Company Law -New

7/31/2019 Company Law -New

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Elements

OfCompany Law


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The Companies Act, 1956 defines the wordcompany as a company formed and registered

under the Act

Prof. Haney.A company is an artificial person

created by law,having separate entity

with perpetual successionAnd a common seal.


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Characteristics of a Company

1. Incorporated association

2. Artificial legal person

3. Separate legal entity.

4. Limited liability

5. Separate Property

6. Transferable Shares

7. Perpetual succession

8. Common seal

9. Capacity to sue and be sued


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Advantages of incorporation

Independent Corporate Existence- Acompany unlike a partnership has anIndependent Corporate Existence.

A company is an artificial personhaving a separate legal identity, distinctfrom the members who constitute it

Salomon v Salomon & Co Ltd .

Lee v Lee Air Farming Ltd.


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A company is a person. It can buy andsell property sue and be sued. Howeverit is an artificial person, it cannot marry,have relatives, etc.

The company, being a separate person,is the owner of its assets and bound by

its liabilities. Its members are not as such liable for

its debts.

The privilege of limiting liability forbusiness debts is one of the principaladvantages of forming a company.


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An incorporated company never dies. Itis an entity with perpetual succession.

Members may come and go but thecompany can go on forever.

A company, being a legal person, iscapable of owning, enjoying and

disposing property in its own name. The company becomes the owner of

its capital and assets.

Macaura v Northern InsuranceCompany Ltd


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A member can sell his shares in theopen market and get back his

investment without having to withdrawmoney from the company.

This provides liquidity to the investor

and stability to the company. A company, being a body corporate,

can sue and be sued in its own name.

Criminal complaint can be filed by acompany, but it should be representedby a natural person.


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Corporate sector is capable ofattracting a growing cadre of

professional managers. Theirindependent functioning is assuredbecause there is no human employer

and the shareholders exercise onlyformative control.

The company is the only medium of

organizing business which is given theprivilege of raising capital by publicsubscriptions either by way of sharesor debentures.


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Disadvantages of incorporation

Formality and Expenditure Administration must be in accordance

with the law

Company is not a citizen LIFTING THE CORPORATE VEIL

The corporate veil is said to be lifted

when the court ignores the companyand concerns itself directly with themembers or managers.


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The corporate veil may be lifted on thefollowing grounds:

1) Determination of character:

Daimler Co Ltd v Continental Tyre andRubber Co

Peoples Pleasure Park Co v Rohleder

2) For the benefit of revenue Dinshaw Maneckjee Petit, Re


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3) Fraud or improper conduct Gilford Motor Co v Horne

Personal liability of Directors andmembers

1) Where the number of members falls

below the statutory minimum.-Sec 45

Lifting the corporate veil


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Classification of Companies

Companies

Chartered Statutory Registered


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Company

LimitedByShares

LimitedbyGuarantee

Unlimitedcompany

Classification of companies


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Company

Private Company Public Company


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Private Companies.

A private company can be formed by merely two

persons by subscribing their names to the

Memorandum of Association.

It means a company which has a minimum paid-up

capital of one lakh rupees or such higher paid up

capital as may be prescribed; and by its Articles:

i. restricts the rights of its members to transfer

shares;

ii. limits the number of its members to fifty, excluding

its employee-members or past employee-members


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Public Companies

A public company means a companywhich

(a) is not a private company;

(b) has a minimum paid-up capital of Rs

5 lakhs or such higher paid-up capitalas may be prescribed;

Listed Public Company [s. 2 (23)]. It

means a public company which hasany of its securities listed on anyrecognized stock exchange.


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Private v. Public company1) Minimum number of persons

to form a company is two

2) Right to transfer shares isrestricted,

3) A private company cannot issuea prospectus.

4) A private company need nothold a statutory meeting .

5) In a private company, there isno restrictions on managerialremuneration.

1) Minimum number of persons to form acompany is seven

2) Shares are freely transferable.

3)Public company may, through aprospectus, invite the general public tosubscribe for its shares or debentures.

4) A public company must hold astatutory meeting and file a statutoryreport with the Registrar.

5) Total managerial remuneration in apublic company cannot exceed 11% ofthe net profits.


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Private v. Public company6) A private company must have aminimum paid up capital of Rs1,00,000.

7) A private company must have atleast two directors.

8) Maximum number of memberscannot exceed 50 in a privatecompany.

9) A private company enjoys somespecial privileges.

6) A public company must have aminimum paid up capital of Rs5,00,000.

7) A public company must have atleast three directors.

8) There is no restriction onmaximum number of members .

9) A public company enjoys no suchprivileges.


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Special Privileges

Available to a Private Company.

1) Number of members

2) Allotment before minimum subscription

3) Prospectus not mandatory.

4) Kinds of shares

5) Commencement of business

6) Statutory meeting

7) Managerial remuneration

8) Number of directors.


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1) Conversion of Private Company into aPublic Company.

a) Conversion by default

b) Conversion by choice or volition

2) Conversion of Public Company into

a Private Company.


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Classification on the basis ofownership

GOVERNMENT COMPANY

NON GOVERNMENT COMPANY


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any individual for appointment as director.

4) A list of the first directors, their written

consent and qualification shares.

5) A declaration stating that allrequirements of the act relating to

registration have been complied withsigned by an advocate of the S.C, H.C,ora company secretary, C.A, or a director

manager etc.


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Certificate of incorporation

When the requisite documents are filedwith the registrar, he will satisfy himselfthat all statutory requirements are duly

complied with.

He then issues the certificate ofincorporation.

The certificate is conclusive evidencethat all requirements of registrationhave been complied with.


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Promoter

A promoter is a person who does allpreliminary work incidental to the

formation of a company.

Functions Quasi- trusteeFiduciary

relationship

Remuneration


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Fiduciary position of promoter

1) Not to make any profit at the expenseof the company

2) To give benefit of negotiations to thecompany.

3) To make a full disclosure of interestor profit

4) Not to make unfair use of position

5) Duty with regard to prospectus


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PRE - INCORPORATION CONTRACTS

Contracts entered into by the promoterto acquire some property or right forthe company which is yet to beincorporated.

1.Company not bound by pre-incorporation contracts

2.Company cannot enforce preincorporation contracts.

3.Promoters are personally liable.

4.Ratification of pre incorporationcontracts.


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Memorandum of Association

A fundamental document, theMemorandum of Association containsthe fundamental conditions upon which

alone the company is allowed to beincorporated. It not only shows theobject of formation of a company but

also the utmost possible scope of it. Itis the charter of a company and definesits raison d etre.


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It lays down the area of operation of a

company. It also regulates the external affairs of

the company in relation to outsiders.

The prospective shareholders shallknow the field in, or the purpose forwhich the money is going to be used by

the company. The outsiders dealing with the

company shall know with certainty as

to what the objects of the company are


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Contents of the Memorandum

The Memorandum of every companyshall contain the following clauses

The name clause

The registered office clause

The liability clause

The object clause The capital clause


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Use of some key wordsaccording to authorized capital

Key words Required authorized capital (Rs.)

(i) Corporation 5 crores

(ii) International, Globe, Universal Continental, 1 CroreInter-continental, Asiatic, Asia, being the firstword of the name

(iii) If any of the words at (ii) above is used within 50 Lakhsthe name (with or without brackets)

(iv) Hindustan, India, Bharat, being the first word 50 lakhsof the name

(v) If any of the words at (iv) above is used within 5 lakhthe name (with or without brackets)

(vi) Industries/Udyog 1 crore

(vii) Enterprises, Products, Business, Manufacturing 10 lakhs


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Alteration of Memorandum

Alteration of name clause

By ordinary resolution

By special resolution Approval of Central government

Fresh certificate of incorporation


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Alteration of registered office clause

Change of registered office within astate

Change of registered office from onestate to another

Special resolution

Notice to registrar

Notice to affected parties

Confirmation by NCLT


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Alteration of objects

The power of alteration of objects issubject to two limits:

Substantive limit

Procedural limit



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Substantive limit: To carry on its business more

economically or more efficiently

To attain its main purpose by new orimproved means

To enlarge or change the local area ofits operation

To carry on some business which mayconveniently or advantageously becombined with its objects


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Procedure of Alteration

Special resolution

Copy of Special resolution to be filed

Certificate of registration Scientific Poultry Breeders Association

Re

Egyptian Delta Land and InvestmentCo,Re


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Doctrine of ultra vires

Ultra means beyond and vires means

powers.

Ultra vires act is void

Ashbury v Richie

Ultra vires the directors

Ultra vires the articles

Articles of Association


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Articles of Association

Meaning and Purpose. The articles of

association of a company and its byelaws are regulations which govern the

management of its internal affairs and

the conduct of its business. Registration of Articles. Section 26

states that a public company limited by

shares may register articles ofassociation signed by the subscribers

to the memorandum.


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Subject Matter of Articles

The business of the company;

The execution or adoption of apreliminary agreement, if any; Transfer and transmission of shares;

Companys lien on shares;

Number, appointment and powers ofdirectors; Dividends interim and final and

general reserves;

Accounts and audit; Keeping of books both statutory andothers.Inspection and Copies of theArticles


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Limitations on Power to alterArticles.

Must not be inconsistent with the act

Must not conflict with the Memorandum

Must not sanction anything illegal Must be for the benefit of the company

Must not increase liability of the

members Alteration by special resolution only


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Memorandum and Articles-Their relation

The articles are subordinate to thememorandum

The memorandum must be read in

conjunction with the articles.

The terms of the memorandum cannot

be modified or controlled by thearticles.

Memorandum Articles


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Memorandum

1. It is the charter of thecompany. It defines the

companies relationshipwith the outside world.

2. It defines the scope of

activities of thecompany, beyond whichit cannot go.

3. It is the supreme

document.

Articles

1. They are regulations forthe internal

management of thecompany.

2. They are rules forcarrying on the objects,as stated in thememorandum.

3. They are subordinate tothe memorandum. In aconflict between the two, the latter prevails.


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L l Eff t f M d


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Legal Effect of Memorandumand Articles

The Memorandum andArticles bind-

1.Members to the company

2.Company to the members

3.Members inter se

4.Company to outsiders


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Doctrine of Indoor Management

There is one limitation to the doctrineof Constructive Notice- the Doctrine ofIndoor Management .

Outsiders dealing with the company areentitled to assume that as far as theinternal proceedings of the companyare concerned, everything has been

regularly done. Royal British Bank v Turquand


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Exceptions to Doctrine of IndoorManagement

1. Knowledge of irregularity. T .E Pratt(Bombay) Ltd v. E. D Sassoon & CoLtd.

2. No knowledge of articles. AnandBihari Lal v. Dinshaw & Co.

3. Void or illegal transaction. Ruben v.

Great Fingall Consolidated

4. Negligence. Kreditbank Cassel v.Schenkers


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Prospectus

A prospectus, as per s.2 (36), meansany document described or issued asprospectus and includes any notice,circular, advertisement or otherdocument inviting deposits from thepublic or inviting offers from the publicfor the subscription or purchase of any

shares in or debentures of a bodycorporate.


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Prospectus

A Prospectus must be in writing.

It must be an invitation to the

public. Dating of prospectus.

Registration of prospectus.

Signing of prospectus.

shelf prospectus


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shelf prospectus

The provisions relating to shelf prospectus

were inserted by the Companies(Amendment) Act, 2000 in s. 60A of theCompanies Act, 1956.

Any public financial institution, public sectorbank or scheduled bank whose main objectis financing shall file a shelf prospectus.

A company filing a shelf prospectus with the

Registrar shall not be required to fileprospectus afresh at every stage of offer ofsecurities by it within a period of validity ofsuch shelf prospects.

Prospectus
http://http//www.indlaw.com/search/Acts?B04E6E16-45D7-4C58-AA12-0497669613E1http://http//www.indlaw.com/search/Acts?B04E6E16-45D7-4C58-AA12-0497669613E1


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Prospectus

Matters to be stated and reports to be

set out in prospectus: General information

Capital structure of the company

Terms of the present issue Company management and project

Management perception of risk factors

Financial information Statutory and other information


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Contents of a Prospectus

Outstanding litigations.SEBI Guidelines Relating to Disclosureon Prospectus.

Abridged Form of Prospectus. Section56(3).Draft Prospectus to be made Public.The Experts Consent to the Issue of

Prospectus.Registration of the Prospectus (s.60).

Liability for misstatements in


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Liability for misstatements inprospectus

Civil liability

Criminal liability

Civil liability:

(a) against the company

(b) against the directors, promoters andexperts

Against the company


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Against the company(a) Rescind the contract(b) Claim damages

Rescind the contract: For this;(a) The statement must be a material

misrepresentation of fact(b) The statement must have induced

the shareholder to take the share(c) The statement must be untrue. Rex

v Lord Kylsant.(d) The deceived shareholder is an

allottee and he must have relied on thestatement in the prospectus. Peek vGurne


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Defenses

Having consented to become director,he withdrew consent before issue ofprospectus.

The prospectus was issued without hisauthority, knowledge, or consent.

Statement of expert.

Reasonable ground of belief.

Remedies against the


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Remedies against theDirectors

Directors liable to pay compensation toaggrieved persons

Promoters liable to pay compensation

to aggrieved persons

Persons who have authorized issue ofprospectus liable to pay compensation

to aggrieved persons

Criminal liability


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Criminal liability

Where a prospectus contains anyuntrue statement every person whoauthorized the issue of the prospectus

is punishable with imprisonment whichmay extend up to 2 years or with finewhich may extend up to 50,000 or both.

Defenses :

The statement was immaterial

He had reasonable grounds to believethe statement was true.

Th G ld l t t l id


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The Golden rule as to prospectus was laiddown in New Brunswick& Canada Rly & LandCo v Muggeridge.

The public is invited to take shares on thefaith of the representation contained in theprospectus.

Everything must therefore be stated withstrict and scrupulous accuracy.

Nothing should be stated as a fact which isnot so and no relevant fact should beomitted.

The true nature of the companies ventureshould be disclosed


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Shares and Share Capital


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Shares and Share Capital

Meaning of a Share.

A Share is the interest of a shareholderin a company. The capital of thecompany is divided into certainindivisible units of fixed amount calledshares.

Section 2(46) defines a share as a

share in the share capital of a companyand includes stock except where adistinction between stock and share is

expressed or implied


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Meaning of a Share

Share may be defined as the proportionto which a shareholder is entitled to theprofits of a company while it is a

growing concern and in the return ofcapital when the company is wound up.

A Share is thus a bundle of rights and

obligations.


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Share vs Share Certificate

A share is evidenced by a sharecertificate.

A share is movable property

transferable in the manner provided inthe articles of the company.

A share certificate is a certificate undercommon seal of the company,specifying any shares held by anymember


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Share vs Share Certificate

Share, represents property Share

Certificate, is evidence of the title of

members to such property.

Each share bears a distinctive numberand it is not the same as sharecertificate number.

A share certificate may be evidence for50, 100 or even one lakh shares

Sh St k


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Share vs Stock

Stock is the aggregate of fully paid upshares of a member merged into onefund of equal value.

It is a set of shares put together in abundle.

Stock is expressed in terms of moneyand not as so many shares.

Stock may be divided into fractions ofany amount, and such fractions bear nodistinctive numbers.

Share Stock

1 A h h i l l A t k h i l l


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1. A share has a nominal value. A stock has no nominal value.

2. A share has a distinctive number which

distinguish it from other shares.

A stock bears no such number.

3. Share can be issued originally to the public. A company cannot make an original issue ofstock. Stock can be issued by existing company by

converting its fully paid-up shares.

4. A share may either be fully paid-up or partly

paid-up.

A stock can never be partly paid-up it is always

fully paid-up.5. A share cannot be transferred in fractions. It is

transferred as a whole.

A stock may be transferred in any fractions.

6. All the shares are of equal denomination. Stock may be of different denominations..

7. Shares can be issued by any company publicor private.

Stock can be issued only by a public companylimited by shares.


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Classes of shares

The share capital of a company limitedby shares shall be of two kinds only:

1) Equity share capital ;

a) with voting rights

b) with differential rights as to dividend,voting or otherwise, and

2) Preference share capital


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Preference share

A Preference share is one which carriesthe following two rights over equityshares:

1) a preferential right in respect ofdividends either at a fixed amount or ata fixed rate

2) a preferential right in regard torepayment of capital on winding up

If a Preference share carries either one or


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If a Preference share carries either one orboth of the following rights its called a

Participating Preference share:

to participate further in the surplus profitseither along with, or after payment of certaindividends on equity shares

to participate in the surplus assets at thetime of winding up

If a Preference share doesn't carry any ofthese rights its called a non Participating

Preference share.

Cumulative and non


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Cumulative and nonCumulative Preference shares If a Preference share carries the right

for payment of arrears in dividend fromfuture profits, then such share is

known as cumulative preference share. If a Preference share does not carry

the right to dividend in arrears, then

such a preference share is known asnon-cumulative preference share.


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Redeemable and irredeemablePreference shares

A Preference shares which can beredeemed upon the resolution of the

Board of Directors, if the articles soprovide, is known as a redeemablepreference shares.


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Equity shares

Equity share means a share which isnot a preference share. The rate ofdividend is not fixed. The holders of

equity shares have voting rights inproportion to the paid up equity capitalof the company

Non-voting Shares


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Non-voting Shares. Sweat Equity Shares. (equity shares

issued by a company at a discount forvalue additions)

Employee Stock optionscheme/Employee Stock Purchase Plan(purchase or subscribe securities at apre determined price).

Issue of Shares at Par, at Premium andat Discount.

Bonus Shares (financed out ofaccumulated profit).

Funds generated through issue of


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Funds generated through issue ofshares is known as Share Capital.

It represents the initial as well as laterissue of capital by a company.

Shares :- is the interest of a

shareholder in the company measuredin terms of money.

Share Certificate :- it indicates the kind

& number of shares as well as theirdistinct serial numbers.

- signed by C.S. & bears the

Common Seal.

Demat Account


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In India, a demat account, theabbreviation for dematerializedaccount, is a type of banking account

which dematerializes paper-basedphysical stock shares.

The dematerialized account is used to

avoid holding physical shares, theshares are bought and sold through astock broker.

Demat refers to a dematerialized account


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Dematrefers to a dematerialized account.

Though the company is under obligation tooffer the securities in both physical anddemat mode, you have the choice to receivethe securities in either mode.

If you wish to have securities in demat mode,

you need to indicate the name of thedepository and also of the depositoryparticipant with whom you have depositoryaccount in your application.

It is, however desirable that you holdsecurities in demat form as physicalsecurities carry the risk of being fake, forgedor stolen.


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Just as you have to open an accountwith a bank if you want to save your

money, make cheque payments etc,Nowadays, you need to open a demataccount if you want to buy or sell

stocks. So it is just like a bank account where

actual money is replaced by shares.

You have to approach the DPs(remember, they are like bankbranches), to open your demat account.


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Let's say your portfolio of shares looks likethis: 150 of Infosys, 50 of Wipro, 200 of HLL

and 100 of ACC. All these will show in yourdemat account. So you don't have topossess any physical certificates showingthat you own these shares. They are all held

electronically in your account. As you buyand sell the shares, they are adjusted in youraccount. Just like a bank passbook orstatement, the DP will provide you withperiodic statements of holdings andtransactions

I d ?


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Is a demat account a must?

Nowadays, practically all trades have to be

settled in dematerialized form. Although themarket regulator, the Securities andExchange Board of India (SEBI), has allowedtrades of up to 500 shares to be settled in

physical form, nobody wants physical sharesany more.

So a demat account is a must for trading and

investing. Most banks are also DP participants, as are

many brokers.


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Services provided by Depository


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Services provided by Depository

Dematerialization (usually known as demat) isconverting physical certificates to electronic form

Rematerialisation, known as remat, is reverse ofdemat, i.e. getting physical certificates from theelectronic securities

Transfer of securities, change of beneficialownership

Depository restrict the risk of fraud


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Depository Participant


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Depository Participant

Depository Participant(DP) is described as

an agent of the depository

Intermediaries between the depository and

the investors

Relationship maintained by Depositories Act

DP is an entity registered as such with SEBIunder SEBI Act

Cl ifi ti f C it l


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Classification of Capital

Authorized Capital

Issued Capital

Subscribed Capital

Called Up Capital

Paid up Capital

A th i d C it l


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Authorized Capital

The capital by which a J.S.C. is registered.

Mentioned in Memorandum of Association.

Company is Authorized to issue that much of

capital in any time in the near future. Determined after taking into consideration

the future prospects of the company.

Also Known as Nominal Capital

Can it be Changed :-

Yes, by passing a Special Resolution inA.G.M.

Issued Capital


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Issued Capital Part of the Authorized Capital which is

Issued by the company to the public &others.

It Includes:-

shares allotted to public.

Shares allotted to Signatories ofMemorandum.

Shares allotted to Vendors of Assets.

Shares allotted as Bonus Shares.

Shares allotted by way of Right Offered.

Unissued Capital

S b ib d C it l


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Subscribed Capital

The amount of shares taken up by thepublic.

Oversubscription

Pro-rata Allotments

Under subscription

Underwriters.

Paid Up & Unpaid Capital


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Paid Up & Unpaid Capital

Amount of Share Capital received by

the Company.

Its not necessary that Company willCall money in a single stage.

Different Stages:-

1. Application.

2. Allotment

3. First Call

4. Second & Final Call.

Alteration of Share Capital. Section 94


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te at o o S a e Cap ta

1. Increase of authorized share capital

by issuing fresh shares2. Consolidation and division of all or

any of its share capital into shares of

larger amount3. Conversion of shares into stock and

vice versa

4. to sub divide all or any of its shares5. To cancel shares

Reduction of Capital. Sections


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p100-105

Reduction of Share Capital without theSanction of the Court

Forfeiture of shares

Surrender of shares

Diminution of capital

Redemption of redeemable preferenceshares

Reduction of Capital


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Reduction of Capital

A company limited by shares if so authorizedby its articles, may, by special resolution

which is to be confirmed by the court reduceits share capital:

By reducing or extinguishing the liability ofmembers for uncalled capital

By paying off or returning capital which is in

excess of the wants of the company Pay off paid up capital on the understanding

that it may be called up again


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General Principles Regarding Allotment.


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p g g

Allotment by proper authority

Within reasonable time

Must be communicated

Absolute and unconditional

Certificate of shares

General Principles Regarding


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p g gAllotment

Statutory Restrictions on Allotment

Registration of prospectus (Sec. 60(1))

Application money (Sec. 69(3))

Monies to be kept deposited in aseparate bank account (Sec. 69(4))

Minimum subscription

Listing of shares

Effect of irregular allotment

(Sec71,72,73)

Membership


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Modes of Acquiring Membership.1. By subscribing to the memorandum of

association

2. By agreement and registration. Section41(2)

3. Upon application and allotment

4. By transfer

Member and Shareholder


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Member and Shareholder

Every shareholder is a member, but a

member may not be a shareholder.

Who may Become a Member?

Minor

Company and subsidiary company

A partnership firm, a trust

A foreigner Joint Membership.

Termination of Membership.

.

Share warrant


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A Share warrant is a negotiableinstrument.

A public company limited by sharesmay issue share warrants if :

There is authority in the articles to

issue them A share warrant can be issued in

respect of fully paid up shares only

Approval of the Central Government isobtained for their issue

Share warrants are to be issued under

the common seal of the company

Transfer of Shares


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Transfer not to be registered except on

production of instrument of transfer Transfer by legal representative

Application for transfer

Power to refuse registration Forged Transfer

Blank Transfer

Lien on shares

Surrender of shares

Forfeiture of shares


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Company Management


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Director A Director is a person having

control over the direction, conduct,management or superintendence of theaffairs of the company.

A Director must be-a.An individual

b.Competent to contract

c.Hold a share qualification, if sorequired by the articles

Director Every public company shall have at least


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Every public company shall have at leastthree and every other company at least

two directors.

Appointment of directors

First directors

Appointment of directors by thecompany -retirement by rotation

Appointment of directors by directors

Appointment by proportionalrepresentation

Appointment by third parties, Central

Position of Directors


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Directors as agents

Directors as employees Directors as officers

Directors as trustees

Directors as Quasi-Trustees

No person shall hold office at the sametime as director of more than 15companies.


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Duties of Directors


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Fiduciary duties

Duties of care, skill and diligence Other duties-

a)To attend board meetings

b)To disclose interest

c)Not to delegate his functions beyondwhat is authorized

Liabilities of directors


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1) Liability to third parties

a)Under the Actb)Independently of the Act

2) Liability to the company

a) Ultra-vires acts

b) Negligence

c) Breach of trust3) Liability for breach of statutory duties

4) Liability for acts of his co-directors

Meetings and Proceedings


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The Act has made provisions for

following different types of meetings

of shareholders:

(i) Statutory Meeting;

(ii) Annual General Meeting;

(iii)Extraordinary General Meeting; and

(iv)Class Meetings.

Statutory Meeting


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y g To be held only by a public company

having a share capital. To be held within a period of not less

than one month and not more than sixmonths from the date on which a

company is entitled to commencebusiness.

At least 21 days notice of the meetingalong with statutory report to be sent to

every member. To be held only once in the lifetime of

the company.

Annual General Meeting


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Every company must hold this meeting

The meeting must be held every calendaryear.

Not more than 15 months between two

meetings. The meeting must be held:

(a) not on a public holiday

(b) within business hours

At least 21 days notice of the meeting


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Quorum for Meeting.


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g

In the case of public company fivemembers personally present

In the case of private company two

members personally present If quorum is not present in half an hour

meeting is adjourned.

Notice of the meeting (s.171) Agenda of the meeting Proxy (s.176)

Voting (Ascertaining the sense of


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the house).

By acclamationindicating approval ordisapproval of motion by clapping ofhands, cheering etc

By voice vote- Yes & No By division- Divide into two blocks

By show of hands- raising hands

By ballot

Motions, Resolutions and


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Amendments.

Motion is a proposition made at ameeting by any member

If some member feels that a Motion

requires any change or modification , hemay move an amendment.

A motion passed with or withoutamendment is called a Resolution.

Minutes of Proceedings of Meeting.


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Accounts, Audit and Dividends

M i t f A t b C i E t


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Maintenance of Accounts by Companies. Every company must

keep at its registered office proper books of accounts

which shall give a true and fair view of the financial affairs

of the company. Section 209 lays down the Books of

Accounts to be maintained by a company.

Directors Responsibility Statement. Section 217 (2AA) Appointment of Auditors.

Appointment of auditor by special resolution only (s.224-A)

Remuneration of Auditors

Qualification of Auditors. Section 226

Inspection and Investigation


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Inspection of Books of Account etc., of Companies.

Section 209Aprovides that the books of account and other books and

papers of every company shall be open to inspection

during business hours (i) by the Registrar, or (ii) by such

officer of government as may be authorized by the

Central Government in this behalf.

The books of account include ledger, cash book, journaland vouchers, deeds, writings and documents.

Borrowings Debentures and Charges


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Power of a Company to Borrow. Every

trading company has an implied power to borrowbut it is wise to include an express power to

borrow in the objects clause of the

memorandum.

Ultra Vires Borrowing- Lenders rights

Injunction and recovery Subrogation

Suit against the directors Borrowing Intra Vires the Company but Ultra

Vires the Directors.


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It is usually in the form of a certificatewhich is an acknowledgement of


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gindebtedness

It usually specifies the date ofredemption.

It provides for the repayment of

principal and interest on specifieddates

It generally creates a charge on the

company A debenture holder does not have the

right to vote in company meetings

Kinds of Debentures


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Kinds of Debentures

Bearer debentures- NI, transferredby delivery

Registered debentures-namesappear in the register of debentureholders

Perpetual or irredeemabledebentures-

Kinds of Debentures


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Kinds of Debentures

Redeemable debentures-issued fora specific time

Naked debentures- without anycharge on the companys assets Convertible debentures-can be

converted to equity or preferenceshares

Prevention of Oppression andMismanagement


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Rule of Majority. The principle of

rule by majority is made applicable to

the management of affairs of the

company.

Foss v Harbottle Rule

Exceptions


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Where the act done is illegal or ultra-vires

the company.

Breach of fiduciary duty. Where the act complained of constitutes a

fraud on the minority.

Where the personal rights of an individualmember have been infringed.

Where there is oppression andmismanagement

Fraud on the minority

Oppression and Mismanagement.


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pp g

Protection under the Companies Act. Powers of Company Law Board for

Prevention of Mismanagement and

Oppression (Ss. 397-399 and 402).

Powers of Central Government to

Prevent Oppression orMismanagement.

Investigation.

Winding Up of Companies


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Winding up of a company is theprocess whereby its life is endedand its property administered for

the benefit of its creditors andmembers. An administrator, calleda liquidator, is appointed and he

takes control of the company.

Winding up by the court


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g p y

Grounds for compulsory winding up[s.433(3)].

Special resolution

Default in holding statutory meeting Failure to commence business

Reduction in membership

Inability to pay debts Just and equitable

Just and equitable


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q

When the main object of the companyhas substantially failed

When there is complete deadlock in the

management of the company When there is mismanagement and

there is no remedy

When there is oppression of minority When the company is a bubble

Voluntary Winding up


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y g p

Types of Voluntary Winding up. Three

types:

(a) Members Voluntary winding up;

(b) Creditors Voluntary winding up.

(c) Voluntary winding up undersupervision of the Court.


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Members Voluntary Winding

up


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up.

Declaration of solvency (s.488) Appointment and remuneration of

liquidators (s.490) Boards power to cease

Notice of appointment of liquidator to begiven to registrar (s.493)Duty of liquidator to call creditors meetingin case of insolvency (s.495)

Duty of the liquidator to call generalmeeting at the end of each year (s.496) Final meeting and dissolution [s.497]


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Compromise andArrangement


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Arrangement

Arrangement is of wider import thancompromise and includes a reorganizationof the share capital of the company by the

consolidation of shares of differentclasses, or by division of shares intodifferent classes or by both thesemethods.When there is a need forreadjustment of the rights or liabilities ofmembers or creditors


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Documents

Company Law -New