4. Objects of Company Law
1. To encourage investments
2. To ensure proper administration
3. To prevent malpractices
4. To allow for investigations
5. Meaning of Company
“A company is defined as a form of business
organization in which the funds of a large
number of investors are managed by a few
persons for the purpose of earning profits
which are shared by all investors”
6. Characteristics of a Company
Registration
Separate legal entity
Perpetual Succession
Transferable shares
Limited liability
Common seal
Separate property
Capacity to sue
7. Types of Companies
A. From the point of view of Incorporation
B. From the point of view of Liability
C. From the viewpoint of Nationality
D. From the view point of Public Interest
8. 1. From the point of view of
Incorporation
Types of Companies
9. Chartered Company
Historically, most of the early companies were
set up through a Royal Charter.
For example, the East India Company, the
Chartered Bank of Australia, India and China,
etc., were incorporated by the grant of a special
Royal Charter.
In India, this form of organization does not exist
now because there is no monarchy.
Even in England, this method is rarely used
now. Companies of this kind may be called
chartered companies.
10. Statutory Company
In this case, a special law is passed to establish the
company.
This is done only in special cases when it is necessary to
regulate the working of the company for some specific
purposes.
These are mostly concerned with public utilities
Examples of such companies in India are: the Industrial
Finance Corporation, the Life Insurance Corporation of
India, the Air India, Reserve Bank of India, etc.
The provisions of Indian companies act 1956 apply to
them if they are not inconsistent with the provisions of
their special Acts.
11. Registered Company
The Companies Act, 1956, lays down
procedures by which a company can be brought
into existence.
Anybody who wants to incorporate a company
can do so by taking necessary steps outlined
therein.
By far the largest number of companies is
incorporated under the Companies Act. These
companies may be called registered companies.
13. Unlimited Company
Do not have any limit on the extent of liability of
its members.
Liability of each member extends to whole
amount of the company’s debts and liabilities.
However, the members cannot be sued upon the
directly by the company's creditors.
15. Company Limited By Guarantee
Not Having Share Capital
Memorandum Limits the member’s liability.
It is limited to the amount as may have been
undertaken by MOA to contribute in the case of
winding up.
16. Company Limited By Guarantee
Having Share Capital
Memorandum Limits the member’s liability.
Moreover, liability would also extend to the unpaid
value of the shares held by the member.
17. Limited Company
The liability of the members of the company is
limited to the amount remaining unpaid on the
shares.
Hence the holders of the fully paid up shares
cannot be called upon for the further
contribution.
The liability of the members holding the partly
paid up shares exists even if the company is in
process of winding up.
19. National Company
In this case, the control and the management of
the affairs of the company are to be carried out
within the geographical boundaries of the
country.
20. Multinational Company
The branch is not an Independent entity and is
linked up to the parent company existing in
some other country.
21. 4. From the view point of
Public Interest
TYPES
22. Private Company
Private Company is a company Which by its
Articles :-
i. Restricts the rights of the members to transfer
the shares,
ii. Limits the membership to 50, excluding the
past and present employees of the company
who are the members of the company, and
iii. Prohibits the invitation to public, for
subscription of shares or debentures of the
company.
23. Public Company
Public Company is a company Which by its
Articles :-
i. Does not restrict the rights of the members to
transfer the shares,
ii. Does not limit the membership to 50, excluding
the past and present employees of the
company who are the members of the
company, and
iii. Invites the public, for subscription of shares or
debentures of the company.
24. Government Company
It is a company in which not less than 51% of the
paid-up share capital is held by one or more of
the following or any combination thereof:-
The Central Gov. & one or more Govt. Co.
Any State Gov. or Govts and one or more Govt. Co.;
The Central Govt., one or more State Govt. and one or more
Govt. Companies;
The Central Govt. and one or more corporations owned or
controlled by Central Govt.;
The Central Govt., one or more State Govt. and one or more
Corps. Owned or controlled by the Central Govt.
One or more corps. Owned or controlled by Central Govt. or State
Govt.
More than one Govt. Company
25. Distinction Between Private Ltd. &
Public Ltd. Company
Minimum capital required is
1,00,000
Minimum 2 and maximum 50
members
At least 2 directors
No restriction on appointment of
directors
Non-transferable shares
Restriction on invitation to
subscribe for shares
No restriction on managerial
remuneration
Can start business without
obtaining certificate of
commencement
Minimum capital required is
5,00,000
Minimum 7 members. No limit
on maximum members
At least 3 directors
No restriction on appointment of
directors
Transferable shares
Invitation to subscribe for shares
is allowed
Managerial remuneration cannot
exceed 11% of net profit
Can start business only after
obtaining certificate of
comencement
Private Ltd. Public Ltd.
26. Special Privileges of a Private
Company Over Public Company
1. Can be started with minimum 2 members
2. No provision regarding minimum subscription
3. No need to file a Prospectus or Statement in Lieu of Prospectus.
4. Further share issue
5. It can issue share capital of any kinds
6. Commence business immediately after getting certificate of
incorporation
7. Need not to keep index of members
8. Need not to hold a statutory meeting or file statutory report
9. Provision regarding maximum limit of Director’s or Manager’s
remuneration does not apply
27. Special Privileges of a Private
Company Over Public Company
10. Retirement by rotation for directors not there
11. Director’s consent to act as such not required
12. Qualification shares not needed for appointment of directors
13. Government approval to appointment or amendment do not
apply
14. Director’s contract to take qualification share not to be filed with
the registrar
15. Provisions regarding loans to directors do not apply
16. No provision regarding interested director not to participate or
vote in board proceedings
17. No provisions for Govt. approval for increasing remuneration
18. No prohibition regarding appointment of MD for more than 5
years at a time
28. Procedure for Converting Private
Company Into A Public Company
Alter the articles of the company by special resolution
to eliminate restrictions of private company under
sec(3) (iii)
If the number of members is less than 7, it must be
raised at least to 7
If the number of directors is less than 3 it must be
raised at least to 3.
It must file within 30 days with the Registrar
prospectus or statement in lieu of prospectus & the
resolution altering the articles.
29. Procedure for Converting Public
Company Into A Private Company
Pass a special resolution authorizing conversion of
the company and altering the articles so as to contain
the restrictions under section 3(1) (iii) of the Act
Change the name of the company by a special
resolution
Obtain Central Government approval
File the altered articles with the Registrar within 30
days of the receipt of the approval from the Central
Government
30. When A Private Company
Becomes a Public Company
By default of Provisions
Subsidiary Company Deemed to be Public
By Provisions of Law
Where not less than 25% of paid-up capital of pvt.
Company is held by one or more bodies corporate
Where the average turnover of a private company is not
less than Rs.10 cr. During the relevant period – after 3
months
When a private company holds not less than 25% of the
paid up capital of a public company
By Conversion
31. Holding Company & Subsidiary Company
When one company controls another company it is called
holding company.
Control may be in any following ways:
Where it controls the composition of the Board of
Directors of another company; or
Where it controls more than half of the total voting
power of the other company; or
Where it holds more than half of the nominal value of
equity share capital of the other company; or
Where it is a subsidiary of any company which is the
subsidiary of some other company.
32. One Man Company
WHEN A SINGLE PERSON HOLDS ALMOST
ALL THE SHARES OF THE COMPANY IT IS
CALLED ONE MAN COMPANY. SUCH A
COMPANY HAS ITS LEGAL PERSONALITY IF
IT COMPLIES WITH THE NECESSARY
REQUIREMENTS OF REGISTRATION, IT MAY
BE A PUBLIC OR PRIVATE COMPANY.
33. Illegal Association
ANY COMPANY, ASSOCIATION OR PARTNERSHIP
CARRYING ON BANKING BUSINESS WITH MORE
THAN TEN MEMBERS OR CARRYING ON ANY OTHER
BUSINESS WITH MORE THAN TWENTY MEMBERS
THAT HAS FOR ITS OBJECT THE ACQUISITION OF
GAIN, WITHOUT BEING REGISTERED UNDER THE
COMPANIES ACT, SHALL BE CONSIDERED AN
ILLEGAL ASSOCIATION.
34. PRACTICAL PROBLEMS
In a private limited Company it is discovered that there are,
in fact, 54members. On an enquiry, it is ascertained that 6 of
such members have been employees of the Company in the
recent past and that they acquired their shares while they
were still employees of the Company. Is it necessary to
convert the Company into a public limited Company
Ans. As per Section 3(1) (iii), a Company to be registered as
a private Company must restrict its membership to 50 only.
But, however, in counting this number of 50 members,
employee members and ex-employee members (i.e., those
who become members while in the employment of the
Company but now having retired still continue to retain
membership) are to be excluded. Thus, in the given case,
the Company shall continue to be a private Company. There
is no need for conversion.
37. Memorandum of Association
Main document of the company.
It defines the objects of the company for which it is
established.
Lays down the conditions upon which alone the
company allowed to be formed.
Charter of the constitution of the company.
It defines the scope of its activity and also states that
anything beyond it is unauthorized and illegal.
The memorandum shall be one of the forms given
in Tables B, C, D and E in schedule 1 of the Act.
38. How MOA Looks?
The Memorandum of Association must be
o printed,
o divided into paragraphs,
o numbered consecutively,
o and signed by each subscriber (seven or more in case
of a public company),
o who must add his name, address and description
o in the presence of at lease one witness who is to attest
the signature.
39. Clauses of MOA
Name clause
Registered office or Situation clause
Object clause
Liability clause
Capital clause
Subscription clause
40. Name Clause
The Company is a legal entity. Therefore, it must
have its name to establish its identity.
The name of the company should not be Similar,
Undesirable, or which will mislead the public. E.g.
Indian National flag, name or pictorial
representation of Mahatma Gandhi or Prime
Minister of India, etc.
Its use has been, therefore, prohibited by the
Government under the Emblems and Names
(Prevention of Improper Use) Act, 1950.
The company can change its name by passing a
special resolution and obtaining he approval of the
Central Government.
41. Registered Office Clause
Every company must have a registered office
from the day it starts its business or within 30
days of getting the Certificate of Incorporation,
whichever is earlier.
Memorandum of Association must state the
name of the State in which the registered office
of the company is situated.
This clause is important as it mentions the
residence for the purpose of the communication
with the company.
It determines the jurisdiction of the company and
also mentions the place where all the records of
company are maintained.
42. Registered Office Clause
Where the company wants to change its
registered office from one state to another then it
can do so by passing a special resolution as well
as by confirmation of Company Law Board.
Such confirmation will be given provided
debenture holders and creditors are satisfied
and such alteration is fair.
43. Object Clause
It is the most important clause in the Memorandum of
Association.
It defines and limits the scope and sphere of the operation of
the company and affords protection of its funds.
It states the main objects as well as incidental objects of the
company.
The transaction which does not fall within the scope of the main
objects of the company will not be valid and binding on the
company simply because it is not beneficial for the company.
As regards to the alteration of object clause a special resolution
must be passed and the confirmation by the Company Law
Board must also be obtained.
The alteration is done to obtain a main purpose by new means
or to enlarge the area of its operation, or to restrict the objects
or sell or dispose of or amalgamate the undertaking.
44. Liability Clause
The liability clause states that the member or the
shareholder will be liable to pay only the unpaid
value of shares held by him.
If it is a company limited by guarantee,
Memorandum of Association must further state
that each member undertakes to contribute to the
assets of the company at the time of the winding
up while he is a member.
Ordinarily this clause cannot be altered except that
the liability of the directors may be made unlimited
under certain circumstances.
45. Capital Clause
Amount of share capital with which the company is
to be registered and its division into shares of a
fixed amount must be stated in the Memorandum
of Association of a company limited by shares.
The capital with which the company is registered is
called ‘Registered’ or ‘Authorized’ or ‘Nominal’
Capital
Capital clause can be varied or capital can be
reduced (by special procedure) or the rights of the
shareholders can be varied.
46. Subscription/Association Clause
This clause gives idea about the people who
have created the company.
Maximum seven members in a public company
and two members in a private company shall
subscribe to the Memorandum of the company.
A declaration is to be given. Such declaration is
to be signed by a member in presence of a
witness.
Moreover the details as regards to name,
address, age and business of the promoters are
also recorded under this clause.
Each subscriber has to take atleast 1 share
48. (1)
A company altered Its Memorandum of Association
according to the procedure laid down by law and the
alteration was also confirmed by the Company Law
Board. A certified copy of the order of the Company Law
Board was filed 4-months after the order was passed by
the Company Law Board. Can the Registrar register the
alteration?
Ans. Yes. He can do so as per provisions mentioned
under Sec.18.
As per Section 18 company shall file with the Registrar, a
certified copy of the order of the company law board
confirming the alteration within 3 months of the order. The
registrar shall register the same and certify the
registration within 1 month from the date of filing such
documents.
However the company can be allowed the extension of
time if the company law board thinks fit.
49. (2)
A company was started with the object of building 'a
hall with shops'. The building was destroyed by fire
and the company wanted to alter the objects clause
in the Memorandum by substituting the words 'a hall
with shops' with the words 'shops, dwelling houses
and warehouses for letting purposes.' Should this
alteration be allowed?
Ans. No,
As the alteration exceeds object mentioned by the
company on its incorporation. (Strathspey Public
Assembly etc. Hall Co. Ltd. v. Anderson's
Trustees, (1934) S.C. 385).
50. (3)
X Mining Co. Ltd. applied to the Company Law Board for
permission to add the following objects in its Memorandum
of Association, which earlier stated mining as its main
purpose : (a ) To sell goods on hire-purchase basis ; (b) To
do all kinds of fabrication works of steel, aluminum, copper,
zinc, and alloys ; (c) To buy and sell land, buildings, hotels,
restaurants and business premises ; and (d) to enter in to
contracts for construction of building with private people or
government. Will the Company Law Board approve this
alteration?
Ans. No,
The Company Law Board will only approve the alteration if
the incidental objects are in alignment of the main purpose
for which the company is established.
51. (4)
A Ltd. applies to the Company Law Board for approving an
alteration in situation clause of its Memorandum and thus
permitting it to change its registered office from Calcutta to
Delhi. The Government of West Bengal requests the
Company Law Board not to allow this change, for it would
lead to a loss of revenue of the Government. Decide.
Ans. No, The request of Government of West Bengal won’t be
considered.
The change will be allowed if it is warranted by the
interests of the company [Rank Film Distributors of India
Ltd. v. Registrar of Companies]
The court observed that the state has no statutory right to
oppose the shifting of the registered office from one state
to another. Members of the company will decide whether
the registered office of the company is to be transferred
from one state to another. Moreover the shifting should be
in the interest of the company.
52. (5)
A company put up telephone wires in a certain area.
There was no power in the Memorandum to put up
wires there. The defendants cut them down. Can the
company sue for the damage done to the wires?
Ans. Yes
In case National Telephone Co. v. St Peter Port
Constables, it was held that company being a
corporate person should not be fined or punished for
its own act or the act of its agents unless the
authority conferred on the company by the
Memorandum, the whole transaction would be
altered by doctrine of ultra vires and it would be void.
Moreover there is nothing to prevent the company
from protecting its property.
53. (6)
The Memorandum of Association of a company
formed to Improve and encourage the breeding of
poultry contained a provision that no remuneration
should be paid to the members of the governing body
of the company. But the company owing to Its
Increase in the business passed a special resolution
providing for equitable remuneration to such
members for services rendered, Can this alteration of
the Memorandum be confirmed? If so, state why and
when.
Ans. Yes
It was decided that alteration is valid as it will help to
carry the business more economically or more
efficiently and any resolution passed will be within
the scope of MOA. [Scientific Poultry Breeders'
Assn. Ltd.].
54. (7)
X Ltd a cotton textile company, enters into a contract
with A Ltd, adjacent cotton textile mills, to supply
electricity from their power generation plant. After the
supplies have been made for 3 months it is
discovered that this activity is beyond the scope of
the object clause of memorandum of association of
X Ltd. Shareholders of X Ltd ratify the above
contract in their general body meeting. Can A Ltd.
which refuses to make payment on the ground that
the contract is wholly null and void be legally
compelled to make payment?
Ans. No, as the transaction is ultra vires X Ltd.
The transaction which does not fall within the scope
of the main objects of the company will not be valid
and binding on the company.
56. SCOPE
The articles of association are subordinate to the
memorandum of association of the company.
The articles contain the internal regulations of the
company.
The provisions of the articles must not be
inconsistent with or repugnant to any of the
provisions of the memorandum of the Act.
AOA can be altered at any time according to the
wishes of the member.
57. CONTENTS
Articles usually contain provisions relating to the
following matters.
Share capital, rights of shareholders, variation of these
rights, and payment of commissions, share certificates
Lien on shares
Calls on shares
Transfer of shares
Transmission of shares
Forfeiture of shares
Conversion of shares into stock
Alteration of Capital
58. CONTENTS
General meetings and proceedings thereat
Voting rights of members, voting poll and proxies
Directors, their appointment, remuneration,
qualification, powers and proceedings of Boards of
Directors
Manager
Secretary
Dividends and reserves
Accounts, audit and borrowing powers
Capitalization’s of profits
Winding up
59. ALTERATION
Pass the Special Resolution
File the copy of the Special Resolution with the
Registrar within 30 days of passing the special
resolution
Attach the resolution with every copy of AOA
Must not be inconsistent with the Act
Must not conflict with MOA
Must not sanction anything illegal
Must be for benefit of the company
Must not increase the liability of the members
Must not result into breach of contract
60. CONSTRUCTIVE NOTICE
Every outsider dealing with the company is deemed
to have the notice of the contents of MOA & AOA.
These documents, on registration with the
Registrar, assume the character of public
documents.
This is known as Constructive Notice of
Memorandum and Articles.
61. INDOOR MANAGEMENT
There is one limitation to the doctrine of constructive notice
of the MOA & AOA of the company.
The outsiders dealing with the company are entitled to
assume that as far as internal proceedings are concerned,
everything has been regularly done.
They are presumed to have read these documents and to
see that the proposed dealing is not inconsistent therewith.
They cannot inquire into the regularity of internal
proceedings as required by MOA & AOA. They can presume
all is being regularly done.
This limitation of doctrine of constructive notice is known as
“DOCTRINE OF INDOOR MANAGEMENT”
It is also called Turquand Rule.
62. CASE: ROYAL BRITISH BANK
VS. TURQUAND
The directors of a company had issued a bond to T.
They had the powers under the Articles to issue
such bond provided they were authorized by a
resolution passed by the shareholders at a general
meeting of the company. No such resolution was
passed by the company.
Held, T could recover the amount of the bond from
the company on the ground that he was entitled to
assume that the resolution had been passed.
Thus doctrine of indoor management seeks to
protect the outsiders of the company.
63. Exceptions to the Doctrine of Indoor
Management
Ultra Vires Act
Knowledge of Irregularity
Act of an agent outside the scope of his
authority
Negligence
64. Doctrine of Ultra Vires
Any act done by the company which is neither
authorized by its object nor by the Companies Act,
that act is called ‘Ultra Vires’ the powers and
authority of the company.
An act which is ultra vires the company is void and
cannot bind the company.
Since the act is void, it cannot be ratified even by
the shareholders.
65. Doctrine of Ultra Vires
If the directors do any act which are outside the
object clause of the company then the
shareholders are not liable. The directors are
personally liable for the ultra vires act done by
them.
Act Ultr Vires to MOA cannot be ratified by the
shareholders but acts Ultra Vires to AOA can be
ratified by them.
Any shareholder can bring court injunction to
prevent the company from doing an Ultra Vires
Act.
66. Give the Legal Advice
Under the Articles, the directors of the company
had the power to borrow up to Rs. 10,000 without
the consent of the directors of the general meeting.
The directors themselves lent Rs. 35,000 to the
company without such consent and took
debentures. Is the company liable to pay
Rs.35,000.
67. MOA
1. Determines the
constitution and
activities of the co.
2. It is fundamental charter
3. Every co. must have a
MOA
4. Alteration of MOA is
difficult
AOA
1. It contains rules and
regulations of internal
management of co.
2. It is subsidiary to
MOA& if conflicting,
MOA would prevail
3. Public company limited
by shares may or may
not have AOA
4. Alteration is easier by
special resolution
Difference Between MOA &AOA
69. General Interpretation
Any Document,
Any Notice,
Any Circular,
Any Advertisement,
Inviting the money to be raised from the public
70. Meaning
It is a device for the public ltd company to
collect the capital after its incorporation.
When the public company or the promoters of
the public company decide that the money
should be raised from the public by the way of
the invitation for offers to the subscription of the
shares or debentures of the company, a
document is drawn up which is known as
prospectus.
71. Objective Behind Issuing
Prospectus
The objective of issuing the prospectus is to let
the public know of the establishment of the
company, its objects, its prospects, to induce
the investors to purchase its shares or
debentures.
72. Dating of Prospectus
A prospectus issued by or on the behalf of the
company shall be dated and that date shall be
taken as the date of the publication of the
prospectus.
73. Registration of Prospectus
No prospectus shall be issued unless on or before
the date of its publication, a copy of the prospectus
has been delivered to the Registrar for registration,
duly signed by every person who is named therein
as a Director or proposed Director of the company.
Registration of the Prospectus
Experts Consent
Delivery for Registration
News paper advertisement
74. Contents of the Prospectus
It contains the following details about the
company:
1. Name and Address of the Registered Office
2. Name of the Stock Exchange where the application
for the listing is made
3. Details related to the Minimum Subscription
4. Capital Structure of the Company
5. Terms of the present issue.
6. Particulars about the Issue.
7. Company Management and the Project.
8. Financial Information of the company.
9. Statutory information as per the provisions of Section
56 of the Companies Act,1956
75. Misstatements in Prospectus
Misstatements include:-
Untrue statements;
Statements which produce wrong impression;
Statements which are misleading;
Concealment of material facts; and
Omission of facts
76. Who are liable for Mis-statements
in Prospectus?
Every person who is:-
i. Director of the company at the time of issue of
prospectus;
ii. Promoter of the company;
iii. Any other person who has authorized the issue
of the prospectus.
78. Civil Liability
If the person has purchased the shares on the
basis of the misleading prospectus, then there
will be civil liability arising which are as follows:
1. Compensation
2. Damages for deceit or fraud
3. Recession of the contract for
misrepresentation
4. Liability for non compliance with section 56
79. Criminal Liability
No. Situation Penalty
1 Mis- statement in
Prospectus
2 years imprisonment or
fine which extends up to
Rs.50,000 or both.
2 Fraudulent Statements in
Prospectus
5 years imprisonment or
fine which extends up to
Rs.1,00,000 or both.
3 Issuing Application for
shares and Debentures
not accompanied with
memorandum containing
features of prospectus
Rs. 50,000
80. Defenses Against Civil Liability
Withdrawal of consent after issue
Reasonable belief
Statement by an expert
Statement by an official person or extract from
a public official document
81. Defenses Against Criminal
Liability
The statement was immaterial.
He had reasonable ground to believe and did
up to the time of the issue of the prospectus
believe that the statement was true.
82. Statement in Lieu of Prospectus
A company having a share capital which does not issue a
prospectus or which has issued a prospectus but has not
proceeded to allot any of the shares offered to the public for
subscription, shall not allot any of its shares or debentures,
unless at least 3 days before the allotment of shares or
debentures, there has been delivered to the Registrar for
registration a ‘statement in lieu of prospectus’ signed by
every person who is named therein as a director or
proposed director of the company or by his agent
authorized in writing, in the form and containing the
particulars setout in Part I of schedule III and setting out the
reports specified in Part II of schedule III subject to the
83. Shelf Prospectus
Any public financial institution, public sector
bank or scheduled bank whose main object is
financing shall file a shelf prospectus.
‘Shelf Prospectus’ means a prospectus issued
by any financial institution or bank for one or
more issues of the securities or class of
securities specified in that prospectus.
84. Minimum Subscription
No allotment shall be made of any share capital of a company offered to the
public for subscription, unless a minimum amount is raised. This minimum
amount is called “MINIMUM SUBSCRIPTION”
It is decided taking into account:
Purchase price of any property
Any preliminary expenses payable
Any commission payable towards subscription of any shares
The repayment of any money borrowed by the company
Working capital
Any other expenditure
All moneys received from applicants for shares shall be deposited and kept
deposited in a Scheduled Bank-
Until the certificate of commencement business is obtained and
Until the entire amount payable on applications for shares in respect of minimum subscription is
received (interest 6% after 130 days)
86. Kinds of Company Meeting
General Meetings
A. Statutory General Meeting
B. Annual General Meeting
C. Extra ordinary General Meeting
Meetings of Creditors Debenture-holder’s
Class Meeting
Meetings of Board of Directors
87. Statutory General meeting
A public limited company having share capital is
required to hold a statutory meeting.
Such a statutory meeting is held only once in the
lifetime of the company.
Such a meeting must be held within a period of
not less than one month or within a period not
more than six months from the date on which it
is entitled to commence business i.e. it obtains
certificate of commencement of business.
88. Purpose of Statutory Meeting
To enable members to know all important matters
pertaining to the formation of the company
like:-
which shares have been taken up
what money has been received
what contracts have been entered into
what sums have been spent on preliminary
expenses
89. Statutory Report
The Board of Directors must prepare and send to every
member a report called the "Statutory Report" at least
21 days before the day on which the meeting is to be
held.
The report should be certified as correct by at least two
directors, one of whom must be the managing director,
where there is one, and must also be certified as
correct by the auditors of the company with respect to
the shares allotted by the company, the cash received
in respect of such shares and the receipts and
payments of the company.
A certified copy of the report must be sent to the
Registrar for registration immediately after copies have
been sent to the members of the company.
90. Contents of Statutory Report
The total number of shares allotted, distinguishing
those fully or partly paid-up, otherwise than in cash, the
extent to which partly paid shares are paid-up.
The total amount of cash received in respect of all
shares allotted.
An abstract of the receipts and payments made within
7 days of the date of report.
An account of preliminary expenses.
The names, addresses and occupations of directors,
auditors, manager and secretary, if any, of the
company and the changes which have taken place in
the names, addresses and occupations of the above
91. Contents of Statutory Report
Any commission or discount paid or to be paid on the issue
or sale of shares or debentures.
Particulars of any contracts to be submitted to the meeting
for approval and modifications done or proposed.
If the company has entered into any underwriting contracts,
the extent, if any, to which they have not been carried out
and the reasons for the failure.
The arrears, if any, due on calls from every director and
from the manager.
The particulars of any commission or brokerage paid or to
be paid, in connection with the issue or sale of shares or
debentures to any director or to the manager.
The auditors have to certify that all information regarding
calls and allotment of shares are correct.
92. Proceedings at the Meeting
At the commencement of the statutory meeting, the Board
shall produce a list showing the names, addresses and
occupations of the members of the company and number of
shares held by them respectively. The list shall remain open
and accessible to any member of the company during the
continuance of the meeting.
Discussion of matters relating to formational aspect. They
may also discuss any matter arising out of the statutory
report.
Adjournment. The meeting may adjourn from time to time.
At any adjourned meeting, any resolution (of which notice
has been given), may be passed. An adjourned meeting
shall have the same powers as the original meeting. The
object of the adjournment may be to provide members with
additional information as to the company's affairs.
93. Annual General Meeting (AGM)
Must be held by every type of company, public or private
once a year.
Not more than 15 months must elapse between two AGMs.
However, a company may hold its first annual general
meeting within 18 months from the date of its incorporation.
A notice of at least 21 days before the meeting must be
given to members unless consent is accorded to a shorter
notice by members, holding not less than 95% of voting
rights in the company.
The notice of the meeting must be accompanied by a copy
of the annual accounts of the company, director’s report on
the position of the company for the year and auditor’s report
on the accounts.
94. Annual General Meeting
The notice must state that the meeting is an annual general
meeting. The time, date and place of the meeting must be
mentioned in the notice.
Companies having share capital should also state in the
notice that a member is entitled to attend and vote at the
meeting and is also entitled to appoint proxies in his
absence.
A proxy need not be a member of that company. A proxy
form should be enclosed with the notice.
The proxy forms are required to be submitted to the
company at least 48 hours before the meeting.
The AGM must be held on a working day during business
hours at the registered office of the company or at some
other place within the city, town or village in which the
registered office of the company is situated.
95. Purpose of Holding Annual General
Meeting
It is only at the annual general meeting of a company that
the shareholders can exercise any control over the affairs of
the company.
They also get an opportunity to discuss the affairs and
review the working of the company and can also take the
necessary steps for the protection of their interests. They
may, for example, refuse to re-elect a director whose
actions and policy they disapprove.
They can also take up any other business relating to the
affairs of the company for discussion.
Appointment of auditors is also made at the annual general
meeting.
Annual accounts are presented for the consideration of
shareholders and dividends are declared in the annual
general meeting.
96. Business Transacted at AGM
The following matters constitute ordinary
business at an AGM:-
o Consideration of annual accounts, director’s report
and the auditor’s report
o Declaration of dividend
o Appointment of directors in the place of those
retiring
o Appointment of and the fixing of the remuneration of
the statutory auditors.
97. Extra ordinary General meeting
Every general meeting (i.e. meeting of members of
the company) other than the statutory meeting and
the annual general meeting or any adjournment
thereof, is an extraordinary general meeting.
Such meeting is usually called by the Board of
Directors for some urgent business which cannot
wait to be decided till the next AGM.
Every business transacted at such a meeting is
special business.
An explanatory statement of the special business
must also accompany the notice calling the
98. Debentures Holder’s Meeting
A company issuing debentures may provide for the
holding of meetings of the debenture holders.
At such meetings, generally any matters pertaining
to the variation in terms of security or to alteration of
their rights are discussed.
All matters connected with the holding, conduct and
proceedings of the meetings of the debenture
holders are normally specified in the Debenture
Trust Deed.
The decisions at the meeting made by the
prescribed majority are valid and lawful and binding
upon the minority.
99. Purpose of Holding Debenture
Holder’s Meeting
These meetings are called from time to
time where the interests of debenture
holders are involved
-at the time of reconstruction
-reorganization
-amalgamation
-winding up of the company.
100. Creditor’s Meeting
Sometimes, a company, either as a running
concern or in the event of winding up, has to
make certain arrangements with its creditors.
Meetings of creditors may be called for this
purpose.
E.g. in case of winding up of a company, a
meeting of creditors and of contributories is held
to ascertain the total amount due by the
company and also to appoint a liquidator to wind
up the affairs of the company.
101. Class meetings
Class meetings are meetings which are held by
holders of a particular class of shares, e.g.,
preference shareholders.
Such meetings are normally called when it is
proposed to vary the rights of that particular class of
shares.
At such meetings, these members discuss the pros
and cons of the proposal and vote accordingly.
Class meetings are held to pass resolution which
will bind only the members of the class concerned,
and only members of that class can attend and
vote.
102. Meeting of Board of Directors
For efficient management of the affairs of the company,
the directors are required to meet frequently to discuss
and review important matters and to decide number of
meetings.
A Board meeting can be held on a public holiday or
outside business hours for convenience.
It need not be held at the registered office of the
company. It may be held at any place convenient to the
directors.
Period: A Board meeting must be held at least once in
every three months, and at least four such meetings
must be held in a calendar year.
103. Meeting of Board of Directors
Notice: Notice of every meeting of the board of directors of
company has to be sent to all the directors at their usual
address in India. Failure to do so will render the resolutions
passed at such meeting, null and void.
Quorum: The quorum for a meeting of the board of directors of
company shall be one-third of its total strength or two directors
whichever is higher. If the meeting cannot be held for want of
quorum it stands adjourned till the same day of the next week
at the same time and place.
Every meeting of the board must have a chairman to preside
over it. The articles usually name the chairman who shall
preside over the board meeting. If the articles do not name the
chairman, the director may elect a chairman of the meeting.
104. Requisites of a Valid Meeting
To be convened by Board
Notice
Quorum
Chairman of the meeting
Minutes of the previous meeting must be
properly kept
105. Quorum
Unless the AOA provides for a larger number, 5
members physically present in case of public
company and 2 members in private company shall
be the quorum for the meeting.
If the meeting is called upon the requisition of
members, and the quorum is not maintained
within half an hour of time of holding the meeting
then the meeting shall stand ‘dissolved’.
In other cases it shall be ‘adjourned’ to the same
day in the next week at the same time and place.
106. Minutes
Minutes of the proceedings of meetings are statutorily
required to be maintained under Section 193 of the
Companies Act.
Under this section the minutes of a meeting must be
recorded within 14 days of the meeting concerned.
The minutes of each meeting are required to contain a
fair and correct summary of the proceeding of the
meeting.
Minutes of all the meetings are signed by the chairman
of the meeting.
The chairman enjoys absolute discretion regarding the
exclusion of matters which are irrelevant to the
107. Minutes
The minutes must be recorded in a proper
minute’s book which has pages consecutively
numbered. Pasting of minutes to any other book is
prohibited.
The minutes of general meetings are required to
be kept at the registered office of the company and
must be open to inspection by members without
charge at least for two hours every day.
If a member wants a copy of the minutes, he can
get it within seven days of the request on
payment.
108. Proxies
The term proxy is used to refer to the person who is
nominated by a shareholder to represent him at a
general meeting of the company.
Under Section 176 (1) every member of the company is
entitled to appoint another person (member or a non-
member) to attend a general meeting and vote if need
be.
Unless a provision to the contrary is made in the
Articles, the members of companies not having a share
capital cannot appoint proxies to represent them.
A proxy shall not have any right to speak at the
meeting.
A proxy can only vote through a secret poll.
109. Proxies
Table 'A' lays down that an instrument appointing a
proxy must be deposited with the company not less
than 48 hours before the time for the meeting.
The Act also requires that the instrument appointing a
proxy must be in writing and must be signed by the
appointer or his legally authorized representatives.
Two types of proxies may be distinguished, A proxy
authorized to vote only upon a particular resolution is
called a 'special proxy' while a proxy empowered to
vote on all resolutions in a meeting may be called a
'general proxy'.
110. Resolutions
Matters in a company are decided by resolutions
in the meetings. E.g. giving authorities to directors
A resolution is proposed either by the chairman or
by any other member.
Kinds of resolutions:
1. Ordinary resolution
2. Special resolution
111. 1. Ordinary Resolution
A resolution passed at a meeting by a simple majority of votes,
including the casting vote of the chairman is an ordinary resolution
The following are some of the examples of acts, which a company can
do by passing an ordinary resolution:
To change its name where it has been registered with a name very nearly like
that of another existing company.
To authorize the issue of shares at a discount.
To alter the share capital by increase, consolidation and conversion of shares
into shares of larger amount, conversion of fully paid shares into stock or
vice-versa, subdivision of shares and cancellation of unissued shares
To appoint or remove directors.
To appoint the auditor at the annual general meeting.
To declare dividend recommended by the directors.
To wind-up the company voluntarily when the period fixed for its duration has
expired.
112. 2. Special Resolution
It is a resolution which is passed at general meeting by a majority of
three fourth of the members present. The notice of the general
meeting at which a special resolution is to be moved must expressly
state that the resolution is to be moved as a special resolution.
A company can do the following acts only by passing special
resolution:
To transfer the registered office of the company from one state to
another or to alter its objects.
To alter the Articles of Association.
To reduce share capital.
To shift the registered office from one place to another in the same
state.
To make the liability of directors or managers unlimited.
To approve the making of loans to other companies.
To resolve that the company be wound up by the court.
To wind up a company voluntarily.
114. Membership of a Company
The subscribers to the memorandum of a
company shall be deemed to have agreed to
become members of the company and on its
registration, shall be entered as members in the
Registrar of Members;
Every other person who agrees in writing to
become member of a company and whose name is
entered in its register of members, shall be a
member of company;
Every person holding equity share capital of
company and whose name is entered as
beneficial owner in the records of the
115. How Membership Ceases?
By transfer of shares;
By forfeiture of shares;
By surrender of shares;
By sale of shares by the company after it exercises its right of lien
on the shares or in execution of a decree by Court or other proper
authority;
By insolvency;
By death;
By rescission of the contract to take shares on the ground of
misrepresentation in the prospectus;
When the company redeems its redeemable preference shares;
On issue of share warrants by company in place of certificates;
On winding up of the company
116. Who Can Be A Member?
Minor
Company & Subsidiary Co.
Trust
Partnership firm
Society
Non-Resident
117. Rights of Members
To receive notices of all general meetings
To attend and vote at general meetings, appoint directors
and auditors of the company
To receive copies of accounts of the company
In case of a statutory meeting, he is entitled to a copy of
statutory report
To inspect the minutes of proceedings of any general
meeting
To inspect the register and index of members and
debenture holders and copies of annual returns
If his name is omitted in the register of members, he can
apply to the Court for the rectification of the register
To transfer his shares
Priority to have shares offered to him in case of increase of
capital by the company
118. Rights Contd..
To receive share certificate
To receive dividends in case of preference shares
To rescind the contract and claim damages in case of his
acquiring shares on account of mis-statements in
prospectus
To make an application to Central Government for ordering
investigation into the affairs of the Co.
To present a petition to the Court for relief in cases of mis
management & oppression
If the company declares dividend, the right to participate in
the dividend distribution
To apply to the Central Govt. to convene the AGM when
Board of Directors fail to convene the same
To present a petition to the Court for winding up of the Co.
Entitled to share in the surplus assets, if available, on
liquidation
119. Liabilities, Duties and Obligation of
Members
To pay calls on the shares whenever demanded
by the company
To pay the full nominal value of the shares held by
him in case of a company limited by shares
To pay all the debts of the company in case of a
company unlimited by liability
121. What Does Company Law
Speak?
Section 2(13) defines director as "director includes any
person occupying the position of a director by whatever
name called."
Director is not servant of the company. He is rather an
officer of the company.
The articles of association of the company and
provisions of the companies Act will govern the selection
of the directors of the company.
The management or the affairs of the company will be in
the hands of the directors. The directors are collectively
called the Board of Directors.
The articles will determine the number of directors to be
appointed to the Board of Directors of a company. As
per the Act, minimum three directors will be there in a
public company and two directors in a private
123. AS A TRUSTEE
The directors are not owner of the company and
they do not function as an owner, while entering
into contract with the third person.
The directors have to use their powers in the
interest of the company. The directors are
expected to show the capacity and diligence as a
trustee.
If the directors misuse the position, they are held
liable. The directors are the trustees in connection
with the transfer and distribution of shares. The
directors have to disclose the details of his
124. AS AN AGENT
The position of director is like an agent. They
have to function as per the provisions contain
in the Articles of the company and the
Company Law.
Their actions are not their personal
transactions, but they are the transactions
done for and on behalf of the company.
Therefore, they cannot be sued for the all intra
vires acts done by them on behalf of the
company .
125. AS A PARTNER
Directors held shares. The members of the
company also hold shares. The directors work
as the representatives of the members. Thus,
they are liked partners of the members of the
company.
126. Appointment of Directors
Appointment as First Directors
Appointment by Election in General Meetings
Appointment by Nomination by BOD
Appointment by Nomination by Central
Government
Appointment by Nomination in Statutory
Corporations
Appointment on the basis of Qualification shares
Appointment by Proportional Representation
Alternate Directors
127. First Directors
Persons named in the articles of association
as directors become the first directors of the
company or in the absence of the provision in
the articles regarding persons to be appointed
First Directors, the subscribers to the
memorandum of association will become the
first directors.
128. Appointment by Election in
General Meetings
The members at the general meeting of the
company will elect the directors.
At the general meetings generally directors are
appointed in place of retiring directors.
This is the most common and usual mode of
appointing directors. Section 255 provides for
the procedure for election
129. Appointment by Nomination by
BOD
The Board of Directors will fill up the casual
vacancy arising among the directors by
nomination.
A casual vacancy arises in case o death,
resignation, disqualification or any other reason
than retirement by rotation.
Directors so appointed will remain in the office
only for the unexpired period for which the
director whose post is vacant, would have
remained in the office.
130. Appointment by Nomination by
Central Government
Under Section 408 of the Act, the Central
Government can nominate some directors to
the Board in case of mismanagement and
oppression.
131. Appointment by Nominations in
Statutory Corporations
Certain statutory corporations possess similar
powers e.g. the Industrial Finance Corporations
Act of 1947 empowers the Corporation to
nominate a director to the Board of a company
to which it has advanced moneys.
132. Appointment on the Basis of
Qualification Shares
Where a person holds minimum number of
shares as provided in the articles then he is
said to have obtained 'qualification shares'. A
person can be appointed as a director on the
basis of such qualification shares.
133. Appointment by Proportional
Representation
The articles of the company may provide for the
appointment of not less than 2/3rd of the total
number of directors of a public company,
according to the principles of proportional
representation.
The appointments must be done once in every
3 years and interim casual vacancies must be
filled by the BOD in Board meetings.
134. Alternate Directors
The Board of Directors of a Company, may, if so
authorized by its articles or by resolution passed
by a company in general meeting, appoint
alternate director during absence of the existing
director for a period not less than three
months from the State in which meeting of the
Board are ordinarily held.
The alternate director cannot hold office longer
than the original director. He will vacate his office
if and when the original director returns to the
State.
135. Qualification to be a Director
A director must be-
i. An individual,
ii. Competent to contract, and
iii. Hold a share qualification, if so required by
the articles
136. Disqualification for Directors
A person shall not be capable of being appointed as
director of the company, if
I. He has been found to be of unsound mind
II. He is an undischarged insolvent.
III. He has applied to be adjudicated as an insolvent and his
application is pending.
IV. He is convicted by a Court, of any offence involving moral turpitude
and sentenced in respect thereof, to imprisonment for not less than
six months and period of five years has not elapsed from the date
of the expiry of the sentence.
V. He has not paid any call in respect of shares of the company held
by him and six months have elapsed from the last date fixed for the
payment of the call.
VI. An order disqualifying him from appointment as director has been
passed by a Court in pursuance of Section 203
138. Removal By Shareholders
A company may by ordinary resolution remove a
director before the expiry of period of office on
the intent of the shareholders in the annual
general meeting by:-
Giving special notice to the director at least 14 days
before the meeting in which they are to be removed,
A copy of the notice to be sent to the shareholders
and to other directors,
Shareholders can remove the director by appointing
a new director in his place who will hold the office
only for the unexpired tenure of the previous
director.
139. Directors who cannot be
removed by Shareholders
An additional director appointed by the Central
Government under Section 408 in case of
mismanagement and oppression) cannot be
removed.
In a private company a director appointed for life
and holding office as such on 1st April 1952
cannot be removed by member's resolution.
Where the articles of a company provide
for the election of directors by
proportional representation, a director elected
by that method cannot be removed by the
resolution.
140. Remuneration to the Director for
his Removal
If a director, by an agreement or otherwise is
entitled to receive compensation for the
premature termination of his service, he can
enforce his claim notwithstanding the removal
by the resolution.
141. Removal By Central Government
The Central Government shall by order
remove from the office any directors against
whom there is a decision of the High Court,
holding that he is not a fit or proper person to
hold the office of director
142. Removal By Company Law Board
Section 402 read with Sections 397 and 398 gives
wide power to the court including the removal of the
directors.
On an application by any member/members of the
company in cases of mismanagement or oppression,
the Company Law Board may terminate any Director.
Directors so terminated cannot be appointed as
directors of other companies also upto a period of 5
years of their termination.
Such directors are not entitled to any damages or
compensation for loss of office.
143. Retirement
Proportion of Directors to retire by rotation-2/3rd
only in first AGM the ratio is 1/3rd
Vacancy to be filled at AGM, if not then retiring
directors will be deemed to be re-elected
Resignation of office of director
RESTRICTION- HOLDING OFFICE OF DIRECTOR
FOR NOT MORE THAN 20 COMPANIES.
144. Managing Director
The director who is entrusted with substantial
powers of management and includes a director
occupying the position of Managing Director by
whatever name called.
He is contract with company for his services and
is a whole time director entrusted with certain
duties and responsibilities.
145. Modes of Appointment of MD
BY AGREEMENT WITH COMPANY
BY A CLAUSE IN MOA. OR AOA.
BY A RESOLUTION PASSED BY COMPANY
IN GENERAL MEETING
BY A RESOLUTION PASSED BY B.O.D.
146. Disqualification of MD
INSOLVENT
SUSPENDED PAYMENT OF HIS CREDITOR
CONVICTED BY COURT
ALL DISQUALIFICTIONS OF DIRECTOR
LIMIT:-ONLY ONE PUBLIC CO. & SECOND WITH:
1. A RESOLUTION OF BOD.
2. OR SPECIAL ORDER BY CENTRAL GOVERNMENT
TERM:- NOT EXCEEDING 5 YEARS
147. Remuneration
As determined in the Articles
Not to exceed 11% of Net profit
Director other than MD may be allowed
commission not exceeding 1% of net profit
148. Powers of Directors
MAKE CALLS
ISSUE DEBENTURES
BORROW MONEY
INVEST FUNDS
MARKET LOANS
149. Limitations of Directors
Sell, lease, etc. the whole undertaking
Remit or give time for the repayment of any debt
by a director
Invest or borrow money in contravention of the
act.
Charity of more than Rs. 50,000.
150. Rights & Duties of Directors
RIGHTS:
1. TO TAKE PART IN MEETINGS OF BOARD & IN THE AFFAIRS
OF THE CO.
2. RIGHT OF REMUNERATION
3. COMPENSATION IN CASE OF PREMATURE TERMINATION
OF SERVICES
DUTIES:
1. DISTRIBUTE WORK ON BUSINESS LINES
2. ACT IN GOOD FAITH
3. EXERCISE REASONABLE CARE
4. MUST EXERCISE THAT SKILL WHICH IS REASONABLY
EXPECTED OF HIM
5. ATTEND MEETING
151. Liabilities
CIVIL:
1. FALSE STATEMENT IN A PROSPECTUS
2. EXCEED AUTHORITY
3. IN CASE OF ULTRA-VIRES ACTS
4. WHERE HE IS NEGLIGENT AND CO. SUFFERS
5. MAKES A SECRET PROFIT
6. COMMITS ANY BREACH OF TRUST
CRIMINAL: FALSIFICATION OF BOOKS &
REPORTS FAILURE TO KEEP CERTAIN
REGISTER
153. Types of Share Capital
Authorized or Nominal Capital
Issued Capital
Subscribed Capital
Paid-up Capital
Un-called Capital
154. Example
A company is registered with Rs. 5 lacs initially as the total share capital.
This is Authorized or Nominal capital. This capital is divided in shares of
different denominations, for example, Rs. 5 lacs may be divided into 5000
equity shares of Rs. 100 each. The face value of the shares is, therefore,
Rs. 100 each.
The company may require only about Rs. 2.5 lacs immediately for carrying
out its objects and activities. It may, therefore, issue only 2,500 shares of
Rs. 100 each. This is ‘Issued capital’.
If all the shares offered or issued are taken up by the public it becomes'
subscribed capital’.
Further the minimum requirement of the company initially may be only Rs.
1 lac. It may, therefore, call up only Rs. 25 on each subscribed share. This
will be a ‘Called-up capital’.
When all the 2500 shares are paid up by Rs. 25 on each share i.e., Rs. 1
lac will be ‘Paid up capital’. Rs. 1.5 lacs is ‘Uncalled capital’.
155. Difference Between Shares &
Stocks
SHARE
1. Shares cannot be
issued or transferred
in fragments
2. Shares need not be
fully paid up
3. Shares bear
distinctive numbers
4. Shares are issued
directly
STOCK
1. Stock can be divided
into unequal amount and
therefore can be issued
and transferred in
fragments
2. Stock is always fully
paid up
3. Fractions of stock do not
bear distinctive numbers
4. Stock cannot be issued
directly
156. CLASSIFICATION OF SHARES
I. PREFERENCE SHARES
Are those which have two characteristics, viz; (i)
they have a preferential right to be paid dividend
during the lifetime of the company and (ii)they have
a preferential right to the return of capital when the
company goes into liquidation
Cumulative/Non Cumulative, Redeemable/Non-
redeemable, Participating/Non Participating,
Convertible/ Non Convertible
II. EQUITY SHARES
157. Further issue of capital:
At any time after the expiry of two years from the
formation of a comp or at any time after the expiry of
one year from the allotment of shares in that comp
made for the first time after its formation – whichever is
earlier
Offers to present share holders
Time limit 15 days.
Issue of shares at Premium
Securities premium account
Issue of shares at Discount
Maximum rate 10%
Issue of shares for consideration
158. Transfer of Shares
Instrument of Transfer
Transfer of instrument in prescribed form and
presentation
Time limit for presentation
Application for transfer
Transfer by legal representative
Transmission by operation of law
Registration of transfer
Share Certificate
160. Reconstruction & Amalgamation
Reconstruction: Occurs when a company
transfers the whole of its undertaking and property
to a new company under an arrangement by
which the shareholders of the old company are
entitled to receive some shares or other similar
interests in the new company.
Amalgamation: Takes place when 2 or more
companies combine into one company, the
shareholders in the amalgamating companies
becoming substantially the shareholders in the
amalgamated company.
161. Procedure to Be Followed
1. Approval of scheme by shareholders of 3/4th in the
value of shares
2. Court’s sanction on any of the following matters
o Transfer of the whole or any part of the undertaking, property
or liabilities
o Allotment or appropriation of any shares, debentures, policies,
etc under compromise or arrangement
o The continuation by or against the transferee company of any
legal proceedings pending by or against the transferor
company
o Dissolution, without winding up, of the transferor company
o Provision to be made for any persons who dissent from the
compromise or arrangement
3. A certified copy of Tribunal order to be filed with the
Registrar
162. Acquisition of Shares of Shareholders
Dissenting From Scheme Approved By
Majority
In case of amalgamation or reconstruction, the
transferee company makes an offer to the
shareholders of the transferor company to
purchase their shares at a stated price.
The offer may be to buy the shares either for cash
or in exchange of shares of the transferee
company.
Dissenting shareholders are the shareholders
who have not agreed to the scheme or
arrangement between the transferee company
and the transferor company.
163. Conti..
Approval of shareholders of not less than 9/10ths in value of the
shares required within 4 months
After the transferee company makes an offer to the shareholders of the transferor
company to acquire their shares, the offer shall have to be approved within 4 months
by the shareholders holding not less than 9/10ths of the total value of such shares.
Notice to Dissenting Shareholders
Within 2 months after the expiry of 4 months(the period for the approval of offer to take
shares), the transferee company shall give notice to the dissenting shareholders that it
desires to acquire their shares. Within 1 month of the notice any dissenting shareholder
may apply to the Tribunal to investigate into the matter. If no application is made by any
holder or if the Tribunal refuses it, the transferee company shall be entitled to acquire the
shares of all persons.
164. Amalgamation of Companies
Under National Interest
Sec 396 provides for the powers of the Central Govt.
for the amalgamation of 2 or more companies in the
national interest.
Where the central govt. is satisfied that it is essential
in the public interest that 2 or more companies
should amalgamate, it may, by order in the Official
Gazette, provide for the amalgamation of those
companies as a single company.
In such case, the members and creditors of the
company shall have the same interests or rights in
the amalgamated company which they enjoyed
before the amalgamation.
165. Conti..
Appeal to the Tribunal:
Any person aggrieved by the assessment of
compensation , may within 30 days from the
date of publication of the assessment in the
Official Gazette, prefer an appeal to the
Tribunal.
