibletothe publicat
large.Therefore,everyoutsiderdealingwiththe companyisdeemedtohave notice of the contentsof
the Memorandumand Articles.Thisisknownas Constructive Noticeof Memorandumand Articles.
Under the doctrine of ‘constructive notice’,everypersondealingorproposingtoenterintoa contract
withthe companyis deemedtohave constructive notice of the contentsof itsMemorandum
and Articles.Whetherhe actuallyreadsthemornot,it ispresumedthathe has readthese documents
and has ascertainedthe exactpowersof the companytoenterintocontract,the extenttowhichthese
powershave beendelegatedtothe directorsandthe limitationstosuchpowers.He ispresumednot
onlyto have read them,butto have understoodthemproperly.Consequently,if apersonentersintoa
contract whichis ultra vires the Memorandum, orbeyondthe authorityof the directorsconferredby
the Articles,thenthe contractbecomesinvalidandhe cannotenforce it,not-withstandingthe factthat
he acted ingood faith andmoneywasappliedforthe purposesof the company.
Doctrine of Indoor Management
The doctrine of indoormanagementfollowsfromthe doctrine of ‘constructive notice’ laiddown in
variousjudicial decisions.The hardshipscausedtooutsidersdealingwithacompanybythe rule
of ‘constructive notice’have beensoughttobe softenedunderthe principleof ‘indoormanagement’.
It affordssome protectiontothe outsidersagainstthe company.
Accordingto thisdoctrine,aftersatisfyingthemselvesthatthe proposedtransactionisintravires the
memorandumandarticles,personsdealingwiththe companyare notboundto enquire whether
the internal proceedingswere correctlyfollowed.Theyare entitledtoassume thatthe internal
proceedings relatingtothe contract are regularas per the memorandumandarticles. Whenanoutsider
entersintoa contract withthe company,he ispresumedtohave knowledge of the provisionsof
memorandumandarticlesasperthe doctrine of constructive notice.Buthe isnotrequiredtogo
beyondthatand to enquire whetherthe internalproceedingsrequiredbythese documents have been
regularlyfollowedbythe company.Theyneednotenquire whetherthe necessarymeeting
was convenedandheldproperlyorwhethernecessaryresolutionwaspassedproperly.Theyare entitled
to take it forgrantedthat the companyhadgone through all these proceedings inaregularmanner.This
isknownas the Doctrine of IndoorManagement.
(pleaserefer to the notes dictated in class)

12. Unit – II
Documents of Company
Promotion:Promotionmeansthe discoveryof businessopportunitiesandthe subsequentorganization
of funds,propertyandmanagerial abilityintoabusiness concernforthe purpose of makingprofits there
from.
Promoter: A promoteris a personwhoundertakestoforma companywith reference toagivenobject
and bringsitintoactual existence.
INCORPORATIONOF COMPANIES
Companyisan artificial personcreatedbyfollowingalegal procedure.Before acompanyisformed,alot
of preliminaryworkistobe performed.The lengthyprocess of formationof acompanycan be divided
intofourdistinct stages:
 Promotion;
 IncorporationorRegistration;
 Capital subscription;and
 Commencementof business.
However,aprivate company can start businessassoonas itobtainsthe certificate of incorporation.It
needstogo throughfirsttwo stagesonly.The reasonis that a private companycannotinvite publicto
subscribe toitsshare capital.But a public companyhavinga share capital,hasto pass throughall the
fourstagesmentionedabove before itcancommence businessorexerciseanyborrowingpowers
(Section149).
These four stages are discussedas follow:
Promotion
The term ‘promotion’isatermof businessandnotof law.It isfrequentlyused inbusiness.Firstof all
the ideaof carryingon a businessisconceived bypromoters.Promotersare personsengagedin,one or
the otherway; inthe formation of a company.Next,the promotersmake detailedstudytoassessthe
feasibilityof the businessideaandthe amountof financial andotherresourcesrequired.Whenthe
promotersare satisfiedaboutpracticabilityof the businessidea,theytake necessary stepsfor
assemblingthe businesselementsandmakingprovisionof the funds required tolaunchthe business
enterprise.Lawdoesnotrequire anyqualificationforthe promoters.The promotersstandinafiduciary
positiontowardsthe companyaboutto be formed.

13. 1. A promotercannot be allowedtomake anysecretprofits.If anysecretprofitis made in violationof
thisrule,the companymay,on discoveringit,compel the promotertoaccountfor and surrendersuch
profit.
2. The promoterisnot allowedtoderive aprofitfromthe sale of hisownproperty
to the companyunlessall material factsare disclosed.If he contractstosell his ownpropertytothe
companywithoutmakingafull disclosure,the company mayeitherrescindthe sale oraffirmthe
contract and recoverthe profitmade outof itby the promoter.
3. The promotermustnot make an unfairor unreasonableuse of hispositionand musttake care to
avoidanythingwhichhasthe appearance of undue influence or fraud.
Promoter’sRemuneration
A promoterhasno rightto get compensationfromthe companyforhisservices inpromotingitunless
the company,afteritsincorporation,entersintoacontract with himforthispurpose.If allowed,
remunerationmaybe paidincash or partlyincash partlyin sharesanddebenturesof the company.
Promoter’sLiability
If a promoterdoes notdisclose anyprofitmade outof a transactionto which the companyis a party,
thenthe companymay sue the promoterand recoverthe undisclosedprofitwithinterest
PreliminaryContract: Preliminarycontractreferstothose agreementsor contracts enteredinto
betweendifferentpartiesonbehalf andforthe benefitof the companypriorto itsincorporation.
Promoter’sContracts
Preliminarycontractsare contractsmade on behalf of a companyyetto be incorporated.Followingare
some of the effectsof suchcontracts;
1. The company,whenitcomesintoexistence,isnotboundbyanycontract made onits behalf before
itsincorporation.A companyhasno status priorto its incorporation.
2. The companycannot ratifya pre-incorporationcontractandholdthe otherparty liable.Like the
company,the otherparty to the contract is alsonotboundby such a contract.
3. The agentsof a proposedcompanymaysometimesincurpersonal liabilityunder
a contract made onbehalf of the companyyetto be formed.
KelnervBexter A hotel companywasabout tobe formed andpromoterssignedanagreementforthe
purchase of stock on behalf of the proposed company.The companycame intoexistence but,before
payingthe price,wentinto liquidation.The promoterswere heldpersonallyliable tothe plaintiff.

14. Further,an agenthimself maynotbe able toenforce the contract againstthe otherparty. Sofar as
ratificationof apre-incorporationcontractisconcerned,acompany cannotratifya contract entered
intoby the promotersonitsbehalf before its incorporation.The reasonissimple,ratificationcanbe
done onlyif an agentcontracts fora principal whoisinexistence andwhoiscompetenttocontract at
the time of the contract bythe agent.
Incorporation
Thisis the secondstage of the companyformation.Itisthe registrationthat bringsa companyinto
existence.A companyislegallyconstitutedonbeingduly registeredunderthe Actandafterthe issue of
Certificate of Incorporationbythe Registrarof Companies.Forthe incorporationof acompanythe
promoterstake the followingpreparatorysteps:
Registrationof acompanyis obtainedbyfilinganapplicationwiththe Registrar of Companiesof the
State in whichthe registeredoffice of the companyistobe situated.The applicationshouldbe
accompaniedbythe followingdocuments:
1. Memorandumof associationproperlystamped,dulysignedbythe signatories
of the memorandumandwitnessed.
2. Ariticlesof Association,if necessary.
3. A copy of the agreement,if any,whichthe companyproposestoenterintowith
any individual forhisappointmentasmanagingorwhole-time directorormanager.
4. A writtenconsentof the directorstoact inthat capacity,if necessary.
5. A statutorydeclarationstatingthatall the legal requirementsof the Actpriorto
Incorporation hasbeencompliedwith.
The Registrarwill scrutinize these documents.If theRegistrarfindsthe document
to be satisfactory,heregistersthemand entersthe nameof thecompany in the Register
of Companiesand issuesa certificate called the certificate of incorporation (Section
34). The certificate of incorporation isthe birth certificate of a company.The
company comesinto existencefromthe datementioned in the certificate of
incorporation and thedateappearing in it is conclusive,even if wrong.Further,the
certificate is ‘conclusiveevidencethatall therequirementsof this Act in respect of

15. registration and mattersprecedentand related thereto havebeen fulfilled and thatthe
association is a company authorized to beregistered and duly registered underthis
Act
Certificate ofCommencementofBusiness:A publiccompany,havingashare capital and issuinga
prospectusinvitingthe publictosubscribe forshares,will have tofile afew documentswiththe
registrarwhoshall scrutinize themandif satisfiedwill issueacertificate tocommence business.
Memorandumof Association:
A Memorandumof Association(MOA) isalegal documentpreparedinthe formationandregistration
processof a limitedliabilitycompanytodefineitsrelationshipwithshareholders.The MOA isaccessible
to the publicanddescribesthe company'sname,physical addressof registeredoffice,namesof
shareholdersandthe distributionof shares.
Name Clause
The name clause requiresyoutostate the legal andrecognizedname of the company.Youare allowed
to registeracompanyname onlyif itdoesnot bearany similaritieswiththe name of anexisting
company.Your companyname mustendwiththe word "limited"because the preparationof anMOA is
a legal requirementforlimitedliabilitycompaniesonly.
RegisteredOffice Clause
The registeredofficeclause requiresyoutoshow the physical locationof the registeredoffice of the
company.You are requiredtokeepall the companyregistersinthisoffice inadditiontousingthe office
inhandlingall the outgoingandincomingcommunicationcorrespondence.Youmustestablisha
registeredoffice priortocommencingbusinessactivities.
Objective Clause
The objective clause requiresyoutosummarize the mainobjectivesforestablishingthe companywith
reference tothe requirementsforshareholdinganduse of financial resources.Youalsoneedtostate
ancillaryobjectives;thatis,those objectivesthatare requiredtofacilitate the achievementof the main
objectives.The objectivesshouldbe free of anyprovisionsordeclarationsthatcontravene lawsorpublic
good.
LiabilityClause

16. The liabilityclause requiresyoutostate the extenttowhichshareholdersof the companyare liable to
the debtobligationsof the companyinthe eventof the companydissolving.Youshouldshow that
shareholdersare liable onlytheirshareholdingand/ortotheircommitmenttocontribute tothe
dissolutioncostsuponliquidationof acompanylimitedbyguarantee.
Capital Clause
The capital clause requiresyoutostate the company'sauthorizedshare capital,the differentcategories
of sharesandthe nominal value (the minimumvaluepershare) of the shares.Youare alsorequiredto
listthe company'sassetsunderthisclause.
AssociationClause
The associationclause confirmsthatshareholdersboundbythe MOA are willinglyassociatingand
forminga company.Yourequire sevenmemberstosignanMOA for a publiccompanyand notlessthan
twopeople fora MOA of a private company.Youmustconduct the signinginthe presence of witness
whomust alsoappendhissignature.
IMPORTANCE OF MOA
The Memorandumof Associationcommandsaparamountimportance inthe processof establishment
and developmentof acompanyspeciallyinthe regardof the delegationanddemarcationof authorities
to respective individualswhoare connectedwiththe companysome wayorthe other.Inotherwords,it
ismeantto be a companycharter that enclosesinitself the essential conditionsbasedonwhichthe
companycouldbe convenientlycommencedandincorporated.Ithighlightsthe majorelementsthat
constitute the foundationof the companyandadumbratesitsscope beyondwhichthe companycould
not go.As for the purpose of the Memorandum, itisof twodimensions.The firstdimensioncomprises
the shareholderwhere ittellsthe shareholderthe fieldandscope of the companyand withthe helpof
that the shareholderdecidesthe suitabilityof hisinvestmentinthe company.The seconddimension
involvesanystakeholderof the company.The Memorandumtellsthesecompanieswhetherthe
objectivesthatthe respective stakeholderaimstoaccomplishwiththe helpof the companyare within
the realmof the company'sobjectivesornot.
Alterationof Memorandumof Association
Alterationof Memorandumof associationinvolvescompliance withdetailed
formalitiesandprescribedprocedure.Alternationstothe extentnecessaryforsimple
and fairworkingof the companywouldbe permitted.Alterationsshouldnotbe
prejudicial tothe membersorcreditorsof the comapanyandshouldnothave the effect
of increasingthe liabilityof the membersandthe creditors.

17. Contentsof the Memorandumof associationcanbe alteredasunder:
1. Change of name
A companymay change itsname by special resolutionandwiththe approval of
the Central Governmentsignifiedinwriting.However,nosuchapproval shall be
requiredwhere the onlychange inthe name of the companyisthe additionthere toor
the deletionthere from, of the word“Private”,consequentonthe conversionof apublic
companyintoa private companyor of a private companyintoa publiccompany.Byordinaryresolution.
If through inadvertence orotherwise,acompanyis registeredby aname which,inthe opinionof the
Central Government,isidentical with ortoonearlyresemblesthe name of anexistingcomapany,itmay
change its name by an ordinaryresolutionandwiththe previousapproval of the Central Government
signifiedinwriting. Registrationofchange ofname. Within30 dayspassingof the resolution,a
copy of the order of the Central Government’sapproval shallalsobe fieldwiththe
Registrarwithin3monthsof the order.The Registrarshall enterthe new name inthe
Registerof Companiesinplace of the formername andshall issue afreshcertificate
of incorporationwiththe necessaryalterations.The change of name shall be complete
and effective onlyonthe issue of suchcertificate.The Registrarshall alsomake the
necessaryalterationinthe company’smemorandumof association .
The change of name shall notaffectany rightor obligationsof the companyor
renderdefective anylegal proceedingbyoragainstit. (Sec.23).
2. Change of RegisteredOffice
Thismay involve :
a) Change of registeredoffice fromone place toanotherplace inthe same city,
townor village.Inthiscase,a noticesistobe give within30days afterthe date
of change to the Registrarwhoshall recordthe same.
b) Change of registeredoffice fromone towntoanothertowninthe same State.In
thiscase,a special resolutionisrequiredtobe passedata general meetingof
the shareholdersandacopy of it isto be filedwiththe Registrarwithin30days.

18. The within30 daysof the removal of the office.A notice hastobe giventothe
Registrarof the newlocationof the office.
c) Change of RegisteredOffice fromone State toanotherState to anotherState.
Section17 of the Act dealswiththe change of place of registeredoffice form one State toanotherState.
Accordingto it,a companymay alterthe provisionof its memorandumsoasto change the place of its
registeredoffice fromone State toanother State forcertainpurposesreferredtoinSec17(1) of the Act.
In additionthe following stepswill be taken.
Special Resolution
For effectingthischange aspecial resolutionmustbe passedanda copy there of mustbe filedwiththe
Registrarwithinthirtydays.Special resolutionmustbe passed inadulyconvenedmeeting.
Confirmationby Central Government
The alterationshall nottake effectunlessthe resolutionisconfirmedbythe
Central Government.
The Central Governmentbefore confirmingorrefusingtoconfirmthe change will considerprimarilythe
interestsof the companyanditsshareholdersandalso whetherthe change isbonafideandnotagainst
the publicinterest.The Central Governmentmaythenissue the confirmationorderonsuchtermsand
conditionsasit may thinkfit.
3. Alterationof the Object Clause
The Companymay alteritsobjectsonany of the grounds as mentioned
inSection17 of the Act.
The alterationshall be effectiveonlyafteritisapprovedbyspecial resolution of the membersingeneral
meetingwiththe CompaniesAmendmentAct,1996, for alterationof the objectsclause in
Memorandumof Associationssanctionof Central Governmentisdispensedwith.
Limits ofalteration of the ObjectClause
The limitsimposeduponthe powerof alterationare substantiveandprocedural.
Substantive limitsare providedbySection17whichprovidesthata companymay change itsobjects
onlyinso far as the alterationisnecessaryforanyof the followingpurposes:
i) to enable the companytocarry onits businessmore economicallyormore
effectively;

19. ii) toenable the companytoattain itsmainpurpose bynew or improvedmeans;
iii) toenlarge orchange the local areaof the company’soperation;
iv) to carry on some businesswhichunderexistingcircumstancesmayconveniently
or advantageouslybe combinedwiththe businessof the company;
v) to restrictor abandonanyof the objectsspecifiedinthe memorandum
vi) to sell ordispose of the whole,oranypart of the undertakingof the company;
vii) toamalgamate withanyothercompanyor bodyof persons.
Alterationsinthe objectsis tobe confinedwithinthe above limitsforotherwise
alterationinexcessof the above limitationsshall be void. A companyshall file withthe registrara
special resolutionwithinone month fromthe date of suchresolutiontogetherwithaprintedcopyof the
memorandumas altered.Registrarshall registerthe same andcertifythe registration.
Effectof non Registration withRegistrar
Anyalteration,if notregisteredshall have noeffect.If the documentsrequired tobe filedwiththe
Registrarare notfiledwithinone month,suchalterationandthe orderof the Central Governmentand
all proceedingsconnectedtherewithshall atthe expiryof suchperiodbecome voidandinoperative.The
Central Governmentmay,on sufficientcause show,revive the orderonapplicationmade withina
furtherperiodof one month[Sec.19]
4. Alterationof Capital Clause
The procedure forthe alterationof share capital andthe powerto make such alterationare generally
providedinthe Articlesof AssociationIf the procedure andpowerare notgiveninthe Articlesof
Associational,the companymustchange the articlesof associationbypassingaspecial resolution.If the
alterationisauthorizedby the Articles,the followingchangesinshare capital maytake place :
1. Alterationof share capital [Section94-95]
2. Reductionof capital [Section100-105]
3. Reserve share capital orreserve liability[Section99]
4. Variationof the rightsof shareholders[Section106-107]
5. Reorganizationof capital [Section390-391]
5. Alterationof LiabilityClause

20. Ordinarilythe liabilityclause cannotbe alteredsoasto make the liabilityof membersunlimited.Section
38 statesthat the liabilityof the memberscannotbe increasedwithouttheirconsent.Itlaysdownthata
membercannotbychangingthe memorandumorarticles,be made totake more sharesor to pay more
the sharesalready takenunlesshe agreestodoso inwritingeitherbefore orafterthe change.
A company,if authorizedbyitsArticles,mayalteritsmemorandumtomake the liabilityof itsdirectors
or managerunlimitedbypassingaspecial resolution.Thisrule appliestofuture appointeesonly.Such
alterationwill noteffectthe existingdirectors andmanagerunlesstheyhave accordedtheirconsentin
writing.[Section 323].
Section32 providesthata companyregisteredasunlimitedmayregisterunder
thisAct as a limitedcompany.The registrationof anunlimitedcompanyasa limited
companyunderthissectionshall notaffectanydebts,liabilities,obligationsorcontracts
incurredor enteredintobythe companybefore suchregistration..
General meaning of Articleof Association
The Articlesof Associationisadocumentthatcontainsthe purpose of the companyas well asthe duties
and responsibilitiesof its membersdefinedandrecordedclearly.Itisanimportantdocumentwhich
needstobe filedwiththe Registrarof Companies.
Definition according toCompanies Act 2013
“Articles”meansthe articlesof associationof acompanyas originallyframedorasalteredfromtime to
time (section2(5) )
A documentthatspecifiesthe regulationsforacompany'soperations.The articlesof associationdefine
the company'spurpose andlaysout how tasks are to be accomplishedwithinthe organization,including
the processfor appointingdirectorsandhow financialrecordswill be handled.
Articlesgenerallycontainprovisionrelatingtothe followingmatters;
the exclusion,whole orinpartof Table A;
share capital differentclassesof sharesof shareholdersandvariationsof these rights
executionoradoptionof preliminary agreements,if any;
allotmentof shares
lienonshares

21. callson shares;
forfeiture of shares;
issue of share certificates;
issue of share warrants;
transferof shares
transmissionof shares
alterationof share capital
borrowingpowerof the company
rulesregardingmeetings
votingrightsof members
notice to members
dividendsandreserves
accounts and audit;
arbitrationprovision,if any;
directors,theirappointmentand remuneration the appointmentandreappointmentof the managing
director,managerandsecretary fixinglimitsof the numberof directorspayment of interestoutof
capital
commonseal;
windingup.
Purpose of Article of Association
Articlesof Associationof acompanygovernsthe runningof a company;settingoutvotingrightsof
shareholders,conductof shareholders’anddirectors’meetings,powersof the management.The
articlescontainregulationsforthe internalaffairsandmanagementof the company(section5).
Alteration of AOA by SpecialResolution-Section 14

22. Companybyspecial resolutionaltersitsarticle includingalterationsof PublicCompanyintoPrivate
Companyor vice versa,foreffectingsuchconversionanapplicationshallbe filedinFormNo.INC27
withfee.Noalterationof convertingapubliccompanyintoprivate companyshall take effectunless
approvedbythe central government.
Alterationonce approvedbythe Central Government,the printedcopyof suchapproval shall be filedin
Form No.INC27 withRegistrarof Companywithinone monthof the date of receiptof the orderof
approval.
DEFINITION OF PROSPECTUS
Section2(36) definesaprospectusan“anydocumentdescribedasissued asaprospectusandincludes
any notice,circular,advertisementorotherdocument invitingdepositsfromthe publicorinviting
ordersfromthe publicforthe subscriptionorpurchase of any share in,or debenturesof,abody
corporate”.In simple words,aprospectusmaybe definedasan invitationtothe publicto subscribe toa
company’ssharesor debentures.Byvirtue of the AmendmentAct of 1974, any documentinviting
depositsfromthe publicshall alsocome within the definitionof prospectus.The word“Prospectus”
meansa documentwhichinvitesdepositsfromthe publicorinvitesoffersfromthe publictobuyshares
or debenturesof the company.
A documentwill be treatedasaprospectusonlywhenitinvitesoffers fromapublic.Accordingto
Section67 the term“public”isdefinedas,“Itincludes anysectionof the public,whetherselectedas
membersordebenture holdersof the companyconcernedoras clientsof the personissuingthe
prospectus orin anyother manner”.
OBJECTS OF PROSPECTUS
The main objectsof a prospectusare as follows:
1. To bringto the notice of publicthata new companyhasbeenformed.
2. To preserve anauthenticrecordof the termsof allotmentonwhichthe publichave beeninvitedto
but itssharesor debentures.
3. The secure that the directorsof the companyaccept responsibilityof the statementinthe prospectus.
REQUIREMENTS REGARDING ISSUE OF PROSPECTUS
The relevantrequirementsregardingissueof prospectusare givenbelow:
1. Issue after Incorporation
Section55 of the Act permitsthe issue of prospectusinrelationtoan intendedcompany.A prospectus
may be issuedbyor on behalf of the company.

23. a) By a personinterestedorengagedinthe formationcompanyor
b) Through an offerforsale bya persontowhomthe companyhasallotted shares.
2. Dating of Prospectus
A prospectusissuedbyacompanyshall be datedand thatdate shall be takenas the date of publication
of the prospectus(Section55).Date of issue of the prospectusmaybe differentfromthe date of
publication.
3. Registrationof Prospectus
A copyof everyprospectusmustbe deliveredtothe Registrarforregistration beforeitisissuedtothe
public.Registrationmustbe made onor before the date of its publication.The copysentforregistration
mustbe signedbyevery personwho isnamedinthe prospectusasa directoror proposeddirectorof
the companyor by hisagentauthorizedinwriting.Where the prospectusisissuedin more thanone
language,acopy of its as issuedineachlanguage shouldbe deliveredtothe registrar. Thiscopymustbe
accompaniedwiththe following documents:
a) If the reportof an expertisto be published,hiswrittenconsenttosuch publication;
b) a copyof everycontractrelatingtothe appointmentandremunerationof managerial personnel;
c) a copy of everymaterial contractunlessitisenteredinthe ordinary course of businessortwoyears
before the date of the issue of prospectus;
d) a writtenstatementrelatingtoadjustments;if any,made bythe auditorsor accountants intheir
reportsrelatingtoprofitsandlosses,assetsandliabilities orthe ratesof dividends,
e) writtenconsentof auditors,legal advisers,attorney,solicitor,bankeror brokerof the companyto act
inthat capacity.
A copyof the prospectusalongwithspecificdocumentsmustbeenfield withthe Registrar.The
prospectusmustbe issuedwithinninetydaysof itsregistration.
A prospectusissuedafterthe saidperiodshallbe deemedtobe a prospectus,acopyof whichhas not
beendeliveredtothe Registrarfor registration.
The company andeverypersonwhoisknowinglyapartyto the issue of prospectuswithoutregistration
shall be punishable withfinewhichmayextend tofive thousandrupees.
MIS-STATEMENT IN THE PROSPECTUS

24. A prospectusisaninvitationtothe publictosubscribe tothe sharesor debenturesof acompany.Every
personauthorizingthe issue of prospectushas a primaryresponsibilitytoseedthatthe prospectus
containsthe true state of affairsof the companyand doesnot give anyfraudulentpicture tothe public.
People investinthe companyonthe basisof the informationpublishedinthe prospectus.Theyhave to
be safeguardedagainstall wrongsorfalse statementsin prospectus.Prospectusmustgive afull,
accurate and a fairpicture of material factswithoutconcealingoromittinganyrelevantfact.
A statementincludedinaprospectusshall be deemedtobe untrue,if
• The statementismisleadinginthe formandcontextinwhichitisincluded;
and
• the omissionfromaprospectusof anymatter iscalculatedtomislead
(Section65).
If there is anymisstatementof amaterial factina prospectusasif the
prospectusiswantinginanymaterial fact,thismay arise-
1. Civil Liability
2. Criminal Liability
1. Civil Liability
A personwhohas inducedtosubscribe forshares(or debentures) onthe faithof a misleadingprospects
has remediesagainstthe company, directors,promoters,andexperts.Everypersonwhoisadirector
and promoterof the company,and whohas authorizedthe issue of the prospectus[Section(2)].
a) Compensation
The above personsshall be liable topaycompensationtoeveryperson
whosubscribesforanysharesor debenturesforanylossor damage sustainedby
himby reasonof any untrue statementincludedtherein[Section 62(1)].
In McConnelV.Wrightit hasbeen held thatthe measure
of the damagesisthe loss suffered by reason of theuntruestatement,omissions,
etc. the differencebetween thevalue which the shareswould havehad and the
true valueof the sharesat the time of the allotment.
b) Recessionofthe Contract for Misrepresentation

25. Avoidingthe contractisrecession.Anypersoncanapplytothe court for recessionof the contractif the
statementsonwhichhe hastakenthe sharesare false or causedbymisrepresentationwhether
innocentorfraudulent. The contractcan be rescindedif the followingconditionsare satisfied:
1) The statementmustba material misrepresentationof fact
2) It must have inducedthe shareholdertotake the shares.
3) The deceivedshareholderisanallottee andhe musthave reliedonthe statementinthe prospectus.
c) Damages for Deceitas Fraud
Anypersoninducedtoinvestinthe companybyfraudulentstatementina prospectuscan sue the
companyand person responsible fordamages.The share shouldbe firstsurrenderedtocompanybefore
the companyis usedfordamages
d) Liabilityfor non-compliance
A directoror otherpersonresponsible shall be liable fordamage fornoncompliance withor
contraventionof anyof the mattersto be statedandreports to be setout inthe prospectusas provided
[bySection56(41)].
e) Damages for Fraud underGeneral Law
Anypersonresponsible forthe issue of prospectusmaybe heldliable underthe general law orunder
the Act for misstatementsorfraud.
Defence against Criminal Liability
Anypersonmade criminallyliable canescape the same asprovingthat
the statementwastrue
statementwasimmaterial;or
he had a reasonable groundtobelieveanddid upto the time of the issue
Of prospectusthatthe statementwastrue [Section63(i)].
STATEMENT IN LIEU OF PROSPECTUS (SECTION70)

26. A companyhavinga share capital whichdoesnotissue a prospectusor whichhas issuedaprospectus
but hasnot proceededtoallotanyof the sharesofferedtothe publicforsubscription,shall notallotany
of itssharesor debentures,unlessatleastthree daysbefore the allotmentof sharesordebentures,this
has beendeliveredtothe Registrarforregistrationa‘statementinlieuof prospectus‘signed byevery
personwhoisnamedthereinasa directoror a proposed directorof the companyorby hisagent
authorizedinwriting,inthe formand containingthe particularssetoutinPart I of Schedule IIIand
settingoutthe reportsspecified inPartIIof Schedule IIIsubjecttothe provisionscontainedin PartIIIof
that Schedule (Section70).
COMMENCEMENTOF BUSINESS
A private companycan commence businessimmediatelyonitsincorporation.
A publiccompanyhasto, however,complywithcertainadditional formalities before itcancommence
itsbusiness. Itmayalsobe notedthatthe court has the powerto windupa company, if itdoesnot
commence itsbusinesswithinayearof itsincorporation