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THE INDIAN
PARTNERSHIP
ACT ,1932
PARTNERSHIP ACT &
COMPANY LAW
GROUP 3
THE INDIAN PARTNERSHIP ACT ,1932
The Indian Partnership Act was enacted in 1932.
 The Act came into force on 1st October,1932.
 Act extend to the whole of India except the state
of Jammu Kashmir.
 Before the passing of this act, the law relating to the
partnership was contained in chapter XI of the Indian
Contract Act, 1872 .
Chapter XI of the Act was not exhaustive, hence the
partnership act was enacted in 1932.
The Indian Partnership Act is mainly based on the
English Law.
 Many of the general principles of the contract in the
Indian Contract Act, continue to be applicable in
Partnership transactions such as fee consent, legality
of object etc.
DEFINITION OF PARTNERSHIP ACT
Section 4 para 1 of the Indian Partnership Act
1932, defines partnership as:
“Partnership is the relation between
persons who have agreed to share the
profits of a business carried on by all or
any of them acting for all”.
ESSENTIAL ELEMENTS OF A PARTNERSHIP
There must be a contract.
Between two or more persons.
Who agree to carry on business.
With the object of sharing profits.
The business must be carried on by all or
any of them acting for all.
PARTNERS
Persons entered into partnership individually.
Two essential conditions to be fulfilled by a person to
become a partner are:
(1) There must be an agreement to share the profits of
the business,
(2) the business must be carried on by all or any of the
partners acting for all.
FIRM
 Collectively a firm.
 A collective name for the members composing a
firm.
 A firm cannot be a partner in another firm.
 Under Law of Partnership, a firm has no legal
existence apart from its partners.
FIRM NAME
The name under which the business is carried.
 A firm name may be personal or impersonal,
singular or plural, imaginary or real, and need not
contain the name of any existing partner.
JOINT HINDU FAMILY BUSINESS
 Comes into existence as per the Hindu
Inheritance Act of India.
 This form of business found only in India.
 All members of the Hindu Undivided
Family(HUF) own the business jointly.
 The affairs of the business are managed
by head of the family called “Karta”. All
other members are called “coparceners”.
DIFFERENCE BETWEEN PARTNERSHIP AND
JOINT HINDU FAMILY BUSINESS
BASIS OF COMPARISON PARTNERSHIP JOINT HINDU FAMILY
BUSINESS
Mode of creation By operation of law No agreement is necessary
Acquisition of interest by male issue Partner does not acquire any
interest in the partnership
property by birth
The male issue acquires an
interest therein by birth
Dissolution by death Dissolved by the death of a
partner, in the absence of a
contract to contrary
Firm is not dissolved on the
death of any member
Admission of new members A new member can be
admitted with the consent of
other parties
A male child becomes a
member just by birth
Right to take part in
management
Every partner can take part in the
management
The Karta alone can take part
in the business
Implied authority Each partner has a implied
authority to bind his co-partners
debts incurred in the ordinary
course of business
Manager and no other
coparcener has the implied
authority to contract debts and
pledge the property for the
family business
Extent of liability Partners separate property
his share in the joint family
property is liable
Other members are liable only
to their extent
Minor members A minor cannot become a
in partnership but can admitted to
the benefits of partnership
A minor male becomes its
member merely by birth
Number of members 10 in case of members carrying on
business of banking and 20 for the
purpose of carrying on any other
business
Members unlimited in number
Share in the business Each partner has a definite
share by virtue of an agreement
between the partners
The shares of the coparceners
are defined only on partition
Types of Partnership
 General Partnership
 Limited Partnership
 Limited Liability Partnership
1. GENERAL PARTNERSHIP
 Involves two or more owners carrying out a business purpose.
 General partners share equal rights and responsibilities.
 Partnership profits are not taxed to the business, but pass
through to the partners.
 Eg: physicians who share office space
2. LIMITED PARTNERSHIP
 Allows each partner to restrict his or her personal liability to
the amount of his or her business investment
 At least one participant must accept general partnership
status
 The general partner retains the right to control the business, ,
while the limited partner(s) do(es) not participate in
management decisions
3. LIMITED LIABILITY PARTNERSHIP
 The limited liability partnership bill has been passed in
December, 2008
 Also known as LLPs
 Offer some personal liability protection to the participants
 Liability is limited to the amount which each partners
contribute towards the LLP
Registration of Partnership Firms
 The registration of the firm may be affected at any time by
filing an application in the form of a statement, giving the
necessary information, with the registrar of the firms of the
area.
 The application of the registration of a firm shall be
accompanied by the prescribed fee
 The statement shall be signed by all the partners or by their
agents specially authorized in this behalf [Sec. 58(1)]
Contents
It shall state:
(a) The name of the firm;
(b) The place or the principal place of business off the firm;
(c) The names of the places where the firm carries out the
business;
(d) The date when each partner joined the firm;
(e) The name in full and permanent address of the partners, the
duration of the firm.
Registration contd..
 When the registrar is satisfied that the above provisions have been duly
compiled with, he shall record an entry of the statement in the registrar of
Firms and file statement(Sec. 59).
 He shall then issue under his hand a certificate of registration.
 Registration is effective from the date when the registrar files the
statement and makes entries in the Register of Firms and not from the
date of presentation of the statement to him.
 Registration to a firm under Sec. 59 cannot be declined for the reason of a
company being s partner of the firm.
Effects of non-registration (Sec. 69)
 Suits between partners and firm. A person suing as a partner
of an unregistered firm cannot sues the firm or any partners
of the firm to enforce a right arising from a contract or
conferred by the Partnership Act.
 Suits between firm and third parties. An unregistered firm
cannot sue a third party to enforce a right arising from a
contract.
 Claim to set-off. An unregistered firm or any partner thereof
cannot claim a set-off.
Rights of Partners
 Right to take part in the conduct of the business.
 Right to be consulted.
 Right to access to books.
 Right to share the profits.
 Right to interest on capital.
 Right to interest on advances.
 Right to indemnity.
LIABILITY OF PARTNERS TO THIRD PARTIES
 Liability of a partner for acts of the firm.
 Liability of the firm for wrongful acts of a partner.
 Liability of the firm for misapplication by partners.
Liability of a partner for acts of the firm(sec. 25)
 Every partner is liable, jointly with all the other partners and
also severally, for all acts of the firm done while he is a
partner.
 As between the partners themselves, the partner paying for
more than his share of the liability may claim contribution
from the others according to the terms of the partnership
agreement
Liability of the firm for wrongful acts of a
partner(Sec. 26)
 Where, by the wrongful act or omission of a partner acting in
the ordinary course of the business of a firm, or with the
authority of his partners, loss or injury is caused to any third
party, or any penalty is incurred, the firm is liable therefore to
the same extend as the partner.
 The wrongful act may be tort, fraud, or negligence.
Liability of the firm for misapplication by
partners (Sec. 27).
Where
(a) A partner acting within his apparent authority receives money
or property from a third party and misapplies it.
(b) A firm in the course of its business receives money or
property from a third party, and the same is misapplied by any
of the partners while it is in the custody of the firm, the firm is
liable to make good the loss.
Liability of an incoming partner
A new partner becomes liable for the debts and acts of the firm only from the date he
is admitted as a partner.
He cannot be held liable for the acts of the old firm. A new partner may, however,
agree to be liable for the debts existing prior to his admission but such agreeing will
not give to a prior creditor the right to sue him because of absence of ‘privity of
contract.’
Dissolution of the Firm
Section. 39 provides that the dissolution of partnership between all the
partners of a firm is called ‘dissolution of the firm.’
Modes of dissolution
A firm may be dissolved in any one of the following ways:
 By Agreement.
 By Notice
 On the happening of certain contingencies
 Compulsory Dissolution
 Dissolution by the Court
Contd..
 By Agreement: A firm may be dissolved with the consent of all the partners
or in accordance with a contract between the partners. Partnership is
created by a contract, it can also be terminated by a contract.
 By notice: Where the partnership is at will, the firm may be dissolved by
any partner giving the notice in writing to all the other partners of his
intention to dissolve the firm. A notice of dissolution once given cannot be
withdrawn without the consent of all the other partners.
Contd..
 3. On the happening of certain contingencies: Subject to a contract
between the partners, a firm may be dissolved if:

 a.) If constituted for a fixed term, by the expiry of that term.
 b.) If constituted to carry out one or more adventures or undertakings,
by the completion thereof.
 c.) By the death of the partner.
 d.) By the adjudication of partner as an insolvent.
Contd..
 4. Compulsory Dissolution: A firm may be compulsorily dissolved if:

 (a) When all the partners, or all the partners but one, are adjudged
insolvent.
 (b) When some event has happened which makes it unlawful for the
business of the firm to be carried on.
contd..
 5. Dissolution by the Court: Dissolution by the court is necessitated when
there is a difference of opinion between the partners regarding the matter
of dissolution in cases of:
 (a) Insanity
 (b) Permanent Incapacity
 (c) Misconduct
 (d) Persistent breach of agreement
 (e) Transfer of interest
 (f) Just and Equitable
COMPANY ACT
Company
A company in the normal sense means an association of
persons united for the common object. Accordingly the term is used to
represent associations formed to carry on some business for profit or
to promote art, science, education or some charitable purpose.
Definition
According to section 3 (1) (i) of the companies Act, a company means,
“A company formed and registered under this Act or an existing
company.” An existing company means, “A company formed and
registered under any of the previous companies laws.
Characteristics of a company
1. Incorporated association
A company comes into existence on incorporation or registration
under the companies act. A joint stock company may be incorporated under
the act either as private or a public company. If not registered as a company
or under any other law, becomes an illegal association.
2. Separate legal entity
The main feature of a company is its independent corporate
existence. A company formed and registered under the companies act is a
distinct legal entity. Its personality is separate and distinct from personality of
those who compose it.
3. Limited liability
It is the reason why many people invest their money in limited
companies. Here the liability of the members is limited to such amount as the
members may undertake to contribute to the assets of the company , in the
event of its wounding up.
Contd..
4. Separate property
A company is a legal person and therefore it is capable of enjoying,
owning and disposing of property in its own name. the shareholders don’t
have any proprietary rights over the property of the company.
5. Perpetual succession:
A company never dies. It is not in any manner affected by insolvency
or death of any of its members. It continues to exist even if all its members
are dead. A company is created by a process of law and can be put an end to
only by a process of law.
6. Common seal:
As a company is an artificial person it cannot sign its name on a
contract. So it functions with the help of a seal. Common seal is used as a
substitute for its signature. Every company must have a seal with its name
engraved on it.
7. Transferability of shares:
The shares of a company are freely transferable and can be sold or
purchased in the share market.
Merits of company
 Large resources
 benefits of large scale operations
 Professional management
 Research and development
 Corporate personality
 Limited liability
 Perpetual succession
 Transferability of shares
 Separate property
Limitations
• Difficult to form
• Control by a Group
• Excessive Government Control
• Delay in Decision Making
• Incorporation and wind up formalities and expense
• Heavy fines, penalties and even imprisonment in case of non-compliance
of laws
• Too much disclosure in form of annual returns, intimation to stock
exchanges etc.
• Demutualization (separation of ownership and management)
• Greater tax burden as company has to pay tax on flat rates
• Greater social responsibility
Companies legal entity
 A company is an artificial person different for its members and directors. In the
eyes of law it has a separate corporate personality. It has its own corporate name. It
works under that name. In normal circumstances company cannot be considered as
agent or trustee of its members. Therefore members and directors of a company
cannot be held liable for any act of that company.

This concept is known as Corporate Veil. Means only company can be held liable
for an act done in the name of the company.
Contd..
But, as per company laws, a company can be created for lawful purpose only.
If a company is created for
 dishonest use
 fraudulent purpose
 unlawful purpose
 evading taxes
 any other purpose which is against the public interest
than law can identify the persons who are behind it and are responsible for
any fraud/unlawful act.
Company cannot work or think on its own. Its directors and members are its
mind and body. Therefore, company can’t do anything wrong own its own.
Thus, for any wrong act in the name of company, members/directors can be
held liable.
This concept is called “Lifting of Corporate Veil”.
In the following circumstances different courts found
it necessary to lift the corporate veil and punish the
actual persons who did wrong or unlawful acts under
the name of company:
Protection of Revenue The Court may ignore
the Separate Legal
Entity status of a
Company, where it is
used for tax invasion
or circumventing tax
obligation.
45
Determination of enemy
character of the Company
Company being an artificial
cannot be enemy or friend. But
during war, it may become
necessary to lift the corporate veil
and see the persons behind it to
determine whether they are
friends or enemy. This is due to
the reason that though a
enjoys Separate Legal Entity but
affairs are run by individuals.
46
Prevention of fraud
Where a Company is used for
committing frauds or improper
conduct, Court may lift the
veil and look at the realities of the
situation.
Avoidance of Welfare
Legislation
Where a Company tries to avoid its
legal obligations, the corporate veil
shall be lifted to look at the real
picture.
47
Company mere sham or
cloak
Where the Company is a mere sham
and was really a ploy used for
committing illegalities and to
people, the Court shall lift the
Corporate Veil.
Protection of public
policy
The Court shall lift the Corporate
without any hesitation to protect the
public policy and prevent transaction
opposed to public policy.
48
Where a Company acts as
an agent of its shareholders
If there is an arrangement
between the shareholders and a
Company to the effect that the
Company will act as agent of
shareholders for the purpose of
carrying on the business, the
business is essentially of that of
the shareholders and will have
unlimited liability.
To punish for contempt for
Court
Company being an artificial
cannot disobey the orders of the
Court. Therefore, the persons at
fault should be identified.
49
Difference between Partnership and Company
Basis Partnership Company
1. Formation It is easy to form
as registration is
not compulsory.
It requires many
legal formalities
to be completed
before the
company comes
into existence
2. Operation Governed by the
Partnership Act,
1932.
Governed by the
the Companies,.
Act, 1956.
50
3. Membership Minimum is two,
maximum is 10;
banking business
and 20 in other
business.
In case of Private
Company in
minimum is 2,
maximum is 50; and
in case of Public
company minimum
is 7 and there is no
maximum limit.
4. Legal Status No separate legal
entity.
Separate legal entity
from that of its
members.
5. Liability Joint and several to
unlimited extent.
Limited to the face
value held.
51
6. Management All or any one behalf of all
partners are entitled to
manage.
Board of Directors is
authorised to manage
7. Transfer of Shares Consent of all partners is
required.
Shares are freely
transferable
8. Existence Dissolves with the,
retirement, insanity of a
partner.
Perpetual existence;
unaffected death,
retirement, insolvency
etc. of the shareholders.
9. Finance Relatively limited scope for
raising finance.
Vast and unlimited
scope for raising finance.
52
Difference between Company and Joint Hindu Family
Company Hindu Undivided
Family
Membership Heterogeneous (Members
may belong to diff. family,
caste, religion, country
etc.)
Homogeneous
(Members belong to
same family)
Authority to
create debt
Company itself has
authority to create debt
through its agent subject to
the provisions.
Retains with Karta
only
Membership By virtue of contract By virtue of birth
Registration Compulsory under
Company Laws
Not compulsory
under any law
53
Kind Of companies
 Incorporated Companies: These are the association of persons who contribute
money to a common stock known as capital of the company. They have existence
independent of its members.
 Unincorporated Companies: These are the mere collection of persons who have
agreed to join in partnership to run a business and share the profits.
 Registered Companies: Companies registered under the Companies Act,1956, or
the earlier Companies Acts are called registered companies. Such companies come
into existence when they are registered under the Companies Act and a Certificate
of Incorporation is granted to them by the Registrar.
A company registered under the Act may
be:
 i. Companies limited by shares: In a company limited by shares the liability
of the members is limited by the memorandum to the amount, if any,
unpaid on the shares respectively held by them.
 ii. Companies limited by guarantee: It is a registered company public or
private, in which the liability of members is limited to such amounts as
they may respectively undertake by the memorandum to contribute to the
assets of the company in the events of its being wound up.
 iii. Unlimited Companies: A company not having any limit on the liability of
its members is termed as unlimited company.
Contd..
 Private company: According to Section 3(1)(iii) of the Companies
(Amendment)Act,2000, a private company means a company which:
 (a) has a minimum paid up capital of one lakh rupees or such higher
amount as may be prescribed by the Government;
 (b) has a minimum of 2 and maximum of members excluding employees;
 (c) restricts the right of members to transfer its shares , if any;
 (d) prohibits any invitation to the general public to subscribe for its shares
or debentures;
 (e) does not invite the public to subscribe to its deposits.
 E.g.:- Ambika Industries Pvt. Ltd., Paras Pharmaceutical Pvt. Ltd. etc.
Contd..
 Public Company: According to Section 3(1)(iv) of the Companies
(Amendment)Act,2000, a public company means a company which:
 (a) is not a private company; and
 (b) has a minimum paid up capital of five lakh rupees or such higher
amount as may be prescribed by the Government.
 E.g.:-Reliance Industries Ltd., Tata Iron & Steel Co. Ltd., D.C.M. Ltd., etc.
Besides all these companies there are few more
kinds of Companies:
 Government Companies: It is a company of which 51% or more equity
share capital is held by the Government. Rest of the shares can be held by
private individuals or businessmen.
 Foreign Companies: It is incorporated outside India but has a place of
business in India. Some of the popular MNCs operating in India are Coca
Cola(USA), Pepsi Cola(USA), Sony(Japan),etc.
Brief Description Private Limited Company Public Limited Company
Meaning Minimum Capital : Rs. 100000
Right to transfer the shares:
Restricted
Minimum Capital : Rs. 500000
Subsidiary of a Public Co. is
deemed to be a public Co
Small Company If Paidup Share Capital does not
exceed Rs. 50 Lakhs and Turnover
as per Last Audited
accounts does not exceed Rs. 2
Crore
Not Applicable
Minimum Members Required 2 (Two),Maximum 200 (Two
Hundred)
7 (Seven)
Name of the Company “Private Limited” as Last Word “Public Limited” as Last Word
Provision of entrenchment in
the Articles
To be agreed and approved by all
the Members
To be agreed and approved
through a Special Resolution
Issue of Securities By way of Right Issue or Bonus
Issue Through Private Placement
To Public through Prospectus
(“Public Offer”)By way of Right
Issue or Bonus Issue Through
Private Placement
Brief Description Private Limited Company Public Limited Company
Public Offer to be in
Dematerialised Form
Not Applicable In case of public offer of
securities, the securities have to
be in Dematerialised Form
Securities in Public Offer to be
listed in Stock exchanges
Not Applicable Securities offered in Public
Offer, to be listed in Recognised
Stock Exchanges
Purchase / Loan for Purchase
of Own Shares
Not allowed to Purchase its own
Shares
Not allowed to Purchase its own
Shares; No Financial assistance
to be given to purchase its own
shares
Acceptance of Deposits Not allowed to accept deposit Allowed if Paid up share capital
is Rs. 100 Crore or more
orTurnover of Rs. 500 Crore or
More
Quorum of Meetings Two members personally
present
Five in case of Members upto
1000;Fifteen in case of
Members more than 1000, upto
5000;Thirty in case of Members
exceed 5000.
Brief Description Private Limited Company Public Limited Company
Internal Audit Applicable in case of :1.
Turnover >= Rs. 200 Crore in
preceding financial year,OR2.
Loans from bank or NBFCs >=
Rs. 100 Crore in preceding
financial year
Applicable in case of :1. Paid Up
Capital >= Rs. 50 Crore in the
preceding financial year,
OR
2. Turnover >= Rs. 200 Crore in
preceding financial year,OR
3. Loans from bank or NBFCs
>= Rs. 100
Crore in preceding financial
year, OR
4. Public Deposit >= Rs. 25
Crore in preceding financial year
Annual Evaluation in the
Board’s Report
Not Applicable If Paid up share capital is Rs. 25
Crore or more, the details of
annual evaluation in the Board’s
Report
Rotation of Auditor Applicable in case of Paid up
Capital is Rs. 20
Crore or more
Applicable in case of Paid up
Capital is Rs. 10 Crore or more
Brief Description Private Limited Company Public Limited Company
No. of Directors and
Independent Directors
2 (Two);Not required to appoint
independent director
3 (Three); andIn case of isted
Companies, at least OneThird as
independent directors
Retirement by rotation –
Appointment of Director
Not Applicable At least two third of total no. of
directors be liable to retire by
rotation and eligible of being
reappointed in AGM
Contract of Employment with
Managing Director / Whole
Time Director
Not Required (Optional) Compulsorily Required
Restriction on Managerial
Remuneration
No restriction on amount of
managerial remuneration
Managerial Remuneration
is:Restricted to 11% of Net
profit (subject to conditions);
ORat least Rs. 30 lakh p.a.
depending upon paid up
Capital
Formation of Company
1. Obtain Digital Signatures
2. 2. Obtain Director Identification Number [Section 153]
3. Name availability for proposed company
4. Preparation of the Memorandum of Association (MOA) and
Articles of Association (AOA)
5. Application for incorporation of a company
Memorandum of association
 As per Section 2(56) of the Companies Act,2013 “memorandum” means the
memorandum of association of a company as originally framed or as altered from
time to time in pursuance of any previous company law or of this Act.
 Section 4 of the Companies Act,2013 deals with MOA. The Memorandum of a
company shall contain the following;
 The Name clause
 Situation clause
 Object clause
 Liability clause
 Capital clause
Form of Memorandom
S.No Table Form
1 Table
A
MOA of a company limited by shares
2 Table
B
MOA of a company limited by guarantee and not having share
capital
3 Table
C
MOA of a company limited by guarantee and having share
capital
4 Table
D
MOA of an unlimited company and not having share capital
5 Table
E
MOA of an unlimited company and having share capital
Articles of association
 As per Section 2(5) of the Companies Act,2013 “articles” means the articles of
association of a company as originally framed or as altered from time to time or
applied in pursuance of any previous company law or of this Act.
 Section 5 of the Companies Act,2013 deals with AOA.
 The articles of a company shall contain the regulations for management of the
company.
 The articles shall also contain such matters, as may be prescribed.
 It shall be not prevent a company from including such additional matters in its
articles as may be considered necessary for its management.
 Provisions for Retrenchment
 Notice to Registrar
Form of Articles of association
S.N
o
Table Form
1 Table
F
AOA of a company limited by shares
2 Table
G
AOA of a company limited by guarantee and having share
capital
3 Table
H
AOA of a company limited by guarantee and not having share
capital
4 Table
I
AOA of an unlimited company and having share capital
5 Table
J
AOA of an unlimited company and not having share capital
Prospectus
 Clause (70) of Section 2 of this Bill define “prospectus” means 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.
 Section 26 deals with matters to be stated in prospectus.
MATTERS TO BE STATED IN PROSPECTUS
(SECTION 26):
 A prospectus may be issued by or behalf of a public company either with reference
to its formation or subsequently, or by or on behalf of any person who is or has
been engaged or interested in the formation of a public company.
Information in Prospectus:
 Every prospectus shall state following information:-
 i. names and addresses of the registered office of the company, company
secretary, Chief Financial Officer, auditors, legal advisers, bankers, trustees, if any,
underwriters and such other persons as may be prescribed;
 ii. dates of the opening and closing of the issue, and declaration about the
issue of allotment letters and refunds within the prescribed time;
 iii. a statement by the Board of Directors about the separate bank account
where all monies received out of the issue are to be transferred and disclosure of
details of all monies including utilised and unutilised monies out of the previous
issue in the prescribed manner;
 iv. details about underwriting of the issue;
 v. consent of the directors, auditors, bankers to the issue, expert’s opinion, if
any, and of such other persons, as may be prescribed;
 vi. the authority for the issue and the details of the resolution passed there
for;
Contd..
 vii. procedure and time schedule for allotment and issue of securities;
 viii. capital structure of the company in the prescribed manner;
 ix. main objects of public offer, terms of the present issue and such other particulars as may
be prescribed;
 x. main objects and present business of the company and its location, schedule of
implementation of the project;
 xi. particulars relating to—
1. management perception of risk factors specific to the project;
2. gestation period of the project;
3. extent of progress made in the project;
4. deadlines for completion of the project; and
5. any litigation or legal action pending or taken by a Government Department or a statutory body
during the last five years immediately preceding the year of the issue of prospectus against the promoter
of the company;
 xii. minimum subscription, amount payable by way of premium, issue of shares otherwise than
on cash;
 xiii. details of directors including their appointments and remuneration, and such particulars of
the nature and extent of their interests in the company as may be prescribed; and
 xiv. Disclosures in such manner as may be prescribed about sources of promoter’s contribution
Reports with prospectus
 i. Reports by the auditors of the company with respect to its profits and losses
and assets and liabilities and such other matters as may be prescribed;
 ii. Reports relating to profits and losses for each of the five financial years
immediately preceding the financial year of the issue of prospectus including such
reports of its subsidiaries and in such manner as may be prescribed. Where
company has not completed five financial years than such report for all financial
years is required.
 iii. Reports made in the prescribed manner by the auditors upon the profits
and losses of the business of the company for each of the five financial years
immediately preceding issue and assets and liabilities of its business on the last
date to which the accounts of the business were made up, being a date not more
than one hundred and eighty days before the issue of the prospectus. Where
company has not completed five financial years than such report for all financial
years is required.
 iv. Reports about the business or transaction to which the proceeds of the
securities are to be applied directly or indirectly.
Declaration of Compliance:
 Every prospectus shall make a declaration about the compliance of the provisions
of this Act and a statement to the effect that nothing in the prospectus is contrary
to the provisions of this Act, the Securities Contracts (Regulation) Act, 1956 and the
Securities and Exchange Board of India Act, 1992 and the rules and regulations
made there under.
Other matters in Prospectus:
 Clause (d) of Sub – section (1) of section 26 give unlimited power to central
government to list other matters and set out other reports to be included in a
prospectus
Delivery of Prospectus with Registrar:
 A copy of prospectus shall be delivered to the Registrar for registration signed by
every person who is named as a director or proposed director of the company or
by his duly authorised attorney on or before the date of its publication and only
then it shall be issued by or on behalf of a company or in relation to an intended
company.
Statement of an Expert:
 A statement made by an expert shall be included only if expert is or was engaged or
interested in the formation or promotion or management of the company and has
given his written consent to the issue of the prospectus.
 Such consent of expert must not be withdrawn by his before the delivery of prospectus
to the Registrar for registration and a statement to that effect shall be included in the
prospectus.
 Every prospectus issued shall state that a copy has been delivered to the Registrar and
specify attached documents.
 The registrar shall not register a prospectus all requirements has been complied with
and the prospectus is accompanied by the consent in writing of all the person named in
the prospectus.
 Prospectus shall not be valid if it is issued more than ninety days after the date on which
a copy thereof delivered to the Registrar.
Caution:
 If a prospectus is issued in contravention of the provisions of section 26, the
company shall be punishable with fine which shall not be less than fifty thousand
rupees but which may extend to three lakh rupees and every person who is
knowingly a party to the issue of such prospectus shall be punishable with
imprisonment for a term which may extend to three years or with fine which shall
not be less than fifty thousand rupees but which may extend to three lakh rupees,
or with both
VARIATION IN TERMS OF CONTRACT OR
OBJECTS IN PROSPECTUS (SECTION 27):
 A company may vary the terms of a contract refered in the prospectus or object for
which the prospectus was issued, only under approval or authority given by way of
special resolution.
Requirement in Deemed Prospectus
(Section 25):
 Section 26 as applied by Section 25 shall have effect as if —
1. it required a prospectus to state in addition to the matters required by section 26
to be stated in a prospectus—
i. the net amount of the consideration received or to be received by the company in
respect of the securities to which the offer relates; and
ii. the time and place at which the contract where under the said securities have
been or are to be allotted may be inspected;
2. the persons making the offer were persons named in a prospectus as directors of
a company.
STATEMENT IN LIEU OF PROSPECTUS
 Similar to actual prospectus but without the invitation to the public for subscribing
to the shares of the company
 Prepared when a company issues shares by private placement.
 Prepared for the purpose of record, and it is filed with the Registrar of Companies
before allotment of share.
 The prospectus contains a summary of the past, present and prospects of the
company
 The prospectus expressly invites the public to buy shares issued by the company
 It is the basis of share issue. The contents of prospectus are considered legal
evidence in the event of dispute between share holder and the company.
 A misleading clause in the prospectus will be taken seriously by the courts.
Contents of the Prospectus
1. Name of company and location of the registered office of the company
2. Main objects of the company
3. The number and classes of the shares to be issued
4. Names and addresses of the directors, managing director their qualification shares.
5. Provisions regarding the remuneration of directors
6. The minimum subscription to be raised by share issue
7. The amounts payable on application, allotment for each class of shares
9. Rights, privileges and restrictions each class of shareholders
10. Underwriters to the issue
11. Merchant bankers to the issue
12. Registrars to the issue
 The supreme executive authority controlling the management and affairs
of a company vests in the team of directors of the company, collectively
known as its Board of Directors.
 .Section 2 (10) of the Companies Act, 2013 defined that “Board of
Directors” or “Board”, in relation to a company, means the collective body
of the directors of the company.
 Companies Act, 2013 has brought in the concept of Key Managerial
Personnel
MANAGEMENT OF COMPANIES
DIRECTORS OF COMPANY
 An appointed or elected member of the board of directors of a company.
 He has the responsibility for determining and implementing the company’s policy.
 Directors derive their powers emanating from board resolutions.
 Unlike shareholders, directors cannot participate through proxy.
 Unlike employees, cannot absolve themselves of their responsibility for the
delegated duties
Number of Directors
Section 149(1) of the Companies Act, 2013 requires that every company shall have a
 minimum number of 3 directors in the case of a public company,
 two directors in the case of a private company, and
 one director in the case of a One Person Company.
 A company can appoint maximum 15 fifteen directors.*
Duties of directors
 Companies Act 1956 did not contain any provisions that specifically identified the duties
of directors. Companies Act 2013 has set out the following duties of directors:
 To act in accordance with company's articles;
 To act in good faith to promote the objects of the company for benefit of the members
as a whole, and the best interest of the company, its employees, shareholders,
community and for protection of the environment;
 Exercise duties with reasonable care, skill and diligence, and exercise of independent
judgment;
The director is not permitted to:
 Be involved in a situation in which he may have direct or indirect interest that conflicts,
or may conflict, with the interest of the company;
 Achieve or attempt to achieve any undue gain or advantage, either to himself or his
relatives, partners or associates.
COMMITTEES OF THE BOARD
Companies Act 2013 envisages 4 (four) types of committees to be constituted by the
board:
 AUDIT COMMITTEE: Under Companies Act 1956, public companies with a paid up
capital in excess of Rs 50,000,000 (Rupees fifty million only) were required to set up an
audit committee comprising of not less than 3 (three) directors
 NOMINATION AND REMUNERATION COMMITTEE: The committee has the task of
identifying persons who are qualified to become directors and provide
recommendations to the board regarding their appointment and removal, as well as
carry out their performance evaluation.
 STAKEHOLDERS RELATIONSHIP COMMITTEE: Companies Act 2013 requires every
company having more than 1000 (one thousand) shareholders, debenture holders,
deposit holders and any other security holders at any time during a financial year to
constitute a stakeholders relationship committee to resolve the grievances of security
holders of the company.
 Companies Act 2013 however, requires certain companies to constitute a CSR
Committee, which would be responsible to devise, recommend and monitor CSR
initiatives of the company. The committee is also required to prepare a report
detailing the CSR activities undertaken and if not, the reasons for failure to comply.
Key Managerial Personnel
“key managerial personnel”, in relation to a company, means—
 the Chief Executive Officer or the managing director or the manager;
 the company secretary;
 the whole-time director;
 the Chief Financial Officer; and
 such other officer as may be prescribed;
BOARD MEETINGS AND PROCESSES
 First board meeting of a company to be held within 30 (thirty) days of
incorporation
 Notice of minimum 7 (seven) days must be given for each board meeting
 Companies Act 2013 has permitted directors to participate in board meetings
through video conferencing or other audio visual means which are capable of
recording and recognising the participation of directors.
Meeting
Members
Meeting
Annual General
Meeting
Extra Ordinary
General Meeting
Class Meeting
ANNUAL GENERAL MEETING (AGM) (Sec.
96)
1. Annual general meeting should be held once every year.
2. First annual general meeting 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.
3. Subsequent annual general meeting of the company should be held within 6
months from the closing of the financial year.
4. The gap between two annual general meetings should not exceed 15 months.
EXTRA ORDINARY GENERAL MEETING
 By Board [Section 100 (1)]
The Board may, whenever it deems fit, call an extraordinary general meeting of the
company.
 (II) By Board on requisition [Section 100 (2)]
The Board must call an extraordinary general meeting on receipt of the requisition
 (III) By requisitionists [Section 100(4)]
If the Board does not within 21 days from the date of receipt of a valid requisition in
regard to any matter, proceed to call a meeting for the consideration of that matter on a
day not later than 45 days from the date of receipt of such requisition
 (IV) By Tribunal [Section 98 (not yet enforced)]
Section 98 provides that if for any reason it is impracticable to call a meeting of a
company or to hold or conduct the meeting of the company, the Tribunal may, either suo
motu or on the application of any director or member of the company who would be
entitled to vote at the meeting
NOTICE OF THE MEETING
 A general meeting of a company may be called by giving not less than 21 clear
days’ notice either in writing or through electronic mode. Notice through electronic
mode shall be given in such manner as may be prescribed.
 Short notice
A general meeting may be called after giving a shorter notice also if consent is
given in writing or by electronic mode by not less than 95% of the members entitled
to vote at such meeting.
 CONTENTS OF NOTICE
 Place of meeting
 Day of meeting
 Time of meeting
 Agenda
 Proxy clause with reasonable prominence
Quorum for Meetings
 Public company:
 5 members personally present if the number of members as on the date of meeting is
not more than 1000;
 15 members personally present if the number of members as on the date of meeting is
more than 1000 but up to 5000;
 30 members personally present if the number of members as on the date of the meeting
exceeds 5000.
 Private Company
 2 members personally present, shall be the quorum for a meeting of the company.
Ordinary and Special Resolutions
Section 114 provides with regard to Ordinary and Special Resolution
 Ordinary Resolution
A resolution shall be an ordinary resolution if the notice has been duly given and it is
required to be passed by the votes cast, in favour of the resolution, including the casting
vote, if any, of the Chairman, exceed the votes, if any, cast against the resolution.
 Special Resolution
A resolution shall be a special resolution when:
a) the intention to propose the resolution as a special resolution has been duly specified in
the notice calling the general meeting or other intimation given to the members of the
resolution;
b) the notice required under this Act has been duly given; and
c) the votes cast in favour of the resolution, are required to be not less than 3 times the
number of the votes, if any, cast against the resolution.
Contd..
 Resolutions requiring Special Notice
Section 115 provides that where, by any provision contained in this Act or in the
articles of a company, special notice is required of any resolution, notice of the
intention to move such resolution shall be given to the company by such number of
members holding not less than 1% of total voting power or holding shares on which
such aggregate sum not exceeding Rs.5,00,000/- as may be prescribed has been paid-
up and the company shall give its members notice of the resolution in the following
manner as prescribed in Rules.
 Resolutions passed at Adjourned Meeting (Section 116)
As per Section 116 where a resolution is passed at an adjourned meeting of a company; or the
holders of any class of shares in a company; or the Board of Directors, the resolution shall be
treated as passed on the day it was actually passed and not on any earlier date.
Account
 The companies are required to keep proper books of account in respect of
a) All sums of money received & expanded by the company
b) All sales & purchases of goods by the company
c) The assets & liabilities of the company
d) In case of company engaged in production, manufacturing processing or mining
activities particulars related as prescribed by govt.
 Cash flow statement is mandatory part Of Financial statements
 Shareholders to receive accounts not less than 21 days before the date of meeting
 Reopening and Recasting Of books Of accounts Of Company on an application by
Central Government, Income Tax, SEB' or Other statutory / regulatory authority
 Voluntary revision of financial statements or Boards report
Auditors
 Mandatory auditor rotation for listed and other prescribed companies every 5 years
 Members Of a company may resolve to provide that in the audit firm appointed by
it, the auditing partner and his team shall be rotated at such intervals as may be
specified in the resolution
 Auditor will be required to immediately report to the central movement upon
reasonable suspicion Of any offence involving fraud
Winding Up of a Company
 Winding up of a company is the process whereby its life is ended i.e. , the company
dissolved and its property administered for the benefit of its creditors and
members.
 Modes of Winding up - According to sec. 270 of the companies Act 2013, the
procedure for winding up of a company can be initiated either -
i. By the tribunal or,
ii. Voluntary
Winding up by a tribunal
 As per new Companies Act 2013, a company can be wound up by a tribunal on the
basis of following reasons:
1. Unable to pay debts
2. If the company has by special resolution resolved that the company would be
wound up by the tribunal.
3. Acted against the interest of the integrity or morality of India, security of the
state, or has spoiled any kind of friendly relations with foreign or neighbouring
countries.
4. Not filled financial statements for preceding 5 consecutive years.
5. If the tribunal by any means finds that it is just & equitable that the company
should be wound up.
6. Indulged in fraudulent activities or any unlawful business, or any person or
management connected with the formation of company is found guilty of
fraud, or any kind of misconduct.
Filling of winding up petition
Sec. 272 provides that a petition is to be filed in the prescribed format and is to be
submitted in 3 sets by any of the following persons:
1. The company
2. The creditors
3. Any contributories
4. By the central or state govt.
5. By the registrar of any person authorized by central govt.
After preparing the statement it shall be certified by a practising Chartered
Accountant.
Final order and its content
The tribunal after hearing the petition has the power to
dismiss it or to make an interim order as it think
appropriate or it can appoint the provisional liquidator
of the company till the passing of winding u order.
KINGFISHER AIRLINES
• established in 2003
• started operations on 9 may 2005
• started international operations on 3 Sep. 2008
• placed aggressive plane orders
• received numerous awards and accolades
• returns went down
• flights suspended on Oct. 2012
• license revoked on Feb. 2013
• lenders took control of the remaining assets
• creditors failed to get the buyers in auction
• Bangalore HC ordered winding up on Nov. 19, 2016
• owes more than $1 billion to Indian banks
• Recently, the State Bank of India wrote off ₹ 7000 crore in loans
2.Voluntary winding up
Can be wound up voluntarily by the mutual decision of members
of the company, if:
• Co. passes a special resolution.
• Expiry of the period of its duration as fixed by its Articles of
Association
• occurrence of any event where the articles provide for
dissolution of company.
Procedure for voluntary winding up
1. Conduct a board meeting with two directors and thereby pass a resolution that
company has no debt
2. Call for a general meeting.
3. In general meeting, either pass the ordinary resolution by ordinary majority or
special resolution by 3/4th majority.
4. Meeting of creditors after passing the resolution, if majority opine wounding up is
beneficial then it can be wounded up voluntarily.
5. Within 10 days of passing the resolution, file a notice to the registrar for
appointing liquidator.
6. Within 14 days of passing the resolution, a notice in the official gazette and
advertise in newspaper.
7. Within 30 days of general meeting, file certified copies of resolution.
Contd..
8. Wind up affairs of the co. and prepare the liquidators account and get the same
audited.
9. Conduct a general meeting of the company.
10. Pass a special resolution for disposal of books and all necessary documents of the
co.
11. Within 15 days of final general meeting, submit a copy of accounts and file an
application to the tribunal for passing order of dissolution.
12. If tribunal is satisfied, he shall pass the order within 60 days of receiving such
application.
13. Appointed liquidator then file a copy of order with registrar.
14. The registrar then publish a notice in the official gazette declaring that the co. is
dissolved.
Types of voluntary winding up :
 Types of Voluntary Winding up - Voluntary winding up may be of two types,
namely,
a) Members’ voluntary winding up ;
b) Creditors’ voluntary winding up.
A) Members’ Voluntary Winding up - Members’ voluntary winding up is possible only
in case of solvent companies.
1) DECLARATION OF SOLVENCY (S448)–
 The directors must enquire whether the company will be able to able to pay all its debts
within the period of 3 years.
 In order to be effective, this declaration must be made within 5 weeks immediately
preceding the date of passing of the winding up resolution by the members;
 delivered to the Registrar for filing ; and
 must be accompanied by a copy of the report of the auditors of the company on the
accounts and balance sheet.
 Appointment and remuneration of liquidators: (S492) the company in general
meeting must:
a) appoint one or more liquidators
b) fix the remuneration
Any remuneration so fixed cannot be increased in any circumstances whatever,
whether with or without the sanction of the court. No liquidator shall charge of his
office unless his remuneration is fixed.
 Board’s power to cease: (S491)on the appointment of the liquidators all the powers
of the directors cease but their powers may continue if the general body or the
liquidator sanctions it.
 Notice of the appointment of the liquidator to be given to the
registrar(S493):within 10 days of his appointment .otherwise Rs.1000 fine per day.
 Power of liquidator to accept shares, etc., as consideration of sales of property of
the company(S497):
 Duty of liquidator to call creditors meeting in case of insolvency S495 : if the
liquidator finds that the company will not be able to pay its debts he should tell it
to the creditors with all records.
 Duty of liquidator to call general meeting at the end of each year(S496): In case the
winding takes more then one year the liquidator must call a general meeting and
tell the acts and winding operations done by him.
 Final meeting and dissolution(S497): the liquidator must(a)make up an account of
the winding up showing how the company has been disposed of (b)call the general
meeting of the company for laying the account before it as well as explanations.
B) Creditors Voluntary
Winding Up :-
 Creditors’ voluntary winding up -
Where the Board of directors does not file a declaration as to solvency of
the company, the voluntary winding up is called ‘ the Creditors voluntary
winding up.
 - if the members and creditors nominate two different persons as
liquidators creditors nominee shall become the liquidator of the company.
 - Besides, in the case of creditors winding up if the creditors so wish a
committee of inspection ‘ may be appointed to work along with the
liquidator's.
 Notice to registrar: A company of any resolution passed at the creditors
meeting must be filed with the registrar within 10 days of the passing
thereof. otherwise fine of 500 Rs per day(S501).
 Appointment of liquidator: (S502) the creditors and the members at their
respective first meeting may nominate a person to be liquidator but
should take the board of directors into considerations.
 Committee of inspection(S503): The creditors at their first or any
subsequent meeting, appoint a committee of inspection of not more than
5 members.
 Fixing of liquidator’s remuneration(S505): the remuneration of the
liquidator is fixed by the committee of inspection.
 Board’s power to cease on appointment of liquidator(S505): all the powers of the
directors should go to the liquidator.
 Duty of liquidator to call meeting of company and creditors at the end of each
year[S508]: within 3 months from the end of the year.
 Final meeting and dissolution [S509]
Voluntary winding up under supervision of the
court :
A voluntary winding up may be effected under supervision of
the Court where an application to that effect is made by a
creditor or a contributory or the company or the liquidator and
the Court makes an order that the voluntary winding up should
continue subject to the supervision of the Court.
Such an order is passed by the Court where
(i) the resolution for winding up was obtained by fraud, or
(ii) the rules relating to the winding up order have not been
observed, or
(iii) the liquidator is prejudicial or is negligent in collecting the
assets.
The Court is also empowered under the section 527 to make an
order for compulsory winding up superseding the order of
winding up under its supervision.
Contributory :
 Contributory - the term ‘ contributory ‘ is defined under section 428 to mean every
person liable to contribute to the assets of a company in the event of its being
wound up.
 The expression includes the holder of any shares which are fully paid up.
 A past member shall however be not liable to contribute if he ceased to be a
member for one year or more before the commencement of the winding up.

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Partnership act & company law

  • 3. THE INDIAN PARTNERSHIP ACT ,1932 The Indian Partnership Act was enacted in 1932.  The Act came into force on 1st October,1932.  Act extend to the whole of India except the state of Jammu Kashmir.
  • 4.  Before the passing of this act, the law relating to the partnership was contained in chapter XI of the Indian Contract Act, 1872 . Chapter XI of the Act was not exhaustive, hence the partnership act was enacted in 1932.
  • 5. The Indian Partnership Act is mainly based on the English Law.  Many of the general principles of the contract in the Indian Contract Act, continue to be applicable in Partnership transactions such as fee consent, legality of object etc.
  • 6. DEFINITION OF PARTNERSHIP ACT Section 4 para 1 of the Indian Partnership Act 1932, defines partnership as: “Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all”.
  • 7. ESSENTIAL ELEMENTS OF A PARTNERSHIP There must be a contract. Between two or more persons. Who agree to carry on business. With the object of sharing profits. The business must be carried on by all or any of them acting for all.
  • 8. PARTNERS Persons entered into partnership individually. Two essential conditions to be fulfilled by a person to become a partner are: (1) There must be an agreement to share the profits of the business, (2) the business must be carried on by all or any of the partners acting for all.
  • 9. FIRM  Collectively a firm.  A collective name for the members composing a firm.  A firm cannot be a partner in another firm.  Under Law of Partnership, a firm has no legal existence apart from its partners.
  • 10. FIRM NAME The name under which the business is carried.  A firm name may be personal or impersonal, singular or plural, imaginary or real, and need not contain the name of any existing partner.
  • 11. JOINT HINDU FAMILY BUSINESS  Comes into existence as per the Hindu Inheritance Act of India.  This form of business found only in India.  All members of the Hindu Undivided Family(HUF) own the business jointly.  The affairs of the business are managed by head of the family called “Karta”. All other members are called “coparceners”.
  • 12. DIFFERENCE BETWEEN PARTNERSHIP AND JOINT HINDU FAMILY BUSINESS BASIS OF COMPARISON PARTNERSHIP JOINT HINDU FAMILY BUSINESS Mode of creation By operation of law No agreement is necessary Acquisition of interest by male issue Partner does not acquire any interest in the partnership property by birth The male issue acquires an interest therein by birth Dissolution by death Dissolved by the death of a partner, in the absence of a contract to contrary Firm is not dissolved on the death of any member Admission of new members A new member can be admitted with the consent of other parties A male child becomes a member just by birth
  • 13. Right to take part in management Every partner can take part in the management The Karta alone can take part in the business Implied authority Each partner has a implied authority to bind his co-partners debts incurred in the ordinary course of business Manager and no other coparcener has the implied authority to contract debts and pledge the property for the family business Extent of liability Partners separate property his share in the joint family property is liable Other members are liable only to their extent Minor members A minor cannot become a in partnership but can admitted to the benefits of partnership A minor male becomes its member merely by birth Number of members 10 in case of members carrying on business of banking and 20 for the purpose of carrying on any other business Members unlimited in number
  • 14. Share in the business Each partner has a definite share by virtue of an agreement between the partners The shares of the coparceners are defined only on partition
  • 15. Types of Partnership  General Partnership  Limited Partnership  Limited Liability Partnership
  • 16.
  • 17. 1. GENERAL PARTNERSHIP  Involves two or more owners carrying out a business purpose.  General partners share equal rights and responsibilities.  Partnership profits are not taxed to the business, but pass through to the partners.  Eg: physicians who share office space
  • 18. 2. LIMITED PARTNERSHIP  Allows each partner to restrict his or her personal liability to the amount of his or her business investment  At least one participant must accept general partnership status  The general partner retains the right to control the business, , while the limited partner(s) do(es) not participate in management decisions
  • 19. 3. LIMITED LIABILITY PARTNERSHIP  The limited liability partnership bill has been passed in December, 2008  Also known as LLPs  Offer some personal liability protection to the participants  Liability is limited to the amount which each partners contribute towards the LLP
  • 20.
  • 21.
  • 22. Registration of Partnership Firms  The registration of the firm may be affected at any time by filing an application in the form of a statement, giving the necessary information, with the registrar of the firms of the area.  The application of the registration of a firm shall be accompanied by the prescribed fee  The statement shall be signed by all the partners or by their agents specially authorized in this behalf [Sec. 58(1)]
  • 23. Contents It shall state: (a) The name of the firm; (b) The place or the principal place of business off the firm; (c) The names of the places where the firm carries out the business; (d) The date when each partner joined the firm; (e) The name in full and permanent address of the partners, the duration of the firm.
  • 24. Registration contd..  When the registrar is satisfied that the above provisions have been duly compiled with, he shall record an entry of the statement in the registrar of Firms and file statement(Sec. 59).  He shall then issue under his hand a certificate of registration.  Registration is effective from the date when the registrar files the statement and makes entries in the Register of Firms and not from the date of presentation of the statement to him.  Registration to a firm under Sec. 59 cannot be declined for the reason of a company being s partner of the firm.
  • 25. Effects of non-registration (Sec. 69)  Suits between partners and firm. A person suing as a partner of an unregistered firm cannot sues the firm or any partners of the firm to enforce a right arising from a contract or conferred by the Partnership Act.  Suits between firm and third parties. An unregistered firm cannot sue a third party to enforce a right arising from a contract.  Claim to set-off. An unregistered firm or any partner thereof cannot claim a set-off.
  • 26. Rights of Partners  Right to take part in the conduct of the business.  Right to be consulted.  Right to access to books.  Right to share the profits.  Right to interest on capital.  Right to interest on advances.  Right to indemnity.
  • 27. LIABILITY OF PARTNERS TO THIRD PARTIES  Liability of a partner for acts of the firm.  Liability of the firm for wrongful acts of a partner.  Liability of the firm for misapplication by partners.
  • 28. Liability of a partner for acts of the firm(sec. 25)  Every partner is liable, jointly with all the other partners and also severally, for all acts of the firm done while he is a partner.  As between the partners themselves, the partner paying for more than his share of the liability may claim contribution from the others according to the terms of the partnership agreement
  • 29. Liability of the firm for wrongful acts of a partner(Sec. 26)  Where, by the wrongful act or omission of a partner acting in the ordinary course of the business of a firm, or with the authority of his partners, loss or injury is caused to any third party, or any penalty is incurred, the firm is liable therefore to the same extend as the partner.  The wrongful act may be tort, fraud, or negligence.
  • 30. Liability of the firm for misapplication by partners (Sec. 27). Where (a) A partner acting within his apparent authority receives money or property from a third party and misapplies it. (b) A firm in the course of its business receives money or property from a third party, and the same is misapplied by any of the partners while it is in the custody of the firm, the firm is liable to make good the loss.
  • 31. Liability of an incoming partner A new partner becomes liable for the debts and acts of the firm only from the date he is admitted as a partner. He cannot be held liable for the acts of the old firm. A new partner may, however, agree to be liable for the debts existing prior to his admission but such agreeing will not give to a prior creditor the right to sue him because of absence of ‘privity of contract.’
  • 32. Dissolution of the Firm Section. 39 provides that the dissolution of partnership between all the partners of a firm is called ‘dissolution of the firm.’ Modes of dissolution A firm may be dissolved in any one of the following ways:  By Agreement.  By Notice  On the happening of certain contingencies  Compulsory Dissolution  Dissolution by the Court
  • 33. Contd..  By Agreement: A firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners. Partnership is created by a contract, it can also be terminated by a contract.  By notice: Where the partnership is at will, the firm may be dissolved by any partner giving the notice in writing to all the other partners of his intention to dissolve the firm. A notice of dissolution once given cannot be withdrawn without the consent of all the other partners.
  • 34. Contd..  3. On the happening of certain contingencies: Subject to a contract between the partners, a firm may be dissolved if:   a.) If constituted for a fixed term, by the expiry of that term.  b.) If constituted to carry out one or more adventures or undertakings, by the completion thereof.  c.) By the death of the partner.  d.) By the adjudication of partner as an insolvent.
  • 35. Contd..  4. Compulsory Dissolution: A firm may be compulsorily dissolved if:   (a) When all the partners, or all the partners but one, are adjudged insolvent.  (b) When some event has happened which makes it unlawful for the business of the firm to be carried on.
  • 36. contd..  5. Dissolution by the Court: Dissolution by the court is necessitated when there is a difference of opinion between the partners regarding the matter of dissolution in cases of:  (a) Insanity  (b) Permanent Incapacity  (c) Misconduct  (d) Persistent breach of agreement  (e) Transfer of interest  (f) Just and Equitable
  • 38. Company A company in the normal sense means an association of persons united for the common object. Accordingly the term is used to represent associations formed to carry on some business for profit or to promote art, science, education or some charitable purpose. Definition According to section 3 (1) (i) of the companies Act, a company means, “A company formed and registered under this Act or an existing company.” An existing company means, “A company formed and registered under any of the previous companies laws.
  • 39. Characteristics of a company 1. Incorporated association A company comes into existence on incorporation or registration under the companies act. A joint stock company may be incorporated under the act either as private or a public company. If not registered as a company or under any other law, becomes an illegal association. 2. Separate legal entity The main feature of a company is its independent corporate existence. A company formed and registered under the companies act is a distinct legal entity. Its personality is separate and distinct from personality of those who compose it. 3. Limited liability It is the reason why many people invest their money in limited companies. Here the liability of the members is limited to such amount as the members may undertake to contribute to the assets of the company , in the event of its wounding up.
  • 40. Contd.. 4. Separate property A company is a legal person and therefore it is capable of enjoying, owning and disposing of property in its own name. the shareholders don’t have any proprietary rights over the property of the company. 5. Perpetual succession: A company never dies. It is not in any manner affected by insolvency or death of any of its members. It continues to exist even if all its members are dead. A company is created by a process of law and can be put an end to only by a process of law. 6. Common seal: As a company is an artificial person it cannot sign its name on a contract. So it functions with the help of a seal. Common seal is used as a substitute for its signature. Every company must have a seal with its name engraved on it. 7. Transferability of shares: The shares of a company are freely transferable and can be sold or purchased in the share market.
  • 41. Merits of company  Large resources  benefits of large scale operations  Professional management  Research and development  Corporate personality  Limited liability  Perpetual succession  Transferability of shares  Separate property
  • 42. Limitations • Difficult to form • Control by a Group • Excessive Government Control • Delay in Decision Making • Incorporation and wind up formalities and expense • Heavy fines, penalties and even imprisonment in case of non-compliance of laws • Too much disclosure in form of annual returns, intimation to stock exchanges etc. • Demutualization (separation of ownership and management) • Greater tax burden as company has to pay tax on flat rates • Greater social responsibility
  • 43. Companies legal entity  A company is an artificial person different for its members and directors. In the eyes of law it has a separate corporate personality. It has its own corporate name. It works under that name. In normal circumstances company cannot be considered as agent or trustee of its members. Therefore members and directors of a company cannot be held liable for any act of that company.  This concept is known as Corporate Veil. Means only company can be held liable for an act done in the name of the company.
  • 44. Contd.. But, as per company laws, a company can be created for lawful purpose only. If a company is created for  dishonest use  fraudulent purpose  unlawful purpose  evading taxes  any other purpose which is against the public interest than law can identify the persons who are behind it and are responsible for any fraud/unlawful act. Company cannot work or think on its own. Its directors and members are its mind and body. Therefore, company can’t do anything wrong own its own. Thus, for any wrong act in the name of company, members/directors can be held liable. This concept is called “Lifting of Corporate Veil”.
  • 45. In the following circumstances different courts found it necessary to lift the corporate veil and punish the actual persons who did wrong or unlawful acts under the name of company: Protection of Revenue The Court may ignore the Separate Legal Entity status of a Company, where it is used for tax invasion or circumventing tax obligation. 45
  • 46. Determination of enemy character of the Company Company being an artificial cannot be enemy or friend. But during war, it may become necessary to lift the corporate veil and see the persons behind it to determine whether they are friends or enemy. This is due to the reason that though a enjoys Separate Legal Entity but affairs are run by individuals. 46
  • 47. Prevention of fraud Where a Company is used for committing frauds or improper conduct, Court may lift the veil and look at the realities of the situation. Avoidance of Welfare Legislation Where a Company tries to avoid its legal obligations, the corporate veil shall be lifted to look at the real picture. 47
  • 48. Company mere sham or cloak Where the Company is a mere sham and was really a ploy used for committing illegalities and to people, the Court shall lift the Corporate Veil. Protection of public policy The Court shall lift the Corporate without any hesitation to protect the public policy and prevent transaction opposed to public policy. 48
  • 49. Where a Company acts as an agent of its shareholders If there is an arrangement between the shareholders and a Company to the effect that the Company will act as agent of shareholders for the purpose of carrying on the business, the business is essentially of that of the shareholders and will have unlimited liability. To punish for contempt for Court Company being an artificial cannot disobey the orders of the Court. Therefore, the persons at fault should be identified. 49
  • 50. Difference between Partnership and Company Basis Partnership Company 1. Formation It is easy to form as registration is not compulsory. It requires many legal formalities to be completed before the company comes into existence 2. Operation Governed by the Partnership Act, 1932. Governed by the the Companies,. Act, 1956. 50
  • 51. 3. Membership Minimum is two, maximum is 10; banking business and 20 in other business. In case of Private Company in minimum is 2, maximum is 50; and in case of Public company minimum is 7 and there is no maximum limit. 4. Legal Status No separate legal entity. Separate legal entity from that of its members. 5. Liability Joint and several to unlimited extent. Limited to the face value held. 51
  • 52. 6. Management All or any one behalf of all partners are entitled to manage. Board of Directors is authorised to manage 7. Transfer of Shares Consent of all partners is required. Shares are freely transferable 8. Existence Dissolves with the, retirement, insanity of a partner. Perpetual existence; unaffected death, retirement, insolvency etc. of the shareholders. 9. Finance Relatively limited scope for raising finance. Vast and unlimited scope for raising finance. 52
  • 53. Difference between Company and Joint Hindu Family Company Hindu Undivided Family Membership Heterogeneous (Members may belong to diff. family, caste, religion, country etc.) Homogeneous (Members belong to same family) Authority to create debt Company itself has authority to create debt through its agent subject to the provisions. Retains with Karta only Membership By virtue of contract By virtue of birth Registration Compulsory under Company Laws Not compulsory under any law 53
  • 54. Kind Of companies  Incorporated Companies: These are the association of persons who contribute money to a common stock known as capital of the company. They have existence independent of its members.  Unincorporated Companies: These are the mere collection of persons who have agreed to join in partnership to run a business and share the profits.  Registered Companies: Companies registered under the Companies Act,1956, or the earlier Companies Acts are called registered companies. Such companies come into existence when they are registered under the Companies Act and a Certificate of Incorporation is granted to them by the Registrar.
  • 55. A company registered under the Act may be:  i. Companies limited by shares: In a company limited by shares the liability of the members is limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them.  ii. Companies limited by guarantee: It is a registered company public or private, in which the liability of members is limited to such amounts as they may respectively undertake by the memorandum to contribute to the assets of the company in the events of its being wound up.  iii. Unlimited Companies: A company not having any limit on the liability of its members is termed as unlimited company.
  • 56. Contd..  Private company: According to Section 3(1)(iii) of the Companies (Amendment)Act,2000, a private company means a company which:  (a) has a minimum paid up capital of one lakh rupees or such higher amount as may be prescribed by the Government;  (b) has a minimum of 2 and maximum of members excluding employees;  (c) restricts the right of members to transfer its shares , if any;  (d) prohibits any invitation to the general public to subscribe for its shares or debentures;  (e) does not invite the public to subscribe to its deposits.  E.g.:- Ambika Industries Pvt. Ltd., Paras Pharmaceutical Pvt. Ltd. etc.
  • 57. Contd..  Public Company: According to Section 3(1)(iv) of the Companies (Amendment)Act,2000, a public company means a company which:  (a) is not a private company; and  (b) has a minimum paid up capital of five lakh rupees or such higher amount as may be prescribed by the Government.  E.g.:-Reliance Industries Ltd., Tata Iron & Steel Co. Ltd., D.C.M. Ltd., etc.
  • 58. Besides all these companies there are few more kinds of Companies:  Government Companies: It is a company of which 51% or more equity share capital is held by the Government. Rest of the shares can be held by private individuals or businessmen.  Foreign Companies: It is incorporated outside India but has a place of business in India. Some of the popular MNCs operating in India are Coca Cola(USA), Pepsi Cola(USA), Sony(Japan),etc.
  • 59. Brief Description Private Limited Company Public Limited Company Meaning Minimum Capital : Rs. 100000 Right to transfer the shares: Restricted Minimum Capital : Rs. 500000 Subsidiary of a Public Co. is deemed to be a public Co Small Company If Paidup Share Capital does not exceed Rs. 50 Lakhs and Turnover as per Last Audited accounts does not exceed Rs. 2 Crore Not Applicable Minimum Members Required 2 (Two),Maximum 200 (Two Hundred) 7 (Seven) Name of the Company “Private Limited” as Last Word “Public Limited” as Last Word Provision of entrenchment in the Articles To be agreed and approved by all the Members To be agreed and approved through a Special Resolution Issue of Securities By way of Right Issue or Bonus Issue Through Private Placement To Public through Prospectus (“Public Offer”)By way of Right Issue or Bonus Issue Through Private Placement
  • 60. Brief Description Private Limited Company Public Limited Company Public Offer to be in Dematerialised Form Not Applicable In case of public offer of securities, the securities have to be in Dematerialised Form Securities in Public Offer to be listed in Stock exchanges Not Applicable Securities offered in Public Offer, to be listed in Recognised Stock Exchanges Purchase / Loan for Purchase of Own Shares Not allowed to Purchase its own Shares Not allowed to Purchase its own Shares; No Financial assistance to be given to purchase its own shares Acceptance of Deposits Not allowed to accept deposit Allowed if Paid up share capital is Rs. 100 Crore or more orTurnover of Rs. 500 Crore or More Quorum of Meetings Two members personally present Five in case of Members upto 1000;Fifteen in case of Members more than 1000, upto 5000;Thirty in case of Members exceed 5000.
  • 61. Brief Description Private Limited Company Public Limited Company Internal Audit Applicable in case of :1. Turnover >= Rs. 200 Crore in preceding financial year,OR2. Loans from bank or NBFCs >= Rs. 100 Crore in preceding financial year Applicable in case of :1. Paid Up Capital >= Rs. 50 Crore in the preceding financial year, OR 2. Turnover >= Rs. 200 Crore in preceding financial year,OR 3. Loans from bank or NBFCs >= Rs. 100 Crore in preceding financial year, OR 4. Public Deposit >= Rs. 25 Crore in preceding financial year Annual Evaluation in the Board’s Report Not Applicable If Paid up share capital is Rs. 25 Crore or more, the details of annual evaluation in the Board’s Report Rotation of Auditor Applicable in case of Paid up Capital is Rs. 20 Crore or more Applicable in case of Paid up Capital is Rs. 10 Crore or more
  • 62. Brief Description Private Limited Company Public Limited Company No. of Directors and Independent Directors 2 (Two);Not required to appoint independent director 3 (Three); andIn case of isted Companies, at least OneThird as independent directors Retirement by rotation – Appointment of Director Not Applicable At least two third of total no. of directors be liable to retire by rotation and eligible of being reappointed in AGM Contract of Employment with Managing Director / Whole Time Director Not Required (Optional) Compulsorily Required Restriction on Managerial Remuneration No restriction on amount of managerial remuneration Managerial Remuneration is:Restricted to 11% of Net profit (subject to conditions); ORat least Rs. 30 lakh p.a. depending upon paid up Capital
  • 63. Formation of Company 1. Obtain Digital Signatures 2. 2. Obtain Director Identification Number [Section 153] 3. Name availability for proposed company 4. Preparation of the Memorandum of Association (MOA) and Articles of Association (AOA) 5. Application for incorporation of a company
  • 64. Memorandum of association  As per Section 2(56) of the Companies Act,2013 “memorandum” means the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of this Act.  Section 4 of the Companies Act,2013 deals with MOA. The Memorandum of a company shall contain the following;  The Name clause  Situation clause  Object clause  Liability clause  Capital clause
  • 65. Form of Memorandom S.No Table Form 1 Table A MOA of a company limited by shares 2 Table B MOA of a company limited by guarantee and not having share capital 3 Table C MOA of a company limited by guarantee and having share capital 4 Table D MOA of an unlimited company and not having share capital 5 Table E MOA of an unlimited company and having share capital
  • 66. Articles of association  As per Section 2(5) of the Companies Act,2013 “articles” means the articles of association of a company as originally framed or as altered from time to time or applied in pursuance of any previous company law or of this Act.  Section 5 of the Companies Act,2013 deals with AOA.  The articles of a company shall contain the regulations for management of the company.  The articles shall also contain such matters, as may be prescribed.  It shall be not prevent a company from including such additional matters in its articles as may be considered necessary for its management.  Provisions for Retrenchment  Notice to Registrar
  • 67. Form of Articles of association S.N o Table Form 1 Table F AOA of a company limited by shares 2 Table G AOA of a company limited by guarantee and having share capital 3 Table H AOA of a company limited by guarantee and not having share capital 4 Table I AOA of an unlimited company and having share capital 5 Table J AOA of an unlimited company and not having share capital
  • 68. Prospectus  Clause (70) of Section 2 of this Bill define “prospectus” means 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.  Section 26 deals with matters to be stated in prospectus.
  • 69. MATTERS TO BE STATED IN PROSPECTUS (SECTION 26):  A prospectus may be issued by or behalf of a public company either with reference to its formation or subsequently, or by or on behalf of any person who is or has been engaged or interested in the formation of a public company.
  • 70. Information in Prospectus:  Every prospectus shall state following information:-  i. names and addresses of the registered office of the company, company secretary, Chief Financial Officer, auditors, legal advisers, bankers, trustees, if any, underwriters and such other persons as may be prescribed;  ii. dates of the opening and closing of the issue, and declaration about the issue of allotment letters and refunds within the prescribed time;  iii. a statement by the Board of Directors about the separate bank account where all monies received out of the issue are to be transferred and disclosure of details of all monies including utilised and unutilised monies out of the previous issue in the prescribed manner;  iv. details about underwriting of the issue;  v. consent of the directors, auditors, bankers to the issue, expert’s opinion, if any, and of such other persons, as may be prescribed;  vi. the authority for the issue and the details of the resolution passed there for;
  • 71. Contd..  vii. procedure and time schedule for allotment and issue of securities;  viii. capital structure of the company in the prescribed manner;  ix. main objects of public offer, terms of the present issue and such other particulars as may be prescribed;  x. main objects and present business of the company and its location, schedule of implementation of the project;  xi. particulars relating to— 1. management perception of risk factors specific to the project; 2. gestation period of the project; 3. extent of progress made in the project; 4. deadlines for completion of the project; and 5. any litigation or legal action pending or taken by a Government Department or a statutory body during the last five years immediately preceding the year of the issue of prospectus against the promoter of the company;  xii. minimum subscription, amount payable by way of premium, issue of shares otherwise than on cash;  xiii. details of directors including their appointments and remuneration, and such particulars of the nature and extent of their interests in the company as may be prescribed; and  xiv. Disclosures in such manner as may be prescribed about sources of promoter’s contribution
  • 72. Reports with prospectus  i. Reports by the auditors of the company with respect to its profits and losses and assets and liabilities and such other matters as may be prescribed;  ii. Reports relating to profits and losses for each of the five financial years immediately preceding the financial year of the issue of prospectus including such reports of its subsidiaries and in such manner as may be prescribed. Where company has not completed five financial years than such report for all financial years is required.  iii. Reports made in the prescribed manner by the auditors upon the profits and losses of the business of the company for each of the five financial years immediately preceding issue and assets and liabilities of its business on the last date to which the accounts of the business were made up, being a date not more than one hundred and eighty days before the issue of the prospectus. Where company has not completed five financial years than such report for all financial years is required.  iv. Reports about the business or transaction to which the proceeds of the securities are to be applied directly or indirectly.
  • 73. Declaration of Compliance:  Every prospectus shall make a declaration about the compliance of the provisions of this Act and a statement to the effect that nothing in the prospectus is contrary to the provisions of this Act, the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992 and the rules and regulations made there under.
  • 74. Other matters in Prospectus:  Clause (d) of Sub – section (1) of section 26 give unlimited power to central government to list other matters and set out other reports to be included in a prospectus
  • 75. Delivery of Prospectus with Registrar:  A copy of prospectus shall be delivered to the Registrar for registration signed by every person who is named as a director or proposed director of the company or by his duly authorised attorney on or before the date of its publication and only then it shall be issued by or on behalf of a company or in relation to an intended company.
  • 76. Statement of an Expert:  A statement made by an expert shall be included only if expert is or was engaged or interested in the formation or promotion or management of the company and has given his written consent to the issue of the prospectus.  Such consent of expert must not be withdrawn by his before the delivery of prospectus to the Registrar for registration and a statement to that effect shall be included in the prospectus.  Every prospectus issued shall state that a copy has been delivered to the Registrar and specify attached documents.  The registrar shall not register a prospectus all requirements has been complied with and the prospectus is accompanied by the consent in writing of all the person named in the prospectus.  Prospectus shall not be valid if it is issued more than ninety days after the date on which a copy thereof delivered to the Registrar.
  • 77. Caution:  If a prospectus is issued in contravention of the provisions of section 26, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to three lakh rupees and every person who is knowingly a party to the issue of such prospectus shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to three lakh rupees, or with both
  • 78. VARIATION IN TERMS OF CONTRACT OR OBJECTS IN PROSPECTUS (SECTION 27):  A company may vary the terms of a contract refered in the prospectus or object for which the prospectus was issued, only under approval or authority given by way of special resolution.
  • 79. Requirement in Deemed Prospectus (Section 25):  Section 26 as applied by Section 25 shall have effect as if — 1. it required a prospectus to state in addition to the matters required by section 26 to be stated in a prospectus— i. the net amount of the consideration received or to be received by the company in respect of the securities to which the offer relates; and ii. the time and place at which the contract where under the said securities have been or are to be allotted may be inspected; 2. the persons making the offer were persons named in a prospectus as directors of a company.
  • 80. STATEMENT IN LIEU OF PROSPECTUS  Similar to actual prospectus but without the invitation to the public for subscribing to the shares of the company  Prepared when a company issues shares by private placement.  Prepared for the purpose of record, and it is filed with the Registrar of Companies before allotment of share.  The prospectus contains a summary of the past, present and prospects of the company  The prospectus expressly invites the public to buy shares issued by the company  It is the basis of share issue. The contents of prospectus are considered legal evidence in the event of dispute between share holder and the company.  A misleading clause in the prospectus will be taken seriously by the courts.
  • 81. Contents of the Prospectus 1. Name of company and location of the registered office of the company 2. Main objects of the company 3. The number and classes of the shares to be issued 4. Names and addresses of the directors, managing director their qualification shares. 5. Provisions regarding the remuneration of directors 6. The minimum subscription to be raised by share issue 7. The amounts payable on application, allotment for each class of shares 9. Rights, privileges and restrictions each class of shareholders 10. Underwriters to the issue 11. Merchant bankers to the issue 12. Registrars to the issue
  • 82.
  • 83.  The supreme executive authority controlling the management and affairs of a company vests in the team of directors of the company, collectively known as its Board of Directors.  .Section 2 (10) of the Companies Act, 2013 defined that “Board of Directors” or “Board”, in relation to a company, means the collective body of the directors of the company.  Companies Act, 2013 has brought in the concept of Key Managerial Personnel MANAGEMENT OF COMPANIES
  • 84. DIRECTORS OF COMPANY  An appointed or elected member of the board of directors of a company.  He has the responsibility for determining and implementing the company’s policy.  Directors derive their powers emanating from board resolutions.  Unlike shareholders, directors cannot participate through proxy.  Unlike employees, cannot absolve themselves of their responsibility for the delegated duties
  • 85. Number of Directors Section 149(1) of the Companies Act, 2013 requires that every company shall have a  minimum number of 3 directors in the case of a public company,  two directors in the case of a private company, and  one director in the case of a One Person Company.  A company can appoint maximum 15 fifteen directors.*
  • 86. Duties of directors  Companies Act 1956 did not contain any provisions that specifically identified the duties of directors. Companies Act 2013 has set out the following duties of directors:  To act in accordance with company's articles;  To act in good faith to promote the objects of the company for benefit of the members as a whole, and the best interest of the company, its employees, shareholders, community and for protection of the environment;  Exercise duties with reasonable care, skill and diligence, and exercise of independent judgment; The director is not permitted to:  Be involved in a situation in which he may have direct or indirect interest that conflicts, or may conflict, with the interest of the company;  Achieve or attempt to achieve any undue gain or advantage, either to himself or his relatives, partners or associates.
  • 87. COMMITTEES OF THE BOARD Companies Act 2013 envisages 4 (four) types of committees to be constituted by the board:  AUDIT COMMITTEE: Under Companies Act 1956, public companies with a paid up capital in excess of Rs 50,000,000 (Rupees fifty million only) were required to set up an audit committee comprising of not less than 3 (three) directors  NOMINATION AND REMUNERATION COMMITTEE: The committee has the task of identifying persons who are qualified to become directors and provide recommendations to the board regarding their appointment and removal, as well as carry out their performance evaluation.  STAKEHOLDERS RELATIONSHIP COMMITTEE: Companies Act 2013 requires every company having more than 1000 (one thousand) shareholders, debenture holders, deposit holders and any other security holders at any time during a financial year to constitute a stakeholders relationship committee to resolve the grievances of security holders of the company.  Companies Act 2013 however, requires certain companies to constitute a CSR Committee, which would be responsible to devise, recommend and monitor CSR initiatives of the company. The committee is also required to prepare a report detailing the CSR activities undertaken and if not, the reasons for failure to comply.
  • 88. Key Managerial Personnel “key managerial personnel”, in relation to a company, means—  the Chief Executive Officer or the managing director or the manager;  the company secretary;  the whole-time director;  the Chief Financial Officer; and  such other officer as may be prescribed;
  • 89. BOARD MEETINGS AND PROCESSES  First board meeting of a company to be held within 30 (thirty) days of incorporation  Notice of minimum 7 (seven) days must be given for each board meeting  Companies Act 2013 has permitted directors to participate in board meetings through video conferencing or other audio visual means which are capable of recording and recognising the participation of directors.
  • 91. ANNUAL GENERAL MEETING (AGM) (Sec. 96) 1. Annual general meeting should be held once every year. 2. First annual general meeting 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. 3. Subsequent annual general meeting of the company should be held within 6 months from the closing of the financial year. 4. The gap between two annual general meetings should not exceed 15 months.
  • 92. EXTRA ORDINARY GENERAL MEETING  By Board [Section 100 (1)] The Board may, whenever it deems fit, call an extraordinary general meeting of the company.  (II) By Board on requisition [Section 100 (2)] The Board must call an extraordinary general meeting on receipt of the requisition  (III) By requisitionists [Section 100(4)] If the Board does not within 21 days from the date of receipt of a valid requisition in regard to any matter, proceed to call a meeting for the consideration of that matter on a day not later than 45 days from the date of receipt of such requisition  (IV) By Tribunal [Section 98 (not yet enforced)] Section 98 provides that if for any reason it is impracticable to call a meeting of a company or to hold or conduct the meeting of the company, the Tribunal may, either suo motu or on the application of any director or member of the company who would be entitled to vote at the meeting
  • 93. NOTICE OF THE MEETING  A general meeting of a company may be called by giving not less than 21 clear days’ notice either in writing or through electronic mode. Notice through electronic mode shall be given in such manner as may be prescribed.  Short notice A general meeting may be called after giving a shorter notice also if consent is given in writing or by electronic mode by not less than 95% of the members entitled to vote at such meeting.  CONTENTS OF NOTICE  Place of meeting  Day of meeting  Time of meeting  Agenda  Proxy clause with reasonable prominence
  • 94. Quorum for Meetings  Public company:  5 members personally present if the number of members as on the date of meeting is not more than 1000;  15 members personally present if the number of members as on the date of meeting is more than 1000 but up to 5000;  30 members personally present if the number of members as on the date of the meeting exceeds 5000.  Private Company  2 members personally present, shall be the quorum for a meeting of the company.
  • 95. Ordinary and Special Resolutions Section 114 provides with regard to Ordinary and Special Resolution  Ordinary Resolution A resolution shall be an ordinary resolution if the notice has been duly given and it is required to be passed by the votes cast, in favour of the resolution, including the casting vote, if any, of the Chairman, exceed the votes, if any, cast against the resolution.  Special Resolution A resolution shall be a special resolution when: a) the intention to propose the resolution as a special resolution has been duly specified in the notice calling the general meeting or other intimation given to the members of the resolution; b) the notice required under this Act has been duly given; and c) the votes cast in favour of the resolution, are required to be not less than 3 times the number of the votes, if any, cast against the resolution.
  • 96. Contd..  Resolutions requiring Special Notice Section 115 provides that where, by any provision contained in this Act or in the articles of a company, special notice is required of any resolution, notice of the intention to move such resolution shall be given to the company by such number of members holding not less than 1% of total voting power or holding shares on which such aggregate sum not exceeding Rs.5,00,000/- as may be prescribed has been paid- up and the company shall give its members notice of the resolution in the following manner as prescribed in Rules.  Resolutions passed at Adjourned Meeting (Section 116) As per Section 116 where a resolution is passed at an adjourned meeting of a company; or the holders of any class of shares in a company; or the Board of Directors, the resolution shall be treated as passed on the day it was actually passed and not on any earlier date.
  • 97. Account  The companies are required to keep proper books of account in respect of a) All sums of money received & expanded by the company b) All sales & purchases of goods by the company c) The assets & liabilities of the company d) In case of company engaged in production, manufacturing processing or mining activities particulars related as prescribed by govt.  Cash flow statement is mandatory part Of Financial statements  Shareholders to receive accounts not less than 21 days before the date of meeting  Reopening and Recasting Of books Of accounts Of Company on an application by Central Government, Income Tax, SEB' or Other statutory / regulatory authority  Voluntary revision of financial statements or Boards report
  • 98. Auditors  Mandatory auditor rotation for listed and other prescribed companies every 5 years  Members Of a company may resolve to provide that in the audit firm appointed by it, the auditing partner and his team shall be rotated at such intervals as may be specified in the resolution  Auditor will be required to immediately report to the central movement upon reasonable suspicion Of any offence involving fraud
  • 99. Winding Up of a Company  Winding up of a company is the process whereby its life is ended i.e. , the company dissolved and its property administered for the benefit of its creditors and members.  Modes of Winding up - According to sec. 270 of the companies Act 2013, the procedure for winding up of a company can be initiated either - i. By the tribunal or, ii. Voluntary
  • 100. Winding up by a tribunal  As per new Companies Act 2013, a company can be wound up by a tribunal on the basis of following reasons: 1. Unable to pay debts 2. If the company has by special resolution resolved that the company would be wound up by the tribunal. 3. Acted against the interest of the integrity or morality of India, security of the state, or has spoiled any kind of friendly relations with foreign or neighbouring countries. 4. Not filled financial statements for preceding 5 consecutive years. 5. If the tribunal by any means finds that it is just & equitable that the company should be wound up. 6. Indulged in fraudulent activities or any unlawful business, or any person or management connected with the formation of company is found guilty of fraud, or any kind of misconduct.
  • 101. Filling of winding up petition Sec. 272 provides that a petition is to be filed in the prescribed format and is to be submitted in 3 sets by any of the following persons: 1. The company 2. The creditors 3. Any contributories 4. By the central or state govt. 5. By the registrar of any person authorized by central govt. After preparing the statement it shall be certified by a practising Chartered Accountant.
  • 102. Final order and its content The tribunal after hearing the petition has the power to dismiss it or to make an interim order as it think appropriate or it can appoint the provisional liquidator of the company till the passing of winding u order.
  • 103. KINGFISHER AIRLINES • established in 2003 • started operations on 9 may 2005 • started international operations on 3 Sep. 2008 • placed aggressive plane orders • received numerous awards and accolades • returns went down • flights suspended on Oct. 2012 • license revoked on Feb. 2013 • lenders took control of the remaining assets • creditors failed to get the buyers in auction • Bangalore HC ordered winding up on Nov. 19, 2016 • owes more than $1 billion to Indian banks • Recently, the State Bank of India wrote off ₹ 7000 crore in loans
  • 104. 2.Voluntary winding up Can be wound up voluntarily by the mutual decision of members of the company, if: • Co. passes a special resolution. • Expiry of the period of its duration as fixed by its Articles of Association • occurrence of any event where the articles provide for dissolution of company.
  • 105. Procedure for voluntary winding up 1. Conduct a board meeting with two directors and thereby pass a resolution that company has no debt 2. Call for a general meeting. 3. In general meeting, either pass the ordinary resolution by ordinary majority or special resolution by 3/4th majority. 4. Meeting of creditors after passing the resolution, if majority opine wounding up is beneficial then it can be wounded up voluntarily. 5. Within 10 days of passing the resolution, file a notice to the registrar for appointing liquidator. 6. Within 14 days of passing the resolution, a notice in the official gazette and advertise in newspaper. 7. Within 30 days of general meeting, file certified copies of resolution.
  • 106. Contd.. 8. Wind up affairs of the co. and prepare the liquidators account and get the same audited. 9. Conduct a general meeting of the company. 10. Pass a special resolution for disposal of books and all necessary documents of the co. 11. Within 15 days of final general meeting, submit a copy of accounts and file an application to the tribunal for passing order of dissolution. 12. If tribunal is satisfied, he shall pass the order within 60 days of receiving such application. 13. Appointed liquidator then file a copy of order with registrar. 14. The registrar then publish a notice in the official gazette declaring that the co. is dissolved.
  • 107. Types of voluntary winding up :  Types of Voluntary Winding up - Voluntary winding up may be of two types, namely, a) Members’ voluntary winding up ; b) Creditors’ voluntary winding up. A) Members’ Voluntary Winding up - Members’ voluntary winding up is possible only in case of solvent companies. 1) DECLARATION OF SOLVENCY (S448)–  The directors must enquire whether the company will be able to able to pay all its debts within the period of 3 years.  In order to be effective, this declaration must be made within 5 weeks immediately preceding the date of passing of the winding up resolution by the members;  delivered to the Registrar for filing ; and  must be accompanied by a copy of the report of the auditors of the company on the accounts and balance sheet.
  • 108.  Appointment and remuneration of liquidators: (S492) the company in general meeting must: a) appoint one or more liquidators b) fix the remuneration Any remuneration so fixed cannot be increased in any circumstances whatever, whether with or without the sanction of the court. No liquidator shall charge of his office unless his remuneration is fixed.  Board’s power to cease: (S491)on the appointment of the liquidators all the powers of the directors cease but their powers may continue if the general body or the liquidator sanctions it.  Notice of the appointment of the liquidator to be given to the registrar(S493):within 10 days of his appointment .otherwise Rs.1000 fine per day.
  • 109.  Power of liquidator to accept shares, etc., as consideration of sales of property of the company(S497):  Duty of liquidator to call creditors meeting in case of insolvency S495 : if the liquidator finds that the company will not be able to pay its debts he should tell it to the creditors with all records.  Duty of liquidator to call general meeting at the end of each year(S496): In case the winding takes more then one year the liquidator must call a general meeting and tell the acts and winding operations done by him.  Final meeting and dissolution(S497): the liquidator must(a)make up an account of the winding up showing how the company has been disposed of (b)call the general meeting of the company for laying the account before it as well as explanations.
  • 110. B) Creditors Voluntary Winding Up :-  Creditors’ voluntary winding up - Where the Board of directors does not file a declaration as to solvency of the company, the voluntary winding up is called ‘ the Creditors voluntary winding up.  - if the members and creditors nominate two different persons as liquidators creditors nominee shall become the liquidator of the company.  - Besides, in the case of creditors winding up if the creditors so wish a committee of inspection ‘ may be appointed to work along with the liquidator's.
  • 111.  Notice to registrar: A company of any resolution passed at the creditors meeting must be filed with the registrar within 10 days of the passing thereof. otherwise fine of 500 Rs per day(S501).  Appointment of liquidator: (S502) the creditors and the members at their respective first meeting may nominate a person to be liquidator but should take the board of directors into considerations.  Committee of inspection(S503): The creditors at their first or any subsequent meeting, appoint a committee of inspection of not more than 5 members.  Fixing of liquidator’s remuneration(S505): the remuneration of the liquidator is fixed by the committee of inspection.
  • 112.  Board’s power to cease on appointment of liquidator(S505): all the powers of the directors should go to the liquidator.  Duty of liquidator to call meeting of company and creditors at the end of each year[S508]: within 3 months from the end of the year.  Final meeting and dissolution [S509]
  • 113. Voluntary winding up under supervision of the court : A voluntary winding up may be effected under supervision of the Court where an application to that effect is made by a creditor or a contributory or the company or the liquidator and the Court makes an order that the voluntary winding up should continue subject to the supervision of the Court.
  • 114. Such an order is passed by the Court where (i) the resolution for winding up was obtained by fraud, or (ii) the rules relating to the winding up order have not been observed, or (iii) the liquidator is prejudicial or is negligent in collecting the assets. The Court is also empowered under the section 527 to make an order for compulsory winding up superseding the order of winding up under its supervision.
  • 115. Contributory :  Contributory - the term ‘ contributory ‘ is defined under section 428 to mean every person liable to contribute to the assets of a company in the event of its being wound up.  The expression includes the holder of any shares which are fully paid up.  A past member shall however be not liable to contribute if he ceased to be a member for one year or more before the commencement of the winding up.