COMPANIES ACT FOR ENTREPRENEURS by : DR. T.K. JAIN AFTERSCHO ☺ OL centre for social entrepreneurship sivakamu veterinary hospital road bikaner 334001 rajasthan, india FOR – PGPSE / CSE PARTICIPANTS mobile : 91+9414430763
My words.... Ours is a great country with immense entrepreneurial potential. However, our legal system and taxation system is so cumbersome that our creativity and talent is wasted / unnecessarily diverted in these sectors. I wish that these are simplified so that an ordinary entrepreneur can understand these without help from any expert. Here I present companies act for entrepreneurs. I wish that more people should become entrepreneurs. Let us wish that some likeminded person is able to reach policy making level and is able to change these. An ordinary Indian entrepreneur wishes to remain an honest entrepreneur and contribute to the development of nation, but our systems and processes .. ...
While giving inter-corporate loans, what should be the minimum rate of interest ? It should carry the rate of interest not lower than the prevailing bank rate being standard rate made public under Section 49 of the Reserve Bank of India Act, 1934.
What is the limit, beyond which a company must obtain permission of shareholders through special resolution before inter-corporate loan? The limit is 60% of its paid-up share capital and free reserves or 100% of its free reserves, whichever is more.
Can a company invest in inter-corporate investments in someone else's behalf ? No investments made by a company on its own behalf must be made and held by it in its own name.
Can board of directors invest money in intercorporate investments? Yes, subject to some conditions and limits Read : Section 292 of the Act
Are deposits taken by a company repayable before maturity ? No Deposits are not repayable before maturity.
What are provisions relating to acceptance of deposits ? Section 58A :Company cant invite any deposits unless deposits are invited in accordance with Companies (Acceptance of Deposits) Rules, 1975, an advertisement must be issued by the company in prescribed form the company must not have defaulted in repaying deposit or interest thereon.
What is penal interest rate in case of failure in repayment of deposits ? Payment for penal interest @18% p.a. Must be made by the company for deposits, which have matured and are claimed as well but they have remained unpaid. However, in case of deposits made by small depositors the penal interest rate shall be @20% p.a. which shall be compoundable with annual rests.
What types of deposits are not part of Sec. 58A ? 1. Deposit made for booking/purchase of car, etc. 2. Deposits accepted by financial companies like hire-purchase, finance company, a housing finance company, an equipment leasing company, a chit fund company or a company 3. Deposits accepted by a sick industrial company covered by the Sick Industrial Companies (Special Provisions) Act, 1985, 4. Deposits accepted by relief undertakings under law
Who are responsible for keeping books of accounts ? 1. managing director or manager and all officers and other employees of the company, and 2. if the company has neither a managing director nor manager then every director of the company. (sec 209)
To whom is it necessary to circulate balance sheet and auditor's report ? 1. every member of the company; 2. every trustee for debenture holders whether such member or trustee is entitled to have notice of general meeting to be sent to him or not; and 3. all other persons who are entitled to have notice of general meetings. (sec. 219) (clause 32)
What should be the contents of director's report ? 1. the state of the company’s affairs; 2. the amount, if any, which it proposes to carry to any reserves 3. the amount, if any, which it recommends should be paid by way of dividend; 4. material changes and commitments, if any, affecting the financial position of the company which have occurred between the end of the financial year of the company to which the balance sheet relates and the date of the report. 5. the conservation of energy, technology absorption, foreign exchange earnings and outgo[Section 217(1)].
What can be classified as material changes taking place after balance sheet date – which must be reported in annual report ? purchase, sale or destruction of plant or the destruction of inventories. Substantial decline in the market value of inventories or investments. lapse of a patent which had given the company a virtual monopoly in the sale of its principal products. tax liabilities of prior period or the settlement of any legal or other proceedings either favourably or adversely, if they were pending at the balance sheet date. Significant Legal proceedings against the company. Important changes in the capital structure
What is the schedule VI of companies act about ? Part I Format of balance sheet Part II : Profit and loss a/c Part III interpretation
What is the schedule X of companies act about ? Fees to be paid to registrar
What is the schedule IX of companies act about ? Form of proxy
What is the schedule XIII of companies act about ? Conditions to be fulfilled for appointment of MD / manager / wholetime director without permission from central government part I : appointment Part II : remuneration
What is the schedule XIV of companies act about ? Rate of depreciation
What is the schedule IA of companies act about ? List of relatives
What is the schedule II of companies act about ? Matters to be specified in prospectus part I : matter Part II : report Part III : other provisions
What is the schedule III of companies act about ? Form of statement in lieu of prospectus (sec. 70) part I : format Part II : reports Part III: other provisions
What is the schedule IV of companies act about ? Form of statement in lieu of prospectus to be used on conversion of a private company into a public company (sec. 44) part I : format Part II : reports Part III : other provisions
What are the contents of part III of the companies act ? Prospectus, Allotment etc from sec. 55 to 81
What are the contents of part IV of the companies act ? Share capital and debentures Sec. 82 to 123
What are the contents of part V of the companies act ? Registration of charges (sec. 124 to 145)
What are the contents of part V of the companies act ? Arbitrage, compromise, arrangement, reconstruction sec. 389 to 396
What are the contents of part VII of the companies act ? Sec. 425 to 560
What is the schedule V of companies act about ? Contents and format of annual return
How can a company appoint MD ? 1. By virtue of an agreement with the company. through a resolution passed by the company. 3. By virtue of a resolution passed by the Board of directors. 4. By virtue of the memorandum of association. 5. By virtue of the Articles of Association.
Is there any time limit for tenure of MD ? No company can appoint a managing director for a term exceeding five years at a time. He may, however, be re-appointed for another term of five years.
Can an MD be appointed MD in another company also ? No no public company and no private company which is a subsidiary of a public company can appoint any person as managing director, if he is already either the managing director or manager of any other company
If a person who is convicted in a crime relating to formation of a company, be appointed as MD ? No a person convicted of any offence in connection with the promotion, formation or management of a company or in course of winding up of a company under Section 542 of the company Act can not be appointed a director
Is it necessary to retire some directors by rotation every year ? Yes not less than two-thirds of the total number of directors of a public company or of a private company which is a subsidiary of a public company, are liable to retirement by rotation (sec. 255)
If you appoint an alternate director instead of a director (who is going abroad), will he continue to work after return of director ? No An alternate director has no locus standi, the moment the principal director returns to the state in which the board meeting of the company is ordinarily held, he ceases to be the director
Is an approval of the Central Government required to remove a person from managing directorship? No approval of the Central Government is not required to remove a person from managing directorship. Do it as per the articles of association. You may have to give him compensation read sec. 284 (for additional details)
What are disqualifications for MD? 1. is an undischarged insolvent or has at anytime been adjudged as insolvent; 2. suspends or has at any time suspended payment to his creditors, or makes, or has at any time made, a composition with them; or 3. is or has at any time been, convicted by a Court of an offence involving moral turpitude. 4 any disqualifications mentioned in Part I of Schedule XIII (age of less than 25 or more than 70 etc. ) (imprisoned / fined for over 1000 under any business law)
What are powers of an MD ? As per articles of association genrally MD can undertake buying fixed assets, selling assets, borrowings, investing, entering into contracts, appointment of senior personnels etc.
Can an MD change service conditions of other employees? Yes being in charge of the management of the company’s affairs, the MD enjoys the power to vary the duties of employees within permissible limits. [V. Ramaswami v. Madras TImes Printing & Publishing Co., AIR 1917 Mad 485].
Is sitting fees a part of managerial remuneration ? Yes payment of sitting fee to managerial personnel is part of managerial remuneration and in case of Schedule XIII appointments, no sitting fee is payable in the absence of any proviso made therein.
Is there any limit to reimbursement of medical expenses of the director ? Yes, it is Rs. 9 Lakhs any reimbursement of medical expenses in excess of Rs.. 9 Lakhs in total managerial remuneration package requires approval of the Central Government under Section 310 of the Companies Act.
What is the duty of a chairman in the meeting ? The primary duty of the chairman of a Board or company meeting is to ensure the presence of quorum before proceeding with the deliberations of the meeting and then to conduct the meeting in a peaceful atmosphere so that the business on the agenda before the meeting is transacted in an orderly fashion.
Can the chairman adjourn a meeting ? Yes – but only in exceptional cases - the chairman has the right to adjourn a meeting when it is impossible to continue the meeting, by reason of disorder or other like cause [John v. Rees, (1969)– not to properly convened and well organised meeting .
Can a secretary participate in meetings or do negotiations ? He cannot participate in the management of the company’s affairs He cannot negotiate contracts on behalf of the company He cannot borrow money in the company’s name He cannot register transfers of shares without the Board’s authority He cannot call meetings of members. He has no power to strike a name off the Register of Members He cannot bind the company by contract;
Can a secretary appoint an employee ? Yes the court held : “He is certainly entitled to sign contracts connected with the administrative side of a company’s affairs, such as employing staff and ordering cars and so forth. All such matters now come within the ostensible authority of a company secretary” - lord Denning in Panorama Development (Guildford) Ltd. v. Fidelis Furnishing Fabrics Ltd.(1971)
What is the role of a secretary ? 1. He is an agent of the Board of directors, i.e. as a liaison or link between the Board on the one hand and the executive and staff, shareholders, customers and general public on the other; 2. He is the officer-in-charge of secretarial work; 3. to act as a chief business executive or chief administrative officer of the company, if he is put incharge of office administration, including accounts, taxation and legal sections.
Who can appoint / dismiss a company secretary ? Appointment of Company Secretary is made by means of a resolution passed at meeting of Board of Directors. Dismissal of a company secretary can be done by the Board of Directors or by the Managing Director (if authorized by the Board).
Can a company secretary advertise? Practising company secretaries are allowed to advertise the corporate advisory services provided by him subject to the Guidelines for Advertisement by Company Secretary in practice.
Is it necessary for a company to appoint a company secretary ? Every Company having a paid up share capital of Rs. 2 crore or more is compulsorily required to have a Company Secretary u/s 383A. Every company having a paid up share capital of Rs. 10 lakhs or more but less than Rs. 2 crore is required to file a certificate from company secretary in whole time practice in prescribed form and as per rules
What is the role of quality review board ? Quality Review Board reviews quality in the field of professional services like company secretaryship. It consisting of a chairperson and four other members, who shall be appointed from amongst the persons of eminence having experience in the field of law, economics, business, finance or accountancy. (Section 29A).
What are the various types of meetings ? 1. Statutory Meeting as per Section 165 of the Act; 2. Annual General Meetings as per Section 166 of the Act; 3. Extraordinary General Meetings; 4. class meetings of shareholders 5. meeting of debenture holders 6. board meeting
When should a company organise statutory meeting ? Between one month to six months from the date at which the company is entitled to commence business,
What are the contents of a statutory report ? (which is presented at statutory meeting) (sec. 165) 1. Shares allottment details 2. Cash received on shares with an abstract of receipts and payments and balance in hand; 3. Preliminary expenses of the company—an account or estimate thereof; 4. Names, addresses and occupations of the directors, auditors, etc. 5. Particulars of contracts 6. Unfulfilled underwriting contract 7. Calls, if any, unpaid by the directors and manager; 8. Particulars of commission and brokerage paid or payable to the directors or the manager.
When should AGM be held ? Earlier of these : 1. 15 months from date of the last annual general meeting; 2. the last day of the calendar year; 3. 6 months from the close of the financial year.
What types of names are not allowed ? Those coming under The Emblems and Names (Prevention of Improper Use) Act, 1950 words which are offensive to any section having close phonetic resemblance to the name of a company If it includes the word Co-operative etc if it is an exact Hindi translation of the name of an existing company in English
Is promotor of a company its trustee or an agent ? No, A promoter is neither an agent of, nor a trustee for, the company because it is not in existence. However, he occupies a fiduciary position
What are the liabilities of a promotor ? For misstatement as per Section 56 and Schedule II regarding matters to be stated and reports to be set out in the prospectus Under Section 62, a promoter is liable for any untrue statement in the prospectus
What deeds are invalid without common seal ? Power of attorney which would be required to be made in favour of a person to execute the deeds on behalf of the company; Share certificates; Share warrants; Any deed as required by the Articles.
What is the meaning of constructive notice of memorandum and articles ? every person who enters into a contract with a company has the means of ascertaining and is consequently presumed to know, not only the exact powers of the company but also the extent to which these powers have been delegated to the directors, and of any limitations placed upon the exercise of these powers as per MoA and AoA.
What are the legal effects of MoA? the members are bound to the company; the company is bound to the members; the members are bound to members the company is bound to outsiders.
What is the difference between MoA and AoA? The memorandum defines the relation between the company and the outsiders, while the articles regulate the relationship between the company and its members and between the members themselves The AoA is subsidiary both to the Companies Act and the MoA. members have a right to alter the articles by a special resolution, but in case of MoA permission of CLB / Govt is required.
Who an object to reduction in capital by a company ? Creditors can object. If any creditor objects, then either his consent to the proposed reduction should be obtained or he should be paid off or his payment be secured.
WHEN DOES CRYSTALLISATION OF FLOATING CHARGE TAKE PLACE ? 1. when the company goes into liquidation; 2. when the company stops its business; 3. when the creditors or the debenture holders take steps to enforce their security e.g. by appointing receiver to take possession of the property charged; 4. on the happening of the event specified in the deed.
Is registration of charge with registrar of companies compulsory? Yes Section 125 of the Act requires a company to file, within 30 days after the date of the creation of a charge, with the Registrar, complete particulars together with the instrument, if any, creating, evidencing or modifying the charge
What details must be furnished to registrar of companies at the time of registration? 1. the total amount secured by the whole series; 2. the dates of resolutions authorising the issue of the series and the date of covering deed, if any, by which the security is created or defined; 3. a general description of the property charged; 4. the names of trustees, if any for the debenture holders.
What is the purpose of registration of charge ? It creates a notice to whosoever acquires a future interest in the charged assets.
What details are kept by registrar when he registers a charge ? 1. the date of its creation. 2. the amount secured by the charge; 3. short particulars of the property charged; and 4. the persons entitled to the charge
What are the cases when charge need not be registered ? A charge created by operation of law does not require the registration . But a charge created by act of parties requires registration.
Is there a change in ownership at the time of charge ? No there is no transfer of interest in the case of a charge. Charge does not operate as transfer of an interest in the property and a transferee of the property gets the property free from the charge provided he purchases it for value without notice of the charge. But a mortgage is a transfer of an interest in a specific immovable property and it is good against subsequent transferees
Is it necessary to keep a register of charge and a copy of charge instrument open for public inspection ? Yes Every company is required to keep at its registered office a register of all charges (including mortgages) with details of all charges specifically affecting property of the company and all floating charges on the undertaking or on any property of the company giving in each case a short description of the property charged, the amount of the charge, and the names of the persons entitled to it (Section 143). every company must also keep at its registered office, a copy of every instrument creating any charge (Section 136).
How should a company inform registrar of satisfaction of charge ? The company must intimate satisfaction of the charge in e-form 17 prescribed under the Companies (Central Government’s) General Rules and Forms (Amendment) Rules, 2006 accompanied by appropriate fees, prescribed in Schedule X of the companies Act witin 30 days
Can a charge be modified ? Yes, but whenever the terms or conditions are modified, it is the duty of the company to send to the Registrar the particulars of such modification within 30 days. For registration of modification of charges also e-form 8 has to be filed with the Registrar.
What is mortgage ? According to Section 58 of the Transfer of Property Act, 1882, a mortgage is the transfer of an interest in specific immoveable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt or the performance of an agreement which may give rise to pecuniary liability.
When a company tries to reduce its capital, it passes a special resolution and takes permission from CLB. What criteria does CLB consider while giving permission ? The interests of creditors must be safeguarded; The interests of shareholders & the public interest must be considered
Compare surrender to forfeiture of share? Both forfeiture and surrender lead to termination of membership. But in the former case, it is at the initiative of company and in the latter case at the initiative of member or shareholder.
What are the methods to reduce share capital without court / CLB ? 1 Forfeiture 2. buy back 3. redemption of preference shares 4. purchase of shares as per sec 402 5. surrender of shares
Can a minor become a member of a company? No however, a guardian can hold shares on his behalf minor can acquire shares (they must be fully paid), the guardian will sign on transfer deed on behalf of minor
Can a subsidiary company be a member of a holding company ? No there are some exceptions
Exceptions – when subsidiary can be a member in holding company? 1 when subsidiary is a legal representative of a deceased person in holding company 2. when subsidiary is a trustee 3. when a subsidiary was a member before becoming a subsidiary 4. when subsidiary was a member before this company law was enacted
Can a trust become a member of a company ? No however a trustee can hold shares on behalf of the trust
Can a society become a member of a company ? Yes
Can a non resident become a member of a company ? Only with permission from RBI / or as per RBI'S scheme / guidelines
What are rights of a member ? Attend AGM voting right free access to books of accounts & register of member take copy of balance sheet & p&l a/c appoint proxy appoint dierctor & auditor go to court (for his rights and against oppression)
How does a person loose membership of a company? If he sells the shares of the company shares are converted into share warrant surrender of share buy back / redemption lien on shares court's order
Who is a member ? 1. the person who subscribes memorandum 2. the person who buys shares 3. whose name is there in register of member
What is statement in lieu of prospectus ? Every public company must prepare either prospectus or statement in lieu of prospectus a company can go for allotment of shares only after 3 days of issue of statement in lieu of prospectus or at least 5 days after issue of prospectus
What are contents of a prospectus ? Part I general information, capital structure, terms of issue, management etc. Part II reports by auditors / accountants / statutory information Part III details of above documents – where can their copies be obtained. Details of vendors etc.
Should prospectus be signed by director? Yes – by all the persons whose name has been mentioned it must be written that a copy of this prospectus has been submitted to registrar for registration
What is the time limit for issue of prospectus after registration? 90 days
What is the penalty for non-registration of prospectus ? 5000
What is doctrine of ultra vires? Doing an act beyond articles / authority / resolution / memorandum / company law is called ultra vires . The person taking such decision is personally liable for such act. It was given in Ashtray Railway Carriage and Iron company case ultravires act is void and cannot be approved
What is the effect of ultravires act ? Company cant sue, but other firm can sue company directors are personally responsible for the act
What are exceptions to the law of ultra vires? The act is ultra vires the directors, but intra vires the company – the company will be liable.
What is the difference between share and stock ? Stock = a bundle of shares put together share can be issued, stock cant be issued to public. Shares can be converted into stock every share has a distinct number, stock doesnt have. Shares have their own nominal value, stock dont have their own value. They are based on shares. Shares cant be sold in fractions, stock can be sold in fraction. Stock is always fully paid up and it can be issued only by public company
contd... Shares are in physical form bear distinct numbers, whereas stocks are the consolidated value of share capital. Shares may or may not be fully paid-up. Stock is always fully paid-up Shares have a nominal value, stock does not have any nominal value. All shares are of equal denomination whereas denomination of stocks vary. Stock cannot be issued in the first instance, whereas shares are issued to the public initially. On conversion of shares into stock, the provisions of the Act governing the shares shall cease to apply to the share capital as it is converted into stock (Section 96).
What are liabilities in case of misstatement in prospectus? Every director / promotor / person who authorised prospectus will have civil and criminal liability as per sec.59,60, 62,63,68 criminal liability = 2 year jail + fine 50000 civil liability = compensation, rescission of contract, penalty (50000)
What are defences against civil liability in case of misstatement in prospectus ? 1. the person has withdrawn his consent before publication of prospectus 2. prospectus issued without his knowledge 3.. he had a reasonable belief based on information 4. expert had given his report on the basis of reasonable grounds 5. on basis of public office documents
What are defences against criminal liability ? 1. when the statement is immaterial 2. when there was a reasonable ground to believe so at the time of issue of prospectus (sec. 63(1) )
What are the characteristics of a company ? Common seal legal identity artificial person perpetual succession right to sue and be sued
What is corporate veil? A company is different from its members. There is a veil between company and its members
When can the court lift corporate veil ? When there is a possibility of fraud / tax avoidance / illegal work / government revenue escape etc. When company violates rules / law / procedures When company is a sham when comapany has been formed to avoid one's contractual liabilities When company is agent of its shareholders when company has been created against public interest / for vested interest
What are the types of companies on the basis of liability ? Limited liability company unlimited liability company Limited by guarantee company
What are the types of companies on the basis of control ? Holding company subsidiary company
What are the types of companies on the basis of ownership ? Private company Public company government company foreign company
What are the types of companies on the basis of incorporation ? Chartered company (which used to work in pre-independence India having charter from Britain) statutory company (created by an act of parliament) registered company (ordinary company, registered under companies act)
What are the privileges of a private company in comparison to public company ? They can start with only 2 members (sec 12)) It can allot shares without minimum subscription (Sec. 69) No need of prospectus / statement in lieu of prospectus (sec.70) No requirement of rights issue in case of next issue (sec. 81) No need of certificate of commencement of busienss, it can start just after incorporation (sec 148)
What are the privileges of a private company in comparison to public company ? It can work with only 2 directors (sec. 252) No need of statutory meeting and statutory report (Sec. 165) No need to keep index of members (sec 151) No restriction on managerial remuneration Rules regarding directors are less stringent
When will a private company convert into a public company ? By Mistake - if it gives public invitation for its shares if its members increase beyond 50 etc. (sec. 43) Company law board may pardon the mistake
When will a private company convert into a public company ? When at least 25% of its capital is with public company / public companies Average annual turnover over Rs 10 crores When a private company holds at least 25% shares of a public company when a private company accepts public deposit (sec. 43A - in all these cases, it will become deemed public company)
When will a private company convert into a public company ? By CHOICE A private company can change its articles and become public company and file a prospectus with registrar in 30 days of conversion (read sec. 44)
How will a public company convert into a private company ? It is more difficult 1. special resolution 2. permission of govt. 3. in 1 month new copy of articles have to be submitted
What is the difference between private and public company? <ul><li>PRIVATE </li></ul><ul><li>Only 2 directors can start </li></ul><ul><li>Cant transfer shares freely </li></ul><ul><li>No prospecus / statutory meeting </li></ul><ul><li>Min 2 max 50 members </li></ul><ul><li>PUBLIC </li></ul><ul><li>Min. 3 directors can start </li></ul><ul><li>Can transfer shares freely </li></ul><ul><li>prospecus / statutory meeting essential </li></ul><ul><li>Min 7 max – no limit on members </li></ul>
What are the documents which promotors prepare before starting a company ? 1 memorandum of association 2 articles of association 3. prospectus 4 preliminary contracts 5. underwriting contracts 6 contracts with lead banker / lead manager / manager to issue
How to pick up name of the company ? Check availability of name (name should not be similar to existing company and should not be restricted) (sec. 20)
How to apply for a Name? First check out availability of name on the website : http://www.mca.gov.in/DCAPortalWeb/dca/compName.do Submit the filled in Form-1A along with the application fee of Rs.500/- at the cash counter of RoC or send the application and DD by post.
Hwo to get name approved ? You can apply for a name in the prescribed form (Form-1A) along with the application fees (Rs.500/-) at the RoC. You can give a maximum of 4(four) names in order of preference in your name application. RoC=registrar of companies
What after name is approved? After getting the name approved, prepare the necessary documents for registration of the company and file the same at RoC along with the registration and filing fees. Registration and filing fees vary depending upon the Authorised capital. In addition, Memorandum of Association and Articles of Association and Form-1 require payment of stamp duty as per concerned state stamp act.
What is the validity period of the Name approved? the approved name is valid for a period of 6 months from the date of approval. The Applicant can renew the name within 6 months by submitting a fresh Name application (Form-1A) along with the fees of Rs.500/-, by mentioning that the application is for renewal of the name already approved. ( Names inadvertently allowed or which are against the guidelines, which have subsequently come to the notice, may be withdrawn by the RoC before or after incorporation of the company).
What is the minimum Authorised Capital for a company? The minimum authorised capital for Private Limited Company – Rs.1,00,000/- For Public Limited Company – Rs.5,00,000/-
What is the minimum number of directors required to form a company? Minimum no. of directors for Private Limited Company – Two. For Public Limited Company – Three.
What is the minimum number of subscribers required for registration of a company? Minimum no. of subscribers for Private Limited Company – Two. For Public Limited Company – Seven.
What is the minimum Paid-up Capital at the time of registration of a company? The minimum paid up capital for Private Limited Company – Rs.1,00,000/- For Public Limited Company – Rs.5,00,000/-
What is the minimum number of shares to be subscribed at the time of incorporation? Minimum subscription for Private Limited Company – Shares worth Rs. One lakh. Minimum subscription for Public Limited Company – Shares worth Rs. Five Lakhs.
What is the difference between Authorised capital and Paid-up capital? Authorised capital is the capital with which the company is registered. The company can issue shares up to the level of Authorised Capital. Paid up capital means the amount of capital actually paid by the shareholders in respect of shares allotted to them.
Where can the company under the Companies Act, 1956 be registered? The Company can be registered with the Registrar of Companies of the state under whose jurisdiction the proposed company’s registered office will be situated
What are the documents to be filed with RoC every year? Invariably, the Balance Sheet and Annual Return have to be filed every year. Other documents such as, Return of Allotment (Form-2), Change of Registered office (Form-18), Change among the Directors (Form-32), Charges (Form-8, 10, 17, 13)etc., have to be filed within the due date from the events taking place in the company as per the Companies Act, 1956
Can I inspect a company’s documents available with RoC and how? Yes. You can inspect the documents processed and registered in the companies document file for a particular company by paying the Inspection fee of Rs.50/- per company. You can see them on portal also Visit : http://www.mca.gov.in/
Can I obtain a copy of a company’s document available in the records with RoC? If so, what is the procedure for the same? Yes. A certified copy of the requested document will be issued on payment of Rs.25/- per page of document, together with a formal application and a non-judicial stamp paper of Rs.10/- for each document.
What is “Investor Education and Protection Fund”? Investor Education and Protection Fund (IEPF) has come into force w.e.f 1st October, 2001. Any amount standing in a) Unpaid dividend, b) Unpaid Application Money received by company for allotment of shares, c) Unpaid matured deposits under section 58A of the Companies Act, 1956, d) Unpaid matured debentures, e) Interest accrued on (a) to (d) above after seven years from the date which they became due for payment within 30 days to be deposited in the designated Branch of Punjab National Bank. A return in Form No.1 has to be submitted
What are the requirements regarding appointment of directors ? 1. obtain the consent (approval) of directors and submit it to RoC 2. Director to submit undertaking (on stamp paper) that he would buy qualification shares 3. Particulars of first directors / subsequent directos appointed should be submitted to RoC in 30 days of appointment.
What is the role of directors? They are employees they are agent of the company they are trustees of the company they are officers of the company
Directors powers (only through directors' meeting) 1. make call on shares 2. issue debenture 3. borow money 4. invest funds of company 5 make loan
Directors powers (only through directors' meeting) (only at board meeting) ? to fill vacancy in the board (sec 262) to sanction contracts in which a director is interested (sec 297) to appoint MD / MD when the person is already an MD in another company (sec. 316, 386) to invest in companies of the same group (sec. 372) directors shareholding notice (sec 308) directors' interest notice (sec 299)
What are the statutory duties of a director? to file return of allotment in 30 days to disclose interest (sec. 299, 300) to disclose receipt from transferee of property / compensation from transferee of share to not to issue irredeemable preference share
What are general duties of directors? Not to delegate except as per articles / companies act not to make secret profit to take care of the company to attend board meetings regularly
What are disqualifications for director? (sec. 274) Unsound mind undischarged insolvent convicted for moral turpitude calls in arrears for more than 6 month disqualified by court under sec. 203 due to fraud etc.
How to remove director ? Ordinary resolution after special notice (14 day notice) by shareholders (sec. 284) Govt may refer the case to company law board and remove the director on advise of CLB (388B to E) Company law board (CLB) – when there is oppression and mis-management (397,398,402)
Meetings of director ? 4 meetings in a year, at least 1 meeting in 3 months Notice (sec. 286) – 7 day written notice to every director quorum = 1/3 rd member or 2 (whichever is higher ) if quorum is not present, the meeting is adjourned for next week same time.
What types of meetings are there ? Directors meeting creditors meeting shareholders meeting
What types of meetings do shareholders have ? AGM (annual general meeting) EGM (Extraordinary general meeting) (sec. 169) Statutory meeting (sec. 165) class meeting
What is a proper meeting ? Properly convened there must be quorum and chairman proceedings must be proper minutes should be prepared
What is the difference between ordinary resolution and special resolution ? Ordinary resolution = simple majority (51%) (sec. 189(1) SR = 75% majority (sec. 189(2)
What are the matters that require special notice (sec 190)? 14 day notice to company is required for : 1. appointment / removal of director 2. appointment / removal of auditor 3. to remove a director before his term expire 4. any other matter which require special notice as per articles / law the company will inform shareholders at least 7 days before the meeting
What is Foss v/s Harbottle case? It is about prevention of oppression and mismanagement in a company in this case it was held that majority will take the decisions and only in exceptional cases, minority can also decide.
Cases, when minority can also decide ? 1. when ultra vires (beyond the legal powers) act is done 2 fraud on minority 3. when personal rights of individual members are infringed 4. where acts requiring special notice and special resolutions are done with ordinary resolutions 5. reconstruction / amalgamation (sec. 394) 6. oppression / mismanagement (sec 397)
What to do in case of oppression and mis management ? Apply to govt for relief / winding up of company Apply to CLB for relief / winding up of company Apply to court for winding up of company
Who can apply ? (sec. 399, 401) At least 100 members or 1/10 th of total members or any member holding 1/10 of capital if there is no share capital : 1/5 th of total number of members govt cal also apply / govt can take application with less number of members also
What can govt. Do ? Appoint new directors (sec 408) CLB may ask to change articles and introduce proportioanal representation CLB may prevent change in board (sec. 409)
What are the various methods of winding up ? 1. winding up by court – sec. 433 2. voluntary winding up a. winding up by members b. winding up by creditors 3. winding up under supervision of court
When will court order for winding up of a company (sec. 433) 1. no statutory meeting 2. no commencement of business 3. membership below 7 (2 for private) 4 inability to pay debt 5. just and equitable cause
What is certificate of incorporation? If RoC is satisfied about all the documents that you have submitted (MoA, AoA, Prospectus, Statutory declaration, Directors appointment), the RoC will issue certificate of incorporation (sec.33) a private comany can now start business, but a public company will have to obtain Certificate for commensement of business.
What is Certificate for commensement of business ? RoC will grant it only if : 1. directors have purchased qualification shares 2. statutory declarations and prospectus / statement in lieu of prospectus have been submittted 3 minimum subscription
What about contract before certificate of commencement of business? All contracts between the date of incorporation and date of certificate of commencement of business are provisional and will bind the company only after certificate of commencement of business. If a company doesnt start business in 1 year from date of incorporation, the court may order for the wound up of the company
What is doctrine of contructive notice ? Every outsider who deals with a company is supposed to know about its MoA and AoA any person can go to registrar of companies or the website and read MoA and AoA of any company
What is doctrine of indoor management ? All those who deal with a company can assume that provisions of articles have been followed by the officers of the company
What are the exceptions to the doctrine of indoor management ? 1. if you know about irregularity in the company 2. if you are careless and it is your negligence that you didnt notice violation of company systems and procedures... if with little efforts you could have discovered that articles are not implemented properly, you are taking decisions at your own risk.
Inspection Charges of Company Documents Viewing Company Documents on Portal Rs. 50.00 per Company Certified Copy of Company Documents Certificate of Incorporation Rs. 50.00 per copy Any other public document Rs. 25.00 per page per document Transfer Deeds Nominal Face value of shares is upto Rs. 5000 Rs. 50.00 per deed Nominal Face value of shares is more than Rs. 5000 Rs. 100.00 per deed
What is the meaning of contributory ? Any person who is liable to pay some money / assets to the company in the event of winding up. If any share is partly paid, then shareholder is also a contributory for remaining amount. (sec. 428)
What are the the two parts of list of contributories ? Part A = list of present contributories Part B = list of past contributories (upto one year back)
What is the liability of present members? 1. for the amount unpaid by them 2. in case of limited by guarantee- by the guarantee given by the member 3. in case of unlimited company = by his share
What is the liability of past members ? If the court is satisfied that present members cant contribute, then it may ask past members to contribute they are not responsible for debts contracted by company after they ceased to be members
What is a A compromise? it means settlement or adjustment of claims in dispute by mutual concessions.
What is an Arrangement ? It is a reorganization of share capital of company by consolidation of shares of different classes or division of shares into shares of different classes or by both these methods.
Is it necessary for the court to obtain views of registrar while sanctioning a scheme of arrangement / compromise? Yes the court is bound to seek a report of the Registrar of Companies in order to ensure that the affairs of the company have not been conducted in a prejudicial manner.
When can the court intervene in case of compromise / arrangement with creditors / members by a company ? It can intervene on the application of the company or of any creditor or member of the company, or in the case of a company which is being wound up, of the liquidator On receipt of application, it can order a meeting of the creditors or class of creditors, or of the members or class of members
How are preferential payments made in case of wind up as per sec. 530 ? 1. firt pay taxes and govt dues 2. wages salaries etc. (not more than 4 months during last 12 months) 3. acrued holidays 4. ESI liability 5. worker compensation act liability 6.PF/pension / gratuity liability 7. expenses of investigation (sec. 235,237)
What is the role of liquidator? The liquidator (the person who settles wind up process) may pay as per norms – he has to first pay to workmen and then to secured creditors (sec. 529A) law of insolvency apply in such matters.
How to handle unclaimed dividend? Unclaimed dividends have to be deposited with RBI (after 6 months) if it is not claimed for 15 years, it will become govt. Revenue.
Share transfer to be void ? Any share transfer after commencement of winding up is void (except when it is approved by court or liquidator) (SEC. 536)
Are Voluntary transfer of asset void ? Yes, all voluntary transfer of assets during last 1 year before winding up are void. However, transfer of assets in ordinary business, for consideration and in good faith are allowed
What is onerous property? The liquidator may abandon oneraous property of the company (sec. 535). it is the property which will give more loss than profit examples of onerous property : 1. unprofitable contracts 2. land – with covenants 3. any other property – which is not saleable / with covenants
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