Elements of Company Law..Final(1)

7/28/2019 Elements of Company Law..Final(1)

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CHARACTERISTICS OF COMPANY

The main characteristics of the company

Separate legal entity Perpetual succession

Limited liability

Separate property

Transferability of shares

Common seal

Capacity to sue and be sued


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Types of company:

Private Company [section 3(1)(iii)]

A private company 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:

(a) restricts the right to transfer its shares, if any;

(b) limits the number of members to fifty not including: (i) person

ho are in the employment of the company, and (ii) person who,

having been formerly in the employment and have continued to

be members after the employment ceased:

(c) prohibits any invitation to the public to subscribe for any

shares in, or debentures of the company; and


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(d) Prohibits any invitation or acceptance of deposits from person

other than its members, directors or their relatives :

Provided that where two or more persons hold one or more

shares in a company jointly, they shall be counted as a single

member:

there should be at least two persons to form a private

company. A private company can therefore be registered with

a minimum of 2 members and can not have more than 50

members (excluding employee and ex-employee members.

A private company must have at least 2 directors.

The word private limited must be added at the end of its

name by a private limited company.


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Public company [section 3 (1) (iv)]

Public company means a company which

a) Has a minimum paid up capital of five lakh rupees or suchhigher paid capital as may be prescribed and

b) is not a private company

The minimum number of person required to form a public

company is 7. there is no restriction on maximum number ofmembers in a public company,

A public company must have at least 3 directors.


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Government companies :

Section 617 defines a Governmentcompany as any company in

which not less than fifty one percent of the paid up share capital

is held by the

a) Central Government, or

b) by any state Government or Governments,

c) partly by the Central Government or partly by one or morestate Governments.

A Subsidiary of a Government Company is also treated as a

Government company.


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Government companies are public sector companies, so their

audit assumes special relevance. Hence, the companies Act

makes separate provision for their audit.

The auditor of a Government company is appointed or

reappointed by the Comptroller and Auditor General of India


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Foreign Companies:

A foreign company is a company which is incorporated in a

country outside India under the law of that other country and

has established a place of business in India. Section 591 to 602

of the Act deal with such companies.

Foreign companies are two classes namely :

a) Companies incorporated outside India, which has established a

place of business in India after April 1, 1956; and

b) Companies incorporated outside India, which established aplace of business in India before that date and continue to have

an established place of business in India.


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Section 592 of the companies Act lays down that every foreign

company which establishes a place of business in India must, with

in 30 days of the establishment of such place of business, file with

the Registrar of companies at New Delhi and also with theRegistrar of Companies of the State in which such place of business

is situated.


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Holding and Subsidiary companies [Section 4]

Holding and subsidiary companies are relative terms. A

company is a holding of another if the other is its subsidiary.

According to section 4 of the company Act, 1956 a company shall

be deemed to be a subsidiary of another, if and only if :

a) That other controls the composition of its Board of Directors; or

b) That other holds more than half of the nominal value of its

equity share capital.

c) The first mentioned company is a subsidiary of any company

which is that others subsidiary.


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To illustrate, company A is subsidiary of a company B if, but only

if:

1. Company B (holding company) controls the composition of the

board of directors of company A (subsidiary); or

2. Company B (holding company) controls more than 50% voting

power of company A (subsidiary);

3. If company A (the subsidiary) is a subsidiary of the company C

which is subsidiary of company B, then company A is asubsidiary of Company B.

If company D is the subsidiary of company A, then D will be the

subsidiary of company C and also of company B


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Formation of company


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Incorporation of company

Before a company is formed, certain preliminary

decisions are necessary, e.g. whether it should be aprivate company or public company, what its capital

should be, and whether it is worthwhile forming a new

company or taking over the business of an already

established concern. All these decision are taken bycertain persons known as promoters. They do all the

necessary preliminary work incidental to the formation

of a company.


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Commencement of business

A private company or a company having no share capitalmay commence business and exercise its various

powers immediately after it is incorporated. Once it hasreceived its Certificate of Incorporation, nothing furtheris required.

A public company, on the other hand, must obtain acertificate to commence business from the Registrarbefore it can commence its business or exercise itsborrowing power. In order to obtain this certificate, thecompany must comply with section 149 of the

companies Act. If the company has issued a prospectusthan section 149(1) applies and if it has not issued aprospectus, Section 149 (2) applies


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A public company having share capital, must obtain acertificate to commence business from the Registrar ofcompanies before it can commence its business or

exercise its borrowing power. In order to obtain thiscertificate, the company must comply with section 149of the companies Act.1956

commence any business does not mean merely thebusiness for which the company was started but itincludes the power of borrow and any transactionincluding sale, and purchase of property, etc.[kishangarh Electric supply Co. Ltd.v. United State of

Rajasthan, Air 1960 Raj. 49 ]. But commencement ofbusiness does not include taking of preliminary steps,entering into provisional contracts and allotment ofshares.


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The certificate is conclusive evidence that a company isentitled to commence business.

once a certificate of commence business has been issued

to a company a writ cannot be issued to cancel the

certificate of a company under the companies act,

1956[Muluk Mohammed v. capital stock Exchange

Kerala Ltd (1991) 72 Com Cases 333 (ker)].


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Mode of forming incorporated company (section 12)

Any 7 or more persons (2 or more in case of private

company) associated for any lawful purpose may form

an incorporated company, with or without limited

liability. They shall subscribe their names to a

Memorandum of Association and also comply with

other formalities in respect of registration. A companyso formed may be-

1). A company limited by shares, or

2). A company limited by guarantee, or

3). An unlimited company.

Companies limited by shares are the most popular.


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Documents o be filed with the Registrar:

before a company is registered, it is essential to

ascertain from the registrar of companies if the

proposed name of the company is approved. Then the

following documents duly stamped together with the

necessary fees are to be filed with the Registrar.

The memorandum of association duly signed by thesubscribers.

The Articles of Association, signed by the subscribers

to the memorandum of association.

The Agreement, if any,

List of Directors who have agreed to become first

directors of the company and their written consent to

act as directors.


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A declaration stating that all the requirements of the

companies Act and other formalities relating to

registration have been complied with. Such declaration

shall be signed by any of the following persons : viz

a) An advocate of the Supreme Court or of a High Court.

b) an attorney or a pleader entitled to appear before High

Court.c) a secretary or a chartered accountant in whole time

practice in India, who is engaged in the formation of the

company.

d) a person named in the Articles as a director, manager

or secretary of the company.


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Certificate of incorporation

When the requisite document are filed with the

Registrar, the registrar shall satisfy himself that the

statutory requirements regarding registration have

been duly complied with. In exercising this duty, the

registrar is not required to carry out any investigation. If

the Registrar is satisfied as to the compliance ofstatutory requirements, he retains and registers the

Memorandum, the Articles and other documents filed

with him and issues a certificate of incorporation. i.e.

of the formation of the company.


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Memorandum of association


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The memorandum of association is a document, whichcontains:

The fundamental rules regarding the constitution and

activity of the company.

It is the basic document, which lays down how thecompany is going to be constituted and what work itshall undertake.

The purpose of memorandum is to enable the membersof the company, its creditors and the public to knowthat its powers are and what is the range of its activity.

The memorandum contains rules regarding the capitalstructure, the liability of the members, the object of thecompany and all other important matters relating to thecompany.


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In other words the memorandum defines and confines

the power of the company. alterations to the

memorandum of association are possible only after

certain formalities are completed.


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Contents of Memorandum of Association:

Memorandum of Association is divided into following

clauses:

Name clause

Registered office clause

Objects clause

Capital clause

Liability clause

Subscription clause.


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Articles of Association


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Contents of articles of association

Articles of association usually have the following

contents: Share capital, types of share, rights of shareholder, and

meeting of shareholder.

Calls on share

Procedure for forfeiture of shares

Provisions regarding transfer and transmission of shares

Issuing of shares at premium or discount

Quorum at a meeting

Directors, their appointment etc.

Removal of director


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MEETINGS


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COMPANY MEETINGS:

The corporate system of business organization is

essentially democratic in structure. Officials actingunder the orders of the Board of Directors, which is the

executive head of the company, carry on the business of

the company. But the directors are elected to the Board

by the shareholder of the company and must abide bythe wishes of the shareholders as expressed in

resolutions passed in meeting convened for the

purpose. The shareholders are subjects to the provision

of Memorandum of Association and Articles ofAssociation, the final authority as regards the affairs of

the company.


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Types of meeting:

the following are the types of company meeting.

1. Shareholders Meetings Statutory meeting

Annual General Meeting

Extraordinary General Meeting2. Creditors Meetings

3. Debenture holders Meetings

4. Board Meetings

Provision of company law regarding these meeting are

discussed in the following paragraphs.


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Share holders meeting:

a) Statutory meeting:

Every public company limited by shares and everycompany limited by guarantee and having a share

capital, must within a period of not less than one

month and not more than six months from the date at

which the company is entitled to commence business,hold a general meeting of members to discuss a

report by directors, Known as statutory report, which

contains particulars relating to the formation of a

company.


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Statutory Report

This is the report drafted by director and certified as

correct by at least two of them [including managing

director where there is one] A copy of the report must

be sent to every member at least 21 days before the

date of the meeting. A copy is also to be sent to the

registrar for registration. Statutory report must containcertain particulars.


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Annual General Meeting:

A meeting known as an annual general meeting is

Required to be held by every company, public orprivate, limited by shares or by guarantee, with or

without share capital or unlimited company every year.

The first annual general meeting of a company may be

held within a period of not more than 18 months fromthe date of its incorporation.

Subject to this provision, a company must hold any

annual general meeting each year. Not more than 15 months shall elapse between the

date of one annual general meeting and the next


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The Registrar may for any special reason, extend the

time of holding an annual general meeting [other than

the first annual general meeting] by a period not

exceeding 3 months.

Every annual general meeting shall be called during

business hours, on a day which is not a public holiday, at

the registered office of the company or at some otherplace within the town or village where the registered

office is situated.

A general meeting may be called by giving not less than

21 days notice in writing.


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Extraordinary General Meeting:

Any meeting of shareholder other than statutory

meeting is an extraordinary general meeting.

Who may call extraordinary general meeting

1. By Board of Directors

2. By shareholders subject to fulfillment of certain

provisions

3. By Company Law Board


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Notice of meeting:

A proper notice of the meeting should be given to the

members and all others who are entitled to attend themeeting

Length of notice

A general meeting of a company may be called by giving

not less than 21 days notice in writing to the members.

Contents of notice

Every notice of a company calling a meeting shall specify

the place and the day and hour of the meeting. It shallalso contain a statement of the business to be

transacted at the meeting.


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Ordinary business and Special business: (Section 173)

The notice shall contain a statement of the business to

be transacted at the meeting. The business may beordinary business or special business.

Ordinary business : in the case of an annual general

meeting, the following business is deemed as ordinary

business, business relating to-(1) The consideration of the accounts, balance sheet and

the reports of the Board of Directors and auditors,

(2) The declaration of dividend,(3) The appointment of directors in place of those retiring

(4) The appointment of auditor and the fixing of their

remuneration.


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Special business: in the case of an annual general

meeting, any business other than the ordinary

business and in the case of any other meeting, all

business, is deemed special. For E.g.

(1) Removal of director

(2) Issue of right/bonus share,

(3) Election of a person (other than retiring director) asDirector.

Explanatory statement. Where any special business isto be transacted at a meeting of a company, the notice

shall specify its nature.


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Quorum of Meeting (Sec 174 )

Quorum means the minimum number of members

who must be present in order to constitute a validmeeting and transact thereat. The Quorum is

generally fixed by the articles if the articles of the

company do not provide for a large quorum the

following rules apply:Five member personally present incase of public

company and two incase of any other company shall

be quorum for a meetingof the company

Ch i f th ti ( S 175)


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Chairman of the meeting ( Sec 175)

A chairman is necessary is to conduct a meeting. He

is the presiding officer of the meeting. Unless the

Articles of a company otherwise provide, themembers personally present at the meeting shall

elect one of themselves to be the chairman of the

meeting on a shoe of hands. if the poll is demanded

on the election of the chairman, it shall be taken

forthwith.


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Minutes of the meeting:

Minutes are a record of what the company and director

do in meetings.

Minutes of proceeding of meetings:

Every company shall keep a record of all proceedings of

every general meeting and of all proceedings of every

meeting of its Board of Directors and of everycommittee of the Board.

Minutes Books:

the book in which the record of the proceedings of ameeting is kept is known as the minute book.


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Numbering of pages:

The pages of every minute book shall be consecutivelynumbered.

Signing of minutes:

Each page of the minute book which recordsproceedings of a board meeting shall be initialed or

signed by the chairman of the same meeting or the nextsucceeding meeting

Fair and Correct Summary

The minutes of each meeting shall contain a fair and

correct summary of the proceedings at the meeting, sothat the absentee shareholders may be in a position toform some reliable idea of what transpired at thesemeetings.


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Evidentiary value of Minutes

Minutes of meetings kept in accordance with the

provisions of Sec 193 shall be evidence of the

proceedings recorded therein and shall be conclusive

of the facts stated therein


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Proxies (Section 176)

A member entitled to attend and vote at a meeting

may vote either in person or by Proxy. A proxy is an a

authority to represent and vote for another person

at a meeting. It is also an instrument appointing a

person as proxy. The person so appointed is also

called a proxy.


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Voting and Poll

The motions proposed in a general meeting of a

company are decided on the votes of the members ofthe company. The members holding any equity share

capital therein have the right to vote on every motion

placed before the company.

The voting may be:

1.by a show of hands, or

2.by taking a poll


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Resolutions:

The Question which generally come for

consideration at the general meeting of the company

are presented in the form of proposals called

motions. A motion may be proposed by the

chairman of the meeting or by any other member of

the company. Kinds of Resolutions:

1. Ordinary Resolution [Section 189(1)]

2.Special Resolution [Section 189(2)]


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Prospectus


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Definition

Sec.2 (36) defines a prospectus as any document

described or issued as a prospectus and includes any

notice, circular, advertisement or other document

inviting deposit from the public or inviting offers from

the public for the subscription or purchase of any share

in or debentures of, a body corporate. in simpleWords, any document inviting deposits from the public

or inviting offers from the public for the subscription of

share or debenture of a company is a prospectus.


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Registration of prospectus

A prospectus can be issued by or on behalf of the

company only when a copy thereof has been deliveredto the Registrar for registration. The registration must

be made on or before the date of publication thereof.

The copy must be signed by every person who is named

therein as director or proposed director of thecompany, or by his agent authorized in writing.


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Shelf Prospectus:

shelf prospectus means a prospectus issued by any

financial institution or bank for one or more issues ofthe securities or class of securities specified in that

prospectus.

Information memorandum

Information memorandum means a process under

taking prior to the filing of a prospectus by which a

demand for the securities proposed to be issued by acompany is elicited, and the price and the terms of

issue for such securities is assessed, by means of a

notice, circular, advertisement or document.

Red herring prospectus:


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Red herring prospectus:

Is a prospectus which does not have details of either

price or number of share being offered or the amount of

issue. This means that in case price is not disclosed, the

number of share and the upper and lower price bands

are disclosed. On the other hand an issuer can state the

issue size and the number of shares are determined

later. An RHP and Draft Offer Document can be filed

with the ROC Without the Price Band and the issuer, in

such a case will notify the floor price or a price band by

way of an advertisement one day prior to an opening ofan issue.

Abridged Prospectus:


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Abridged Prospectus:

The Companies Act 1956 defines abridgeprospectus to

mean a memorandum containing such salient features

of a prospectus as may be prescribed. It contains all the

salient features of a prospectus. It accompanies the

application form the public.

Offer documentOffer document means prospectus in case of public issue

or offer for sale and letter of offer in case of right issue,

which (offer document) is filed with the registrar of

companies (ROC) and Stock Exchange. An offerdocument covers all the relevant information to help an

investor to make his/her investment decisions.

Th G ld R l f i f


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The Golden Rule as to framing of prospectus:

The Golden Rule as to framing of prospectus was laid

down by V.C. Kindersley in New Brunswick & Canada

Rly. & Land co. v.Muggeridge,(1860) 1 and Sm. 363 in

the following words:

those who issue prospectus holding out to the public

the great advantages which will accrue to persons whowill take a share in a proposed undertaking, and

inviting them to take share on the faith of the

representations therein contained, are bound to state

every thing strict and scrupulous accuracy and not onlyto abstain from stating as fact that which is not so but

to omit no one fact within their knowledge,

existence of which might in any degree affect the nature


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existence of which might in any degree affect the nature

or extent and quality of the privileges and advantages

which the prospectus holds as inducement to take

share.


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DOCTRINE OF ULTRA VIRES

A company has the power to do all such things as are-

1. authorized to be done by the companies Act, 1956;

2. essential to the attainment of its objects specifiedin the memorandum;

3. reasonably and fairly incidental to its objects[ Foster

vs. London Chatham & Dover Co., (1895) 1 Q.B 711].


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Every thing else is ultra vires the company. Ultra

means beyond and vires means powers The term

Ultra vires for a company means that the doing of

the act is beyond the legal power and authority of

the company. The purpose of these restrictions is to

protect-

1. Investors of the company so that they may know theobjects in which their money is to be employed; and

2. Creditors by ensuring by the companys funds are

not wasted in unauthorized activities.

Ultra vires act is void If an act is ultra vires the


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Ultra vires act is void. If an act is ultra vires the

company, it does not create any legal relationship.

Such act is absolutely void and even the whole body

of share holders cannot ratify it and make it bindingon the company. It is not necessary that an act to be

considered ultra vires must be illegal; it may or may

not be [Anand Prakash vs. Asst. Registrar, A.I.R.

(1968) All. 22]. The leading case on the point is:

Ashbury Rly. Carriage & Iron Co. Ltd. v. Richie,

(1875) L.R. 7 H.L.653. A company was incorporated

with the following objects:

a) to make Sell or lend on hire railway carriage and


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a) to make, Sell, or lend on hire, railway carriage andwagons ;

b) to carry on the business of mechanical engineers

and general contractors;c) to purchase, lease ,work and sell mines, minerals,

land and buildings,

The company entered into contract with Riche forthe financing of construction of a railway line inBelgium. The question raised was whether thatcontract was covered with in the meaning ofgeneralcontractors the House of Lords held that

the contract was ultra vires the company and voidso that not even the subsequent assent of thewhole body of share holders could ratify it.

The main feature and facet of the doctrine of Ultra


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The main feature and facet of the doctrine of Ultra

vires is of that a company being a corporate person

should not be mulcted (fined or punished) for its

own acts or acts of its agents, if they are beyond itspowers and privileges [Bhidani vs. Bank of Baroda,

(1957) 27 Comp. Cas.233]. Where the company

exceeds its authority, the act is good to the extent of

the authority and bad as to the excess but if the

excess cannot be separated from the authority

conferred on the company; by the memorandum,

the whole transaction would be affected by the

Doctrine of Ultra vires and would be void. But there

is nothing to prevent a company from protecting its

property the leading case on the point is:

National Telephone Co vs St Peter Port


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National Telephone Co. vs. St. Peter Port

Constable,(1900) A.C.317. A telephone company put

up telephone wires in a certain area. The company

had no power in the memorandum to put up wires

there. The defendant cut them down. Held; The

company sue for damage to the wires.

Whether a particular act on the part of the company

is with in its powers is a question of facts and

decided on the construction of the terms of the

Memorandum

Ultra vires the Directors If an act or transaction is ultra


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Ultra vires the Directors. If an act or transaction is ultra

vires the directors (i.e. beyond their powers, but with in

the powers of the company), the share holders can

ratify it by a resolution in a general meeting or even byacquiescence provided they have knowledge of the

facts relating to the transactions to be ratified, If an act

is within the powers of the company, any irregularities

may be cured by the consent of the share holders[Express Engg. Works Ltd. Re (1920) 1 Ch.466].

Ultra vires the articles. If an act or transaction is ultra

vires the articles, the company can ratify it by altering

the articles by a special resolution. Again if the act is

done irregularly, it can be validated by the consent of

the share holders provided it is with in the powers of

the company.

ILLEGAL ASSOCIATION (SECTION 11)


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ILLEGAL ASSOCIATION (SECTION-11)

A company, association, or partnership consistingmore than 10 persons for the purpose of carrying on

the banking business and of more than 20 personsfor the purpose of carrying on any other businesswith the object of earning profits can be legallyformed only when it is registered under the

companies Act 1956, or is formed in pursuance ofsome other Indian law or is a Joint Hindu familycarrying on business on such. If the number ofmembers of an association or partnership exceeds

this statutory limit and is not registered under thecompanies Act, it is an illegal association and has nolegal existence.

An association of more than 20 persons which exists


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An association of more than 20 persons which exists

not for acquisition for gain but for some other

purpose such as the promotion of art, charity,

religion, science, etc, does not require registration.

CONSEQUENCES OF AN ILLEGAL ASSOCITION

1. PERSONAL LIABILITY.

Every member of an illegal association is personally

liable for all liabilities incurred in the business and is

punishable with fine which may extend to Rs.10,000.

2. CONTRACTS.


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(a) An illegal association cannot enter in to any contract nor

can it sue any member or outsider, not even if the

company is subsequently registered.(b) It cannot sue or be sued for debts due to it or from it in

carrying on its business for it cannot contract debts, or

enter into any contracts.

(c) No member of the association can sue any other member

in respect of any matter connected with the association

(d) the members cannot either Individually or collectively

bring an action to enforce any contract which they mayhave purported to make on behalf of the association, or to

recover any debt given to the association.

3. WINDING UP.


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An illegal association cannot be wound up under

companies either at a instance of creditor, or a

member or the association itself. The tribunal will donothing in relation to it that will amount to its

recognition In fact the tribunal does not even

entertain a petition for its winding up, for if it did, it

would be indirectly according to recognition to the

illegal association.


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Powers of Directors


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Powers of Directors

General powers of the Board: the Board of Director of a company is

entitled to exercise all such powers and to do all such acts and

things as the company is authorised to exercise and do. Thismeans the powers of the Board of directors are Co-extensive with

those of the company. This proposition is, however, subject to

two conditions:

First, the Board shall not do any act which is to be done by thecompany in general meeting.

Second, the Board shall exercise its powers subject to the

provisions contained in the companies Act, or in the

Memorandum or the Articles of the company or in any regulation

made by the company in general meeting. But no regulation

made by the company in a general meeting shall invalidate any

prior act of the Board which would have been valid if that

regulation had not been made.

Powers to be exercised at Board meeting:


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Powers to be exercised at Board meeting:

The Board of directors of the company shall exercise the following

powers on behalf of the company by means of resolutions

passed at the meetings of the Board, viz., the power to-

a) Make calls on shareholder in respect of money unpaid on their

shares:

b) Issue debentures:

c) Borrow money otherwise than on debentures (say, through

public deposits)

d) Invest the fund of the company

e) Make loans

The Board may, by a resolution passed at a meeting, delegate

the last three powers to a committee of directors or the

manager or any other principal officer of the company, but the

board shall specify the limits of such delegation.


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To borrow moneys where the moneys to be borrowed (together


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y y ( g

with the moneys already borrowed by the company) are more.

Than the paid up capital of the company and its free reserves

(that is to say reserve, not set a part for any specific purpose, e.g.

balance in the share premium account, general reserve, profit

and loss account, capital redemption account). The amount of

temporary loans raised from banks in the ordinary course of

business is excluded.

To contribute to charitable and other funds not directly relating

to the business of the company or the welfare of its employees.

Every resolution passed by the company in general meeting to


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borrowed moneys shall specify the total amount up to which

moneys may be borrowed by the Board of directors.


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d) On failure by the company to pay a bill of exchange, hundi


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promissory note cheque or order for money or goods wherein

the name of the company is not mentioned in legible characters

Independent of the Act


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p f

Director, as agents of a company, are not personally liable on

contract entered into as a agent on behalf of the company.

But there are number of exception to this rule. If a director fail toexclude personal liability, for instance, by signing a negotiable

instrument without mentioning the companys name and the fact

that he is signing on a companys behalf, he is personally liable to

the holder of such instrument. He is also personally liable if heacts in his own name.


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Breach of trust:


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Breach of trust:

Directors of a company being in a fiduciary position, hold the

position of trustee as regards its money and property which

comes into their hand and of the powersentrusted to them bythe Articles. They must discharge their duties as such trustees in

the best interest of the company. They are liable to the

company for any loss resulting from breach of trust.

Misfeasance:Director are liable to the company for misfeasance which means

wilful misconduct of directors for which they may be sued in

Law Court. In case of misfeasance proceeding the directors may

apply for relief under section 633.

Liability for breach of statutory duties:


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y f f y

There are numerous statutory duties of directors which they

must carry out. Most of this duties relate to maintenance of

proper account, filing of returns or observance of certainstatutory formalities. If they fail to perform to these duties, they

render themselves liable to penalties.

Liability for acts of his co-directors.

A director is not liable for the acts of his co-directors provided hehas no knowledge and he is not a party. His co-directors are not

his servants or agents who can by their acts impose liability on

him


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or to singe any share certificate or to direct registration


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of transfer of any share, shall not be deemed to be

included within substantial powers of management


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Share capitalmeans the capital raised by a company


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by the issue of share. The word capital in connection

with the company is used in several senses.

1. Authorised or nominal capital.

2. Issued and subscribed capital.

3. Called up capital.

4. Paid up capital.

5. Uncalled capital.

6. Reserve capital.


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B) Equity shares.


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equity share, with a reference to any company limited by

share, are those which are not a preference share.

i) with voting rights, or

ii) with differential rights as to dividend, voting or

otherwise in accordance with such rules and subject to

such conditions as may be prescribed.C)Sweat equity share.

The expression sweat equity share means equity share

issued at a discount or for consideration other than cash

for providing know-how or making available rights in

the nature of intellectual property right or value

additions.


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Winding up of Companies

the main purpose of winding up of a company is to


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realize the assets and pay the debts of the company

expeditiously and fairly in accordance with the law.

However, the purpose must not be exploited for thebenefit or advantage of any class or person entitled to

submit petition for winding up of the company it may

be noted that on winding up, the company does not

cease to exist as such except when it is dissolved. The

administrative machinery of the company gets changed

as the administration is transferred in the hands of the

liquidator. Even after commencement of the winding-up, the property and assets of the company belong to

the company until dissolution takes place. On

dissolution the company ceases to exist as a separate


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Winding up and Dissolution


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The terms winding up and dissolution are sometimes

erroneously used to mean the same thing. But

according to the company act 1956 the legal implication

of these two terms are quite different and there are

fundamental difference between them as regards the

legal procedure involved. The main points of distinction

are given below.

Winding up is the first stage in the process whereby

assets are realised, liability are paid off and the surplus,

if any, distributed among its members. Dissolution is thefinal stage whereby the existence of the company is

withdrawn by the law.

The liquidator appointed by the company or the court

h d d b h d f


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carries out the winding up proceeding but the order for

dissolution can be passed by the court only.

Liquidator can represent the company in the process ofwinding up. This can be done till the order of dissolution

is passed by the court. Once the court passes

dissolution orders the liquidator can no longer

represent the company.

Creditors can prove their debts in the winding up but

not on the dissolution of the company.

Modes of Winding Up


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1. By the Court i.e. compulsory winding up.

2. Voluntary winding up, which may be either.

i) members voluntary winding up.

ii) creditors voluntary winding up.

3. Winding up subject to the supervision of the court.

Winding Up by The Court.


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Winding up by the court or by the compulsory windingup is initiated by an application by way of petition to the

appropriate Court for a winding up order. A winding uppetition has to be resorted to only when other means ofhealing an ailing company are of absolutely no avail.

Voluntary Winding Up.

The companies are usually wound up voluntarily as it isan easier process of winding up. It is altogether differentfrom a compulsory winding. In voluntary winding up the

company and its creditors are left to settle their affairswithout going to a court, although they may apply to thecourt for directions or orders, as and when necessary


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