Company Law -1956 Company Law -1956 (with modification in (with modification in 2013)2013)

Features of a companyFeatures of a company

A company is considered as a A company is considered as a separate legal separate legal entityentity from its members, which can conduct from its members, which can conduct business with all powers to contract.business with all powers to contract.

Independent corporate entityIndependent corporate entity ( (Saloman V. Saloman V. Saloman)Saloman) It is independent of its members It is independent of its members and shareholdersand shareholders

Limited LiabilityLimited Liability (either by share or guarantee (either by share or guarantee) ) ItIt can own property in its own name, can own property in its own name, separate separate

from its members. The property is vested with from its members. The property is vested with the company, as it is a body corporate.the company, as it is a body corporate.

The The income of the members are different from income of the members are different from the income of the companythe income of the company (Income received (Income received by the members as dividends cannot be by the members as dividends cannot be same as that of the company)same as that of the company)

Perpetual successionPerpetual succession: Death of the members : Death of the members is not the death of the company until it is is not the death of the company until it is wound upwound up

As it is a legal entity or a As it is a legal entity or a juristic person or juristic person or artificial person it can artificial person it can sue and be suedsue and be sued

The company enjoys The company enjoys rights and liabilitiesrights and liabilities which are not as that of the members of the which are not as that of the members of the companycompany

Lifting of Corporate VeilLifting of Corporate Veil

As the company is As the company is a separate legal entitya separate legal entity, it has , it has been provided with a veil, compared to that of been provided with a veil, compared to that of individuals who are managing the company.individuals who are managing the company.

But if the court feels that such veil has been But if the court feels that such veil has been used for any used for any wrongful purposewrongful purpose, the court lifts , the court lifts the corporate veil and makes the the corporate veil and makes the individual individual liable for such acts which they should not have liable for such acts which they should not have done or doing in the name of the companydone or doing in the name of the company

(case: (case: Bacha F. Guzdar Vs The Commissioner of Income Tax, BombayBacha F. Guzdar Vs The Commissioner of Income Tax, Bombay))

Circumstances to lift the corporate veilCircumstances to lift the corporate veil

The corporate veil can be lifted eitherThe corporate veil can be lifted eitherunder the under the Statutory provisionsStatutory provisions or or Judicial interpretationsJudicial interpretationsThe statutory provisions are provided under the The statutory provisions are provided under the

Companies Act, 1956Companies Act, 1956The other circumstances are decided through The other circumstances are decided through Judicial interpretations, which are based on factsJudicial interpretations, which are based on factsof each case as per the decisions of the courtof each case as per the decisions of the court

Statutory circumstances for lifting the Statutory circumstances for lifting the corporate veilcorporate veil

Reduction in membership- Reduction in membership- Less than seven in Less than seven in public company and less than two if it is a private public company and less than two if it is a private company company

Failure to refund application money- Failure to refund application money- After the issue After the issue of shares to the pubic, the company has to pay of shares to the pubic, the company has to pay back the initial payment to the unsuccessful back the initial payment to the unsuccessful applicants (SEBI Guidelines- 130 Days), if they fail applicants (SEBI Guidelines- 130 Days), if they fail to do so, the corporate veil can be lifted.to do so, the corporate veil can be lifted.

Mis-description of companies name- Mis-description of companies name- While signing While signing a contract if the company’s name is not properly a contract if the company’s name is not properly described, then the corporate veil can be lifted.described, then the corporate veil can be lifted.

Misrepresentation in the prospectus- Misrepresentation in the prospectus- In case of In case of misrepresentation, the promoters, directors and every misrepresentation, the promoters, directors and every other person responsible in this matter can be held liable. other person responsible in this matter can be held liable.

Fraudulent Conduct- Fraudulent Conduct- In case the company is carried on In case the company is carried on with an intent to defraud the creditors, then the court may with an intent to defraud the creditors, then the court may lift the corporate veil.lift the corporate veil.

Holding and subsidiary companies-Holding and subsidiary companies- A subsidiary has a A subsidiary has a distinct legal entity from the holding company other than distinct legal entity from the holding company other than in a few circumstances, so if otherwise shown, the court in a few circumstances, so if otherwise shown, the court may under the Act , lift the corporate veil of the subsidiary may under the Act , lift the corporate veil of the subsidiary company.company.

Circumstances to lift the corporateCircumstances to lift the corporateveil through judicial interpretations veil through judicial interpretations

When the court When the court feels that there are no statutory provisions which feels that there are no statutory provisions which can pierce the corporate veil, and the identity of the company is not can pierce the corporate veil, and the identity of the company is not the one which has to existthe one which has to exist, , and the court has to interfere in order to and the court has to interfere in order to avoid the activities that are done in the name of the company by the avoid the activities that are done in the name of the company by the persons managing them as they are empowered to do so : persons managing them as they are empowered to do so :

PProtection of Revenue-rotection of Revenue- When ever a company uses its name When ever a company uses its name for the purpose of tax evasion or to circumvent tax obligations.for the purpose of tax evasion or to circumvent tax obligations.

Prevention of fraud or Improper conduct- Prevention of fraud or Improper conduct- The incorporation The incorporation has been used for fraudulent purpose, like defrauding the creditors, has been used for fraudulent purpose, like defrauding the creditors, defeating the purpose of law etc.defeating the purpose of law etc.

Determination of the character of the company- Determination of the character of the company- Enemy Enemy company or all the members being the citizens of the enemy country. company or all the members being the citizens of the enemy country.

((Case: Daimler Co. Ltd Vs Continental Tyres Rubber Co.)Case: Daimler Co. Ltd Vs Continental Tyres Rubber Co.)

Other circumstances:Other circumstances: Where a company is used to avoid welfare Where a company is used to avoid welfare

legislation-legislation- If a company is formed in order to If a company is formed in order to avoid the benefits to the workers like bonus, or avoid the benefits to the workers like bonus, or other statutory benefits such as Gratuity etc.other statutory benefits such as Gratuity etc.

For determining the technical competence of the For determining the technical competence of the company- company- To look into the competency of the To look into the competency of the company or the shareholders or promoters company or the shareholders or promoters

Types of Companies:Types of Companies:

Limited Company ( Limited by share or by Limited Company ( Limited by share or by guarantee)guarantee)

Unlimited companyUnlimited company Government CompanyGovernment Company Foreign CompanyForeign Company Private CompanyPrivate Company Public CompanyPublic Company

Private Company:Private Company:

A company which has a A company which has a minimum of two personsminimum of two persons. . They have to subscribe to the MOA and AOAThey have to subscribe to the MOA and AOA

It should be have a It should be have a minimum paid up capital of 1 minimum paid up capital of 1 lakh or morelakh or more as prescribed by the article. as prescribed by the article.

The maximum number of members to be fiftyThe maximum number of members to be fifty ( it ( it does not include members who are employed in does not include members who are employed in the company, persons who were formerly the company, persons who were formerly employed)employed)

The The rights to transfer the shares are restrictedrights to transfer the shares are restricted in in the Private companies the Private companies

Prohibits any invitation to the public to subscribeProhibits any invitation to the public to subscribe and therefore it cannot issue a prospectus and therefore it cannot issue a prospectus inviting the public to subscribe for any shares in, inviting the public to subscribe for any shares in, or debentures of the companyor debentures of the company

It It prohibits acceptance of depositsprohibits acceptance of deposits from persons from persons other than its members, directors or their other than its members, directors or their relatives.relatives.

If If two or more are holding one or more sharestwo or more are holding one or more shares in in a company a company jointly,jointly, they shall for the purpose of they shall for the purpose of this definition, be treated as this definition, be treated as a single member.a single member.

As there is As there is no public accountabilityno public accountability like a public like a public company, there is company, there is no rigorous surveillance.no rigorous surveillance.

Exemption and Privileges of a Private Exemption and Privileges of a Private company:company: It can have a It can have a minimum of two members.minimum of two members. It can It can commence business immediatelycommence business immediately after after

obtaining certificate of incorporation.obtaining certificate of incorporation. It need It need not issue prospectusnot issue prospectus or statement in lieu or statement in lieu

of prospectus.of prospectus. It can have a It can have a minimum of 2 directors.minimum of 2 directors. It It need not hold statutory meetingneed not hold statutory meeting or file statutory or file statutory

report with the ROC.report with the ROC.

Public Company:Public Company:

A Public company means a company-A Public company means a company- > Which is > Which is not a private companynot a private company > Which has a > Which has a minimum paid-up capital of Rs 5 minimum paid-up capital of Rs 5

lakh or such higher paid-uplakh or such higher paid-up capital, as may be capital, as may be prescribedprescribed

>It includes- any company which is a public >It includes- any company which is a public company with a paid up capital of less than 5 company with a paid up capital of less than 5 lakh, then it has to lakh, then it has to enhance its paid up capital as enhance its paid up capital as per the statutory requirementper the statutory requirement

Registration and Incorporation:Registration and Incorporation: Association of persons or partnership or more Association of persons or partnership or more

than than 20 members ( 10 in case of banking) can 20 members ( 10 in case of banking) can register to form a company under the Companies register to form a company under the Companies Act, 1956Act, 1956

If they do not register they can be considered to If they do not register they can be considered to be illegal association. The contract entered into by be illegal association. The contract entered into by this illegal association is this illegal association is void and cannot be void and cannot be validated. validated. Its illegality will Its illegality will not affect its tax liability not affect its tax liability or its chargeabilityor its chargeability

The certification of incorporation is the conclusive The certification of incorporation is the conclusive evidence, that all the requirements for the regis-evidence, that all the requirements for the regis-tration have been complied with . tration have been complied with .

Incorporation of a Company:Incorporation of a Company:

The persons who The persons who conceive an ideaconceive an idea of a company decide of a company decide and do the necessary work for formation of a company and do the necessary work for formation of a company are called the are called the promoterspromoters of the Company. of the Company.

The Promoters are the persons who decide on the The Promoters are the persons who decide on the formation of the company.formation of the company.

The promoters of a company stand undoubtedly in a The promoters of a company stand undoubtedly in a fiduciary positionfiduciary position though they are not the agent or a though they are not the agent or a trustee of a company. They are the ones “who create trustee of a company. They are the ones “who create and mould the company”. and mould the company”.

They may have to enter into They may have to enter into pre-incorporation contractspre-incorporation contracts , , which can be validated after the incorporation of the which can be validated after the incorporation of the company for obtaining certificate of incorporation.company for obtaining certificate of incorporation.

The requirements are as follows:The requirements are as follows: Application for availability of nameApplication for availability of name Preparation of Preparation of MOA and AOAMOA and AOA Selection and finalization of MOA and AOA- Its Selection and finalization of MOA and AOA- Its

printing, stamping and signingprinting, stamping and signing Copy of the agreementCopy of the agreement Filling of the required documents for the Filling of the required documents for the

purpose of registrationpurpose of registration to declare that all the to declare that all the requirement of the Act are complied with in requirement of the Act are complied with in order to obtain certificate of incorporation and order to obtain certificate of incorporation and Certificate of commencement of business.Certificate of commencement of business.

(u/s 34 & 35)(u/s 34 & 35)

Memorandum of Association:Memorandum of Association: It is the It is the chartercharter of the company of the company It contains the It contains the fundamental conditions upon fundamental conditions upon

which the company can be incorporatedwhich the company can be incorporated It contains the It contains the objects objects of the company’s of the company’s

formationformation The company has to The company has to act within objects specifiedact within objects specified

in the MOAin the MOA It It defines as well as confinesdefines as well as confines the powers of the the powers of the

companycompany Any thing done beyond the objects specified in Any thing done beyond the objects specified in

the MOA will be the MOA will be ultra vires. Their transactions ultra vires. Their transactions will be null and voidwill be null and void

The outsider have The outsider have to transactto transact looking into the looking into the MOAMOA

Conditions of the MOA:Conditions of the MOA: It should be It should be printedprinted Divided into Divided into paragraph and numbers paragraph and numbers

consecutivelyconsecutively SignedSigned by at least seven persons or two in case by at least seven persons or two in case

of public and private company respectively.of public and private company respectively. The signature should be in the The signature should be in the presence of a presence of a

witness, who will have to attestwitness, who will have to attest the signature the signature Members have to take Members have to take shares and write the shares and write the

number of sharesnumber of shares taken with full address taken with full address

The MOA of the Limited Company:The MOA of the Limited Company:

The name of the company with ‘The name of the company with ‘limited’limited’ as the as the last wordlast word

The name of the The name of the state where the registered state where the registered officeoffice of the company is to be situated of the company is to be situated

The objects of the company stating the The objects of the company stating the ‘Main ‘Main objects’ and the ‘other objects’objects’ and the ‘other objects’

The declaration about the liability of the The declaration about the liability of the members is members is limitedlimited ( limited by shares or ( limited by shares or guarantee)guarantee)

The amount of the authorized share capital, The amount of the authorized share capital, divided into shares of fixed amounts.divided into shares of fixed amounts.

The Compulsory Clauses in MOA:The Compulsory Clauses in MOA:

The Name Clause The Name Clause – it decides on the name of the – it decides on the name of the company based on the capital involvedcompany based on the capital involved

The Registered Office Clause- The Registered Office Clause- where it has registered its where it has registered its and other branch office (The registered office can be and other branch office (The registered office can be changed with the permission of the ROC)changed with the permission of the ROC)

The Object Clause- The Object Clause- Main object, ancillary object and the Main object, ancillary object and the other objectsother objects of the company are clearly specified . of the company are clearly specified .

Case: ( Ashbury Railway Carriage Co V. Riche). Case: ( Ashbury Railway Carriage Co V. Riche). The applicable doctrine here is the The applicable doctrine here is the “ Doctrine of Ultra Vires” “ Doctrine of Ultra Vires”

beyond the powers of the company .beyond the powers of the company .

The Liability Clause-The Liability Clause- What is the liability of its members What is the liability of its members limited by shares or guarantee or unlimited, there can limited by shares or guarantee or unlimited, there can be alteration in the liability clausebe alteration in the liability clause

The Capital ClauseThe Capital Clause - The amount of the nominal capital - The amount of the nominal capital of the company, number of shares in which it is to be of the company, number of shares in which it is to be divided.divided.

The Association or Subscription clause- The Association or Subscription clause- Where the Where the subscribers to the MOA declare that they respectively subscribers to the MOA declare that they respectively agree to take the number of the shares in the capital. It agree to take the number of the shares in the capital. It has to have the following:has to have the following:

a) They have to sign in the presence of two witnesses, a) They have to sign in the presence of two witnesses, who attest the signatures, who attest the signatures,

b) The subscriber to take at least one share. b) The subscriber to take at least one share. c) After the name the subscriber has to write the c) After the name the subscriber has to write the

number of shares takennumber of shares taken

DOCTRINE OF ULTRA VIRESDOCTRINE OF ULTRA VIRES

BEYONDBEYOND POWERSPOWERS

THE COMPANY SHOULD DEVOTE ITSELF THE COMPANY SHOULD DEVOTE ITSELF ONLY TO THE OBJECTS SET OUT IN THE ONLY TO THE OBJECTS SET OUT IN THE MOUMOU. IT IS THE FUNCTION OF THE . IT IS THE FUNCTION OF THE COURTS COURTS TO SEE THAT THE COMPANY TO SEE THAT THE COMPANY DOES NOT MOVE IN A DIRECTION AWAY DOES NOT MOVE IN A DIRECTION AWAY FROM THAT FIELD.FROM THAT FIELD.

““Doctrine of Ultra Vires”Doctrine of Ultra Vires” The powers exercisable by the company are to be The powers exercisable by the company are to be

confined to the objects confined to the objects specified in the MOA.specified in the MOA. So it is better to define and include the provisions So it is better to define and include the provisions

regarding the regarding the acquiring of business, sharing of profits, acquiring of business, sharing of profits, promoting company and other financial, gifts , political promoting company and other financial, gifts , political party funds etcparty funds etc

If the company acts beyond the powers or the objects If the company acts beyond the powers or the objects of the company that is specified in the MOA, the acts of the company that is specified in the MOA, the acts are considered to be of are considered to be of ultra viresultra vires. Even if it is ratified . Even if it is ratified by the all the members, the action is considered to be by the all the members, the action is considered to be ineffective.ineffective.

Even the charitable contributions have to be based on Even the charitable contributions have to be based on the object clause. the object clause.

(Case: A. Lakshmanaswami Mudaliar Vs L.I.C.) (Case: A. Lakshmanaswami Mudaliar Vs L.I.C.)

The consequences of the The consequences of the ultra viresultra vires transactions are as follows:transactions are as follows:

a)a) Injunction Injunction b)b) Directors’ personal liability.Directors’ personal liability.c)c) If a property has been purchased and it is an If a property has been purchased and it is an

ultra viresultra vires act act, the company can have a right , the company can have a right over that property.over that property.

d)d) The doctrine to be used exclusively for the The doctrine to be used exclusively for the companies’ interest.companies’ interest.

e)e) The others cannot use this doctrine as a tool to The others cannot use this doctrine as a tool to attack the companyattack the company

f)f) (Case: Ewing Vs Butterup Margarine Company Ltd.)(Case: Ewing Vs Butterup Margarine Company Ltd.)

Articles of Association (AOA):Articles of Association (AOA):

It is the companies It is the companies bye- laws or rules to bye- laws or rules to govern govern the management of the company for its the management of the company for its internal internal affairs and the conduct of its businessaffairs and the conduct of its business..

AOAAOA defines the powers of its officers and also defines the powers of its officers and also establishes a contract between the company establishes a contract between the company and the members and between the members and the members and between the members

It can be originally framed and altered by the It can be originally framed and altered by the company under previous or existing provisions company under previous or existing provisions of law. of law.

ALTERATION OF ARTICLES (ALTERATION OF ARTICLES (SECTION 31SECTION 31))

SECTION 31 (1) SECTION 31 (1) – AN ALTERATION OF AN ALTERATION– AN ALTERATION OF AN ALTERATION

TO CONVERT PUBLIC COMPANY TO PRIVATE COMPANY UNLESS TO CONVERT PUBLIC COMPANY TO PRIVATE COMPANY UNLESS

APPROVED BY THE CENTRAL GOVERNMENTAPPROVED BY THE CENTRAL GOVERNMENT

ALTERATOINALTERATOIN MUST BE FOR THE BENEFIT OF THE COMPANY MUST BE FOR THE BENEFIT OF THE COMPANY

ALTERATIONALTERATION MUST NOT INCREASE LIABILIYT OF MEMBERS MUST NOT INCREASE LIABILIYT OF MEMBERS

ALTERATIONALTERATION SHOULD NOT RESULT IN A BREACH OF CONTRACT SHOULD NOT RESULT IN A BREACH OF CONTRACT

AOA :AOA : AOA plays a AOA plays a subsidiary partsubsidiary part to the MOA to the MOA Any thing Any thing done beyond the AOA will be considered to be done beyond the AOA will be considered to be

irregular and may be ratified by the shareholdersirregular and may be ratified by the shareholders.. The content of the AOA may differ from company to The content of the AOA may differ from company to

company as the Act has not specified any specific company as the Act has not specified any specific provisionsprovisions

Flexibility is allowed to the persons who form the Flexibility is allowed to the persons who form the company to adopt the AOA within the requirements of the company to adopt the AOA within the requirements of the company lawcompany law

The AOA will have to be conversant with the MOA, as The AOA will have to be conversant with the MOA, as they are contemporaneous documents to be read they are contemporaneous documents to be read together.together.

Any ambiguity and uncertainty in one of them may be Any ambiguity and uncertainty in one of them may be removed by reference to the other.removed by reference to the other.

BINDING FORCE OF MEMORANDUM AND BINDING FORCE OF MEMORANDUM AND

ARTICLES ARTICLES (SECTION 36)(SECTION 36)

MEMBERS OF THE COMPANYMEMBERS OF THE COMPANY

COMPANY OF THE MEMBERSCOMPANY OF THE MEMBERS

MEMBERS INTER SECTIONMEMBERS INTER SECTION

COMPANY TO THE OUTSIDERSCOMPANY TO THE OUTSIDERS

Doctrine of Constructive notice : Doctrine of Constructive notice : ANY OUTSIDER DEALING WITH A ANY OUTSIDER DEALING WITH A

COMPANY IS DEEMED OR PRESUMED TO HAVE NOTICE OF COMPANY IS DEEMED OR PRESUMED TO HAVE NOTICE OF

THE CONTENTS OF MEMORANDUM OF ASSOCIATION AND THE CONTENTS OF MEMORANDUM OF ASSOCIATION AND

ARTICLES OF ASSOCIATION ARTICLES OF ASSOCIATION (FOR THE BENEFIT OF THE (FOR THE BENEFIT OF THE

COMPANY)COMPANY)

Whereas Doctrine of Indoor Management: Whereas Doctrine of Indoor Management: IT OPERATES IT OPERATES TO PROTECT OUTSIDERS AGAINST THE COMPANYTO PROTECT OUTSIDERS AGAINST THE COMPANY

Doctrine of Constructive notice and Doctrine of Constructive notice and Indoor Management:Indoor Management:

Doctrine of Constructive notice and Indoor Doctrine of Constructive notice and Indoor Management:Management:

Persons dealing with the company have to satisfy Persons dealing with the company have to satisfy themselves. But need not know the internal irregularity. themselves. But need not know the internal irregularity. Royal British Bank V. Turquand (Turquand Rule) Royal British Bank V. Turquand (Turquand Rule) Directors issuing a bond. Directors issuing a bond.

The doctrine of Constructive notice can be invoked by The doctrine of Constructive notice can be invoked by the company to operate against the persons dealing with the company to operate against the persons dealing with the company.the company.

The outsider cannot embark, but only can acquaint upon The outsider cannot embark, but only can acquaint upon the MOA and AOA. the MOA and AOA.

Exceptions to the Doctrine of Where the Exceptions to the Doctrine of Where the outsider cannot claim the relief on the outsider cannot claim the relief on the grounds of “Indoor management”grounds of “Indoor management”

Knowledge of irregularityKnowledge of irregularity No knowledge of articlesNo knowledge of articles NegligenceNegligence ForgeryForgery Non- Existent authority of the companyNon- Existent authority of the company

Prospectus: Prospectus:

It is an It is an invitation invitation issued to the public issued to the public to purchase or to purchase or subscribe shares or debenturessubscribe shares or debentures of the company. of the company.

Every Every prospectus must be datedprospectus must be dated. The date of publication . The date of publication and the date of issue must be specifically stated in the and the date of issue must be specifically stated in the prospectus.prospectus.

The The golden rulegolden rule of the prospectus is that every detail has of the prospectus is that every detail has to be given in strict and scrupulous accuracy. The to be given in strict and scrupulous accuracy. The material facts given in the prospectus are presumed to material facts given in the prospectus are presumed to be true.be true.

Contents of the prospectus: Contents of the prospectus: General informationGeneral information Capital structureCapital structure Terms of present issueTerms of present issue Management and projectsManagement and projects Management and perception of risk factorManagement and perception of risk factor

It is compulsory to register the prospectus It is compulsory to register the prospectus with the Registrarwith the Registrar

Civil Liability for Mis-statements in case of Civil Liability for Mis-statements in case of any untrue statement in the prospectusany untrue statement in the prospectus

The liability will be on the director of the The liability will be on the director of the company , whose name was written during the company , whose name was written during the time of issuetime of issue

The persons who have authorized their names The persons who have authorized their names to be theirs in the prospectus to be named as to be theirs in the prospectus to be named as directorsdirectors

PromoterPromoter Every person including the person who is an Every person including the person who is an

expert and has authorized his name to be expert and has authorized his name to be issued with the prospectus issued with the prospectus

Claim damages- Claim damages- it can be claimed from the it can be claimed from the directors, promoters or other persons who has directors, promoters or other persons who has authorized their name to be written during the authorized their name to be written during the issue of the prospectusissue of the prospectus

Share Capital:Share Capital: Share: Share: Share is defined as “an interest having a money Share is defined as “an interest having a money

value and made up of diverse rights specified under value and made up of diverse rights specified under the articles of association”. the articles of association”.

Share capital: Share capital: Share capital means the capital raised Share capital means the capital raised by the company by issue of sharesby the company by issue of shares. .

A share is a share in the share capital of the company A share is a share in the share capital of the company including the stock.including the stock.

Share gives a right to participate in the profits of the Share gives a right to participate in the profits of the company, or a share in the assets when the company company, or a share in the assets when the company is going to be wound up.is going to be wound up.

Other features of a shareOther features of a share A share is not a negotiable instrument, but it is a A share is not a negotiable instrument, but it is a

movable property. movable property. It is also considered to be It is also considered to be goodsgoods under the Sale of under the Sale of

Goods Act, 1930.Goods Act, 1930. The company has to issue the share certificate.The company has to issue the share certificate. It is subject to stamp duty.It is subject to stamp duty. The The ‘Call‘Call’ on Shares is a demand made for payment of ’ on Shares is a demand made for payment of

price of the shares allotted to the members by the Board price of the shares allotted to the members by the Board of Directors in accordance with the Articles of of Directors in accordance with the Articles of Association.Association.

The call may be for full amount or part of it.The call may be for full amount or part of it.

Share Certificate and Share WarrantShare Certificate and Share Warrant

Share CertificateShare Certificate:: The Share Certificate is a The Share Certificate is a document issued by document issued by the companythe company and is prima facie evidence to show that the person and is prima facie evidence to show that the person named therein is the holder ( title) of the specified number of named therein is the holder ( title) of the specified number of shares stated therein.shares stated therein.

Share certificate is issued by the company to the ( share holder) Share certificate is issued by the company to the ( share holder) allottee of shares.allottee of shares.

The company has to issue within 3 months from the date of The company has to issue within 3 months from the date of allotment. In case of default the allottee may approach the central allotment. In case of default the allottee may approach the central governmentgovernment

Share WarrantShare Warrant: : The share warrant is a The share warrant is a bearer documentbearer document issued issued by the company under its common seal. As share warrant is a by the company under its common seal. As share warrant is a negotiable instrument, it is transferred by endorsement and by negotiable instrument, it is transferred by endorsement and by mere delivery like any other negotiable instrumentmere delivery like any other negotiable instrument. .

Kinds of sharesKinds of shares

>Preference shares->Preference shares- It can be further classified It can be further classified as as

Participating preferential shares.Participating preferential shares. Cumulative preferential sharesCumulative preferential shares Non Cumulative preferential sharesNon Cumulative preferential shares>Redeemable Shares>Redeemable Shares and and>Irredeemable Shares>Irredeemable Shares>Equity or ordinary shares>Equity or ordinary shares>Shares at premium>Shares at premium>Shares at discount>Shares at discount>Bonus shares>Bonus shares>Right shares>Right shares

Transfer and Transmission of sharesTransfer and Transmission of shares

AOA provides for the procedure of transfer of shares. It AOA provides for the procedure of transfer of shares. It is a voluntary action of the shareholder.is a voluntary action of the shareholder.

It can be made even by a blank transfer –In such cases It can be made even by a blank transfer –In such cases the transferor only signs the transfer form without the transferor only signs the transfer form without making any other entries. making any other entries.

In case it is a forged transfer, the transferor’s signature In case it is a forged transfer, the transferor’s signature is forged on the share transfer instrument. is forged on the share transfer instrument.

Transmission of sharesTransmission of shares is by operation of law, e.g. by is by operation of law, e.g. by death, insolvency of the shareholder etc.death, insolvency of the shareholder etc.

Directors:Directors:

The Legal Status of the DirectorThe Director occupies the position of a:

As a Trustee- In relation to the company As Agents- When they act on behalf of the company As Managing Partner-As they are entrusted with the

responsibility of the company

Disqualifications:Disqualifications:

As per the company lawAs per the company law, the following, the followingpersons are persons are disqualified disqualified from been appointedfrom been appointedas a director:as a director: Unsound mindUnsound mind A person who is convicted by the courtA person who is convicted by the court Who has applied for being adjudged insolventWho has applied for being adjudged insolvent Not paid for the call on sharesNot paid for the call on shares Persons who are already directors in maximum number Persons who are already directors in maximum number

of companies as per the provisions of the Actof companies as per the provisions of the Act Any other person who has been disqualified by the Any other person who has been disqualified by the

court for any other reasoncourt for any other reason

Appointment of Directors:Appointment of Directors:

The appointment can sometimes be by based on the proportional representation like minority shareholders.

There can be alternate directors, additional directors, casual directors.

The third parties can appoint the directors Other than the shareholders and the Directors, the

central government and National Company Law Tribunal (NCLT) may also appoint directors.

Duties and Liabilities of the Directors:Duties and Liabilities of the Directors:Fiduciary Duties To act honestly and with good faith Not to use confidential information of the company for

their own purpose Duty of Care and to act reasonably while acting for the

companyStatutory Duties Not to contract with company,where he/she or his

relative has an interest in the contract where he/she has a interest, they need to inform the

board or seek prior approval while entering into contract, otherwise the contract is voidable

Duty to attend and convene meetings Duty not to delegate

The directors liabilities:The directors liabilities: The liability of the directors can be either civil or The liability of the directors can be either civil or

criminal. criminal. If provided in the MOA, the liability may be unlimited, for If provided in the MOA, the liability may be unlimited, for

a limited company, otherwise it may be altered. a limited company, otherwise it may be altered. Liability may be for breach of fiduciary dutiesLiability may be for breach of fiduciary duties The directors are personally liable for the following:The directors are personally liable for the following: a) Ultra vires actsa) Ultra vires acts b) malafide actsb) malafide acts c) negligent actsc) negligent acts d) liability for the acts of third parties d) liability for the acts of third parties

Criminal Liability:Criminal Liability: Liability of the director for any untrue statement Liability of the director for any untrue statement

in the prospectusin the prospectus Inviting any deposits in contravention of the lawInviting any deposits in contravention of the law Liability for false advertisementLiability for false advertisement Failure to repay the application money Failure to repay the application money Concealing the names of the creditorsConcealing the names of the creditors Failure to lay the balance sheet.Failure to lay the balance sheet. Failure to provide information to the auditor etcFailure to provide information to the auditor etc

Company MeetingsCompany Meetings Shareholders meetingsShareholders meetings a) a) Statutory meetingsStatutory meetings ( which happens only once in ( which happens only once in

the lifetime of the company)the lifetime of the company) b)b) EGM EGM- Convened to transact some special or - Convened to transact some special or

important decision to be takenimportant decision to be taken c) c) Class meetings-Class meetings- This is the meeting of the This is the meeting of the

shareholders- which is convened by the class of shareholders- which is convened by the class of shareholders based on the kind of shares they shareholders based on the kind of shares they hold. hold. d) d) NCLTNCLT can also call an Annual General Meeting can also call an Annual General Meeting (AGM)(AGM)

Other meetingsOther meetings

AGMAGM-it can be conducted based on the -it can be conducted based on the provisions given in the Articles or by passing a provisions given in the Articles or by passing a resolution in one AGM for the subsequent resolution in one AGM for the subsequent AGM’sAGM’s

Board Meetings-Board Meetings- This is conducted for the This is conducted for the smooth running of the company and for smooth running of the company and for collectively taking the decisions. The meetings collectively taking the decisions. The meetings may be conducted to may be conducted to call on shares, issue call on shares, issue debentures, borrow money, to make loans, To debentures, borrow money, to make loans, To invest the fundsinvest the funds etc etc

How to conduct meeting?How to conduct meeting? Written notice to be givenWritten notice to be given Notice to be issued under the authority of Notice to be issued under the authority of

the company. Notice to be given by the the company. Notice to be given by the secretary after the time and place have secretary after the time and place have been fixed by the directorsbeen fixed by the directors

In case of failure to give a notice, the In case of failure to give a notice, the persons concerned may be punished with persons concerned may be punished with fine and the proceedings of the meeting fine and the proceedings of the meeting will be rendered invalid.will be rendered invalid.

Scheme to be approved:Scheme to be approved: Any kind of scheme to be accepted, it has to Any kind of scheme to be accepted, it has to

get approval from the members or the get approval from the members or the members may reject the scheme.members may reject the scheme.

After the scheme is approved by voting, the After the scheme is approved by voting, the court has to sanction the scheme or reject, if it court has to sanction the scheme or reject, if it is against the public interest or if it feels that is against the public interest or if it feels that the scheme is not beneficial.the scheme is not beneficial.

The legal provisions as per the mode of The legal provisions as per the mode of scheme adopted by the company.scheme adopted by the company.

Modes of Reconstruction or Modes of Reconstruction or Amalgamation:Amalgamation:

By sale of undertaking- By sale of undertaking- it can be the whole or part of sale it can be the whole or part of sale ( ( the court will decidethe court will decide))

By sale of shares- By sale of shares- In such schemes the shares are sold In such schemes the shares are sold and registered in the name of the purchasing company or and registered in the name of the purchasing company or on its behalf. The shareholders selling the shares are on its behalf. The shareholders selling the shares are compensated either by cash or with the shares of the compensated either by cash or with the shares of the acquiring company.(acquiring company.(Maximum number of companies Maximum number of companies adopt this scheme) adopt this scheme)

AmalgamationAmalgamation can take place even for the sake of Public can take place even for the sake of Public interest by the central government. In such cases, it will interest by the central government. In such cases, it will be notified in the official gazette.be notified in the official gazette.

Mergers, Acquisitions and Take over of Mergers, Acquisitions and Take over of companies:companies: Merger connotes union of two or more Merger connotes union of two or more

commercial interests, corporations, undertakings, commercial interests, corporations, undertakings, bodies or any other entities.bodies or any other entities.

Fusion of two or more corporations by the Fusion of two or more corporations by the transfer of all property to a single corporation. It transfer of all property to a single corporation. It is used as a synonym for amalgamation. Even is used as a synonym for amalgamation. Even the Act makes no distinction between merger the Act makes no distinction between merger and amalgamation.and amalgamation.

The changing of legal entity after The changing of legal entity after mergers and acquisitions:mergers and acquisitions:

In a merger- In a merger- one of the company loses its one of the company loses its corporate existence and the survivor company corporate existence and the survivor company acquires the assets as well as the liabilities of acquires the assets as well as the liabilities of the merger company.the merger company.

In acquisitionIn acquisition, it is acquiring the ownership in , it is acquiring the ownership in the property is the purchase of a controlling the property is the purchase of a controlling interest in the share capital of another existing interest in the share capital of another existing company. It is an act of acquiring asset and company. It is an act of acquiring asset and management of the company.management of the company.

Oppression: Oppression: it is the exercise of authority which is it is the exercise of authority which is burdensome, harsh and in a wrongful manner. Thus burdensome, harsh and in a wrongful manner. Thus oppression means the unjust or unfair conduct on the part oppression means the unjust or unfair conduct on the part of the company which is likely to result in some kind of of the company which is likely to result in some kind of harsh or burden upon some portion of its members. harsh or burden upon some portion of its members. Section 397(1) Section 397(1) is meant to prevent such oppression in is meant to prevent such oppression in which any member of a company who complains that the which any member of a company who complains that the affairs of the company are being conducted in a manner affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to prejudicial to public interest or in a manner oppressive to any member or members may apply to the CLB for an any member or members may apply to the CLB for an order thus to protect his/her statutory rightsorder thus to protect his/her statutory rights

Prevention & Oppression Prevention & Oppression ManagementManagement

Certain Instances of Oppression:Certain Instances of Oppression:

Deprivation of members of their ordinary membership Deprivation of members of their ordinary membership rightsrights

Removing a member from DirectorshipRemoving a member from Directorship Refusal to register the transfer of transmission of Refusal to register the transfer of transmission of

shares in an unreasonable mannershares in an unreasonable manner Persistently disregarding the decision of the board in Persistently disregarding the decision of the board in

order to gain control over company’s affairsorder to gain control over company’s affairs Forcing new and more risky objects upon an unwilling Forcing new and more risky objects upon an unwilling

minorityminority Omission to do something which is otherwise just to Omission to do something which is otherwise just to

do for protecting company’s interestdo for protecting company’s interest

MISMANAGEMENT:MISMANAGEMENT:

When the affairs of the company is not conducted in the When the affairs of the company is not conducted in the interest of the company or of the public, it is said to be interest of the company or of the public, it is said to be mismanagement..mismanagement..

Prevention of Mismanagement: U/s 398, Prevention of Mismanagement: U/s 398, the members the members have a statutory rights to apply to the CLB for prevention have a statutory rights to apply to the CLB for prevention of mismanagementof mismanagement

Instances of Mismanagement:Instances of Mismanagement: Infighting among directors resulting in serious losses to Infighting among directors resulting in serious losses to

the companythe company Continuation in office by the managing directors after the Continuation in office by the managing directors after the

expiry of their termexpiry of their term

Winding upWinding up It is the process whereby the life of the company is It is the process whereby the life of the company is

ended and its property is administered for the benefit ended and its property is administered for the benefit of its creditors and members.of its creditors and members.

During this process a liquidator is appointed to take During this process a liquidator is appointed to take control of the company. The liquidator will be control of the company. The liquidator will be responsible for the assets, debts and final distribution responsible for the assets, debts and final distribution of the surplus to the members.of the surplus to the members.

It is the process for discharge of liabilities and It is the process for discharge of liabilities and returning the surplus to those who are entitled for it.returning the surplus to those who are entitled for it.

But even a company which is making profit can be But even a company which is making profit can be wound up is the special feature of winding up , which wound up is the special feature of winding up , which is different from that of the process of insolvency.is different from that of the process of insolvency.

How can the company be wound up?How can the company be wound up? By passing a special resolutionBy passing a special resolution If there is a default in holding the statutory If there is a default in holding the statutory

meetingmeeting Failure to commence the business Failure to commence the business If there is reduction in the membership of the If there is reduction in the membership of the

minimum number of members as per the minimum number of members as per the statutory requirementstatutory requirement

If it not able to pay its debtsIf it not able to pay its debts

Modes of winding up:Modes of winding up:

Compulsory winding up under the Compulsory winding up under the supervision of the supervision of the courtcourt

Compulsory windingCompulsory winding up may happen for up may happen for just and just and equitableequitable reasons also. reasons also.

The just and equitable grounds can be like loss of The just and equitable grounds can be like loss of substratum, where there is dead lock in the substratum, where there is dead lock in the management, etcmanagement, etc

Voluntary winding upVoluntary winding up ( Members voluntary winding up ( Members voluntary winding up and creditors voluntary winding up)and creditors voluntary winding up)

Voluntary winding up subject to the supervision of the Voluntary winding up subject to the supervision of the court.court.

Winding up procedure:Winding up procedure:

A petition for winding up has to be filed by the A petition for winding up has to be filed by the concerned person to the prescribed authorityconcerned person to the prescribed authority

Liquidator to be appointed to safeguard the Liquidator to be appointed to safeguard the property of the companyproperty of the company

Then the court will hear the matter and pass Then the court will hear the matter and pass necessary orders. It can dismiss the petition or necessary orders. It can dismiss the petition or pass an order of winding up pass an order of winding up

Dissolution of the company:Dissolution of the company: When the company ceases to exist as a When the company ceases to exist as a

corporate entity for all practical purposes it is corporate entity for all practical purposes it is said to have been dissolved. said to have been dissolved.

Dissolution has to be declared by the court.Dissolution has to be declared by the court. It will not be extinct and will be kept under It will not be extinct and will be kept under

suspension for 2 Years.suspension for 2 Years. The order has to be forwarded by the liquidator The order has to be forwarded by the liquidator

to the Registrar of the Companies within 30 days to the Registrar of the Companies within 30 days from the date of the order of dissolution.from the date of the order of dissolution.